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.

Equity Capital Markets

<div><p><a href="https://www.smartkarma.com/entities/soulgate-inc" target="_blank" data-smartkarma-citation="entities:33304:1" rel="noopener">Soulgate (SSR US)</a> is an alternative social networking platform that lets users have virtual identities and aims to recommend to each user (referred to as a Souler) curated content and other Soulers with similar personalities, lifestyles and interests, enabling more in-depth interactions and more meaningful connections. Soulgate is backed by <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent (700 HK)</a> (49.9% of outstanding shares, 25.7% of outstanding shares). </p></div><div>
<p>At the mid-point of the proposed IPO price range of $13.0-15.00 per ADS, Soulgate will have a market cap of $1.7 billion. New investors Janus Henderson and Boyu Capital intend to purchase a total of $80 million worth of ADSs in the offering (43.3% of the deal). At the mid-point of the IPO price range, the net proceeds including the concurrent private placement are $257.3 million. </p>
<p>Soulgate will also raise an additional $89 million in a concurrent private placement with miHoYo. miHoYo was founded in 2012 by three Shanghai Jiaotong University graduate students. miHoYo is the creator of <em>Genshin Impact</em>, an open-world action role-playing game released in 2020, and one of the highest-grossing mobile games. It is not entirely clear if there are any near-term synergies through this investment. Currently, Soulgate's exposure to games is largely limited to its <em>Werewolf Rooms</em> (a subset of its <em>Animated Partyroom</em> app functionality) which enable users to play the popular board game <em>Werewolf</em>.</p>
</div><div><div>
<p>In <a href="https://www.smartkarma.com/insights/soulgate-ipo-initiation-lost-soul" target="_blank" data-smartkarma-citation="insights:51651" rel="noopener">Soulgate IPO Initiation: Lost Soul,</a> we opined at first glance, Soulgate is well-positioned to benefit from a sizeable China’s mobile social networking market. The strong growth in users, fast-paced revenue growth and ongoing revenue diversification suggest that Soulgate is heading in the right direction. However, the high S&amp;M expenses which exceeded revenue in each of the last three quarters, suggests that Soulgate is aggressively chasing user growth without paying much heed to monetisation and payback periods. This modus operandi is highly reflective of growth at all costs strategy. Overall, we think that the negatives in the Soulgate story warrant a pass.  </p>
<div class="content-highlight"><p>Our valuation analysis suggests that the IPO price range fairly values Soulgate for its forecasted growth. Overall, as we remain unconvinced that Soulgate's growth at all costs strategy will generate shareholder value, we are inclined to give this IPO a pass. </p></div>
</div></div>

Soulgate (SSR US) is an alternative social networking platform that lets users have virtual identities and aims to recommend to each user (referred to as a Souler) curated content and other Soulers with similar personalities, lifestyles and interests, enabling more in-depth interactions and more meaningful connections. Soulgate is backed by Tencent (700 HK) (49.9% of outstanding shares, 25.7% of outstanding shares). 
At the mid-point of the proposed IPO price range of $13.0-15.00 per ADS, Soulgate will have a market cap of $1.7 billion. New investors Janus Henderson and Boyu Capital intend to purchase a total of $80 million worth of ADSs in the offering (43.3% of the deal). At the mid-point of the IPO price range, the net proceeds including the concurrent private placement are $257.3 million. 
Soulgate will also raise an additional $89 million in a concurrent private placement with miHoYo. miHoYo was founded in 2012 by three Shanghai Jiaotong University graduate students. miHoYo is the creator of Genshin Impact, an open-world action role-playing game released in 2020, and one of the highest-grossing mobile games. It is not entirely clear if there are any near-term synergies through this investment. Currently, Soulgate's exposure to games is largely limited to its Werewolf Rooms (a subset of its Animated Partyroom app functionality) which enable users to play the popular board game Werewolf.

In Soulgate IPO Initiation: Lost Soul, we opined at first glance, Soulgate is well-positioned to benefit from a sizeable China’s mobile social networking market. The strong growth in users, fast-paced revenue growth and ongoing revenue diversification suggest that Soulgate is heading in the right direction. However, the high S&amp;M expenses which exceeded revenue in each of the last three quarters, suggests that Soulgate is aggressively chasing user growth without paying much heed to monetisation and payback periods. This modus operandi is highly reflective of growth at all costs strategy. Overall, we think that the negatives in the Soulgate story warrant a pass.  
Our valuation analysis suggests that the IPO price range fairly values Soulgate for its forecasted growth. Overall, as we remain unconvinced that Soulgate's growth at all costs strategy will generate shareholder value, we are inclined to give this IPO a pass. 


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.

NetEase Cloud Music / Equity Capital Markets

<p><a href="https://www.smartkarma.com/entities/cloud-village-inc" target="_blank" data-smartkarma-citation="entities:33412:1" rel="noopener">Cloud Village (CLV HK)</a> (CVI), also known as NetEase Music, plans to raise around US$1bn in its Hong Kong IPO. The company has also obtained investments from <a href="https://www.smartkarma.com/entities/baidu-inc" target="_blank" data-smartkarma-citation="entities:179:1" rel="noopener">Baidu (BIDU US)</a> and <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>, along with other investors.</p><p>As of Dec 20, it had 181m online music MAUs, 16m online music services monthly paying users, 327,000 social entertainment services monthly paying users. It had over 60m music tracks, of which more than 1m were created by registered independent artists. Its daily active users on average spent 76mins daily listening to music. </p><p>CVI’s revenue has grown 4.3x over FY18-20, to RMB4.9bn. There have been no signs of slowdown as its revenue increased by 102% in FY19 and was up another 111% in FY20. Both online music services and social entertainment services revenue have shown strong growth. Online music services revenue grew by 73% in 2019 and another 47.6% in 2020. Social entertainment services revenue was the largest driver of growth, as it grew by 344% in 2019 and was up another 320% in 2020.</p><p>However, it remains a distant second player in the market and has yet to make a profit.</p>

Cloud Village (CLV HK) (CVI), also known as NetEase Music, plans to raise around US$1bn in its Hong Kong IPO. The company has also obtained investments from Baidu (BIDU US) and Alibaba Group (BABA US), along with other investors.As of Dec 20, it had 181m online music MAUs, 16m online music services monthly paying users, 327,000 social entertainment services monthly paying users. It had over 60m music tracks, of which more than 1m were created by registered independent artists. Its daily active users on average spent 76mins daily listening to music. CVI’s revenue has grown 4.3x over FY18-20, to RMB4.9bn. There have been no signs of slowdown as its revenue increased by 102% in FY19 and was up another 111% in FY20. Both online music services and social entertainment services revenue have shown strong growth. Online music services revenue grew by 73% in 2019 and another 47.6% in 2020. Social entertainment services revenue was the largest driver of growth, as it grew by 344% in 2019 and was up another 320% in 2020.However, it remains a distant second player in the market and has yet to make a profit.

Cloud Village (NetEase Music) Pre-IPO - Was in the Slow Stream, Playing Catch-Up

<div>
<p>On 27th May 2021, U.S. Senators Marco Rubio and Bob Casey introduced the <em>No IPOs for Unaccountable Actors Act</em>, which aims to prohibit IPO on U.S. exchanges for Chinese companies. </p>
<p>The act is a follow up on the Holding Foreign Companies Accountable Act which was signed by Trump on 18th Dec 2020 and which seeks to stop China ADRs from being traded on the US exchanges.</p>
</div><div><p>We have looked at the ADRs in the past, in our previous notes:</p></div><div>
<ul style="list-style-type: disc;">
<li>
<a href="https://www.smartkarma.com/insights/china-adrs-secondary-listing-deep-dive-yin-and-yang" target="_blank" rel="noopener">China ADRs Secondary Listing Deep-Dive: Yin and Yang,</a> published in Feb 2020,  we looked at the background and rules around undertaking a secondary listing in Hong Kong and then came up with a short-list of companies that might undertake a secondary listing. </li>
<li>
<a href="https://www.smartkarma.com/insights/china-adrs-secondary-listing-covid-19-has-increased-the-tension-but-narrowed-the-short-list" target="_blank" rel="noopener">In China ADRs Secondary Listing: COVID-19 Has Increased the Tension but Narrowed the Short List</a> published in May 2020, we looked at the recent developments and provided an revised short-list</li>
<li>In <a href="https://www.smartkarma.com/insights/china-adrs-secondary-listing-holding-foreign-companies-accountable-act-i-m-coming-home" target="_blank" rel="noopener">China ADRs Secondary Listing - Holding Foreign Companies Accountable Act - I’m Coming Home</a>, published in May 2020, we spoke about the implication of the act which had made its way through the senate.</li>
<li>In <a href="https://www.smartkarma.com/insights/china-adrs-secondary-listing-pipeline-looks-rich-have-three-years-to-move" target="_blank" rel="noopener">China ADRs Secondary Listing - Pipeline Looks Rich, Have Three Years to Move</a>, published in Feb 2021 we looked at the ADR pipeline and spoke about the updates from the Holding Foreign Companies Accountable Act becoming law and the updates at Hong Kong end as well. </li>
<li>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> we spoke about the new SEC notice and its implications. </li>
</ul>
<p>In this note, we'll talk about the new act and its possible timelines and implications.</p>
</div>


On 27th May 2021, U.S. Senators Marco Rubio and Bob Casey introduced the No IPOs for Unaccountable Actors Act, which aims to prohibit IPO on U.S. exchanges for Chinese companies. 
The act is a follow up on the Holding Foreign Companies Accountable Act which was signed by Trump on 18th Dec 2020 and which seeks to stop China ADRs from being traded on the US exchanges.
We have looked at the ADRs in the past, in our previous notes:


China ADRs Secondary Listing Deep-Dive: Yin and Yang, published in Feb 2020,  we looked at the background and rules around undertaking a secondary listing in Hong Kong and then came up with a short-list of companies that might undertake a secondary listing. 

In China ADRs Secondary Listing: COVID-19 Has Increased the Tension but Narrowed the Short List published in May 2020, we looked at the recent developments and provided an revised short-list
In China ADRs Secondary Listing - Holding Foreign Companies Accountable Act - I’m Coming Home, published in May 2020, we spoke about the implication of the act which had made its way through the senate.
In China ADRs Secondary Listing - Pipeline Looks Rich, Have Three Years to Move, published in Feb 2021 we looked at the ADR pipeline and spoke about the updates from the Holding Foreign Companies Accountable Act becoming law and the updates at Hong Kong end as well. 
In China ADRs - SEC Notice - Instead of Three, Probably Have Four Years till 2025 - Correction Overdone,  we spoke about the new SEC notice and its implications. 

In this note, we'll talk about the new act and its possible timelines and implications.


China ADRs - A New Act Aims to Put an End to China ADR IPOs

<p><a href="https://www.smartkarma.com/entities/aihuishou" target="_blank" data-smartkarma-citation="entities:33426:1" rel="noopener">Aihuishou (RERE US)</a> (AHS), China’s largest pre-owned consumer electronics transactions and services platform, aims to raise up to US$1bn via a US listing. It is backed by <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>, Morningside and Tiger Global.</p><p>A total of 26.1m consumer products, worth RMB22.8bn, were transacted by AHS over twelve months ending Mar 2021. It had over 755 offline stores across 172 cities. According to CIC, it had a 6.6% market share in terms of GMV for pre-owned electronics and 8.7% market share in terms of number of pre-owned devices transacted in 2020. As per CIC, its GMV for electronics and number of devices transacted in 2020 were both greater than the next five largest platforms combined, as per CIC. </p>

Aihuishou (RERE US) (AHS), China’s largest pre-owned consumer electronics transactions and services platform, aims to raise up to US$1bn via a US listing. It is backed by JD.com Inc (ADR) (JD US), Morningside and Tiger Global.A total of 26.1m consumer products, worth RMB22.8bn, were transacted by AHS over twelve months ending Mar 2021. It had over 755 offline stores across 172 cities. According to CIC, it had a 6.6% market share in terms of GMV for pre-owned electronics and 8.7% market share in terms of number of pre-owned devices transacted in 2020. As per CIC, its GMV for electronics and number of devices transacted in 2020 were both greater than the next five largest platforms combined, as per CIC. 

AiHuiShou Pre-IPO - Mostly Positive - Pre-Owned but Well Loved

<p><a href="https://www.smartkarma.com/entities/cloud-village-inc" target="_blank" data-smartkarma-citation="entities:33412:1" rel="noopener">Cloud Village (CLV HK)</a> is the second-largest online music platform after <a href="https://www.smartkarma.com/entities/tencent-music-entertainment" target="_blank" data-smartkarma-citation="entities:27255:1" rel="noopener">Tencent Music (TME US)</a> as measured by users and revenue in China. The cornerstone product is <em>NetEase Cloud Music</em> that delivers diverse music and music-inspired content and provides interactive community features. Cloud Village has filed for HKEx IPO to raise $1 billion, according to press reports.</p><p>Founded by <a href="https://www.smartkarma.com/entities/netease-inc-adr" target="_blank" data-smartkarma-citation="entities:17203:1" rel="noopener">NetEase Inc (NTES US)</a>, <em>NetEase Cloud Music</em>, has been operating as a stand-alone business since October 2016. NetEase owns 62.46% of the outstanding shares. The other shareholders include CMC Capital Partners, <a href="https://www.smartkarma.com/entities/baidu-inc" target="_blank" data-smartkarma-citation="entities:179:1" rel="noopener">Baidu (BIDU US)</a>, General Atlantic, Boyu Capital, <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 Yunfeng Capital. </p><div class="content-highlight"><p>At first sight, Cloud Village performance seems poor as its high growth has come at the cost of losses at the gross profit level and cash burn. However, Cloud Village is on the cusp of turning around its performance due to a fundamental change in its cost structure along with rising monetisation. Also, the recent exit of Alibaba’s music platform (<em>Xiami</em>) and Tencent Music’s increased regulatory scrutiny on anti-trust grounds should provide a boost. Overall, we think that Cloud Village has the potential to shed its underdog status vs the much larger Tencent Music.  </p></div>

Cloud Village (CLV HK) is the second-largest online music platform after Tencent Music (TME US) as measured by users and revenue in China. The cornerstone product is NetEase Cloud Music that delivers diverse music and music-inspired content and provides interactive community features. Cloud Village has filed for HKEx IPO to raise $1 billion, according to press reports.Founded by NetEase Inc (NTES US), NetEase Cloud Music, has been operating as a stand-alone business since October 2016. NetEase owns 62.46% of the outstanding shares. The other shareholders include CMC Capital Partners, Baidu (BIDU US), General Atlantic, Boyu Capital, Alibaba Group (BABA US) and Yunfeng Capital. At first sight, Cloud Village performance seems poor as its high growth has come at the cost of losses at the gross profit level and cash burn. However, Cloud Village is on the cusp of turning around its performance due to a fundamental change in its cost structure along with rising monetisation. Also, the recent exit of Alibaba’s music platform (Xiami) and Tencent Music’s increased regulatory scrutiny on anti-trust grounds should provide a boost. Overall, we think that Cloud Village has the potential to shed its underdog status vs the much larger Tencent Music.  

Cloud Village (NetEase Music) IPO Initiation: Musical Shares

China

Tencent Music Entertainment operates an online music entertainment platform in China. The Company offers platform that comprises of online music, recording, music-centric live streaming enabling users to discover, listen, sing, watch, perform, and socialize music.

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Tencent Music (TME US)

Soulgate IPO: Valuation Insights

The IPO price range fairly values Soulgate for its forecasted growth. However, as we remain unconvinced that Soulgate's strategy will generate...

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Cloud Village (CLV HK), also known as NetEase Music, plans to raise US$1bn in its Hong Kong IPO. The company has also obtained investments from...

Sumeet Singh

China ADRs - A New Act Aims to Put an End to China ADR IPOs

On 27th May 2021, U.S. Senators Marco Rubio and Bob Casey introduced the No IPOs for Unaccountable Actors Act, which aims to prohibit IPO on U.S....

Sumeet Singh

AiHuiShou Pre-IPO - Mostly Positive - Pre-Owned but Well Loved

Aihuishou(RERE US), China’s largest pre-owned consumer electronics transactions and services platform, aims to raise upto US$1bn via a US listing....

Sumeet Singh

Cloud Village (NetEase Music) IPO Initiation: Musical Shares

Cloud Village has filed for HKEx IPO to raise $1 billion, according to press reports. We think that Cloud Village has the potential to shed its...

Arun George

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