Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Bottom-Up

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Unlike 2H 2020 when many global tech stocks were roaring higher, it has been more selective so far in 2021, especially among the Chinese tech stocks. In this insight, we discuss the outlook for <a href="https://www.smartkarma.com/entities/tuya-inc" target="_blank" data-smartkarma-citation="entities:32158:1" rel="noopener">Tuya Inc (TUYA US)</a>, which appears to have one of the best momentum among Chinese tech stocks post first quarter results. <a href="https://www.smartkarma.com/entities/tuya-inc" target="_blank" data-smartkarma-citation="entities:32158:1" rel="noopener">Tuya Inc (TUYA US)</a>'s current share price is $26, up 24% from the IPO price of $21. The stock has especially been very strong in May as it is up 34% this month. 
Among the 16 major Chinese tech stocks mentioned in this report, Tuya had the highest sales growth rate of 200% YoY in 1Q 2021. The average YoY sales growth of these 16 stocks were 58.6% in 1Q 2021. There were only three stocks that had more than 100% YoY sales growth rate in 1Q 2021, which included Tuya, <a href="https://www.smartkarma.com/entities/pinduoduo-inc" target="_blank" data-smartkarma-citation="entities:27250:1" rel="noopener">Pinduoduo (PDD US)</a>, and <a href="https://www.smartkarma.com/entities/zhihu-technology-ltd" target="_blank" data-smartkarma-citation="entities:32185:1" rel="noopener">Zhihu Technology (ZH US)</a>. 
Our conclusion is that we continue to like Tuya as it has one of the best growth prospects among major Chinese tech stocks. It is also experiencing significant improvement in its operating margins. Although its valuation multiple is the highest among the 16 companies mentioned in this insight, we believe investors are willing to pay higher multiples for companies such as Tuya which is experiencing a combination of very strong sales growth as well as improving operating losses as a percentage of revenues. 
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Unlike 2H 2020 when many global tech stocks were roaring higher, it has been more selective so far in 2021, especially among the Chinese tech stocks. In this insight, we discuss the outlook for Tuya Inc (TUYA US), which appears to have one of the best momentum among Chinese tech stocks post first quarter results. Tuya Inc (TUYA US)'s current share price is $26, up 24% from the IPO price of $21. The stock has especially been very strong in May as it is up 34% this month. 
Among the 16 major Chinese tech stocks mentioned in this report, Tuya had the highest sales growth rate of 200% YoY in 1Q 2021. The average YoY sales growth of these 16 stocks were 58.6% in 1Q 2021. There were only three stocks that had more than 100% YoY sales growth rate in 1Q 2021, which included Tuya, Pinduoduo (PDD US), and Zhihu Technology (ZH US). 
Our conclusion is that we continue to like Tuya as it has one of the best growth prospects among major Chinese tech stocks. It is also experiencing significant improvement in its operating margins. Although its valuation multiple is the highest among the 16 companies mentioned in this insight, we believe investors are willing to pay higher multiples for companies such as Tuya which is experiencing a combination of very strong sales growth as well as improving operating losses as a percentage of revenues. 


Tuya's Strong Momentum & A Review of China's Tech Stocks Results in 1Q 2021

IPO and L/S equity, 2015 Starmine top stock picker, Global Equity Research Ltd

Rickin Thakrar

IPO and L/S equity, 2015 Starmine top stock picker

Uncompromised, Independent, Conflict-Free Research

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.

We think the <a href="https://www.smartkarma.com/entities/jd-logistics" target="_blank" data-smartkarma-citation="entities:31500:1" rel="noopener">JD Logistics (2618 HK)</a> spin-off could potentially be negative for parent <a href="https://www.smartkarma.com/entities/jd-com-inc" target="_blank" data-smartkarma-citation="entities:29043:1" rel="noopener">JD.com Inc. (9618 HK)</a> , as our calculations indicate a potentially more mature JD.com retail business based on our latest analysis.

We think the JD Logistics (2618 HK) spin-off could potentially be negative for parent JD.com Inc. (9618 HK) , as our calculations indicate a potentially more mature JD.com retail business based on our latest analysis.

JD.com: Will Logistics Spin-Off Expose an Already Mature Stub Business?

Silver Point

Thomas J. Monaco

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

*Meh 1Q21 Result: Tencent Holdings (700.HK) [Tencent] reported 1Q21 total revenues of CNY 135.3 bn - increasing 25% YOY, while non-GAAP operating profit aggregated CNY 42.8 bn - increasing 20% YOY; and*Capital Raise Likely Coming: For Tencent, WeChat Pay and the broader lending/deposit taking business are likely to be reined-in. At CNY 38.5 bn for full year 2020, FinTech represents a growing 28.8% of revenue – and is a key and growing component of Tencent’s current and future results. No matter what spin that Tencent wants to place on its other businesses, an FHC represents significant downside risks. Earnings will compress, as capital requirements increase.

*Meh 1Q21 Result: Tencent Holdings (700.HK) [Tencent] reported 1Q21 total revenues of CNY 135.3 bn - increasing 25% YOY, while non-GAAP operating profit aggregated CNY 42.8 bn - increasing 20% YOY; and*Capital Raise Likely Coming: For Tencent, WeChat Pay and the broader lending/deposit taking business are likely to be reined-in. At CNY 38.5 bn for full year 2020, FinTech represents a growing 28.8% of revenue – and is a key and growing component of Tencent’s current and future results. No matter what spin that Tencent wants to place on its other businesses, an FHC represents significant downside risks. Earnings will compress, as capital requirements increase.

Tencent Holdings – Awaiting The Big Hit

Global TMT analyst with Asia ex-Japan focus.

Mitchell Kim

<ul>
<li>
There are only a few large cap stocks in Asia that can deliver on 30%+ revenue growth and trade at 1x P/Sales (TTM) and forward P/E of 40x (on consensus estimate). <a href="https://www.smartkarma.com/entities/jd-com-inc-adr" target="_blank" data-smartkarma-citation="entities:446:1" rel="noopener">JD.com Inc (ADR) (JD US)</a> just happens to be one of them.  </li>
<li>
JD reported the highest topline growth (39% YoY) in the last 5 years, aided by the explosive JD Logistics and marketplace revenue growth.  The stock still trades at 34% below the peak in March. </li>
<li>JD's product revenue growth was 35% YoY, outpacing the China over all online physical goods sales growth of 32%.  This suggests JD is gaining market share. I highlight this trend in my report, <a href="https://www.smartkarma.com/insights/china-e-commerce-robust-consumption-data-hints-at-online-spending-spree" target="_blank" data-smartkarma-citation="insights:50798" rel="noopener">China E-Commerce: Robust Consumption Data Hints at Online Spending Spree</a>.  </li>
<li>
Some may be concerned over operating margin declining, but I remain constructive as the core business (JD Retail) operating margin hit 4%, second highest level in its history.  However, total Non-GAAP operating profit margin declined to 1.7% from 2.2% in 1Q20.  This was due to investments in JD Logistics capacity and in new businesses -- Jingxi, cloud and AI.  </li>
<li>Risk: The market may hold back its enthusiasm as lower revenue growth relative to 1Q21 is estimated in 2Q21 because of the skewed growth in 2Q20.  Management stressed that similar growth is expected for 1H21 compared to 1Q20.  </li>
</ul>



There are only a few large cap stocks in Asia that can deliver on 30%+ revenue growth and trade at 1x P/Sales (TTM) and forward P/E of 40x (on consensus estimate). JD.com Inc (ADR) (JD US) just happens to be one of them.  

JD reported the highest topline growth (39% YoY) in the last 5 years, aided by the explosive JD Logistics and marketplace revenue growth.  The stock still trades at 34% below the peak in March. 
JD's product revenue growth was 35% YoY, outpacing the China over all online physical goods sales growth of 32%.  This suggests JD is gaining market share. I highlight this trend in my report, China E-Commerce: Robust Consumption Data Hints at Online Spending Spree.  

Some may be concerned over operating margin declining, but I remain constructive as the core business (JD Retail) operating margin hit 4%, second highest level in its history.  However, total Non-GAAP operating profit margin declined to 1.7% from 2.2% in 1Q20.  This was due to investments in JD Logistics capacity and in new businesses -- Jingxi, cloud and AI.  
Risk: The market may hold back its enthusiasm as lower revenue growth relative to 1Q21 is estimated in 2Q21 because of the skewed growth in 2Q20.  Management stressed that similar growth is expected for 1H21 compared to 1Q20.  


JD.com (JD US): Robust Growth, Impressive Core Profit

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

ForU Worldwide (Foru), the largest technology-driven road freight transportation platform in China, aims to raise up to US$500m via a US listing.The company provides freight-as-a-service (FaaS) via its platform to connect shippers and carriers. It digitalizes the entire road freight transportation process, including pricing, route planning, dispatching, transportation and fee settlement. As of Mar 2021, ForU had delivered 3.2m loads cumulatively. It had cumulatively served 11,174 large and SME shippers and had approximately 905,000 registered drivers and 580,000 drivers who had completed orders.

ForU Worldwide (Foru), the largest technology-driven road freight transportation platform in China, aims to raise up to US$500m via a US listing.The company provides freight-as-a-service (FaaS) via its platform to connect shippers and carriers. It digitalizes the entire road freight transportation process, including pricing, route planning, dispatching, transportation and fee settlement. As of Mar 2021, ForU had delivered 3.2m loads cumulatively. It had cumulatively served 11,174 large and SME shippers and had approximately 905,000 registered drivers and 580,000 drivers who had completed orders.

ForU Worldwide Pre-IPO - Mostly Negatives

China

PDD Holdings Inc. is a multinational commerce group that owns and operates a portfolio of businesses. The Company focuses on digital economy so that local communities and small businesses can benefit from the increased productivity and new opportunities. PDD Holdings has built a network of sourcing, logistics, and fulfillment capabilities for its underlying businesses.

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PDD Holdings (PDD US)

Tuya's Strong Momentum & A Review of China's Tech Stocks Results in 1Q 2021

We continue to like Tuya as it has one of the best growth prospects among major Chinese tech stocks. It is also experiencing significant...

Douglas Kim

JD.com: Will Logistics Spin-Off Expose an Already Mature Stub Business?

We think the JD Logistics (2618 HK) spin-off could potentially be negative for parent JD.com Inc. (9618 HK) , as our calculations indicate a...

Rickin Thakrar

Tencent Holdings – Awaiting The Big Hit

TENCENT HOLDINGS: Tencent] reported 1Q21 YOY total revenue growth of 25%, while non-GAAP operating profit increased just 20%. An FHC suggests...

Thomas J. Monaco

JD.com (JD US): Robust Growth, Impressive Core Profit

When a USD115 billion revenue company is growing 39% YoY and core business operating margin improving 27 bps to 4%, it is hard to sit on the fence....

Mitchell Kim

ForU Worldwide Pre-IPO - Mostly Negatives

ForU Worldwide (Foru) aims to raise up to US$500m via a US listing. The company provides freight-as-a-service (FaaS) via its platform to connect...

Sumeet Singh

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