Telco/Internet specialist

Kirk Boodry

Redex Research

Equity Bottom-Up

Shares of Didi Global appear to have stabilized after regulatory turmoil but whilst the stream of bad news has slowed, the lack of good news (an end to the app ban, any management comments) is also troubling. Even with a hopeful view on the end of regulatory pressure, the company appears less valuable as competition and higher pay for drivers shifts the economics and our new forecasts value the company at $9.74 versus our pre-IPO value of $15.8. We track Didi as part of our Softbank Group coverage.

Shares of Didi Global appear to have stabilized after regulatory turmoil but whilst the stream of bad news has slowed, the lack of good news (an end to the app ban, any management comments) is also troubling. Even with a hopeful view on the end of regulatory pressure, the company appears less valuable as competition and higher pay for drivers shifts the economics and our new forecasts value the company at $9.74 versus our pre-IPO value of $15.8. We track Didi as part of our Softbank Group coverage.

Didi Global - Regulatory Overhang Remains and Long-Term Value Is Falling

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/didi-chuxing-inc" target="_blank" data-smartkarma-citation="entities:27467:1" rel="noopener">DiDi Global (DIDI US)</a> is the world's largest mobility technology platform by annual active users and by average daily transactions for the twelve months ended 31 March 2021, according to CIC. DiDi has endured a torrid time since its listing on 30 June to raise net proceeds of $4,331.6 million at $14.00 per ADS. The shares are trading 40% below its IPO price as days after its listing, DiDi’s apps were taken down from app stores in China by the Cyberspace Administration of China (CAC). DiDi ran afoul of CAC when it pressed ahead with its listing, despite CAC asking it to put the listing on hold while it conducted a cybersecurity review of its collection and use of personal information. Subsequently, the official Xinhua news agency on 10 October claimed that the CAC probe was aimed at “effectively preventing potential national security risks relating to procurement, data processing and overseas listings.”DIDi has been ensnared by regulatory probes into its pricing mechanisms and the way it treats its drivers. DiDi also been subject to rumours in the press that the Chinese government is weighing asserting state control by taking a stake in the company. Press reports have also suggested that DiDi is planning to delist from the US which was later confirmed by DiDi to be false.Since the regulatory clampdown, DiDi has not released its 2Q21 results or provided any financial guidance. However, due to the regulatory restrictions, DiDi is losing market share and pricing power to competitors in China. On 6 September, Cao Cao Mobility, a peer, raised RMB3.8 billion ($588 million) from Chinese state-owned funds to accelerate its expansion. DiDi’s average daily user count declined 30% to 10.9 million in August from 15.6 million in June, according to <a href="https://www.smartkarma.com/entities/aurora-mobile-ltd" target="_blank" data-smartkarma-citation="entities:27264:1" rel="noopener">Aurora Mobile Ltd (JG US)</a>.DiDi continues to polarise opinions with some investors suggesting that the stock can double from current levels while others are wary due to unpredictable regulatory risks. Due to the number of unknowns, we examine DiDi's outlook through scenarios analysis. A key difference between the bull and bear case is the timing for the reinstatement of DiDi’s apps on the app stores which will once again enable DiDi to grow market share and regain pricing power. <div class="content-highlight">Our bull-case SoTP valuation points to a 22% upside while our bear-case SoTP valuation points to a -19% downside to the last close price of $8.56 per ADS. Consequently, the shares seem fairly valued and may appeal to investors with a higher risk appetite.  </div>

DiDi Global (DIDI US) is the world's largest mobility technology platform by annual active users and by average daily transactions for the twelve months ended 31 March 2021, according to CIC. DiDi has endured a torrid time since its listing on 30 June to raise net proceeds of $4,331.6 million at $14.00 per ADS. The shares are trading 40% below its IPO price as days after its listing, DiDi’s apps were taken down from app stores in China by the Cyberspace Administration of China (CAC). DiDi ran afoul of CAC when it pressed ahead with its listing, despite CAC asking it to put the listing on hold while it conducted a cybersecurity review of its collection and use of personal information. Subsequently, the official Xinhua news agency on 10 October claimed that the CAC probe was aimed at “effectively preventing potential national security risks relating to procurement, data processing and overseas listings.”DIDi has been ensnared by regulatory probes into its pricing mechanisms and the way it treats its drivers. DiDi also been subject to rumours in the press that the Chinese government is weighing asserting state control by taking a stake in the company. Press reports have also suggested that DiDi is planning to delist from the US which was later confirmed by DiDi to be false.Since the regulatory clampdown, DiDi has not released its 2Q21 results or provided any financial guidance. However, due to the regulatory restrictions, DiDi is losing market share and pricing power to competitors in China. On 6 September, Cao Cao Mobility, a peer, raised RMB3.8 billion ($588 million) from Chinese state-owned funds to accelerate its expansion. DiDi’s average daily user count declined 30% to 10.9 million in August from 15.6 million in June, according to Aurora Mobile Ltd (JG US).DiDi continues to polarise opinions with some investors suggesting that the stock can double from current levels while others are wary due to unpredictable regulatory risks. Due to the number of unknowns, we examine DiDi's outlook through scenarios analysis. A key difference between the bull and bear case is the timing for the reinstatement of DiDi’s apps on the app stores which will once again enable DiDi to grow market share and regain pricing power. Our bull-case SoTP valuation points to a 22% upside while our bear-case SoTP valuation points to a -19% downside to the last close price of $8.56 per ADS. Consequently, the shares seem fairly valued and may appeal to investors with a higher risk appetite.  

China and US Equity Analyst

Roger Xie

<ul>
<li>Regulatory risk is the major headwind for <a href="https://www.smartkarma.com/entities/weibo-corp-adr" target="_blank" data-smartkarma-citation="entities:3826:1" rel="noopener">Weibo Corp (WB US)</a>, a twitter-like social media platform for sharing news and user opinions.  As Beijing tightening its grip on social media platform, we have observed Weibo's value declining 65% from its high in 3-year period. In the latest move, China reiterates the ban on private enterprise in news organizations. In the past 10 months, the magnitude of policy change on tech giant is unprecedent. The latest rounds of measurements on social media include: 1) crackdown of internet influencer/celebrity culture; 2) adjustment on algorithm-powered feeds; 3) macro impact on SME ad campaign spending. </li>
<li>We believe <a href="https://www.smartkarma.com/entities/weibo-corp-adr" target="_blank" data-smartkarma-citation="entities:3826:1" rel="noopener">Weibo Corp (WB US)</a> has strong presence in celebrity and key opinion leaders on social media, which differentiates it from other major platform such as <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent (700 HK)'s  </a>WeChat/QQ, and <a href="https://www.smartkarma.com/entities/bytedance-technology" target="_blank" data-smartkarma-citation="entities:27936:1" rel="noopener">ByteDance (1439927D CH)</a>'s Toutiao.  With its 521 million monthly active users and 225 million daily active users, Weibo is one of the largest social platform.  As more key opinion leaders join Weibo, more users use Weibo to read view the key opinion leaders’ content and engage with them through replying, sharing, and clicking the “Like” button. These key opinion leaders can also get tipping from or sell merchandise to their fans. We believe Weibo's business model and scale is hard to replicate. </li>
<li>
<a href="https://www.smartkarma.com/entities/weibo-corp-adr" target="_blank" data-smartkarma-citation="entities:3826:1" rel="noopener">Weibo Corp (WB US)</a> has strategic partnership with <a href="https://www.smartkarma.com/entities/sina-corp-china" target="_blank" data-smartkarma-citation="entities:22691:1" rel="noopener">Sina Corp (Class A) (SINA US)</a> and <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> The parent company Sina owns 45% Weibo outstanding shares and has 71% voting right. Alibaba owns 30% Weibo outstanding shares and has 16% voting right. Given the recent scrutiny of Alibaba and forcing exit from media industry, we think the upcoming recapitalization of Weibo could be a positive catalyst. Weibo has already explored the potential Hong Kong secondary listing.  And it could use the IPO proceed to partially buyout Alibaba stake. Another option is that new strategic investors could be introduced to take Alibaba's stake as well. <a href="https://www.smartkarma.com/entities/weibo-corp-adr" target="_blank" data-smartkarma-citation="entities:3826:1" rel="noopener">Weibo Corp (WB US)</a> is traded at forward 15x consensus P/E, and could deliver 15% revenue CAGR in the next 3 year. We think valuation is attractive for Weibo's scale and monetization potential. </li>
</ul>


Regulatory risk is the major headwind for Weibo Corp (WB US), a twitter-like social media platform for sharing news and user opinions.  As Beijing tightening its grip on social media platform, we have observed Weibo's value declining 65% from its high in 3-year period. In the latest move, China reiterates the ban on private enterprise in news organizations. In the past 10 months, the magnitude of policy change on tech giant is unprecedent. The latest rounds of measurements on social media include: 1) crackdown of internet influencer/celebrity culture; 2) adjustment on algorithm-powered feeds; 3) macro impact on SME ad campaign spending. 
We believe Weibo Corp (WB US) has strong presence in celebrity and key opinion leaders on social media, which differentiates it from other major platform such as Tencent (700 HK)'s  WeChat/QQ, and ByteDance (1439927D CH)'s Toutiao.  With its 521 million monthly active users and 225 million daily active users, Weibo is one of the largest social platform.  As more key opinion leaders join Weibo, more users use Weibo to read view the key opinion leaders’ content and engage with them through replying, sharing, and clicking the “Like” button. These key opinion leaders can also get tipping from or sell merchandise to their fans. We believe Weibo's business model and scale is hard to replicate. 

Weibo Corp (WB US) has strategic partnership with Sina Corp (Class A) (SINA US) and Alibaba Group (BABA US). The parent company Sina owns 45% Weibo outstanding shares and has 71% voting right. Alibaba owns 30% Weibo outstanding shares and has 16% voting right. Given the recent scrutiny of Alibaba and forcing exit from media industry, we think the upcoming recapitalization of Weibo could be a positive catalyst. Weibo has already explored the potential Hong Kong secondary listing.  And it could use the IPO proceed to partially buyout Alibaba stake. Another option is that new strategic investors could be introduced to take Alibaba's stake as well. Weibo Corp (WB US) is traded at forward 15x consensus P/E, and could deliver 15% revenue CAGR in the next 3 year. We think valuation is attractive for Weibo's scale and monetization potential. 


Weibo (WB US): Regulatory Risks Overshadow Cheap Valuation And Recapitalization Optionality

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.

Several news media outlets reported in September that ByteDance (1439927D CH) has made plans to launch a music streaming app in China later this year. The online music streaming market in China is long dominated by Tencent Music who previously held exclusive music licensing agreements with global music streaming giants Warner Music Group (WMG), Universal Music (UMG) and Sony Music in China. However, TME was ordered to give-up these exclusive music licensing agreements by the country’s market regulator SAMR (state Administration of Market Regulation) and the company announced in August that it has relinquished all of its exclusive music licensing agreements as per the order of the Chinese regulators.TME’s shares are currently trading at US$6.87 per ADR at its all-time low and the shares are down 77.4% compared to its peak of US$30.42 per ADR in mid-March.

TME: ByteDance’s Entry into Music Streaming to Further Threaten TME’s Dominance

Global Emerging Market Equities, Propitious Research

Wium Malan, CFA

Global Emerging Market Equities

Independent, Fundamental Quantitative Research

Propitious Research

Fully independent, fundamental and quantitative equity research, focused on companies in the Telecommunication, Media, Technology, Internet and Healthcare sectors in the Global Emerging Markets. Idea generation focused on Quality stocks, trading below their intrinsic Value, with sound Corporate Governance.

<a href="https://www.smartkarma.com/entities/alibaba-group" target="_blank" data-smartkarma-citation="entities:28434:1" rel="noopener">Alibaba Group (9988 HK)</a> has had a disastrous year, ever since the IPO of their FinTech arm, <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>, was pulled last minute in November 2020. Since then, they have faced continued regulatory hurdles, including an RMB18.2bn anti-monopoly fine, which has culminated in a 51% share price drop, since its November 2020 peak, which means that Alibaba is currently trading on only a 14.3x forward PE ratio. Given that this is nearly 4 standard deviations below its 5-year historical average trading range, and that this multiple would imply only a 0.72x PEG ratio, for a company with an extremely strong net cash balance sheet, delivering returns on capital well above its cost of capital, with positive free cash flow generation, and a $15bn share buyback program, indicates that there is a massive disconnect between long-term Buy-side expectations and near-term Sell-side estimates. Looking at the reported group financials over this period it does not seem as though the regulatory impact has been that significant on core operations. The key concern, however, is that Alibaba is losing market share in its core businesses. In this insight, I take a closer look at the broader Chinese retail market, as well as the Chinese digital advertising market (I estimate that Alibaba still generates more than 40% of its Chinese commerce revenue, and roughly 1/3rd of group revenue, from marketing activities), to analyse Alibaba’s relative revenue share loss. Finally, I also revisit current valuation levels and analyse what this implies for its Core Commerce operations.

Alibaba Group (9988 HK) has had a disastrous year, ever since the IPO of their FinTech arm, Ant Financial Services Group (6688 HK), was pulled last minute in November 2020. Since then, they have faced continued regulatory hurdles, including an RMB18.2bn anti-monopoly fine, which has culminated in a 51% share price drop, since its November 2020 peak, which means that Alibaba is currently trading on only a 14.3x forward PE ratio. Given that this is nearly 4 standard deviations below its 5-year historical average trading range, and that this multiple would imply only a 0.72x PEG ratio, for a company with an extremely strong net cash balance sheet, delivering returns on capital well above its cost of capital, with positive free cash flow generation, and a $15bn share buyback program, indicates that there is a massive disconnect between long-term Buy-side expectations and near-term Sell-side estimates. Looking at the reported group financials over this period it does not seem as though the regulatory impact has been that significant on core operations. The key concern, however, is that Alibaba is losing market share in its core businesses. In this insight, I take a closer look at the broader Chinese retail market, as well as the Chinese digital advertising market (I estimate that Alibaba still generates more than 40% of its Chinese commerce revenue, and roughly 1/3rd of group revenue, from marketing activities), to analyse Alibaba’s relative revenue share loss. Finally, I also revisit current valuation levels and analyse what this implies for its Core Commerce operations.

Alibaba: How Much Core Market Share Loss Has Been Priced In?

China

Beijing Douyin Information Service Co. Ltd. provides online information and contents. The Company develops and operates short video platform, original short video community, news platform, and other related products. Beijing Douyin Information Service offers services worldwide.

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ByteDance (1439927D CH)

Didi Global - Regulatory Overhang Remains and Long-Term Value Is Falling

Volatility in Didi shares appear has stabilized after regulatory turmoil but whilst the stream of bad news has slowed, a lack of good news is also...

Kirk Boodry

DiDi Global: Time to Book a Ride?

Our bull-case SoTP valuation points to a 22% upside while our bear-case SoTP valuation points to a -19% downside. The shares seem fairly valued and...

Arun George

Weibo (WB US): Regulatory Risks Overshadow Cheap Valuation And Recapitalization Optionality

Although Weibo (WB.US) is facing regulatory risk and growth is slow, we think valuation is attractive for its scale and monetization potential....

Roger Xie

TME: ByteDance’s Entry into Music Streaming to Further Threaten TME’s Dominance

ByteDance has made plans to launch a music streaming app in China later this year which is likely to further threaten TME's market dominance as it...

Shifara Samsudeen, FCMA, CGMA

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52-week Range

Market Cap (USDm)

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Didi Global - Regulatory Overhang Remains and Long-Term Value Is Falling

Volatility in Didi shares appear has stabilized after regulatory turmoil but whilst the stream of bad news has slowed, a lack of good news is also...

Kirk Boodry

DiDi Global: Time to Book a Ride?

Our bull-case SoTP valuation points to a 22% upside while our bear-case SoTP valuation points to a -19% downside. The shares seem fairly valued and...

Arun George

Weibo (WB US): Regulatory Risks Overshadow Cheap Valuation And Recapitalization Optionality

Although Weibo (WB.US) is facing regulatory risk and growth is slow, we think valuation is attractive for its scale and monetization potential....

Roger Xie

TME: ByteDance’s Entry into Music Streaming to Further Threaten TME’s Dominance

ByteDance has made plans to launch a music streaming app in China later this year which is likely to further threaten TME's market dominance as it...

Shifara Samsudeen, FCMA, CGMA

Alibaba: How Much Core Market Share Loss Has Been Priced In?

In this insight, I analyse Chinese retail sales and digital advertising market share changes and what is implied by Alibaba’s current valuation...

Wium Malan, CFA