Daily BriefsTMT/Internet

TMT: Sea Ltd, Kioxia, Alibaba Group, Nanos Co Ltd, SK Hynix, Waterdrop Inc, Z Holdings, Hello Inc, Samsung Electronics Pref Shares, Spotify Technology SA and more

In today’s briefing:

  • MSCI Singapore Index – Upcoming Changes
  • SK Hynix Conference Call Today: Kioxia IPO in 2H & Plan to Sell 31% After IPO
  • Ant Group-Alibaba (BABA): Are We There Yet?
  • KOSDAQ 150 Preview: 16 Additions & 17 Deletions – Passive Inflow/ADTV & Loan Balance/Float
  • SK Hynix Posts Good Results, Expects Even Better
  • Waterdrop IPO: Valuation First Look
  • Z Holdings Q4 20 Results: Good Numbers as LINE Era Kicks Off
  • Hello Inc (哈罗出行) Pre-IPO – Nowhere near Being Sustainable
  • Samsung 1P Discount Should Go South, Probably as Far South as Historic Low
  • Spotify 1Q21 Earnings: What Is an Audio Platform Worth? 2-3x Sales?

MSCI Singapore Index – Upcoming Changes

By Brian Freitas

MSCI is scheduled to announce the results of the May 2021 Semi Annual Index Review (SAIR) on 11 May with the changes implemented after the close of trading on 28 May.

For Singapore, we see a high probability of Sea Ltd (SE US) being included in the index and Suntec REIT (SUN SP) being excluded. This will keep the number of index constituents at 19.

Since the inclusion of Sea Ltd (SE US) at its full index weight would result in large turnover, MSCI has announced a tranched inclusion starting with an Index Inclusion Factor (IIF) of 0.05 at the May 2021 SAIR and concluding at the February 2022 Quarterly Index Review (QIR) with an IIF of 1.

We expect liquidity on the MSCI Singapore Free Index (SIMSCI INDEX) futures to drop in the short term as traders look for appropriate hedges for the unhedged Sea Ltd (SE US) position due to their trading activity on the index futures.

There could also be a migration from passive products on the MSCI Singapore Free Index (SIMSCI INDEX) to the FTSE Straits Times Index (STI) (STI INDEX) due to a drop in the dividend yield on the SIMSCI from 3.02% to 2.15%. The drop in dividend yield will take place as the IIF on Sea Ltd (SE US) increases.

Grab (0967655D SP) is expected to list in the US in July and the stock could be included in the MSCI Singapore Free Index (SIMSCI INDEX) later in the year. There have also been media reports that Grab could secondary list in Singapore. MSCI is likely to include Grab (0967655D SP) in the index in a tranched manner as well to reduce index turnover at a single review. Inclusion of Grab (0967655D SP) will reduce the dividend yield on the index even further.

SK Hynix Conference Call Today: Kioxia IPO in 2H & Plan to Sell 31% After IPO

By Sanghyun Park

In today’s conference call, SK Hynix said an interesting thing about Kioxia.

  • Hynix confirmed that Kioxia would give another shot to an IPO in the second half of this year instead of taking the Micron/WD offer.
  • Hynix said that was what it was told by the Bain Capital Consortium and the Kioxia management lately.

Ant Group-Alibaba (BABA): Are We There Yet?

By Victor Galliano

  • PBoC’s regulatory pressure and scrutiny are seemingly coming to a head at Ant Financial Services Group (6688 HK) 
  • At the China Digital Summit, the disclosure of “co-operation” between Ant Group and regulator implies that PBoC has secured that Ant Group  share their “big data” lake and capabilities with the PBoC
  • This news regarding big data sharing signals diminishing regulatory risk going forward
  • Bloomberg Intelligence reported that the Ant Group valuation could be as low as USD29bn; we see this as too bearish, even in the worst case
  • Even under our “new reality” business valuation, we arrive at an SOTP valuation range – which factors in the cost of capital needs – of USD41bn to USD62bn
  • We turn constructive on Alibaba Group (BABA US), with a great deal of Ant Group regulatory risk discounted, and given Alibaba’s attractive valuations relative to its peer group
  • Risks to our constructive view on Alibaba include a bigger than expected capital call as a core shareholder, to capitalise Ant Group’s credit business, and a worse than expected loss of payments market share from e-Yuan introduction

KOSDAQ 150 Preview: 16 Additions & 17 Deletions – Passive Inflow/ADTV & Loan Balance/Float

By Sanghyun Park

This time, KOSDAQ 150 rebalancing is expected to have a big change.

Additions: 16 candidates

As of yesterday, we have 16 strong candidates to join KOSDAQ 150 newly. Vaxcell Bio and Nanos are the biggest ones, market cap-wise. Icure Pharm and Sungwoo Hitech will be the smallest-cap new members.

Vaxcell Bio and Binex are expected to enjoy the largest passive inflow at an estimated ₩45.5B and an estimated ₩38.1B, respectively.

But Gemvax and Fine Semitech should deserve special attention as they will likely see the highest inflow to average daily trading value at 3.47x and 3.06x, respectively.

Deletions: 17 candidates

A total of 17 names are expected to leave KOSDAQ 150 this June. The biggest ones are KH Vatec and eBEST Investment. The smallest ones are HL Science and Easy Holdings.

Again, KH Vatec will suffer the largest passive outflow at an estimated ₩16.9B, closely followed by Advanced Process (₩14.9B) and Daea TI (₩14.6B).

However, Ubiquoss Holdings and Korea Ratings will likely suffer the harshest impact as their estimated passive outflow to ADTV stands at the highest, 10.44x and 9.07x, respectively.

SK Hynix Posts Good Results, Expects Even Better

By Jim Handy

SK hynix’ earnings call today showed good results, and management’s outlook is for an even more positive second quarter and second half.  As a result, the company is accelerating its capital spending.

Waterdrop IPO: Valuation First Look

By Arun George

Waterdrop Inc (WDH US) is the largest independent third-party insurance platform in China as measured by life and health insurance first-year premiums (FYP) distributed in 2020, according to iResearch. Waterdrop is backed by Tencent Holdings (700 HK), Swiss Re AG (SREN SW) and Meituan (3690 HK).

Waterdrop is pre-marketing an NYSE IPO with a placeholder amount of $100 million. In Waterdrop IPO Initiation: Going for Brokers, we opined that as a leading online third-party insurance broker, Waterdrop is well-positioned to benefit from favourable industry trends. The key unknown is whether the changing regulations will throw a spanner in the works. Notwithstanding the regulatory overhang, we concluded that Waterdrop is worth a look. In this note, we present our forecasts and take the first look at Waterdrop’s potential valuation range. 

Z Holdings Q4 20 Results: Good Numbers as LINE Era Kicks Off

By Kirk Boodry

Z Holdings Q4 results are largely as expected but a meaningful reduction in market expectations (shares down 12% YTD and 31% from recent highs) means that should be taken positively. Underlying performance was strong as online retail demand expanded with the re-introduction of emergency measures (merchandise GMV +26%) even as advertising sales grew better than expected (+5% v mgmt guidance flat YoY). The outlook for FY21 is slightly better than Redex forecasts for revenue and adjusted EBITDA although the corresponding operating income is in-line so our outlook probably won’t change much. We remain at Buy

Hello Inc (哈罗出行) Pre-IPO – Nowhere near Being Sustainable

By Zhen Zhou, Toh

Hello Inc. is looking to raise up to US$1bn in its upcoming U.S. IPO.

Hello Inc (HI) is a local services platform in China. The company operates a mobile app called Hello,  which provides a range of local services that include shared two-wheeler services, carpooling market place, and emerging local services and products that includes e-scooters and in-store services marketplace, ride-hailing, hotel reservations, mobile grocery stores and online advertising services.

In this note, we will look at the company’s business model, operating data, financials, and share our thoughts on the IPO.

Samsung 1P Discount Should Go South, Probably as Far South as Historic Low

By Sanghyun Park

Samsung unveiled the Lee family’s inheritance tax payment plan. But key details were missing. We do not still know which family member gets which company stake.

Unless specified in the will, the inheritance will go at a 1/3 (spouse) to 2/3/N (each child) ratio. But the consensus now is there is a will, and this 1/3 (spouse) to 2/3/N (each child) ratio won’t happen.

The deadline to report the tax payment is April 30. But the family doesn’t need to report who gets what information. The Korean inheritance tax law allows a family to make a collective payment for the entire family. Inheritance sharing can be discussed later, and there is no deadline for this.

Nonetheless, several Samsung insiders familiar with this matter have reportedly said that the who gets what information will be made public as early as next week. All shareholding changes by a major shareholder must be filed and made public at DART within 5 days after changes are made. So, we will know once a decision is reached.

Spotify 1Q21 Earnings: What Is an Audio Platform Worth? 2-3x Sales?

By Aaron Gabin

Spotify printed a 1Q21 miss on MAUs and mediocre guidance update for 2021. We’ve said this before and we’ll say it again…Spotify strikes us as one of the worst business models of a large cap TMT company we’ve ever seen. The future bliss of podcasting driven profitability is clearly just that…future bliss. Management has NEVER explained how podcasting will translate into a more profitable business other than through hazy comments about “holistic nature of churn reduction and new users”…it reminds us of Reed Hastings when he promised that one day Netflix would be FCF positive years ago…but at least Netflix had an operating model with inherent operating leverage and pricing power, neither of which is present with Spotify. We can justify downside to $125, but realistically think $200 is a reasonable price target. Stay Short.

Obex’s fundamental research process is focused on secular change in the TMT and Consumer sectors. We seek to differentiate between fundamental business analysis and security analysis. Before deciding if a security’s pricing and positioning merit a long or short position, we analyze the four pillars of business fundamentals (Secular Factors, TAM, Competitive Advantage, Business Model) in order to determine if this is a “good” or “not so good” opportunity.

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