IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

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.

Equity Capital Markets

<div><p><a href="https://www.smartkarma.com/entities/waterdrop-inc" target="_blank" data-smartkarma-citation="entities:33018:1" rel="noopener">Waterdrop Inc (WDH US)</a> is the largest independent third-party insurance platform in China as measured by life and health insurance first-year premiums (FYP) distributed in 2020, according to iResearch. Waterdrop is backed by <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent Holdings (700 HK)</a>, <a href="https://www.smartkarma.com/entities/swiss-re-ag-1f83dcbc-730e-46fa-82f2-bfe7e8e361a1" target="_blank" data-smartkarma-citation="entities:27914:1" rel="noopener">Swiss Re AG (SREN SW)</a> and <a href="https://www.smartkarma.com/entities/meituan-dianping" target="_blank" data-smartkarma-citation="entities:26970:1" rel="noopener">Meituan (3690 HK)</a>.</p></div><div><p>At the mid-point of the proposed IPO price range of $10.00-12.00 per ADS, Waterdrop will have a market cap of $4.3 billion. At the mid-point of the IPO price range, the net proceeds are $301.6 million. New and existing shareholders have indicated on $210 million of the IPO, including Boyu Capital ($100 million), HOPU Investments (at least $80 million), and Kevin Sunny Holding ($30 million). The indications of interest represent 63.6% of the ADSs on offer at the mid-point of the IPO price range.</p></div><div><div><div class="content-highlight"><p>In <a href="https://www.smartkarma.com/insights/waterdrop-ipo-initiation-going-for-brokers" target="_blank" data-smartkarma-citation="insights:50610" rel="noopener">Waterdrop IPO Initiation: Going for Brokers</a>, we opined that as a leading online third-party insurance broker, Waterdrop is well-positioned to benefit from favourable industry trends. The key unknown is whether the changing regulations will throw a spanner in the works. Notwithstanding the regulatory overhang, we concluded that Waterdrop is worth a look. Our analysis suggests that the IPO price range is full at the high-end but has some upside at the low-end. </p></div></div></div>

Waterdrop Inc (WDH US) is the largest independent third-party insurance platform in China as measured by life and health insurance first-year premiums (FYP) distributed in 2020, according to iResearch. Waterdrop is backed by Tencent Holdings (700 HK), Swiss Re AG (SREN SW) and Meituan (3690 HK).At the mid-point of the proposed IPO price range of $10.00-12.00 per ADS, Waterdrop will have a market cap of $4.3 billion. At the mid-point of the IPO price range, the net proceeds are $301.6 million. New and existing shareholders have indicated on $210 million of the IPO, including Boyu Capital ($100 million), HOPU Investments (at least $80 million), and Kevin Sunny Holding ($30 million). The indications of interest represent 63.6% of the ADSs on offer at the mid-point of the IPO price range.In Waterdrop IPO Initiation: Going for Brokers, we opined that as a leading online third-party insurance broker, Waterdrop is well-positioned to benefit from favourable industry trends. The key unknown is whether the changing regulations will throw a spanner in the works. Notwithstanding the regulatory overhang, we concluded that Waterdrop is worth a look. Our analysis suggests that the IPO price range is full at the high-end but has some upside at the low-end. 

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

Equity Bottom-Up

<p>*<em><strong>The Hits Keep Coming: </strong></em>On April 29, 2021, Reuters reported that SAMR is preparing a fine for Tencent Holdings (700.HK) [Tencent] as part of its antitrust review. Tencent’s fine is expected to be a minimum of CNY 10 bn or 2% of domestic sales. In addition, the report states that the investigation specifically focuses on music streaming. In addition to the fine, Tencent may have to give up its exclusive music rights and possibly dispose of Kuwo and Kugou; and</p><p><em><strong>*Earnings To Decline, Capital Requirements To Increase:</strong></em> No doubt that Tencent will also follow Alibaba Group (BABA.US) [Alibaba] in their formation of a financial holding company. For Tencent, WeChat Pay and the broader lending/deposit taking business are likely to be reined-in. At CNY 38.5 bn, FinTech represents a growing 28.8% of revenue – and are key 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.</p>

*The Hits Keep Coming: On April 29, 2021, Reuters reported that SAMR is preparing a fine for Tencent Holdings (700.HK) [Tencent] as part of its antitrust review. Tencent’s fine is expected to be a minimum of CNY 10 bn or 2% of domestic sales. In addition, the report states that the investigation specifically focuses on music streaming. In addition to the fine, Tencent may have to give up its exclusive music rights and possibly dispose of Kuwo and Kugou; and*Earnings To Decline, Capital Requirements To Increase: No doubt that Tencent will also follow Alibaba Group (BABA.US) [Alibaba] in their formation of a financial holding company. For Tencent, WeChat Pay and the broader lending/deposit taking business are likely to be reined-in. At CNY 38.5 bn, FinTech represents a growing 28.8% of revenue – and are key 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.

Global TMT analyst with Asia ex-Japan focus.

Mitchell Kim

Thematic (Sector/Industry)

<ul>
<li>Our analysis of China retail sales data for 1Q21 shows online retail spending growth has been big.  If I am looking for an entry point, I would look to take a long position now before the earnings rather than after.   </li>
<li>Online sales growth was strongest for apparel, food, then general merchandise and electronics. </li>
<li>Vipshop (apparel) and PDD (food) should be big winners.   </li>
<li>but Alibaba's 54% revenue growth and JD's 34% is not to be brushed aside.  </li>
<li>Find out why I would still prefer to own Alibaba and JD.com over VIPS and PDD. </li>
<li>More details on China retail sales data breakdown, 1Q21 earnings expectations and valuations comparisons provided in this report. </li>
</ul>


Our analysis of China retail sales data for 1Q21 shows online retail spending growth has been big.  If I am looking for an entry point, I would look to take a long position now before the earnings rather than after.   
Online sales growth was strongest for apparel, food, then general merchandise and electronics. 
Vipshop (apparel) and PDD (food) should be big winners.   
but Alibaba's 54% revenue growth and JD's 34% is not to be brushed aside.  
Find out why I would still prefer to own Alibaba and JD.com over VIPS and PDD. 
More details on China retail sales data breakdown, 1Q21 earnings expectations and valuations comparisons provided in this report. 


China E-Commerce: Robust Consumption Data Hints at Online Spending Spree

Equity Analyst, LightStream Research

Oshadhi Kumarasiri

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.

<p>We had many concerns regarding <a href="https://www.smartkarma.com/entities/gome-retail-holdings-ltd" target="_blank" data-smartkarma-citation="entities:170:1" rel="noopener">Gome Electrical Appliances (493 HK)</a>, of which the most pressing issue was that we thought the company would struggle to refinance the RMB 17.9 billion falling due in the immediate future.</p><p>GOME Retail faced a mixed situation since we last wrote about the company in November 2020. The shares rallied 156% following the successful refinancing of over RMB 4.0bn corporate bonds. After peaking at HK$ 2.38 per share in February 2021, GOME’s share price went down by 45% following a profit warning on 26<sup>th</sup> February 2021 and a seasoned equity offering in March 2021.</p><p>GOME’s immediate liquidity issues are almost entirely solved. However, the company is yet to showcase any improvement in financial performance for us to be confident about the company’s medium-long term financial stability. Therefore, we think GOME is overvalued at 1.3x P/B, compared to the 2014-20 median of 0.9x.</p>

We had many concerns regarding Gome Electrical Appliances (493 HK), of which the most pressing issue was that we thought the company would struggle to refinance the RMB 17.9 billion falling due in the immediate future.GOME Retail faced a mixed situation since we last wrote about the company in November 2020. The shares rallied 156% following the successful refinancing of over RMB 4.0bn corporate bonds. After peaking at HK$ 2.38 per share in February 2021, GOME’s share price went down by 45% following a profit warning on 26th February 2021 and a seasoned equity offering in March 2021.GOME’s immediate liquidity issues are almost entirely solved. However, the company is yet to showcase any improvement in financial performance for us to be confident about the company’s medium-long term financial stability. Therefore, we think GOME is overvalued at 1.3x P/B, compared to the 2014-20 median of 0.9x.

GOME Retail: No More Going Concern Issues

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.

<div><p><a href="https://www.smartkarma.com/entities/waterdrop-inc" target="_blank" data-smartkarma-citation="entities:33018:1" rel="noopener">Waterdrop Inc (WDH US)</a>, a technology platform for insurance and healthcare services in China, aims to raise around US$500m in its US IPO. <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent Holdings (700 HK)</a> owned 22.1% and <a href="https://www.smartkarma.com/entities/swiss-re-ag-1f83dcbc-730e-46fa-82f2-bfe7e8e361a1" target="_blank" data-smartkarma-citation="entities:27914:1" rel="noopener">Swiss Re AG (SREN SW)</a> owned 5.7% of the company prior to its listing.</p></div><div><p>In our previous note, <a href="https://www.smartkarma.com/insights/waterdrop-pre-ipo-the-positives-fast-growth-strong-backers" target="_blank" rel="noopener">Waterdrop Pre-IPO - The Positives - Fast Growth, Strong Backers</a>, we spoke about the positive aspects of the deal. </p></div><div><p>In this note, we will talk about the not so flattering aspects</p></div>

Waterdrop Inc (WDH US), a technology platform for insurance and healthcare services in China, aims to raise around US$500m in its US IPO. Tencent Holdings (700 HK) owned 22.1% and Swiss Re AG (SREN SW) owned 5.7% of the company prior to its listing.In our previous note, Waterdrop Pre-IPO - The Positives - Fast Growth, Strong Backers, we spoke about the positive aspects of the deal. In this note, we will talk about the not so flattering aspects

Waterdrop Pre-IPO - The Negatives - Scandals, Shutdowns, Competing with Giants, Regulation

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)

Waterdrop IPO: Valuation Insights

Waterdrop has launched its IPO to raise net proceeds of $301.6 million at the mid-point of the price range of $10-12. The price range is full at...

Arun George

Tencent Holdings – Spanking

TENCENT HOLDINGS: Reuters reports that SAMR is preparing to fine Tencent a minimum of CNY 10 bn. Tencent may also have to give up its exclusive...

Thomas J. Monaco

China E-Commerce: Robust Consumption Data Hints at Online Spending Spree

China retail sales data hints at a big online spending quarter. Vipshop and PDD are expected to be big winners, but find out why you should jump...

Mitchell Kim

GOME Retail: No More Going Concern Issues

GOME’s immediate liquidity issues are almost entirely solved. However, the company is yet to showcase any improvement in financial performance for...

Oshadhi Kumarasiri

Waterdrop Pre-IPO - The Negatives - Scandals, Shutdowns, Competing with Giants, Regulation

Waterdrop, a technology platform for insurance and healthcare services in China, aims to raise around US$500m in its US IPO. Tencent owned 22.1%...

Sumeet Singh

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