Asian Equities Analyst, Logistics & Transport, Tracking Traffic

Daniel Hellberg

Asian Equities Analyst, Logistics & Transport

Tracking Traffic

Focusing on Asian logistics, transportation, and travel companies

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/zto-express" target="_blank" data-smartkarma-citation="entities:23628:1" rel="noopener">ZTO Express (ZTO US)</a> reported Q3 earnings results after the US close on Wednesday. While parcel volume and revenue both showed strong growth -- up 51% and 26% YoY, respectively -- core margins imploded and diluted net earnings per share fell about 10% versus Q3 2019. The collapse of ZTO's core express margins shows ZTO has fallen back to the pack it used to lead convincingly.We also note sharp YoY increases in gross profit from non-express activities, 'other operating income', and tax breaks, all of which flattered the company's weak bottom line. Without these, we estimate net profit would have fallen by around a third in Q3. ZTO's growing reliance on 'other' items indicates worsening earnings quality, in our view. Despite these, ZTO continues to enjoy rich valuation multiples, which we believe is undeserved, given our expectation of continued margin pressure in 2021. We retain our SELL rating on ZTO.

ZTO Express (ZTO US) reported Q3 earnings results after the US close on Wednesday. While parcel volume and revenue both showed strong growth -- up 51% and 26% YoY, respectively -- core margins imploded and diluted net earnings per share fell about 10% versus Q3 2019. The collapse of ZTO's core express margins shows ZTO has fallen back to the pack it used to lead convincingly.We also note sharp YoY increases in gross profit from non-express activities, 'other operating income', and tax breaks, all of which flattered the company's weak bottom line. Without these, we estimate net profit would have fallen by around a third in Q3. ZTO's growing reliance on 'other' items indicates worsening earnings quality, in our view. Despite these, ZTO continues to enjoy rich valuation multiples, which we believe is undeserved, given our expectation of continued margin pressure in 2021. We retain our SELL rating on ZTO. 

ZTO Q3 Results: As Margins Implode, It's Coming 'Back To the Pack', Retain SELL

Equity Analyst, LightStream Research

Supun Walpola

Equity Analyst

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.

Equity Capital Markets

<a href="https://www.smartkarma.com/entities/pinduoduo-inc" target="_blank" data-smartkarma-citation="entities:27250:1" rel="noopener">Pinduoduo (PDD US)</a> plans to raise around $5bn through an issue of ADS and convertible bonds. PDD will offer $1.75bn worth of 5-year bonds convertible from 2023-25 and around 22m ADS worth around $3bn (at the market price of $132.4 as of 17/11/2020).
Proceeds from the placement will be used to invest in agricultural logistics infrastructure and responsive manufacturing as a part of the company’s broader strategy to take on e-commerce giants like <a href="https://www.smartkarma.com/entities/alibaba-group-holding-ltd" target="_blank" data-smartkarma-citation="entities:787:1" rel="noopener">Alibaba Group (BABA US)</a> and <a href="https://www.smartkarma.com/entities/jd-com-inc-adr" target="_blank" data-smartkarma-citation="entities:446:1" rel="noopener">JD.com Inc (ADR) (JD US)</a> by tapping into the emerging online grocery shopping market.
In this note, we revisit our thesis on PDD ahead of the proposed placement.
PDD’s valuation looks bit of a stretch against Chinese e-commerce peers, however, not so much against other high-growth large-cap names. PDD’s share price has increased by more than 200% YTD and the momentum is still quite strong. With PDD potentially nearing profitability, we believe there could be further gains to be made on good news over the next few quarters. We would participate in the placement at the current valuation.

Pinduoduo (PDD US) plans to raise around $5bn through an issue of ADS and convertible bonds. PDD will offer $1.75bn worth of 5-year bonds convertible from 2023-25 and around 22m ADS worth around $3bn (at the market price of $132.4 as of 17/11/2020).
Proceeds from the placement will be used to invest in agricultural logistics infrastructure and responsive manufacturing as a part of the company’s broader strategy to take on e-commerce giants like Alibaba Group (BABA US) and JD.com Inc (ADR) (JD US) by tapping into the emerging online grocery shopping market.
In this note, we revisit our thesis on PDD ahead of the proposed placement.
PDD’s valuation looks bit of a stretch against Chinese e-commerce peers, however, not so much against other high-growth large-cap names. PDD’s share price has increased by more than 200% YTD and the momentum is still quite strong. With PDD potentially nearing profitability, we believe there could be further gains to be made on good news over the next few quarters. We would participate in the placement at the current valuation.  

Pinduoduo Placement: As Expensive As It May Seem, There Could Be More Upside

Asian Insight Provider - Actionable ideas, CrossASEAN Research

Henry Soediarko

Asian Insight Provider - Actionable ideas

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

<a href="https://www.smartkarma.com/entities/singapore-post-ltd" target="_blank" data-smartkarma-citation="entities:150:1" rel="noopener">Singapore Post (SPOST SP)</a> has transitioned from a conventional postal delivery service to an e-commerce delivery service provider and currently, the revenue contribution from e-commerce almost offset the declining legacy business. It should happen either this Christmas holiday season or in Q1 2021. The declining conveyance cost that ate up margin in 1H 2020 will provide an additional income booster that investors can look forward to. 
Singpost trades at the lowest EV/EBITDA multiples to its peers and a 0.98x PBR. Q4 has traditionally been a strong season and now that it has transitioned into an e-commerce delivery platform, the time is NOW to start building a position in Singpost.

Singapore Post (SPOST SP) has transitioned from a conventional postal delivery service to an e-commerce delivery service provider and currently, the revenue contribution from e-commerce almost offset the declining legacy business. It should happen either this Christmas holiday season or in Q1 2021. The declining conveyance cost that ate up margin in 1H 2020 will provide an additional income booster that investors can look forward to. 
Singpost trades at the lowest EV/EBITDA multiples to its peers and a 0.98x PBR. Q4 has traditionally been a strong season and now that it has transitioned into an e-commerce delivery platform, the time is NOW to start building a position in Singpost. 

Singpost (SPOST): Riding the E-Commerce Awakening in ASEAN

Kerry Express Thailand / Equity Capital Markets

In an updated filing, <a href="https://www.smartkarma.com/entities/kerry-express-thailand" target="_blank" data-smartkarma-citation="entities:29253:1" rel="noopener">Kerry Express Thailand (KEX TB)</a> indicated it could sell as many as 300 mn new shares in its planned IPO. Many media reports have suggested the company hopes to raise about US$300 mn in the offering, suggesting KEX will come to market at around 30 baht per share.In this note, we try to answer the following questions regarding KEX's valuation:<ul>
<li>What are the most useful 'comps' for KEX? </li>
<li>What are some appropriate valuation multiples to use in comparing KEX to peers?</li>
<li>How does KEX's valuation at 30 baht per share compare to the peer group we've identified?</li>
<li>What factors could support either a premium or discount valuation for KEX versus peers?</li>
</ul>At 30 baht per share (which implies market capitalization of US$1.7 bn), KEX would not be overvalued relative to peers, in our view, and there are reasons KEX could eventually demand a premium valuation relative to other express companies.

In an updated filing, Kerry Express Thailand (KEX TB) indicated it could sell as many as 300 mn new shares in its planned IPO. Many media reports have suggested the company hopes to raise about US$300 mn in the offering, suggesting KEX will come to market at around 30 baht per share.In this note, we try to answer the following questions regarding KEX's valuation:
What are the most useful 'comps' for KEX? 
What are some appropriate valuation multiples to use in comparing KEX to peers?
How does KEX's valuation at 30 baht per share compare to the peer group we've identified?
What factors could support either a premium or discount valuation for KEX versus peers?
At 30 baht per share (which implies market capitalization of US$1.7 bn), KEX would not be overvalued relative to peers, in our view, and there are reasons KEX could eventually demand a premium valuation relative to other express companies.

Kerry Express Thailand (KEX) IPO: Approach to Valuation

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.

<a href="https://www.smartkarma.com/entities/pinduoduo-inc" target="_blank" data-smartkarma-citation="entities:27250:1" rel="noopener">Pinduoduo (PDD US)</a> is seeking to raise as much as $4.85 billion through an issue of shares and convertible note. Pinduoduo will offer $1,750 million five-year notes, which is callable and puttable from December 2023. Concurrently with the notes offering, Pinduoduo is also offering 22 million ADSs which is worth around $3.1 billion at the last close price of $142.03 per ADS. The funds will be invested in agricultural logistics infrastructure and responsive manufacturing to capitalise on the online migration of retail, in particular consumers desire to buy fresh grocery more conveniently and frequently. Pinduoduo’s newest business, Duo Duo Maicai, a next-day self pick-up grocery service, is a natural extension of its e-commerce model to agriculture.Pinduoduo is a rare beast – a China new economy company which lives up to the hype. The financial performance is heading in the right direction with the 3Q20 results showing a re-acceleration in revenue growth and narrowing losses. The balance sheet is strong with cash of RMB45,575 ($7.0 billion) and net cash (including lease liabilities and convertibles) of RMB36,723 ($5.6 billion) as of 3Q20. A successful offering will further add to Pinduoduo’s war chest to take on <a href="https://www.smartkarma.com/entities/alibaba-group-holding-ltd" target="_blank" data-smartkarma-citation="entities:787:1" rel="noopener">Alibaba Group (BABA US)</a> and <a href="https://www.smartkarma.com/entities/jd-com-inc-adr" target="_blank" data-smartkarma-citation="entities:446:1" rel="noopener">JD.com Inc (ADR) (JD US)</a>. <div class="content-highlight">We remain bullish on Pinduoduo’s prospects and believe that potential new antitrust rules curbing market dominance in China will benefit relatively smaller challengers like Pinduoduo. Our DCF-based price target is $165 per ADS, implying a 16% upside to the last close. Overall, we would participate in the placement.</div>

Pinduoduo (PDD US) is seeking to raise as much as $4.85 billion through an issue of shares and convertible note. Pinduoduo will offer $1,750 million five-year notes, which is callable and puttable from December 2023. Concurrently with the notes offering, Pinduoduo is also offering 22 million ADSs which is worth around $3.1 billion at the last close price of $142.03 per ADS. The funds will be invested in agricultural logistics infrastructure and responsive manufacturing to capitalise on the online migration of retail, in particular consumers desire to buy fresh grocery more conveniently and frequently. Pinduoduo’s newest business, Duo Duo Maicai, a next-day self pick-up grocery service, is a natural extension of its e-commerce model to agriculture.Pinduoduo is a rare beast – a China new economy company which lives up to the hype. The financial performance is heading in the right direction with the 3Q20 results showing a re-acceleration in revenue growth and narrowing losses. The balance sheet is strong with cash of RMB45,575 ($7.0 billion) and net cash (including lease liabilities and convertibles) of RMB36,723 ($5.6 billion) as of 3Q20. A successful offering will further add to Pinduoduo’s war chest to take on Alibaba Group (BABA US) and JD.com Inc (ADR) (JD US). We remain bullish on Pinduoduo’s prospects and believe that potential new antitrust rules curbing market dominance in China will benefit relatively smaller challengers like Pinduoduo. Our DCF-based price target is $165 per ADS, implying a 16% upside to the last close. Overall, we would participate in the placement.

China

Alibaba Group Holding Limited provides online sales services. The Company provides internet infrastructure, electronic commerce, online financial, and internet content services through its subsidiaries. Alibaba Group Holding offers its products and services worldwide.

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Alibaba (BABA US)

ZTO Q3 Results: As Margins Implode, It's Coming 'Back To the Pack', Retain SELL

ZTO reported weak results again in Q3, as a steep decline in margins was partially offset by increased contributions from 'other'. We expect...

Tracking Traffic

Pinduoduo Placement: As Expensive As It May Seem, There Could Be More Upside

Pinduoduo (PDD US) plans to raise around $5bn through an issue of ADS and convertible bonds. In this note, we revisit our thesis on PDD ahead of...

Supun Walpola

Singpost (SPOST): Riding the E-Commerce Awakening in ASEAN

SPOST trades at the lowest EV/EBITDA multiples to its peers and below book value. Q4 has traditionally a strong season and now that it has become...

Henry Soediarko

Kerry Express Thailand (KEX) IPO: Approach to Valuation

What's the right valuation approach to Kerry Express (KEX), which hopes to complete its IPO in Thailand in the coming weeks?

Tracking Traffic

Pinduoduo Placement: A Bigger War Chest

Pinduoduo is seeking to raise as much as $4.85 billion through an issue of shares and convertible note. We remain bullish on its prospects and we...

Arun George

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