Global Emerging Market Equities, Propitious Research

Wium Malan, CFA

Global Emerging Market Equities

Independent, Fundamental Quantitative Research

Propitious Research

Fully independent, fundamental and quantitative equity research, focused on companies in the Telecommunication, Media, Technology, Internet and Healthcare sectors in the Global Emerging Markets. Idea generation focused on Quality stocks, trading below their intrinsic Value, with sound Corporate Governance.

Thematic (Sector/Industry)

<p>This insight provides a summary of the key news developments impacting the largest countries and constituents of the Global Emerging Markets equity indices. </p>
<p><strong><em>Companies mentioned this week:</em></strong></p>
<p><a href="https://www.smartkarma.com/entities/prosus-nv" target="_blank" data-smartkarma-citation="entities:28104:1" rel="noopener">Prosus (PRX NA)</a>, <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/baidu-inc-a55ca720-5968-48f0-8194-ac94390d065c" target="_blank" data-smartkarma-citation="entities:32212:1" rel="noopener">Baidu (9888 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/naver-corp" target="_blank" data-smartkarma-citation="entities:16029:1" rel="noopener">Naver Corp (035420 KS)</a>, <a href="https://www.smartkarma.com/entities/e-mart-inc" target="_blank" data-smartkarma-citation="entities:6993:1" rel="noopener">E Mart Inc (139480 KS)</a> </p>

This insight provides a summary of the key news developments impacting the largest countries and constituents of the Global Emerging Markets equity indices. 
Companies mentioned this week:
Prosus (PRX NA), Alibaba Group (9988 HK), Baidu (9888 HK), ByteDance (1460967D CH), Naver Corp (035420 KS), E Mart Inc (139480 KS) 

Global Emerging Markets Weekly: 18 June 2021

Equity Analyst, LightStream Research

Shifara Samsudeen, FCMA, CGMA

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Equity Capital Markets

<p><a href="https://www.smartkarma.com/entities/aihuishou" target="_blank" data-smartkarma-citation="entities:33426:1" rel="noopener">Aihuishou (RERE US)</a> , the pre-owned consumer electronics transaction and services platform in China has announced the indicative price range for its IPO at US$13-15 per ADS. The company plans to issue 16.23m ADSs (18.7m shares including the over-allotment) and each ordinary share represents 1.5 ADSs of the company. At the midpoint of the IPO price range of US$14 per share, Aihuishou will raise net proceeds of US$205.7m at a market capitalisation of US$3.1bn and a post-money enterprise value of US$2.85bn.</p><p>In our previous insight, we examined Aihuishou’s business model and its financials and concluded that the company’s revenues will continue to see strong growth and at the same time, we expect the company’s profitability to improve going forward.</p>

Aihuishou (RERE US) , the pre-owned consumer electronics transaction and services platform in China has announced the indicative price range for its IPO at US$13-15 per ADS. The company plans to issue 16.23m ADSs (18.7m shares including the over-allotment) and each ordinary share represents 1.5 ADSs of the company. At the midpoint of the IPO price range of US$14 per share, Aihuishou will raise net proceeds of US$205.7m at a market capitalisation of US$3.1bn and a post-money enterprise value of US$2.85bn.In our previous insight, we examined Aihuishou’s business model and its financials and concluded that the company’s revenues will continue to see strong growth and at the same time, we expect the company’s profitability to improve going forward.

AiHuiShou IPO: Peer Comparison and Valuation

Oshadhi Kumarasiri

<ul>
<li>According to Reuters, <a href="https://www.smartkarma.com/entities/dingdong-maicia" target="_blank" data-smartkarma-citation="entities:33461:1" rel="noopener">Dingdong Maicia (DDL US)</a>, an on-demand fresh produce and grocery delivery platform in China, plans to raise US$500m in its US IPO, which values the company at around US$6.0bn.</li>
<li>Dingdong Maicai’s order fulfilment cost, which includes the amount paid to delivery partners, packaging, and other logistics-related costs, is almost two times the net revenue per order in 2020. Though we expect a gradual increase in net revenue per order, it seems unlikely that the average order fulfilment cost per order will decline sufficiently for Dingdong Maicai to be profitable over the next three to four years.</li>
<li>The fact that the company made an operating loss of RMB 295.5m (41.3% of net revenue) in 1Q20 (when COVID-19 lockdowns increased demand for grocery and fresh produce delivery) is a clear indication that Dingdong Maicai is incapable of becoming profitable through volume growth.</li>
<li>Lately, high growth Chinese e-commerce companies have fallen out of favour with US investors in general, and the worst-affected are the ones generating operating losses. With profitability nowhere in sight for Dingdong Maicai, we think that in terms of risk rewards, older and stable e-commerce names like <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/jd-com-inc" target="_blank" data-smartkarma-citation="entities:29043:1" rel="noopener">JD.com Inc. (9618 HK)</a> and <a href="https://www.smartkarma.com/entities/vipshop-holdings-ltd-adr" target="_blank" data-smartkarma-citation="entities:1088:1" rel="noopener">Vipshop Holdings (VIPS US)</a> offer better risk-adjusted return in the short to medium term.</li>
</ul>


According to Reuters, Dingdong Maicia (DDL US), an on-demand fresh produce and grocery delivery platform in China, plans to raise US$500m in its US IPO, which values the company at around US$6.0bn.
Dingdong Maicai’s order fulfilment cost, which includes the amount paid to delivery partners, packaging, and other logistics-related costs, is almost two times the net revenue per order in 2020. Though we expect a gradual increase in net revenue per order, it seems unlikely that the average order fulfilment cost per order will decline sufficiently for Dingdong Maicai to be profitable over the next three to four years.
The fact that the company made an operating loss of RMB 295.5m (41.3% of net revenue) in 1Q20 (when COVID-19 lockdowns increased demand for grocery and fresh produce delivery) is a clear indication that Dingdong Maicai is incapable of becoming profitable through volume growth.
Lately, high growth Chinese e-commerce companies have fallen out of favour with US investors in general, and the worst-affected are the ones generating operating losses. With profitability nowhere in sight for Dingdong Maicai, we think that in terms of risk rewards, older and stable e-commerce names like Alibaba Group (9988 HK), JD.com Inc. (9618 HK) and Vipshop Holdings (VIPS US) offer better risk-adjusted return in the short to medium term.


Dingdong Maicai: Profitability Is a Tall Order, Even in the Medium-Long Term

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

<div class="content-highlight">
<p>Our valuation analysis suggests an implied market cap of $4.1 billion, representing an implied price of $15.8 per share for Aihuishou. This would represent an upside of 5% from the high end of the IPO price of $15 per share. Given the lack of upside, we would avoid this IPO deal. We based our valution based on 2.0x EV/S multiple (2022E), which is based on the average EV/S multiple of its peers in 2022. If the IPO is priced at the low end of the IPO price range, then it could be more attractive, but we are not too convinced of the investment merits of this company.</p>
<p>Among the many risks, we are especially concerned about the extreme price competition for electronic goods (including smartphones) and we do not believe that if the company could generate significant profits in this sector if it focuses just on the consumer electronics sector. In addition, we are not so sure about the company's capability in expanding profitably into other non-consumer electronics related areas going forward. </p>
</div><p>Established in 2011 as an online platform buying and selling second-hand phones and other consumer electronics, Aihuishou focuses on the electronics.</p><p><a href="https://www.smartkarma.com/entities/aihuishou" target="_blank" data-smartkarma-citation="entities:33426:1" rel="noopener">Aihuishou (RERE US)</a> plans to raise $227 million in the upcoming IPO by offering 16.2 million ADS at a price range of $13 to $15 per share. Insiders plan to buy $100 million worth of ADS shares in this IPO. Aihuishou would have a market cap of $3.6 billion at the mid-point of the IPO price range. </p>


Our valuation analysis suggests an implied market cap of $4.1 billion, representing an implied price of $15.8 per share for Aihuishou. This would represent an upside of 5% from the high end of the IPO price of $15 per share. Given the lack of upside, we would avoid this IPO deal. We based our valution based on 2.0x EV/S multiple (2022E), which is based on the average EV/S multiple of its peers in 2022. If the IPO is priced at the low end of the IPO price range, then it could be more attractive, but we are not too convinced of the investment merits of this company.
Among the many risks, we are especially concerned about the extreme price competition for electronic goods (including smartphones) and we do not believe that if the company could generate significant profits in this sector if it focuses just on the consumer electronics sector. In addition, we are not so sure about the company's capability in expanding profitably into other non-consumer electronics related areas going forward. 
Established in 2011 as an online platform buying and selling second-hand phones and other consumer electronics, Aihuishou focuses on the electronics.Aihuishou (RERE US) plans to raise $227 million in the upcoming IPO by offering 16.2 million ADS at a price range of $13 to $15 per share. Insiders plan to buy $100 million worth of ADS shares in this IPO. Aihuishou would have a market cap of $3.6 billion at the mid-point of the IPO price range. 

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/aihuishou" target="_blank" data-smartkarma-citation="entities:33426:1" rel="noopener">Aihuishou (RERE US)</a> operates the largest pre-owned consumer electronics transactions and services platform in China under the brand “ATRenew”, which stands for “all things renew.” The platform consists of <em>AHS Recycle</em> (an omnichannel business for the collection of pre-owned consumer electronics), <em>PJT Marketplace</em> (B2B channel) and <em>Paipai Marketplace</em> (B2C channel). </p></div><div>
<p>At the mid-point of the proposed IPO price range of $13.00-15.00 per ADS, AiHuiShou will have a market cap of $3.1 billion. At the mid-point of the IPO price range, the net proceeds are $205.7 million. The raise is materially below the rumoured target raise of $500 million to $1 billion, according to press reports.</p>
<p>Existing shareholders have indicated a total of $100 million of the IPO (44.0% of the ADSs at the mid-point of the IPO price range). The indications of interest from <a href="https://www.smartkarma.com/entities/jd-com-inc" target="_blank" data-smartkarma-citation="entities:29043:1" rel="noopener">JD.com Inc. (9618 HK)</a> and Tiger Global.</p>
<p>In <a href="https://www.smartkarma.com/insights/aihuishou-ipo-initiation-turning-the-vicious-cycle-into-a-virtuous-one" target="_blank" data-smartkarma-citation="insights:52617" rel="noopener">AiHuiShou IPO Initiation: Turning the Vicious Cycle into a Virtuous One</a>, we stated that AiHuiShou as the largest player as measured by GMV and transacted devices, is well-positioned to capture its fair share of China's pre-owned consumer electronic devices market opportunity. AiHuiShou is delivering on this market opportunity through strong revenue growth, declining loss margin and improving cash burn. AiHuiShou’s business model will also appeal to investors with an ESG mandate. We concluded that AiHuiShou's story warrants a closer look.</p>
</div><div><div class="content-highlight">
<p>On a relative valuation basis and at the IPO price range, AiHuiShou is attractively valued on both an EV/Sales and growth adjusted EV/Sales multiples (an EV/Sales/Growth basis). Notably, the last funding round in May 2021 valued AiHuiShou at $19.43 per ordinary share, implying $12.96 per ADS which is broadly in line with the low-end of the IPO price range.</p>
<p>While the lower than expected raise suggest that AiHuiShou received lukewarm investor interest, yesterday's blistering first-day pop of <a href="https://www.smartkarma.com/entities/kanzhun-ltd" target="_blank" data-smartkarma-citation="entities:33368:1" rel="noopener">Kanzhun (BZ US)</a> suggests that the market may be warming up again to high-growth Chinese ADRs. Overall, we are inclined to participate. </p>
</div></div>

Aihuishou (RERE US) operates the largest pre-owned consumer electronics transactions and services platform in China under the brand “ATRenew”, which stands for “all things renew.” The platform consists of AHS Recycle (an omnichannel business for the collection of pre-owned consumer electronics), PJT Marketplace (B2B channel) and Paipai Marketplace (B2C channel). 
At the mid-point of the proposed IPO price range of $13.00-15.00 per ADS, AiHuiShou will have a market cap of $3.1 billion. At the mid-point of the IPO price range, the net proceeds are $205.7 million. The raise is materially below the rumoured target raise of $500 million to $1 billion, according to press reports.
Existing shareholders have indicated a total of $100 million of the IPO (44.0% of the ADSs at the mid-point of the IPO price range). The indications of interest from JD.com Inc. (9618 HK) and Tiger Global.
In AiHuiShou IPO Initiation: Turning the Vicious Cycle into a Virtuous One, we stated that AiHuiShou as the largest player as measured by GMV and transacted devices, is well-positioned to capture its fair share of China's pre-owned consumer electronic devices market opportunity. AiHuiShou is delivering on this market opportunity through strong revenue growth, declining loss margin and improving cash burn. AiHuiShou’s business model will also appeal to investors with an ESG mandate. We concluded that AiHuiShou's story warrants a closer look.

On a relative valuation basis and at the IPO price range, AiHuiShou is attractively valued on both an EV/Sales and growth adjusted EV/Sales multiples (an EV/Sales/Growth basis). Notably, the last funding round in May 2021 valued AiHuiShou at $19.43 per ordinary share, implying $12.96 per ADS which is broadly in line with the low-end of the IPO price range.
While the lower than expected raise suggest that AiHuiShou received lukewarm investor interest, yesterday's blistering first-day pop of Kanzhun (BZ US) suggests that the market may be warming up again to high-growth Chinese ADRs. Overall, we are inclined to participate. 


China

Vipshop Holdings Ltd. retails branded products at discount over the Internet. The Company retails through flash sales, in which limited quantities of an item are sold at deep discount for a specified period of time.

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Vipshop Holdings (VIPS US)

Global Emerging Markets Weekly: 18 June 2021

This insight provides a summary of the key news developments impacting the largest countries and constituents of the Global Emerging Markets equity...

Wium Malan, CFA

AiHuiShou IPO: Peer Comparison and Valuation

We believe there will be limited upside to the company’s indicative IPO price range and would be inclined to buy only if the company sets the final...

Shifara Samsudeen, FCMA, CGMA

Dingdong Maicai: Profitability Is a Tall Order, Even in the Medium-Long Term

Most COVID beneficiary stocks in China showcased what they could be in future through their financial results of the COVID-affected first quarter...

Oshadhi Kumarasiri

Aihuishou IPO Valuation Analysis

Our valuation analysis suggests an implied price of $15.8 per share for Aihuishou. This would represent an upside of 5% from the high end of the...

Douglas Kim

AiHuiShou IPO: Valuation Insights

While the lower than expected raise suggest lukewarm investor interest, yesterday's blistering first-day pop of Kanzhun points to improving market...

Arun George

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