Daily BriefsTMT/Internet

TMT: Linklogis, Robinhood Markets, Naver Corp, Alight Inc, Just Dial Ltd, Hcl Technologies and more

In today’s briefing:

  • Linklogis Short Sheller Report – Some Merit, Some Plain Drama – Mixed Bag
  • Short Seller, Valiant Varriors Says Linklogis Is a Glorified Mortgage Broker
  • Robinhood Markets IPO Preview
  • Naver Corp (035420 KS):  Soaring in to the Big League
  • SPACTalk: Shining ALIGHT On The Process Of Separating the Wheat From The Chaff In The SPAC Space
  • Robinhood IPO Valuation Analysis
  • Just Dial: Change of Hands, Digital Trend Key Positive
  • HCL Technologies: Marginally Weaker Performance, Outlook Remains Robust
  • Wipro Q1 Results: PAT Rises 9% QoQ to Rs 3,243 Cr, Beats Estimates; Sales Rise 14%
  • HCL Technologies: Revenues Impacted by Covid

Linklogis Short Sheller Report – Some Merit, Some Plain Drama – Mixed Bag

By Sumeet Singh

Linklogis, a technology solution provider for supply chain finance in China raised around US$1bn in its Hong Kong IPO in Apr 21. It was subject of a short-seller report by Valliant Varriors which was published yesterday, see here.

In this report, we will talk about the points raised by the short sellers.

We have covered various aspects of the deal in our earlier notes:


Short Seller, Valiant Varriors Says Linklogis Is a Glorified Mortgage Broker

By Oshadhi Kumarasiri

Short seller Valiant Varriors may not have hard facts to accuse Linklogis (9959 HK) of clear fraud apart from minor violations of the law by some of the subsidiaries. However, the underlying factor that the short seller highlight is that Linklogis is nothing but a glorified mortgage broker (not a tech-enabled cloud software as a service platform), relying on cheap human labour instead of AI to do the work.

Linklogis fooled many investors, including the biggest investment managers and technology companies like Tencent, portraying itself as a technology company when it was really a mortgage broker. The Chinese government is currently on high alert about these issues in overseas listings and it is possible that Linklogis might result in an extension of crackdowns to Hong Kong and the domestic exchanges.

Valiant Varriors also highlights that Linklogis has consistently lied about its large exposure to the risky real estate market, violated laws related to factoring companies, exaggerated technology capabilities, evaded tax and misled investors by overstating revenues.

We believe all these are very series allegations, and it is hard to refute the basis of the short seller’s arguments and some of the evidence presented.


Robinhood Markets IPO Preview

By Douglas Kim

Robinhood Markets (HOOD US) is getting ready to complete its IPO next week. Currently, Robinhood is expected to start trading on 29 July. The IPO price range is between $38 to $42 per share. At the high end of the IPO price range, Robinhood would be valued at $35 billion, which would be a big jump from its private market valuation of $11.7 billion in September 2020. The lead underwriters of this IPO include Goldman Sachs and JP Morgan. 

Despite excellent sales growth and improving profitability, there will likely be a lot more skeptical investors on the company’s valuation of nearly $35 billion. The following are the five major risk factors that are likely to be emphasized on the Robinhood IPO:

  • Cryptocurrency trading based revenues to decline
  • Lost faith by some retail customers after Gamestop incident in January
  • No major extended bear market since the company’s inception
  • Potential concerns about customer related risks
  • Significant decline in revenue growth rate on a QoQ basis in 2Q 2021

Naver Corp (035420 KS):  Soaring in to the Big League

By Steven Holden

Naver Corp (035420 KS) has seen a rapid rise in ownership among global emerging market investors.

Naver Corp (035420 KS) now sits among the big players in the sector, just behind Naspers (NPN SJ) and in line with NetEase Inc (NTES US).

Recent Activity shows Naver Corp (035420 KS) capturing the most new investors in 2021 among South Korean peers, with the funds invested percentage rising by 5% – marginally ahead of Kakao Corp (035720 KS) and LX Holdings (383800 KS).

All this points to Naver Corp (035420 KS) as a high conviction holding among active EM managers, and whilst a combination of record investment and price levels leaves Naver Corp (035420 KS) vulnerable to consolidation, there are many previous investors who may pick up the slack if prices fall.


SPACTalk: Shining ALIGHT On The Process Of Separating the Wheat From The Chaff In The SPAC Space

By Robert Sassoon

Back in September 2020, amid a boom in SPAC investing that had never been seen before and against the backdrop of profitless companies (and in some cases years from actual revenue generation) being propelled to insane valuations , we published an insight effectively warning investors to be very wary and selective (cf. MergerTalk: SPACs May Have Become The Hot New Trend, But SPAC Investment Requires A Health Warning. Read more: https://skr.ma/JNmvg ). The fresh supply of SPAC IPOs in the US keeps on coming -the number of completed SPAC IPOs so far this year has already eclipsed the record total set for all of 2020 by 51% (374 vs 248)  and is well on target to surpass the number of traditional IPOs in the US for the second year running – in  2020, there were a total of 227 traditional IPOs with that number standing at 157 so far this year, well behind SPAC IPOs. In 2020, SPACs raised more cash ($83BN) than the total amount raised  over the preceding 17 years. So far in 2021, the cash raised from SPAC IPOs is already approaching 40% higher than 2021 at $114BN.

However, these stats do not disguise the fact that the enthusiasm for SPACs has cooled  since mid-February. A snapshot reflection of this change in mood is the performance of the first 3 SPAC ETFs introduced to the market which began with SPAK at the beginning of October 2020.

The average size of SPAC IPOs this year is 9% lower at $305MN than last year’s ~$336MN. Perhaps more revealing, out of a total of 152 SPACs total that have announced business combinations and are in the process of de-SPACing, 92 (i.e., 61%) are trading below the SPAC IPO price of $10.  Of the 134 SPAC business combinations completed around one half are currently trading above the  SPAC IPO price, and many of those well below their post-merger highs.

As our November insight indicates, we have been somewhat skeptical of the SPAC investment space. We believe that much of the SPAC investment frenzy witnessed in the past 18 months has was driven by  thematic interest over the more diligent scrutiny of the business combination.

The observation is that not all SPAC mergers are created equal and that the majority are prone to value destruction.  It appears that SPAC investors are most excited about transactions in “emerging” trends such as green mobility or pandemic resistant areas such as online gaming and packaged/healthy foods rather than companies with a solid fundamental track record of revenue generation and profitability.

Source: MergerTalk: SPACs May Have Become The Hot New Trend, But SPAC Investment Requires A Health Warning, November 2020

We are not suggesting for one moment that SPAC investing is a passing fad. The SPAC investing community is a far cry from the predominantly roulette table retail investors of yesteryear. Yes, the speculative element in SPACs has been very  much in evidence over the past 18 months, but greater involvement from well established institutional investors/sponsors in the most recent SPAC wave and the prospect of more intense regulatory scrutiny following several high profile investment debacles in the past 18 months will hopefully see this investment class evolve towards greater emphasis on quality rather than quantity. As of today there remains a lot of liquidity chasing SPACs with capital searching for deals. As of today there are 305 pending IPOs, 574 active SPACs of which 425  still need to find companies with which to merge.

While there is certainly a lot of chaff in the SPAC investment space, there are also hidden gems  to be uncovered. Not uncommon in thematic oriented investments, when in fashion, the rising tide raises all ships, whether seaworthy or not. By the same token, when enthusiasm wanes, even the better quality companies can get caught up in the sell-off. This is more so in an investment category where there is still limited research coverage.  Judging from the job postings we have seen, investment banks  and hedge funds are looking to build out their SPAC research capabilities, but the current dearth of quality sell-side coverage of the 100s of active SPACs creates an opportunity for those willing to put in the required research/due-diligence effort to discover potentially lucrative undervalued  businesses.

In this respect,  the simple formula we would follow is to hone in on SPACs with good sponsors backed up by a strong track record, either in the process of executing an Initial Business Combination (IBC) or having recently completed business combination with a company with a fundamentally sound business and strategy, preferably supported by an established operating track record that is already delivering revenues and profitability. There may be a number of other hidden gems to uncover within the SPAC universe, in this insight, we highlight one example of a recently completed business combination which has caught our eye – Alight Inc (ALIT US) which we believe ticks all the aforementioned boxes.


Robinhood IPO Valuation Analysis

By Douglas Kim

Our base case valuation of Robinhood is implied market cap of US$25.1 billion or US$29.8 per share, which is 25% lower than the mid-point of the IPO price range (US$40). Given the downside risk, we would AVOID this IPO. 

  • Our valuation of Robinhood is based on an EV/S multiple of 10.7x using our estimated sales of US$2.1 billion in 2022.
    • The EV/S multiple of 10.7x is based on the average multiple of the comps in 2022.
    • The valuation multiple is higher than the those of online brokers Charles Schwab and Interactive Brokers Group.
    • However, it is lower than the valuation multiples of the fintech comps including Coinbase and Affirm.

Just Dial: Change of Hands, Digital Trend Key Positive

By ICICI Securities Limited

About the stock: Just Dial (JDL) generates revenues from advertisers on various subscription and fee-based packages.

  • Reliance Retail Ventures Ltd will acquire 40.95% stake in JDL
  • JDL’s launch of B2B platform will be a key revenue driver in the long run
Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

HCL Technologies: Marginally Weaker Performance, Outlook Remains Robust

By Axis Direct

We recommend a BUY on the stock and assign a 19x P/E multiple to its FY23E earnings of Rs 59.2/share which gives a TP of Rs 1,110/share, indicating an upside of 11% from CMP.

Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

Wipro Q1 Results: PAT Rises 9% QoQ to Rs 3,243 Cr, Beats Estimates; Sales Rise 14%

By SMC Online

Consolidated sales of Wipro for the quarter ended June 2021 at Rs.18467.40 crore registered a growth of 14% QoQ and a 24% YoY. The IT services revenue of the company at USD 2414.5 million was higher by 12.2% QoQ and 26% YoY. In constant currency terms the IT services revenue was up 12%QoQ.

Sequential growth of IT services revenue was led by broad based growth across all strategic business units/verticals barring Manufacturing. The core BFSI which accounts for about 33.4% of IT services revenue was up by strong 23% QoQ. Similarly the CBU (consumer business unit), ENRU (Energy, Natural Resources & Utilities) and HBU (healthcare business unit) which accounted for 17.3%, 13.1% and 11.9% of IT Services revenue has registered strong growth of 14.1% QoQ, 11.8% QoQ and 2.6% QoQ respectively. The communication and technology business units have registered a growth of 12.4% QoQand 2.5% QoQ respectively. The manufacturing registered a de-growth of 1.1% QoQ.

Operating profit margin has slumped from 24.8% to 22.7%, leading to 4% rise in operating profit to Rs 4,195.70 crore. Other income rose 8% to Rs 577.9 crore. Provision for interest fell 34% to Rs 74.6 crore. Provision for depreciation rose 18% to Rs 825.7 crore. Profit before tax grew 3% to Rs 3,872.60 crore. Provision for tax was expense of Rs 625.3 crore, compared to Rs 775.6 crore. Effective tax rate was 16.14% compared to 20.68%. Minority interest increased 170% to Rs 5.40 crore. Net profit attributable to owners of the company increased 9% to Rs 3,242.60 crore.

Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

HCL Technologies: Revenues Impacted by Covid

By ICICI Securities Limited

About the stock: HCL Technologies (HCLT) offers IT, ER&D and products to BFSI, retail, health, telecommunication, manufacturing, media & hi-tech verticals.

  • HCL Tech has 250 Fortune 500 and 650 global 2000 clients
  • HCL has grown organically and inorganically (14% CAGR over FY18-21)
Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

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