Daily BriefsTMT/Internet

TMT: Kakao Games, Lufax Holdings, Link Administration Holdings, Yaskawa Electric, Douyu International Holdings, Palantir Technologies Inc and more

In today’s briefing:

  • Kakao Games – KOSDAQ150 December Inclusion and Lock Up Expiry
  • Lufax IPO Initiation: Lost in Transition
  • Link Admin/PEP: All Together Now. Again
  • Yaskawa – Bad Reaction to Good Results
  • Lufax Pre-IPO – The Positives – Able to Grow Despite the Headwinds
  • Huya and DouYu’s Merger Is Game On
  • Palantir – Settling in for the Long Term

Kakao Games – KOSDAQ150 December Inclusion and Lock Up Expiry

By Brian Freitas

Kakao Games (1404796D KS) is down almost 9% today due to the expiry of the 1 month lock up on IPO shares. Of the institutional allotment, there were 4.36m shares that were locked in for 1 month and are eligible for sale today. Volume traded so far today has already crossed 4.7m shares.

With the review period for changes to the KOSDAQ150 index in the December review ending on 30 October, this is a crucial phase that will determine if Kakao Games (1404796D KS) makes the cut for inclusion in the index.

Based on current prices, the stock easily makes the case for index inclusion and only a very steep fall over the next 2 weeks would take the stock out of the list of probable inclusions.

In this Insight, we look at the Kakao Games IPO, the criteria for inclusion in the KOSDAQ150 Index, and the impact on the stock if it is included in the index.

Lufax IPO Initiation: Lost in Transition

By Arun George

Lufax Holdings (LU US) is a leading personal financial services platform in China with a focus on retail borrowing and wealth management. In retail credit, Lufax is the second-largest non-traditional financial service providers in China as measured by outstanding balances of retail credit facilitated, according to Oliver Wyman. Lufax has filed for an NYSE IPO to raise an estimated $3 billion, according to press reports. 

The Chinese consumer finance sector has gone through a corona-induced extreme stress test in 1H20. The sector has proved to be more often than not value destructive for public market investors and continues to remain hostage to regulatory change. While Lufax has several attractive attributes, it is a business in transition which magnifies the risk profile.  

Link Admin/PEP: All Together Now. Again

By David Blennerhassett

Back in August 2005, Private Equity Partners acquired share registry outfit ASX Perpetual Registrars (APR) for ~A$132mn. PEP followed with the acquisition of Telstra’s fund administrator Australian Administration Services, which was rebranded Link Administration, which subsequently acquired APR.

After further, substantial investments and tech upgrades, PEP IPO’ed Link Administration Holdings (LNK AU) in October 2015 at $6.37/share, the top end of the range. PEP cleared out its holding in September 2016 at A$8.38/share. 

Link has morphed since PEP’s exit, significantly growing its domestic and global operations, via the acquisition of UK-based Capital Asset Services in 2017 (for A$1.493bn); the Property Exchange Australia (known as PEXA), Australia’s first digital property settlement platform, acquired by a Link-led consortium (alongside CBA and Morgan Stanley) in 2018 for $1.6bn, which increased Link’s shareholding to 44.2% from 19.8%; and the acquisition of Pepper Group’s European loan servicing, advisory, and asset management business for A$266mn in January this year.

The New News

Link has announced its has received a conditional, non-binding indicative proposal from a consortium comprising PEP and the Carlyle Group, by way of a Scheme. The indicative cash price is A$5.20/share, a 30% premium to last close.

Perpetual, holding 9.65% of shares out, said it would vote for a firm Offer of $5.20/share and above.

This is a non-binding proposal and there is no guarantee a firm offer will unfold. 

But this is a business with which PEP is well acquainted, having orchestrated and developed Link’s initial business 15 years ago.

As always, more below the fold.

Yaskawa – Bad Reaction to Good Results

By Mio Kato

Prior to Yaskawa’s 1Q results back in July we noted that consensus looked light for the quarter and we felt that it was also too light for both 2Q and the full year. In the end our sales estimate for 1Q of ¥98.4bn was too high as developed markets disappointed more than we expected but OP of ¥6.2bn was close to our estimate of ¥6.7bn with much of the gap explained by the sales miss and our estimate was certainly a lot closer than consensus’ ¥3.7bn estimate. At the time we projected ¥5.3bn in OP for 2Q while consensus was at ¥3.4bn. We also suggested that full year OP could be as high as double consensus’ ¥16.6bn estimate at the time. With 2Q coming in at ¥7.1bn in OP thanks to strong robotics sales we believe consensus, which has since moved its OP estimate up to ¥24.4bn for the full year is still behind the curve… as usual. The question is whether the market has left any room for upside as we believe that while the sell-side is overly conservative, the implied profits based on valuations being granted to the company by the market, are excessively optimistic.

Lufax Pre-IPO – The Positives – Able to Grow Despite the Headwinds

By Sumeet Singh

Lufax Holdings (LU US) (Lufax) aims to raise around US$3bn via its US listing. The company is backed by Ping An Insurance (H) (2318 HK) (Ping An).

Lufax is a technology-empowered personal financial services platform in China. The company aims to address the demand for personal lending among small business owners, as well as salaried workers in China. It also provides wealth management solutions to China’s middle class and affluent population.

Despite having to change its funding model and loan mix over the past few years, the company has still managed to grow its loan book and revenue. 

In this insight, I’ll talk about the positive aspects of the deal.

Huya and DouYu’s Merger Is Game On

By Arun George

HUYA Inc (HUYA US) and Douyu International Holdings (DOYU US) have entered into a merger agreement to create a Chinese game live streaming giant. The proposed share exchange ratio is 0.73 Huya ADS for each DouYu ADS. Based on Friday’s close prices, the share exchange ratio values DouYu at $18.83 per ADS, a 35% premium to the Friday close price. On completion, the shareholders of Huya and DouYu will each hold 50% shares of the combined company on a fully diluted basis, respectively. Tencent Holdings (700 HK)‘s voting power in the combined company will be 67.5% on a fully-diluted basis.

With Tencent owning more than two-thirds of the votes in Huya, the approval of the merger largely comes down to securing the backing of DouYu shareholders. As DouYu is incorporated in the Cayman Islands, for the merger to succeed, DouYu shareholders representing two-thirds of shares present and voting need to approve the deal. Tencent collectively has the support of 54.6% of DouYu’s voting rights. In our previous note, we outlined that the merger makes a lot of sense due to potential revenue and cost synergies. In combination with an attractive share exchange ratio, we expect DouYu’s shareholders to support the merger. The merger is expected to close during the first half of 2021.

Palantir – Settling in for the Long Term

By Mio Kato

As expected, Palantir’s listing has not generated the fireworks of better hyped names such as Snowflake. The stock remains around the $10 mark which is lower than some of the private market trades just prior to listing. We remain highly positive on the stock and expect the name to pick up momentum relative to peers as earnings results begin to show through.

Before it’s here, it’s on Smartkarma