Asset Allocation & Fund Positioning, Copley Fund Research

Steven Holden

Asset Allocation & Fund Positioning

Copley Fund Research

Copley Fund Research provide research and data on asset allocation among Global and Emerging Market equity funds.  The analysis details absolute and relative positioning across countries, sectors and industries together with highly granular data on single stock and single fund allocations.  The data is updated monthly with time series going back to January 2011.

Global Research - Analysis of 165 prominent Global equity funds, combined AUM $335bn
GEM Research - Analysis of 127 prominent global EM equity funds, combined AUM $250bn

Asset Allocation - Global and GEM Equity

Cross Asset Strategy

<span data-lucid-type="application/vnd.lucid.text" data-lucid-content='{"t":"In this report we highlight the rise of technology allocations in global EM funds, with average holdings in tech companies surpassing those in financial companies for the first time on record this month. The latest filings show an average tech weight of 23.73%, which represents an all time high.","m":[{"s":0,"n":"a","v":"justified"},{"s":0,"n":"mb","v":5},{"s":0,"n":"p","v":1.3},{"s":0,"n":"c","v":"#666666ff","e":297},{"s":0,"n":"f","v":"Droid Serif","e":297}]}'>In this report we highlight the rise of technology allocations in global EM funds, with average holdings in tech companies surpassing those in financial companies for the first time on record this month. The latest filings show average tech weights hitting an all-time high of 23.7%.

In this report we highlight the rise of technology allocations in global EM funds, with average holdings in tech companies surpassing those in financial companies for the first time on record this month. The latest filings show average tech weights hitting an all-time high of 23.7%.

EM Tech:  Fund Allocations Hit All-Time High

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Capital Markets

<ul><li>Our base case one year target price valuation for <a href="https://www.smartkarma.com/entities/22772" target="_blank" data-smartkarma-citation="entities:22772">LINE Corp</a> is 3,676 Yen (implied market cap of 772 billion Yen or US$7.6 billion), representing a 31% upside from the estimated IPO offer price of 2,800 Yen. Our base case valuation is based on applying a 25.4x EV/EBIT multiple (based on a 15% discount to the median EV/EBIT multiple of its eight comps in 2016)  on the company's 2017 estimated EBIT.</li><li>Four major reasons why we like <a href="https://www.smartkarma.com/entities/22772" target="_blank" data-smartkarma-citation="entities:22772">LINE Corp</a> are as follows:</li></ul>1) Attractive valuations (explained in detail in our report)2) Pure play in social mobile app with market dominance in key countries- <a href="https://www.smartkarma.com/entities/22772" target="_blank" data-smartkarma-citation="entities:22772">LINE Corp</a> is a pure play, social mobile app with proven ability to monetize its business with market dominance in Japan, Taiwan, Thailand, and very strong presence in Indonesia.3) Improvement in operating margins - We estimate the company to improve its operating margins from 1.6% in 2015 to 6.9% in 2016, and 14.3% in 2017, driven by higher revenue and lower operating costs as percentage of revenue, including labor.4) Huge market potential -  The global 3G &amp; 4G mobile market is expected to grow from 3.6 billion subscribers at end of 2015 to 7.4 billion at end of 2020. At end of 2015, LINE had 215 million MAU, representing 6.1% of the global 3G &amp; 4G subscribers. If the company is able to maintain the same market share in 2020, that would be 446 million MAU by 2020, representing a 15.4% CAGR in LINE's MAU from 2015 to 2020.<ul><li>We estimate <a href="https://www.smartkarma.com/entities/22772" target="_blank" data-smartkarma-citation="entities:22772">LINE Corp</a> to generate revenue of 149.6 billion Yen in 2016 and 188.4 billion Yen in 2017, representing a 24.9% CAGR growth from 2015 to 2017. This is lower than the 39% YoY growth in revenue in 2015, but higher than the 21% YoY growth in 1Q 2016.</li><li>The decline in marketing expense has been the biggest driver of the company's ability to generate positive operating profit in the past three years. Marketing expense as a percentage of revenue declined from 43.4% in 2013 to 13.7% in 2015 and 6.7% in 1Q 2016. Post the IPO, we believe the marketing cost is likely to increase again as compared to the low levels of spending in 1Q 2016 as the company tries to revitalize growth in key countries around the world. </li><li>If you are a board member of Alibaba, Softbank, or Microsoft, what would you buy? Let's say you are a board member at one of the three companies mentioned above. As the global users of 3G &amp; 4G connections increase to 7 billion + over the next few years and you see WhatsApp and WeChat threatening the mobile business model, what would you recommend on buying among the following choices? (LINE, Kakao, SnapChat, BBM, Telegram, Youni, Nimbuzz, Kik, Tango) If you want to reach a massive scale that can compete with WhatsApp and WeChat on a global basis, a best choice could be LINE. Not only does LINE have a global presence, but it is also dominant in several major countries. This is a claim that would be difficult to match for the other competing companies listed above. </li></ul>

Our base case one year target price valuation for LINE Corp is 3,676 Yen (implied market cap of 772 billion Yen or US$7.6 billion), representing a 31% upside from the estimated IPO offer price of 2,800 Yen. Our base case valuation is based on applying a 25.4x EV/EBIT multiple (based on a 15% discount to the median EV/EBIT multiple of its eight comps in 2016)  on the company's 2017 estimated EBIT.Four major reasons why we like LINE Corp are as follows:1) Attractive valuations (explained in detail in our report)2) Pure play in social mobile app with market dominance in key countries- LINE Corp is a pure play, social mobile app with proven ability to monetize its business with market dominance in Japan, Taiwan, Thailand, and very strong presence in Indonesia.3) Improvement in operating margins - We estimate the company to improve its operating margins from 1.6% in 2015 to 6.9% in 2016, and 14.3% in 2017, driven by higher revenue and lower operating costs as percentage of revenue, including labor.4) Huge market potential -  The global 3G &amp; 4G mobile market is expected to grow from 3.6 billion subscribers at end of 2015 to 7.4 billion at end of 2020. At end of 2015, LINE had 215 million MAU, representing 6.1% of the global 3G &amp; 4G subscribers. If the company is able to maintain the same market share in 2020, that would be 446 million MAU by 2020, representing a 15.4% CAGR in LINE's MAU from 2015 to 2020.We estimate LINE Corp to generate revenue of 149.6 billion Yen in 2016 and 188.4 billion Yen in 2017, representing a 24.9% CAGR growth from 2015 to 2017. This is lower than the 39% YoY growth in revenue in 2015, but higher than the 21% YoY growth in 1Q 2016.The decline in marketing expense has been the biggest driver of the company's ability to generate positive operating profit in the past three years. Marketing expense as a percentage of revenue declined from 43.4% in 2013 to 13.7% in 2015 and 6.7% in 1Q 2016. Post the IPO, we believe the marketing cost is likely to increase again as compared to the low levels of spending in 1Q 2016 as the company tries to revitalize growth in key countries around the world. If you are a board member of Alibaba, Softbank, or Microsoft, what would you buy? Let's say you are a board member at one of the three companies mentioned above. As the global users of 3G &amp; 4G connections increase to 7 billion + over the next few years and you see WhatsApp and WeChat threatening the mobile business model, what would you recommend on buying among the following choices? (LINE, Kakao, SnapChat, BBM, Telegram, Youni, Nimbuzz, Kik, Tango) If you want to reach a massive scale that can compete with WhatsApp and WeChat on a global basis, a best choice could be LINE. Not only does LINE have a global presence, but it is also dominant in several major countries. This is a claim that would be difficult to match for the other competing companies listed above. 

Taiwan

Momo.com Inc is an e-commerce services company. The Company offers TV shopping and Internet shopping services, including beauty products, clothing, leather goods and food shops.

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Momo.Com Inc (8454 TT)

EM Tech: Fund Allocations Hit All-Time High

In this report we highlight the rise of technology allocations in global EM funds, with average holdings in tech companies surpassing those in...

Steven Holden

LINE: Biggest Tech IPO in 2016 (Part 3)

Our base case one year target price valuation for LINE Corp is 3,676 Yen (implied market cap of 772 billion Yen or US$7.6 billion), representing...

Douglas Kim

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