Daily BriefsTMT/Internet

TMT: PropertyGuru , Tencent, Krafton Inc, Beijing Huafeng Test & Control Technology-A, AXT Inc, A10 Networks, Zensar Technologies and more

In today’s briefing:

  • PropertyGuru/Bridgetown 2 SPAC Listing/Merger – Second Time Lucky – Some Food for Thought
  • Tencent/NetEase: July Game Approval Analysis
  • Krafton Bookbuilding: A Quick Recap of Last Day Craziness
  • Tencent (700 HK): When to Catch a Falling Knife
  • STAR50 Index Rebalance Preview: Big Turnover in a Volatile Market
  • AXTI: More Customer Wins
  • ATEN: Momentum in Growth, PT to $17
  • Zensar Technologies: Strong Recovery, Improved Outlook

PropertyGuru/Bridgetown 2 SPAC Listing/Merger – Second Time Lucky – Some Food for Thought

By Sumeet Singh

PropertyGuru and Bridgetown 2 announced, on 23rd Jul 2021, that they have entered into a business combination agreement which will see PropertyGuru go public in the US. The transaction will value PropertyGuru at an EV of US$1.35bn and equity value of US$1.78bn.

We have looked at the company’s prior listing attempt when it tried to list in Australia in 2019. In this note, we will comment on the current listing arrangement.

Link to our previous notes:


Tencent/NetEase: July Game Approval Analysis

By Ke Yan, CFA, FRM

Recently the Chinese regulator National Press and Publication Administration (NPPA) announced the July batch of approvals for domestic games. 

In this insight, we will have a close look at the trend of domestic game approval for both Tencent and its key competitor, Netease. We will also have a review of domestic games approved in 2021 YTD. 

We are of the view that Netease Inc (Adr) (NTES US) has done better than Tencent Holdings (700 HK) in terms of games approved. 


Krafton Bookbuilding: A Quick Recap of Last Day Craziness

By Sanghyun Park

The last day of Krafton’s bookbuilding? Well, it was really a crazy day.

A suspicious rumor circulated at noon yesterday

First of all, at noon yesterday, a rumor circulated among local institutions through the messenger mainly used by institutions.

Previously, Yahoo Messenger was the main medium for circulating all sorts of rumors and stories between local institutional investors. But after the Yahoo Messenger service was terminated, NateOn is mainly used now.

The content of this rumor was somewhat provocative. The rumor said that the bankers are currently holding an emergency meeting due to the low competition rate for institutional subscriptions in the Krafton bookbuilding.

When Mirae Asset Securities learned that this rumor was circulating through NateOn, it immediately denied it, which led to an unusual situation where a banker updated the bookbuilding progress even before bookbuilding was closed.

In fact, Mirae Asset explained to local institutions yesterday afternoon that this Krafton bookbuilding was significantly more positive than initially expected and that the rumor of holding an emergency meeting due to the disastrous results simply was not true.

However, it is said that this rumor has caused confusion among some local institutions and has had some effect on the institutional subscription rate on the last day.


Tencent (700 HK): When to Catch a Falling Knife

By Mitchell Kim

Investors’ concerns over increasingly expanding regulatory restrictions and the potential market intervention led to a rout of Chinese tech and education stocks over the last several trading sessions. The select 9 Chinese tech stocks I follow collectively lost USD320 billion in value over 20 July to 27 July.  While some of the regulatory risks were known from March 2021, ramifications of the potential value-destroying restrictions on the education companies, termination of Tencent Music (TME US)’s exclusive rights, and the suspension of new user registration for Tencent (700 HK)‘s Wechat spook the market. 

Tencent’s market cap has declined 19% during the seven-day period, which cannot be fully explained by the potential value lost from the recently announced regulatory measures, in my view.  Back in April (see Tencent (700 HK): Fintech Risk Is Lurking) I pointed out that Tencent shares could be overvalued by 20% on fintech risk alone.  The shares are down nearly 30% since then. I now believe the shares could be undervalued by 10%, notwithstanding the undefined regulatory risks ahead.  Having said that, catching a falling knife is not for the faint-hearted. 

These stocks rebounded on the US Wednesday trading session, possibly reflecting the sentiment “enough is enough.” Bloomberg reported that the securities regulator assured select investment bankers that the education policies are not to be for other industries.     

In this report, I summarize the announced regulatory events this year to date and share my thoughts on why the market may be over discounting Tencent’s value by looking at the potential value impact of Tencent’s fintech value (a reiteration from the April report) and the impact of the value decline of DiDi Chuxing (DIDI US) and Tencent Music.          


STAR50 Index Rebalance Preview: Big Turnover in a Volatile Market

By Brian Freitas

The SSE STAR 50 (STAR50 INDEX) is a free float market cap weighted and is made up of the 50 largest stocks based on full market cap that are listed on the STAR Market.

The review period for the September rebalance ends on 31 July, the results of the rebalance will be announced towards the end of August and the changes will be implemented at the close of trading on 10 September.

With only 2 trading days left in the review period, we see Shanghai Shen Lian Biomedical (688098 CH)Piesat Information Technology (688066 CH)Guangzhou Fang Bang Electr-A (688020 CH)Shenzhen Lifotronic Techno-A (688389 CH) and Appotronics Corp Ltd (688007 CH) as high probability deletions from the index.

Coming up with a definitive list of inclusions is tougher given the subjectivity of the index rules for this review. The subjectivity comes from the whether the index committee uses a minimum listing history period of 12 months or 6 months.

Higher probability inclusions (if a 12 month minimum listing history is used) are Eyebright Medical Technology Beijing (688050 CH), Sinocelltech Group (688520 CH), Beijing Huafeng Test & Control Technology-A (688200 CH), Zhejiang Orient Gene Biotech-A (688298 CH) and Tinavi Medical Technologies (688277 CH).

Lower probability inclusions (if a 6 month minimum listing history is used) are Zhejiang Supcon Technology (688777 CH), Tianneng Battery Group (688819 CH), Bestechnic Shanghai (688608 CH), 3peak (688536 CH) and Pylon Technologies Co Ltd (688063 CH).

The inclusions, exclusions and capping changes will result in a one-way turnover of 8.45% and result in a one-way trade of CNY3.3bn.


AXTI: More Customer Wins

By Hamed Khorsand

• AXT Inc. (AXTI) secured a new tier-one customer qualification for the second straight quarter creating a demand line up for the second half of the year that could help further grow revenue. AXTI reported second quarter results that were ahead of estimates and guidance, but it was the second customer win that is likely to gain most of the attention as the Company begins to enter production phase.

• The broader customer base has reduced AXTI’s dependence on specific customers. The expanded use cases for gallium arsenide (GaAs) and indium phosphide (InP) should provide AXTI with greater longevity to growing revenue. 

• AXTI reported second quarter revenue of $33.7 million which was $2.2 million higher than the top end of the guidance range AXTI had provided. 

• AXTI is now on pace to earn approximately $0.38 per share in 2021 compared to our original estimate of $0.29 per share. The increase in revenue over the course of the year should leverage the fixed cost nature of AXTI’s business. We believe the broader foundation of tier-one customers could provide sustainable revenue base to maintain revenue at or above $30 million per quarter. 


ATEN: Momentum in Growth, PT to $17

By Hamed Khorsand

  • A10 Networks (ATEN) is benefiting from increased attention on network security. An increase in data traffic only intensifies the need for security, which is where ATEN is likely to win more customers. ATEN reported second quarter revenue growing by 12.7 percent from the year ago period even though a bigger portion of revenue is recurring.

 

  • ATEN generated $59.2 million in revenue in the second quarter, up from $52.5 million in the year ago period. We had been expecting revenue of $58.2 million.

 

  • The Company introduced cloud solutions and has been ramping sales of these solutions this year. Software remains a minority portion of revenue. The Company has been maintaining subdued revenue growth expectations this year as a result of the transition away from hardware.

 

  • Leverage in the operating model coupled with growth in revenue for the remainder of the year is poised to point ATEN on a trajectory to post non-GAAP EPS of $0.70 in 2022.

 

  • Our price target is now $17 from $13.50.

Zensar Technologies: Strong Recovery, Improved Outlook

By Axis Direct

We assign a 22x P/E multiple to its FY23E earnings of Rs 20.8 per share to arrive at a TP of Rs 455 per share, implying an upside of 13% from CMP.

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