Daily BriefsTMT/Internet

TMT: Tencent Holdings, Kuaishou Technology, Samsung Electronics, Cyient Ltd, Waterdrop Inc, Renesas Electronics, Keyence Corp, Yaskawa Electric, Hello Inc and more

In today’s briefing:

  • Tencent Holdings – Spanking
  • Kuaishou (1024 HK): Positive Operating Data in 1Q21, But Not Enough
  • Samsung Earnings Disappoint After Strong SK Hynix Call
  • A.G.E. Analysis: Cyient Limited
  • Waterdrop Inc: Can the Water Keep Flowing After Its IPO?
  • Renesas – Profitability Is the Story Here, Not Factory Fires
  • Keyence – Snapback to All-Time Highs
  • Tencent: Regulators Probe TME’s Previous Deals; The Battering Has Just Begun
  • Yaskawa – Some Thoughts After Our Call With IR
  • Hello IPO: Huge Fixed Cost for Bike Sharing Eating into Margins (Quantamental)

Tencent Holdings – Spanking

By Thomas J. Monaco

*The Hits Keep Coming: On April 29, 2021, Reuters reported that SAMR is preparing a fine for Tencent Holdings (700.HK) [Tencent] as part of its antitrust review. Tencent’s fine is expected to be a minimum of CNY 10 bn or 2% of domestic sales. In addition, the report states that the investigation specifically focuses on music streaming. In addition to the fine, Tencent may have to give up its exclusive music rights and possibly dispose of Kuwo and Kugou; and

*Earnings To Decline, Capital Requirements To Increase: 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, FinTech represents a growing 28.8% of revenue – and are key 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.


Kuaishou (1024 HK): Positive Operating Data in 1Q21, But Not Enough

By Ming Lu

  • Kuaishou (KS)’s active users was stable after the Chinese New Year, while other apps’ user bases decreased.
  • KS’ time on site increased YoY in 1Q21.
  • We believe KS is riding on the boom of e-commerce live broadcasting.
  • We also believe Tencent’s game copyrights support KS’ game live broadcasting.
  • We conclude the stock downside has reduced.

Our previous coverage on Kuaishou:


Samsung Earnings Disappoint After Strong SK Hynix Call

By Jim Handy

In today’s Samsung earnings call the company reported lower semiconductor profits than those of its first quarter, and gave relatively weak excuses for the company’s performance.  This comes one day after SK hynix revealed higher-than-expected revenues and earnings for the same quarter, and one month after a very positive call from Micron.


A.G.E. Analysis: Cyient Limited

By Nitin Mangal

Cyient Ltd (CYL IN) operational performance remains subdued over the past few years. The company has reported muted result for the quarter ending March 31, 2021, on the other hand other IT companies reported robust result. 

The analysis of financial statement depicts poor working capital management, probable aggressive revenue recognition policy coupled with fragile quality of receivables, poor capital allocation etc.   


Waterdrop Inc: Can the Water Keep Flowing After Its IPO?

By Alec Tseung

  1. Single monetization channel: as the company seeks further growth, can it really compete against the distribution channels of the tech and insurance giants in China?
  2. Insurance/product development potential: does the company have the expertise to develop its own products without just having to rely on the distribution channels?
  3. Valuation: if the investment thesis is to ride the growth of healthcare and medical insurance spending in China, isn’t it more direct to invest in an online (or even traditional) insurer, which is at a much lower valuation?

Renesas – Profitability Is the Story Here, Not Factory Fires

By Mio Kato

Renesas posted strong 1Q results despite concerns regarding a fire at its production facilities that is exacerbating shortages for automotive semiconductors. Revenue came in just 1.3% above consensus but the real story was margins which improved very significantly QoQ with OPM moving from 19.4% in 4Q20 to 25.8% in 1Q21 (above guidance of 22.0%).


Keyence – Snapback to All-Time Highs

By Mio Kato

Keyence put up impressive comeback numbers at results on Wednesday as both revenue and OP refreshed new quarterly highs. While results overall in the FA sector have been strong, Keyence is demonstrating its superior business model at a time when peers are just midway through their recoveries.


Tencent: Regulators Probe TME’s Previous Deals; The Battering Has Just Begun

By Shifara Samsudeen, ACMA, CGMA

Reuters reported yesterday that the State Administration of Market Regulation (SAMR) in China is preparing a substantial fine for Tencent Holdings (700 HK)  as part of its ongoing antitrust probe.

The SAMR imposed a fine of RMB18.2bn on Alibaba for violating anti-monopoly rules and abusing its market dominant position on 10th April. Reuters states that the fine on Tencent will be less than that which was imposed on Alibaba, but that Tencent should expect a penalty of at least RMB10bn.

The antitrust investigation on Tencent is partly focused on its past acquisitions and investments while other areas include anticompetitive practices in some of its businesses with a particular focus on Tencent Music Entertainment (TME).

In our previous insight Tencent: Only Fintech Restructuring or Losing the Edge on WeChat User Data? , we highlighted that Tencent’s past M&A deals could attract regulatory scrutiny and in March 2021, the company was fined RMB500k for its investment in online education app Yuanfudao in 2018 for not seeking prior approval for the deal, which was in violation of the country’s anti-monopoly laws. The fines for not properly reporting past M&A deals are capped at RMB500k per case in China.


Yaskawa – Some Thoughts After Our Call With IR

By Mio Kato

We spoke to Yaskawa on Wednesday to gauge regional trends and get a better understanding of some of the company’s new initiatives. Broadly, checkpoints in terms of regional demand trends are unlikely to surprise investors who have been following earnings but there are a few things worth noting.


Hello IPO: Huge Fixed Cost for Bike Sharing Eating into Margins (Quantamental)

By Shifara Samsudeen, ACMA, CGMA

Hello Inc (1883864D US)  the largest shared two-wheeler service provider in China has filed for an IPO and has a placeholder indication to raise about US$100m. The company is a leading local service platform in China and offers a range of services that include shared two-wheeler service, a carpooling marketplace and other emerging services and products such as e-scooters, in-store services marketplace, hotel reservations and online advertising services.


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