Daily BriefsTMT/Internet

TMT: Tencent, BYJU’S, Krafton Inc, Alibaba Group, Bukalapak, Meituan, Intel Corp, S&P 500, SK Hynix, Zensar Technologies and more

In today’s briefing:

  • Tencent Holdings – Only The Beginning
  • Can After Tremors of the China Tutoring Sector Shakeup Impact India EdTech?
  • Krafton Bookbuilding Last Day: Institutional Mood So Far
  • Alibaba (BABA US) – Looking for a Reprieve from Regulatory Headwinds
  • Bukalapak IPO Valuation
  • Meituan Sell Levels on a Bounce
  • Intel: Changing Names Doesn’t Accelerate a Roadmap
  • U.S. Equity Strategy: Cautious Overall; Favor Large-Caps & Growth; Key Supports Holding In The U.S.
  • SK Hynix Expects Good Year to Get Even Better!
  • Zensar Technologies: Hi Tech Drives Topline

Tencent Holdings – Only The Beginning

By Thomas J. Monaco

*What’s Up With WeChat: Mainland China appears to have taken additional action against Tencent Holdings (700.HK) [Tencent], following Monday’s regulatory edict. Tencent is suspending new user registrations for its WeChat services, as it is undergoing a “security technical upgrade” in accordance with relevant laws and regulations. WeChat is Tencent’s most important business, and dominates mainland Chinese social media; and 

*Pain Trade Coming:Tencent is widely expected pay a large fine. In addition, Tencent may have to give up its exclusive music rights and possibly dispose of Kuwo and Kugou. Further, we have no doubt that Tencent will also follow Alibaba Group (BABA.US) [Alibaba] in their formation of a financial holding company. For Tencent, WeChat Pay and the broader lending/deposit taking business are likely to be reined-in. At CNY 38.5 bn for full year 2020, FinTech represents a growing 28.8% of revenue – and is a key and growing component of Tencent’s current and future results. No matter what spin that Tencent wants to place on its other businesses, an FHC represents significant downside risks. Earnings will compress, as capital requirements increase.


Can After Tremors of the China Tutoring Sector Shakeup Impact India EdTech?

By Devi Subhakesan

China-based after-school tutoring stocks saw the bulk of their equity value evaporate as authorities decided to turn the regulatory heat on this sector and also requiring the players to operate as non-profits. As the after-tremors of this move reverberate across the investment space, are the multibillion-dollar valuations of India’s rapidly growing edtech players at risk? Well-known private equity players ranging from Sequoia Capital to Tiger Global have invested in India’s fast-growing online education players – notably, BYJU’S (1391510D IN)  (valued at USD16.5 Bn) and Unacademy (valued at USD 2Bn) amongst others.

In this insight, we discuss if India’s rapidly growing online education sector is vulnerable to regulatory risks similar to that faced by after-school tutoring companies in China and how this could potentially affect large online tutoring players like Byju’s and Unacademy. We also look at leading investors in this space – and how they could be impacted.


Krafton Bookbuilding Last Day: Institutional Mood So Far

By Sanghyun Park

Krafton will close the bookbuilding today, which started on the 14th. Two days later, it will finalize and announce the offering price on the 29th.

Krafton IPO schedule
Book close2021. 7. 27
Allotment2021. 7. 29
Subscription2021. 8. 2
Payment2021. 8. 5
Listing2021. 8. 10
Source: DART

Online press conference on the 26th

Krafton held an online press conference yesterday, where the CFO extensively commented on the bookbuilding atmosphere.

(Courtesy News 1)

First of all, the CFO said that the response was particularly enthusiastic from overseas institutional investors. He said that they include a number of long-term funds.

This is a direct quote from Bae Dong-geun, CFO of Krafton. He said,

It is difficult to give a clear answer because the institutional bookbuilding has not been completed yet, but at this point (one day left until the bookbuilding deadline), I can confidently say that it was a success.

He further revealed that overseas institutions participated more aggressively in the subscription than local institutional investors, and this somewhat surprising trend was clearly seen in the actual pricing.

What the bankers are saying

Then, below are the actual results of bookbuilding being leaked by the bankers.

The bankers are also saying that the institutional mood confirmed during the two weeks of bookbuilding is obviously hotter than initially expected.

For example, on the first day of bookbuilding alone, overseas institutional investors applied for a quantity that was 20 to 30 times more than the allocated quantity at a price higher than the upper end of the indicative price band (₩498,000)

Indicative price bandLower endUpper end
Price₩400,000₩498,000
Base deal size₩3,461.7B₩4,309.8B
– Institutional allotment₩1,903.9B₩2,370.4B
Implied market cap₩19,559.2B₩24,351.2B
Source: DART

Of course, this news also reached the ears of domestic institutions.

The pricing for local institutional investors started on the 20th. And it is being said (or leaked by the bankers) that local institutions are placing orders using all available funds as their competitive sentiment must have been triggered by the aggressive participation of foreign institutions.


Alibaba (BABA US) – Looking for a Reprieve from Regulatory Headwinds

By Victor Galliano

  • The market is looking for a signal of an easing of regulatory pressures on China BigTech
  • Alibaba Group (BABA US) is in the eye of the regulatory storm, first with the crackdown on the Ant IPO, then with the anti-trust restrictions on Big Tech and more recently with China regulatory bodies focusing on US listed China tech
  • The share price is now close to the pandemic low of March 2020, having fallen a further 20% since the end of April
  • Alibaba valuations are compelling, even versus its China BigTech peers, and, less surprisingly, compared to Amazon.com Inc (AMZN US)
  • Alibaba’s market capitalization to revenue discount to its core peers has narrowed somewhat, as Chinese regulators have extended their focus on BigTech beyond the Alibaba group, but remains elevated
  • Furthermore, Alibaba’s premium to Amazon in terms of market capitalization to revenue has totally dissipated
  • We stick with our positive view on Alibaba and we believe that, even though regulatory risks have yet to recede, the secular growth story – albeit dented – in China tech still holds and that in the case of Alibaba, its modest valuations stand out
  • Risks to our positive view on Alibaba include further regulatory hurdles, such as market share limitations and tighter controls on big data, as well as client loss as a result of these regulatory limitations

Bukalapak IPO Valuation

By Oshadhi Kumarasiri

Indonesian e-commerce unicorn, Bukalapak (BUKA IJ) is expected to price its IPO at the top end of the offer range, which implies a market cap and EV of $6.0bn and $4.4bn respectively.

We like the way Bukalapak has placed itself in a relatively low competitive subsector within the Indonesian e-commerce market. However, it appears that it is extremely difficult to generate sufficient merchant commissions and advertising revenue from Bukalapak’s subsector of e-commerce. Although we are worried about the fact that Bukalapak may not be profitable in the medium term (inability to generate sufficient revenue), there are plenty of investors willing to invest in Bukalapak based on the company’s revenue potential.

Having said that, we still don’t anticipate Bukalapak to generate generous gains on its trading debut due to the extremely high IPO valuation. Nevertheless, there could be some upside on trading debut, but we think risks rewards are not sufficiently skewed to the upside trade this IPO with any conviction.


Meituan Sell Levels on a Bounce

By Thomas Schroeder

Meituan (3690 HK) impulsive decline does warn of lower levels after a bounce with a focus on selling a near term bounce. Spike in sell volume is a negative. Oversold RSI does warn of a reaction bounce for brave traders. 

Trend resistance now lies at 280 as the forward level to clear. As long as this barrier remains intact the trend is down.


Intel: Changing Names Doesn’t Accelerate a Roadmap

By Aaron Gabin

Intel held a technology roadmap update yesterday…the key changes were literally in name only. We’ll believe Intel jumping 5 nodes in 4 years when we see it.

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.


U.S. Equity Strategy: Cautious Overall; Favor Large-Caps & Growth; Key Supports Holding In The U.S.

By Joe Jasper

We continue to see a mixed market, and weak market dynamics lead us to be cautious. One of the primary issues is weak breadth; the large-cap indexes (S&P 500 and Nasdaq) remain bullish despite being held up by a relatively small number of mega-cap growth stocks, a condition that can persist for weeks or months. Ultimately, as long as there continues to be an absence of breakdowns at the index and Sector level we remain constructive overall.


SK Hynix Expects Good Year to Get Even Better!

By Jim Handy

SK hynix held its second quarter earnings call on Tuesday, July 27, reporting a 22% sequential revenue increase and significant improvements in profits.  The company’s outlook for the remainder of the year is very bullish.


Zensar Technologies: Hi Tech Drives Topline

By ICICI Securities Limited

About the stock: Zensar Technologies (Zensar) offers application & IMS services to hi-tech, manufacturing, retail and BFSI.

  • Zensar has grown organically and inorganically over the years
  • Net debt free and healthy double digit return ratio (with RoCE of 19%)
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