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Smartkarma Announces Strategic Investment from SGX to Bolster Singapore’s Research and Financing Ecosystem

By | Press Release

SGX is the first exchange globally to capitalise on Smartkarma’s groundbreaking solutions for corporates, analysts, and investors 

SINGAPORE, 9 JULY 2019: Smartkarma, the global investment research network, today announced it has received a strategic investment from Singapore Exchange (SGX). The investment marks the next step in ensuring a vibrant financial research ecosystem. It further underpins Singapore’s vision to serve as Asia’s centre for capital raising and enterprise financing.

Existing investors including Sequoia India and Wavemaker Partners also participated in this investment, which affirms their ongoing confidence in Smartkarma.

The strategic investment cements a joint journey of collaboration between SGX and Smartkarma. Aligning with the Monetary Authority of Singapore’s (MAS) recent announcement of the Grant for Equity Markets (GEMS) to strengthen research coverage of Singapore enterprises, this is a resounding validation of what Smartkarma has been working on from day one: the reinvention of the global investment research market through technological innovation.

The deal comes at a point when Smartkarma is in the final stretch of launching Corporate Solutions globally. As Asia’s leading and most trusted multi-asset exchange, SGX was a pilot partner during the development of Corporate Solutions, a brand-new range of services for C-Suite and Investor Relations personnel of listed companies worldwide.

SGX will be the first exchange in the world to bring the power of this new global platform to all its listed and upcoming companies, as well as global bond issuers.

SGX-listed companies and bond issuers will be the first to plug into, and take advantage of, Smartkarma’s established global network of independent analysts and investors. They will get value from connecting directly to investors and analysts, and distributing pivotal updates and information to their networks quickly and efficiently.

SGX recognises the global need of corporates to connect to institutional investors and analysts. Exchanges the world over are trying to diversify their services and exploring ways to bring more value to their companies. There is a market gap there that has only widened following regulatory developments like Europe’s MiFID II legislation.

In this evolving market, Smartkarma empowers companies with its groundbreaking technology platform, establishing connections, offering unique data and analytics, and promoting high-quality independent research to improve investment decision-making. Corporate Solutions has been designed to put the issuer first, and will form a key part of the value SGX aims to bring its companies and clients.

“Shifting regulations and changes in the investment research industry are affecting all parts of the ecosystem. From the very beginning, we have been working hard to address the fundamental gaps we see around us,” says Raghav Kapoor, Co-Founder and CEO of Smartkarma.

“We are building a network that connects companies, analysts, and investors, starting from Singapore and spreading throughout the global markets. SGX shares our conviction that technological innovation is the key to navigating this new landscape, and Singapore-listed companies will be the first to experience the fruits of this labour,” he adds.

“Regulatory and market developments show that enlightened corporates can no longer rely on traditional banks and brokers to manage their listing, fundraising, and shareholder relationships,” says Jon Foster, Co-Founder and Chairman of Smartkarma. “With new technology and open networks, like Smartkarma and SGX, it is now easier than ever for corporates to eschew these closed, expensive old-boy networks and take control.”

“Research data and information are crucial to making informed investment decisions. With the advent of technology, we see tremendous potential in this innovative platform that is adding another dimension to fundamental investment research. As SGX continues to uphold the standard and availability of research coverage through initiatives such as partnering with the Monetary Authority of Singapore on GEMS, we are also investing in new models to serve investors and companies now and in the future,” says Chan Kum Kong, Head of Research and Retail, SGX.

We Are Reinventing Research Worldwide

Steadfast in our belief in the value of truly independent, unbiased research, and dedicated to fostering innovation in Singapore’s investment research ecosystem, Smartkarma will also be bringing our world-first Independent Research Accelerator, Boost Research, to Singapore. Boost Research has been operating successfully in London for the past year.

Additionally, Smartkarma will offer SGX’s institutional bond trading clients access to its platform, enabling them to access unique institutional research into corporate and sovereign bonds and fixed interest products, strengthening their bond trading activities.

— ENDS —


Media contact:



Michael Tegos

Tel: +65 6715 1480

Email: [email protected], [email protected]

See Smartkarma’s press kit here


About SGX

Singapore Exchange is Asia’s leading and trusted market infrastructure, operating equity, fixed income and derivatives markets to the highest regulatory standards. As Asia’s most international, multi-asset exchange, SGX provides listing, trading, clearing, settlement, depository and data services, with about 40% of listed companies and over 80% of listed bonds originating outside ofSingapore. SGX is the world’s most liquid international market for the benchmark equity indices of China, India, Japan and ASEAN and offers commodities and currency derivatives products. Headquartered in AAA-rated Singapore, SGX is globally recognised for its risk management and clearing capabilities. For more information, please visit


About Smartkarma

Smartkarma is a global investment research network, made up of independent Insight Providers who produce, curate, and publish unbiased intelligence for institutional investors. Smartkarma reinvents research by providing differentiated, independent analysis on companies, markets, and industries across the world. This includes areas under-reported by mainstream market coverage, including Event-Driven, IPOs & placements, and small/mid cap equities. Smartkarma’s online platform allows the buy-side to set their own real-time alerts, customise their reading lists, directly contact Insight Providers, and remain MiFID II-compliant as unbundling regulations change the investment research industry. For more information, visit

Ride Hailers: Disruptive Technology Platform or Taxi Dispatch Service Operators?

By | Smartkarma Originals

A joint report by LightStream Research & Henry Kwon

Ride hailers pitch themselves to investors and regulators as disruptive P2P technology platforms which serve to link passengers with both commercially licensed and unlicensed vehicles using mobile apps.  These services closely resemble services offered by dispatchers in the taxi dispatch service segment.  However, because ride hailers are free from fixed fare and fleet size limitations imposed on the taxi industry in virtually all jurisdictions around the world, they have been able to utilise surge pricing to dramatically reduce the response time to customers at peak hours.  During non-peak times, ride hailers tend to undercut traditional taxi pricing and, in our view, these two factors have provided greatest growth drivers for ride hailers over the past several years.

In our report conducted jointly by Henry Kwon and Lightstream Research for Smartkarma, we have analysed a large variety of markets in North America, Latin America, Europe, Asia (East, SouthEast and South), the Middle East and Africa to attempt to discern the characteristics which will determine the long-term winners in this industry and understand their true nature as businesses. As part of this process, we interviewed the dominant ride-hailing application in Sri Lanka (where many of the LSR team are based). The company, known as PickMe is unusual in that it is profitable at the EBITDA margin despite being constrained to an extremely small market with very low ASPs. By conducting this detailed research, we identified the following broad patterns in the ride-hailing markets around the world:

  1. Ride hailers display all the characteristics of traditional taxi dispatch services with added scalability at peak times through surge pricing, which dramatically reduces response time to get to customers. Traditional taxi operators are legally prevented from increasing fleet size and their fares are strictly regulated.  This is what taxi operators around the world have been complaining about as the “unlevel playing field” against ride hailers.
  2. Technological entry barriers are low. This is attested to by the sheer number of successful local ride-hailing apps in operation in virtually all nations and certainly in all regions that we have examined.
  3. Regulations are evolving to place ride hailers under closer scrutiny by all jurisdictions based on concerns over public safety and congestion, given early indications in the U.S. municipalities highly suggest that ride hailers add to, rather than take away from, urban traffic congestion.
  4. While the question of drivers’ employment status has been addressed in only a few jurisdictions, some key ride-hailing markets such as NY, London, and California are moving towards either wage or status definition.
  5. Finally, empirical evidence based on academic studies in the U.S. suggest that 91% of ride-hailing users have not switched their vehicle ownership practices so the argument put forth by ride hailers about car ownership being a thing of the past should be seen as long term mission statement at best, not realisable guidance over the next several years.

The question of whether ride hailers are taxis, private hire vehicles or P2P technology platforms, are in the process of being worked out by each jurisdiction that we have analysed, each with its own set of priorities (traffic congestion, public safety and/or service quality).  In the end, we believe that ride hailers will come to be regulated one way or another just as the taxi industry was placed under regulation in the early part of the 20th century in the U.S. that closely resembles the current moves to regulate ride hailers. This means that ride hailers will have to pay taxes, answer to any pricing/licensing/fleet size regulations that authorities may impose based on their perception of ride hailers’ role in public welfare, and as NYC and London are imposing, certain wage and quasi-employee status requirements will have to be met.  This is likely to result in long term cost pressures for ride hailers that may not be reflected in current consensus analyst forecasts, despite disclaimers from both Uber and Lyft that increased regulations will likely lead to higher cost pressures and/or the need to increase their prices.

Current equity market valuations have likely priced in these factors based on the post-IPO price performances of Uber (UBER US) and Lyft Inc (LYFT US), but the notion that ride hailers are taxi companies may not have sunk in completely, and it is this risk that we believe investors should keep in mind.  Based on our observations, we further believe that localized EM ride hailers are better positioned competitively against developed market players based on business model sustainability.

Competitive Advantage Comparison: DM vs EM/Local Ride Hailers

Global Players

EM/Local Players

Knowledge of Home Market Rules?



Under-developed/Deteriorating Home Market Public Transit systems?



Accommodative government regulators?



Drivers ability to make a living as independent contractors to ride hailers under current pricing?






Scale: O (Lowest) – 5 (Highest)

Source: Henry Kwon & Lightstream Research

We favour the emerging markets partly because we believe local knowledge is a key competitive advantage that has been demonstrated repeatedly, mostly through instances of local players beating out global major Uber and forcing its exit. Consumer customs are key to attracting riders and examples of their importance include Didi offering e-cashback rewards whereas Uber offered its standard discounts for fees, early offerings of three and two-wheeled options by local operators around South and South East Asia whereas Uber was slow to offer these same services, and Ola offering the booking of rides and information updates through SMS for India where smartphone penetration is lower than many other regions.

This need for localisation allows emerging market players to more than offset potential scale advantages generated by players like Uber on the cost side, particularly on server fees due to volume purchasing. Emerging markets also typically have an under-developed public transport system and taxi operators. As such, the overall competitive situation is less intense even if market sizes can be much smaller and penetration rates could be difficult to raise quickly with lower-income customers. In addition to reduced competition, the situation also typically makes regulators more welcoming of these services in order to address transport infrastructure deficiencies. The national loyalty and pride in a locally sourced “tech” company should also not be underestimated.

This situation potentially can allow these operators, not to displace incumbents, because they barely exist, but instead to focus on developing their ecosystem and build out the services already available in developed markets with lower up-front costs while also creating moderately well-paying jobs. The extension into other services such as food delivery may be similar to developed markets but financial services are an area where there is again often no incumbent to replace due to low levels of banking and loan penetration. Taxi operators in these regions typically do not have a real empire to protect and are more likely to be enticed by the potential to grow the pie than by the idea of defending their share of it.

For all these reasons we believe this industry is likely to generate the most value in emerging markets rather than in developed ones. In a nutshell, we believe the true change in economics that these models bring are not so much in running costs but in up-front costs (no need to invest in a massive taxi fleet, safety can be complemented with tracking rather than just background checks and driver screening and professionalism can be maintained through ratings rather than expensive training and reinforcement). As such we view them as poor versions of disruptive tech companies but as potentially very attractive tech companies if their role is to accelerate development (although valuations may or may not be justified).

LightStream Research • Equity Analyst • (Opens in a new window) ⧉

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Entities 27901-28000

By | Entity Directory
What This Activist Investor Who Was Feared Throughout Japan Can Teach About Positive Change

What This Activist Investor Who Was Feared Throughout Japan Can Teach About Positive Change

By | Corporates

In a previous blog post, we saw a report from Activist Insight that outlined how shareholder activism is a growing trend in Asia as well. The research found that Japan has seen some of the most instances of shareholder activism in the region from 2013 onwards. 

It’s perhaps fitting, then, that one of the most notorious Asian activist investors of the past two decades is Japanese.

Yoshiaki Murakami’s name used to strike fear in boardrooms throughout Japan – at least until a fall from grace in 2007. His reappearance and renaissance in recent years signifies a shift in how corporates are dealing with shareholder activists.

Pioneer Activist

A former government employee, Murakami decided to set up his own fund in 1999. He claimed that his time in Japan’s trade ministry drilled into him the importance of good corporate governance. 

As a shareholder, he became one of the most vocal supporters of activism and change in companies, which he felt were underperforming. His style was highly unusual in the country, where the general tendency of shareholders was to not get directly involved in management affairs.

As a result, he made a name for himself in tussles with companies like transportation and property conglomerate Seibu Railway and the Osaka Securities Exchange.

He became famous for demanding greater returns for shareholders and “showing how capital markets, including management-shareholder relations, should be,” according to his own statement. 

Part of his credo, which should be illuminating for any corporate dealing with shareholders, was that cash flow is for a company akin to blood flow for a human body. “The flow of money is essential for the growth of corporations, and there are negative side effects to the health of a corporation if this flow is blocked,” he said.

Responding to concerns that his investments caused market speculation, Japanese regulatory authorities changed reporting rules so that investors had to report shareholding acquisitions larger than 5 percent. 

His fund came to be worth JPY 444 billion – then it all came crashing down in 2007, when Murakami was indicted on allegations of insider trading.

A Return to Activism

Murakami reappeared in recent years to once again take an active role in corporate governance. An attempt to appoint outside directors in Kuroda Electric in 2015 was a return to form for the activist, even though it did not succeed.

He was more successful last year, when he stepped in to solve a merger block between oil refinery firms Idemitsu Kosan and Showa Shell Sekiyu. The companies had been locked in a dispute between the founding family of Idemitsu and Showa Shell management. 

Murakami acquired a stake in Idemitsu so that he could take part in the deal as a shareholder, instead of just being an outside advisor. He managed to convince the founders to let the integration go forward, while also getting some concessions for shareholders.

The merger was successful, going into effect just this week, with the combined entity now counting Saudi Aramco as its second largest shareholder.

More recently, Murakami was involved in the management buyout attempt of Kosaido, a group that includes, among others, a printing business and a funeral parlour business.

The group faced a takeover by Bain Capital, but Murakami and his group of companies launched a tender offer to grab a majority stake.

Although the tender offer failed, Kosaido moved quickly to overhaul its corporate governance structure, according to Murakami’s proposals and recommendations, and cleaned up the board while removing CEO Tsuneyoshi Doi.

Having written extensively about the deal for months, Insight Provider Travis Lundy hailed the latest development as “good news” in his latest note, although he remained skeptical of a stock price hike.

Read Travis Lundy’s full Insight: Kosaido Moves Quickly Post Failed Tenders

Making the Most of All Stakeholders

The changing face of shareholder activism in Japan reflects a broader trend in Asia. As the region attracts ever more international investment, corporates must be aware of the implications.

Activist incidents like the ones spearheaded by Murakami ingrained in Japan the need for companies to be more transparent and open about their corporate governance. Efforts by Shinzo Abe’s government, as well as an acknowledgment that shareholders reward companies that take the necessary steps to improve, came as a result of such activities.

This doesn’t just mean a solid corporate governance structure that brings value to the company and to shareholders.

It also requires an awareness of the overall ecosystem around the company; the investors, analysts, competitors, and yes, activists who tug and pull at the company from all sides. 

If company management is to successfully navigate the market waters, it needs to pay attention to all these stakeholders – and, as Murakami has shown on many occasions, to make the most of their influence.

Don’t be caught unawares – maintain and build your contacts and relationships through an all-encompassing network. Sign up for a FREE account on Smartkarma’s Corporate Solutions, a brand-new range of services for C-Suite and Investor Relations personnel of listed companies that’s been designed to help IR professionals establish and maintain valuable connections to the investment and analyst communities.

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Self-reflection and Change from Within for the Investment Research Industry: the Real Impact of MiFID II

Self-reflection and Change from Within for the Investment Research Industry: the Real Impact of MiFID II

By | General

When the European Union enacted MiFID II, the aim was to increase transparency and accountability in an opaque, aging market. 

The theory was that larger investment banks would stop bundling research fees together with financial service charges. Investment research would be free of resulting conflicts, like Investment Bank A pushing positive research on company B because A is in business with B.

It would lead to better-quality research instead of repetitive, low-value notes, at which no one raised an eyebrow since they didn’t have to pay for them.

The changes triggered a quake in the global investment research market – even far beyond the EU’s jurisdiction – and the dust has yet to settle. The clarity of vision the legislation aimed for remains elusive.

It’s clearer than ever that meaningful change in the market can only come from completely different models. 

Questionable Progress

In terms of MiFID II successfully changing the industry for the better, a consensus is equally hard to find. There are some who claim it has been a boon to end investors, i.e. the people who pay funds to seek great returns for them. This view is, to put it mildly, widely disputed.

Instead, several voices argue that the regulation has been to the market’s detriment. Not only has it failed to improve the quality of research and break the large investment banks’ stranglehold on the bulk of research coverage, but there is now less research to go around overall.

A survey among CFA Institute members earlier this year found that most respondents aren’t thrilled with how things are panning out. Buy-side respondents overwhelmingly reported less research demand on their part, while sell-side analyst job cuts continued apace.

More worryingly, a large segment of respondents thought that small- and mid-cap research dropped in both quality and quantity. They also said research budgets have decreased, more so for larger firms. This is the exact opposite of what MiFID II was supposed to achieve.

Self-reflection and Change from Within for the Investment Research Industry: the Real Impact of MiFID IISell-side Identity Crisis

Where the legislation seemed like it would benefit independent analysts, the market went a different way. A report by Greenwich Associates late last year found that, by mid-2018, more than half of research and advisory budget allocation went towards global investment banks – 60 percent of it in the case of larger asset managers.

All this points to more fundamental problems in the market than lawmakers perhaps anticipated. 

Instead of the market opening up more, turning towards independent analysts for truly objective and conflict-free research, it remains steadfast in its preference for large investment banks. 

Instead of the unbundling of research and advisory service pricing leading to more transparency, it has resulted in the buy-side refusing to take meetings or calls from the sell-side to avoid running afoul of regulations or being charged each time. 

And instead of the traditional sell-side refining their processes in terms of the research they provide, they slashed jobs and cut costs while delivering the same old research offerings, leading to several analysts leaving the industry altogether.

Could it be that there was no real there there, and that unbundling has revealed the sell-side never was delivering such great investment ideas in the first place? 

The fact that the uncertainty extends beyond the borders of the European Union, only stresses the need for further change. But at the same time, the true value of MiFID II may yet be to shine a floodlight on those problems, rather than solve them with the stroke of a pen.

Read more on our blog: Beyond Europe: How MiFID II Spurs Regulatory Change Across the Globe

Untapped Research Value

The rise of “research-tech” during this time is not an accident, as several stakeholders realise how fundamentally technology can change their processes. “Fintech across the value chain is supporting the reinvention of research via an explosion of data, tools, and distribution methods,” writes Celent’s David Easthope. 

Technology platforms can give the buy-side full control over what research it consumes, how much it pays for it, and how it interacts with analysts as well as corporates. Compliance, transparent pricing, and a slew of actionable data are just a few of the benefits that research-tech brings to the table.

Independent analysts, for their part, get a direct channel of distribution that was not available before. This gives them greater control over their output but even more importantly, it allows them to pursue the research they deem valuable and important, without a higher power calling the shots.

Traditional sell-side still largely follows the “everything and the kitchen sink” approach, in the hopes that clients will find value in at least some of its offerings. A tech-enabled platform, on the other hand, understands and adapts to the needs of the user. 

It can deliver research on the sectors, companies, and topics the user is truly interested (and invested) in. It can connect the user to a network that could previously only be accessible through the traditional establishment.

As the market keeps coming to terms with MiFID II and any amendments to the law that might follow, perhaps the true impact of the legislation is this: It has forced the investment research industry to take a long, hard look in the mirror – and evidently, it did not like what it saw. Instead of raging at its reflection, it’s time to look elsewhere to find the change it needs.

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Slack direct listing on NYSE

5 Takeaways from Slack’s Direct Listing

By | General

Photo credit: NYSE

Slack is the latest tech hopeful foraying into the public markets through a direct listing. It comes hot on the heels of famous names like Uber and Lyft and not-so-famous like Crowdstrike and Chewy. Software companies command a huge part of the market’s interest, and Slack is no exception.

The direct listing is the other reason the workplace chat app maker is getting so much attention. In such a listing, the company doesn’t go through traditional underwriters or issue new shares. Rather, existing shares start getting traded directly on an exchange. 

Only the second notable company in recent years to do that, after Sweden’s Spotify, Slack has caused unrest in markets with this unorthodox approach. Now that the stock is out there and trading, let’s see what it means for Slack and the public markets.

There Will Be More Direct Listings

Slack’s share price shot up 50 percent at listing. While it has slid since then, this may signal to other companies that they don’t need to go through the whole process of an IPO (involving underwriters, exorbitant fees, time-consuming roadshows, etc.) when they can just go straight to the markets. 

While the last few years have seen only two high-profile direct listings, some predict the trend will catch on. Among them are Morgan Stanley’s Colin Stewart and veteran VC Bill Gurley. They think that not only there will be more such listings in the near future, all of them should be done this way.

Stewart expects five or more direct listings in 2020, while Gurley writes, “This is how 100 percent of IPOs should be done. And hopefully will one day.”

But It’s Unlikely to Dominate as a Listing Path

While the direct listing route sounds attractive, especially for tech firms – what’s more aligned with Silicon Valley thinking than cutting out the middleman? – it’s not as practical for every company out there.

Slack and Spotify are both well-known, recognisable brands. This helps when you have to convince investors to buy your shares, rather than have underwriters who will give you that initial boost. Smaller companies in more obscure sectors seeking to list will have a harder time pulling that off.

The Role of Banks in IPOs Is Changing

While Slack didn’t have traditional underwriters, it worked with major banks Allen & Co., Goldman Sachs, and Morgan Stanley as advisers. 

This signals different ways for banks to work with companies that seek to go public. Online networks and tech-enabled connectivity can help investors discover promising companies, while founders can educate the market without the need for traditional roadshows.

In fact, Slack chose to hold its own remote “investor day“, eschewing the usual pitching sessions that would take up valuable time and resources.

In an ecosystem where company management can interact directly with investors and analysts and build such relationships over time, the role of large investment banks would be further changed – giving the advantage to those who can adapt to the new paradigm.

Slack Would Likely Do Well Regardless of Its Path to IPO

Tech IPOs have been plagued by a lot of common issues: companies that are popular but wildly unprofitable, dual-class share structures complicating the relationship between shareholders and management, and a host of complications in their path to profitability.

Read our blog: Lyft’s IPO May Be Oversubscribed but Investors Are in for a Bumpy Ride

Slack shares a lot of those characteristics but it’s in a better shape than others. Yes, it did post an annual loss of US$140 million for 2018, but this is nothing compared to the billions Uber still bleeds. 

In his assessment of the company, both before and after its listing, Douglas Kim applied a nine-point checklist that he uses to determine the viability of a tech IPO. He found that Slack fulfilled all nine criteria, including having a reasonable timeline for profitability, a first-mover advantage, and proven management.

Read Douglas Kim’s full Insight: Slack Investment Strategy Post Direct Public Offering

It’s also important to note that Slack didn’t raise additional financing through this listing. Unlike, say, Lyft, it doesn’t seem like it will need it. According to public data, Slack has raised around US$1.4 billion in private funding, which would presumably keep it going on its road to profitability.

Companies Could Stay Private for Longer

Companies like Slack increasingly forego the public markets in favour of staying private. The abundance of private capital, combined with the freedom it grants management who don’t have to deal with shareholders besides direct investors, makes a lot of founders think twice before they pull the trigger.

Prominent tech names like Airbnb and Palantir have expressed interest in going public (even through a direct listing, in the former’s case) but have yet to make major moves. If direct listings are indeed becoming a trend, allowing them to have more control over the process, it could bring about a new batch of public companies abandoning traditional approaches to go forward on their own terms.

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The Blockchain Delusion. A (Mostly) Bearish Investment Thesis.

By | Smartkarma Originals

Since its emergence as the technology underpinning Bitcoin over a decade ago, blockchain has captured the imagination of technologists, investors and charlatans in roughly equal measure. Blockchain has been portrayed by its advocates as the solution to some of the most fundamental challenges facing modern-day society including free and fair elections, the protection of identity records and title deeds, supply chain integrity and, of course, enabling all manner of exotic cryptocurrencies. Little wonder then that we experienced a wave of blockchain mania which coincided with a similar level of cryptocurrency mania in late 2017. During that time, companies were adding “Blockchain” to their names and seeing their share prices soar by many multiples within weeks. Just as the crypto bubble burst in early 2018, so too did the blockchain bubble. Share prices of so-called blockchain companies collapsed just as quickly as they had risen. Testifying before a US senate committee in October 2018, professor of economics Nouriel Roubini was scathing in his criticism of blockchain referring to it as  “The most over-hyped technology ever, no better than a spreadsheet/database”.

 Now, as the dust settles and the mania fades, we witness the emergence of a new class of enterprise-grade blockchain implementations led by the likes Hyperledger, Corda and various customisations of Ethereum. While the blockchain technologies supporting the likes of Bitcoin and Ethereum are public in so far as the data they contain is accessible by anybody who wishes to view it, these enterprise blockchain implementations are private, a necessary prerequisite for their potential deployment at major corporations and financial institutions. This distinction, along with a number of other important differences, means that enterprise blockchain represents a significant departure from the original public blockchain concept.

Today, enterprise blockchain is being deployed to tackle challenges across a swathe of verticals thanks to the likes of the Big Four consulting firms striving to position it at the heart of their business process reengineering practices. From Maersk to Walmart, they are convincing some of the world’s biggest conglomerates to tackle age-old issues relating to outdated, inefficient, labor intensive business practices, all in the name of  blockchain.

It’s not just the Big Four that are cashing in on enterprise blockchain. Professional services firm Accenture is investing heavily in its blockchain consulting practice. Blockchain as a Service (BaaS) solutions are available from enterprise software giants Intl Business Machines, OracleSAP and Microsoft and more recently from China’s Alibaba and Baidu. Intel wants to ensure that enterprise blockchains runs best on its servers while Microsoft and Amazon want to host them on their clouds. It’s little surprise then that enterprise and government spending on blockchain is expected to reach $2.9 billion in 2019, an increase of 89% over the previous year according to IDC. Furthermore, they predict that spending on enterprise blockchain will reach $$ja12.4 billion by 2022.

In common with Roubini, our belief has long been that blockchain as a technology offers little that was not already available elsewhere and before. Enterprise blockchains bear little resemblance to the technical ingenuity that gave us Bitcoin, but which is otherwise largely useless. The populist mantra that enterprise blockchain has the ability to transform the business processes of major corporations, key industry verticals and governments is a largely a delusion in our opinion. This recent report from McKinsey further supports our perspective, noting that blockchain has yet to become the game-changer some expected and recommending that it should only be considered when it is the simplest solution available.

Paradoxically, if the allure of blockchain can be leveraged as the motivating factor to undertake the much-needed digital transformation and business process re-engineering required to modernize outdated, legacy practices and procedures, then it may indeed have some inherent, albeit unintended, value. Furthermore, our interviews with the CEOs of two small, privately held startups clearly indicated that they are actually finding important, albeit niche, use cases for blockchain technologies in their solution stacks.  In this context, it makes sense to view blockchain as an emerging technology actively seeking real-world use cases and likely to be strongly promoted by its proponents in the coming years.

Against this backdrop, how should investors think about the investment opportunities for blockchain? For starters, venture capital interest grew significantly in 2018 with some $5.4 billion invested in blockchain related startups, up from $1.5 billion the previous year according to Autonomous Research. Nonetheless, our analysis of multiple categories of companies with blockchain exposure reveals a harsh reality. Neither their blockchain related revenues nor any cost savings directly attributable to the technology are significant enough to have any meaningful impact on their valuations from a fundamentals perspective, a situation we do not expect to change any time soon. The same holds true for the blockchain-related ETFs and hedge funds we examined.

On a more positive note, there are some excellent companies doing exciting things with blockchain and related technologies. Privately held GuardTime and Digital Assets should be on investors watch lists for funding rounds and IPOs. We expect publicly listed Digital Garage and Broadridge Financial Solutions to continue to perform well and feel that they should be considered as part of a broader fintech portfolio. By the same token, we are positive on the growth opportunities of blockchain-associated multinationals such as Microsoft, IBM, Visa, Mastercard etc, albeit for reasons that have little to do with blockchain.

Ingenuity • Semiconductor & Technology Specialist • (Opens in a new window) ⧉

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Samsung Electronics. A Bearish Investment Thesis.

By | Smartkarma Originals


We have a negative view of Samsung Electronics over the next one to two years. We believe investors will have an opportunity to buy Samsung at cheaper prices over this period. 

  1. Main reasons for being Bearish on Samsung Electronics and the impact on valuations:

[The five major reasons why we are Bearish on Samsung Electronics are as follows:

a) Continued loss of market share in global smartphone sector – Samsung has been losing market share in the global smartphone sector in the past several years, driven by intense competition from major Chinese players including Huawei and Xiaomi. These players have dramatically shifted the nature of competitive dynamics in the global smartphone sector. A key part of these competitors’ strategy has been to introduce consumer friendly smartphones with 80-90%+ features that are included Samsung’s high end phones but at 20-40%+ cheaper prices. This strategy has really worked in the past few years and Samsung been slow and inadequate in fighting against this strategy by its competitors. 

We expect Samsung to continue to lose its market share in the global smartphone sector to its major competitors in the next three years. In addition to lower market share, we expect the operating margin of the IM (IT & Mobile) unit to decline from an average of 10.7% from 2016 to 2018 to an average of 9.5% from 2019 to 2021. Samsung is likely to become much more aggressive in promoting and marketing its smartphones which is likely to squeeze the IM unit’s operating margin even further. 

b) Continued loss of market share in global DRAM & NAND sectors along with further slump in the semiconductor unit in 2019/2020 – Samsung has been losing market share in the global DRAM and NAND Flash memory segments in the past two years. We expect Samsung to continue to lose its market shares in these two critical business segments in the next three years to other new Chinese competitors including Yangtze Memory & Innotron Memory as well as to existing competitors such as SK Hynix. In addition to further market share losses, we believe the global semiconductor memory sector is not likely to make the start of a strong multi-year rebound in growth until the 2021-2022 period.

Among Samsung’s numerous business lines, the smartphone business (IM) and semiconductor are the most important in terms of sales and profits. These two units accounted for 77% of total sales and 93% of total operating profit in 2018. These two business units are the areas where Samsung is facing the biggest threat to its market share and profitability over the next three years. 

c) Moon Jae-In administration’s dangerous socialist experiment in Korea is likely to continue to put continued negative pressure on Samsung’s operations and profits. 

d) We believe we are currently in the TRANSITION stage to the Fourth Industrial Revolution. Thus, before getting too enthused with all the potential that these new technologies (including AI driven autonomous vehicles and 5G services) are likely to provide, we believe it is better to focus on the time frame of when these technologies will be adopted by the consumers in mass (2022-2023), which are likely to lead to a long-term consistent growth of their sales and cash flow.

This is a key reason why we have a negative view of Samsung over the next one to two years (2019-2020) as we think the mass consumers adoption of these new revolutionary technologies are still 3-4 years away and there not likely to be a meaningful contribution to Samsung’s sales and profits over the next two years from them. 

e) Valuations are not attractive – Our base case valuation target of Samsung Electronics over the next one to two years is 37,485 won, which is 18% lower than the current price of 45,700 won. Our base case valuation is based on 8.9x P/E multiple (average P/E in the past six years) using our estimated annual net profit of 25.2 trillion won (which is derived from our average net profit estimates in 2020 and 2021.  

  1. Why clients should read this report/target audience:

[The target audience of this report is for institutional investors who already have a position in Samsung Electronics or those who are seriously interested in buying or selling its shares. It is intended to cover a broad spectrum of Samsung’s entire business lines with a focus on the company’s smartphone and semiconductor businesses.] 

  1. Primary data used/people we have spoken to:

[We have spoken directly to numerous IR/finance department professionals of Samsung Electronics, as well as several distributors of SK Telecom, KT, and LG Uplus mobile phone retail outlets].

Outline of A Bear Investment Case of Samsung Electronics report

  • Samsung Electronics (Main Business Background)
  • Major Competitive Threats & Industry Analysis of Global Smartphone Market 
    • Global market share analysis of global smartphone sector
    • Major Competitors/Threats to Samsung in the Smartphone Business
    • What do people actually use their smartphones for?
    • 5G Availability Around the World & The Pareto Principle
    • Launch of the 5G Services in Korea
  • Major Competitive Threats & Industry Analysis of Global Semiconductor Market
    • Key Chinese semiconductor memory players (Yangtze Memory & Innotron Memory)
    • China, the Balance of Power in Asia Pacific, & the Semiconductor Sector
    • SK Hynix’s plan to invest 120 trillion won on the semiconductor sector
    • Aggressive expansion of the System LSI/Foundry Business
  • Consumer Electronics, Display, & Harman Business Units
  • What Would Cause to Change Our Minds? (Top Seven Events)
    • Timeline of rolling out “fully” autonomous vehicles
    • Korea National Assembly election
    • Apple’s launch of 5G smartphones
    • Emergence of “Netflix” of cloud gaming
    • AR glasses go mainstream
    • Transition to 5nm and 3nm chips
    • US and China finally agree to settle the trade war 
  • “The Art of Investing” & The Fragile Transition Stage to the Fourth Industrial Revolution
  • Moon Jae-In Administration’s Socialist Experiment is Dangerous for Samsung & Korea Inc. 
    • 52-hours workweek restriction 
    • Higher corporate tax rate 
    • Ruling party’s vocal “Anti-Samsung” stance 
    • Unstable industrial electricity/energy policy
    • Drastic increase in minimum wages
    • Drastic revision of the Industrial Safety & Health Act 
  • History of Bear Markets for Samsung Electronics
  • Samsung Electronics (share ownership, dividends & share buybacks)
  • Samsung Electronics – Financial Analysis
    • Profit Margin Trend
    • Our Earnings Estimates vs. Consensus Estimates of Samsung Electronics
    • Geographical Sales Breakdown & The Billion Dollar Question of the Chinese Consumers
  • Samsung Electronics Valuation

• Korea, Global Tech, IPOs, Event-Driven • (Opens in a new window) ⧉

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How Pension and Wealth Funds Redefine Shareholder Activism Worldwide

How Pension and Wealth Funds Redefine Shareholder Activism Worldwide

By | Corporates

Shareholder activism can take many shapes. The concept is mostly associated with go-getter investors like Carl Icahn, storming into a company’s board demanding change or ousting ineffective CEOs.

But there are other ways in which investors and shareholders exercise influence on company boards. More and more lately, shareholders have more specific demands from companies they invest in – demands that revolve around environmental, social, and governance (ESG) principles.

Activist Pension Funds

Foremost in such board activism tend to be investors like sovereign wealth funds or pension funds. The California Public Employees’ Retirement System (CalPERS) was one of the first such funds to lay down governance and sustainability principles for investee companies.

“[We] firmly embrace the belief that strong, accountable corporate governance means the difference between long periods of failure in the depths of the performance cycle, and responding quickly to correct the corporate course,” the fund states.

Among CalPERS’s recommendations for companies are having clear CEO succession processes, appointing independent directors to review significant transactions (ensuring they align with the company’s best interests), and assurances of voting rights for shareholders on major company decisions.

The fund has seen steady returns of about 7 percent on its investments over the last 20 years, which lends credence to its practices. In the process, it has inspired other similar institutions to follow its lead.

Its New York counterpart, the New York State Common Retirement Fund, has been pressuring Exxon Mobil’s executives to do more on climate change, including creating a climate change committee on the board. In a filing in May, they said that Exxon’s response on climate change was “inadequate,” which was a “serious failure of corporate governance.”

The Scandinavian Touch

Across the Atlantic, Norway’s Government Pension Fund Global places great emphasis on governance and corporate responsibility in the companies it invests in. “We aim to contribute to well-functioning markets and good corporate governance,” reads one of its mission statements.

The fund expects good governance particularly in areas like climate and the environment, anti-corruption, tax and transparency, and human rights. It has invested in 9,000 companies across 70 countries, which gives it a global outlook.

“The dialogue we have with companies and their boards is among the most important tools we have as an investor,” says Carine Smith Ihenacho, Chief Corporate Governance Officer for the fund.

If a company does not fulfil the stated standards, the fund is not afraid to take a firm stance. It has excluded companies for missteps like gross corruption, environmental damage, and human rights violations – things that happen because of bad governance.

Collaboration is harder when a company operates in a specific sector – for example, “sin” markets like tobacco and alcohol. Norway’s KLP pension fund announced last month it would divest from companies in alcohol and gaming, such as AB InBev and LVMH.

There isn’t a lot these companies can do in such an extreme case, short of changing their businesses altogether. But they can still control their messaging to show what efforts they are making to be sustainable and responsible, despite being part of “sinful” sectors.

Long-term Relationship

What can company management take away from such investors?

In a 2015 interview, McKinsey partner Tim Koller recommended that companies should look at themselves from the point of view of an activist and ask what they would do differently in order to create value.

“Why am I not doing that, and am I comfortable not responding to what even a hypothetical activist would do? Am I the best owner of the businesses? Am I growing the businesses adequately? Am I cutting costs where they need to be cut? Am I returning cash to shareholders when I don’t need it? So it’s much more a matter of doing it yourself,” Koller mused.

Koller emphasised that activist investors that are there for the long haul can bring a lot of benefit to the company. “They may hold onto an investment for five to seven years, work with management… They’re well prepared, they ask good questions, they do research. And they have a longer horizon perspective, so it’s not just about cutting costs,” he said.

Make sure you are communicating your governance practices and getting the right messages out. Sign up for a FREE account on Smartkarma’s Corporate Solutions, a brand-new range of services for C-Suite and Investor Relations personnel of listed companies, that’s been designed to help IR professionals establish and maintain valuable connections to the investment and analyst communities.

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Chinese Pharmas Move to Claim a Piece of the Global $37b CRO Pie

Chinese Pharmas Move to Claim a Piece of the Global $37b CRO Pie

By | General

China’s tech sector still commands most of the attention when it comes to headlines – particularly in light of the ongoing trade war and the plight of industry figurehead Huawei. But the country’s pharmaceutical firms are now starting to make their mark. A number of IPOs are either kicking off or completing their arc, adding to China’s growing footprint in the CRO (contract research organisation) market.

CROs are companies that take on research and development (R&D) jobs for pharmaceutical, biotech, and medical device firms. Their services include anything from clinical research and trials to commercialisation and drug development. Through CROs, large firms can reduce R&D costs and explore smaller markets with less risk.

CRO Boom

The model seems to be working. The global CRO market was worth US$37.1 billion in 2018, having grown at 8 percent over the last few years, according to research published by ReportLinker. A study by Grand View Research expects the market size to grow to US$54.7 billion by 2025.

Meanwhile, an earlier report by market research firm ISR forecast an increase in R&D spending of 15.5 percent for the period between 2015 and 2020, from US$262.9 billion to US$303.7 billion.

Out of around 1,100 companies worldwide, ten of them hold over 50 percent of global market share. They include names like IQVIA, Covance, and LabCorp.

Among them is China-based WuXi Apptec, which bills itself as Asia’s top pharmaceutical R&D service provider by total revenue. The Shanghai-based firm went public at the end of 2018, raising US$1 billion.

At the time, independent Insight Providers publishing on Smartkarma noted that WuXi was one of the companies who would benefit greatly from Big Pharma’s international shift towards outsourcing.

Now, a fresh batch of China-based CROs are gearing up for, or going through the final stages of their IPOs.

Pharma Hopefuls

Most notably, generic drug manufacturer Hansoh Pharmaceutical is about to list this week in Hong Kong. Valued at US$10.4 billion, the firm has amassed some impressive cornerstone investors, including Singapore’s GIC and China’s Hillhouse Capital and Boyu Capital.

Aequitas Research analyst Ke Yan was optimistic in a recent note on Smartkarma, particularly praising the company’s R&D capability as well as its ability to be first-to-market with its generic drugs.

Both Ke Yan and Arun George of Global Equity Research thought that Hansoh’s valuation was not on the cheap side, but felt the upside would be worth it on the low-to-mid-end of its price range. The discount “reflects the trade-offs between Hansoh historical solid financial performance and the mixed prospects for its drugs and a huge pre-IPO dividend,” George wrote.

The analysts were less keen on IPO hopefuls MabPharm and Viva Biotech, whose listings are currently at different stages of their lifecycle.

MabPharm focuses on R&D and production of cancer and autoimmune disease drugs. Ke Yan was left unimpressed by the company’s product pipeline, which faces intense competition from patent drugs and biosimilars.

In addition, the lack of specialised biotech investors in its shareholder line-up raised some flags. “It appears that the company is assembled by private equity to cash out,” the analyst wrote.



Viva Biotech, a CRO also based in Shanghai, last month raised US$194 million in what was Hong Kong’s most popular IPO before Hansoh came along. Viva’s unique twist is an “equity-for-service” business model, taking an equity stake in drug discovery startups in exchange for cash or its specialised services.

This factored into analysts’ views on Viva. Arun George was bearish pre-listing, noting the company’s guidance of a negative free cash flow in 2019, while Ke Yan warned that most of the company’s valuation depended on future earnings from investments into other companies.

China’s Biotech Moment

Overall, favourable policies and an abundance of capital will contribute to the development of more Chinese CROs, according to the report published on ReportLinker.

Following in the footsteps of international CROs like IQVIA, Parexel, and Charles River, rising Chinese players will likely look to grow their arsenal through acquisitions. WuXi, which has a 10 percent market share in China’s CRO market, announced last month it acquired US based Pharmapace, which specialises in biometric services for clinical trials.

“In the future, CRO companies will try to expand their service scope […] and they will establish a comprehensive service platform covering the entire drug development value chain by enriching their product portfolio constantly through investment in new technologies and new facilities,” the report states.

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