Analysis on GARP with strong economic moats, Moat Investing

Moat Investing

Analysis on GARP with strong economic moats

We are a group of experienced investors that like to dig deeper into stocks to find growth stories at a reasonable price with strong economic moats. We also aim to conduct high-quality analysis by doing deep dive on valuations, key business drivers, risk/reward, and different future scenarios.

GARP with strong economic moats

Equity Bottom-Up

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<li>Net revenues came in at $1.9 bln (+73% on an FX neutral basis) while Gross profit reached $806.6 mln (43% margin in line with Q3 2020).</li>
<li>Pretax income was $126.1mln, (+139% yoy increase) and Net income was $95.2 mln i.e. $1.92 EPS GMV topped $7.3 bln, (+30% YoY on an FX neutral basis).</li>
<li>MELI is one of the most promising equity stories in the broad e-commerce arena and is set to unlock value for its shareholders</li>
</ul>


Net revenues came in at $1.9 bln (+73% on an FX neutral basis) while Gross profit reached $806.6 mln (43% margin in line with Q3 2020).
Pretax income was $126.1mln, (+139% yoy increase) and Net income was $95.2 mln i.e. $1.92 EPS GMV topped $7.3 bln, (+30% YoY on an FX neutral basis).
MELI is one of the most promising equity stories in the broad e-commerce arena and is set to unlock value for its shareholders


MercadoLibre Q3: Commerce And Fintech Segments Delivering Above Consensus

ASEAN Insight Provider, CrossASEAN Research

Angus Mackintosh

ASEAN Insight Provider

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Private Capital Markets

<p>Founded in 2010, Blibli was one of the pioneers of online shopping malls in Indonesia operating under a B2C model rather unlike its competitors, which have adopted a mixed approach with more focus on the C2C marketplace and adding B2C later. It has branched out to B2B, B2B2C, and B2G (government) and its target market is a more affluent consumer versus <a href="https://www.smartkarma.com/entities/tokopedia-pt" target="_blank" data-smartkarma-citation="entities:24239:1" rel="noopener">Tokopedia</a> and Shopee. Given the private nature of the company, we view BliBli as the Dark Knight of Indonesian e-commerce. </p>
<p>The company is owned by GDP Ventures which is part of Djarum Group, which owns one of the major tobacco companies in Indonesia as well as a controlling stake in<a href="https://www.smartkarma.com/entities/bank-central-asia-tbk-pt" target="_blank" rel="noopener"> Bank Central Asia (BBCA IJ),</a> Indonesia's largest private bank and leader in transactional banking.</p>
<p>BliBli has around 100,000 merchants selling 30,000 local and international brands on the platform covering a total of 16 product different categories.</p>
<p>It has around 18m monthly active users on the platform ranking number five in terms of visitors in 2Q2021, ahead of JD.id and behind <a href="https://www.smartkarma.com/entities/bukalapak" target="_blank" data-smartkarma-citation="entities:33575:1" rel="noopener">Bukalapak (BUKA IJ)</a> and <a href="https://www.smartkarma.com/entities/lazada-group" target="_blank" data-smartkarma-citation="entities:26148:1" rel="noopener">Lazada Group (LAZADA SP)</a>.</p>
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<p>BliBli uses a wide range of payment options including GoPay, which is not surprising since it is a shareholder in<a href="https://www.smartkarma.com/entities/gojek" target="_blank" rel="noopener"> Gojek.</a> It has also invested in medical internet provider HaloDoc and took over travel platform Tiket.com in mid-2017.</p>
<p>The company has been bringing more MSMEs onto the platform that produce goods themselves rather than resell items from elsewhere. </p>
<p>BliBli also offers free deliveries plus a multitude of payment options, with its own in-house wallet called BliPay but also uses a multitude of payment and financing options outlined below.</p>
<p>BliBli presents stiff competition with the other major players, with a strong backer in Djarum, which has deep pockets. It is increasingly diversified in its product offering and has its interests well-aligned with the government, especially with its push to bring MSMEs onto the platform.</p>
<p>The company recently announced that it would buy a 51% stake in <a href="https://www.smartkarma.com/entities/supra-boga-lestari-tbk-pt" target="_blank" data-smartkarma-citation="entities:16780:1" rel="noopener">Supra Boga Lestari (RANC IJ)</a>, which operates upscale supermarket chains including Ranch Market, The Gourmet, and Farmers Market. This potentially increases the company's exposure to online groceries. </p>
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<p>BliBli is already said to have achieved unicorn status with a valuation of over US$1bn and has appointed advisors Credit Suisse and Morgan Stanley ahead of a potential listing in early 2022 said to be in Jakarta. A valuation above US$1bn should be easily achievable on the first inspection and this IPO will attract the attention of both local and foreign investors.</p>
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Founded in 2010, Blibli was one of the pioneers of online shopping malls in Indonesia operating under a B2C model rather unlike its competitors, which have adopted a mixed approach with more focus on the C2C marketplace and adding B2C later. It has branched out to B2B, B2B2C, and B2G (government) and its target market is a more affluent consumer versus Tokopedia and Shopee. Given the private nature of the company, we view BliBli as the Dark Knight of Indonesian e-commerce. 
The company is owned by GDP Ventures which is part of Djarum Group, which owns one of the major tobacco companies in Indonesia as well as a controlling stake in Bank Central Asia (BBCA IJ), Indonesia's largest private bank and leader in transactional banking.
BliBli has around 100,000 merchants selling 30,000 local and international brands on the platform covering a total of 16 product different categories.
It has around 18m monthly active users on the platform ranking number five in terms of visitors in 2Q2021, ahead of JD.id and behind Bukalapak (BUKA IJ) and Lazada Group (LAZADA SP).



BliBli uses a wide range of payment options including GoPay, which is not surprising since it is a shareholder in Gojek. It has also invested in medical internet provider HaloDoc and took over travel platform Tiket.com in mid-2017.
The company has been bringing more MSMEs onto the platform that produce goods themselves rather than resell items from elsewhere. 
BliBli also offers free deliveries plus a multitude of payment options, with its own in-house wallet called BliPay but also uses a multitude of payment and financing options outlined below.
BliBli presents stiff competition with the other major players, with a strong backer in Djarum, which has deep pockets. It is increasingly diversified in its product offering and has its interests well-aligned with the government, especially with its push to bring MSMEs onto the platform.
The company recently announced that it would buy a 51% stake in Supra Boga Lestari (RANC IJ), which operates upscale supermarket chains including Ranch Market, The Gourmet, and Farmers Market. This potentially increases the company's exposure to online groceries. 

BliBli is already said to have achieved unicorn status with a valuation of over US$1bn and has appointed advisors Credit Suisse and Morgan Stanley ahead of a potential listing in early 2022 said to be in Jakarta. A valuation above US$1bn should be easily achievable on the first inspection and this IPO will attract the attention of both local and foreign investors.


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>FSN E-commerce (Nykaa) aims to raise around US$720m, via selling a mix of primary and secondary shares in its Indian IPO. Nykaa is a lifestyle focussed e-commerce platform and consumer brand offering a portfolio of beauty, personal care and fashion products, including its own branded products. As per RedSeer, it was the largest Specialty Beauty and Personal Care Platform in India in terms of value of products sold in FY21.</p><p>As of March 21, it had 43.7m cumulative downloads across all its mobile applications. Its offline channel comprises 73 physical stores across 38 cities in India. It reported a gross merchandise value (GMV) of INR40,459.8m (around US$550m) in FY21. </p><p>Nykaa’s GMV, revenue and gross profit have more than doubled over FY19-21, even though the company suffered from a drop in orders due to COVID-19 in 4Q20 and 1Q21. Overall, GMV grew by 62.7% in FY20 and 50.7% in FY21. Revenue growth has broadly kept pace with GMV growth while the company has managed to turn a profit in FY21. </p><p>We have looked at various aspects of the deal in our previous note,<a href="https://www.smartkarma.com/insights/fsn-e-commerce-nykaa-pre-ipo-mixed-bag-fashion-growing-beauty-slowing" target="_blank" rel="noopener"> FSN E-Commerce (Nykaa) Pre-IPO - Mixed bag - Fashion growing, beauty slowing</a>. In this note, we will talk about valuations.</p>

FSN E-commerce (Nykaa) aims to raise around US$720m, via selling a mix of primary and secondary shares in its Indian IPO. Nykaa is a lifestyle focussed e-commerce platform and consumer brand offering a portfolio of beauty, personal care and fashion products, including its own branded products. As per RedSeer, it was the largest Specialty Beauty and Personal Care Platform in India in terms of value of products sold in FY21.As of March 21, it had 43.7m cumulative downloads across all its mobile applications. Its offline channel comprises 73 physical stores across 38 cities in India. It reported a gross merchandise value (GMV) of INR40,459.8m (around US$550m) in FY21. Nykaa’s GMV, revenue and gross profit have more than doubled over FY19-21, even though the company suffered from a drop in orders due to COVID-19 in 4Q20 and 1Q21. Overall, GMV grew by 62.7% in FY20 and 50.7% in FY21. Revenue growth has broadly kept pace with GMV growth while the company has managed to turn a profit in FY21. We have looked at various aspects of the deal in our previous note, FSN E-Commerce (Nykaa) Pre-IPO - Mixed bag - Fashion growing, beauty slowing. In this note, we will talk about valuations.

FSN E-Commerce (Nykaa) IPO - Beauty Showing Signs of Improvement but Its Too Expensive for Our Taste

<p><a href="https://www.smartkarma.com/entities/grabtaxi-holdings-pte-ltd" target="_blank" data-smartkarma-citation="entities:26950:1" rel="noopener">Grab</a> just announced a strong set of 2Q2021 results in its results call this week, with GMV (Gross Merchandise Value) increasing by +62% YoY to a record high of US$3.9bn, whilst adjusted net sales reached a new quarterly high of US$550m, an increase of +92% YoY.</p>
<p>The company's revenue increased by +132% to US$180m, with adjusted EBITDA for 2Q2021 was (US$214m), down by US$8m YoY. </p>
<p><a href="https://www.smartkarma.com/entities/grabtaxi-holdings-pte-ltd" target="_blank" data-smartkarma-citation="entities:26950:1" rel="noopener">Grab</a> booked a net loss of (US$815m) versus (US$718m) in 2Q2020 loss but of this number US$608m related to non-cash items related to interest accrued on the company convertible redeemable preference shares, stock-based compensation, depreciation, and amortisation. </p>
<p>Looking at a number of measures of profitability as % of GMV, Grab is moving in the right direction towards making a profit.</p>
<p>The company's delivery business continued to be a strong performer, with +68% YoY growth in adjusted net sales, whilst mobility was impacted by various lockdowns in the South-East Asia region but still performed very well versus last year. Take rates have improved for both deliveries and mobility segments.</p>
<p><a href="https://www.smartkarma.com/entities/grabtaxi-holdings-pte-ltd" target="_blank" data-smartkarma-citation="entities:26950:1" rel="noopener">Grab</a> saw GMV per transacting user increase by +27% YoY in 2Q2021, with GrabFood's merchant base nearly doubling, and merchants using GrabPay nearly increasing three times. </p>
<p><a href="https://www.smartkarma.com/entities/grabtaxi-holdings-pte-ltd" target="_blank" data-smartkarma-citation="entities:26950:1" rel="noopener">Grab</a> also highlighted the strong performance of GrabMart and its PayLater businesses in Singapore and Malaysia. It has also launched GrabSupermarket in three markets, which has seen a strong reception, according to management.</p>
<p>The company's financial services segment achieved another record quarter in terms of total payments, with a total payment volume of US$2.9bn in 2Q2021, a +66% increase from last year, although revenues remain quite small.</p>
<p><a href="https://www.smartkarma.com/entities/grabtaxi-holdings-pte-ltd" target="_blank" data-smartkarma-citation="entities:26950:1" rel="noopener">Grab</a> announced a strategic alliance with <a href="https://www.smartkarma.com/entities/elang-mahkota-teknologi-tbk" target="_blank" data-smartkarma-citation="entities:7752:1" rel="noopener">Emtek (EMTK IJ)</a> in July, which has interests spanning technology. telecoms, media, and healthcare.  This gives grab access to e-commerce and SMEs through <a href="https://www.smartkarma.com/entities/bukalapak" target="_blank" data-smartkarma-citation="entities:33575:1" rel="noopener">Bukalapak (BUKA IJ)</a>. </p>
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<p>The company highlighted that it sees encouraging trends for the rest of the year, as vaccination rates pick up but also flagged a note of caution given recent movement restrictions in South-East Asia, especially in Vietnam where even food deliveries are restricted currently.</p>
<p><a href="https://www.smartkarma.com/entities/grabtaxi-holdings-pte-ltd" target="_blank" data-smartkarma-citation="entities:26950:1" rel="noopener">Grab</a> remains optimistic about the prospects for recovery as the region recovers over the next year, and it should benefit from this given its strong regional footprint but its competitors have been building war chests for their own expansion, which points towards rising competitive pressures</p>
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<p>The company expects its merger with Altimeter Growth and listing to go ahead in 4Q2021 and has just filed its F4 prospectus today with the SEC in the US. </p>
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Grab just announced a strong set of 2Q2021 results in its results call this week, with GMV (Gross Merchandise Value) increasing by +62% YoY to a record high of US$3.9bn, whilst adjusted net sales reached a new quarterly high of US$550m, an increase of +92% YoY.
The company's revenue increased by +132% to US$180m, with adjusted EBITDA for 2Q2021 was (US$214m), down by US$8m YoY. 
Grab booked a net loss of (US$815m) versus (US$718m) in 2Q2020 loss but of this number US$608m related to non-cash items related to interest accrued on the company convertible redeemable preference shares, stock-based compensation, depreciation, and amortisation. 
Looking at a number of measures of profitability as % of GMV, Grab is moving in the right direction towards making a profit.
The company's delivery business continued to be a strong performer, with +68% YoY growth in adjusted net sales, whilst mobility was impacted by various lockdowns in the South-East Asia region but still performed very well versus last year. Take rates have improved for both deliveries and mobility segments.
Grab saw GMV per transacting user increase by +27% YoY in 2Q2021, with GrabFood's merchant base nearly doubling, and merchants using GrabPay nearly increasing three times. 
Grab also highlighted the strong performance of GrabMart and its PayLater businesses in Singapore and Malaysia. It has also launched GrabSupermarket in three markets, which has seen a strong reception, according to management.
The company's financial services segment achieved another record quarter in terms of total payments, with a total payment volume of US$2.9bn in 2Q2021, a +66% increase from last year, although revenues remain quite small.
Grab announced a strategic alliance with Emtek (EMTK IJ) in July, which has interests spanning technology. telecoms, media, and healthcare.  This gives grab access to e-commerce and SMEs through Bukalapak (BUKA IJ). 



The company highlighted that it sees encouraging trends for the rest of the year, as vaccination rates pick up but also flagged a note of caution given recent movement restrictions in South-East Asia, especially in Vietnam where even food deliveries are restricted currently.
Grab remains optimistic about the prospects for recovery as the region recovers over the next year, and it should benefit from this given its strong regional footprint but its competitors have been building war chests for their own expansion, which points towards rising competitive pressures


The company expects its merger with Altimeter Growth and listing to go ahead in 4Q2021 and has just filed its F4 prospectus today with the SEC in the US. 











Grab - Greater Mobility Toward Profitability

<p><a href="https://www.smartkarma.com/entities/sea-ltd" target="_blank" data-smartkarma-citation="entities:8509:1" rel="noopener">Sea Ltd (SE US)</a>, South-East Asia's largest market cap company, has announced that it aims to raise US$6.3bn in the largest equity offering of 2021. The deal will allow the company to accelerate its global expansion and give the company the financial firepower for potential acquisitions.</p>
<p>The company will offer 11m shares or a stake worth about US$3.8bn at the close on 8th September plus it intends to issue US$2.5bn in equity-linked debt to bring the total funds raised to circa US$6.8bn. </p>
<p>Apart from continuing to grow its business in South-East Asia, the company is now expanding its e-commerce presence in South America, with a focus on Brazil, Mexico, Chile, and Colombia. </p>
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<div>According to local press reports, Shopee may also look to enter Eastern Europe, with Poland as its first target market.  Shopee has also launched a recruitment campaign for vendors to sell on what it called "Shopee India" and is ramping up hiring in the country. It has also been looking for office space in the country.</div>
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<p><a href="https://www.smartkarma.com/entities/sea-ltd" target="_blank" data-smartkarma-citation="entities:8509:1" rel="noopener">Sea Ltd (SE US)</a> continues to grow its ShopeeFood business both in Indonesia and Vietnam and has seen a very strong performance and positive reception from users as well as driver communities in both markets. There has also been some talk of the company expanding food delivery into Malaysia, as it has already been advertising for drivers.</p>
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<p>Assuming the completion of this fundraising goes smoothly <a href="https://www.smartkarma.com/entities/sea-ltd" target="_blank" data-smartkarma-citation="entities:8509:1" rel="noopener">Sea Ltd (SE US)</a> will have a war chest of around US$13bn at its disposal to finance its ongoing expansion, though it is not yet clear what it needs this money for.</p>
<p>This may be seen as opportunistic fundraising in some camps but given its aspiration to expand globally into other emerging markets plus growing its digital finance and food delivery arms quite aggressively, this will certainly give the company the financial firepower to do so. </p>
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<p>We continue to take a positive view on <a href="https://www.smartkarma.com/entities/sea-ltd" target="_blank" data-smartkarma-citation="entities:8509:1" rel="noopener">Sea Ltd (SE US)</a> which currently trades on 16x FY21E EV/Sales, 10.4x FY22E EV/Sales, and 7.8x FY23E EV/Sales, justified by sales growth of +105% YoY in FY2021, +47% YoY in FY22E, and +32.8% YoY growth in FY2023. </p>
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Sea Ltd (SE US), South-East Asia's largest market cap company, has announced that it aims to raise US$6.3bn in the largest equity offering of 2021. The deal will allow the company to accelerate its global expansion and give the company the financial firepower for potential acquisitions.
The company will offer 11m shares or a stake worth about US$3.8bn at the close on 8th September plus it intends to issue US$2.5bn in equity-linked debt to bring the total funds raised to circa US$6.8bn. 
Apart from continuing to grow its business in South-East Asia, the company is now expanding its e-commerce presence in South America, with a focus on Brazil, Mexico, Chile, and Colombia. 


According to local press reports, Shopee may also look to enter Eastern Europe, with Poland as its first target market.  Shopee has also launched a recruitment campaign for vendors to sell on what it called "Shopee India" and is ramping up hiring in the country. It has also been looking for office space in the country.



Sea Ltd (SE US) continues to grow its ShopeeFood business both in Indonesia and Vietnam and has seen a very strong performance and positive reception from users as well as driver communities in both markets. There has also been some talk of the company expanding food delivery into Malaysia, as it has already been advertising for drivers.


Assuming the completion of this fundraising goes smoothly Sea Ltd (SE US) will have a war chest of around US$13bn at its disposal to finance its ongoing expansion, though it is not yet clear what it needs this money for.
This may be seen as opportunistic fundraising in some camps but given its aspiration to expand globally into other emerging markets plus growing its digital finance and food delivery arms quite aggressively, this will certainly give the company the financial firepower to do so. 


We continue to take a positive view on Sea Ltd (SE US) which currently trades on 16x FY21E EV/Sales, 10.4x FY22E EV/Sales, and 7.8x FY23E EV/Sales, justified by sales growth of +105% YoY in FY2021, +47% YoY in FY22E, and +32.8% YoY growth in FY2023. 



Sea Ltd (SE US) - The Runway Just Got Longer

Brazil

MercadoLibre, Inc. operates an online trading site for the Latin American markets. The Company's website allows businesses and individuals to list items, conduct sales, and purchases online in either a fixed-price and auction format. MercadoLibre offers classified advertisements for motor vehicles, vessels, aircraft, and real estate, as well as online payment services.

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MercadoLibre (MELI US)

MercadoLibre Q3: Commerce And Fintech Segments Delivering Above Consensus

Net revenues came in at $1.9 bln (+73% on an FX neutral basis) while Gross profit reached $806.6 mln (43% margin in line with Q3 2020). Pretax...

Moat Investing

BliBli - Enter The Dark Knight

BliBli is the "Dark Knight" of Indonesian e-commerce, given its private nature, strong market presence, and unicorn status. It has plans to IPO in...

Angus Mackintosh

FSN E-Commerce (Nykaa) IPO - Beauty Showing Signs of Improvement but Its Too Expensive for Our Taste

FSN E-commerce (Nykaa) aims to raise around US$720m in its Indian IPO. In this note, we will look at the recent updates and valuation.

Sumeet Singh

Grab - Greater Mobility Toward Profitability

GRAB released a strong set of 2Q2021 results with rapid growth in both the delivery and mobility business, with financial services gaining momentum...

Angus Mackintosh

Sea Ltd (SE US) - The Runway Just Got Longer

Sea Ltd just announced a US$6.8bn fundraise which gives the company a war chest of US$13bn to expand both geographically and into new areas such as...

Angus Mackintosh

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