Global Emerging Market Equities, Propitious Research

Wium Malan, CFA

Global Emerging Market Equities

Equity Bottom-Up

<p>The Chinese eCommerce sector has been affected by increased regulatory scrutiny from the State Administration for Market Regulation (SAMR) which has been a headwind to most companies in the sector. However, during this time, <a href="https://www.smartkarma.com/entities/vipshop-holdings-ltd-adr" target="_blank" data-smartkarma-citation="entities:1088:1" rel="noopener">Vipshop Holdings (VIPS US)</a> has meaningfully outperformed peers, driven by an acceleration in active user numbers. <a href="https://www.smartkarma.com/entities/alibaba-group" target="_blank" data-smartkarma-citation="entities:28434:1" rel="noopener">Alibaba Group (9988 HK)</a>, in turn, has significantly underperformed peers, driven by an overhaul of regulation affecting, not only, its 33%-owned <a href="https://www.smartkarma.com/entities/ant-group-co-ltd" target="_blank" data-smartkarma-citation="entities:24240:1" rel="noopener">Ant Financial Services Group (6688 HK)</a>, but also its core Chinese marketplace operations. </p><p>Having previously explored the prospects for Alibaba Group in more detail (<a href="https://www.smartkarma.com/insights/alibaba-a-detailed-look-at-the-sotp-and-what-that-tells-us-about-the-ant-group-and-core-commerce" target="_blank" data-smartkarma-citation="insights:47981" rel="noopener">Alibaba: A Detailed Look at the SOTP, and What that Tells Us About the Ant Group and Core Commerce</a> ), in this insight, I take a closer look at the comparative valuations between Chinese niche apparel flash sales company, Vipshop Holdings, and Chinese marketplace behemoth, Alibaba Group, as it relates to their regulatory challenges, competitive positioning, and medium-term growth outlook.</p>

The Chinese eCommerce sector has been affected by increased regulatory scrutiny from the State Administration for Market Regulation (SAMR) which has been a headwind to most companies in the sector. However, during this time, Vipshop Holdings (VIPS US) has meaningfully outperformed peers, driven by an acceleration in active user numbers. Alibaba Group (9988 HK), in turn, has significantly underperformed peers, driven by an overhaul of regulation affecting, not only, its 33%-owned Ant Financial Services Group (6688 HK), but also its core Chinese marketplace operations. Having previously explored the prospects for Alibaba Group in more detail (Alibaba: A Detailed Look at the SOTP, and What that Tells Us About the Ant Group and Core Commerce ), in this insight, I take a closer look at the comparative valuations between Chinese niche apparel flash sales company, Vipshop Holdings, and Chinese marketplace behemoth, Alibaba Group, as it relates to their regulatory challenges, competitive positioning, and medium-term growth outlook.

Long/Short: Alibaba/Vipshop, a Comparative Valuation

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.

Equity Capital Markets

<div><p>Linklogis, a technology solution provider for supply chain finance in China, is aiming to raise around US$500m in its Hong Kong IPO. Its investors include Tencent, GIC and Standard Chartered Bank.</p></div><div><p>Linklogis’ cloud-native solutions optimize the payment cycle of supply chain transactions and digitalize the entire workflow of supply chain finance. As per CIC, Linklogis was the leader among technology solution providers in China in terms of supply chain finance transactions processed over 9M20, accounting for 20.5% market share.</p></div><div>
<p>Linklogis overall revenue grew by 83% YoY in FY19 and was up another 52% over 9M20. While its core function of Supply Chain finance has been registering strong growth of 64.4% YoY in FY19 and 53.8% in 9M20, revenue from its Emerging solutions was up nearly 6x in FY19 and grew by another 38% over 9M20.</p>
<p>We have covered the positive aspects of the deal in our earlier insight, <a href="https://www.smartkarma.com/insights/linklogis-pre-ipo-the-positives-fast-growing-blockchain-driven-supply-chain-financier" target="_blank" rel="noopener">Linklogis Pre-IPO - The Positives - Fast Growing Blockchain Driven Supply Chain Financier</a>. In this insight, I'll cover the not so pleasant aspects of the deal.</p>
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Linklogis, a technology solution provider for supply chain finance in China, is aiming to raise around US$500m in its Hong Kong IPO. Its investors include Tencent, GIC and Standard Chartered Bank.Linklogis’ cloud-native solutions optimize the payment cycle of supply chain transactions and digitalize the entire workflow of supply chain finance. As per CIC, Linklogis was the leader among technology solution providers in China in terms of supply chain finance transactions processed over 9M20, accounting for 20.5% market share.
Linklogis overall revenue grew by 83% YoY in FY19 and was up another 52% over 9M20. While its core function of Supply Chain finance has been registering strong growth of 64.4% YoY in FY19 and 53.8% in 9M20, revenue from its Emerging solutions was up nearly 6x in FY19 and grew by another 38% over 9M20.
We have covered the positive aspects of the deal in our earlier insight, Linklogis Pre-IPO - The Positives - Fast Growing Blockchain Driven Supply Chain Financier. In this insight, I'll cover the not so pleasant aspects of the deal.


Linklogis Pre-IPO - The Negatives - Inconsistent Growth and Margins, Well Funded Competitors

<p>Linklogis, a technology solution provider for supply chain finance in China, is aiming to raise around US$500m in its Hong Kong IPO. Its investors include Tencent, GIC and Standard Chartered Bank.</p><p>Linklogis’ cloud-native solutions optimize the payment cycle of supply chain transactions and digitalize the entire workflow of supply chain finance. As per CIC, Linklogis was the leader among technology solution providers in China in terms of supply chain finance transactions processed over 9M20, accounting for 20.5% market share.</p><p>Linklogis overall revenue grew by 83% YoY in FY19 and was up another 52% over 9M20. While its core function of Supply Chain finance has been registering strong growth of 64.4% YoY in FY19 and 53.8% in 9M20, revenue from its Emerging solutions was up nearly 6x in FY19 and grew by another 38% over 9M20.</p><p>In this insight, I'll cover the positive aspects of the deal.</p>

Linklogis, a technology solution provider for supply chain finance in China, is aiming to raise around US$500m in its Hong Kong IPO. Its investors include Tencent, GIC and Standard Chartered Bank.Linklogis’ cloud-native solutions optimize the payment cycle of supply chain transactions and digitalize the entire workflow of supply chain finance. As per CIC, Linklogis was the leader among technology solution providers in China in terms of supply chain finance transactions processed over 9M20, accounting for 20.5% market share.Linklogis overall revenue grew by 83% YoY in FY19 and was up another 52% over 9M20. While its core function of Supply Chain finance has been registering strong growth of 64.4% YoY in FY19 and 53.8% in 9M20, revenue from its Emerging solutions was up nearly 6x in FY19 and grew by another 38% over 9M20.In this insight, I'll cover the positive aspects of the deal.

Linklogis Pre-IPO - The Positives - Fast Growing Blockchain Driven Supply Chain Financier

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Index Rebalance

Hang Seng China Enterprises Index / Index Rebalance

<p>Last evening, Hang Seng Indexes announced the conclusions of the market consultation on the "Proposal to enhance the Hang Seng Index as regards continuing to serve as the most representative and important benchmark of the Hong Kong stock market".</p><p>Apart from the changes to the <a href="https://www.smartkarma.com/entities/hong-kong-hang-seng-index" target="_blank" data-smartkarma-citation="entities:22899:1" rel="noopener">Hong Kong Hang Seng Index (HSI INDEX)</a>, it was also decided that the weight of all <a href="https://www.smartkarma.com/entities/hang-seng-china-enterprises-index" target="_blank" data-smartkarma-citation="entities:22900:1" rel="noopener">Hang Seng China Enterprises Index (HSCEI INDEX)</a> constituents, including Secondary Listings and WVR Securities, would be capped at 8%. While this was not a part of the market consultation, we had highlighted this as a possibility in our earlier <a href="https://www.smartkarma.com/insights/hscei-dividends-structural-sell-bank-dividends-the-swing-factor" target="_blank" rel="noopener">Insight</a>.</p><p>Post the 2 inclusions and 4 deletions in the March review, we see a further 3 potential changes at the June review.</p><p>The big impact of the 8% cap on index constituents will be felt on the HSCEI dividend futures market. With a bulk of the 2021 dividends scheduled to go ex after the implementation of the rebalance, the dividend futures should move lower. The HSCEI 2021/22 dividend steepener should trade less negative than where it has been trading prior to the announcement.</p><p>In this Insight, we look at the potential changes and their impact on the stocks and the dividend futures.</p><div class="content-highlight"><p><em>This Insight is marked Bearish since we expect the HSCEI 2021 dividend futures to move lower.</em></p></div>

Last evening, Hang Seng Indexes announced the conclusions of the market consultation on the "Proposal to enhance the Hang Seng Index as regards continuing to serve as the most representative and important benchmark of the Hong Kong stock market".Apart from the changes to the Hong Kong Hang Seng Index (HSI INDEX), it was also decided that the weight of all Hang Seng China Enterprises Index (HSCEI INDEX) constituents, including Secondary Listings and WVR Securities, would be capped at 8%. While this was not a part of the market consultation, we had highlighted this as a possibility in our earlier Insight.Post the 2 inclusions and 4 deletions in the March review, we see a further 3 potential changes at the June review.The big impact of the 8% cap on index constituents will be felt on the HSCEI dividend futures market. With a bulk of the 2021 dividends scheduled to go ex after the implementation of the rebalance, the dividend futures should move lower. The HSCEI 2021/22 dividend steepener should trade less negative than where it has been trading prior to the announcement.In this Insight, we look at the potential changes and their impact on the stocks and the dividend futures.This Insight is marked Bearish since we expect the HSCEI 2021 dividend futures to move lower.

HSCEI June Index Rebalance Preview: Potential Changes & Impact of 8% Cap on Dividends

HK/China Equity Long-Short

Osbert Tang, CFA

<p>We find <a href="https://www.smartkarma.com/entities/china-dongxiang-group-co" target="_blank" data-smartkarma-citation="entities:1068:1" rel="noopener">China Dongxiang Group Co (3818 HK)</a> (CNDX) an interesting and deeply undervalued asset play - investors will miss the big picture if they still consider the company as a sportswear with a weak competitive position. The vast value of CNDX lies in its investment portfolio and net cash, and the current 0.38x P/B is too depressed for its quality investments and strong financial position. </p><p>Through its investments, particularly PE investments, CNDX gains indirect interests to many superb names include <a href="https://www.smartkarma.com/entities/ant-group-co-ltd" target="_blank" data-smartkarma-citation="entities:24240:1" rel="noopener">Ant Financial Services Group</a>, <a href="https://www.smartkarma.com/entities/alibaba-health-information-technology-ltd" target="_blank" data-smartkarma-citation="entities:453:1" rel="noopener">Alibaba Health Information Technology (241 HK)</a>, Cainiao Network, <a href="https://www.smartkarma.com/entities/tsingtao-brewery-co-ltd-h" target="_blank" data-smartkarma-citation="entities:1296:1" rel="noopener">Tsingtao Brewery Co Ltd H (168 HK)</a>, JD Digital, MeWe etc. We see potential positive catalysts include a sale of Kappa, IPOs of the PE-owned ventures, increase in dividend payout and a privatisation of the company.</p>

We find China Dongxiang Group Co (3818 HK) (CNDX) an interesting and deeply undervalued asset play - investors will miss the big picture if they still consider the company as a sportswear with a weak competitive position. The vast value of CNDX lies in its investment portfolio and net cash, and the current 0.38x P/B is too depressed for its quality investments and strong financial position. Through its investments, particularly PE investments, CNDX gains indirect interests to many superb names include Ant Financial Services Group, Alibaba Health Information Technology (241 HK), Cainiao Network, Tsingtao Brewery Co Ltd H (168 HK), JD Digital, MeWe etc. We see potential positive catalysts include a sale of Kappa, IPOs of the PE-owned ventures, increase in dividend payout and a privatisation of the company.

China Dongxiang (3818 HK): It's Not a Sportswear Company....It's a Cheap Investment Fund

China

Ant Group Co., Ltd. develops online payment platforms. The Company produces credit system and financial services platforms which provide consumers and small businesses with safe and convenient inclusive financial services globally. Ant Group provides its services worldwide.

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Ant Group (6688 HK)

Long/Short: Alibaba/Vipshop, a Comparative Valuation

In this insight, I take a closer look at the comparative valuations between Chinese niche apparel flash sales company, Vipshop Holdings, and...

Wium Malan, CFA

Linklogis Pre-IPO - The Negatives - Inconsistent Growth and Margins, Well Funded Competitors

Linklogis, a technology solution provider for supply chain finance in China, is aiming to raise around US$500m in its Hong Kong IPO. Its investors...

Sumeet Singh

Linklogis Pre-IPO - The Positives - Fast Growing Blockchain Driven Supply Chain Financier

Linklogis, a technology solution provider for supply chain finance in China, is aiming to raise around US$500m in its Hong Kong IPO. Its investors...

Sumeet Singh

HSCEI June Index Rebalance Preview: Potential Changes & Impact of 8% Cap on Dividends

The change in capping at 8% in the HSCEI at the June 21 review will result in large turnover at the review. The change will have a large impact on...

Brian Freitas

China Dongxiang (3818 HK): It's Not a Sportswear Company....It's a Cheap Investment Fund

China Dongxiang is a deeply undervalued asset play, instead of a second-tier sportswear company in China. We believe focusing on the sportswear...

Osbert Tang, CFA

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