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 stock price surged after the announcement of the 3Q21 result, as the revenue growth rate climbed up.</li>
<li>However, operating loss was deepened due to significant increase of selling and marketing expense.</li>
<li>We believe that TAL’s ability of revenue generation is overvalued according to the unbelievably low prices of online courses.</li>
</ul>


The stock price surged after the announcement of the 3Q21 result, as the revenue growth rate climbed up.
However, operating loss was deepened due to significant increase of selling and marketing expense.
We believe that TAL’s ability of revenue generation is overvalued according to the unbelievably low prices of online courses.


TAL Education (TAL): Meaningless Growth Rate in 3Q21

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

17 Education & Technology Grou / Equity Capital Markets

<div><p><a href="https://www.smartkarma.com/entities/17-education-and-technology-group-inc" target="_blank" data-smartkarma-citation="entities:31033:1" rel="noopener">17 Education and Technology (YQ US)</a> is an online leading education technology company in China. It ranked fifth in online K-12 large-class after-school tutoring market as measured by gross billing and paid course enrolments in 2019 and 1H20, according to Frost &amp; Sullivan.</p></div><div><p>17 Education has launched its IPO at a price range of $9.50-11.50 per ADS. At the mid-point of the IPO price range, 17 Education will raise net proceeds of $265.2 million. Indications of interest have been received for up to $80 million of the offer shares from the CPE Fund, which is managed by China Pinnacle Equity Management. The IPO will be priced on 3 December. </p></div><div><div><div class="content-highlight"><p>In <a href="https://www.smartkarma.com/insights/17-education-technology-ipo-initiation-acquired-taste" target="_blank" data-smartkarma-citation="insights:45820" rel="noopener">17 Education &amp; Technology IPO Initiation: Acquired Taste</a>, we stated that investing in the China online education sector requires acceptance that the high upfront losses are a necessary evil which should generate returns through the lifetime value of K-12 students. For investors comfortable with this dynamic, we believe that 17 Education has attractive fundamentals. Our valuation analysis suggests that the IPO price is attractive. </p></div></div></div>

17 Education and Technology (YQ US) is an online leading education technology company in China. It ranked fifth in online K-12 large-class after-school tutoring market as measured by gross billing and paid course enrolments in 2019 and 1H20, according to Frost &amp; Sullivan.17 Education has launched its IPO at a price range of $9.50-11.50 per ADS. At the mid-point of the IPO price range, 17 Education will raise net proceeds of $265.2 million. Indications of interest have been received for up to $80 million of the offer shares from the CPE Fund, which is managed by China Pinnacle Equity Management. The IPO will be priced on 3 December. In 17 Education &amp; Technology IPO Initiation: Acquired Taste, we stated that investing in the China online education sector requires acceptance that the high upfront losses are a necessary evil which should generate returns through the lifetime value of K-12 students. For investors comfortable with this dynamic, we believe that 17 Education has attractive fundamentals. Our valuation analysis suggests that the IPO price is attractive. 

17 Education & Technology IPO: Valuation Insights

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.

<p><a href="https://www.smartkarma.com/entities/17-education-and-technology-group-inc" target="_blank" data-smartkarma-citation="entities:31033:1" rel="noopener">17 Education and Technology (YQ US)</a>  is a leading education technology company in China with an “in-school + after-school” integrated model which provides offline and online K-12 education products and services in China. The company has set the terms for its IPO and plans to raise net proceeds of US$265.2m at the midpoint of the IPO pricing of US$10.5 per ADS.</p><p>The company plans to use the proceeds from the IPO on improving the operation of after-school tutoring services and student learning experience, enhancing the product offerings and educational content, investing on technology infrastructure, marketing and other related activities.</p><p>In our previous insight on the company’s IPO, we examine the company’s business model and its financials. Find below an extract from our previous insight:</p><div class="content-highlight"><p>It seems that the company does not have a clear path to profitability, and we remain concerned about the growing losses for the business. Given the intense competition in China’s online education market, the companies are forced to spend aggressively on selling and marketing to attract students for their courses/programs. The large growth in the company’s top line during the pandemic had been common across all online education players in China, however, the top line growth comes at the expense of margins. Moreover, with Covid-19 conditions subsiding and the country returning to normalcy, we expect the company’s top line growth to decline over the next few quarters</p></div>

17 Education and Technology (YQ US)  is a leading education technology company in China with an “in-school + after-school” integrated model which provides offline and online K-12 education products and services in China. The company has set the terms for its IPO and plans to raise net proceeds of US$265.2m at the midpoint of the IPO pricing of US$10.5 per ADS.The company plans to use the proceeds from the IPO on improving the operation of after-school tutoring services and student learning experience, enhancing the product offerings and educational content, investing on technology infrastructure, marketing and other related activities.In our previous insight on the company’s IPO, we examine the company’s business model and its financials. Find below an extract from our previous insight:It seems that the company does not have a clear path to profitability, and we remain concerned about the growing losses for the business. Given the intense competition in China’s online education market, the companies are forced to spend aggressively on selling and marketing to attract students for their courses/programs. The large growth in the company’s top line during the pandemic had been common across all online education players in China, however, the top line growth comes at the expense of margins. Moreover, with Covid-19 conditions subsiding and the country returning to normalcy, we expect the company’s top line growth to decline over the next few quarters

17 Edu & Tech IPO Valuation: Fairly Valued at the Lower End of the IPO Pricing

<p><a href="https://www.smartkarma.com/entities/17-education-and-technology-group-inc" target="_blank" data-smartkarma-citation="entities:31033:1" rel="noopener">17 Education and Technology (YQ US)</a> is an online leading education technology company in China. It ranked fifth in online K-12 large-class after-school tutoring market as measured by gross billing and paid course enrolments in 2019 and 1H20, according to Frost &amp; Sullivan. 17 Education is backed by Shunwei Capital (20.2% shareholder), CITIC Securities (11.6%) and Temasek (11.2%). 17 Education aims to raise net proceeds of $265.2 million through a Nasdaq IPO. </p><p>The COVID-19 pandemic has accelerated the acceptance of K-12 online after-school tutoring in China. This effect is also expected to extend into the post-pandemic period due to parents’ and students’ increased awareness of the efficiency and effectiveness of online after-school tutoring. However, Chinese online education, particularly K-12 tutoring, is at an early stage of development and greatly relies on large marketing budgets and low-price promotions to drive growth.</p><div class="content-highlight"><p>Within this fierce competitive setting 17 Education cleverly differentiates through its razor-razorblade pricing model that offers offline in-school products free to cross-sell the lucrative online after-school products. Investing in this sector requires acceptance that the high upfront losses are a necessary evil which should generate returns through the lifetime value of K-12 students. For investors comfortable with this dynamic, we believe that 17 Education has attractive fundamentals. </p></div>

17 Education and Technology (YQ US) is an online leading education technology company in China. It ranked fifth in online K-12 large-class after-school tutoring market as measured by gross billing and paid course enrolments in 2019 and 1H20, according to Frost &amp; Sullivan. 17 Education is backed by Shunwei Capital (20.2% shareholder), CITIC Securities (11.6%) and Temasek (11.2%). 17 Education aims to raise net proceeds of $265.2 million through a Nasdaq IPO. The COVID-19 pandemic has accelerated the acceptance of K-12 online after-school tutoring in China. This effect is also expected to extend into the post-pandemic period due to parents’ and students’ increased awareness of the efficiency and effectiveness of online after-school tutoring. However, Chinese online education, particularly K-12 tutoring, is at an early stage of development and greatly relies on large marketing budgets and low-price promotions to drive growth.Within this fierce competitive setting 17 Education cleverly differentiates through its razor-razorblade pricing model that offers offline in-school products free to cross-sell the lucrative online after-school products. Investing in this sector requires acceptance that the high upfront losses are a necessary evil which should generate returns through the lifetime value of K-12 students. For investors comfortable with this dynamic, we believe that 17 Education has attractive fundamentals. 

17 Education & Technology IPO Initiation: Acquired Taste

<ul>
<li>Game revenue, accounting for 74% of total revenue, grew by 20% in 3Q20.</li>
<li>The subsidiary, Youdao (DAO), spent more sale and marketing expense than its total revenue.</li>
<li>According to the P/S ratios of US game developers in 2021, we believe NTES will have an upside of 35%.</li>
<li>Please note that one ADS represents 5 shares now, compared to 25 shares in the last quarter.</li>
</ul>


Game revenue, accounting for 74% of total revenue, grew by 20% in 3Q20.
The subsidiary, Youdao (DAO), spent more sale and marketing expense than its total revenue.
According to the P/S ratios of US game developers in 2021, we believe NTES will have an upside of 35%.
Please note that one ADS represents 5 shares now, compared to 25 shares in the last quarter.


NetEase (NTES): In 3Q20, Rapid Growth, Weak Earnings Due to Minor Businesses

China

Youdao, Inc. develops and markets mobile internet applications. The Company provides language translation applications, personal cloud applications, e-commerce shopping applications, and other related products. Youdao also develops investment related applications.

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Youdao, Inc. (DAO US)

TAL Education (TAL): Meaningless Growth Rate in 3Q21

The stock price surged after the announcement of the 3Q21 result, as the revenue growth rate climbed up. However, we believe that TAL’s ability of...

Ming Lu

17 Education & Technology IPO: Valuation Insights

17 Education has launched its IPO at a price range of $9.50-11.50 per ADS. Our valuation analysis suggests that the IPO price is attractive.

Arun George

17 Edu & Tech IPO Valuation: Fairly Valued at the Lower End of the IPO Pricing

17 Education and Technology has set the terms for its IPO and plans to raise net proceeds of US$265.2m at the midpoint of the IPO pricing of...

Shifara Samsudeen, FCMA, CGMA

17 Education & Technology IPO Initiation: Acquired Taste

17 Education aims to raise net proceeds of $265.2 million through a Nasdaq IPO. In a fiercely competitive market, 17 Education has a unique...

Arun George

NetEase (NTES): In 3Q20, Rapid Growth, Weak Earnings Due to Minor Businesses

Game revenue grew by 20% in 3Q20. The subsidiary, Youdao (DAO), spent more sale and marketing expense than its total revenue. An upside of 35%.

Ming Lu

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