Global Emerging Market Equities, Propitious Research

Wium Malan, CFA

Global Emerging Market Equities

Equity Bottom-Up

<p><a href="https://www.smartkarma.com/entities/naspers-ltd" target="_blank" data-smartkarma-citation="entities:21085:1" rel="noopener">Naspers (NPN SJ)</a> gives you deeply discounted exposure to one of the highest quality companies listed in the Emerging Markets, <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent Holdings (700 HK)</a>. Should you back out the estimated fair values of all investments outside of Prosus’ 31% holding in Tencent from the current Naspers market cap, you are effectively buying exposure to Tencent for only 16.2x 2021F earnings.</p>
<p>Often overlooked, Naspers also gives exposure to a diverse range of online businesses, in differing stages of development, which are likely to structurally benefited from lasting changes to consumer behaviour in the wake of the COVID-19 pandemic.</p>
<p>Further, Management has signalled their focus on meaningfully reducing its discount to listed net asset value by implementing a $5bn share buyback program, during November 2020, which should also support the share price through volatility in the near term. </p>
<p>The key risk to the investment thesis regards the newly proposed Anti-Monopoly Compliance Guidelines for the Platform Economy released by China’s State Administration for Market Regulation (SAMR), a clear signal of tougher antitrust regulations going forward. Tencent should, however, be able to manage through these better than the large eCommerce players.</p>

Naspers (NPN SJ) gives you deeply discounted exposure to one of the highest quality companies listed in the Emerging Markets, Tencent Holdings (700 HK). Should you back out the estimated fair values of all investments outside of Prosus’ 31% holding in Tencent from the current Naspers market cap, you are effectively buying exposure to Tencent for only 16.2x 2021F earnings.
Often overlooked, Naspers also gives exposure to a diverse range of online businesses, in differing stages of development, which are likely to structurally benefited from lasting changes to consumer behaviour in the wake of the COVID-19 pandemic.
Further, Management has signalled their focus on meaningfully reducing its discount to listed net asset value by implementing a $5bn share buyback program, during November 2020, which should also support the share price through volatility in the near term. 
The key risk to the investment thesis regards the newly proposed Anti-Monopoly Compliance Guidelines for the Platform Economy released by China’s State Administration for Market Regulation (SAMR), a clear signal of tougher antitrust regulations going forward. Tencent should, however, be able to manage through these better than the large eCommerce players.

2021 High Conviction: Naspers, Deeply Discounted Exposure to Accelerating Online Sales

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<div>
<div>
<div>
<article tabindex="0" role="article" data-focusable="true" data-detected_0="1">
<div>
<div>
<div>
<div data-testid="tweet">
<div>
<div>
<div>
<div>And the rest, as they say, is history.</div>
</div>
<div></div>
</div>
</div>
</div>
</div>
<div>At the 11th hour, leading to what would the world's largest IPO, with an implied valuation of US$316bn - nearly 20% larger than the world's largest bank, <a href="https://www.smartkarma.com/entities/ind-comm-bk-of-china-h" target="_blank" data-smartkarma-citation="entities:1119:1" rel="noopener">ICBC (H) (1398 HK)</a> - the Shanghai Stock Exchange <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/1103/2020110302285.pdf" target="_blank" rel="noopener">cancelled</a> the A-Share listing saying that the interviews that authorities had conducted with Jack Ma and regulation changes were not adequately explained in the documents, and the listing could not go ahead. Shortly after, Ant Group pulled its H-Share offering too.</div>
<div></div>
<div>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/170/692/original/image_68455652821605053632763.png?1605053634" class="editor-image img-responsive" data-smartkarma-image-id="170692"></figure>
</div>
</div>
<div class="content-caption">Source: FT</div>
</div>
</article>
</div>
</div>
<div>It's easy to point the finger at Jack Ma's bellicose speech in Shanghai on the 24 October, in which he suggested traditional Chinese banks should change their “pawnshop” operating model. Arguably, this didn't help.</div>
<div></div>
<div>But the scuppering of the IPO is not some juicy vendetta - simply the reality of China's state-controlled banking system.</div>
<div></div>
<div>The runaway success of <a href="https://www.smartkarma.com/entities/alibaba-group" target="_blank" data-smartkarma-citation="entities:28434:1" rel="noopener">Alibaba Group (9988 HK)</a> / <a href="https://www.smartkarma.com/entities/ant-financial-services-group" target="_blank" data-smartkarma-citation="entities:24240:1" rel="noopener">Ant Group (6688 HK)</a> - and other massive tech companies such as <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent Holdings (700 HK)</a> - pivots off a less regulated entity pitched against more heavily regulated rivals.</div>
</div>
<div></div>
<div>The reining in of "disruptors" reach of these tech companies came in for even greater oversight yesterday with proposed new government measures to stomp on monopolistic practices, as a means to curtail their influence.</div>
<div></div>
<div>What does all this mean for big Chinese tech companies? Yesterday's downward move in BABA and Tencent could be just a sign of things to come.</div>
<div></div>
<div>More below the fold.</div>
<div></div>
<div>
<div>
<div>
<article tabindex="0" role="article" data-focusable="true" aria-labelledby="tweet-promoted-label conversation-level-label tweet-social-context tweet-user-name tweet-user-screen-name tweet-timestamp tweet-reply-context tweet-text tweet-rich-content-label conversation-control-label tweet-action-buttons" data-detected_0="1">
<div>
<div>
<div>
<div data-testid="tweet">
<div>
<div>
<div>
<div>
<div>
<div>
<div>
<article tabindex="0" role="article" data-focusable="true" aria-labelledby="tweet-promoted-label conversation-level-label tweet-social-context tweet-user-name tweet-user-screen-name tweet-timestamp tweet-reply-context tweet-text tweet-rich-content-label conversation-control-label tweet-action-buttons" data-detected_0="1">
<div>
<div>
<div>
<div data-testid="tweet">
<div>
<div>
<div>
<div id="tweet-text"></div>
</div>
</div>
</div>
</div>
</div>
</div>
</div>
</article>
</div>
</div>
</div>
</div>
</div>
</div>
</div>
</div>
</div>
</div>
</div>
</article>
</div>
</div>
</div>












And the rest, as they say, is history.






At the 11th hour, leading to what would the world's largest IPO, with an implied valuation of US$316bn - nearly 20% larger than the world's largest bank, ICBC (H) (1398 HK) - the Shanghai Stock Exchange cancelled the A-Share listing saying that the interviews that authorities had conducted with Jack Ma and regulation changes were not adequately explained in the documents, and the listing could not go ahead. Shortly after, Ant Group pulled its H-Share offering too.





Source: FT




It's easy to point the finger at Jack Ma's bellicose speech in Shanghai on the 24 October, in which he suggested traditional Chinese banks should change their “pawnshop” operating model. Arguably, this didn't help.

But the scuppering of the IPO is not some juicy vendetta - simply the reality of China's state-controlled banking system.

The runaway success of Alibaba Group (9988 HK) / Ant Group (6688 HK) - and other massive tech companies such as Tencent Holdings (700 HK) - pivots off a less regulated entity pitched against more heavily regulated rivals.


The reining in of "disruptors" reach of these tech companies came in for even greater oversight yesterday with proposed new government measures to stomp on monopolistic practices, as a means to curtail their influence.

What does all this mean for big Chinese tech companies? Yesterday's downward move in BABA and Tencent could be just a sign of things to come.

More below the fold.

















































Party Poopers: Reining In China's Internet

Travis Lundy

<p>On Friday 30 October in the morning, <a href="https://www.smartkarma.com/entities/prosus-nv" target="_blank" data-smartkarma-citation="entities:28104:1" rel="noopener">Prosus (PRX NA)</a><a href="https://www.prosus.com/news/media-release-prosus-to-acquire-us%245-billion-of-na" target="_blank" rel="noopener">announced</a> that it would conduct a US$5bn buyback of Prosus shares and <a href="https://www.smartkarma.com/entities/naspers-ltd" target="_blank" data-smartkarma-citation="entities:21085:1" rel="noopener">Naspers (NPN SJ)</a> shares (i.e. the subsidiary would buy shares in the parent to avoid passing down income from sub to parent which could be taxed). </p>
<p>There were some pleasant, shareholder-friendly comments. </p>
<section class="figure">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/168/871/original/Screenshot%202020-11-02%20at%207.58.47%20PM.png?1604318402" class="editor-image img-responsive" data-smartkarma-image-id="168871"></figure>
</section>
<p>In total, Prosus will acquire up to US$5 billion in shares in Naspers and Prosus on the open market, starting after interim earnings are released on 23 November 2020. Purchases will be made on a pro-rata (72.5%/27.5%) basis in line with the economic stakes of both companies in the Prosus/Naspers asset base and Prosus would not vote shares purchased and they would come out of the per-share calculations for EPS and BVPS.</p>
<p>It isn't a lot in the grand scheme of things, but $5bn is $5bn, and the discount is quite wide, so this deserves a look.</p>

On Friday 30 October in the morning, Prosus (PRX NA)announced that it would conduct a US$5bn buyback of Prosus shares and Naspers (NPN SJ) shares (i.e. the subsidiary would buy shares in the parent to avoid passing down income from sub to parent which could be taxed). 
There were some pleasant, shareholder-friendly comments. 



In total, Prosus will acquire up to US$5 billion in shares in Naspers and Prosus on the open market, starting after interim earnings are released on 23 November 2020. Purchases will be made on a pro-rata (72.5%/27.5%) basis in line with the economic stakes of both companies in the Prosus/Naspers asset base and Prosus would not vote shares purchased and they would come out of the per-share calculations for EPS and BVPS.
It isn't a lot in the grand scheme of things, but $5bn is $5bn, and the discount is quite wide, so this deserves a look.

Naspers & Prosus - A $5bn Catalyst Arrives

<p>Between early-2018 and late-2019, <a href="https://www.smartkarma.com/entities/naspers-ltd" target="_blank" data-smartkarma-citation="entities:21085:1" rel="noopener">Naspers (NPN SJ)</a> / <a href="https://www.smartkarma.com/entities/prosus-nv" target="_blank" data-smartkarma-citation="entities:28104:1" rel="noopener">Prosus (PRX NA)</a> management took meaningful steps to attempt a narrowing of their discount to listed NAV, the most important of which was announcing the intended spin-off of all Naspers’ ex-South African internet assets into a new entity, Prosus, to be listed on Euronext Amsterdam, with a secondary listing on the JSE, which resulted in a narrowing of the discount from c.35% to c.25%. </p><p>However, in the year since the listing of Prosus, we have seen a “double” discount manifest given Prosus’ c. 27% discount to its listed NAV as well as Naspers’ c. 29% discount to its listed NAV (which entirely comprises its 73% shareholding in Prosus). Intuitively, this seems excessive and, in this insight, I take a closer look at, what I believe to be, the top reasons for this discount, to find catalysts which might unlock value. </p><p>I believe we will continue to see a c.25% holding company discount at Prosus, with another c.20% warranted at Naspers. I cannot, however, identify any catalysts that would cause the “double” discount to widen and have applied these values to my SOTP. I estimate fair value for Prosus at €101/share (31% upside) and Naspers at R4,404/share (47% upside).</p>

Between early-2018 and late-2019, Naspers (NPN SJ) / Prosus (PRX NA) management took meaningful steps to attempt a narrowing of their discount to listed NAV, the most important of which was announcing the intended spin-off of all Naspers’ ex-South African internet assets into a new entity, Prosus, to be listed on Euronext Amsterdam, with a secondary listing on the JSE, which resulted in a narrowing of the discount from c.35% to c.25%. However, in the year since the listing of Prosus, we have seen a “double” discount manifest given Prosus’ c. 27% discount to its listed NAV as well as Naspers’ c. 29% discount to its listed NAV (which entirely comprises its 73% shareholding in Prosus). Intuitively, this seems excessive and, in this insight, I take a closer look at, what I believe to be, the top reasons for this discount, to find catalysts which might unlock value. I believe we will continue to see a c.25% holding company discount at Prosus, with another c.20% warranted at Naspers. I cannot, however, identify any catalysts that would cause the “double” discount to widen and have applied these values to my SOTP. I estimate fair value for Prosus at €101/share (31% upside) and Naspers at R4,404/share (47% upside).

Naspers: “Double” Discount Warranted? The Search for a Catalyst Continues

<section>
<div id="ember8709">
<div>
<p>On the 27 August, Leyou <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0827/2020082701826.pdf" target="_blank" rel="noopener">announced</a> a Scheme from <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent Holdings (700 HK)</a> at $3.3219/share.</p>
</div>
<div>
<p>The Offer Price represents a 30.27% premium over the closing price of HK$2.55/share on 19 September 2019, which was the last trading day prior to Leyou's <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0525/2020052501310.pdf" target="_blank" rel="noopener">announcing</a> it was in preliminary discussions with various independent potential investors.</p>
</div>
<div>
<p>Irrevocables in favour of the Scheme total 70.02% of shares out - primarily comprising Charles Yuk's stake - and the Scheme is conditional on 75% of shares out voting in favour of the Scheme.  Disinterested Shareholders comprise <em>all </em>shares out. Therefore the blocking stake at the Scheme Meeting is 308.5mn shares or 10% of shares out. No single shareholder has such a blocking stake. The headcount test applies as Leyou is Cayman-incorporated. </p>
</div>
<div>
<p>This looks done.</p>
<p>But politics can be a fickle beast. Social media app WeChat was in Trump's crosshairs over what is deemed a possible risk to the national security of the US, concerning personal information making its way to China.  That perceived data risk has now spilled over into gaming platforms operating in the US.</p>
<p>Leyou's shares wobbled a little after gaming companies were asked by Committee on Foreign Investment in the United States (CFIUS) on their security protocols in handling Americans' personal data.</p>
</div>
<div>
<p>Shares have now righted themselves - and indeed  - trade closer to terms. </p>
<p>As always, more below the fold.</p>
</div>
</div>
</section>




On the 27 August, Leyou announced a Scheme from Tencent Holdings (700 HK) at $3.3219/share.


The Offer Price represents a 30.27% premium over the closing price of HK$2.55/share on 19 September 2019, which was the last trading day prior to Leyou's announcing it was in preliminary discussions with various independent potential investors.


Irrevocables in favour of the Scheme total 70.02% of shares out - primarily comprising Charles Yuk's stake - and the Scheme is conditional on 75% of shares out voting in favour of the Scheme.  Disinterested Shareholders comprise all shares out. Therefore the blocking stake at the Scheme Meeting is 308.5mn shares or 10% of shares out. No single shareholder has such a blocking stake. The headcount test applies as Leyou is Cayman-incorporated. 


This looks done.
But politics can be a fickle beast. Social media app WeChat was in Trump's crosshairs over what is deemed a possible risk to the national security of the US, concerning personal information making its way to China.  That perceived data risk has now spilled over into gaming platforms operating in the US.
Leyou's shares wobbled a little after gaming companies were asked by Committee on Foreign Investment in the United States (CFIUS) on their security protocols in handling Americans' personal data.


Shares have now righted themselves - and indeed  - trade closer to terms. 
As always, more below the fold.




South Africa

Naspers Limited operates in the technology industry. The Company invests in global internet companies across the world.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

Naspers (NPN SJ)

2021 High Conviction: Naspers, Deeply Discounted Exposure to Accelerating Online Sales

Naspers: Deeply discounted exposure to Tencent, a diverse range of online businesses set to benefit from accelerated online activity post-COVID-19...

Wium Malan, CFA

Party Poopers: Reining In China's Internet

It is a delicate dance to promote home-grown tech companies while keeping existing market forces in check. But it is no secret the PRC government's...

David Blennerhassett

Naspers & Prosus - A $5bn Catalyst Arrives

Naspers/Prosus finally has a catalyst. It's not a HUGE catalyst but US$5bn is US$5bn. The trick is to think about where this places you at the end...

Travis Lundy

Naspers: “Double” Discount Warranted? The Search for a Catalyst Continues

Since the listing of Prosus, we have seen a “double” discount to listed NAV manifest at Naspers. I take a closer look at the top reasons for this...

Wium Malan, CFA

Tencent/Leyou: China Bytes

After going into a trading halt on the 10 July, Leyou announced Charles Yuk - its largest shareholder - had entered into a privatisation...

David Blennerhassett

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)