Equity Analyst, LightStream Research

Oshadhi Kumarasiri

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

<p>Mega cap tech stocks rarely underperform the market to the same extent as <a href="https://www.smartkarma.com/entities/alibaba-group" target="_blank" data-smartkarma-citation="entities:28434:1" rel="noopener">Alibaba Group (9988 HK)</a> during the last seven months, especially with no deterioration in earnings growth potential.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/217/249/original/image_11147906721625671618744.png?1625671621" class="editor-image img-responsive" data-smartkarma-image-id="217249"></figure><div class="content-caption"><em>Source: Cap IQ</em></div><p>After trading sideways during May/June 2021, technicals were pointing the right way for the very first time for Alibaba in 2021.</p><p>The stock rallied by 10% in the last week of June to $229.4 per share, causing most of us to assume that Alibaba was making a comeback.</p><p>Unfortunately, the joy lasted just a short time, as Xi Jinping’s government went back on the offence with a broadened crackdown on tech platforms, especially the US-listed Chinese tech companies like the recent ride sharing IPO <a href="https://www.smartkarma.com/entities/didi-chuxing-inc" target="_blank" data-smartkarma-citation="entities:27467:1" rel="noopener">DiDi Chuxing (DIDI US)</a>.</p><p>After underperforming the S&amp;P for almost seven months, most Chinese technology stocks, especially Alibaba, seem very cheap, but it is not cheap enough to call it a bottom amidst ongoing regulatory crackdowns and the geopolitical rivalry between the US and China. As such, we would not rush to buy any dips and recommend that we wait till the rally well and truly begins.</p>

Mega cap tech stocks rarely underperform the market to the same extent as Alibaba Group (9988 HK) during the last seven months, especially with no deterioration in earnings growth potential.Source: Cap IQAfter trading sideways during May/June 2021, technicals were pointing the right way for the very first time for Alibaba in 2021.The stock rallied by 10% in the last week of June to $229.4 per share, causing most of us to assume that Alibaba was making a comeback.Unfortunately, the joy lasted just a short time, as Xi Jinping’s government went back on the offence with a broadened crackdown on tech platforms, especially the US-listed Chinese tech companies like the recent ride sharing IPO DiDi Chuxing (DIDI US).After underperforming the S&amp;P for almost seven months, most Chinese technology stocks, especially Alibaba, seem very cheap, but it is not cheap enough to call it a bottom amidst ongoing regulatory crackdowns and the geopolitical rivalry between the US and China. As such, we would not rush to buy any dips and recommend that we wait till the rally well and truly begins.

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

<p>In our previous note <a href="https://www.smartkarma.com/insights/china-adrs-kanzhun-full-truck-and-didi-regulators-sending-a-message" target="_blank" rel="noopener">China ADRs - Kanzhun, Full Truck and Didi - Regulators Sending a Message,</a> we spoke about the recent crackdown on the three US listed firms. Since then more news has been coming in along the same theme of a general crackdown on overseas listings for Chinese companies. </p>
<div>
<p>We have looked at the ADRs in the past, in our previous notes:</p>
</div>
<div>
<ul style="list-style-type: disc;">
<li>
<a href="https://www.smartkarma.com/insights/china-adrs-secondary-listing-deep-dive-yin-and-yang" target="_blank" rel="noopener">China ADRs Secondary Listing Deep-Dive: Yin and Yang,</a> published in Feb 2020,  we looked at the background and rules around undertaking a secondary listing in Hong Kong and then came up with a short-list of companies that might undertake a secondary listing. </li>
<li>
<a href="https://www.smartkarma.com/insights/china-adrs-secondary-listing-covid-19-has-increased-the-tension-but-narrowed-the-short-list" target="_blank" rel="noopener">In China ADRs Secondary Listing: COVID-19 Has Increased the Tension but Narrowed the Short List</a> published in May 2020, we looked at the recent developments and provided an revised short-list</li>
<li>In <a href="https://www.smartkarma.com/insights/china-adrs-secondary-listing-holding-foreign-companies-accountable-act-i-m-coming-home" target="_blank" rel="noopener">China ADRs Secondary Listing - Holding Foreign Companies Accountable Act - I’m Coming Home</a>, published in May 2020, we spoke about the implication of the act which had made its way through the senate.</li>
<li>In <a href="https://www.smartkarma.com/insights/china-adrs-secondary-listing-pipeline-looks-rich-have-three-years-to-move" target="_blank" rel="noopener">China ADRs Secondary Listing - Pipeline Looks Rich, Have Three Years to Move</a>, published in Feb 2021 we looked at the ADR pipeline and spoke about the updates from the Holding Foreign Companies Accountable Act becoming law and the updates at Hong Kong end as well. </li>
<li>In <a href="https://www.smartkarma.com/insights/china-adrs-sec-notice-instead-of-three-probably-have-four-years-till-2025-correction-overdone" target="_blank" rel="noopener">China ADRs - SEC Notice - Instead of Three, Probably Have Four Years till 2025 - Correction Overdone, </a> we spoke about the new SEC notice and its implications. </li>
<li>In <a href="https://www.smartkarma.com/insights/china-adrs-a-new-act-aims-to-put-an-end-to-china-adr-ipos" target="_blank" rel="noopener">China ADRs - A New Act Aims to Put an End to China ADR IPOs</a>, we spoke about the No IPOs for Unaccountable Actors Act, which aims to prohibit IPO on U.S. exchanges for Chinese companies. </li>
</ul>
</div>
<div>
<p>In this note, we'll talk about the implications of the recent China regulatory announcements.</p>
</div>

In our previous note China ADRs - Kanzhun, Full Truck and Didi - Regulators Sending a Message, we spoke about the recent crackdown on the three US listed firms. Since then more news has been coming in along the same theme of a general crackdown on overseas listings for Chinese companies. 

We have looked at the ADRs in the past, in our previous notes:




China ADRs Secondary Listing Deep-Dive: Yin and Yang, published in Feb 2020,  we looked at the background and rules around undertaking a secondary listing in Hong Kong and then came up with a short-list of companies that might undertake a secondary listing. 

In China ADRs Secondary Listing: COVID-19 Has Increased the Tension but Narrowed the Short List published in May 2020, we looked at the recent developments and provided an revised short-list
In China ADRs Secondary Listing - Holding Foreign Companies Accountable Act - I’m Coming Home, published in May 2020, we spoke about the implication of the act which had made its way through the senate.
In China ADRs Secondary Listing - Pipeline Looks Rich, Have Three Years to Move, published in Feb 2021 we looked at the ADR pipeline and spoke about the updates from the Holding Foreign Companies Accountable Act becoming law and the updates at Hong Kong end as well. 
In China ADRs - SEC Notice - Instead of Three, Probably Have Four Years till 2025 - Correction Overdone,  we spoke about the new SEC notice and its implications. 
In China ADRs - A New Act Aims to Put an End to China ADR IPOs, we spoke about the No IPOs for Unaccountable Actors Act, which aims to prohibit IPO on U.S. exchanges for Chinese companies. 



In this note, we'll talk about the implications of the recent China regulatory announcements.


China ADRs - Now the Message Is Loud and Getting Clearer

<p>Daojia Limited (DL), one of the largest one-stop home services platforms in China, aims to raise at least US$300m in its US IPO, which now may or may not happen. The company is backed by 58.com and Baba.</p><p>DL operates Swan Daojia, a platform where it offers multiple services across categories such as maternity nurse, nanny, housekeeping services, along with training services and SaaS-based solutions.</p>

Daojia Limited (DL), one of the largest one-stop home services platforms in China, aims to raise at least US$300m in its US IPO, which now may or may not happen. The company is backed by 58.com and Baba.DL operates Swan Daojia, a platform where it offers multiple services across categories such as maternity nurse, nanny, housekeeping services, along with training services and SaaS-based solutions.

Daojia Pre-IPO - Can’t Pinpoint the True Growth

Equity Research in HK and Mainland China

Li Tang

<p>Cyberspace Administration of China (CAC) announced on its website that it has initiated cybersecurity investigation against <a href="https://www.smartkarma.com/entities/didi-chuxing-inc" target="_blank" data-smartkarma-citation="entities:27467:1" rel="noopener">DiDi Chuxing (DIDI US)</a> , the ride-hailing giant, in order to "prevent national data security risks, maintain national security, and safeguard public interest".</p>

Cyberspace Administration of China (CAC) announced on its website that it has initiated cybersecurity investigation against DiDi Chuxing (DIDI US) , the ride-hailing giant, in order to "prevent national data security risks, maintain national security, and safeguard public interest".

Cybersecurity Watchdog Orders Removal of Didi Chuxing App

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<p>On 6 July 2020, <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> made an <a href="http://ir.sina.com/index.php/static-files/69e95aee-2729-457f-be56-73628090b8ea" target="_blank" rel="noopener">announcement</a> they had received a preliminary non-binding “going private” proposal from New Wave MMXV - a company controlled by its chairman and CEO Charles Chao. The bid was US$41/share. The GlobalTimes had an <a href="https://www.globaltimes.cn/content/1202472.shtml" target="_blank" rel="noopener">article</a> where sources opined Sina would "go home" to list in HK or on the STAR Market. This was followed by an <a href="http://ir.sina.com/static-files/de1ddd0f-354f-42de-9b33-b1bc414ab1b4" target="_blank" rel="noopener">Agreement and Plan of Merger</a> pursuant to which New Wave would acquire all of outstanding ordinary shares not owned at US$43.30/share. Shareholders approved the merger on <a href="http://ir.sina.com/static-files/ea4a5614-30e8-472c-895c-31e120de3261" target="_blank" rel="noopener">23 December</a> 2020.</p><p>The importance of Sina Corp was that it owned a very large stake in China's premier micro-blogging (twitter-equivalent) service, operated by <a href="https://www.smartkarma.com/entities/weibo-corp-adr" target="_blank" data-smartkarma-citation="entities:3826:1" rel="noopener">Weibo Corp (Adr) (WB US)</a>. </p><p>Prior to that EGM, according to <a href="https://www.smartkarma.com/profiles/david-blennerhassett" target="_blank" data-smartkarma-citation="accounts:840" rel="noopener">David Blennerhassett</a>'s excellent write-ups of the deal in <a href="https://www.smartkarma.com/insights/sina-corp-management-buyout-offer" target="_blank" data-smartkarma-citation="insights:41035" rel="noopener">Sina Corp: Management Buyout Offer</a>, and <a href="https://www.smartkarma.com/insights/what-s-going-on-with-sina-corp" target="_blank" data-smartkarma-citation="insights:48344" rel="noopener">What's Going On With Sina Corp?</a> (along with a fabulous initial cut at dissenters' appraisal rights for Chinese companies coming home in <a href="https://www.smartkarma.com/insights/sina-corp-appraisal-rights-and-fair-value" target="_blank" data-smartkarma-citation="insights:41068" rel="noopener">Homecoming For Chinese Companies: Appraisal Rights &amp; Fair Value</a>), Sina had intended to issue written notices of authorization to objecting shareholders (prior to the EGM, <a href="http://ir.sina.com/static-files/722deb54-0426-4b43-a58a-1c8be8b59b61" target="_blank" rel="noopener">21.5mn shares or 35.9%</a> of the outstanding shares of Sina issued notices of objections to the company). </p><p>The dissenting total was quite high, and <em>could have</em> been a reason for Charles Chao to walk away from the deal, but despite the "requirement" to issue authorization notices by early Feb, there was no public acknowledgment of the situation by SINA until 22 March when the company issued a <a href="https://www.prnewswire.com/news-releases/sina-announces-completion-of-merger-301253197.html" target="_blank" rel="noopener">press release</a> saying the merger had been completed.</p><p>So that was done.</p><p>Back in February, the Hong Kong capital markets world was atwitter (woefully bad pun intended) with the news (<a href="https://www.bloomberg.com/news/articles/2021-02-18/china-s-twitter-like-weibo-said-to-plan-hong-kong-second-listing" target="_blank" rel="noopener">Bloomberg</a>, <a href="https://www.reuters.com/world/china/chinas-weibo-hires-banks-hong-kong-secondary-listing-sources-say-2021-02-23/" target="_blank" rel="noopener">Reuters</a>, that <a href="https://www.smartkarma.com/entities/weibo-corp-adr" target="_blank" data-smartkarma-citation="entities:3826:1" rel="noopener">Weibo Corp (Adr) (WB US)</a>, China's largest micro-blogging service (China twitter) intended to launch a secondary offering in Hong Kong, like many other US ADR-listed Chinese companies, and had hired banks (GS, CLSA, CS) to do so. </p><p>But since then, there has been no follow-up news. </p><h2>But There is Now NEW "News"... Which is Not Yet News</h2><p>Late in the Asia evening on 6 July 2021, Reuters had an <a href="https://www.reuters.com/technology/exclusive-weibo-chairman-state-firm-plan-take-chinas-twitter-private-sources-2021-07-06/" target="_blank" rel="noopener">EXCLUSIVE</a> which said Weibo chairman Charles Chao - with 45% of shares out but 71% of voting rights - would team up with an as-yet unnamed Shanghai-based state firm to take the company private. </p><p>One goal would be to get <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> out of their 30% stake. Two sources told Reuters the consortium plans to offer $90-100/share.</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/217/007/original/Screenshot+2021-07-06+at+8.35.37+PM.png?1625574980" class="editor-image img-responsive" data-smartkarma-image-id="217007"></figure></section><p>As I wrote that sentence, the shares were indicated +30% at just over US$71/share. </p><p>My first thought was that the shares would trade "wide" to these early-reported terms as there are political considerations (will the State Council appreciate that a regional SASAC puts up money to buy out an internet firm?), questions about where BABA would agree to sell, timeline, and questions about what Charles Chao and the unnamed Shanghai entity would do if materially all the minorities dissented.</p><p>As I finish that paragraph, Bloomberg appears to have reached a <a href="https://www.smartkarma.com/entities/weibo-corp-adr" target="_blank" data-smartkarma-citation="entities:3826:1" rel="noopener">Weibo Corp (Adr) (WB US)</a> spokesperson who says that this rumour is not true. </p><p>And a while later, we have a Weibo release which offers a pretty strong denial. </p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/217/010/original/Screenshot+2021-07-06+at+9.39.13+PM.png?1625578767" class="editor-image img-responsive" data-smartkarma-image-id="217010"></figure><p></p></section><p>Of course, that doesn't mean it isn't true. It just means that it isn't true for public consumption yet.</p><p>But it is a big interesting situation so we take a closer look at the parameters! And the shares opened up 10%.</p>

On 6 July 2020, Sina Corp (Class A) (SINA US) made an announcement they had received a preliminary non-binding “going private” proposal from New Wave MMXV - a company controlled by its chairman and CEO Charles Chao. The bid was US$41/share. The GlobalTimes had an article where sources opined Sina would "go home" to list in HK or on the STAR Market. This was followed by an Agreement and Plan of Merger pursuant to which New Wave would acquire all of outstanding ordinary shares not owned at US$43.30/share. Shareholders approved the merger on 23 December 2020.The importance of Sina Corp was that it owned a very large stake in China's premier micro-blogging (twitter-equivalent) service, operated by Weibo Corp (Adr) (WB US). Prior to that EGM, according to David Blennerhassett's excellent write-ups of the deal in Sina Corp: Management Buyout Offer, and What's Going On With Sina Corp? (along with a fabulous initial cut at dissenters' appraisal rights for Chinese companies coming home in Homecoming For Chinese Companies: Appraisal Rights &amp; Fair Value), Sina had intended to issue written notices of authorization to objecting shareholders (prior to the EGM, 21.5mn shares or 35.9% of the outstanding shares of Sina issued notices of objections to the company). The dissenting total was quite high, and could have been a reason for Charles Chao to walk away from the deal, but despite the "requirement" to issue authorization notices by early Feb, there was no public acknowledgment of the situation by SINA until 22 March when the company issued a press release saying the merger had been completed.So that was done.Back in February, the Hong Kong capital markets world was atwitter (woefully bad pun intended) with the news (Bloomberg, Reuters, that Weibo Corp (Adr) (WB US), China's largest micro-blogging service (China twitter) intended to launch a secondary offering in Hong Kong, like many other US ADR-listed Chinese companies, and had hired banks (GS, CLSA, CS) to do so. But since then, there has been no follow-up news. But There is Now NEW "News"... Which is Not Yet NewsLate in the Asia evening on 6 July 2021, Reuters had an EXCLUSIVE which said Weibo chairman Charles Chao - with 45% of shares out but 71% of voting rights - would team up with an as-yet unnamed Shanghai-based state firm to take the company private. One goal would be to get Alibaba Group (BABA US) out of their 30% stake. Two sources told Reuters the consortium plans to offer $90-100/share.As I wrote that sentence, the shares were indicated +30% at just over US$71/share. My first thought was that the shares would trade "wide" to these early-reported terms as there are political considerations (will the State Council appreciate that a regional SASAC puts up money to buy out an internet firm?), questions about where BABA would agree to sell, timeline, and questions about what Charles Chao and the unnamed Shanghai entity would do if materially all the minorities dissented.As I finish that paragraph, Bloomberg appears to have reached a Weibo Corp (Adr) (WB US) spokesperson who says that this rumour is not true. And a while later, we have a Weibo release which offers a pretty strong denial. Of course, that doesn't mean it isn't true. It just means that it isn't true for public consumption yet.But it is a big interesting situation so we take a closer look at the parameters! And the shares opened up 10%.

China

DiDi Chuxing Inc operates passenger transportation platforms. The Company provides mobility solutions, cloud computing, and other application based services. DiDi Chuxing serves customers worldwide.

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DiDi Global (DIDIY US)

Alibaba: Still Too Risky to Own

Mega cap tech stocks rarely underperform the market to the same extent as Alibaba during the last seven months, especially with no deterioration in...

Oshadhi Kumarasiri

China ADRs - Now the Message Is Loud and Getting Clearer

In our previous note we spoke about the recent crackdown on the three US listed firms. Since then more news has been coming in along the same theme...

Sumeet Singh

Daojia Pre-IPO - Can’t Pinpoint the True Growth

Daojia Limited (DL), one of the largest one-stop home services platforms in China, aims to raise US$300m in its US IPO, which now may or may not...

Sumeet Singh

Cybersecurity Watchdog Orders Removal of Didi Chuxing App

The investigations could be due to the regulator's desire to send a message that technology firms must ensure data is adequately protected...

Li Tang

What's Going On With Weibo?

Weibo was in the news as a story suggested the chairman would join with a state entity to take the company private. This was denied shortly after....

Travis Lundy

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