Forensic Analyst

Jason Yap, CFA

Forensic Accounting

<p>The State Administration for Market Regulation, China's antitrust regulator, imposed a fine of RMB3.4 billion (USD530 million) on food delivery group <a href="https://www.smartkarma.com/entities/meituan-dianping" target="_blank" data-smartkarma-citation="entities:26970:1" rel="noopener">Meituan (3690 HK)</a> for abusing its market position and ordered the company to rectify its operations.</p><p>Amongst other required remedial actions, Meituan was ordered to return deposit money to merchants. Merchant had reportedly used deposits, algorithms, and data to ensure that its restaurant merchants remained loyal to the platform, according to an <a href="https://www.ft.com/content/8862b118-75ad-45b1-85df-b3fa09d26ac3" target="_blank" rel="noopener">FT article</a>. </p><p>This begs the question. Why are merchant deposits required by e-commerce companies like Meituan, <a href="https://www.smartkarma.com/entities/alibaba-group" target="_blank" data-smartkarma-citation="entities:28434:1" rel="noopener">Alibaba Group (9988 HK)</a> and <a href="https://www.smartkarma.com/entities/pinduoduo-inc" target="_blank" data-smartkarma-citation="entities:27250:1" rel="noopener">Pinduoduo (PDD US)</a>? After all, most of the merchant transactions are 3P, which means the platforms do not carry any inventory risk and therefore do not need merchant deposits to offset risks. Could it be to increase switching costs or even to hold merchants ransom as the FT article suggests. </p><p>In this Insight, we discuss how merchant deposits and merchant payables have been used as a means to pad operating cashflows (even though they are not strictly <em>free</em> cashflows), particularly for fast growing e-commerce platforms.</p><p>Further, we have seen the "<em>walled gardens</em>" of China's tech giants <a href="https://www.scmp.com/tech/big-tech/article/3148572/big-techs-walled-gardens-start-crack-tencent-vows-follow-beijings" target="_blank" rel="noopener">start to crack</a> - in other words, merchants can freely switch platforms taking away merchant deposits with them, which could potentially affect cashflows.  </p>

The State Administration for Market Regulation, China's antitrust regulator, imposed a fine of RMB3.4 billion (USD530 million) on food delivery group Meituan (3690 HK) for abusing its market position and ordered the company to rectify its operations.Amongst other required remedial actions, Meituan was ordered to return deposit money to merchants. Merchant had reportedly used deposits, algorithms, and data to ensure that its restaurant merchants remained loyal to the platform, according to an FT article. This begs the question. Why are merchant deposits required by e-commerce companies like Meituan, Alibaba Group (9988 HK) and Pinduoduo (PDD US)? After all, most of the merchant transactions are 3P, which means the platforms do not carry any inventory risk and therefore do not need merchant deposits to offset risks. Could it be to increase switching costs or even to hold merchants ransom as the FT article suggests. In this Insight, we discuss how merchant deposits and merchant payables have been used as a means to pad operating cashflows (even though they are not strictly free cashflows), particularly for fast growing e-commerce platforms.Further, we have seen the "walled gardens" of China's tech giants start to crack - in other words, merchants can freely switch platforms taking away merchant deposits with them, which could potentially affect cashflows.  

Merchant Deposits and Payables to Pad Cashflows - Who's Culpable?

Asia Pac IPO & Placement Research, China biotech, Aequitas Research

Ke Yan, CFA, FRM

Asia Pac IPO & Placement Research, China biotech

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Quantitative Analysis

<p>In our weekly HK Connect Flow series, we aim to highlight key stocks and sectors which the mainland investors traded via the southbound Hong Kong Connect, as analyzed by our proprietary data engine.</p><p>Since the opening of Hong Kong Connect scheme in 2014, southbound Chinese money started to play an increasingly important role in the Hong Kong stock market. In 2020, Southbound trading accounted for 22% of the equity market ADT. </p><p>We split the stocks eligible for the Hong Kong Connect trade into three groups: HSCEI component stocks, stocks with a market capitalization between USD 1 billion and USD 5 billion, and stocks with a market capitalization between USD 500 million and USD 1 billion.</p><p>In this insight, we will highlight inflows into Tencent Holdings Limited (700 HK), Meituan (3690 HK), Cnooc Limited (883 HK), China Resources Power Holdings Company Limited (836 HK), Hygeia Healthcare Holdings Co., Limited (6078 HK).</p>

In our weekly HK Connect Flow series, we aim to highlight key stocks and sectors which the mainland investors traded via the southbound Hong Kong Connect, as analyzed by our proprietary data engine.Since the opening of Hong Kong Connect scheme in 2014, southbound Chinese money started to play an increasingly important role in the Hong Kong stock market. In 2020, Southbound trading accounted for 22% of the equity market ADT. We split the stocks eligible for the Hong Kong Connect trade into three groups: HSCEI component stocks, stocks with a market capitalization between USD 1 billion and USD 5 billion, and stocks with a market capitalization between USD 500 million and USD 1 billion.In this insight, we will highlight inflows into Tencent Holdings Limited (700 HK), Meituan (3690 HK), Cnooc Limited (883 HK), China Resources Power Holdings Company Limited (836 HK), Hygeia Healthcare Holdings Co., Limited (6078 HK).

Hong Kong Connect Flows: What Did Chinese Buy Before National Day

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

Equity Capital Markets

<div>
<p>Prudential raised around US$2.4bn via an international and public offering in Hong Kong. </p>
</div>
<p>We covered various aspects of the deal in our earlier note, <a href="https://www.smartkarma.com/insights/prudential-hong-kong-offering-well-flagged-pivot-to-asia-mind-the-liquidity-gap" target="_blank" rel="noopener">Prudential Hong Kong Offering - Well Flagged Pivot to Asia, Mind the Liquidity Gap</a>.</p>
<div>
<p>In this note, we will talk about the updates since then.</p>
</div>


Prudential raised around US$2.4bn via an international and public offering in Hong Kong. 

We covered various aspects of the deal in our earlier note, Prudential Hong Kong Offering - Well Flagged Pivot to Asia, Mind the Liquidity Gap.

In this note, we will talk about the updates since then.


Prudential Hong Kong Offering - Trading Quick Note

Shanghai MicroPort MedBot Group / Equity Capital Markets

<div><p>MicroPort MedBot (MM), a surgical robot company, aims to raise up to US$1bn in its Hong Kong IPO. It is a subsidiary of <a href="https://www.smartkarma.com/entities/microport-scientific-corp" target="_blank" data-smartkarma-citation="entities:4487:1" rel="noopener">Microport Scientific (853 HK)</a> and is backed by Hillhouse and other  mainly domestic investors.</p></div><div><p>MicroPort MedBot (MM) is a surgical robot company which designs, develops and commercializes surgical robots to assist surgeons in performing complex surgical procedures. It is the only company with a product portfolio covering the five major and fast-growing surgical specialties of laparoscopic, orthopedic, panvascular, natural orifice and percutaneous surgical procedures, as per Frost &amp; Sullivan (F&amp;S).</p></div><div><p>Its flagship products, Toumai Laparoscopic Surgical Robot, DFVision 3D Electronic Laparoscope and Honghu Orthopedic Surgical Robot, have all been admitted to the NMPA’s Green Path. Toumai and Honghu are at or near the registration approval stage, and DFVision has recently received NMPA approval.</p></div><p>We have looked at the company’s background and products in our earlier note, <a href="https://www.smartkarma.com/insights/microport-medbot-pre-ipo-robodoc-pre-revenue-has-a-large-competitor-but-a-large-market-as-well" target="_blank" rel="noopener">MicroPort MedBot Pre-IPO - RoboDoc - pre-revenue, has a large competitor but a large market as well</a>. </p><p>In this note, we will talk about the PHIP updates and look at the performance of its largest competitor.</p>

MicroPort MedBot (MM), a surgical robot company, aims to raise up to US$1bn in its Hong Kong IPO. It is a subsidiary of Microport Scientific (853 HK) and is backed by Hillhouse and other  mainly domestic investors.MicroPort MedBot (MM) is a surgical robot company which designs, develops and commercializes surgical robots to assist surgeons in performing complex surgical procedures. It is the only company with a product portfolio covering the five major and fast-growing surgical specialties of laparoscopic, orthopedic, panvascular, natural orifice and percutaneous surgical procedures, as per Frost &amp; Sullivan (F&amp;S).Its flagship products, Toumai Laparoscopic Surgical Robot, DFVision 3D Electronic Laparoscope and Honghu Orthopedic Surgical Robot, have all been admitted to the NMPA’s Green Path. Toumai and Honghu are at or near the registration approval stage, and DFVision has recently received NMPA approval.We have looked at the company’s background and products in our earlier note, MicroPort MedBot Pre-IPO - RoboDoc - pre-revenue, has a large competitor but a large market as well. In this note, we will talk about the PHIP updates and look at the performance of its largest competitor.

MicroPort MedBot Pre-IPO - RoboDoc - PHIP Updates and a Look at Its Largest Competitor

APAC IPOs & Placements, Aequitas Research

Clarence Chu

APAC IPOs & Placements

Tam Jai International / Equity Capital Markets

<p><a href="https://www.smartkarma.com/entities/tam-jai-international-co-ltd" target="_blank" data-smartkarma-citation="entities:34227:1" rel="noopener">Tam Jai International (2271 HK)</a> is looking to raise up to US$179m in its Hong Kong IPO.</p><p>Tam Jai International is a restaurant chain operator of the TamJai and SamGor branded fast casual restaurant chain in Hong Kong with operations also in Mainland China and Singapore.  As of the latest practicable date (13th September 2021), the firm operated a total of 156 restaurants, comprising 79 TamJai restaurants and 77 SamGor restaurants, of which 150 were located in Hong Kong, three in Mainland China and the remaining three in Singapore. As per Euromonitor, the firm ranks No. 1 among Asian noodle specialty restaurants in Hong Kong. </p><p>Overall, the firm's earnings have been resilient despite facing setbacks in its track period (i.e. COVID-19 and the Hong Kong riots). Margins have expectedly fallen as rent expenses outpaced revenue, but the firm plans to expand overseas which if successful, would warrant a valuation closer to its higher valued China-based peers.</p>

Tam Jai International (2271 HK) is looking to raise up to US$179m in its Hong Kong IPO.Tam Jai International is a restaurant chain operator of the TamJai and SamGor branded fast casual restaurant chain in Hong Kong with operations also in Mainland China and Singapore.  As of the latest practicable date (13th September 2021), the firm operated a total of 156 restaurants, comprising 79 TamJai restaurants and 77 SamGor restaurants, of which 150 were located in Hong Kong, three in Mainland China and the remaining three in Singapore. As per Euromonitor, the firm ranks No. 1 among Asian noodle specialty restaurants in Hong Kong. Overall, the firm's earnings have been resilient despite facing setbacks in its track period (i.e. COVID-19 and the Hong Kong riots). Margins have expectedly fallen as rent expenses outpaced revenue, but the firm plans to expand overseas which if successful, would warrant a valuation closer to its higher valued China-based peers.

Tam Jai International IPO - Favourable Risk to Reward at Low End

China

Meituan operates as a web based shopping platform for locally found consumer products and retail services. The Company offers deals of the day by selling vouchers on local services and entertainment, dining, delivery, and other services. Meituan provides its services throughout China.

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Meituan (3690 HK)

Merchant Deposits and Payables to Pad Cashflows - Who's Culpable?

Merchant deposits and merchant payables have been used to pad operating cashflows (even though they are not free cashflows), particularly for fast...

Jason Yap, CFA

Hong Kong Connect Flows: What Did Chinese Buy Before National Day

We will highlight weekly Southbound Connect inflows into Tencent, Meituan, Cnooc, China Resources Power, Hygeia Healthcare.

Ke Yan, CFA, FRM

Prudential Hong Kong Offering - Trading Quick Note

Prudential raised around US$2.4bn via an international and public offering in Hong Kong. In this note, we will talk about the updates since then.

Sumeet Singh

MicroPort MedBot Pre-IPO - RoboDoc - PHIP Updates and a Look at Its Largest Competitor

MicroPort MedBot, a surgical robot company, aims to raise up to US$1bn in its Hong Kong IPO. It is a subsidiary of Microport Scientific (853 HK)...

Sumeet Singh

Tam Jai International IPO - Favourable Risk to Reward at Low End

Tam Jai International (2271 HK) is looking to raise up to US$179m in its Hong Kong IPO. Tam Jai International is a restaurant chain operator of the...

Clarence Chu

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