Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

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.

Event-Driven

<ul>
<li>PCAOB officials concluded their Hong Kong visit last month and PCAOB is due to announce its annual judgment on whether it had adequate access to US listed China companies.</li>
<li>The Hong Kong visit was on the back of the 26th Aug 2022 announcement by PCAOB and CSRC that they had entered into an agreement with US authorities for access.</li>
<li>In this note, we'll talk about the latest developments, possible outcomes and implications.</li>
</ul>


PCAOB officials concluded their Hong Kong visit last month and PCAOB is due to announce its annual judgment on whether it had adequate access to US listed China companies.
The Hong Kong visit was on the back of the 26th Aug 2022 announcement by PCAOB and CSRC that they had entered into an agreement with US authorities for access.
In this note, we'll talk about the latest developments, possible outcomes and implications.


China ADRs Delisting - Friday Could Be Judgment Day for over US$800bn Mcap of Stocks

TMT & Consumer Independent Equity Research Analyst, Obex Capital Research

Aaron Gabin

TMT & Consumer Independent Equity Research Analyst

TMT & Consumer Independent Equity Research

Obex Capital Research

“Obex” is Latin for Barriers to Entry. Obex Capital Management’s investment philosophy is driven by an intense focus on which business model’s Barriers to Entry are able to withstand the ever increasing competitive disruption in the TMT and Consumer Sectors.

Equity Bottom-Up

Summary: Coursera, an online education platform will see its business model decelerate faster than expected. While the TAM trajectory of online education has clearly inflected higher due to the pandemic, we think  the Coursera’s growth trajectory is being mismodeled based on 2020’s surge in signups. Coursera’s profitability is dependent on scaling its enterprise and degree customer bases. While the demand for upskilling employees is real, intense competition from LinkedIn, Pluralsight, and others may crimp growth and gross margins segment, while a lack of leverage with its content suppliers (university partners), plus edX’s open source alternative  weaken revenue sharing over time. A lack of tangible evidence of Coursera’s skills-based credentialing translating to jobs will result in underwhelming consumer growth and lack of pricing power. Downside risks around regulation and competitive incursion by tech platforms paired with an obscene valuation make a compelling short case. Base Case Valuation: $33                                  Bull Case: $57                                 Bear Case: $20<div class="content-highlight">Obex’s fundamental research process is focused on secular change in the TMT and Consumer sectors. We seek to differentiate between fundamental business analysis and security analysis. Before deciding if a security’s pricing and positioning merit a long or short position, we analyze the four pillars of business fundamentals (Secular Factors, TAM, Competitive Advantage, Business Model) in order to determine if this is a “good” or “not so good” opportunity.</div>

Summary: Coursera, an online education platform will see its business model decelerate faster than expected. While the TAM trajectory of online education has clearly inflected higher due to the pandemic, we think  the Coursera’s growth trajectory is being mismodeled based on 2020’s surge in signups. Coursera’s profitability is dependent on scaling its enterprise and degree customer bases. While the demand for upskilling employees is real, intense competition from LinkedIn, Pluralsight, and others may crimp growth and gross margins segment, while a lack of leverage with its content suppliers (university partners), plus edX’s open source alternative  weaken revenue sharing over time. A lack of tangible evidence of Coursera’s skills-based credentialing translating to jobs will result in underwhelming consumer growth and lack of pricing power. Downside risks around regulation and competitive incursion by tech platforms paired with an obscene valuation make a compelling short case. Base Case Valuation: $33                                  Bull Case: $57                                 Bear Case: $20Obex’s fundamental research process is focused on secular change in the TMT and Consumer sectors. We seek to differentiate between fundamental business analysis and security analysis. Before deciding if a security’s pricing and positioning merit a long or short position, we analyze the four pillars of business fundamentals (Secular Factors, TAM, Competitive Advantage, Business Model) in order to determine if this is a “good” or “not so good” opportunity.

HK/China Equity Long-Short

Osbert Tang, CFA

<ul>
<li>
<a href="https://www.smartkarma.com/entities/china-education-group-holdin" target="_blank" data-smartkarma-citation="entities:18218:1" rel="noopener">China Education Group (839 HK)</a> demonstrates resilience amid market concerns on policy uncertainties by posting a 40.5% growth in 1H22 reported net profit and 20.1% growth in adjusted net profit. </li>
<li>Higher education segment saw 44% profit growth and strengths will sustain into 2H22. Weaker secondary vocational and global education segments will witness a sharp recovery, based on latest application statistics.</li>
<li>CEG has secured increase in tuition and quota in the coming school year, and this will boost FY23 outlook. It opts for an Rmb500m buyback, instead of paying interim dividend.</li>
</ul>



China Education Group (839 HK) demonstrates resilience amid market concerns on policy uncertainties by posting a 40.5% growth in 1H22 reported net profit and 20.1% growth in adjusted net profit. 
Higher education segment saw 44% profit growth and strengths will sustain into 2H22. Weaker secondary vocational and global education segments will witness a sharp recovery, based on latest application statistics.
CEG has secured increase in tuition and quota in the coming school year, and this will boost FY23 outlook. It opts for an Rmb500m buyback, instead of paying interim dividend.


China Education Group (839 HK): Impressive 1H22 Result, Positive Takeaways from Call

Thematic (Sector/Industry)

<ul>
<li>Global EdTech venture funding surged 29% YoY to US$20.8bn in 2021. China saw c.75% YoY decline in EdTech venture funding but India recorded over 60% growth.</li>
<li>Into 2022, we expect EdTech spending and market will continue to grow, venture funding becoming more selective and Asia and workforce are the fastest growing markets.</li>
<li>China stays weak in 1H22 and India will thrive. India has 4 new unicorns in 2021 while none for China. We stick to higher education, not EdTech (tutoring) in China.</li>
</ul>


Global EdTech venture funding surged 29% YoY to US$20.8bn in 2021. China saw c.75% YoY decline in EdTech venture funding but India recorded over 60% growth.
Into 2022, we expect EdTech spending and market will continue to grow, venture funding becoming more selective and Asia and workforce are the fastest growing markets.
China stays weak in 1H22 and India will thrive. India has 4 new unicorns in 2021 while none for China. We stick to higher education, not EdTech (tutoring) in China.


Asia EdTech and China Education: An Update

<ul>
<li>The 42% collapse in share price of <a href="https://www.smartkarma.com/entities/china-education-group-holdin" target="_blank" data-smartkarma-citation="entities:18218:1" rel="noopener">China Education Group (839 HK)</a> (CEG) seems to be overreaction to the speculated regulatory measures which we think many of them are counter-intuitive.</li>
<li>These measures center around the legality of Variable Interest Entity, ban on future M&amp;As, ownership of school assets and prohibition of increase in tuition fee at will.</li>
<li>Higher education, unlike after school tutoring, supports government policy, lightens governments' financial pressure and enhances common prosperity; and CEG remains the best play on this angle. </li>
</ul>


The 42% collapse in share price of China Education Group (839 HK) (CEG) seems to be overreaction to the speculated regulatory measures which we think many of them are counter-intuitive.
These measures center around the legality of Variable Interest Entity, ban on future M&amp;As, ownership of school assets and prohibition of increase in tuition fee at will.
Higher education, unlike after school tutoring, supports government policy, lightens governments' financial pressure and enhances common prosperity; and CEG remains the best play on this angle. 


China Education Group (839 HK): Further Regulatory Headwinds?

China

Gaotu Techedu inc develops educational software. The Company offers online K-12 large class after school tutoring as well as foreign language, professional and other courses. Gaotu Techedu serves students in China

Gaotu Techedu (GOTU US)

China ADRs Delisting - Friday Could Be Judgment Day for over US$800bn Mcap of Stocks

PCAOB officials concluded their Hong Kong visit last month and PCAOB is due to announce its annual judgment on whether it had adequate access to US...

Sumeet Singh

Coursera: Back to School

Coursera, an online education platform will see its business model decelerate faster than expected. Downside risks around regulation and...

Aaron Gabin

China Education Group (839 HK): Impressive 1H22 Result, Positive Takeaways from Call

CEG's 1H22 result is not only impressive by itself, but also clears the market's concerns on policy impacts. Guidances for 2H22 suggest good upside...

Osbert Tang, CFA

Asia EdTech and China Education: An Update

China's EdTech venture funding lagged behind India's in 2021. We expect regulatory concerns to keep China underperforming in 1H22, with India...

Osbert Tang, CFA

China Education Group (839 HK): Further Regulatory Headwinds?

Regulatory speculations have beaten down CEG but may concerns are counter-intuitive and share price has over-reacted. Private participation in...

Osbert Tang, CFA