Global Emerging Market Equities, Propitious Research

Wium Malan, CFA

Global Emerging Market Equities

Independent, Fundamental Quantitative Research

Propitious Research

Fully independent, fundamental and quantitative equity research, focused on companies in the Telecommunication, Media, Technology, Internet and Healthcare sectors in the Global Emerging Markets. Idea generation focused on Quality stocks, trading below their intrinsic Value, with sound Corporate Governance.

Equity Bottom-Up

<p>Following a period of exceptionally strong performance, driven by the stay-at-home culture during the onset of the COVID-19 pandemic in 2020, the Chinese online games market is again experiencing significant headwinds, not only from very tough comps but from a resurgence in regulatory pressure. Although this forms part of wider scrutiny on various facets of the Chinese tech industry (including online education, payment platforms, ridesharing, etc.) recent regulatory efforts have included a further tightening of regulation limiting youth gamers’ online access which has also now led to a delay in new games approvals. </p><p>This is very similar to what we saw in 2018 when, after an exceptionally strong 2017 revenue growth period, the Chinese government stepped up regulatory scrutiny specifically targeting youth gamers which ultimately led to a suspension of new games approvals from March 2018 until December 2018. </p><p>Given the material impact that recent regulatory approvals should have on revenue generation for <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent (700 HK)</a> and <a href="https://www.smartkarma.com/entities/netease" target="_blank" data-smartkarma-citation="entities:29030:1" rel="noopener">NetEase (9999 HK)</a>, in this insight, I analyse the potential for negative revenue growth surprises, and further sell-side earnings downgrades, by comparing the current situation to that faced in 2018.</p>

Following a period of exceptionally strong performance, driven by the stay-at-home culture during the onset of the COVID-19 pandemic in 2020, the Chinese online games market is again experiencing significant headwinds, not only from very tough comps but from a resurgence in regulatory pressure. Although this forms part of wider scrutiny on various facets of the Chinese tech industry (including online education, payment platforms, ridesharing, etc.) recent regulatory efforts have included a further tightening of regulation limiting youth gamers’ online access which has also now led to a delay in new games approvals. This is very similar to what we saw in 2018 when, after an exceptionally strong 2017 revenue growth period, the Chinese government stepped up regulatory scrutiny specifically targeting youth gamers which ultimately led to a suspension of new games approvals from March 2018 until December 2018. Given the material impact that recent regulatory approvals should have on revenue generation for Tencent (700 HK) and NetEase (9999 HK), in this insight, I analyse the potential for negative revenue growth surprises, and further sell-side earnings downgrades, by comparing the current situation to that faced in 2018.

NetEase, Tencent: Risk of Negative Games Revenue Surprises Skewed to Tencent, Rather than NetEase

Forensic Analyst

Jason Yap, CFA

<p>The Epic Apple duel has recently concluded its first inning. The latest US ruling disrupts Apple's stranglehold over the App Store and consequently its cut of developer revenues but fell short of confirming that Apple operated as an illegal monopoly.  An Epic appeal is underway.  While a certain segment of the US population gushed with anger over Apple's 30% cut of revenue charged to developers, elsewhere in China the situation is starkly different.</p>
<p>China app developers typically aim to secure all available distribution channels at all costs, which means simultaneous pre-launch conversations with multiple app store vendors.  The most popular apps often gain the most traction through push adverts on these app stores, or so the developers rationalise to themselves as they fork up to 50% commission fees to app stores and mobile carriers. By this measure, Apple seems almost benevolent!  But, why?</p>
<p>This article explores the App Store dynamic in China, which is dominated by Android smartphone manufacturers, and discusses whether an Epic Apple esque duel might unravel in China. </p>

The Epic Apple duel has recently concluded its first inning. The latest US ruling disrupts Apple's stranglehold over the App Store and consequently its cut of developer revenues but fell short of confirming that Apple operated as an illegal monopoly.  An Epic appeal is underway.  While a certain segment of the US population gushed with anger over Apple's 30% cut of revenue charged to developers, elsewhere in China the situation is starkly different.
China app developers typically aim to secure all available distribution channels at all costs, which means simultaneous pre-launch conversations with multiple app store vendors.  The most popular apps often gain the most traction through push adverts on these app stores, or so the developers rationalise to themselves as they fork up to 50% commission fees to app stores and mobile carriers. By this measure, Apple seems almost benevolent!  But, why?
This article explores the App Store dynamic in China, which is dominated by Android smartphone manufacturers, and discusses whether an Epic Apple esque duel might unravel in China. 

Thematic (Sector/Industry)

<p>This insight provides a summary of the key news developments impacting the largest countries and constituents of the Global Emerging Markets equity indices. </p><p><strong><em>Companies mentioned this week:</em></strong></p><p><a href="https://www.smartkarma.com/entities/kakao-corp" target="_blank" data-smartkarma-citation="entities:15002:1" rel="noopener">Kakao Corp (035720 KS)</a>, <a href="https://www.smartkarma.com/entities/naver-corp" target="_blank" data-smartkarma-citation="entities:16029:1" rel="noopener">Naver Corp (035420 KS)</a>, <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent (700 HK)</a>, <a href="https://www.smartkarma.com/entities/netease" target="_blank" data-smartkarma-citation="entities:29030:1" rel="noopener">NetEase (9999 HK)</a>, <a href="https://www.smartkarma.com/entities/nio-inc" target="_blank" data-smartkarma-citation="entities:27399:1" rel="noopener">NIO Inc (NIO US)</a> </p>

This insight provides a summary of the key news developments impacting the largest countries and constituents of the Global Emerging Markets equity indices. Companies mentioned this week:Kakao Corp (035720 KS), Naver Corp (035420 KS), Tencent (700 HK), NetEase (9999 HK), NIO Inc (NIO US) 

Global Emerging Markets Weekly: 10 September 2021

Smartkarma Research Team, Smartkarma

Smartkarma Research

Smartkarma Research Team

Smartkarma

Smartkarma unites the fragmented investment industry, connecting institutional investors, independent research providers, and corporates within a single network.

Research Reinvented

<p>For our next webinar, we have the pleasure of welcoming Insight Provider <a href="https://www.smartkarma.com/profiles/evelyn-zhang-9bc04495-920c-480f-b9e9-1c086391bea6" target="_blank" data-smartkarma-citation="accounts:21235" rel="noopener">Evelyn Zhang</a>, who will examine the impact of recent policy decisions on the future of China's tech companies.</p><div><div><h3>The webinar will be hosted on Wednesday, 15 September 2021, 17:00 SGT/HKT.</h3></div></div><div><div>
<div class="content-highlight"><h2><a href="https://share.hsforms.com/1H9pFZOB-RF2J00kbvMmxcw2c5gj?zoom_webinar_id=85993480041" target="_blank" rel="noopener">Register for the Webinar here</a></h2></div>
<p>Evelyn Zhang has over a decade of experience at firms like Morgan Stanley, Bank of America Merrill Lynch, Agricultural Bank of China, and Lenovo. Her expertise includes research and investment into tech companies of all stages. She has a particular focus on emerging technologies, but is experienced in asset management, private equity, strategic investment, investment banking, equity research, and corporate finance.</p>
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For our next webinar, we have the pleasure of welcoming Insight Provider Evelyn Zhang, who will examine the impact of recent policy decisions on the future of China's tech companies.The webinar will be hosted on Wednesday, 15 September 2021, 17:00 SGT/HKT.
Register for the Webinar here
Evelyn Zhang has over a decade of experience at firms like Morgan Stanley, Bank of America Merrill Lynch, Agricultural Bank of China, and Lenovo. Her expertise includes research and investment into tech companies of all stages. She has a particular focus on emerging technologies, but is experienced in asset management, private equity, strategic investment, investment banking, equity research, and corporate finance.


Smartkarma Webinar | Law and Order: What the New Data Security Laws Mean for China's Tech Sector

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.

Event-Driven

<p>The government of China announced last week a set of rules aimed at the country’s gaming sector in order to reduce the long-term impact of gaming on the country’s younger population (those under 18 years of age). Those new rules on limiting the mobile gaming time, we think was taken lightly by the market, however, regulators continue to ramp up regulation and tighten their grip on the mobile gaming sector. Executives from <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent (700 HK)</a> , <a href="https://www.smartkarma.com/entities/netease" target="_blank" data-smartkarma-citation="entities:29030:1" rel="noopener">NetEase (9999 HK)</a>  and other mobile gaming companies were called in for a meeting on Wednesday and were instructed to end their “Solitary focus of pursuing profit” in order to prevent minors from getting addicted to games. This no doubt will require gaming companies to change their game rules and designs that induce addiction and at the same time, changes to operating models that will severely impact revenue and margins of games.</p><p>As China tackles to bring down gaming addiction among minor users, SCMP reports that the Chinese regulators will temporarily freeze approvals for new online games.</p>

The government of China announced last week a set of rules aimed at the country’s gaming sector in order to reduce the long-term impact of gaming on the country’s younger population (those under 18 years of age). Those new rules on limiting the mobile gaming time, we think was taken lightly by the market, however, regulators continue to ramp up regulation and tighten their grip on the mobile gaming sector. Executives from Tencent (700 HK) , NetEase (9999 HK)  and other mobile gaming companies were called in for a meeting on Wednesday and were instructed to end their “Solitary focus of pursuing profit” in order to prevent minors from getting addicted to games. This no doubt will require gaming companies to change their game rules and designs that induce addiction and at the same time, changes to operating models that will severely impact revenue and margins of games.As China tackles to bring down gaming addiction among minor users, SCMP reports that the Chinese regulators will temporarily freeze approvals for new online games.

Tencent: Temporary Freeze of New Game Approvals to Further Impact Slowing Games Business

China

NetEase, Inc. is an Internet technology company that develops applications, services and other Internet technologies in China. The Company's core businesses consist of email service, web portal and online entertainment, including online gaming services. NetEase also offers online advertising, search, mobile applications and e-commerce.

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NetEase Inc (NTES US)

NetEase, Tencent: Risk of Negative Games Revenue Surprises Skewed to Tencent, Rather than NetEase

In this insight, I analyse the potential for negative revenue growth surprises, and further earnings downgrades, for NetEase and Tencent, by...

Wium Malan, CFA

Epic Apple Esque Duel in China? or Nah?

The Epic Apple ruling disrupts Apple's share of developer revenues. Yet, the 30% charges seem low versus China. What is the App Store landscape in...

Jason Yap, CFA

Global Emerging Markets Weekly: 10 September 2021

This insight provides a summary of the key news developments impacting the largest countries and constituents of the Global Emerging Markets equity...

Wium Malan, CFA

Smartkarma Webinar | Law and Order: What the New Data Security Laws Mean for China's Tech Sector

On 15 September, 5pm SGT, join our webinar featuring Insight Provider Evelyn Zhang, who will examine the impact of recent policy decisions on the...

Smartkarma Research

Tencent: Temporary Freeze of New Game Approvals to Further Impact Slowing Games Business

The new video game approval freeze in China in 2018 severely impacted Tencent’s online games revenues where it declined YoY for three consecutive...

Shifara Samsudeen, FCMA, CGMA

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