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.

Equity Bottom-Up

<ul>
<li>Alibaba (BABA) launched a platform of real estate agency.</li>
<li>Alibaba (BABA) promoted its interactive entertainment unit to first-level department because of a popular game.</li>
<li>We do not believe BABA’s acquisition of an online job agency is rational or true.</li>
</ul>


Alibaba (BABA) launched a platform of real estate agency.
Alibaba (BABA) promoted its interactive entertainment unit to first-level department because of a popular game.
We do not believe BABA’s acquisition of an online job agency is rational or true.


China Internet Weekly (21Sep2020): BABA Launched Property Agency and Promoted Game Department

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

Thematic (Sector/Industry)

*High Court Ruling: The United Kingdom High Court ruled on a test case brought forth by the Financial Conduct Authority (FCA) indicates that the "COVID-19 pandemic and the government and public response were a single cause of the covered loss, which is a key requirement for claims to be paid even if the policy provides cover". The decision on th Business Interruption (BI) case against the insurance industry is mostly in favorable to policyholders; and *Asia-Pac To Follow: As many countries in Asia-Pacific are Common Law nations, High Court rulings such as this have a tendency to set precedent. It also wouldn’t be a surprise to see significant capital raises given the challenges to solvency.

*High Court Ruling: The United Kingdom High Court ruled on a test case brought forth by the Financial Conduct Authority (FCA) indicates that the "COVID-19 pandemic and the government and public response were a single cause of the covered loss, which is a key requirement for claims to be paid even if the policy provides cover". The decision on th Business Interruption (BI) case against the insurance industry is mostly in favorable to policyholders; and *Asia-Pac To Follow: As many countries in Asia-Pacific are Common Law nations, High Court rulings such as this have a tendency to set precedent. It also wouldn’t be a surprise to see significant capital raises given the challenges to solvency.  

Asian Insurers – High Court Ruling A Harbinger For Region

Global Emerging Market Equities, Propitious Research

Wium Malan, CFA

Global Emerging Market Equities

<a href="https://www.smartkarma.com/entities/baidu-inc" target="_blank" data-smartkarma-citation="entities:179:1" rel="noopener">Baidu (BIDU US)</a>, and the rest of the Chinese Online Search industry, has consistently been losing market share to the likes of <a href="https://www.smartkarma.com/entities/alibaba-group" target="_blank" data-smartkarma-citation="entities:28434:1" rel="noopener">Alibaba Group (9988 HK)</a>, <a href="https://www.smartkarma.com/entities/bytedance-technology" target="_blank" data-smartkarma-citation="entities:27936:1" rel="noopener">ByteDance (1460967D CH)</a>, <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/pinduoduo-inc" target="_blank" data-smartkarma-citation="entities:27250:1" rel="noopener">Pinduoduo (PDD US)</a> and <a href="https://www.smartkarma.com/entities/meituan-dianping" target="_blank" data-smartkarma-citation="entities:26970:1" rel="noopener">Meituan Dianping (3690 HK)</a> over the past two years. Although I still believe there is significant long term growth left for the Chinese digital advertising market, it can easily be argued that this growth will be heavily skewed and that the “pure” Search market is in effect an “industry in decline”. 
In his book “Competitive Strategy: Techniques for Analysing Industries and Competitors”, Michael Porter expands on four key strategies which firms could successfully follow when they find themselves in a declining industry. In this insight, I analyse Baidu’s current strategy against these offered strategies to assess if there is indeed value left in the company (or at least the core search business). 
Baidu should be able to continue to produce significant cash flow from its core search business as long as it sticks to the “leadership” strategy – given their dominant share of search queries, the low penetration they have in the SME market, the suitability to Search advertising for certain industry verticals and their superior profitability. I estimate Baidu’s fair value at US$168/ADS based on a SOTP valuation. The values used in my SOTP for <a href="https://www.smartkarma.com/entities/iqiyi-inc" target="_blank" data-smartkarma-citation="entities:26755:1" rel="noopener">iQIYI Inc (IQ US)</a>, <a href="https://www.smartkarma.com/entities/trip-com-group-ltd" target="_blank" data-smartkarma-citation="entities:180:1" rel="noopener">Trip.com (TCOM US)</a> (market value), Net Cash and Other investments (book value) would imply that Baidu’s core operations are currently valued at only $10.4bn ex-cash, which equates to only 9.1x 2021F PE (only 3.9x PE ex-cash).

Baidu (BIDU US), and the rest of the Chinese Online Search industry, has consistently been losing market share to the likes of Alibaba Group (9988 HK), ByteDance (1460967D CH), Tencent Holdings (700 HK), Pinduoduo (PDD US) and Meituan Dianping (3690 HK) over the past two years. Although I still believe there is significant long term growth left for the Chinese digital advertising market, it can easily be argued that this growth will be heavily skewed and that the “pure” Search market is in effect an “industry in decline”. 
In his book “Competitive Strategy: Techniques for Analysing Industries and Competitors”, Michael Porter expands on four key strategies which firms could successfully follow when they find themselves in a declining industry. In this insight, I analyse Baidu’s current strategy against these offered strategies to assess if there is indeed value left in the company (or at least the core search business). 
Baidu should be able to continue to produce significant cash flow from its core search business as long as it sticks to the “leadership” strategy – given their dominant share of search queries, the low penetration they have in the SME market, the suitability to Search advertising for certain industry verticals and their superior profitability. I estimate Baidu’s fair value at US$168/ADS based on a SOTP valuation. The values used in my SOTP for iQIYI Inc (IQ US), Trip.com (TCOM US) (market value), Net Cash and Other investments (book value) would imply that Baidu’s core operations are currently valued at only $10.4bn ex-cash, which equates to only 9.1x 2021F PE (only 3.9x PE ex-cash).

Baidu: Strategies for Operating in an Industry in Decline

Equity Capital Markets

<ul>
<li>We believe Ant Group and Tencent have different advantages in direct financial products.</li>
<li>AliPay has a digital credit card, but Tencent does not.</li>
<li>Tencent provides higher return for cash accounts than AliPay.</li>
<li>On cash loan, AliPay’s interest rate is lower, but Tencent’s maturity is longer.</li>
</ul>


We believe Ant Group and Tencent have different advantages in direct financial products.
AliPay has a digital credit card, but Tencent does not.
Tencent provides higher return for cash accounts than AliPay.
On cash loan, AliPay’s interest rate is lower, but Tencent’s maturity is longer.


Ant Group (蚂蚁集团) Running Neck and Neck with Tencent in Direct Financial Services

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

<a href="https://www.smartkarma.com/entities/xiaomi-corp" target="_blank" data-smartkarma-citation="entities:24409:1" rel="noopener">Xiaomi Corp (1810 HK)</a>'s co-founder Lin Bin aims to raise around US$1bn via selling some of his stake in the firm.While he has provided a long lock-up to allay any concerns of an overhang, the shares have run-up a lot going into the index inclusion.

Xiaomi Corp (1810 HK)'s co-founder Lin Bin aims to raise around US$1bn via selling some of his stake in the firm.While he has provided a long lock-up to allay any concerns of an overhang, the shares have run-up a lot going into the index inclusion. 

Xiaomi Placement - Run-Up in Share Price, Co-Founder Selling

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)

China Internet Weekly (21Sep2020): BABA Launched Property Agency and Promoted Game Department

Alibaba (BABA) launched a platform of real estate agency. Alibaba (BABA) promoted its interactive entertainment unit to first-level department...

Ming Lu

Asian Insurers – High Court Ruling A Harbinger For Region

*High Court Ruling: The United Kingdom High Court ruled on a test case brought forth by the Financial Conduct Authority (FCA) indicates that the...

Thomas J. Monaco

Baidu: Strategies for Operating in an Industry in Decline

Baidu, and the rest of the Chinese Online Search industry, has consistently been losing market share to the likes of Alibaba, ByteDance, Tencent,...

Wium Malan, CFA

Ant Group (蚂蚁集团) Running Neck and Neck with Tencent in Direct Financial Services

We believe Ant Group and Tencent have different advantages in direct financial products. AliPay has a digital credit card, but Tencent does...

Ming Lu

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