Alpha-Centric ESG Research

Kyle Rudden

Well, that sure escalated quickly.Early last week, in the Insight <a href="https://www.smartkarma.com/insights/pre-ipo-esg-analysis-didi-s-exemplary-esg-achievements-eclipsed-by-regulatory-risks-and-uncertainty" target="_blank" data-smartkarma-citation="insights:53687" rel="noopener">Pre-IPO ESG Analysis: DiDi's Exemplary ESG Achievements Eclipsed By Regulatory Risks and Uncertainty</a>, I juxtaposed <a href="https://www.smartkarma.com/entities/didi-chuxing-inc" target="_blank" data-smartkarma-citation="entities:27467:1" rel="noopener">DiDi's (DIDI US)</a> relatively strong ESG results in areas under its control with serious concerns about regulatory risk outside of its direct control.Late last week, days after DiDi's successful US$4.4 billion initial public offering, Chinese regulators ordered the removal of DiDi's business-critical ride-hailing apps from online app markets, until the company rectifies "serious violations" pertaining to collection and use of customer data.DiDi is down 5.3% so far (delayed open today).Regulatory risk was central to my thesis in the first Insight. I hardly anticipated this, but I referred to regulatory risk as real, near-term, tangible investment risk; not just some fuzzy ESG risk. Given that, I felt obliged to follow up. At the same time, however, this news is covered ad nauseam.No sense in beating a dead horse with a broken record.So, I decided to do something different. That statement about regulatory risk being a real tangible investment risk is primarily based on anecdotal evidence – i.e., when regulators flex their muscle, stocks go down, not up. But "anecdotal" isn't good enough.Which is why I took this opportunity to quantify the impacts of adverse regulatory events in China. Specifically, with event studies measuring abnormal returns around major regulatory events across four broad categories. That's what most of this Insight is about. But back to DiDi for a moment.Regulatory risk and uncertainty for DiDi is much worse today than it was last week. Typically, the opposite would be true; a negative event out in the open is better than a possible event lurking in the shadows. But not this time. Barring an immediate change of heart by the PRC, this is bad.Therefore, downgrading to bearish.

Well, that sure escalated quickly.Early last week, in the Insight Pre-IPO ESG Analysis: DiDi's Exemplary ESG Achievements Eclipsed By Regulatory Risks and Uncertainty, I juxtaposed DiDi's (DIDI US) relatively strong ESG results in areas under its control with serious concerns about regulatory risk outside of its direct control.Late last week, days after DiDi's successful US$4.4 billion initial public offering, Chinese regulators ordered the removal of DiDi's business-critical ride-hailing apps from online app markets, until the company rectifies "serious violations" pertaining to collection and use of customer data.DiDi is down 5.3% so far (delayed open today).Regulatory risk was central to my thesis in the first Insight. I hardly anticipated this, but I referred to regulatory risk as real, near-term, tangible investment risk; not just some fuzzy ESG risk. Given that, I felt obliged to follow up. At the same time, however, this news is covered ad nauseam.No sense in beating a dead horse with a broken record.So, I decided to do something different. That statement about regulatory risk being a real tangible investment risk is primarily based on anecdotal evidence – i.e., when regulators flex their muscle, stocks go down, not up. But "anecdotal" isn't good enough.Which is why I took this opportunity to quantify the impacts of adverse regulatory events in China. Specifically, with event studies measuring abnormal returns around major regulatory events across four broad categories. That's what most of this Insight is about. But back to DiDi for a moment.Regulatory risk and uncertainty for DiDi is much worse today than it was last week. Typically, the opposite would be true; a negative event out in the open is better than a possible event lurking in the shadows. But not this time. Barring an immediate change of heart by the PRC, this is bad.Therefore, downgrading to bearish.

PRC Shows DiDi Who's Boss: An Analysis of Adverse Regulatory Events on Stock Prices

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.

Equity Capital Markets

Alibaba Group Holding  / Equity Capital Markets

2019 marked our first full year of operations as an Independent Research Company, post spin-off from Smartkarma in August 2018. With our full-fledged focus on only covering IPOs and Placements, our main focus for 2019 was on improving our accuracy rate (as defined at the end of this report) across both IPOs and Placements. We ended 2019 with an accuracy rate of 80.21% across 96 IPOs and 70.48% across 105 placements. Both were our best performances since we started, in 2015.For those not familiar with our coverage, we aim to cover all IPOs and placements with a minimum deal size of US$100m across Asia-Pacific (ex-Korea), including China ADRs.

2019 marked our first full year of operations as an Independent Research Company, post spin-off from Smartkarma in August 2018. With our full-fledged focus on only covering IPOs and Placements, our main focus for 2019 was on improving our accuracy rate (as defined at the end of this report) across both IPOs and Placements. We ended 2019 with an accuracy rate of 80.21% across 96 IPOs and 70.48% across 105 placements. Both were our best performances since we started, in 2015.For those not familiar with our coverage, we aim to cover all IPOs and placements with a minimum deal size of US$100m across Asia-Pacific (ex-Korea), including China ADRs.

Aequitas 2019 IPOs and Placements Performance - Things We Got Right/Wrong and Things We Plan to Do

APAC IPOs & Placements

Zhen Zhou, Toh

<a href="https://www.smartkarma.com/entities/ecmoho-limited" target="_blank" data-smartkarma-citation="entities:28312:1" rel="noopener">Ecmoho (MOHO US)</a>, an integrated solutions provider in the non-medical and wellness industry, is looking to raise US$150m in its upcoming U.S. IPO.
Revenue grew by 103% and 112% in FY2018 and 6M 2019 respectively. Business seems to be scaling well as it works with more brand partners while repeat purchase rate has improved from 32% in 2016 to 35% in 6M 2019.
However, we think that the company looked more like a middle man distributing health and wellness products and has no advantage or moat over other online healthcare and wellness product distributors. Shareholders selling in the IPO suggests an eagerness to exit their investments which does not bode well for sentiment.

Ecmoho (MOHO US), an integrated solutions provider in the non-medical and wellness industry, is looking to raise US$150m in its upcoming U.S. IPO.
Revenue grew by 103% and 112% in FY2018 and 6M 2019 respectively. Business seems to be scaling well as it works with more brand partners while repeat purchase rate has improved from 32% in 2016 to 35% in 6M 2019.
However, we think that the company looked more like a middle man distributing health and wellness products and has no advantage or moat over other online healthcare and wellness product distributors. Shareholders selling in the IPO suggests an eagerness to exit their investments which does not bode well for sentiment.

Ecmoho (易恒健康) Pre-IPO Review - More Like a Middleman

<a href="https://www.smartkarma.com/entities/gsx-techedu" target="_blank" data-smartkarma-citation="entities:28069:1">GSX Techedu (GSX US)</a> raised US$208m at US$10.50 per share, the mid point of its IPO price range. We have previously analyzed the IPO in:<ul>
<li><a href="https://www.smartkarma.com/insights/gsx-techedu-ipo-early-thoughts-successful-pivot-away-from-marketplace-model" target="_blank" data-smartkarma-citation="insights:29706">GSX Techedu (跟谁学) IPO Early Thoughts - Successful Pivot Away from Marketplace Model</a></li>
<li><a href="https://www.smartkarma.com/insights/gsx-techedu-ipo-review-profitable-online-education-company" target="_blank" data-smartkarma-citation="insights:30096">GSX Techedu (跟谁学) IPO Review - Profitable Online Education Company</a></li>
</ul>In this insight, we will update on the deal dynamics, implied valuation, and include a valuation sensitivity table.

GSX Techedu (GSX US) raised US$208m at US$10.50 per share, the mid point of its IPO price range. We have previously analyzed the IPO in:
GSX Techedu (跟谁学) IPO Early Thoughts - Successful Pivot Away from Marketplace Model
GSX Techedu (跟谁学) IPO Review - Profitable Online Education Company
In this insight, we will update on the deal dynamics, implied valuation, and include a valuation sensitivity table.

GSX Techedu (跟谁学) Trading Update - Almost off to a Good Start

<a href="https://www.smartkarma.com/entities/27997" target="_blank" data-smartkarma-citation="entities:27997:1">Yunji Inc. (YJ US)</a> raised US$120m at US$11 per share, the bottom of its IPO price range. The company was initially expecting to raise up to US$176m through selling 13.5m ADS but it was downsized to 11m ADS. We have previously covered the IPO in:
<ul>
<li><a href="https://www.smartkarma.com/insights/yunji-pre-ipo-review-poor-disclosure-on-data" target="_blank" data-smartkarma-citation="insights:28763">Yunji (云集) Pre-IPO Review - Poor Disclosure on Data</a></li>
<li><a href="https://www.smartkarma.com/insights/yunji-ipo-review-expensive-goods" target="_blank" data-smartkarma-citation="insights:29336">Yunji (云集) IPO Review - Expensive Goods</a></li>
</ul>
In this insight, we will update on the deal dynamics, implied valuation, and include a valuation sensitivity table.

Yunji Inc. (YJ US) raised US$120m at US$11 per share, the bottom of its IPO price range. The company was initially expecting to raise up to US$176m through selling 13.5m ADS but it was downsized to 11m ADS. We have previously covered the IPO in:

Yunji (云集) Pre-IPO Review - Poor Disclosure on Data
Yunji (云集) IPO Review - Expensive Goods

In this insight, we will update on the deal dynamics, implied valuation, and include a valuation sensitivity table.

Yunji (云集) Trading Update - Tiny Adjusted Free Float + Expensive Valuation

China

Yunji Inc provides e-commerce services. The Company offers online consumer products such as beauty, personal care, digital items, toys, and other related goods. Yunji serves customers in China.

Yunji Inc. (YJ US)

PRC Shows DiDi Who's Boss: An Analysis of Adverse Regulatory Events on Stock Prices

Last week, I wrote about DiDi's regulatory risk. This week, it's worse. Hence the downgrade. But this is mostly an analysis of how regulatory...

Kyle Rudden

Aequitas 2019 IPOs and Placements Performance - Things We Got Right/Wrong and Things We Plan to Do

2019 marked our first full year of operations as an Independent Research Company, post spin-off from Smartkarma in August 2018. With our...

Sumeet Singh

Ecmoho (易恒健康) Pre-IPO Review - More Like a Middleman

Ecmoho (MOHO US), an integrated solutions provider in the non-medical and wellness industry, is looking to raise US$150m in its upcoming U.S....

Zhen Zhou, Toh

GSX Techedu (跟谁学) Trading Update - Almost off to a Good Start

GSX Techedu (GSX US) raised US$208m at US$10.50 per share, the mid point of its IPO price range. We have previously analyzed the IPO in: GSX...

Zhen Zhou, Toh

Yunji (云集) Trading Update - Tiny Adjusted Free Float + Expensive Valuation

Yunji Inc. (YJ US) raised US$120m at US$11 per share, the bottom of its IPO price range. The company was initially expecting to raise up to US$176m...

Zhen Zhou, Toh