IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

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Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

Equity Capital Markets

<ul>
<li>
<a href="https://www.smartkarma.com/entities/cloud-village-inc" target="_blank" data-smartkarma-citation="entities:33412:1" rel="noopener">Cloud Village (CLV HK)</a> is the second-largest online music platform after <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> in China. It has launched its IPO to raise $400 million at the IPO mid-point.</li>
<li>In <a href="https://www.smartkarma.com/insights/cloud-village-netease-music-ipo-not-yet-a-sound-investment" target="_blank" data-smartkarma-citation="insights:61441" rel="noopener">Cloud Village (NetEase Music) IPO: Not yet a Sound Investment</a>, we stated that the 9M21 update is underwhelming with slowing growth and a marginal decline in losses. </li>
<li>Our valuation analysis suggests that the IPO price is unattractive. We would give the IPO a pass. </li>
</ul>



Cloud Village (CLV HK) is the second-largest online music platform after Tencent Music (TME US) in China. It has launched its IPO to raise $400 million at the IPO mid-point.
In Cloud Village (NetEase Music) IPO: Not yet a Sound Investment, we stated that the 9M21 update is underwhelming with slowing growth and a marginal decline in losses. 
Our valuation analysis suggests that the IPO price is unattractive. We would give the IPO a pass. 


Cloud Village (NetEase Music) IPO: Valuation Insights

Event-Driven

<p><a href="https://www.smartkarma.com/entities/joyy-inc" target="_blank" data-smartkarma-citation="entities:285:1" rel="noopener">JOYY (YY US)</a> may be subject to a privatisation bid from Mr David Li (co-founder and Chairman) and Mr Jun Lei (founder and Chairman of <a href="https://www.smartkarma.com/entities/xiaomi-corp" target="_blank" data-smartkarma-citation="entities:24409:1" rel="noopener">Xiaomi Corp (1810 HK)</a>), its top two shareholders, according to Reuters report on 26 August. Mr David Li and Mr Jun Lei are looking to privatise Joyy at $75-$100 per ADS and finalise the deal by the end of 2021. Mr David Li and Mr Jun Lei aim to spin off Joyy's key asset, BIGO, and list it in Hong Kong, to take advantage of higher valuations, according to Reuters. On 27 August, Joyy said it has not received any formal takeover offers, according to Chinese media reports.  </p><p>Joyy shares are around 60% below their February peak due to weak guidance (3Q21 revenue guidance was around 16% below consensus), the delay of SAMR anti-trust approval for the YY Live disposal and ongoing policy uncertainty on Chinese tech.</p><p>As a reminder, on 16 November 2020, Joyy entered into a definitive agreement with <a href="https://www.smartkarma.com/entities/baidu-inc" target="_blank" data-smartkarma-citation="entities:179:1" rel="noopener">Baidu (BIDU US)</a> for the disposal of YY Live for $3.6 billion in cash, subject to certain adjustments. The sale was substantially completed on 8 February 2021 resulting in a $1.9 billion payment from Baidu. Notably, Joyy’s market cap of $4.9 billion is 7% below its net cash of $5.2 billion, which is the sum of the 2Q1 net cash of $3.9 billion and Baidu's remaining payment net of tax $1.4 billion.</p><p>As Joyy is incorporated in the Cayman Islands, for potential privatisation to succeed, shareholders representing two-thirds of shares present and voting need to approve the deal. Mr David Li represents 76.0% of the voting interest and has the two-thirds voting interest threshold needed to approve any potential privatisation deal.</p><div class="content-highlight"><p>Our SOTP and relative valuation suggest that the rumoured privatisation range of $75-100 per ADS is justifiable and reasonable. Our base-case SOTP valuation is $71.69 per ADS, which is a 16% premium to the last close price of $61.97 per ADS. Despite Joyy's insistence that no formal bid has been received, we would be buyers as the shares offer a favourable risk/reward profile to the emergence of a formal privatisation bid.</p></div>

JOYY (YY US) may be subject to a privatisation bid from Mr David Li (co-founder and Chairman) and Mr Jun Lei (founder and Chairman of Xiaomi Corp (1810 HK)), its top two shareholders, according to Reuters report on 26 August. Mr David Li and Mr Jun Lei are looking to privatise Joyy at $75-$100 per ADS and finalise the deal by the end of 2021. Mr David Li and Mr Jun Lei aim to spin off Joyy's key asset, BIGO, and list it in Hong Kong, to take advantage of higher valuations, according to Reuters. On 27 August, Joyy said it has not received any formal takeover offers, according to Chinese media reports.  Joyy shares are around 60% below their February peak due to weak guidance (3Q21 revenue guidance was around 16% below consensus), the delay of SAMR anti-trust approval for the YY Live disposal and ongoing policy uncertainty on Chinese tech.As a reminder, on 16 November 2020, Joyy entered into a definitive agreement with Baidu (BIDU US) for the disposal of YY Live for $3.6 billion in cash, subject to certain adjustments. The sale was substantially completed on 8 February 2021 resulting in a $1.9 billion payment from Baidu. Notably, Joyy’s market cap of $4.9 billion is 7% below its net cash of $5.2 billion, which is the sum of the 2Q1 net cash of $3.9 billion and Baidu's remaining payment net of tax $1.4 billion.As Joyy is incorporated in the Cayman Islands, for potential privatisation to succeed, shareholders representing two-thirds of shares present and voting need to approve the deal. Mr David Li represents 76.0% of the voting interest and has the two-thirds voting interest threshold needed to approve any potential privatisation deal.Our SOTP and relative valuation suggest that the rumoured privatisation range of $75-100 per ADS is justifiable and reasonable. Our base-case SOTP valuation is $71.69 per ADS, which is a 16% premium to the last close price of $61.97 per ADS. Despite Joyy's insistence that no formal bid has been received, we would be buyers as the shares offer a favourable risk/reward profile to the emergence of a formal privatisation bid.

Joyy’s Potential Privatisation by Top Two Shareholders

<div>
<p><a href="https://www.smartkarma.com/entities/cloud-village-inc" target="_blank" data-smartkarma-citation="entities:33412:1" rel="noopener">Cloud Village (CLV HK)</a> is the second-largest online music platform after <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> as measured by users and revenue in China. The cornerstone product is <em>NetEase Cloud Music</em> that delivers diverse music and music-inspired content and provides interactive community features. Cloud Village is braving the moribund Chinese IPO market by pre-marketing an HKEx IPO to raise around $1 billion, according to press reports. </p>
<p>In <a href="https://www.smartkarma.com/insights/cloud-village-netease-music-ipo-initiation-musical-shares" target="_blank" data-smartkarma-citation="insights:52266" rel="noopener">Cloud Village (NetEase Music) IPO Initiation: Musical Shares</a>, we stated that at first sight, Cloud Village performance seems poor as its high growth has come at the cost of negative gross margin and cash burn. However, Cloud Village is on the cusp of turning around its performance due to a fundamental change in its cost structure. We concluded that Cloud Village has the potential to shed its underdog status vs the much larger Tencent Music.  </p>
<p>In <a href="https://www.smartkarma.com/insights/cloud-village-netease-music-ipo-play-list" target="_blank" data-smartkarma-citation="insights:55506" rel="noopener">Cloud Village (NetEase Music) IPO: Play List</a>, we examined the 1Q21 results and the recent developments disclosed in the PHIP. We noted that while Cloud Village expects to remain unprofitable over the next three years, the 1Q21 results and the recent SAMR ruling on Tencent Music support our view that Cloud Village is on track to combine its high growth with an improving cost structure. </p>
</div><div><div><div class="content-highlight"><p>In this note, we present our forecasts and take the first look at Cloud Village's potential valuation range. </p></div></div></div>


Cloud Village (CLV HK) is the second-largest online music platform after Tencent Music (TME US) as measured by users and revenue in China. The cornerstone product is NetEase Cloud Music that delivers diverse music and music-inspired content and provides interactive community features. Cloud Village is braving the moribund Chinese IPO market by pre-marketing an HKEx IPO to raise around $1 billion, according to press reports. 
In Cloud Village (NetEase Music) IPO Initiation: Musical Shares, we stated that at first sight, Cloud Village performance seems poor as its high growth has come at the cost of negative gross margin and cash burn. However, Cloud Village is on the cusp of turning around its performance due to a fundamental change in its cost structure. We concluded that Cloud Village has the potential to shed its underdog status vs the much larger Tencent Music.  
In Cloud Village (NetEase Music) IPO: Play List, we examined the 1Q21 results and the recent developments disclosed in the PHIP. We noted that while Cloud Village expects to remain unprofitable over the next three years, the 1Q21 results and the recent SAMR ruling on Tencent Music support our view that Cloud Village is on track to combine its high growth with an improving cost structure. 
In this note, we present our forecasts and take the first look at Cloud Village's potential valuation range. 

Cloud Village (NetEase Music) IPO: Valuation First-Look

<div><p><a href="https://www.smartkarma.com/entities/soulgate-inc" target="_blank" data-smartkarma-citation="entities:33304:1" rel="noopener">Soulgate (SSR US)</a> is an alternative social networking platform that lets users have virtual identities and aims to recommend to each user (referred to as a Souler) curated content and other Soulers with similar personalities, lifestyles and interests, enabling more in-depth interactions and more meaningful connections. Soulgate is backed by <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent (700 HK)</a> (49.9% of outstanding shares, 25.7% of outstanding shares). </p></div><div>
<p>At the mid-point of the proposed IPO price range of $13.0-15.00 per ADS, Soulgate will have a market cap of $1.7 billion. New investors Janus Henderson and Boyu Capital intend to purchase a total of $80 million worth of ADSs in the offering (43.3% of the deal). At the mid-point of the IPO price range, the net proceeds including the concurrent private placement are $257.3 million. </p>
<p>Soulgate will also raise an additional $89 million in a concurrent private placement with miHoYo. miHoYo was founded in 2012 by three Shanghai Jiaotong University graduate students. miHoYo is the creator of <em>Genshin Impact</em>, an open-world action role-playing game released in 2020, and one of the highest-grossing mobile games. It is not entirely clear if there are any near-term synergies through this investment. Currently, Soulgate's exposure to games is largely limited to its <em>Werewolf Rooms</em> (a subset of its <em>Animated Partyroom</em> app functionality) which enable users to play the popular board game <em>Werewolf</em>.</p>
</div><div><div>
<p>In <a href="https://www.smartkarma.com/insights/soulgate-ipo-initiation-lost-soul" target="_blank" data-smartkarma-citation="insights:51651" rel="noopener">Soulgate IPO Initiation: Lost Soul,</a> we opined at first glance, Soulgate is well-positioned to benefit from a sizeable China’s mobile social networking market. The strong growth in users, fast-paced revenue growth and ongoing revenue diversification suggest that Soulgate is heading in the right direction. However, the high S&amp;M expenses which exceeded revenue in each of the last three quarters, suggests that Soulgate is aggressively chasing user growth without paying much heed to monetisation and payback periods. This modus operandi is highly reflective of growth at all costs strategy. Overall, we think that the negatives in the Soulgate story warrant a pass.  </p>
<div class="content-highlight"><p>Our valuation analysis suggests that the IPO price range fairly values Soulgate for its forecasted growth. Overall, as we remain unconvinced that Soulgate's growth at all costs strategy will generate shareholder value, we are inclined to give this IPO a pass. </p></div>
</div></div>

Soulgate (SSR US) is an alternative social networking platform that lets users have virtual identities and aims to recommend to each user (referred to as a Souler) curated content and other Soulers with similar personalities, lifestyles and interests, enabling more in-depth interactions and more meaningful connections. Soulgate is backed by Tencent (700 HK) (49.9% of outstanding shares, 25.7% of outstanding shares). 
At the mid-point of the proposed IPO price range of $13.0-15.00 per ADS, Soulgate will have a market cap of $1.7 billion. New investors Janus Henderson and Boyu Capital intend to purchase a total of $80 million worth of ADSs in the offering (43.3% of the deal). At the mid-point of the IPO price range, the net proceeds including the concurrent private placement are $257.3 million. 
Soulgate will also raise an additional $89 million in a concurrent private placement with miHoYo. miHoYo was founded in 2012 by three Shanghai Jiaotong University graduate students. miHoYo is the creator of Genshin Impact, an open-world action role-playing game released in 2020, and one of the highest-grossing mobile games. It is not entirely clear if there are any near-term synergies through this investment. Currently, Soulgate's exposure to games is largely limited to its Werewolf Rooms (a subset of its Animated Partyroom app functionality) which enable users to play the popular board game Werewolf.

In Soulgate IPO Initiation: Lost Soul, we opined at first glance, Soulgate is well-positioned to benefit from a sizeable China’s mobile social networking market. The strong growth in users, fast-paced revenue growth and ongoing revenue diversification suggest that Soulgate is heading in the right direction. However, the high S&amp;M expenses which exceeded revenue in each of the last three quarters, suggests that Soulgate is aggressively chasing user growth without paying much heed to monetisation and payback periods. This modus operandi is highly reflective of growth at all costs strategy. Overall, we think that the negatives in the Soulgate story warrant a pass.  
Our valuation analysis suggests that the IPO price range fairly values Soulgate for its forecasted growth. Overall, as we remain unconvinced that Soulgate's growth at all costs strategy will generate shareholder value, we are inclined to give this IPO a pass. 


APAC IPOs & Placements

Zhen Zhou, Toh

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.

<p><a href="https://www.smartkarma.com/entities/soulgate-inc" target="_blank" data-smartkarma-citation="entities:33304:1" rel="noopener">Soulgate (SSR US)</a> is looking to raise up to US$293m in its U.S. IPO. This includes the US$89 concurrent placement to be sold to MIHOYO.</p><p>Soulgate Inc. (SGI) operates Soul app which is an algorithm-driven online social playground. The app is targeted at the younger generations audience (usually born after 1990s) and it aims to provide a virtual space for users (often referred to as Soulers) to connect and build social relationships through virtual identities and multi-media content. </p><p>In this note, we will take a brief look at the app, compare Soulgate to other Chinese social media platforms, and share our thoughts on valuation and deal dynamics.</p><p>We previously covered the IPO in:</p><ul><li>
<a href="https://www.smartkarma.com/insights/soulgate-pre-ipo-unsustainable-virtual-connection" target="_blank" data-smartkarma-citation="insights:51473" rel="noopener">Soulgate Pre-IPO - Unsustainable Virtual Connection</a> </li></ul>

Soulgate (SSR US) is looking to raise up to US$293m in its U.S. IPO. This includes the US$89 concurrent placement to be sold to MIHOYO.Soulgate Inc. (SGI) operates Soul app which is an algorithm-driven online social playground. The app is targeted at the younger generations audience (usually born after 1990s) and it aims to provide a virtual space for users (often referred to as Soulers) to connect and build social relationships through virtual identities and multi-media content. In this note, we will take a brief look at the app, compare Soulgate to other Chinese social media platforms, and share our thoughts on valuation and deal dynamics.We previously covered the IPO in:
Soulgate Pre-IPO - Unsustainable Virtual Connection 

Soulgate IPO - MIHOYO Could Change the Game, Worth a Bet

China

Hello Group Inc. operates as a mobile-based social networking platform. The Company enables users to establish and expand social relationships based on location and interests. Hello Group operates out of the Peoples Republic of China.

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Hello Group (MOMO US)

Cloud Village (NetEase Music) IPO: Valuation Insights

Cloud Village has launched its IPO to raise $400 million at the IPO mid-point. Our valuation analysis suggests that the IPO price is unattractive....

Arun George

Joyy’s Potential Privatisation by Top Two Shareholders

Joyy's rumoured privatisation bid is at $75-$100 per ADS. Our base-case SOTP valuation is $71.69, a 16% premium to the last close. Consequently,...

Arun George

Cloud Village (NetEase Music) IPO: Valuation First-Look

Cloud Village is braving the moribund Chinese IPO market by pre-marketing an HKEx IPO to raise around $1 bn. In this note, we present our forecasts...

Arun George

Soulgate IPO: Valuation Insights

The IPO price range fairly values Soulgate for its forecasted growth. However, as we remain unconvinced that Soulgate's strategy will generate...

Arun George

Soulgate IPO - MIHOYO Could Change the Game, Worth a Bet

Soulgate (SSR US) is looking to raise up to US$293m in its U.S. IPO. This includes the US$89 concurrent placement to be sold to MIHOYO.

Zhen Zhou, Toh

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