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>The National Radio and Television Administration forbids juveniles from paying broadcasters.</li>
<li>It was widely rumored that both Alibaba (BABA) and Tencent (700 HK) stopped negotiating the acquisition of iQiyi (IQ).</li>
<li>The National Medical Products Administration formally allow prescription drug to be sold online.</li>
</ul>


The National Radio and Television Administration forbids juveniles from paying broadcasters.
It was widely rumored that both Alibaba (BABA) and Tencent (700 HK) stopped negotiating the acquisition of iQiyi (IQ).
The National Medical Products Administration formally allow prescription drug to be sold online.


China Internet Weekly (30Nov2020): Approve Online Rx Drug, Ban Juveniles from Paying Broadcasters

<ul class="">
<li>Huya (HUYA)’s security guard carried an employee out of the office by force.</li>
<li>Shenzhen Municipal Anti-Pornography Office suspended Tencent Music (TME)’s karaoke platform for 30 days.</li>
<li>Alibaba (BABA) is facing class action for the investment in Ant Group.</li>
<li>Baidu (BAIDU) acquired Joyy (YY)’s business in China, which is a short target.</li>
</ul>


Huya (HUYA)’s security guard carried an employee out of the office by force.
Shenzhen Municipal Anti-Pornography Office suspended Tencent Music (TME)’s karaoke platform for 30 days.
Alibaba (BABA) is facing class action for the investment in Ant Group.
Baidu (BAIDU) acquired Joyy (YY)’s business in China, which is a short target.


China Internet Weekly (23Nov2020): HUYA’s Violence, TME’s Porn, and BIDU Acquired a Short Target

<ul class="">
<li>The real main business, social entertainment, continued to recover in 3Q20.</li>
<li>Music, as the nominal main business, is facing a mature market.</li>
<li>TME’s largest entertainment platform, Kugou, stopped paying basic salary to live broadcasters; therefore, we believe the margins will prove in 2021.</li>
<li>The downside has narrowed from 28% to 2%. We believe the stock is fairly valued now.</li>
</ul>


The real main business, social entertainment, continued to recover in 3Q20.
Music, as the nominal main business, is facing a mature market.
TME’s largest entertainment platform, Kugou, stopped paying basic salary to live broadcasters; therefore, we believe the margins will prove in 2021.
The downside has narrowed from 28% to 2%. We believe the stock is fairly valued now.


Tencent Music (TME): Real Main Business Continued to Recover in 3Q20, Downside Has Narrowed

<ul>
<li>We believe the new law will slow down the expansion of the lending business related to e-commerce companies.</li>
<li>iQiyi (IQ) announced it would raise the membership fees.</li>
<li>Tencent Music (TME) signed a contract for exclusively using Peer Music’s copyrights in China.</li>
</ul>


We believe the new law will slow down the expansion of the lending business related to e-commerce companies.
iQiyi (IQ) announced it would raise the membership fees.
Tencent Music (TME) signed a contract for exclusively using Peer Music’s copyrights in China.


China Internet Weekly (9Nov2020): New Law on Online Small Amount Lending

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

Hang Seng China Enterprises Index / Event-Driven

Hang Seng China Enterprises Index (HSCEI INDEX)

After staying negative on the <a href="https://www.smartkarma.com/entities/hang-seng-china-enterprises-index" target="_blank" data-smartkarma-citation="entities:22900:1" rel="noopener">Hang Seng China Enterprises Index (HSCEI INDEX)</a> dividend futures expiring in 2021 for most of the year, we finally think a near term bottom has been formed. The dividend futures are 28% lower over the period, and adjusted for a strengthening <a href="https://www.smartkarma.com/entities/cny" target="_blank" data-smartkarma-citation="entities:22820:1" rel="noopener">CNY (USDCNY CURNCY)</a> are around 35% lower.Most of the drop has come about as a result of the changes (and upcoming changes) to the constituents of the <a href="https://www.smartkarma.com/entities/hang-seng-china-enterprises-index" target="_blank" data-smartkarma-citation="entities:22900:1" rel="noopener">Hang Seng China Enterprises Index (HSCEI INDEX)</a>, with the damage done by COVID-19 adding to the selloff.Post the inclusion of <a href="https://www.smartkarma.com/entities/ant-financial-services-group" target="_blank" data-smartkarma-citation="entities:24240:1" rel="noopener">Ant Group (6688 HK)</a> in the HSCEI and the changes in the upcoming review to be announced on 13 November (and implemented at the close on 4 December), we do not see any major changes to the index.The company Q3 results announced over the last couple of weeks do not provide any major catalysts, and the future direction of the 2021 dividend futures will be driven by news flow, expectations around the dividends to be paid out by the megabanks, and expectations around further changes to the <a href="https://www.smartkarma.com/entities/hang-seng-china-enterprises-index" target="_blank" data-smartkarma-citation="entities:22900:1" rel="noopener">Hang Seng China Enterprises Index (HSCEI INDEX)</a> capping on WVR securities.With the market trading near our estimated fair value of 271.825 index points, we take a look at some catalysts that could cause our estimates to move higher/ lower. Spoiler: there are a lot more catalysts for the dividend futures to move lower than higher.

After staying negative on the Hang Seng China Enterprises Index (HSCEI INDEX) dividend futures expiring in 2021 for most of the year, we finally think a near term bottom has been formed. The dividend futures are 28% lower over the period, and adjusted for a strengthening CNY (USDCNY CURNCY) are around 35% lower.Most of the drop has come about as a result of the changes (and upcoming changes) to the constituents of the Hang Seng China Enterprises Index (HSCEI INDEX), with the damage done by COVID-19 adding to the selloff.Post the inclusion of Ant Group (6688 HK) in the HSCEI and the changes in the upcoming review to be announced on 13 November (and implemented at the close on 4 December), we do not see any major changes to the index.The company Q3 results announced over the last couple of weeks do not provide any major catalysts, and the future direction of the 2021 dividend futures will be driven by news flow, expectations around the dividends to be paid out by the megabanks, and expectations around further changes to the Hang Seng China Enterprises Index (HSCEI INDEX) capping on WVR securities.With the market trading near our estimated fair value of 271.825 index points, we take a look at some catalysts that could cause our estimates to move higher/ lower. Spoiler: there are a lot more catalysts for the dividend futures to move lower than higher.

HSCEI Dividends: Finely Poised; Negative Catalysts Overwhelm the Positive

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)

China Internet Weekly (30Nov2020): Approve Online Rx Drug, Ban Juveniles from Paying Broadcasters

The authorities forbid juveniles from paying broadcasters. The Medical Administration allows prescription drug to be sold online.

Ming Lu

China Internet Weekly (23Nov2020): HUYA’s Violence, TME’s Porn, and BIDU Acquired a Short Target

Huya security guard carried an employee out of office by force. Shenzhen Authorities suspended Tencent Music ’s karaoke for 30 days. Baidu acquired...

Ming Lu

Tencent Music (TME): Real Main Business Continued to Recover in 3Q20, Downside Has Narrowed

The real main business, social entertainment, continued to recover in 3Q20. Music, as the nominal main business, is facing a mature market. The...

Ming Lu

China Internet Weekly (9Nov2020): New Law on Online Small Amount Lending

We believe the new law will slow down the expansion of online lending. iQiyi raised the membership fees. Tencent Music signed an exclusive contract...

Ming Lu

HSCEI Dividends: Finely Poised; Negative Catalysts Overwhelm the Positive

The HSCEI dividend futures expiring in 2021 are trading near our estimated fair value, but there are a lot more catalysts that could take the...

Brian Freitas

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