China and US Equity Analyst

Roger Xie

Equity Bottom-Up

<ul>
<li>HKEx is rising as a global trading venue as secondary-listing Chinese companies are moving to swap their US ADRs to Hong Kong shares. Since <a href="https://www.smartkarma.com/entities/alibaba-group-holding-ltd" target="_blank" data-smartkarma-citation="entities:787:1" rel="noopener">Alibaba Group (BABA US)</a> pioneered the secondary listing scheme in Hong Kong in 2018, the share fungibility has opened the door for swapping its US ADR to Hong Kong. We estimated that 20% of outstanding shares of Alibaba have been moved to Hong Kong.</li>
<li>Some top institutional investors, such as Temasek, Baillie Gifford, and Matthews Asia, are among the major shareholders that have swapped stakes in <a href="https://www.smartkarma.com/entities/alibaba-group-holding-ltd" target="_blank" data-smartkarma-citation="entities:787:1" rel="noopener">Alibaba Group (BABA US)</a> US ADRs. This has reflected some strategic consideration to  avoid US sanction and delisting of Chinese tech companies. We expect this trend will likely accelerate in the future. For current 13 dual-listing Chinese ADRs, we expect 30% of total trading volume will be shifted to Hong Kong from US in next 2 years. This is a significant jump from around 18% of trading volume at Hong Kong now. Dual-listing Chinese ADRs at Hong Kong will likely accelerate as well. </li>
<li>
<a href="https://www.smartkarma.com/entities/hong-kong-exchanges-clearing" target="_blank" data-smartkarma-citation="entities:490:1" rel="noopener">HKEX (388 HK)</a>  serves as the only offshore gateway to China capital market. HKEx has consistently enjoyed the superior margin and profitability, given that it can charge higher trading fee rates than other bourses. We forecast Securities ADT of HK$240bn in FY 21 (Hong Kong and Stock Connect Northbound). Given the acceleration of US ADRs conversion, there is risk to the upside of the Securities ADT forecast. We continue to favor <a href="https://www.smartkarma.com/entities/hong-kong-exchanges-clearing" target="_blank" data-smartkarma-citation="entities:490:1" rel="noopener">HKEX (388 HK)</a> and reiterate HKEx TP HKD 550. </li>
</ul>


HKEx is rising as a global trading venue as secondary-listing Chinese companies are moving to swap their US ADRs to Hong Kong shares. Since Alibaba Group (BABA US) pioneered the secondary listing scheme in Hong Kong in 2018, the share fungibility has opened the door for swapping its US ADR to Hong Kong. We estimated that 20% of outstanding shares of Alibaba have been moved to Hong Kong.
Some top institutional investors, such as Temasek, Baillie Gifford, and Matthews Asia, are among the major shareholders that have swapped stakes in Alibaba Group (BABA US) US ADRs. This has reflected some strategic consideration to  avoid US sanction and delisting of Chinese tech companies. We expect this trend will likely accelerate in the future. For current 13 dual-listing Chinese ADRs, we expect 30% of total trading volume will be shifted to Hong Kong from US in next 2 years. This is a significant jump from around 18% of trading volume at Hong Kong now. Dual-listing Chinese ADRs at Hong Kong will likely accelerate as well. 

HKEX (388 HK)  serves as the only offshore gateway to China capital market. HKEx has consistently enjoyed the superior margin and profitability, given that it can charge higher trading fee rates than other bourses. We forecast Securities ADT of HK$240bn in FY 21 (Hong Kong and Stock Connect Northbound). Given the acceleration of US ADRs conversion, there is risk to the upside of the Securities ADT forecast. We continue to favor HKEX (388 HK) and reiterate HKEx TP HKD 550. 


Hong Kong Market: Conversion of US ADRs Will Boost HKEx as Global Trading Venue

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

<div>
<p>Trip.com plans to raise around US$1.2bn in its secondary listing in Hong Kong. We have looked at the background of the deal in our earlier note, <a href="https://www.smartkarma.com/insights/trip-com-secondary-listing-probably-needs-to-correct" target="_blank" rel="noopener">Trip.com Secondary Listing - Probably Needs to Correct</a>.</p>
</div>
<div>
<p>In this note, we’ll take a look at the final deal terms and talk about the impact of the raising.</p>
</div>


Trip.com plans to raise around US$1.2bn in its secondary listing in Hong Kong. We have looked at the background of the deal in our earlier note, Trip.com Secondary Listing - Probably Needs to Correct.


In this note, we’ll take a look at the final deal terms and talk about the impact of the raising.


Trip.com Secondary Listing Quick Take - Doing the Bare Minimum - Needs Some More Correction

Event-Driven

<div>
<p><a href="https://www.smartkarma.com/entities/prosus-nv-75c7a0c4-16ff-4433-a40f-25ae5b24077d" target="_blank" data-smartkarma-citation="entities:28498:1" rel="noopener">Prosus NV (PROSY US)</a> aims to raise around US$14.5bn via selling a 2% stake in <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> overnight in Hong Kong.</p>
<p>We spoke about the placement in <a href="https://www.smartkarma.com/insights/tencent-placement-another-reluctant-but-well-flagged-sell-down-lifting-the-us-14-5bn-overhang" target="_blank" rel="noopener">Tencent Placement - Another Reluctant but Well-Flagged Sell Down, Lifting the US$14.5bn Overhang.</a></p>
</div><div><p>We have been covering the lock-up expiry since Feb 2021 in:</p></div><div><ul style="list-style-type: disc;">
<li><a href="https://www.smartkarma.com/insights/tencent-placement-lock-up-expiry-us-10bn-block-and-buyback-linked-holdco-trade" target="_blank" rel="noopener">Tencent Placement Lock-Up Expiry - US$10bn+ Block and Buyback Linked Holdco Trade, and</a></li>
<li><a href="https://www.smartkarma.com/insights/tencent-placement-lock-up-expiry-block-and-buyback-linked-holdco-trade-update" target="_blank" rel="noopener">Tencent Placement Lock-Up Expiry -  Block and Buyback Linked Holdco Trade Update</a></li>
</ul></div><div><p>While the overall cash being raised should be positive for Prosus and Naspers, not all aspects of the deal will be viewed positively. </p></div>


Prosus NV (PROSY US) aims to raise around US$14.5bn via selling a 2% stake in Tencent Holdings (700 HK) overnight in Hong Kong.
We spoke about the placement in Tencent Placement - Another Reluctant but Well-Flagged Sell Down, Lifting the US$14.5bn Overhang.
We have been covering the lock-up expiry since Feb 2021 in:
Tencent Placement Lock-Up Expiry - US$10bn+ Block and Buyback Linked Holdco Trade, and
Tencent Placement Lock-Up Expiry -  Block and Buyback Linked Holdco Trade Update
While the overall cash being raised should be positive for Prosus and Naspers, not all aspects of the deal will be viewed positively. 

Tencent Placement and the Holdco Implications - Deal Almost Done, Now What?

<div>
<p>On 29th Mar 2021, we spoke about the Archegos driven correction in some of the China ADRs,  <a href="https://www.smartkarma.com/insights/china-adrs-blocks-liquidation-buyback-implications" target="_blank" rel="noopener">China ADRs- Blocks, Liquidation, Buyback - Implications.</a> That in turn had followed close on the heels of the SEC driven correction for the sector, which we looked at in <a href="https://www.smartkarma.com/insights/china-adrs-sec-notice-instead-of-three-probably-have-four-years-till-2025-correction-overdone" target="_blank" rel="noopener">China ADRs - SEC Notice - Instead of Three, Probably Have Four Years till 2025 - Correction Overdone</a>.</p>
<p>In this note, we'll talk about the updates since our previous note.</p>
</div>


On 29th Mar 2021, we spoke about the Archegos driven correction in some of the China ADRs,  China ADRs- Blocks, Liquidation, Buyback - Implications. That in turn had followed close on the heels of the SEC driven correction for the sector, which we looked at in China ADRs - SEC Notice - Instead of Three, Probably Have Four Years till 2025 - Correction Overdone.
In this note, we'll talk about the updates since our previous note.


China ADRs Quick Update - SEC, Archegos, Blocks - Showing Signs of Life

Overseas Chinese Equities, Aequitas Research

Ming Lu

Overseas Chinese Equities

<ul class="">
<li>Xiaomi plans to produce electric vehicle.</li>
<li>The court forces Douyu to compensate Huya for broadcaster poaching.</li>
<li>Tencent Music and Vipshop launch share repurchase programs.</li>
</ul>
<p><strong>Our coverage on Chinese equities:</strong></p>
<p>E-commerce: Alibaba (9988 HK, BABA US), Meituan (3690 HK), JD.com (9618 HK, JD US), JD Health (6618 HK), KE (BEKE US).</p>
<p>Online Entertainment: Tencent (700 HK), Kuaishou (1024 HK), NetEase (9999 HK, NTES US), Bilibili (BILI US), Tencent Music (TME).</p>
<p>Others: Xiaomi (1810 HK).</p>


Xiaomi plans to produce electric vehicle.
The court forces Douyu to compensate Huya for broadcaster poaching.
Tencent Music and Vipshop launch share repurchase programs.

Our coverage on Chinese equities:
E-commerce: Alibaba (9988 HK, BABA US), Meituan (3690 HK), JD.com (9618 HK, JD US), JD Health (6618 HK), KE (BEKE US).
Online Entertainment: Tencent (700 HK), Kuaishou (1024 HK), NetEase (9999 HK, NTES US), Bilibili (BILI US), Tencent Music (TME).
Others: Xiaomi (1810 HK).

China Internet Weekly (Apr 5): Xiaomi Plans Electric Vehicle, Huya Gets Compensation from Douyu

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)

Hong Kong Market: Conversion of US ADRs Will Boost HKEx as Global Trading Venue

We expect 30% of total dual-list China ADR trading volume will be shifted to Hong Kong from US in next 2 years, a significant jump from current...

Roger Xie

Trip.com Secondary Listing Quick Take - Doing the Bare Minimum - Needs Some More Correction

Trip.com plans to raise around US$1.2bn in its secondary listing in Hong Kong. In this note, we’ll take a look at the final deal terms and talk...

Sumeet Singh

Tencent Placement and the Holdco Implications - Deal Almost Done, Now What?

Prosus NV aims to raise around US$14.5bn via selling a 2% stake in Tencent. While the overall raising should be positive for Prosus and Naspers,...

Sumeet Singh

China ADRs Quick Update - SEC, Archegos, Blocks - Showing Signs of Life

On 29 Mar, we spoke about the Archegos driven correction, that had followed close on the heals of the SEC driven correction for the sector. In this...

Sumeet Singh

China Internet Weekly (Apr 5): Xiaomi Plans Electric Vehicle, Huya Gets Compensation from Douyu

Xiaomi plans to produce electric vehicle.The court forces Douyu to compensate Huya for broadcaster poaching.Tencent Music and Vipshop launches...

Ming Lu

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