Telco/Internet specialist

Kirk Boodry

Redex Research

Thematic (Sector/Industry)

<p>The past nine months have been a wild ride. The industry has largely avoided the disruption of Covid-19 but NTT’s ¥4 trillion DoCoMo restructuring and regulatory-driven price reductions have shaken things up whilst competition from Rakuten is likely to heat up as it raises cash and accelerates investment. Mobile revenues will be down but that can be made up in other areas and whilst profitability in FY21 is flat at best and likely down modestly, shareholder returns are stable to growing.  NTT and KDDI are top picks with Softbank offering modest upside whilst we are more cautious on Rakuten after a 46% YTD run which largely captures the upside potential a more competitive mobile service offers.</p>

The past nine months have been a wild ride. The industry has largely avoided the disruption of Covid-19 but NTT’s ¥4 trillion DoCoMo restructuring and regulatory-driven price reductions have shaken things up whilst competition from Rakuten is likely to heat up as it raises cash and accelerates investment. Mobile revenues will be down but that can be made up in other areas and whilst profitability in FY21 is flat at best and likely down modestly, shareholder returns are stable to growing.  NTT and KDDI are top picks with Softbank offering modest upside whilst we are more cautious on Rakuten after a 46% YTD run which largely captures the upside potential a more competitive mobile service offers.

Japan Telecom Sector: FY21 Will Be Tougher and More Competitive but Returns Can Still Rise

Insurance, Fintech & EM-focused Analyst, KT Capital Group, KT Capital Group

Alec Tseung

Insurance, Fintech & EM-focused Analyst, KT Capital Group

Equity Capital Markets

<ul><li>Three major concerns/questions I'd ask regarding the potential IPO of <a href="https://www.smartkarma.com/entities/waterdrop-inc" target="_blank" data-smartkarma-citation="entities:33018:1" rel="noopener">Waterdrop Inc (WDH US)</a>:</li></ul><ol>
<li>
<a href="https://www.smartkarma.com/entities/waterdrop-inc" target="_blank" data-smartkarma-citation="entities:33018:1" rel="noopener"></a><strong>Single monetization channel</strong>: as the company seeks further growth, can it really compete against the distribution channels of the tech and insurance giants in China?</li>
<li>
<strong>Insurance/product development potential</strong>: does the company have the expertise to develop its own products without just having to rely on the distribution channels?</li>
<li>
<strong>Valuation</strong>: if the investment thesis is to ride the growth of healthcare and medical insurance spending in China, isn't it more direct to invest in an online (or even traditional) insurer, which is at a much lower valuation?</li>
</ol>

Three major concerns/questions I'd ask regarding the potential IPO of Waterdrop Inc (WDH US):

Single monetization channel: as the company seeks further growth, can it really compete against the distribution channels of the tech and insurance giants in China?

Insurance/product development potential: does the company have the expertise to develop its own products without just having to rely on the distribution channels?

Valuation: if the investment thesis is to ride the growth of healthcare and medical insurance spending in China, isn't it more direct to invest in an online (or even traditional) insurer, which is at a much lower valuation?


Waterdrop Inc: Can the Water Keep Flowing After Its IPO?

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.

Overseas Chinese Equities, Aequitas Research

Ming Lu

Overseas Chinese Equities

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.

<ul class="">
<li>Kuaishou (KS)'s active users was stable after the Chinese New Year, while other apps' user bases decreased.</li>
<li>KS' time on site increased YoY in 1Q21.</li>
<li>We believe KS is riding on the boom of e-commerce live broadcasting.</li>
<li>We also believe Tencent's game copyrights support KS' game live broadcasting.</li>
<li>We conclude the stock downside has reduced.</li>
</ul>
<p>Our previous coverage on Kuaishou:</p>
<ul>
<li>
<a href="https://www.smartkarma.com/insights/kuaishou-1024-hk-q4-higher-growth-higher-margin-user-base-closer-to-tiktok-but-overvalued" target="_blank" data-smartkarma-citation="insights:49550" rel="noopener">Kuaishou (1024 HK): Q4, Higher Growth , Higher Margin, User Base Closer to TikTok, But Overvalued</a> </li>
<li>
<a href="https://www.smartkarma.com/insights/kuaishou-1024-hk-expanding-ad-mkt-for-2020-and-anime-plan-for-2021-but-needs-reasonable-price" target="_blank" data-smartkarma-citation="insights:49155" rel="noopener">Kuaishou (1024 HK): Expanding Ad Mkt for 2020 and Anime Plan for 2021, but Needs Reasonable Price</a> </li>
<li>
<a href="https://www.smartkarma.com/insights/kuaishou-1024-hk-short-video-market-expanding-but-express-version-not-profitable" target="_blank" data-smartkarma-citation="insights:48130" rel="noopener">Kuaishou (1024 HK): Short Video Market Expanding, But Express Version Not Profitable</a> </li>
</ul>


Kuaishou (KS)'s active users was stable after the Chinese New Year, while other apps' user bases decreased.
KS' time on site increased YoY in 1Q21.
We believe KS is riding on the boom of e-commerce live broadcasting.
We also believe Tencent's game copyrights support KS' game live broadcasting.
We conclude the stock downside has reduced.

Our previous coverage on Kuaishou:


Kuaishou (1024 HK): Q4, Higher Growth , Higher Margin, User Base Closer to TikTok, But Overvalued 

Kuaishou (1024 HK): Expanding Ad Mkt for 2020 and Anime Plan for 2021, but Needs Reasonable Price 

Kuaishou (1024 HK): Short Video Market Expanding, But Express Version Not Profitable 


Kuaishou (1024 HK): Positive Operating Data in 1Q21, But Not Enough

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.

<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><div><div class="content-highlight"><p>Waterdrop is pre-marketing an NYSE IPO with a placeholder amount of $100 million. 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. In this note, we present our forecasts and take the first look at Waterdrop's potential valuation range. </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).Waterdrop is pre-marketing an NYSE IPO with a placeholder amount of $100 million. 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. In this note, we present our forecasts and take the first look at Waterdrop's potential valuation range. 

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.

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Tencent Holdings (ADR) (TCEHY US)

Japan Telecom Sector: FY21 Will Be Tougher and More Competitive but Returns Can Still Rise

FY21 will be a tough year for mobile with 5% service revenue erosion but new services provide some offset and returns to shareholders can still...

Kirk Boodry

Waterdrop Inc: Can the Water Keep Flowing After Its IPO?

Waterdrop Inc is an interesting company with good intentions. But these are the three major concerns one should pay particular attention to when...

Alec Tseung

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

Kuaishou (1024 HK): Positive Operating Data in 1Q21, But Not Enough

We believe Kuaishou is riding on the boom of e-commerce live broadcasting. We also believe Tencent's game copyrights support Kuaishou' game live...

Ming Lu

Waterdrop IPO: Valuation First Look

Waterdrop is pre-marketing an NYSE IPO with a placeholder amount of $100 million. In this note, we present our forecasts and take the first look at...

Arun George

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