Daily BriefsTMT/Internet

TMT: Softbank Group, Tencent, Paytm, Krafton Inc, Koei Tecmo Holdings, Persistent Systems, International Business Machines, Snowflake Inc and more

In today’s briefing:

  • Softbank Group – China Has Just Blown a Hole in Vision Fund’s Rapid Listing Theme
  • Tencent Support Break
  • Paytm IPO Initiation: A Payments-Led Super-App
  • Krafton IPO – A Few Thoughts on Its IP and the Tencent Relationship
  • Major Highlights of Krafton’s Online Press Conference & Focus on Overseas M&As Post IPO
  • Koei Tecmo – Beats Consensus but Is That Enough?
  • Persistent Systems: Services Revenues Continue Their Strong Performance
  • IBM: More Of The Same
  • Snowflake: 5 Reasons Why It Is Truly Special
  • Persistent Systems: Robust Business, Strong Execution

Softbank Group – China Has Just Blown a Hole in Vision Fund’s Rapid Listing Theme

By Kirk Boodry

Softbank has been touting Vision Fund’s IPO flywheel for almost all of 2021 but expect that to fade as the reality of China’s crackdown sinks in. It’s stake in Didi is worth $8bn as of Friday down from $10.6bn invested at the parent and $12bn total whilst other recent IPOs (YMM -28% on 23 July, ZME -35%, DDL -8%) are also under pressure. The good news is Vision Fund China assets are <10% of total China exposure and Alibaba has been through the regulatory wringer already. That limits China downside but it does call into question Vision Fund hopes for valuation gains from liquidity events. There is a direct read across with Zuoyebang and VIPThink which are banned from going public whilst three of the largest private investments remaining in Vision Fund 1 (Bytedance, ele.me and Guazi) are likely to remain on the sidelines. We expect the holding company discount is likely to remain in the 44% range.


Tencent Support Break

By Thomas Schroeder

Tencent short call from 620 targeted 560 and the break below 560 set in motion a fresh sell signal that is showing increasing bear pressure below recent support  at 510 with 410/20 the next major support zone in our cross hairs.

Today’s gap is important if we cannot muster an uptick to close or partially close, we will head lower with higher momentum.

RSI is nearing oversold levels and due to bottom Tuesday or Wednesday and bounce into late July ahead of a more turbulent August cycle.


Paytm IPO Initiation: A Payments-Led Super-App

By Arun George

Paytm (PAYTM IN), formally known as One97 Communications, is India’s largest payments platform based on the number of consumers, number of merchants, number of transactions and revenue as of 31 March 2021, according to RedSeer. Paytm has an overall payments transaction volume market share of 40%, and wallet payments transaction market share of 65-70% in India as of FY21, according to RedSeer. Paytm’s shareholders include Ant Financial Services Group (6688 HK) (29.6% of outstanding shares), Softbank Vision Fund (18.3%), Alibaba Group (BABA US) (7.2%) and Berkshire Hathaway Inc Cl B (BRK/B US) (2.8%).  

Paytm plans to raise up to Rs166.0 billion ($2.2 billion) with a primary/secondary split of 50%/50%, according to the DHRP filing. 

The Indian Government is highly supportive of digital payments and in 2016, introduced demonetisation efforts through the launch of Unified Payment Interface (UPI) to reduce the reliance on cash. However, India continues to be a cash-driven economy which underscores the opportunity. Due to government initiatives, improving technology, growing awareness, digital payments by value in India are expected to more than double from $20 trillion in FY21 to $40-50 trillion by FY26, according to RedSeer. 

As India’s largest payments platform, Paytm is well placed to benefit from this structural tailwind. The advent of UPI has increased competition (Google Pay, PhonePe, MobiKwik) but Paytm is also leveraging its dominance in digital payments to build a synergistic ecosystem of complementary services, resulting in a strong claim to the “super-app” tag. While the COVID-19 pandemic was disruptive particularly to the non-payments business, Paytm should return to growth as the impact of the pandemic wanes and vaccination rates rise in India. Overall, we think that Paytm’s fundamentals are attractive. 


Krafton IPO – A Few Thoughts on Its IP and the Tencent Relationship

By Mio Kato

Krafton appears to be doing the PR rounds regarding investor interest in its IPO. The Nikkei and various other news outlets had some positive sounding stories. If Krafton does indeed manage to price at the top end of its range or above we think that would be a fantastic opportunity for investors…


Major Highlights of Krafton’s Online Press Conference & Focus on Overseas M&As Post IPO

By Douglas Kim

Krafton held an online press conference today. The key focus of the online press conference was that Krafton will be aggressive in overseas M&As. The company could receive nearly 2.5 trillion won in cash from the IPO proceeds. Plus, the company had net cash of 390 billion won at the end of 1Q 2021. Consequently, Krafton could have nearly 3.0 trillion won in net cash post the IPO which the company can use to make big overseas acquisitions.

Krafton IPO = PUBG + SPAC? In some ways, the key thesis of the Krafton IPO is the continued success of PUBG + emphasis on M&As to grow the business in overseas markets. In that respect, Krafton is telling the investors to trust the company to make excellent acquisitions that could add long-term value for the company. This is probably a tough sell for many investors and this remains a major reason on the poor investors’ response on the Krafton IPO.

In addition, Chinese government’s huge crackdown on the US listed Internet companies and the for-profit education sector further raise significant concerns that this crackdown could expand to other sectors such as games which would negatively impact Krafton. Overall, continue to maintain an AVOID rating of this IPO. 


Koei Tecmo – Beats Consensus but Is That Enough?

By Mio Kato

Koei Tecmo posted some stellar results today with ¥20.5bn in revenue (consensus ¥14.5) and OP of ¥9.7bn (consensus ¥5.9bn), putting the company on track to hit our ¥34-39bn FY OP target vs. consensus at ¥28.5bn. ¥8.7bn in income below the OP line was also a notable positive surprise thanks to strong investment income. How much of this is priced in though?


Persistent Systems: Services Revenues Continue Their Strong Performance

By ICICI Securities Limited

About the stock: Persistent System (Persistent) offers cloud, data, product & design led services to BFSI, healthcare & hi tech verticals.

  • Persistent has shown a healthy turnaround in dollar revenue growth of 13% YoY in FY21 and margin expansion of 248 bps
  • Net debt free and healthy double digit return ratio (with RoCE of 20%)
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.

IBM: More Of The Same

By Vladimir Dimitrov, CFA

  • IBM’s almost at par with the market performance over the course of 2021 could prove to be short-lived.
  • In spite of the glimpse of hope in the Q2 2021 results, the financial situation of IBM remains quite challenging.
  • IBM still lacks a solid strategy in how to turn around its infrastructure business, while Red Hat is still expected to do all the heavy lifting.

Snowflake: 5 Reasons Why It Is Truly Special

By Investi Analyst

  • Snowflake is the leading cloud-computing data warehouse company that will play an integral role in the future of Artificial Intelligence.
  • This article discusses five key competitive advantages that make Snowflake unique and able to dominate its industry for an extensive period.
  • Snowflake recently announced an ambitious plan of achieving $10B in Revenue by 2028. We evaluate the possibility and future growth estimates.
  • I discuss the competitive dynamics and future risks for investors to watch for those looking into purchasing Snowflake.

Persistent Systems: Robust Business, Strong Execution

By Axis Direct

We recommend a BUY rating on the stock and assign a 35x P/E multiple to its FY23E earnings of Rs 96/share, which gives a TP of Rs 3,400/share, implying an upside potential of 12% 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.

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