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

<p>In an F-1/A filing, <a href="https://www.smartkarma.com/entities/27399" target="_blank" data-smartkarma-citation="entities:27399:1">NIO Inc (NIO US)</a> published the number of reservations and vehicles produced and delivered for the month of August. Unsurprisingly, NIO was keen to publish the August metrics to showcase the monthly growth in ES8's reservations and production. </p><p>However, peeling back the layers, we believe that the August metrics point to potential signs of waning consumer interest. Combined with <a href="https://www.smartkarma.com/entities/315" target="_blank" data-smartkarma-citation="entities:315:1">Softbank Group (9984 JP)</a>'s decision to pull the plug on buying shares in the NIO IPO, we maintain our bearish view as articulated in <a href="https://www.smartkarma.com/insights/nio-ipo-preview-pull-the-plug" target="_blank" data-smartkarma-citation="insights:23138">NIO IPO Preview: Pull the Plug</a>. </p>

In an F-1/A filing, NIO Inc (NIO US) published the number of reservations and vehicles produced and delivered for the month of August. Unsurprisingly, NIO was keen to publish the August metrics to showcase the monthly growth in ES8's reservations and production. However, peeling back the layers, we believe that the August metrics point to potential signs of waning consumer interest. Combined with Softbank Group (9984 JP)'s decision to pull the plug on buying shares in the NIO IPO, we maintain our bearish view as articulated in NIO IPO Preview: Pull the Plug. 

NIO IPO: August Metrics Point to Potential Signs of Waning Consumer Interest

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

Equity Bottom-Up

<p>Angus did an excellent job in uncovering investment opportunity in <a href="https://www.smartkarma.com/entities/18869" target="_blank" data-smartkarma-citation="entities:18869:1">Erajaya Swasembada (ERAA IJ)</a> pre-2018 and has done very well since. With the increasing manufacturing and assembling capabilities, it is a matter of time before more smartphones components can be labeled "<strong><em>made in Indonesia</em></strong>" which then shorten lead time between production and market launch as well as encourage smartphone brand owner to launch more models in Indonesia; which in turn creates an opportunity for <a href="https://www.smartkarma.com/entities/18869" target="_blank" data-smartkarma-citation="entities:18869:1">Erajaya Swasembada (ERAA IJ)</a> with its growing presence to record a sustainably higher revenue. </p><p>In this report, we aim to cover the following:</p><ol>
<li>the government-backed initiative that gives assurance for smartphone producer to have a presence in Indonesia</li>
<li>offline to online or online to offline</li>
<li>sales booster activities</li>
<li>buy, sell or hold?</li>
</ol>

Angus did an excellent job in uncovering investment opportunity in Erajaya Swasembada (ERAA IJ) pre-2018 and has done very well since. With the increasing manufacturing and assembling capabilities, it is a matter of time before more smartphones components can be labeled "made in Indonesia" which then shorten lead time between production and market launch as well as encourage smartphone brand owner to launch more models in Indonesia; which in turn creates an opportunity for Erajaya Swasembada (ERAA IJ) with its growing presence to record a sustainably higher revenue. In this report, we aim to cover the following:
the government-backed initiative that gives assurance for smartphone producer to have a presence in Indonesia
offline to online or online to offline
sales booster activities
buy, sell or hold?


<p><a href="https://www.smartkarma.com/entities/27412" target="_blank" data-smartkarma-citation="entities:27412:1">111 Inc (YI US)</a> announced its IPO price range of $14-16 per ADS. At the mid-point of the IPO price range, 111 will raise net proceeds of $126.9 million. An existing shareholder, Greenwoods, intends to purchase 14% of the ADS at the mid-point of the IPO price. </p><p>In <a href="https://www.smartkarma.com/insights/111-inc-ipo-preview-a-new-business-papers-over-the-cracks" target="_blank" data-smartkarma-citation="insights:23217">111 Inc IPO Preview: A New Business Papers over the Cracks</a> we highlighted our reservations about 111's flagging erstwhile core B2C business and metrics which are weaker than its competition.</p><p>Regarding valuation, we believe that the proposed IPO price range is unattractive. We have used a blended peer group of Chinese internet companies for our relative valuation. As we forecast 111 to be loss-making over the next two years, we use EV/Sales for our relative valuation. Based on our estimates and at IPO mid-point, 111’s 2019 EV/Sales of 3.3x is in line with the blended median peer group 2019 EV/Sales of 3.4x.</p><p>111 trades at a 45% discount to <a href="https://www.smartkarma.com/entities/27008" target="_blank" data-smartkarma-citation="entities:27008:1">Ping An Healthcare And Techn (1833 HK)</a>/(PAHTG) on a 2019 EV/Sales basis. However, PAHTG's Health Mall business, the directly comparable business segment to 111, accounts for 56% of PAHTG's revenue but only 21% of gross profit in 1H18. As a result, PAHTG's rating is not directly comparable to 111. </p><div class="content-highlight"><p>We believe that 111 needs to trade at a discount to its peer group of Chinese internet companies to reflect our concerns on its fundamentals. Consequently, from a valuation perspective, the proposed IPO price range is not attractive.</p></div>

111 Inc (YI US) announced its IPO price range of $14-16 per ADS. At the mid-point of the IPO price range, 111 will raise net proceeds of $126.9 million. An existing shareholder, Greenwoods, intends to purchase 14% of the ADS at the mid-point of the IPO price. In 111 Inc IPO Preview: A New Business Papers over the Cracks we highlighted our reservations about 111's flagging erstwhile core B2C business and metrics which are weaker than its competition.Regarding valuation, we believe that the proposed IPO price range is unattractive. We have used a blended peer group of Chinese internet companies for our relative valuation. As we forecast 111 to be loss-making over the next two years, we use EV/Sales for our relative valuation. Based on our estimates and at IPO mid-point, 111’s 2019 EV/Sales of 3.3x is in line with the blended median peer group 2019 EV/Sales of 3.4x.111 trades at a 45% discount to Ping An Healthcare And Techn (1833 HK)/(PAHTG) on a 2019 EV/Sales basis. However, PAHTG's Health Mall business, the directly comparable business segment to 111, accounts for 56% of PAHTG's revenue but only 21% of gross profit in 1H18. As a result, PAHTG's rating is not directly comparable to 111. We believe that 111 needs to trade at a discount to its peer group of Chinese internet companies to reflect our concerns on its fundamentals. Consequently, from a valuation perspective, the proposed IPO price range is not attractive.

111 Inc IPO Valuation: Pricing Does Not Adequately Reflect the Risks

Founder and Strategist, Entext Economics & Strategy

Sean Maher

Founder and Strategist

Entext Economics & Strategy

Entext provides institutional investors with distinctive, actionable asset allocation and thematic research, which typically challenges the market consensus. Our clients range from credit, equity and multi-asset hedge and pension funds to family offices and sovereign funds. 
 
We focus on identifying key inflection points in macro data and relative asset performance amid the 'groupthink'  and confirmation bias that characterizes most investment bank analysis.

Macro Driven Investment Insight

Thematic (Sector/Industry)

<div style="text-align: left;" class="content-caption"><blockquote><p><em>‘“I try to use a facial pack every night,” says Mr. Kim, 28 years old, who now works at an office in Seoul. “It’s been a daily routine since my time in the military.” South Korea is a force in the global beauty industry and its carefully groomed pop idols have become global stars. And for many guys here, the gateway to face serums and 10 step skin care regimens is their time as military conscripts. During his service, Mr. Kim developed a routine while posted at an observation post along the barbed wire fences of the inter-Korean demilitarized zone.’ </em></p></blockquote></div><div class="content-remarks"><p><a href="https://www.wsj.com/articles/the-secret-to-surviving-military-service-moisturizer-foam-cleanser-cucumber-face-mask-1535034194" target="_blank">WSJ article</a> on the elaborate skincare rituals of S. Korean men</p></div><blockquote>
<em>“Fiscal year 2018 was an outstanding year for our company. By focusing on strategic priorities and investing in our multiple engines of growth, we delivered double-digit sales and earnings per share gains in all four quarters. In constant currency full year sales rose 13%, nearly twice the rate of global prestige beauty and diluted EPS increased 24%. What made our performance particularly strong were our over achievements in Asia and in Skin Care globally. </em><em>” </em>
</blockquote><div class="content-remarks"><p>Fabrizio Freda, CEO Estee Lauder</p></div><div class="content-remarks">
<blockquote><p><em>‘But the market and gender norms are changing, with cosmetics no longer seen as exclusively for women and male celebrities showing that it is OK for men to dab on a bit of blush. Jiang says a firm that manages bloggers pays him about 5,000 yuan (US$730) per month to feature products from cosmetics companies. Increasingly, foreign firms like La Mer and Aesop work with video bloggers such as Lan Haoyi, to promote their products to his nearly 1.4 million followers.</em>’</p></blockquote>
<p>From a recent SCMP article</p>
</div>

‘“I try to use a facial pack every night,” says Mr. Kim, 28 years old, who now works at an office in Seoul. “It’s been a daily routine since my time in the military.” South Korea is a force in the global beauty industry and its carefully groomed pop idols have become global stars. And for many guys here, the gateway to face serums and 10 step skin care regimens is their time as military conscripts. During his service, Mr. Kim developed a routine while posted at an observation post along the barbed wire fences of the inter-Korean demilitarized zone.’ WSJ article on the elaborate skincare rituals of S. Korean men
“Fiscal year 2018 was an outstanding year for our company. By focusing on strategic priorities and investing in our multiple engines of growth, we delivered double-digit sales and earnings per share gains in all four quarters. In constant currency full year sales rose 13%, nearly twice the rate of global prestige beauty and diluted EPS increased 24%. What made our performance particularly strong were our over achievements in Asia and in Skin Care globally. ” 
Fabrizio Freda, CEO Estee Lauder
‘But the market and gender norms are changing, with cosmetics no longer seen as exclusively for women and male celebrities showing that it is OK for men to dab on a bit of blush. Jiang says a firm that manages bloggers pays him about 5,000 yuan (US$730) per month to feature products from cosmetics companies. Increasingly, foreign firms like La Mer and Aesop work with video bloggers such as Lan Haoyi, to promote their products to his nearly 1.4 million followers.’
From a recent SCMP article


Korean Men Leading Next Asian Skincare Boom

Strategist

Emad Mostaque

<p><a href="https://www.smartkarma.com/entities/26" target="_blank" data-smartkarma-citation="entities:26">Tencent Holdings (700 HK)</a> is up 14% from recent lows  hit after results on the 15th August, having fallen on fears around their core competency of video games. </p>
<p>Looking at the context of potential structural issues around the drop, it seems that this may have been overdone and the pullback offers an interesting entry point to a long-term structural story.</p>

Tencent Holdings (700 HK) is up 14% from recent lows  hit after results on the 15th August, having fallen on fears around their core competency of video games. 
Looking at the context of potential structural issues around the drop, it seems that this may have been overdone and the pullback offers an interesting entry point to a long-term structural story.

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)

NIO IPO: August Metrics Point to Potential Signs of Waning Consumer Interest

In an F-1/A filing, NIO Inc (NIO US) published the number of reservations and vehicles produced and delivered for the month of...

Arun George

Erajaya (ERAA): The New Era Will Last

Angus did an excellent job in uncovering investment opportunity in Erajaya Swasembada (ERAA IJ) pre-2018 and has done very well since. With the...

Henry Soediarko

111 Inc IPO Valuation: Pricing Does Not Adequately Reflect the Risks

111 Inc (YI US) announced its IPO price range of $14-16 per ADS. At the mid-point of the IPO price range, 111 will raise net proceeds of...

Arun George

Korean Men Leading Next Asian Skincare Boom

WSJ article on the elaborate skincare rituals of S. Korean men “Fiscal year 2018 was an outstanding year for our company. By focusing on strategic...

Sean Maher

Reflections on Tencent

Tencent Holdings (700 HK) is up 14% from recent lows hit after results on the 15th August, having fallen on fears around their core competency of...

Emad Mostaque

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