Asia Pac IPO & Placement Research, China biotech, Aequitas Research

Ke Yan, CFA, FRM

Asia Pac IPO & Placement Research, China biotech

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.

Quantitative Analysis

Hong Kong Exchange publishes share repurchases by listed companies on a daily basis. In our weekly note, we will provide statistics on top repurchases over one week, one month, one quarter and one year periods ended on Aug 20.In the past 7 days, the top 3 companies that repurchased the most shares from the market were Xinyi Glass Holdings Limited (868 HK) (HKD 123.8 million worth of buybacks), Ck Hutchison Holdings Limited (1 HK) (HKD 105.4 million worth of buybacks), Tencent Holdings Limited (700 HK) (HKD 77.0 million worth of buybacks).

Hong Kong Exchange publishes share repurchases by listed companies on a daily basis. In our weekly note, we will provide statistics on top repurchases over one week, one month, one quarter and one year periods ended on Aug 20.In the past 7 days, the top 3 companies that repurchased the most shares from the market were Xinyi Glass Holdings Limited (868 HK) (HKD 123.8 million worth of buybacks), Ck Hutchison Holdings Limited (1 HK) (HKD 105.4 million worth of buybacks), Tencent Holdings Limited (700 HK) (HKD 77.0 million worth of buybacks).

Hong Kong Buybacks: Tencent Started Buy-Back After 2 Years

Overseas Chinese Equities, Aequitas Research

Ming Lu

Overseas Chinese Equities

Equity Bottom-Up

<ul>
<li>Revenue and paying users grew strongly in 2Q21.</li>
<li>Game revenue was worse than our expectation, but video revenues were higher than our expectation.</li>
<li>Operating loss reached its record high since IPO.</li>
<li>We do not believe BILI will be “next Tencent”, but believe the stock has significant downside.</li>
</ul>


Revenue and paying users grew strongly in 2Q21.
Game revenue was worse than our expectation, but video revenues were higher than our expectation.
Operating loss reached its record high since IPO.
We do not believe BILI will be “next Tencent”, but believe the stock has significant downside.


Bilibili (BILI): 2Q21, Rapid Growth and Record Loss, Significantly Overvalued

Research on Tech Companies

Evelyn Zhang

Thematic (Sector/Industry)

<ul>
<li>The gaming sector is not the focus of Chinese regulators. Current regulations focus on protecting minors from addiction, limiting playing time, IDing minors, and in-game payments</li>
<li>In worst case scenario, if regulators introduce more stringent policies, there would be little impact on gaming companies’ revenue. In 4Q20, only 6.0% and 3.2% of <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent (700 HK)</a> ’s China online games gross receipts came from minors aged under 18 and under 16, respectively. We expect <a href="https://www.smartkarma.com/entities/netease" target="_blank" data-smartkarma-citation="entities:29030:1" rel="noopener">NetEase (9999 HK)</a>  to have similar gross receipts breakdown.</li>
<li>I think <a href="https://www.smartkarma.com/entities/netease" target="_blank" data-smartkarma-citation="entities:29030:1" rel="noopener">NetEase (9999 HK)</a> will benefit from Anti-trust law on Cloud Music, especially after government injunction ordering <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent (700 HK)</a>  to lift exclusive copyright of online music </li>
</ul>


The gaming sector is not the focus of Chinese regulators. Current regulations focus on protecting minors from addiction, limiting playing time, IDing minors, and in-game payments
In worst case scenario, if regulators introduce more stringent policies, there would be little impact on gaming companies’ revenue. In 4Q20, only 6.0% and 3.2% of Tencent (700 HK) ’s China online games gross receipts came from minors aged under 18 and under 16, respectively. We expect NetEase (9999 HK)  to have similar gross receipts breakdown.
I think NetEase (9999 HK) will benefit from Anti-trust law on Cloud Music, especially after government injunction ordering Tencent (700 HK)  to lift exclusive copyright of online music 


Will Online Games Become the Next Education and Training Industry?

Latest News from the World’s Leading Innovators

Granite Bay Capital

An innovation focussed investment company

Granite Bay Capital is an innovation focussed investment company with a deep focus on the companies at the leading edge of innovation across major themes such as AI, ubiquitous computing, sustainability, automation and longevity.

Headline Developments Every week there’s a new deal (or regulation) in gaming.  The Steam Deck, the Epic vs Apple case, China’s regulatory crackdowns (triggering a Tencent and Netease collapse).  Acquisitions ramp up every week (this week alone saw Roblox buy Discord competitor Guilded and Swedish game Holdco Embracer Group snap up three new developers).

Headline Developments Every week there’s a new deal (or regulation) in gaming.  The Steam Deck, the Epic vs Apple case, China’s regulatory crackdowns (triggering a Tencent and Netease collapse).  Acquisitions ramp up every week (this week alone saw Roblox buy Discord competitor Guilded and Swedish game Holdco Embracer Group snap up three new developers).

Global TMT analyst with Asia ex-Japan focus.

Mitchell Kim

I have turned more positive on Tencent shares recently (please see <a href="https://www.smartkarma.com/insights/tencent-700-hk-when-to-catch-a-falling-knife" target="_blank" data-smartkarma-citation="insights:55148" rel="noopener">Tencent (700 HK): When to Catch a Falling Knife</a>) after the share price plummeted from the peak in March.  While we may still see some residual regulatory measures rumbling through the China tech industry after the September 1 adoption of the new Data Privacy Law, Tencent's more reasonable value should mitigate further downside risks, in my view. Three reasons why I am able to exhale comfortably on Tencent: <ul>
<li>
Tencent's overall revenue grew 20% YoY.  This growth would normally be mediocre by Tencent's standards, but in comparison to the extraordinary growth year 2020, this is solid.  </li>
<li>
Fintech business remains unencumbered.  Fintech now makes up 30% of Tencent's total revenues and the segment gross margin was 32%, an increase of 3.1% points. </li>
<li>
Tencent shares trade at 23.5x FY21 consensus earnings. This is inexpensive and suggests that at least some of the regulatory risks are priced in.  </li>
</ul>The key risk remains on whether Tencent would be required to transfer user data as part of the data privacy law measures.  I do not believe this is the case.

I have turned more positive on Tencent shares recently (please see Tencent (700 HK): When to Catch a Falling Knife) after the share price plummeted from the peak in March.  While we may still see some residual regulatory measures rumbling through the China tech industry after the September 1 adoption of the new Data Privacy Law, Tencent's more reasonable value should mitigate further downside risks, in my view. Three reasons why I am able to exhale comfortably on Tencent: 

Tencent's overall revenue grew 20% YoY.  This growth would normally be mediocre by Tencent's standards, but in comparison to the extraordinary growth year 2020, this is solid.  

Fintech business remains unencumbered.  Fintech now makes up 30% of Tencent's total revenues and the segment gross margin was 32%, an increase of 3.1% points. 

Tencent shares trade at 23.5x FY21 consensus earnings. This is inexpensive and suggests that at least some of the regulatory risks are priced in.  
The key risk remains on whether Tencent would be required to transfer user data as part of the data privacy law measures.  I do not believe this is the case.         

Tencent (700 HK): No Longer Roaring, but the Price Is Right

China

Tencent Holdings Limited operates as an investment holding company. The Company, through its subsidiaries, provides Internet and mobile value-added services (VAS), online advertising, and e-commerce transactions. Tencent Holdings offers services to users worldwide.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

Tencent Holdings (ADR) (TCEHY US)

Hong Kong Buybacks: Tencent Started Buy-Back After 2 Years

We highlight that Tencent started buyback activity this week amid the share price weakness. We also take a quick look at its last buyback in 2019.

Ke Yan, CFA, FRM

Bilibili (BILI): 2Q21, Rapid Growth and Record Loss, Significantly Overvalued

Revenue and paying users grew strongly in 2Q21. Operating loss reached its record high since IPO. We do not believe BILI will be “next Tencent”,...

Ming Lu

Will Online Games Become the Next Education and Training Industry?

Beat the stamped or buy the dip? When the Chinese gaming stocks nosedived following Xinhua’s Spiritual Opium article, I argue that Gaming industry...

Evelyn Zhang

Weekly Innovation Review (WIRE) #45

Headline Developments Every week there’s a new deal (or regulation) in gaming. The Steam Deck, the Epic vs Apple case, China’s regulatory...

Granite Bay Capital

Tencent (700 HK): No Longer Roaring, but the Price Is Right

Tencent's engine is no longer roaring but current valuations appear reasonable enough to weather through the regulatory uncertainty. 2Q was a...

Mitchell Kim

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)