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.

Event-Driven

Earlier this month, struggling Chinese electrical appliance retailer, <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> repurchased 5 million shares at a price range of HK$ 0.89-0.90 per share, 44-45% discount to the past five-year high share price attained following <a href="https://www.smartkarma.com/entities/jd-com-inc" target="_blank" data-smartkarma-citation="entities:29043:1" rel="noopener">JD.com (HK) (9618 HK)</a>’s and <a href="https://www.smartkarma.com/entities/pinduoduo-inc" target="_blank" data-smartkarma-citation="entities:27250:1" rel="noopener">Pinduoduo (PDD US)</a>’s capital injection in 2Q20.Buybacks are not a regular part of shareholder returns of Gome Retail and they have only done share buybacks when the share price has declined 25% or more during a short time frame. Most of the times, Gome Retail's share buybacks managed to temporarily maintain the share price but have failed to make an impact on the medium-term direction. Moreover, the latest share buyback is immaterial/symbolic, and the company’s current financial difficulties prevent it from conducting a share buyback of a considerable size capable of making a significant impact to the share price.Gome Retail needs money urgently to finance debt falling due in the next 8 months and banks may be unwilling to lend more money to a struggling business with insufficient cash flows to service debt.However, Gome Retail is strategically important to both Pinduoduo and JD.com and the two e-commerce giants could be biding time till Gome Retail’s shares hit rock bottom before going to war against each other to acquire the struggling electrical appliance retailer.

Earlier this month, struggling Chinese electrical appliance retailer, Gome Electrical Appliances (493 HK) repurchased 5 million shares at a price range of HK$ 0.89-0.90 per share, 44-45% discount to the past five-year high share price attained following JD.com (HK) (9618 HK)’s and Pinduoduo (PDD US)’s capital injection in 2Q20.Buybacks are not a regular part of shareholder returns of Gome Retail and they have only done share buybacks when the share price has declined 25% or more during a short time frame. Most of the times, Gome Retail's share buybacks managed to temporarily maintain the share price but have failed to make an impact on the medium-term direction. Moreover, the latest share buyback is immaterial/symbolic, and the company’s current financial difficulties prevent it from conducting a share buyback of a considerable size capable of making a significant impact to the share price.Gome Retail needs money urgently to finance debt falling due in the next 8 months and banks may be unwilling to lend more money to a struggling business with insufficient cash flows to service debt.However, Gome Retail is strategically important to both Pinduoduo and JD.com and the two e-commerce giants could be biding time till Gome Retail’s shares hit rock bottom before going to war against each other to acquire the struggling electrical appliance retailer.

Supun Walpola

Equity Capital Markets

<a href="https://www.smartkarma.com/entities/pinduoduo-inc" target="_blank" data-smartkarma-citation="entities:27250:1" rel="noopener">Pinduoduo (PDD US)</a> plans to raise around $5bn through an issue of ADS and convertible bonds. PDD will offer $1.75bn worth of 5-year bonds convertible from 2023-25 and around 22m ADS worth around $3bn (at the market price of $132.4 as of 17/11/2020).
Proceeds from the placement will be used to invest in agricultural logistics infrastructure and responsive manufacturing as a part of the company’s broader strategy to take on e-commerce giants like <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> and <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> by tapping into the emerging online grocery shopping market.
In this note, we revisit our thesis on PDD ahead of the proposed placement.
PDD’s valuation looks bit of a stretch against Chinese e-commerce peers, however, not so much against other high-growth large-cap names. PDD’s share price has increased by more than 200% YTD and the momentum is still quite strong. With PDD potentially nearing profitability, we believe there could be further gains to be made on good news over the next few quarters. We would participate in the placement at the current valuation.

Pinduoduo (PDD US) plans to raise around $5bn through an issue of ADS and convertible bonds. PDD will offer $1.75bn worth of 5-year bonds convertible from 2023-25 and around 22m ADS worth around $3bn (at the market price of $132.4 as of 17/11/2020).
Proceeds from the placement will be used to invest in agricultural logistics infrastructure and responsive manufacturing as a part of the company’s broader strategy to take on e-commerce giants like Alibaba Group (BABA US) and JD.com Inc (ADR) (JD US) by tapping into the emerging online grocery shopping market.
In this note, we revisit our thesis on PDD ahead of the proposed placement.
PDD’s valuation looks bit of a stretch against Chinese e-commerce peers, however, not so much against other high-growth large-cap names. PDD’s share price has increased by more than 200% YTD and the momentum is still quite strong. With PDD potentially nearing profitability, we believe there could be further gains to be made on good news over the next few quarters. We would participate in the placement at the current valuation.  

Pinduoduo Placement: As Expensive As It May Seem, There Could Be More Upside

Global Emerging Market Equities, Propitious Research

Wium Malan, CFA

Global Emerging Market Equities

Equity Bottom-Up

<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> listed associates have continued their exceptional share price performance over the past 6 months, led by <a href="https://www.smartkarma.com/entities/meituan-dianping" target="_blank" data-smartkarma-citation="entities:26970:1" rel="noopener">Meituan (3690 HK)</a>, <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/jd-com-inc" target="_blank" data-smartkarma-citation="entities:29043:1" rel="noopener">JD.com (HK) (9618 HK)</a>. I estimate that Tencent’s associates currently contribute c.23% to its market cap, which would imply that their consolidated operations are currently trading at only 23.1x rolling 12-month forward earnings.Please also refer to <a href="https://www.smartkarma.com/insights/tencent-a-closer-look-at-investees-reveals-a-discount-rating-and-future-value-unlock-potential" target="_blank" data-smartkarma-citation="insights:42361" rel="noopener">Tencent: A Closer Look at Investees Reveals a Discount Rating and Future Value Unlock Potential</a> for more detail on this analysis.

Tencent Holdings (700 HK) listed associates have continued their exceptional share price performance over the past 6 months, led by Meituan (3690 HK), Pinduoduo (PDD US)  and JD.com (HK) (9618 HK). I estimate that Tencent’s associates currently contribute c.23% to its market cap, which would imply that their consolidated operations are currently trading at only 23.1x rolling 12-month forward earnings.Please also refer to Tencent: A Closer Look at Investees Reveals a Discount Rating and Future Value Unlock Potential for more detail on this analysis.

Tencent: Listed Associates Continue to Outperform

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.

<a href="https://www.smartkarma.com/entities/pinduoduo-inc" target="_blank" data-smartkarma-citation="entities:27250:1" rel="noopener">Pinduoduo (PDD US)</a> is seeking to raise as much as $4.85 billion through an issue of shares and convertible note. Pinduoduo will offer $1,750 million five-year notes, which is callable and puttable from December 2023. Concurrently with the notes offering, Pinduoduo is also offering 22 million ADSs which is worth around $3.1 billion at the last close price of $142.03 per ADS. The funds will be invested in agricultural logistics infrastructure and responsive manufacturing to capitalise on the online migration of retail, in particular consumers desire to buy fresh grocery more conveniently and frequently. Pinduoduo’s newest business, Duo Duo Maicai, a next-day self pick-up grocery service, is a natural extension of its e-commerce model to agriculture.Pinduoduo is a rare beast – a China new economy company which lives up to the hype. The financial performance is heading in the right direction with the 3Q20 results showing a re-acceleration in revenue growth and narrowing losses. The balance sheet is strong with cash of RMB45,575 ($7.0 billion) and net cash (including lease liabilities and convertibles) of RMB36,723 ($5.6 billion) as of 3Q20. A successful offering will further add to Pinduoduo’s war chest to take on <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> and <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>. <div class="content-highlight">We remain bullish on Pinduoduo’s prospects and believe that potential new antitrust rules curbing market dominance in China will benefit relatively smaller challengers like Pinduoduo. Our DCF-based price target is $165 per ADS, implying a 16% upside to the last close. Overall, we would participate in the placement.</div>

Pinduoduo (PDD US) is seeking to raise as much as $4.85 billion through an issue of shares and convertible note. Pinduoduo will offer $1,750 million five-year notes, which is callable and puttable from December 2023. Concurrently with the notes offering, Pinduoduo is also offering 22 million ADSs which is worth around $3.1 billion at the last close price of $142.03 per ADS. The funds will be invested in agricultural logistics infrastructure and responsive manufacturing to capitalise on the online migration of retail, in particular consumers desire to buy fresh grocery more conveniently and frequently. Pinduoduo’s newest business, Duo Duo Maicai, a next-day self pick-up grocery service, is a natural extension of its e-commerce model to agriculture.Pinduoduo is a rare beast – a China new economy company which lives up to the hype. The financial performance is heading in the right direction with the 3Q20 results showing a re-acceleration in revenue growth and narrowing losses. The balance sheet is strong with cash of RMB45,575 ($7.0 billion) and net cash (including lease liabilities and convertibles) of RMB36,723 ($5.6 billion) as of 3Q20. A successful offering will further add to Pinduoduo’s war chest to take on Alibaba Group (BABA US) and JD.com Inc (ADR) (JD US). We remain bullish on Pinduoduo’s prospects and believe that potential new antitrust rules curbing market dominance in China will benefit relatively smaller challengers like Pinduoduo. Our DCF-based price target is $165 per ADS, implying a 16% upside to the last close. Overall, we would participate in the placement.

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.

<a href="https://www.smartkarma.com/entities/pinduoduo-inc" target="_blank" data-smartkarma-citation="entities:27250:1" rel="noopener">Pinduoduo (PDD US)</a> plans to raise around US$5bn via a mix of issuing shares and convertible bonds.The stock has been a one-way street since listing and has risen by 27% since it announced its 3Q20 results on 12th Nov 2020. In this insight, we will run the deal through our ECM framework and talk about valuations.

Pinduoduo (PDD US) plans to raise around US$5bn via a mix of issuing shares and convertible bonds.The stock has been a one-way street since listing and has risen by 27% since it announced its 3Q20 results on 12th Nov 2020. In this insight, we will run the deal through our ECM framework and talk about valuations. 

Pinduoduo Placement - Should Do Well If, It Corrects Beforehand

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)

Gome Retail: Easy Prey

Gome Retail is strategically important to both Pinduoduo and JD.com and the two e-commerce giants could be biding time till Gome’s shares hit rock...

Oshadhi Kumarasiri

Pinduoduo Placement: As Expensive As It May Seem, There Could Be More Upside

Pinduoduo (PDD US) plans to raise around $5bn through an issue of ADS and convertible bonds. In this note, we revisit our thesis on PDD ahead of...

Supun Walpola

Tencent: Listed Associates Continue to Outperform

Tencent’s associates currently contribute c.23% to its market cap, which would imply that their consolidated operations are currently trading at...

Wium Malan, CFA

Pinduoduo Placement: A Bigger War Chest

Pinduoduo is seeking to raise as much as $4.85 billion through an issue of shares and convertible note. We remain bullish on its prospects and we...

Arun George

Pinduoduo Placement - Should Do Well If, It Corrects Beforehand

Pinduoduo (PDD US) plans to raise around US$5bn via a mix of issuing shares and convertible bonds. The stock has been a one-way street since listing.

Sumeet Singh

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