Telco/Internet specialist

Kirk Boodry

Redex Research

Equity Bottom-Up

<p>The last three quarters have largely been defined by the potential for Vision Fund portfolio companies to go public but a new theme is emerging as Softbank starts to take money off the table. There was much less discussion of liquidity events but more on asset sales including partial sales of <a href="https://www.smartkarma.com/entities/uber-technologies-inc" target="_blank" data-smartkarma-citation="entities:430:1" rel="noopener">Uber (UBER US)</a> , <a href="https://www.smartkarma.com/entities/ke-holdings-inc" target="_blank" data-smartkarma-citation="entities:29213:1" rel="noopener">KE Holdings Inc (BEKE US)</a> , <a href="https://www.smartkarma.com/entities/doordash-inc" target="_blank" data-smartkarma-citation="entities:28881:1" rel="noopener">DoorDash Inc (DASH US)</a> , Guardant Health and Northstar public equities in the quarter. With a further sale of Uber shares this month, that theme probably picks up steam as the quarter goes on, particularly if <a href="https://www.smartkarma.com/entities/coupang" target="_blank" data-smartkarma-citation="entities:28425:1" rel="noopener">Coupang (CPNG US)</a>  can hold its value into September when lockups expire.</p><p>Proceeds from these sales will be used to fund Vision Fund 2 commitments, which will get a further boost from Masa/management investing their own money alongside. That would seem to flag corporate governance concerns but as Masa already has an economic stake in Northstar and earlier plans for a management investment in VF1 passed board muster, this probably does not impact sentiment very much.</p><p>There is some modest dissonance in the results as Softbank said that it was not announcing a buyback because it was not selling assets like it did last year. Apparently that definition excludes investments like the ones above although Masa did tease that they thought about share buybacks every day because of the depth of the holding company discount. That could just be noise as there is no upside in ruling out buybacks entirely but there is precedent as management has been incentivized to act in the past when discounts reached extreme levels. That used to be around 50% (we are at c. 46% now) but last year’s 67%+ discount may have reset the bar on where shares are too cheap.</p>

The last three quarters have largely been defined by the potential for Vision Fund portfolio companies to go public but a new theme is emerging as Softbank starts to take money off the table. There was much less discussion of liquidity events but more on asset sales including partial sales of Uber (UBER US) , KE Holdings Inc (BEKE US) , DoorDash Inc (DASH US) , Guardant Health and Northstar public equities in the quarter. With a further sale of Uber shares this month, that theme probably picks up steam as the quarter goes on, particularly if Coupang (CPNG US)  can hold its value into September when lockups expire.Proceeds from these sales will be used to fund Vision Fund 2 commitments, which will get a further boost from Masa/management investing their own money alongside. That would seem to flag corporate governance concerns but as Masa already has an economic stake in Northstar and earlier plans for a management investment in VF1 passed board muster, this probably does not impact sentiment very much.There is some modest dissonance in the results as Softbank said that it was not announcing a buyback because it was not selling assets like it did last year. Apparently that definition excludes investments like the ones above although Masa did tease that they thought about share buybacks every day because of the depth of the holding company discount. That could just be noise as there is no upside in ruling out buybacks entirely but there is precedent as management has been incentivized to act in the past when discounts reached extreme levels. That used to be around 50% (we are at c. 46% now) but last year’s 67%+ discount may have reset the bar on where shares are too cheap.

Softbank Group - Q1 21 Results Reaction: A Slow Shift in Focus

<p>Softbank has been touting Vision Fund’s IPO flywheel for almost all of 2021 but expect that to fade as the reality of China’s crackdown sinks in. It’s stake in Didi is worth $8bn as of Friday down from $10.6bn invested at the parent and $12bn total whilst other recent IPOs (YMM -28% on 23 July, ZME -35%, DDL -8%) are also under pressure. The good news is Vision Fund China assets are &lt;10% of total China exposure and Alibaba has been through the regulatory wringer already. That limits China downside but it does call into question Vision Fund hopes for valuation gains from liquidity events. There is a direct read across with Zuoyebang and VIPThink which are banned from going public whilst three of the largest private investments remaining in Vision Fund 1 (Bytedance, ele.me and Guazi) are likely to remain on the sidelines. We expect the holding company discount is likely to remain in the 44% range.</p>

Softbank has been touting Vision Fund’s IPO flywheel for almost all of 2021 but expect that to fade as the reality of China’s crackdown sinks in. It’s stake in Didi is worth $8bn as of Friday down from $10.6bn invested at the parent and $12bn total whilst other recent IPOs (YMM -28% on 23 July, ZME -35%, DDL -8%) are also under pressure. The good news is Vision Fund China assets are &lt;10% of total China exposure and Alibaba has been through the regulatory wringer already. That limits China downside but it does call into question Vision Fund hopes for valuation gains from liquidity events. There is a direct read across with Zuoyebang and VIPThink which are banned from going public whilst three of the largest private investments remaining in Vision Fund 1 (Bytedance, ele.me and Guazi) are likely to remain on the sidelines. We expect the holding company discount is likely to remain in the 44% range.

Softbank Group - China Has Just Blown a Hole in Vision Fund’s Rapid Listing Theme

<p>Softbank has boosted its Vision Fund 2 commitments to $40bn even as a series of recent investments have been concurrent with IPOs or just before. These are effectively investments in public equities, nominally what Northstar covers, but with some optionality on a valuation pop if demand is high although that has not happened so far. Confirmation today of a $1.7bn investment in Korean online travel firm Yanolja appears to be an extension of this trend. The series of late-stage investments also highlights a lack of activity at VF2’s collection of SPACs which were created with these kinds of targets in mind. China weakness appears to be settling but Softbank shares remain range-bound at a mid-40% discount to underlying public values.</p>

Softbank has boosted its Vision Fund 2 commitments to $40bn even as a series of recent investments have been concurrent with IPOs or just before. These are effectively investments in public equities, nominally what Northstar covers, but with some optionality on a valuation pop if demand is high although that has not happened so far. Confirmation today of a $1.7bn investment in Korean online travel firm Yanolja appears to be an extension of this trend. The series of late-stage investments also highlights a lack of activity at VF2’s collection of SPACs which were created with these kinds of targets in mind. China weakness appears to be settling but Softbank shares remain range-bound at a mid-40% discount to underlying public values.

Softbank Group - Vision Fund 2’s Late-Private Investments Blur the Lines with Northstar

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.

Event-Driven

<p><a href="https://www.smartkarma.com/entities/rlx-technology-inc" target="_blank" data-smartkarma-citation="entities:31113:1" rel="noopener">RLX Technology Inc (RLX US) </a>raised around US$1.4bn in its US listing in Jan 2021. RLX was the largest branded e-vapor company in China with a market share of closed-system e-vapor products in terms of retail sales value. RLX only sells its e-vapor products in China.</p><p>While the company didn’t have cornerstone investors in the deal, it did have a lot of pre-IPO investors. The lock-up will expire over the next few days.</p><div><p>Links to our previous notes:</p></div><div><ul style="list-style-type: disc;">
<li>
<a href="https://www.smartkarma.com/insights/rlx-technology-pre-ipo-the-positives-fast-growth-low-penetration" target="_blank" data-smartkarma-citation="insights:46797" rel="noopener">RLX Technology Pre-IPO - The Positives - Fast Growth, Low Penetration</a> </li>
<li><a href="https://www.smartkarma.com/insights/rlx-technology-pre-ipo-the-negatives-limited-track-record-and-missing-international-ops" target="_blank" data-smartkarma-citation="insights:46836" rel="noopener">RLX Technology Pre-IPO - The Negatives - Limited Track Record, and Missing International Ops</a></li>
<li><a href="https://www.smartkarma.com/insights/rlx-technology-pre-ipo-rlx-store-visits-to-relx-and-its-competitors" target="_blank" rel="noopener">RLX Technology Pre-IPO (RLX): Store Visits to Relx and Its Competitors</a></li>
<li><a href="https://www.smartkarma.com/insights/rlx-technology-pre-ipo-peer-comparison-and-valuation" target="_blank" rel="noopener">RLX Technology Pre-IPO - Peer Comparison and Valuation</a></li>
<li><a href="https://www.smartkarma.com/insights/rlx-technology-ipo-valuation-has-more-than-doubled-in-two-months" target="_blank" rel="noopener">RLX Technology IPO - Valuation Has More than Doubled in Two Months</a></li>
<li><a href="https://www.smartkarma.com/insights/rlx-tech-rlx-stock-down-48-after-amendment-to-tobacco-law" target="_blank" rel="noopener">RLX Tech (RLX): Stock Down 48% After Amendment to Tobacco Law</a></li>
</ul></div>

RLX Technology Inc (RLX US) raised around US$1.4bn in its US listing in Jan 2021. RLX was the largest branded e-vapor company in China with a market share of closed-system e-vapor products in terms of retail sales value. RLX only sells its e-vapor products in China.While the company didn’t have cornerstone investors in the deal, it did have a lot of pre-IPO investors. The lock-up will expire over the next few days.Links to our previous notes:

RLX Technology Pre-IPO - The Positives - Fast Growth, Low Penetration 
RLX Technology Pre-IPO - The Negatives - Limited Track Record, and Missing International Ops
RLX Technology Pre-IPO (RLX): Store Visits to Relx and Its Competitors
RLX Technology Pre-IPO - Peer Comparison and Valuation
RLX Technology IPO - Valuation Has More than Doubled in Two Months
RLX Tech (RLX): Stock Down 48% After Amendment to Tobacco Law


RLX Lock-Up Expiry- Stung by Regulation, What Early Investors Do Will Be Telling, >US$1bn Comes Free

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.

<div>
<a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent (700 HK)</a>  shares closed at HK$528 per share as at the end of Thursday’s trading, only 5.2% higher than the company’s 12-month low of HK$502 per share. The company’s shares have been on a downward trend on the back of increased regulatory scrutiny over Chinese internet stocks. As Chinese regulators have broadened their crackdown on the country’s internet tech platforms during the past few days, Tencent’s shares dropped almost 10% over the last one week (since the beginning of July).</div><div></div><div><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/217/580/original/image_22041245221625797905092.png?1625797914" class="editor-image img-responsive" data-smartkarma-image-id="217580"></figure></div><div>There is no sign that China is slowing down with its antitrust crackdown on the country’s tech platforms, rather the regulators have broadened their investigation to include cybersecurity violations such as on the recently listed <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> , <a href="https://www.smartkarma.com/entities/kanzhun-ltd" target="_blank" data-smartkarma-citation="entities:33368:1" rel="noopener">Kanzhun (BZ US)</a> and <a href="https://www.smartkarma.com/entities/full-truck-alliance" target="_blank" data-smartkarma-citation="entities:33429:1" rel="noopener">Full Truck Alliance (YMM US)</a> .</div><div></div><div>According to the CNN, the People’s Bank of China has said that it would further regulate the countries’ payments companies after its massive overhaul of Ant Group. The Chinese online payment market is largely dominated by Alipay and WeChat Pay.</div>


Tencent (700 HK)  shares closed at HK$528 per share as at the end of Thursday’s trading, only 5.2% higher than the company’s 12-month low of HK$502 per share. The company’s shares have been on a downward trend on the back of increased regulatory scrutiny over Chinese internet stocks. As Chinese regulators have broadened their crackdown on the country’s internet tech platforms during the past few days, Tencent’s shares dropped almost 10% over the last one week (since the beginning of July).There is no sign that China is slowing down with its antitrust crackdown on the country’s tech platforms, rather the regulators have broadened their investigation to include cybersecurity violations such as on the recently listed DiDi Chuxing (DIDI US) , Kanzhun (BZ US) and Full Truck Alliance (YMM US) .According to the CNN, the People’s Bank of China has said that it would further regulate the countries’ payments companies after its massive overhaul of Ant Group. The Chinese online payment market is largely dominated by Alipay and WeChat Pay.

China

Full Truck Alliance Co. Ltd. operates as a software company. The Company develops digital freight and logistics platform.

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Full Truck Alliance (YMM US)

Softbank Group - Q1 21 Results Reaction: A Slow Shift in Focus

The messaging is changing at Softbank as the IPO flywheel (20+ liquidity events) gives way to investment sales and realized gains. There are no...

Kirk Boodry

Softbank Group - China Has Just Blown a Hole in Vision Fund’s Rapid Listing Theme

Softbank has been touting Vision Fund’s IPO flywheel and 4 of 6 recent listings have been Chinese but that is fading as the reality of China’s...

Kirk Boodry

Softbank Group - Vision Fund 2’s Late-Private Investments Blur the Lines with Northstar

A series of VF investments at or just before the IPO seem to overlap with Northstar's role whilst highlighting a lack of SPAC activity. Meanwhile, ...

Kirk Boodry

RLX Lock-Up Expiry- Stung by Regulation, What Early Investors Do Will Be Telling, >US$1bn Comes Free

RLX Technology Inc (RLX US) raised around US$1.4bn in its US listing in Jan 2021.RLX sells e-vapor products in China. The lock-up will expire over...

Sumeet Singh

Tencent: Are We There Yet?

Compared to Alibaba, it has only been bits and pieces for Tencent so far when comes to regulatory crackdown. It seems obvious that Tencent will...

Shifara Samsudeen, FCMA, CGMA

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