Equity Analyst, LightStream Research

Shifara Samsudeen, FCMA, CGMA

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 Bottom-Up

This is the second of a series of reports on the Chinese streaming platform <a href="https://www.smartkarma.com/entities/iqiyi-inc" target="_blank" data-smartkarma-citation="entities:26755:1" rel="noopener">iQIYI Inc (IQ US)</a>  where we will be discussing the company’s valuation. In our previous insight on the company, we discussed the company’s business model, segments and valuation.In our previous insight, we highlighted that the membership services is the only segment that has seen YoY growth in revenues whereas the company’s second largest segment, online advertising services is seeing continued decrease in revenues.iQiyi’s average revenue per paid subscriber has remained stable while the number of paid subscribers has dropped over the last two quarters. Given the intense competition in the Chinese online streaming market, we believe it will be difficult for the company to increase ARPU without compromising on the number of subscribers.Moreover, the company has been able to turn profitable at the gross margin line during the last two quarters, and the company’s operating expenses are strongly correlated with revenues and we believe the company trying to reduce these costs will impact its top line.Read our previous insight on the company:<a href="https://www.smartkarma.com/insights/iqiyi-placement-searching-for-additional-revenues-amidst-deepening-losses" target="_blank" data-smartkarma-citation="insights:46452" rel="noopener">IQIYI Placement: Searching for Additional Revenues Amidst Deepening Losses</a>

This is the second of a series of reports on the Chinese streaming platform iQIYI Inc (IQ US)  where we will be discussing the company’s valuation. In our previous insight on the company, we discussed the company’s business model, segments and valuation.In our previous insight, we highlighted that the membership services is the only segment that has seen YoY growth in revenues whereas the company’s second largest segment, online advertising services is seeing continued decrease in revenues.iQiyi’s average revenue per paid subscriber has remained stable while the number of paid subscribers has dropped over the last two quarters. Given the intense competition in the Chinese online streaming market, we believe it will be difficult for the company to increase ARPU without compromising on the number of subscribers.Moreover, the company has been able to turn profitable at the gross margin line during the last two quarters, and the company’s operating expenses are strongly correlated with revenues and we believe the company trying to reduce these costs will impact its top line.Read our previous insight on the company:IQIYI Placement: Searching for Additional Revenues Amidst Deepening Losses 

IQIYI Valuation: Netflix of China Seems Overvalued; No Growth Without Sacrificing Profits

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.

<ul>
<li>China Audio-Video and Digital Publishing Association announced the Age Rating of Online Game.</li>
<li>Many online platforms stopped selling cash deposit products.</li>
<li>Online payment amount grew by 28% YoY on the shopping season “December 12”.</li>
</ul>


China Audio-Video and Digital Publishing Association announced the Age Rating of Online Game.
Many online platforms stopped selling cash deposit products.
Online payment amount grew by 28% YoY on the shopping season “December 12”.


China Internet Weekly (21Dec2020): Online Games Rated by Age, Online Platforms Banned from Deposit

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

Equity Capital Markets

iQiyi aims to raise around US$1.7bn from a convertible bond and primary follow-on offering. The ADS offering is expected to raise around US$900m, with the balance coming from the convertible bond offering. Its been a rough year for the stock with a short-seller targeting the company and operations lagging as well.We have covered the company's performance previously in:<ul>
<li><a href="https://www.smartkarma.com/insights/iqiyi-some-flaws-in-the-wolfpack-s-short-seller-report" target="_blank" rel="noopener">IQIYI: Some Flaws in the Wolfpack’s Short Seller Report</a></li>
<li><a href="https://www.smartkarma.com/insights/iqiyi-iq-why-chinese-netflix-dismissing-employees-during-home-staying-a-content-angle" target="_blank" rel="noopener">IQiyi (IQ): Why “Chinese Netflix” Dismissing Employees During Home Staying? A Content Angle</a></li>
<li><a href="https://www.smartkarma.com/insights/iqiyi-iq-an-empty-tv-box" target="_blank" rel="noopener">IQiyi (IQ): An Empty TV Box</a></li>
</ul>

iQiyi aims to raise around US$1.7bn from a convertible bond and primary follow-on offering. The ADS offering is expected to raise around US$900m, with the balance coming from the convertible bond offering. Its been a rough year for the stock with a short-seller targeting the company and operations lagging as well.We have covered the company's performance previously in:
IQIYI: Some Flaws in the Wolfpack’s Short Seller Report
IQiyi (IQ): Why “Chinese Netflix” Dismissing Employees During Home Staying? A Content Angle
IQiyi (IQ): An Empty TV Box


IQiyi Placement - An Ex-Growth Netflix - Needs a Deep Deep Discount

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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Index Rebalance

The Hang Seng Indexes Company Limited (HSIL) should announce the results of the March 2021 review of the Hang Seng Family of Indexes on 19 February. The constituent changes will be effective after the close of trading on 5 March.We expect the March 21 review for the <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> to have only 1 deletion, though there is a low probability of another set of changes. Post <a href="https://www.smartkarma.com/entities/jd-health-international" target="_blank" data-smartkarma-citation="entities:29677:1" rel="noopener">JD Health (6618 HK)</a>'s Fast Entry into the index, there needs to be one deletion at the March review. At the current time, the lowest ranked index constituent is <a href="https://www.smartkarma.com/entities/petrochina-co-ltd-h" target="_blank" data-smartkarma-citation="entities:262:1" rel="noopener">Petrochina Co Ltd H (857 HK)</a> and the stock should be deleted at the March review.There was a medium probability of <a href="https://www.smartkarma.com/entities/country-garden-services-holdings-company-limited" target="_blank" data-smartkarma-citation="entities:27343:1" rel="noopener">Country Garden Services Holdings (6098 HK)</a> being included in the index. That has now become a low probability event post <a href="https://www.smartkarma.com/entities/jd-health-international" target="_blank" data-smartkarma-citation="entities:29677:1" rel="noopener">JD Health (6618 HK)</a>'s inclusion in the index. If <a href="https://www.smartkarma.com/entities/country-garden-services-holdings-company-limited" target="_blank" data-smartkarma-citation="entities:27343:1" rel="noopener">Country Garden Services Holdings (6098 HK)</a> is included in the index, then <a href="https://www.smartkarma.com/entities/hengan-intl-group-co-ltd" target="_blank" data-smartkarma-citation="entities:29:1" rel="noopener">Hengan Intl Group (1044 HK)</a> could be deleted.The potential changes to the <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> over the next 6 months will also have serious implications for the dividend futures expiring in 2021, 2022 and beyond.

The Hang Seng Indexes Company Limited (HSIL) should announce the results of the March 2021 review of the Hang Seng Family of Indexes on 19 February. The constituent changes will be effective after the close of trading on 5 March.We expect the March 21 review for the Hang Seng China Enterprises Index (HSCEI INDEX) to have only 1 deletion, though there is a low probability of another set of changes. Post JD Health (6618 HK)'s Fast Entry into the index, there needs to be one deletion at the March review. At the current time, the lowest ranked index constituent is Petrochina Co Ltd H (857 HK) and the stock should be deleted at the March review.There was a medium probability of Country Garden Services Holdings (6098 HK) being included in the index. That has now become a low probability event post JD Health (6618 HK)'s inclusion in the index. If Country Garden Services Holdings (6098 HK) is included in the index, then Hengan Intl Group (1044 HK) could be deleted.The potential changes to the Hang Seng China Enterprises Index (HSCEI INDEX) over the next 6 months will also have serious implications for the dividend futures expiring in 2021, 2022 and beyond.

HSCEI Index Rebalance Preview: One Deletion For Sure, Could Be One More Change

Tencent is not an overheated company riding on the home quarantine. On the contrary, we believe  the competitors to all Tencent's business lines are in trouble. These provide Tencent another opportunity of upside.
The 6-year P/E Band suggests an upside of 24% for the end of 2021 and a price target. We upgraded Tencent to "buy" after the release of the 3Q20 result. Now we raise our price target from HK$660 to HK$700.

Tencent is not an overheated company riding on the home quarantine. On the contrary, we believe  the competitors to all Tencent's business lines are in trouble. These provide Tencent another opportunity of upside.
The 6-year P/E Band suggests an upside of 24% for the end of 2021 and a price target. We upgraded Tencent to "buy" after the release of the 3Q20 result. Now we raise our price target from HK$660 to HK$700.

2021 High Conviction: Long Tencent as All Competitors Are in Trouble

China

Baidu, Inc. operates an Internet search engine. The Company offers algorithmic search, enterprise search, news, MP3, and image searches, voice assistance, online storage, and navigation services. Baidu serves clients globally.

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Baidu (BIDU US)

IQIYI Valuation: Netflix of China Seems Overvalued; No Growth Without Sacrificing Profits

This is the second of a series of reports on the Chinese streaming platform iQiyi where we will be discussing the company’s valuation.

Shifara Samsudeen, FCMA, CGMA

China Internet Weekly (21Dec2020): Online Games Rated by Age, Online Platforms Banned from Deposit

Authorities announced the Age Rating of Online Game. Many online platforms stopped selling cash deposit products. Online payment amount grew by 28%...

Ming Lu

IQiyi Placement - An Ex-Growth Netflix - Needs a Deep Deep Discount

iQiyi aims to raise around US$1.7bn from a CB and primary follow-on offering. The ADS offering is expected to raise around US$900m, with the...

Sumeet Singh

HSCEI Index Rebalance Preview: One Deletion For Sure, Could Be One More Change

Following JD Health's Fast Entry into the HSCEI, PetroChina is a high probability deletion in March. There is a low probability of Country Garden...

Brian Freitas

2021 High Conviction: Long Tencent as All Competitors Are in Trouble

Tencent is not an overheated company riding on the home quarantine. All the competitors to all Tencent's business lines are in trouble. These...

Ming Lu

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