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>State Administration for Market Regulation (SAMR) fined Alibaba RMB18 billion.</li>
<li>Alibaba had forced retailers to leave competitors via an “either-or” choice since 2015.</li>
<li>The penalty amount is not significant to Alibaba.</li>
<li>We believe that the penalty is just part of SAMR’s action after the new law, but not especially against Alibaba.</li>
<li>We do not believe the penalty will impact Alibaba’s long-term value.</li>
<li>We set an upside of 37% and a price target of USD$306 according to the 3-year P/E average.</li>
</ul>
<p>Our previous coverage on Alibaba:</p>
<p><a href="https://www.smartkarma.com/insights/alibaba-baba-many-positive-signals-in-december-quarter-27-upside" target="_blank" data-smartkarma-citation="insights:47726" rel="noopener">Alibaba (BABA): Many Positive Signals in December Quarter, 27% Upside</a></p>
<p><a href="https://www.smartkarma.com/insights/alibaba-baba-this-online-antitrust-wave-a-risk-but-not-a-massacre" target="_blank" data-smartkarma-citation="insights:46377" rel="noopener">Alibaba (BABA): This Online Antitrust Wave, A Risk, But Not A Massacre</a> </p>


State Administration for Market Regulation (SAMR) fined Alibaba RMB18 billion.
Alibaba had forced retailers to leave competitors via an “either-or” choice since 2015.
The penalty amount is not significant to Alibaba.
We believe that the penalty is just part of SAMR’s action after the new law, but not especially against Alibaba.
We do not believe the penalty will impact Alibaba’s long-term value.
We set an upside of 37% and a price target of USD$306 according to the 3-year P/E average.

Our previous coverage on Alibaba:
Alibaba (BABA): Many Positive Signals in December Quarter, 27% Upside
Alibaba (BABA): This Online Antitrust Wave, A Risk, But Not A Massacre 

Alibaba (BABA): Fined $2.78 Billion for “Either Or”, But Impact Is Neither Big Nor Long Term

Global TMT analyst with Asia ex-Japan focus.

Mitchell Kim

<p>Chinese regulators announced a record fine for <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> amounting to USD2.75 billion for violations related to antitrust regulations.  While the final amount for the fine was previously unknown, the fine itself is not a surprise.  </p><p>We believe this is a positive outcome for Alibaba: </p><ol>
<li>
<strong>We did not see any hint of additional rectifications</strong> related to AML (Anti-monopoly law) other than the penalty amount. (Alibaba has already pledged to modify its "exclusivity" practice to allow for merchants to have greater freedom to list their products on multiple platforms. <strong>Share overhang related to this issue should dissipate. </strong>
</li>
<li>
<strong>Alibaba could have been penalized more severely</strong> (as much as 10% of its revenues for antitrust violations).  The penalty amount represents only about 3.5% of Alibaba's FY20 revenues (4% of CY2019 revenues).</li>
<li><strong>The lower-than-expected fine amount appears to signal that the regulators are not trying to excessively debilitate the industry.  </strong></li>
</ol><p>We have highlighted the AML and the consumer lending regulation risks to be key share overhang on the BABA shares in our February report, <a href="https://www.smartkarma.com/insights/alibaba-baba-us-ant-group-woes-overly-priced-in" target="_blank" data-smartkarma-citation="insights:48648" rel="noopener">Alibaba (BABA US): Ant Group Woes Overly Priced-In</a>.   We believe BABA shares are undervalued due to the overhang.  The latest regulatory announcement signals the lifting of share overhang related to AML, in our view.  </p>

Chinese regulators announced a record fine for Alibaba Group (BABA US) amounting to USD2.75 billion for violations related to antitrust regulations.  While the final amount for the fine was previously unknown, the fine itself is not a surprise.  We believe this is a positive outcome for Alibaba: 

We did not see any hint of additional rectifications related to AML (Anti-monopoly law) other than the penalty amount. (Alibaba has already pledged to modify its "exclusivity" practice to allow for merchants to have greater freedom to list their products on multiple platforms. Share overhang related to this issue should dissipate. 


Alibaba could have been penalized more severely (as much as 10% of its revenues for antitrust violations).  The penalty amount represents only about 3.5% of Alibaba's FY20 revenues (4% of CY2019 revenues).
The lower-than-expected fine amount appears to signal that the regulators are not trying to excessively debilitate the industry.  
We have highlighted the AML and the consumer lending regulation risks to be key share overhang on the BABA shares in our February report, Alibaba (BABA US): Ant Group Woes Overly Priced-In.   We believe BABA shares are undervalued due to the overhang.  The latest regulatory announcement signals the lifting of share overhang related to AML, in our view.  

Alibaba (BABA US): Record Fine - Grin and Bear It as Better Days Are Ahead

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>Hong Kong Stock Exchange has become the beneficiary of tightening listing requirements and accounting rules for foreign companies by the US regulatory authorities. Chinese companies that are listed in the US are forced to comply with US accounting standards and as a result, a large number of US-listed Chinese companies have sought secondary listings on the Hong Kong Stock Exchange over the last two years.</p><p>Autohome, Baidu and Bilibili conducted secondary listings earlier this year and several other companies including <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> , <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> 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>  are said to be in the process of securing secondary listings in Hong Kong due to the fear of being delisted from the US Exchange.</p><p>As these companies rush for secondary listings in Hong Kong, in a series of reports, we analyse 10 of the secondary listings on the Hong Kong Stock Exchange over the last 2-years. These 10 companies include <a href="https://www.smartkarma.com/entities/autohome-inc-adr" target="_blank" data-smartkarma-citation="entities:20234:1" rel="noopener">Autohome Inc (Adr) (ATHM US)</a> , <a href="https://www.smartkarma.com/entities/gds-holdings-adr" target="_blank" data-smartkarma-citation="entities:23649:1" rel="noopener">GDS Holdings (ADR) (GDS US)</a> , <a href="https://www.smartkarma.com/entities/zai-lab-ltd" target="_blank" data-smartkarma-citation="entities:25877:1" rel="noopener">Zai Lab Ltd (ZLAB US)</a> , <a href="https://www.smartkarma.com/entities/baozun-inc" target="_blank" data-smartkarma-citation="entities:24184:1" rel="noopener">Baozun Inc. (BZUN US)</a> , <a href="https://www.smartkarma.com/entities/zto-express" target="_blank" data-smartkarma-citation="entities:23628:1" rel="noopener">ZTO Express (ZTO US)</a> , <a href="https://www.smartkarma.com/entities/huazhu-group-ltd" target="_blank" data-smartkarma-citation="entities:17527:1" rel="noopener">Huazhu Group (HTHT US)</a> , <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> , <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> , <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 <a href="https://www.smartkarma.com/entities/beigene" target="_blank" data-smartkarma-citation="entities:23712:1" rel="noopener">BeiGene (BGNE US)</a> .</p>

Hong Kong Stock Exchange has become the beneficiary of tightening listing requirements and accounting rules for foreign companies by the US regulatory authorities. Chinese companies that are listed in the US are forced to comply with US accounting standards and as a result, a large number of US-listed Chinese companies have sought secondary listings on the Hong Kong Stock Exchange over the last two years.Autohome, Baidu and Bilibili conducted secondary listings earlier this year and several other companies including Trip.com (TCOM US) , Tencent Music (TME US) and Vipshop Holdings (VIPS US)  are said to be in the process of securing secondary listings in Hong Kong due to the fear of being delisted from the US Exchange.As these companies rush for secondary listings in Hong Kong, in a series of reports, we analyse 10 of the secondary listings on the Hong Kong Stock Exchange over the last 2-years. These 10 companies include Autohome Inc (Adr) (ATHM US) , GDS Holdings (ADR) (GDS US) , Zai Lab Ltd (ZLAB US) , Baozun Inc. (BZUN US) , ZTO Express (ZTO US) , Huazhu Group (HTHT US) , JD.com Inc (ADR) (JD US) , NetEase Inc (NTES US) , Alibaba Group (BABA US) and BeiGene (BGNE US) .

ADR/HKEX Analysis: Lower Trading Volumes on HKEX Show Limited Liquidity Compared to the US

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

Event-Driven

<div>
<p>On 29th Mar 2021, we spoke about the Archegos driven correction in some of the China ADRs,  <a href="https://www.smartkarma.com/insights/china-adrs-blocks-liquidation-buyback-implications" target="_blank" rel="noopener">China ADRs- Blocks, Liquidation, Buyback - Implications.</a> That in turn had followed close on the heels of the SEC driven correction for the sector, which we looked at 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>.</p>
<p>In this note, we'll talk about the updates since our previous note.</p>
</div>


On 29th Mar 2021, we spoke about the Archegos driven correction in some of the China ADRs,  China ADRs- Blocks, Liquidation, Buyback - Implications. That in turn had followed close on the heels of the SEC driven correction for the sector, which we looked at in China ADRs - SEC Notice - Instead of Three, Probably Have Four Years till 2025 - Correction Overdone.
In this note, we'll talk about the updates since our previous note.


China ADRs Quick Update - SEC, Archegos, Blocks - Showing Signs of Life

<div>
<p>Trip.com plans to raise around US$1-2bn in its secondary listing in Hong Kong. The company is said to have won listing approval last week and will look to launch its secondary offering soon.</p>
</div>
<div>
<p>In our previous notes, along with covering all of the past listings, we have also looked at the overall drivers for the secondary listings in our earlier notes, links to which are below: </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 recent updates from the Holding Foreign Companies Accountable Act and Hong Kong Exchanges changes to corporate weighted average voting rights. In this note, we’ll take an early look at the deal and talk about likely timing and impact of the raising.</li>
</ul>
</div>
<div>
<p>In this note, we’ll take a look at the deal and talk about the impact of the raising.</p>
</div>


Trip.com plans to raise around US$1-2bn in its secondary listing in Hong Kong. The company is said to have won listing approval last week and will look to launch its secondary offering soon.


In our previous notes, along with covering all of the past listings, we have also looked at the overall drivers for the secondary listings in our earlier notes, links to which are below: 




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 recent updates from the Holding Foreign Companies Accountable Act and Hong Kong Exchanges changes to corporate weighted average voting rights. In this note, we’ll take an early look at the deal and talk about likely timing and impact of the raising.



In this note, we’ll take a look at the deal and talk about the impact of the raising.


Trip.com Secondary Listing - Probably Needs to Correct

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)

Alibaba (BABA): Fined $2.78 Billion for “Either Or”, But Impact Is Neither Big Nor Long Term

The penalty amount is not significant to Alibaba. We believe the penalty is just part of authorities’ action after the new law, but not especially...

Ming Lu

Alibaba (BABA US): Record Fine - Grin and Bear It as Better Days Are Ahead

A record-setting fine related to the antitrust violations was imposed on Alibaba on Friday. Find out why we think this is a positive outcome for...

Mitchell Kim

ADR/HKEX Analysis: Lower Trading Volumes on HKEX Show Limited Liquidity Compared to the US

Given relatively lower levels of trading volumes in HK compared to the US Exchanges, it is questionable whether the ADR/HKEX listed companies are...

Shifara Samsudeen, FCMA, CGMA

China ADRs Quick Update - SEC, Archegos, Blocks - Showing Signs of Life

On 29 Mar, we spoke about the Archegos driven correction, that had followed close on the heals of the SEC driven correction for the sector. In this...

Sumeet Singh

Trip.com Secondary Listing - Probably Needs to Correct

Trip.com plans to raise around US$1-2bn in its secondary listing in Hong Kong. The company is said to have won listing approval last week and will...

Sumeet Singh

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