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

<p>Coursera’s first quarterly earnings was confirmatory of our short thesis. The company guided to decelerating revenue growth as it begins to lap the surge in students from the pandemic, with little to no operating leverage, hardly the stuff of a stock trading 15x sales. A point that should’ve been obvious to us, but we didn’t really hit on enough in our recent initiation is how inversely correlated Coursera is to employment trends. As the pandemic recedes, the secular acceleration of online education will recede…AND the number of unemployed who had the time (and motivation) to take online courses at home will also diminish.  This will result in a sharper deceleration in Coursera’s top of funnel consumer learners, which will have a trickle down effect on the higher margin enterprise and degree tiers. We stay short, reiterate base case $33 and $20 bear case.</p><div class="content-highlight"><p>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.</p></div>

Coursera’s first quarterly earnings was confirmatory of our short thesis. The company guided to decelerating revenue growth as it begins to lap the surge in students from the pandemic, with little to no operating leverage, hardly the stuff of a stock trading 15x sales. A point that should’ve been obvious to us, but we didn’t really hit on enough in our recent initiation is how inversely correlated Coursera is to employment trends. As the pandemic recedes, the secular acceleration of online education will recede…AND the number of unemployed who had the time (and motivation) to take online courses at home will also diminish.  This will result in a sharper deceleration in Coursera’s top of funnel consumer learners, which will have a trickle down effect on the higher margin enterprise and degree tiers. We stay short, reiterate base case $33 and $20 bear case.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.

Coursera 1Q21: Rising Employment Will Decelerate Growth

HK/China Equity Long-Short

Osbert Tang, CFA

<p><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) reported an impressive 50.2% YoY growth in its adjusted net profit for 1H21, driven by the combination of good organic momentum and contribution from new schools added. By segment, higher education and global education are the key underpinning factors, as vocational education enrollment has disrupted more by COVID-19.</p><p>In the post-1H21 result call, management revealed that 6 M&amp;A projects are now in advance discussion and expects many of them can be concluded in this year. This will add to the organic growth backed by higher enrollment, increase in tuition and efficiency enhancement. We take the guidance of a 32-41% of adjusted net profit growth for FY21 positively, and so is the market as the share price was up 7% so far today. Its valuation multiples are highly justified by the earnings growth prospects, execution capability and quality management, in our view.</p>

China Education Group (839 HK) (CEG) reported an impressive 50.2% YoY growth in its adjusted net profit for 1H21, driven by the combination of good organic momentum and contribution from new schools added. By segment, higher education and global education are the key underpinning factors, as vocational education enrollment has disrupted more by COVID-19.In the post-1H21 result call, management revealed that 6 M&amp;A projects are now in advance discussion and expects many of them can be concluded in this year. This will add to the organic growth backed by higher enrollment, increase in tuition and efficiency enhancement. We take the guidance of a 32-41% of adjusted net profit growth for FY21 positively, and so is the market as the share price was up 7% so far today. Its valuation multiples are highly justified by the earnings growth prospects, execution capability and quality management, in our view.

China Education Group (839 HK): Encouraging Takeaways from 1H21 Result Call

<p><strong>Summary: </strong>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.</p><p> <strong>Base Case Valuation: $33                                  Bull Case: $57                                 Bear Case: $20</strong></p><p></p><div class="content-highlight"><p>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.</p></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.

<p><a href="https://www.smartkarma.com/entities/china-yuhua-education" target="_blank" data-smartkarma-citation="entities:23627:1" rel="noopener">China Yuhua Education (6169 HK)</a> posted a 39.7% YoY growth in adjusted net profit as its higher education segment turned into a key earnings engine. Decent 4pp margin expansion was achieved from higher enrollment, hike in tuition and excellent cost control. We also saw an impressive 127.8% YoY increase in operating cash flow.</p><p>Management points to further margin expansion for most of its universities, and this will drive contribution to net profit (91% of 1H21 profit from higher education). While M&amp;A activities have slowed, organic growth is expected to stay at least at 25% for the near term. Given its sufficient capacity, there is no need for fund raising from the market. In our view, its 16.3x PER and 4.8x P/B (FY21F ROE: 32%) are highly justified, and Yuhua Education remains one of our top picks as stated in <a href="https://www.smartkarma.com/insights/china-private-education-this-is-where-the-future-lies" target="_blank" data-smartkarma-citation="insights:48727" rel="noopener">China Private Education: This Is Where the Future Lies</a>. </p>

China Yuhua Education (6169 HK) posted a 39.7% YoY growth in adjusted net profit as its higher education segment turned into a key earnings engine. Decent 4pp margin expansion was achieved from higher enrollment, hike in tuition and excellent cost control. We also saw an impressive 127.8% YoY increase in operating cash flow.Management points to further margin expansion for most of its universities, and this will drive contribution to net profit (91% of 1H21 profit from higher education). While M&amp;A activities have slowed, organic growth is expected to stay at least at 25% for the near term. Given its sufficient capacity, there is no need for fund raising from the market. In our view, its 16.3x PER and 4.8x P/B (FY21F ROE: 32%) are highly justified, and Yuhua Education remains one of our top picks as stated in China Private Education: This Is Where the Future Lies. 

China Yuhua Education (6169 HK): Decent 1H21, Key Takeaways from Post-Result Call

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

<div>
<p>On 29th Mar 2021, we spoke about the Archegos driven correction in some of the China ADRs,  <a href="https://www.smartkarma.com/insights/china-adrs-blocks-liquidation-buyback-implications" target="_blank" rel="noopener">China ADRs- Blocks, Liquidation, Buyback - Implications.</a> That in turn had followed close on the heels of the SEC driven correction for the sector, which we looked at in <a href="https://www.smartkarma.com/insights/china-adrs-sec-notice-instead-of-three-probably-have-four-years-till-2025-correction-overdone" target="_blank" rel="noopener">China ADRs - SEC Notice - Instead of Three, Probably Have Four Years till 2025 - Correction Overdone</a>.</p>
<p>In this note, we'll talk about the updates since our previous note.</p>
</div>


On 29th Mar 2021, we spoke about the Archegos driven correction in some of the China ADRs,  China ADRs- Blocks, Liquidation, Buyback - Implications. That in turn had followed close on the heels of the SEC driven correction for the sector, which we looked at in China ADRs - SEC Notice - Instead of Three, Probably Have Four Years till 2025 - Correction Overdone.
In this note, we'll talk about the updates since our previous note.


China ADRs Quick Update - SEC, Archegos, Blocks - Showing Signs of Life

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

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

Gaotu Techedu (GOTU US)

Coursera 1Q21: Rising Employment Will Decelerate Growth

Coursera’s first quarterly earnings was confirmatory of our short thesis. The company guided to decelerating revenue growth with little to no...

Aaron Gabin

China Education Group (839 HK): Encouraging Takeaways from 1H21 Result Call

After the good 1H21 result, CEG continues to suggest a robust outlook for the rest of the year, and guided for good full-year growth. More M&As are...

Osbert Tang, CFA

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 Yuhua Education (6169 HK): Decent 1H21, Key Takeaways from Post-Result Call

Yuhua Education should see good organic earnings prospects as it benefits from higher student enrollment, hike in tuition and cost control. There...

Osbert Tang, CFA

China ADRs Quick Update - SEC, Archegos, Blocks - Showing Signs of Life

On 29 Mar, we spoke about the Archegos driven correction, that had followed close on the heals of the SEC driven correction for the sector. In this...

Sumeet Singh

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)