Daily BriefsTMT/Internet

TMT: Tencent, Keyence Corp, Mediatek Inc, Xiaomi Corp, Money Forward, Coforge, Tech Mahindra, Birlasoft and more

In today’s briefing:

  • Tencent: All Bets Are Off
  • Keyence – Showing Its Quality
  • MediaTek: Results Beat, Increased Guidance, Earnings Upgrades… and a Lower Share Price
  • Hong Kong Buybacks: HK$200m Buyback by Xiaomi
  • TOPIX Inclusion Trade Summary: July 2021
  • Coforge: Healthy Organic Performance, Robust Guidance
  • Coforge: Sturdy Growth, Healthy Deal Pipeline
  • Improving outlook, but operational metrics stretched
  • EARNINGS UPDATE- KPIT TECHNOLOGIES LTD 1QFY22
  • Birlasoft: Growth to Improve in Coming Quarters

Tencent: All Bets Are Off

By Shifara Samsudeen, ACMA, CGMA

Tencent (700 HK) shares have lost 18% to HK$478.80 by the end of today’s close since the beginning of July 2021 and has lost 35.0% since its peak in February this year. Tencent’s shares continue to slide over regulatory scrutiny over Chinese internet stocks. The Chinese regulators have widened their crackdown on the country’s internet sector with the latest crackdown aimed at the county’s education sector.

Tencent has been making into headlines over the past few days with its music streaming arm Tencent Music (TME US) being ordered to give up exclusive music licensing rights alongside a fine, its investments in online education and tutoring platforms such as Yuanfudao being targeted by Beijing regulators and the company suspending new user registrations on WeChat.

As we have discussed in our previous insights, there is no sign that the Chinese regulators are slowing down with its antitrust crackdown on the country’s tech platforms and though the ongoing regulatory crackdown has already been priced into Tencent’s share price, we would strongly recommend being on the side lines as the ongoing probe could have a material impact on the company’s future earnings.


Keyence – Showing Its Quality

By Mio Kato

Keyence revenue growth surprised to the upside like peers with a 10.7% positive surprise vs. consensus. Just as importantly, OPM was also strong as the unusually high SG&A burden the company has been experiencing over the last two years continues to ease.


MediaTek: Results Beat, Increased Guidance, Earnings Upgrades… and a Lower Share Price

By Wium Malan, CFA

Mediatek Inc (2454 TT) delivered a strong set of 2Q21 results, beating sell-side consensus estimates on both the top and bottom-line and delivering numbers at the top-end of management’s guided ranges, which, in conjunction with a continued strong demand environment, has led to an increase in growth and profitability guidance for the remainder of FY2021.

Further short-term share price weakness, based on supply constraint concerns, along with a continuation of the earnings upgrade cycle, has resulted in MediaTek trading on a 13.8x NTM PE ratio, which is more than one standard deviation below its historical average trading range. MediaTek also currently trades on an extremely attractive 6.3% NTM dividend yield with little risk of a negative surprise to dividend payments given the ongoing earnings upgrades, and MediaTek having generated NT$28bn in Operating Cash Flow, during 2Q21, which helped its Net Cash balance increase further to NT$191bn, now 13% of its Market Cap. 

In this insight, we look at MediaTek’s 2Q21 results, its medium- and longer-term growth outlook and current valuation levels. This insight is also a follow-up from our more-detailed analysis of MediaTek (MediaTek: High-Quality 5G Beneficiary with a Tremendously Attractive Dividend Yield) last month.


Hong Kong Buybacks: HK$200m Buyback by Xiaomi

By Ke Yan, CFA, FRM

Hong Kong Exchange publishes share repurchases by listed companies on a daily basis. In our weekly note, we will provide statistics on top repurchases over one week, one month, one quarter and one year periods ended on Jul 30.

In the past 7 days, the top 3 companies that repurchased the most shares from the market were  Xiaomi Corp (1810 HK) (HKD 196.9 million worth of buybacks), New World Development (17 HK) (HKD 170.2 million worth of buybacks), China Gas Holdings (384 HK) (HKD 86.6 million worth of buybacks).


TOPIX Inclusion Trade Summary: July 2021

By Janaghan Jeyakumar, CFA

In this insight, we take a look at the monthly performance of the trading opportunities surrounding TOPIX Index Rebalance events. During the month, we witnessed the Inclusion Events of cloud-based business accounting software company Money Forward (3994 JP), water treatment technology company Nomura Micro Science (6254 JP), and printed circuit board manufacturer Meiko Electronics (6787 JP)

Furthermore, as discussed by Travis Lundy in July TOPIX FFW Rebalancing Trade, there were quarterly float adjustments for some constituents of the TOPIX Index which opened up a few trading opportunities. 

Below is a closer look at each of these situations. 


Coforge: Healthy Organic Performance, Robust Guidance

By ICICI Securities Limited

About the stock: Coforge offers system integration, apps & BPO services to BFSI, travel & healthcare verticals

  • Coforge’s revenues and PAT have grown at a CAGR of ~12% each over the past five years
  • Healthy OCF, EBITDA (~75%) and robust return ratios (RoCE > 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.

Coforge: Sturdy Growth, Healthy Deal Pipeline

By Axis Direct

We recommend a BUY and assign 37x P/E multiple to its FY23E earnings of Rs 139.5/share which gives a TP of Rs 5,220 /share, implying an upside of 10% 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.

Improving outlook, but operational metrics stretched

By Motilal Oswal

In USD terms, revenue growth of 3.9% QoQ CC in 1QFY22 was above our estimate mainly on account of Communications (+2.9% v/s expectation of flat growth). The Enterprise business reported a growth of 4.7% QoQ CC. New deal wins fell 20% QoQ to USD815m (0.6x BTB), but stayed ahead of past trends, while the qualified pipeline remained at historical peaks. EBIT margin dipped by 130bp QoQ in 1QFY22 (led by wage hike, visa cost and seasonality in Communications), but was 90bp above our estimate.

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.

EARNINGS UPDATE- KPIT TECHNOLOGIES LTD 1QFY22

By Chola Wealth Direct

Background: KPIT Technologies is leading is a global technology company providing software solutions that help mobility companies leapfrog towards autonomous, clean, smart and connected future. The major focus areas of the company are power train (Conventional and electrical), autonomous technology (vision and control systems), connectivity and diagnostics. The company’s focus sub verticals are Passenger cars, Commercial and Off-highway vehicles and New Mobility. KPIT derives 84.6% of its revenue from strategic top 21 clients.

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.

Birlasoft: Growth to Improve in Coming Quarters

By ICICI Securities Limited

We continue to remain positive and retain our BUY rating on the stock Target Price and Valuation: We value Birlasoft at Rs 475 i.e. 25x P/E on FY23E EPS Key triggers for future price performance: Revenue growth is expected to be achieved via client mining, cross sell,…

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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