Information Technology Archives | Page 3 of 18 | Smartkarma

• Nearing the end of the review period, we see 5 stocks moving from MidCap to LargeCap, 2 new listings added to LargeCap and 7 stocks moving from LargeCap to MidCap.
• We see 7 stocks moving from SmallCap to MidCap, 3 new listings added to MidCap, and 12 stocks moving from MidCap to SmallCap.
• Stock migrating upward have, on average, outperformed stocks that are downward migrations. Stocks moving from MidCap to LargeCap have performed the best.

• Infomedia Ltd (IFM AU) disclosed an indicative non-binding proposal from Vista Equity Partners at A$1.70 a share. The Board has provided due diligence to all three bidders
• Curiously, Vista’s offer is in line with TA/Viburnum but below the Battery Ventures’ offer of A$1.75. This suggests that Vista requires due diligence to firm up a higher bid.   
• With the market downturn starting to blow up M&A deals, the three-way auction for Infomedia lowers its risk profile. At last close, the gross spread to the offers is 6.3-9.4%.

• Lunit is getting ready to complete its IPO in Korea in July. The IPO base deal size is from $42 million to $46 million.
• Established in 2013, Lunit is one of the leading companies in Korea that specializes in AI-based cancer diagnosis and treatment solutions.
• Lunit is a pioneer in the medical artificial intelligence industry. The company has developed and commercialized AI-assisted detection solutions that complement human visual limitations through deep learning technology. 

• We summarise the latest spreads and newsflow of merger arb situations covered by us across Hong Kong, Australia, New Zealand, Singapore, Indonesia, Malaysia, Thailand and Chinese ADRs.
• The highest spreads are Sezzle Inc (SZL AU), Link Administration (LNK AU), 21Vianet Group (VNET US), Alliance Aviation Services (AQZ AU), Ramsay Health Care (RHC AU), Resapp Health (RAP AU).
• The lowest gross spreads are Irongate Group (IAP AU), AKM Industrial (1639 HK), Beijing Enterprises Urban Resources (3718 HK), Hwa Hong Corp (HWAH SP), Uniti Group Ltd (UWL AU). 

• Grab is Southeast Asia’s dominant on-demand platform for ride-hailing and deliveries. It is also one of the top mobile wallet/fintech player in the region.

• Amidst the dramatic turn in macro and capital markets conditions, incentives spending in the industry seems to be coming down fast and across the board as management teams’ focus shifts to profitability.

• While share prices of tech companies have been severely punished, the downturn may also be a positive turning point to catalyze more rational industry behavior moving forward.

• Online auto parts and service provider Infomedia Ltd (IFM AU) has received a third non-binding proposal; this time from U.S.-based software company Solera Holdings. 
• The Offer price is A$1.70/share, in line with TA Associates-led consortium’s bid, but below Battery Ventures’ A$1.75/share offer.
• As with TA and Battery, Solera has been granted limited due diligence. TA holds a 19.4% stake.

• There are 49 – mostly firm – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
• Two new deals this week: Frasers Hospitality Trust (FHT SP)‘s Scheme, and  Pfizer Inc (PFE US)‘s Offer for Resapp Health (RAP AU).
• Key updates took place for: Link Administration (LNK AU), Virtus Health (VRT AU), Toyo Construction (1890 JP), Kito Corporation (6409 JP), and Hwa Hong Corp (HWAH SP).

• It was a busy Friday with multiple implementations of the June rebalance – FTSE All-World/All-Cap, FTSE China 50/A50/TW50, S&P/ASX, REMX and GDXJ among others.
• We highlight potential upcoming changes to the HSCEI INDEX and LQ45 Index, when Kakao Pay (377300 KS) could be added in MSCI Korea & the Thai Life IPO index inclusion.
• There were large inflows to China and Korea focused ETFs during the week.

• There has been a recent press commentary about Sea Ltd laying off staff, which although unpleasant reflects management’s decisive and pragmatic decision-making style which is no bad thing.
• It is unclear how many staff are being laid off and where but it seems that Indonesia is not impacted in a big way and core markets continue to perform.
• We will not follow on the coattails of liquidity with a negative recommendation when what management is doing looks positive and Sea Ltd (SE US) is batting above its peers.

• Confluent (CFLT US)  is an American-based data infrastructure software company and a major contributor to the open-source project Apache Kafka. 
• Original creators of Apache Kafka founded the company in 2014. Today, Kafka has 5M+ lifetime downloads, and >100,000 organizations use the successful open source project.
• We believe Confluent (CFLT US)  is uniquely positioned to benefit from the widespread adoption of Apache Kafka and the growing $50B+ total addressable market. 

• This transaction is looking increasingly toast. The ACCC has outlined significant preliminary competition concerns with Dye & Durham’s (D&D) proposed acquisition of Link Administration (LNK AU).
• Separately, Link’s subsidiary, Link Fund Solutions Limited, has been notified that an application for a “Group Litigation Order” has been filed in the English High Court. 
• Link has to exit PEXA for this transaction to proceed. But how badly do D&D want PEXA? Will they walk? Time to look at Link fundamentally, separate from D&D’s Offer.

• The ACCC’s Statement of Issues noted “significant preliminary competition concerns” in relation to Dye & Durham/DND’s acquisition of Link Administration (LNK AU). The findings will be announced on 8 September.
• There is no easy fix. We think that satisfying the ACCC requires a PEXA Group (PXA AU) stake disposal which could trigger a material adverse clause.
• Link aims to proceed with the 13 July scheme meeting but this is a broken deal. While our SoTP suggests upside, there are no short-term positive catalysts.

• Nexon (3659 JP) founder Kim Jung Ju tried to sell his holdco in 2019, didn’t, now shares are higher, but he passed suddenly in Q1. The stock popped.
• Inheritance tax issues for the estate are complicated, but the buyback just executed might signal a “pause” for a while. 
• In the meantime, recent underperformance in terms of Peer-relative earnings forecasts suggests the stock could drift.

• ExaWizards (4259 JP) raised around US$300m in its Japan IPO in Dec 2021, where its IPO had been priced at the top end of its indicative price range.
• ExaWizards is an AI service provider in Japan, it develops and delivers AI products with the aim of addressing industry and social issues.
• While in our view, we would not expect a large block to come from this lockup expiry, we could expect some scattered selling across the shareholders.

• After a 50% fall in the share price, Lasertec looks cheap on an historical basis and trades at a discount to ASML  
• The secular growth outlook for its extreme ultraviolet (EUV) inspection systems is brighter than ever  
• Lasertec should be a core holding for Japan growth funds on expectations for continued earnings growth and high returns on equity 

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• Reuters and several other news media outlets reported that Baidu (BIDU US) is planning to sell its stake in iQIYI Inc (IQ US) .
• Baidu has supposedly valued iQiyi at US$7bn, implying US$8.2 per ADR which is at a 78% premium to iQiyi’s last close of US$4.6 per ADR.
• IQiyi reported first-ever operating profit in 1Q2022 driven by huge cost cutting. However, it is yet to be seen if the company could continue to maintain margins without compromising growth.

• Erajaya‘s 1Q2022 results do not reflect the company’s prospects for FY2022, given the impact of Omicron, the chip shortage, and significant IT upgrades taking place, all of which depressed performance.
• The company is stepping up its outlet expansion this year, with plans to add 400-500 new outlets in an effort to gain market share post-pandemic by expanding its network.
• Erajaya is adding new retail JVs outside its handset and IoT businesses including JD Sports, Wellings Pharmacy, Grand Lucky, and Paris Baguette, jointly managing these JVs.

• Sea Ltd (SE US)’s share price fell 7.42% yesterday after a report broke out about mass layoffs across Shopee’s international operations.
• We think Shopee has a fundamentally flawed business model and tinkering here and there won’t be enough to make Shopee a world-class business.
• With Free Fire falling fast and Shopee starved of funds, we fear that there could be another leg down for Sea Ltd shares in the short term.

• Tech weakness has not only eroded the underlying asset value but raised concerns on leverage and the potential for an ARM IPO. The discount expanded by 4pp in one week
• The timing and pricing of an ARM IPO looks more precarious as the semiconductor sector fell 13% over two days and is now down 34% from all-time highs
• Currency tailwinds have provided some offset with an unprecedented dollar move mimiting downside in Softbank shares to 8% YTD versus a 24% decline for the $-based ADR

• This year’s consensus OCF is at least ₩75T, and CAPEX is ₩45T, less than last year. As a result, we will likely reach an FCF of ₩30T.
• Then the yearend special DPS would be ₩764, which provides dividend yields of 2.97% (Ord) and 3.22% (Pref), respectively, even based on the conservative OCF estimates.
• This is a sufficiently attractive dividend yield for Pref. Hence, unless the SEC’s price enters a sharp uptrend, the bullish Pref will likely continue. 

• MicroStrategy Inc (MSTR US) is trading at a ~2% discount to NAV as the crypto rout moves into a higher gear.  
• Bitcoin briefly dipped below US$25k in the last 24 hours, an 18-month low. If it falls another 18%, this will trigger a margin call on one of MicroStrategy’s loans.
• All is not well elsewhere in cryptoland. Ethereum touched a 17-month low; the Luna/Terra ecosystem has crashed; and crypto lender Celsus capitulated ~60% this morning after freezing withdrawals. 

• I will discuss the points on the Nikkei article, “TSE Reorganization Leads to Shareholder Proposal: British Fund to Subsidiary of Nippon Steel Corporation.”
• Since the parent-subsidiary listing is related to the parent company’s market capitalization, I don’t believe that the issue is one that can be postponed so long.
• NSSOL, which maintains stable profitability and cash generation, is expected to see its share price rise further if NSSOL becomes independent and foreign shareholding will increase.

• Stay short ahead of Q1 results. Full year guidance remains too high and will likely be cut later this year
• Yaskawa remains a cyclical stock that correlates with the SOX index – higher interest rates are impacting valuation multiples
• We see 20% downside risk towards 3x price to book

• Our base case valuation LG Energy Solution is implied market cap of 75 trillion won or target price of 319,089 won, representing 25% below current share price.
• Currently, LGES is trading at a premium valuation multiple on a EV/EBITDA (2023E) versus CATL. We believe LGES should trade at a discount to CATL in the next 6-12 months. 
• LGES’s 6 months lock-up ends on 27 July and there are 4.3% of outstanding shares that can be sold which is likely to put negative pressure on share price.

• We summarise the latest spreads and newsflow of merger arb situations covered by us across Hong Kong, Australia, New Zealand, Singapore, Indonesia, Malaysia, Thailand and Chinese ADRs.
• This week, the highest spreads are Sezzle Inc (SZL AU), 21Vianet Group (VNET US), Link Administration Holdings (LNK AU), Alliance Aviation Services (AQZ AU), Ramsay Health Care (RHC AU). 
• The lowest gross spreads are Virtus Health (VRT AU), Crown Resorts (CWN AU), Irongate Group (IAP AU), AKM Industrial (1639 HK), Beijing Enterprises Urban Resources (3718 HK). 

• Maintain HOLD; Labour and raw mat issues remain
• Addt’l 3k workers to arrive in the coming months
• One-off levy and recruitment costs could drag 4Q NP
• Costs impact within expectations

• Aequitas Research puts out a weekly update on the deals that were covered by the team recently along with updates for upcoming IPOs.
• IPO volumes remain subdued across the region, although a number of deals are said to be looking to launch soon.
• Placements stole the limelight this week too with Kakao Pay’s selldown by Ant and Joy Spreader’s crash pulling the scales even on last week’s better performing deals.