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.

Equity Bottom-Up

<p>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.</p>
<p>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.</p>

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

<ul>
<li>Revenue increased by 28% YoY in 3Q20.</li>
<li>The worst business lines stopped declining.</li>
<li>The growth rate of financial revenue accelerated.</li>
<li>Video competitor, iQiyi, ceased the price war.</li>
<li>The draft of online antitrust law does not target Tencent.</li>
<li>The 5-year P/E band suggests an upside of 15%. Upgrade to Buy.</li>
</ul>


Revenue increased by 28% YoY in 3Q20.
The worst business lines stopped declining.
The growth rate of financial revenue accelerated.
Video competitor, iQiyi, ceased the price war.
The draft of online antitrust law does not target Tencent.
The 5-year P/E band suggests an upside of 15%. Upgrade to Buy.


Tencent (700 HK): Every Business Line Looks Great in 3Q20, Upgrade to Buy

Japan/Asia Long-Short, LightStream Research

Mio Kato

Japan/Asia Long-Short

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.

Event-Driven

<p>We commented previously that while a merger between Huya and Douyu made a lot of sense, we believed Huya was a noticeably superior company and that a merger of near equals situation seemed a poor deal for Huya shareholders. Comparing Huya and Douyu’s recent results reinforces that image.</p>

We commented previously that while a merger between Huya and Douyu made a lot of sense, we believed Huya was a noticeably superior company and that a merger of near equals situation seemed a poor deal for Huya shareholders. Comparing Huya and Douyu’s recent results reinforces that image.

Huya – As We Suspected, Huya Shareholders Probably Got a Raw Deal

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

<div>
<p>Back on the 27 August, <a href="https://www.smartkarma.com/entities/leyou-technologies-holdings" target="_blank" data-smartkarma-citation="entities:5831:1" rel="noopener">Leyou Technologies (1089 HK)</a>  <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0827/2020082701826.pdf" target="_blank" rel="noopener">announced</a> a take-private transaction by way of a Scheme from <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent Holdings (700 HK)</a> at $3.3219/share, a 30.27% premium over the closing price of HK$2.55/share on 19 September 2019, the last trading day prior to Leyou's <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0525/2020052501310.pdf" target="_blank" rel="noopener">announcing</a> it was in preliminary discussions with various independent potential investors.</p>
</div>
<div>
<p>70.02% of shares out - primarily comprising chairman Charles Yuk's stake - have given irrevocables to vote in favour of the Scheme. Disinterested Shareholders comprise all shares out, therefore the blocking stake at the Scheme Meeting is 308.5mn shares or 10% of shares out. No single shareholder has such a stake. The headcount test applies. </p>
</div>
<div>
<p>This is a very clean deal. </p>
</div>
<div>
<p>Leyou's shares wobbled a little in September after gaming companies were asked by Committee on Foreign Investment in the United States on their security protocols in handling Americans' personal data. Those concerns were unfounded, and Canadian and US regulatory bodies <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/1008/2020100801134.pdf" target="_blank" rel="noopener">signed off</a> on the Offer on the 8 October.</p>
<p>The Scheme Document has now been <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/1111/2020111100047.pdf" target="_blank" rel="noopener">despatched</a>. The Court Meeting/EGM will be held on the 11 December. Assuming all falls into place, consideration under the Offer will be paid on or before the 31 December.</p>
<p>The IFA (Optima Capital) considers the Offer to be fair and reasonable.</p>
</div>
<div>
<p>More below the fold.</p>
</div>


Back on the 27 August, Leyou Technologies (1089 HK)  announced a take-private transaction by way of a Scheme from Tencent Holdings (700 HK) at $3.3219/share, a 30.27% premium over the closing price of HK$2.55/share on 19 September 2019, the last trading day prior to Leyou's announcing it was in preliminary discussions with various independent potential investors.


70.02% of shares out - primarily comprising chairman Charles Yuk's stake - have given irrevocables to vote in favour of the Scheme. Disinterested Shareholders comprise all shares out, therefore the blocking stake at the Scheme Meeting is 308.5mn shares or 10% of shares out. No single shareholder has such a stake. The headcount test applies. 


This is a very clean deal. 


Leyou's shares wobbled a little in September after gaming companies were asked by Committee on Foreign Investment in the United States on their security protocols in handling Americans' personal data. Those concerns were unfounded, and Canadian and US regulatory bodies signed off on the Offer on the 8 October.
The Scheme Document has now been despatched. The Court Meeting/EGM will be held on the 11 December. Assuming all falls into place, consideration under the Offer will be paid on or before the 31 December.
The IFA (Optima Capital) considers the Offer to be fair and reasonable.


More below the fold.


Leyou Tech (1089 HK): Offer Doc Despatched

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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Hong Kong Exchanges and Clearing / Event-Driven

Hong Kong Exchanges and Clearing (388 HK)

<p>On Friday evening, the Stock Exchange of Hong Kong Limited (SEHK), a wholly-owned subsidiary of <a href="https://www.smartkarma.com/entities/hong-kong-exchanges-clearing" target="_blank" data-smartkarma-citation="entities:490:1" rel="noopener">HKEX (388 HK)</a>, <a href="https://www.hkex.com.hk/News/Regulatory-Announcements/2020/201030news?sc_lang=en" target="_blank" rel="noopener">published</a> the conclusions to its consultation on the Corporate WVR beneficiaries.</p><p>The SEHK will treat Greater China issuers that are controlled by corporate Weighted Voting Rights (WVRR) beneficiaries and have a primary listing on a Qualifying Exchange in the same manner as current grandfathered Greater China issuers. The cut-off date for the grandfathered issues is 30 October 2020.</p><p>Qualifying corporate WVR issuers will need to meet the following requirements:</p><ul>
<li>a minimum market cap threshold of at least HK$40bn, or a market cap of at least HK$10bn and revenue of at least HK$1bn in its most recent audited financial year.</li>
<li>be an 'innovative company' as part of the suitability for listing</li>
<li>demonstrate that the laws, rules and regulations provide certain shareholder protection standards</li>
</ul><p>The secondary listing applicant would also need to demonstrate that it is controlled by a single corporate WVR beneficiary, or a group of corporate beneficiaries acting in concert, controlling at least 30% of the total shareholder votes.</p><p>This paves the way for <a href="https://www.smartkarma.com/entities/tencent-music-entertainment" target="_blank" data-smartkarma-citation="entities:27255:1" rel="noopener">Tencent Music (TME US)</a> and <a href="https://www.smartkarma.com/entities/iqiyi-inc" target="_blank" data-smartkarma-citation="entities:26755:1" rel="noopener">iQIYI Inc (IQ US)</a>, among others, to pursue a secondary listing on the <a href="https://www.smartkarma.com/entities/hong-kong-exchanges-clearing" target="_blank" data-smartkarma-citation="entities:490:1" rel="noopener">HKEX (388 HK)</a>. </p>

On Friday evening, the Stock Exchange of Hong Kong Limited (SEHK), a wholly-owned subsidiary of HKEX (388 HK), published the conclusions to its consultation on the Corporate WVR beneficiaries.The SEHK will treat Greater China issuers that are controlled by corporate Weighted Voting Rights (WVRR) beneficiaries and have a primary listing on a Qualifying Exchange in the same manner as current grandfathered Greater China issuers. The cut-off date for the grandfathered issues is 30 October 2020.Qualifying corporate WVR issuers will need to meet the following requirements:
a minimum market cap threshold of at least HK$40bn, or a market cap of at least HK$10bn and revenue of at least HK$1bn in its most recent audited financial year.
be an 'innovative company' as part of the suitability for listing
demonstrate that the laws, rules and regulations provide certain shareholder protection standards
The secondary listing applicant would also need to demonstrate that it is controlled by a single corporate WVR beneficiary, or a group of corporate beneficiaries acting in concert, controlling at least 30% of the total shareholder votes.This paves the way for Tencent Music (TME US) and iQIYI Inc (IQ US), among others, to pursue a secondary listing on the HKEX (388 HK). 

Conclusions of the Corporate WVR Consultation: Small Changes for Now

United States

DouYu International Holdings Limited operates as a holding company. The Company, through its subsidiaries, focuses on development of live game streaming. DouYu International Holdings serves customers in China.

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Douyu International Holdings (DOYU US)

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

Tencent (700 HK): Every Business Line Looks Great in 3Q20, Upgrade to Buy

The worst business lines stopped declining. The growth rate of financial revenue accelerated. Video competitor, iQiyi, ceased the price war. The...

Ming Lu

Huya – As We Suspected, Huya Shareholders Probably Got a Raw Deal

While the Huya - Douyu merger is likely to create value, we have been saying that Huya shareholders probably deserved a larger share of that value...

Mio Kato

Leyou Tech (1089 HK): Offer Doc Despatched

The Court Meeting will be held on the 9 December. There's not a lot left on the table for around 6 weeks of work. If you can get in below $3.30, do...

David Blennerhassett

Conclusions of the Corporate WVR Consultation: Small Changes for Now

The HKEX has published the conclusions of the consultation on corporate WVR beneficiaries. There are no major changes, but the proposed changes...

Brian Freitas

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