Overseas Chinese Equities, Aequitas Research

Ming Lu

Overseas Chinese Equities

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.

Equity Bottom-Up

<ul>
<li>Hellobike, an Alibaba’s investee and traffic source, will go public in 2Q21.</li>
<li>NetEase’s Cloud Music is seeking IPO next year.</li>
<li>The authorities said Tencent and Baidu were fined not because they eliminate competition, but because they forgot to ask for approval.</li>
<li>Tencent invests in Rakuten.</li>
</ul>


Hellobike, an Alibaba’s investee and traffic source, will go public in 2Q21.
NetEase’s Cloud Music is seeking IPO next year.
The authorities said Tencent and Baidu were fined not because they eliminate competition, but because they forgot to ask for approval.
Tencent invests in Rakuten.


China Internet Weekly (Mar 15): BABA & NTES Subsidiaries Seek IPO, Tencent Invests in Rakuten

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Thematic (Sector/Industry)

<p><strong>GAMING PAYABLES</strong> - As part of the fallout from Greensill Capital's collapse, much has been made of the risks involved in supply chain finance and the accounting treatment of payables that can be used to 'flatter' balance sheets that are often overloaded with debt. As <em><strong>@matt_levine</strong></em>observed yesterday:-</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/193/505/original/2021-03-11_10-33-14.png?1615426510" class="editor-image img-responsive" data-smartkarma-image-id="193505"></figure></section><p><strong>APPLYING THE 'DUMB RULE OF THUMB' TO JAPAN</strong> - Accordingly, we have applied a simple screen to our universe of 3,689 Japanse companies with the following criteria:</p><ol>
<li><strong>Market Cap, ex Treasury Stock,&gt; ¥100 billion (672 companies)</strong></li>
<li><strong> Last Quarter Payable Days &gt; -100 (93 companies)</strong></li>
<li><strong>1-Year change in Average Days Payable &gt; -25 (7 companies)</strong></li>
</ol><p>We have excluded <a href="https://www.smartkarma.com/entities/sony-corp" target="_blank" data-smartkarma-citation="entities:563:1" rel="noopener">Sony (6758 JP)</a>, <a href="https://www.smartkarma.com/entities/z-holdings-corp" target="_blank" data-smartkarma-citation="entities:19603:1" rel="noopener">Z Holdings (4689 JP)</a>, <a href="https://www.smartkarma.com/entities/rakuten-inc" target="_blank" data-smartkarma-citation="entities:31:1" rel="noopener">Rakuten (4755 JP)</a>, and <a href="https://www.smartkarma.com/entities/japan-post-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:359:1" rel="noopener">Japan Post (6178 JP)</a> from the screening due to their consolidation of financial subsidiaries. The results are in the <strong>DETAIL</strong> section below; however, the TTM Working Capital Day chart for the largest of the seven by market cap is below. It's 'owner' should be no surprise to followers of the Greensill saga.</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/193/508/original/2021-03-11_11-04-24.png?1615428279" class="editor-image img-responsive" data-smartkarma-image-id="193508"></figure></section><div class="content-caption">Source for all charts &amp; tables: Japan Analytics</div>

GAMING PAYABLES - As part of the fallout from Greensill Capital's collapse, much has been made of the risks involved in supply chain finance and the accounting treatment of payables that can be used to 'flatter' balance sheets that are often overloaded with debt. As @matt_levineobserved yesterday:-APPLYING THE 'DUMB RULE OF THUMB' TO JAPAN - Accordingly, we have applied a simple screen to our universe of 3,689 Japanse companies with the following criteria:
Market Cap, ex Treasury Stock,&gt; ¥100 billion (672 companies)
 Last Quarter Payable Days &gt; -100 (93 companies)
1-Year change in Average Days Payable &gt; -25 (7 companies)
We have excluded Sony (6758 JP), Z Holdings (4689 JP), Rakuten (4755 JP), and Japan Post (6178 JP) from the screening due to their consolidation of financial subsidiaries. The results are in the DETAIL section below; however, the TTM Working Capital Day chart for the largest of the seven by market cap is below. It's 'owner' should be no surprise to followers of the Greensill saga.Source for all charts &amp; tables: Japan Analytics

🇯🇵 JAPAN • Greensill, Gaming Payables & The Seven Samurai of Supply Chain Finance

IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

Equity Capital Markets

<div><p><a href="https://www.smartkarma.com/entities/coupang" target="_blank" data-smartkarma-citation="entities:28425:1" rel="noopener">Coupang (CPNG US)</a> is the largest e-commerce platform in South Korea, according to Euromonitor. Coupang is best known for Rocket Delivery, which provides free, next-day delivery for orders placed any time of the day.</p></div><div><p>Coupang has increased its IPO price range from $27-30 per share to $32-34 per share. The number of the offer shares remains unchanged at 120 million shares and the primary/secondary split remains unchanged. At the upsized IPO price range of $32-34 per share, Coupang will have a market cap of $55-58 billion vs the previous market cap of $46-51 billion. At the mid-point of the IPO price range, the net proceeds from the primary raise are $3.2 billion ($2.8 billion previously). </p></div><div>
<p>In <a href="https://www.smartkarma.com/insights/coupang-ipo-initiation-delivering-the-goods" target="_blank" data-smartkarma-citation="insights:48125" rel="noopener">Coupang IPO Initiation: Delivering the Goods</a>, we opined that Coupang's fundamentals tick all the right boxes and worth a look, in our view. In <a href="https://www.smartkarma.com/insights/coupang-ipo-valuation-insights" target="_blank" data-smartkarma-citation="insights:48708" rel="noopener">Coupang IPO: Valuation Insights</a> we noted was attractively priced for its growth potential vs global e-commerce peers at the original IPO price range.</p>
<div class="content-highlight"><p>Our valuation analysis suggests that Coupang remains attractive at the upsized IPO price range of $32-34 per share. Our base-case DCF valuation is $39.35 per share and we would participate in the IPO.</p></div>
</div>

Coupang (CPNG US) is the largest e-commerce platform in South Korea, according to Euromonitor. Coupang is best known for Rocket Delivery, which provides free, next-day delivery for orders placed any time of the day.Coupang has increased its IPO price range from $27-30 per share to $32-34 per share. The number of the offer shares remains unchanged at 120 million shares and the primary/secondary split remains unchanged. At the upsized IPO price range of $32-34 per share, Coupang will have a market cap of $55-58 billion vs the previous market cap of $46-51 billion. At the mid-point of the IPO price range, the net proceeds from the primary raise are $3.2 billion ($2.8 billion previously). 
In Coupang IPO Initiation: Delivering the Goods, we opined that Coupang's fundamentals tick all the right boxes and worth a look, in our view. In Coupang IPO: Valuation Insights we noted was attractively priced for its growth potential vs global e-commerce peers at the original IPO price range.
Our valuation analysis suggests that Coupang remains attractive at the upsized IPO price range of $32-34 per share. Our base-case DCF valuation is $39.35 per share and we would participate in the IPO.


Telco/Internet specialist

Kirk Boodry

Redex Research

NTT (Nippon Telegraph & Telephone) / Equity Bottom-Up

<p>NTT senior management has been called out for entertaining Ministry of Industry Affairs and Communications (MIC, the regulator) officials at least four times over the last three years. The amounts are not obscene but they do well exceed government limits and the optics are particularly bad for both the regulator (not its first scandal) and NTT (busy shaking up the industry). That does not mean there will be any direct consequences but it does strengthen the case made by rivals <a href="https://www.smartkarma.com/entities/kddi-corp" target="_blank" data-smartkarma-citation="entities:639:1" rel="noopener">KDDI Corp (9433 JP)</a> and <a href="https://www.smartkarma.com/entities/softbank-corp" target="_blank" data-smartkarma-citation="entities:27445:1" rel="noopener">Softbank Corp (9434 JP)</a>  that regulatory proposals from NTT post the DoCoMo buy-in will need to be closely scrutinized. </p>

NTT senior management has been called out for entertaining Ministry of Industry Affairs and Communications (MIC, the regulator) officials at least four times over the last three years. The amounts are not obscene but they do well exceed government limits and the optics are particularly bad for both the regulator (not its first scandal) and NTT (busy shaking up the industry). That does not mean there will be any direct consequences but it does strengthen the case made by rivals KDDI Corp (9433 JP) and Softbank Corp (9434 JP)  that regulatory proposals from NTT post the DoCoMo buy-in will need to be closely scrutinized. 

NTT - Illegally Entertaining Your Regulator Is a Bad Look

<p><a target="_blank"></a>Coupang is by far the leader in one of the most compelling markets for eCommerce globally and one of the most attractive of the Vision Fund portfolio companies. But it is expensive: the $30 max offer price implies a 5x appreciation in value from its last private funding round in 2018 and a FY21 EV/sales multiple of 2.6x almost on par with Amazon which is a global leader in both eCommerce and cloud.  We value Coupang below the range at $26 using a 9-year DCF driven by 17% revenue CAGR and an 8% terminal OP margin.    </p><p>This report includes our initial forecasts, valuation, a summary of the investment highlights and a list of questions we would ask on the roadshow.</p><h2><strong>Highlights</strong></h2><p><strong>Coupang dominates a very attractive eCommerce market. </strong> Korea scores high on two measures of eCommerce predictive success, Internet penetration and population density and Coupang is by-far the leading provider. It helps that global competition has been unable to gain traction whilst traditional retailers are smaller scale relative to other markets.</p><p><strong>eCommerce demand has accelerated as Covid-19 accelerates augments a secular shift in retail sales to online platforms. </strong> Revenue growth expanded from 71% in Q4 19 to 100% in Q4 20 but expanding growth was a feature through 2019 as well. eCommerce penetration of c. 25% may have nearly doubled in FY20 although some of that demand shift may revert as the impact of Covid-19 fades.</p><p><strong>The company is flirting with profitability. </strong>Operating margins have moved from -30% in FY16 to -4% in FY20 with corresponding improvement in EBITDA (-30% to -3%).  In our model, we assume Coupang breaks even in FY21 although higher share-based compensation and/or higher spending as it puts IPO proceeds to work could extend that.</p><p><strong>But it is still burning a lot of cash.  </strong>Coupang might be close to break-even operationally but it has largely spent the money it received from <a href="https://www.smartkarma.com/entities/softbank-group-corp" target="_blank" data-smartkarma-citation="entities:315:1" rel="noopener">Softbank Group (9984 JP)</a>  in 2018. Over the last three years, $2.7bn has gone out the door including c. $800mn in FY20 alone (our measure of operating cash flow).</p><p><strong>Comparable valuations and relative changes to valuation highlight the premium valuation. <a href="https://www.smartkarma.com/entities/coupang" target="_blank" data-smartkarma-citation="entities:28425:1" rel="noopener">Coupang (CPNG US)</a> </strong> max offer price values the company similarly to Amazon on FY21 EV/sales (2.7x v 2.8x) but the latter is a global leader and not just in eCommerce but cloud too. Similarly, Coupang’s value appreciation from its last private funding and March 2020 lows has outpaced peer group, sometimes significantly.</p>

Coupang is by far the leader in one of the most compelling markets for eCommerce globally and one of the most attractive of the Vision Fund portfolio companies. But it is expensive: the $30 max offer price implies a 5x appreciation in value from its last private funding round in 2018 and a FY21 EV/sales multiple of 2.6x almost on par with Amazon which is a global leader in both eCommerce and cloud.  We value Coupang below the range at $26 using a 9-year DCF driven by 17% revenue CAGR and an 8% terminal OP margin.    This report includes our initial forecasts, valuation, a summary of the investment highlights and a list of questions we would ask on the roadshow.HighlightsCoupang dominates a very attractive eCommerce market.  Korea scores high on two measures of eCommerce predictive success, Internet penetration and population density and Coupang is by-far the leading provider. It helps that global competition has been unable to gain traction whilst traditional retailers are smaller scale relative to other markets.eCommerce demand has accelerated as Covid-19 accelerates augments a secular shift in retail sales to online platforms.  Revenue growth expanded from 71% in Q4 19 to 100% in Q4 20 but expanding growth was a feature through 2019 as well. eCommerce penetration of c. 25% may have nearly doubled in FY20 although some of that demand shift may revert as the impact of Covid-19 fades.The company is flirting with profitability. Operating margins have moved from -30% in FY16 to -4% in FY20 with corresponding improvement in EBITDA (-30% to -3%).  In our model, we assume Coupang breaks even in FY21 although higher share-based compensation and/or higher spending as it puts IPO proceeds to work could extend that.But it is still burning a lot of cash.  Coupang might be close to break-even operationally but it has largely spent the money it received from Softbank Group (9984 JP)  in 2018. Over the last three years, $2.7bn has gone out the door including c. $800mn in FY20 alone (our measure of operating cash flow).Comparable valuations and relative changes to valuation highlight the premium valuation. Coupang (CPNG US)  max offer price values the company similarly to Amazon on FY21 EV/sales (2.7x v 2.8x) but the latter is a global leader and not just in eCommerce but cloud too. Similarly, Coupang’s value appreciation from its last private funding and March 2020 lows has outpaced peer group, sometimes significantly.

Coupang IPO and Softbank Group - A Vision Fund Jewel Emerges but It Is Pricey

Japan

Rakuten Group, Inc. provides Internet services. The Company offers Internet finance services which including "Rakuten Card" and "Rakuten Bank". Rakuten Group also provides digital content services including electronic book services.

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Rakuten (4755 JP)

China Internet Weekly (Mar 15): BABA & NTES Subsidiaries Seek IPO, Tencent Invests in Rakuten

Tencent was fined not because they eliminate competition, but because they forgot to ask for approval. Tencent invests in Rakuten. Hellobike and...

Ming Lu

🇯🇵 JAPAN • Greensill, Gaming Payables & The Seven Samurai of Supply Chain Finance

As part of the fallout from Greensill Capital's collapse, much has been made of the risks involved in supply chain finance and the accounting...

Campbell Gunn

Coupang IPO: Upsized Deal Size

Coupang has increased its IPO price range from $27-30 per share to $32-34 per share. Our base-case DCF valuation is $39.35 per share and we would...

Arun George

NTT - Illegally Entertaining Your Regulator Is a Bad Look

NTT management has been called out for illegally entertaining regulatory officials. There is probably little direct consequence but it is a bad look

Kirk Boodry

Coupang IPO and Softbank Group - A Vision Fund Jewel Emerges but It Is Pricey

Coupang's IPO is a win for the company and its largest holder Softbank but the max offer price of $30 is too pricey - we think it is worth closer...

Kirk Boodry

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