Category

Consumer

Consumer: Honda Motor, Volkswagen, Accor SA, Kakao Pay and more

By | Consumer, Daily Briefs

In today’s briefing:

  • Honda – Potential for a 1QFY22 Blowout
  • Liquid Universe of European Ordinary and Preferred Shares: July Report
  • Europe HY Trade Book – July 2021 – Lucror Analytics
  • Kakao Pay to Revise Offering Price: Reasons & Schedule Impacts on Kakao Bank & Krafton

Honda – Potential for a 1QFY22 Blowout

By Mio Kato

Consensus estimates for Honda suggest 1QFY22 OP could be roughly ¥112bn. We believe sell side analysts are not accounting for seasonality sufficiently and believe results could be materially higher than that figure driven by strength in North America.


Liquid Universe of European Ordinary and Preferred Shares: July Report

By Jesus Rodriguez Aguilar

Trends

Discounts have not kept a clear trend since mid-June.

Interesting situations and trades

  • Carlsberg A/S (CARLB DC) B shares (with 1/10th of the voting rights of the A shares) are trading at a 18.3% discount (down from July, coming from a 28.4% discount on 19 April) vs. the A shares), some demand for illiquid A shares seems to be the explanation. Maintain Long B shares/short A shares on, if you can get hold of any A shares.

  • Bayerische Motoren Werke AG (BMW GR) exhibited a trend towards a reduction of the discount of preferred shares, until March 2020. The discount has tightened to 13.8% (vs. 22.1% by mid-April). The discount is approaching pre-Covid levels. Maintain long BMW prefs, short common shares on, with a target of a 12% discount.

  • Fuchs Petrolub SE (FPE GR)‘s preference shares premium seems to vary within a range, which is probably liquidity related. It has tightened to 22.3% (down from 29.4% by mid-February and 34.4% in my October report). With over 50% of the ordinary shares, the Fuchs family maintains the majority vote. They have never stated they would consolidate and pride to be #1 among the independent suppliers of lubricants.

    Although there is no reason why the voting rights should be specially dear in Fuchs’s case, voting rights are still valuable and neither the dividend advantage of the preferred shares nor their being members of several midcap indexes (Prime Standard/MDAX; STOXX Europe 600; DAXplus Familiy 30) justify the large premium, in my view. Maintain the trade long common/short prefs on, with a 10% target.

  • Henkel AG & Co KGaA (HEN3 GR) shows a long-term trend towards a reduction of the premium of the preferred shares. The premium has tightened to 11.5% (vs. 15.7% by mid-May). Maintain the trade short prefs/long common shares with a 10% premium target.

  • Voting rights are valuable in a company like Volkswagen (VOW GR). Prefs discount has widened to 25.9% (vs. 20.5% by mid-May, 16.6% by mid-April and 31.8% on 18 March, highest levels since November 2009). Preference shares have in the past traded at a premium due to its higher liquidity and inclusion in stock indexes. That said, the ordinary shares are also liquid. The shareholder structure of Volkswagen is stable, and there seems to be no reason why the discount of the prefs should widen. Volkswagen was considering a separate listing of its Porsche sports car brand in a deal that could boost its valuation, according to Bloomberg, but the company seems to have put those plans on ice. Traton SE (8TRA GR), a subsidiary majority owned by Volkswagen, is squeezing out the minorities (both ordinary and preferred shares) in MAN SE (MAN GR). Recommendation is to avoid this trade for the time being.

  • Danieli & C. Officine Meccaniche (DAN IM):  the mandatory conversion and extraordinary dividend were approved on the shareholders meetings on 28 October. The conversion date is yet to be announced but expected soon (I am aware I have been repeating this since November, but there has no been any further update from Danieli). Since announcement, the adjusted spread has ranged between -5.48% and 7.69%. It is currently 1.3%. Long Danieli ords/short Danieli savings shares, if and when the discount widens.
  • Telecom Italia Sp A (TIT IM) savings shares are trading at a 10.2% premium to ordinary shares (vs. a 7.9% premium by mid-May). The market may think of a conversion of savings into ords à la Buzzi Unicem or Danieli, which makes financial sense as it would save the savings’ dividend advantage. That would dilute the voting power of Vivendi (23.943% of the votes), albeit Vivendi could put its capital to better use than keeping an investment in Telecom Italia. Short savings/long ords.
  • Grifols SA (GRF SM)B shares are trading at a 35.0% discount (vs. 36.1% by mid-April and 39.7% by mid-February), there is a trend towards the tightening of this discount since March 2020 lows, albeit it is taking some time. There are some issues around Grifols leverage and some creative solutions to keeping it contained. The Covid-related antitakeover provisions issued by the Spanish Government mean that the voting rights are less valuable now. Also, the Spanish government plans to introduce double voting rights for “loyal” shareholders (those who have kept the shares for at least two years). Moreover, the by-laws contain a poison pill that should significantly reduce the discount in case of a takeover attempt. The discount in Grifols B shares has averaged 28% since listing of the B shares in February 2016. I recommend setting up the trade long B shares (traded on Nasdaq), short A shares (traded in Madrid). The target is a 27% discount. Please note there is FX risk, which can be hedged.

  • The current discount in Atlas Copco AB (ATCOA SS) B shares vs. A shares is 15.2%  and seems to be on a widening trend.

  • On 10 May, Industrivärden divested its entire holding in SSAB AB (SSABA SS) . Top shareholder is now LKAB (Luossavaara-Kiirunavaara Aktiebolag), a government owned Swedish mining company. LKAB is now consolidating its influence in SSAB “in order to take responsibility and ensure that the company continues to have a clear industrial ownership influence at a time when the steel industry is facing major change”. On 7 June, LKAB communicated its increased holding in SSAB (16.0% of the votes and 10.5% of the capital). The discount has tightened to 11.3%, lower than July, due to LKAB not increasing its stake. It seems the time to go long B shares/short A shares.

  • The discount in Volvo AB (VOLVB SS) B shares has slightly tightened since mid-June, from 3.0% to 2.7% (vs. 0.8% discount by mid-February). Still highest levels since January 2016.

  • The discount of non-voting Roche Holding AG (ROG SW) shares has widened to 7.9% (vs. 6.6% by mid-June, and it recently reached 8%), an unseen level since November 2011. The Hoffman family and related holds 45% of the voting rights (shareholder pooling agreement) whilst Novartis holds 33.3% of the voting rights. LTM average daily liquidity (in number of shares traded) for non-voting is 1,656k and 73k, for voting shares. So voting shares have blue-chip liquidity in their own right.

  • The discount in Schroders PLC (SDR LN) has widened to 28.4% (vs 25.7% by mid-June, 30.6% by mid-March and 34.1% by mid-February). I would maintain long non-voting/short voting shares on.

Please read on for table and charts.


Europe HY Trade Book – July 2021 – Lucror Analytics

By Charles Macgregor

The Europe HY Trade Book for July 2021 includes high-conviction trade ideas drawn from our European HY coverage universe, along with relative-value scatter plots and tables by industry.


Kakao Pay to Revise Offering Price: Reasons & Schedule Impacts on Kakao Bank & Krafton

By Sanghyun Park

In a regulatory filing on July 16 (later today), the Financial Supervisory Service said that it had requested Kakao Pay to revise its IPO prospectus. As a result, the IPO prospectus submitted by Kakao Pay earlier this month has been suspended.

Kakao Pay must submit a revised report within three months, and if it is not submitted, it is considered a withdrawal of the public offering.


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Consumer: Sony Corp, MINISO Group Holdings, Sands China Ltd, Steel Strips Wheels and more

By | Consumer, Daily Briefs

In today’s briefing:

  • Conviction Call Sony – Integrating ESports and Betting Into the Gaming Ecosystem
  • Miniso Slides 47% Amidst Beijing’s Clampdown on ADRs: Large Upside Possible Once the Dust Settles
  • Sands China Ltd. : Catalysts Currently Still Hidden by Sporadic Pandemic Outbreaks, Time to Buy
  • Steel Strips Wheels: Exports and Alloy Wheels Lead Growth

Conviction Call Sony – Integrating ESports and Betting Into the Gaming Ecosystem

By Mio Kato

Following its purchase of the EVO fighting game tournament in March (Sony – Time to Add to Our 2021 Conviction Call as They A … (smartkarma.com)) Sony continues to strengthen its position within the overall eSports scene as patent information reveals plans to capture eSports betting and tournament organisation within its ecosystem.


Miniso Slides 47% Amidst Beijing’s Clampdown on ADRs: Large Upside Possible Once the Dust Settles

By Oshadhi Kumarasiri

After rallying 76% from the IPO price to US$ 35.21 per ADS during the first four months, MINISO Group Holdings (MNSO US) is currently trading 7.5% below the IPO price, primarily due to the negativity created by Beijing’s anti-monopoly and data security probes and efforts to clampdown domestic companies from listing their shares in overseas markets.

Considering the nature of Miniso’s business operations, we think it is unlikely that Miniso will face targeted regulatory action from the Chinese government, and therefore, we think the current dip in the share price presents an opportunity to own a high-quality company with long- term earnings growth potential.


Sands China Ltd. : Catalysts Currently Still Hidden by Sporadic Pandemic Outbreaks, Time to Buy

By Howard J Klein

  • Having sold its Las Vegas assets for US$6.2B, Sands China Ltd. parent is expected to pivot to a third Asian market as soon as a sustainable post-pandemic revenue pattern becomes evident. It is not a pure play in the space.
  • Macau has begun a slow, but steady lift of travel bans from Guangdong. Hong Kong easing may not be as far off as many now believe.
  • The company has just received approval to amend certain covenants in a key US$2b lending facility to assure a more than adequate war chest for sustainability during the pandemic endgame period just ahead and further investment in Asia beyond.

Steel Strips Wheels: Exports and Alloy Wheels Lead Growth

By Axis Direct

We retain a BUY with a revised target price (TP) of Rs 1,456/share, valuing the company at 5x FY23E EV/EBIDTA. The TP implies an upside of 14% from CMP.

Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

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Consumer: Alibaba Group, DiDi Chuxing, Youfoodz Holdings, Mayora Indah, Fast Retailing, Daily Mail & General Trust, Lotte Rental, Union Auction, Crompton Greaves Consumer Electricals and more

By | Consumer, Daily Briefs

In today’s briefing:

  • Alibaba (9988 HK): Passive Inflow from HSI, HSCEI, HSTECH Trackers in July
  • Didi: Meituan Quietly Relaunches Ride-Hailing App Amid Didi App Removal to Grab Some Market Share
  • Youfoodz (YFZ AU): HelloFresh’s Lowball Takeover Offer Difficult to Block But Not UnBumbable
  • Mayora Indah (MYOR IJ) – Lovely Biscuits
  • Consensus Continues to Course Correct While Fast Retailing Prepares to Report Q3
  • Many Moving Parts in Rothermere’s Bid to Take DMGT Private
  • Lotte Rental IPO Valuation Analysis
  • AUCT: Expect 2Q21 Earnings Should Be the Bottom Quarter of the Year
  • Strong FCF with robust balance sheet

Alibaba (9988 HK): Passive Inflow from HSI, HSCEI, HSTECH Trackers in July

By Brian Freitas

Hang Seng Indexes has increased the number of index shares and free float for Alibaba Group (9988 HK) in the Hong Kong Hang Seng Index (HSI INDEX), Hang Seng China Enterprises Index (HSCEI INDEX) and Hang Seng Tech Index (HSTECH INDEX), with no change made to the capping factor.

This will lead to an increase in the index weight for Alibaba Group (9988 HK) and passive funds benchmarked to the indices will need to buy the stock at the close of trading on 16 July while selling the other index constituents.

For July, we estimate passive funds will need to buy 45.52m shares (HK$9.34bn; 2 days of ADV) of Alibaba Group (9988 HK). The largest impact of passive selling in terms of days of ADV will be on HSBC Holdings (5 HK), CLP Holdings (2 HK), China Construction Bank H (939 HK), Hang Lung Properties (101 HK) and Country Garden Holdings Co (2007 HK).

However, passive funds will need to sell Alibaba Group (9988 HK) at the implementation of the quarterly rebalance in September when the capping factor will be lowered to cap the weight of the stock at 8% in the three indices.


Didi: Meituan Quietly Relaunches Ride-Hailing App Amid Didi App Removal to Grab Some Market Share

By Shifara Samsudeen, ACMA, CGMA

As the Chinese regulators have ordered DiDi Chuxing (DIDI US) to remove its app from app stores citing privacy concerns, Meituan (3690 HK)  re-launched its stand-alone app for ride-hailing on app stores on Friday. Didi was ordered to remove its app from app stores on 04th of July over violating personal data of its users two days after its US IPO.

Meituan’s ride-hailing app known as “Meituan Dache” was launched as a stand-alone app in 2017, however, the company merged the app into the Meituan Super App in 2019 due to heavy costs of running the app.  

The Meituan ride-hailing app not only offers its own ride-hailing services but also has partnered with other ride-hailing companies including Shouqi Car-Hailing Services, Shenzhou Special Car Service and Caocao to aggregate their services.


Youfoodz (YFZ AU): HelloFresh’s Lowball Takeover Offer Difficult to Block But Not UnBumbable

By Janaghan Jeyakumar, CFA

On 13th July 2021, Australia-based ready-made meal delivery company Youfoodz Holdings (YFZ AU) announced they had entered into a Scheme Implementation Deed with multinational meal-kit delivery company HelloFresh AG (HFG GR) which will see them get acquired in an all-cash transaction that valued the company at a market cap of A$125mn. 

The Offer Price is A$0.93/share in cash. The transaction will be conditional on the receipt of regulatory approvals and Target shareholder approval.

The Deal is expected to be completed in October/November 2021. 

More below the fold. 

For more information about M&A rules, regulations, and practices in Australia, please refer to Quiddity Australia M&A Guide 2019 and Quiddity M&A: Australia Foreign Investment Reforms 


Mayora Indah (MYOR IJ) – Lovely Biscuits

By Angus Mackintosh

A rare post-results call with leading Indonesian consumer staples company Mayora Indah (MYOR IJ) management revealed a company well-positioned to take advantage of the recovery in 2H2021, with a good number of new products launches likely to help drive growth both domestically and overseas.

Rising commodity prices are a potential threat to margins but management has outlined a number of strategies to cope with this including price increases.

Mayora Indah (MYOR IJ) saw strong growth in sales and operating profits reflecting the strength of the recovery domestically and especially in the export of its products. 

The company continues to gain market share in a number of categories and especially in biscuits, wafers, and coffee. It continues to broaden the range of products available in export markets such as the Philippines and Thailand.

Mayora Indah (MYOR IJ)‘s valuations look attractive versus history with the company trading on 19.6x FY21E PER and 17.2x FY22E PER versus its 5-year average forward PER of 27x.

Consensus Continues to Course Correct While Fast Retailing Prepares to Report Q3

By Oshadhi Kumarasiri

Japan’s largest apparel retailer, Fast Retailing (9983 JP) is scheduled to release the third quarter ended May 2021 results tomorrow, at a time 3QFY22 consensus revenue and OP were lowered for three consecutive months.

We think consensus has not lowered the 3QFY21 EBIT sufficiently during the last three months and Fast Retailing could miss the consensus EBIT estimate. With the market sentiment regarding Fast Retailing on a declining trend and valuation multiples near the all-time high level, an earnings miss could have significant implications on the company’s share price.


Many Moving Parts in Rothermere’s Bid to Take DMGT Private

By Jesus Rodriguez Aguilar

The shares of DMGT suffer from a double discount because of both the conglomerate structure and the unusual governance (the founding family has a 36% economic interest but all the voting power).

This would be an opportunistic bid where the family uses the cash from the special dividend to fund their take-private deal, for the very same reason that the Daily Mail charges against American private equity plunderers of listed UK companies: price.

I estimate that the whole package would be worth 1131p-1277p, therefore a 1%-15% premium to the closing price on 14 July. Beware though of the many moving parts and lack of clarity on the tax consequences of the RMS divestment and Cazoo listing. 

The price mooted for the newspaper and the rump businesses does not look particularly generous on 0.7x EV/Fwd sales, 6x EV/Fwd EBITDA, as most of those businesses have been hard hit by the pandemic.

Considering that the Rothermeres own all the voting shares, it is highly unlikely that there will be any interloper risk. It also seems difficult that the family will abuse its power to rip off minority shareholders. I reckon that the initial figures may be sweetened.

Further upside (around 100p/share) may come from a fairer valuation of consumer publishing and the other businesses, that would take the total package to a 24% premium to 14 July closing price.


Lotte Rental IPO Valuation Analysis

By Douglas Kim

Our base case valuation of Lotte Rental is implied market cap of 2.9 trillion won or implied price of 79,679 won per share, which would represent a 35% upside to the high end of the IPO price range of 59,000 won per share. Given the solid upside, we have a Positive view of the Lotte Rental IPO. We would take the deal. 

  • Our base case valuation is based on a 6.1x EV/EBITDA using 2020 EBITDA of 1,055 billion won. The EV/EBITDA multiple of 6.1x is at a 5% premium to the comps’ valuation multiple.
  • We believe this is justified given higher ROE and EBITDA margins of Lotte Rental as compared to its peers.
  • In addition, Lotte Rental enjoys higher market share, higher revenues, and better brand recognition than its peers and as a result, the slight premium valuation multiples to its peers is justified, in our view. 

AUCT: Expect 2Q21 Earnings Should Be the Bottom Quarter of the Year

By Research Group at Country Group Securities

We reiterate our BUY rating with a target price of Bt15.75 derived from 25xPE’22E, which is its five-years average trading range, implying a 25% premium to the world consumer discretionary sector.

• We expect AUCT to report 2Q21 net profit of Bt59m (-17%YoY, -15%QoQ) caused by lower-than-expected auctioned volume as a result in delay in vehicle seizing activity in 4Q20 due to the debt relief measure.
• Statistically, number of auctioned vehicles have a strong correlation with NPL ratio. In 1Q21, BOT reported number of NPLs ratio increased to 1.56% from 1.44% in 4Q20. We expect auction volume will continue to increase in 2H21 supported by a rise in NPLs as a consequence of the impact from 3rd wave of COVID-19.
• The special mention ratio (SM) remain high level at between 9.2%-9.75% in 1Q20-1Q21. This implies that NPL will rise after the maturity of debt moratorium measure implemented by Bank of Thailand. Therefore, we expect auctioned vehicle volume to accelerate in 2H21.  

Strong FCF with robust balance sheet

By Motilal Oswal

Crompton’s FY21 Annual Report focuses on the five-dimensional growth strategy adopted over the pandemic-affected year. Launching new products and deepening the reach within existing product categories were among the key focus areas for the year…

Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

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Consumer: Zomato, NIO Inc, iCar Asia Ltd, Nayuki Holdings, Coupang and more

By | Consumer, Daily Briefs

In today’s briefing:

  • Zomato IPO: Offering Details & Index Inclusion
  • Nio Inc – Structural Subordination to Hefei Investors and Associated Risks
  • ICar (ICQ AU): Carsome & Catcha Carpool
  • Zomato IPO Valuation: Making Losses In Most Favorable Circumstances
  • Nayuki (奈雪) Post IPO – Potential Catalysts – Where to from Here?
  • CPNG: Is Coupang Biz that Big of a Deal?

Zomato IPO: Offering Details & Index Inclusion

By Brian Freitas

Zomato (ZOM IN) is a leading online food service platform that connects customers, restaurant partners and delivery partners. Zomato had 148,384 active food delivery restaurants and 169,802 active delivery partners during the month of March 2021 and on average 6.8m customers ordering food every month in fiscal 2021.

Zomato (ZOM IN)‘s IPO will open on 14 July and run till 16 July with an expected listing date of 27 July.

Zomato (ZOM IN) is looking to raise INR 93.75bn (~US$1.26bn) at a price range of INR 72-76/share valuing the company at close to US$8bn.

Moneycontrol has reported that the company has raised US$560m by allotting shares to Anchor Investors. This ties in with our calculations of 60% of the QIP portion being allotted to Anchor investors.

Given the allocation to anchor investors and the lock-up on those shares, we do not expect the stock to get Fast Entry to the MSCI and FTSE indices. Zomato (ZOM IN) could be included in the MSCI Standard index at the November SAIR while the stock could be added to the FTSE All-World index at the December QIR.

Entry to the NIFTY Index (NIFTY INDEX) and S&P BSE SENSEX Index (SENSEX INDEX) could come in the second half of 2022 at the earliest given that the stock will need to meet additional criteria to be a part of the index universe.


Nio Inc – Structural Subordination to Hefei Investors and Associated Risks

By Jason Yap, CFA

In recent months, NIO Inc (NIO US) announced record vehicle deliveries and ambitious domestic and international expansion plans.  These developments highlight the significant progress it made compared to early 2020 when it appeared to be on the verge of bankruptcy.  This article discusses the Hefei Investors’ emergency funding which facilitated Nio Inc’s subsequent business and share price turnaround but subjected ADR holders to certain risks including, amongst others, structural subordination in terms of their claim on the key operating assets in China.


ICar (ICQ AU): Carsome & Catcha Carpool

By David Blennerhassett

Back on the 30 October 2020, iCar Asia Ltd (ICQ AU), owner and operator of automotive portals in Malaysia, Indonesia, and Thailand, announced it had received a non-binding proposal from China-based Autohome (2518 HK), another auto internet platform, to acquire 100% of iCar’s shares for A$0.50/share by way of a Scheme of Arrangement.

A trading update on the 26 February said discussions were still ongoing regarding Autohome’s proposal, with similar wording in the 30 April update, and the 2020 annual report (page 34).

The New News

iCar has now announced it has received a non-binding proposal from privately-held Carsome Group to acquire 100% of iCar’s shares for A$0.55/share by way of a Scheme.

Separately Malaysian-based Carsome has entered into an agreement with Catcha Group, iCar’s largest shareholder, to acquire 19.9% of shares out in iCar via the issuance of shares in Carsome. That side agreement and the proposal are conditional on ASIC relief.

Provided the agreement completes, Carsome and Catcha will jointly acquire the remaining shares not owned in iCar.

This agreement/proposal appears an initial step towards listing Carsome/Catcha. 

The announcement also says discussions remain ongoing with Autohome. 

More below the fold. 


Zomato IPO Valuation: Making Losses In Most Favorable Circumstances

By Oshadhi Kumarasiri

We previously examined Zomato (ZOM IN) and expressed our concerns regarding the company’s unit cost dynamics mentioning that the FY21 operating loss is a sign that Zomato is incapable of generating profits even from its most loyal customers who stuck with the company during the hardest days of COVID-19.

The offer period begins tomorrow (will continue till 16th July 2021) at a price range of INR 72.0-76.0 per share, which implies a market cap range of INR 569.6-596.2bn.


Nayuki (奈雪) Post IPO – Potential Catalysts – Where to from Here?

By Zhen Zhou, Toh

Nayuki raised US$656m at HK$19.80 per share, the top-end of its IPO price range, but it is now trading 18% below IPO price.

In this note, we look at potential upcoming catalysts and share updated thoughts on valuation.

Nayuki is the operator of Nayuki teahouses, a premium modern teahouse chain in China. The company had a network of 420 Nayuki teahouses across 61 cities in China as of September 30, 2020. As per CIC, Nayuki is the most extensive premium modern teahouse network in China in terms of the number of cities covered.

We had previously covered the IPO in:


CPNG: Is Coupang Biz that Big of a Deal?

By Henry Kwon

Since June 25, CPNG has outperformed NASDAQ by 16.90%, rising by 19.1%. The stock closed above its 10-day EMA for the third consecutive session today, and it seem that there is now an ascending channel that may have formed. From a valuation perspective, Risk-Free Rate as defined by the 10-year Treasury yield, has come down to 1.42% from 1.65% and consensus forecasts have been revised upwards since we last addressed CPNG’s valuation issues (see CPNG: Dead Cat Bounce or a More Sustainable Price Recovery in the Cards?).

There were two news items we are aware of that have had a major impact on CPNG’s recent rally:

  • News that CPNG would be able to refinance its 5.5%, 5-year loan from Goldman Sachs to finance its warehouse burned down by fire, at a more favorable rate of around 2% (see https://www.koreatimes.co.kr/www/tech/2021/07/129_311390.html), should have been a non-event since CPNG is insured against fire damage. However, the shares reacted positively to the news on June 29, which is June 30 in Korea when media focused on the debt refinancing issue.
  • News that CPNG has just registered its “Coupang Biz” trademark for its planned B2B business for small-medium size businesses shopping for office equipment and other MRO items (see https://www.edaily.co.kr/news/read?newsId=03972086629113864&mediaCodeNo=257) should also have been a non-starter from a fundamental standpoint, since anecdotal evidence seems to envision Coupang Biz to add about KRW 1.0trn to its top line at an as of yet unannounced timeline in the future. In other words, the news should be taken at face value, but no sane analyst should run out and immediately add what amounts to about 5% upgrade in FY21 consensus revenue forecasts based on what is in media reports. However, the news seems to have been at least responsible for today’s 3.39% jump in share price.

CPNG’s shares closed above its 10-Day EMA for the third consecutive day at close today, with what looks like an ascending channel that may be forming. MACD is positively postured but RSI sits a little on the high side now at 67.28 albeit with further room for strength. The trading volumes reached 6.92m shares, from the 2.5-3.7m share range seen since the beginning of July. As for share price implications for the rest of the week:

  • Short Term Bullish Scenario: Following the third consecutive day’s close above its 10-Day EMA today, the shares could try to break above the 61.8% Fibonacci retracement level at $45.30. If sufficient momentum builds the shares may attempt to break above the 50% retracement level at $49.83, but can face resistance in the 46.00-47.00 zone, which looks like the upper bounds of the ascending channel formation we referred to above.
  • Short Term Bearish Scenario: The surge in trading volume seen today could also indicate a topping move, so in case of a pullback, investors should see the $41-42 price range along the 10-Day EMA as the first level of support, with the 21-Day EMA as the next level of support. Below these levels, we would expect shares to test the 78.6% Fibonacci retracement level at $38.86.

In the short run, we believe from experience that fundamentals could take a long time to get priced into the share price of any stock, so investors should carefully weigh whether they will invest in CPNG or just trade the shares, because the choice could imply two very different courses of action. Having said that, it never hurts to buy low whether investing or trading. CPNG’s next fundamental catalyst should come from the company’s 2Q earnings release, which we anticipate is likely to take place in mid-August (see https://www.nasdaq.com/market-activity/stocks/cpng/earnings).


Before it’s here, it’s on Smartkarma

Consumer: Naspers, Lotte Rental, Kusuri No Aoki Holdings Co L, Dohome PCL, Avenue Supermarts Ltd and more

By | Consumer, Daily Briefs

In today’s briefing:

  • Prosus EGM Approves Partial Offer for Naspers – Next Steps Interesting, Part I
  • Lotte Rental IPO Preview
  • Japan’s Governance: Unclear Medium-Term Management Plan – Kusuri No Aoki (3549)
  • DOHOME: Expect 2Q21 Earnings to Hit the Record High
  • Lotte Rental (Feat. Car Sharing Unicorn Green Car) IPO: Offering Details & Valuation Issues
  • Result Update:Avenue Super.
  • Avenue Supermarts Ltd
  • HSIE Results Daily: Avenue Supermarts
  • Gross margin disappoints amid a steady revenue recovery

Prosus EGM Approves Partial Offer for Naspers – Next Steps Interesting, Part I

By Travis Lundy

On Friday, the Prosus (PRX NA) EGM to consider and approve the transaction and cross-shareholding which comes from Prosus launching a Proposed Voluntary Exchange Offer to shareholders of Naspers (NPN SJ) was held. 

The results look like the table below (Prosus announcement link). If we assume that the A Share holders voted for the deal, and Naspers voted for the deal, that left 316mm other votes out of the 432.5mm shares eligible to vote which is a 73% turnout. 

While this deal was never going to not get passed in the EGM, because Naspers management and Prosus management control are the same, if it had been an overwhelming loss in terms of minority shareholder support, they might have thought about reconsidering their support for the project. 

It was not an overwhelming defeat, but it was not overwhelming support either. It is 52.83% of minorities FOR, 46.51% AGAINST. Based on this nominally being a majority of the minority, one should expect this to go ahead. 

That meant that the Prospectus would be announced today. And it has been (link). And the Exchange Offer ends on 13 August 2021. The new shares of Prosus will start trading on the 16th of August on the JSE, A2X, and Euronext Amsterdam. 


Lotte Rental IPO Preview

By Douglas Kim

Lotte Rental is offering 14.4 million shares in this IPO. Lotte Rental is the largest car rental company in Korea with about 22% market share. The IPO price range is from 47,000 won to 59,000 won. The IPO deal size is from US$595 million to  US$746 million.

According to the bankers’ valuation, the expected market cap after the IPO will be 1.7 trillion won to 2.2 trillion won. The book building for the Lotte Rental IPO starts on August 3rd. Korea Investment & Securities and NH Investment & Securities are the lead underwriters of this IPO. 

Deal Specifics of the Lotte Rental IPO:
 
Lead underwriters of the IPO: 
NH Investment & Securiites, Korea Investment & Securities
Expected IPO price per share: 
47,000 won (low)/59,000 won (high)
Number of Shares for IPO:
14.42m shares (7.2m new shares and 7.2m old shares)
IPO base deal size: 
US$595 mn (low);  US$746 mn (high)
Expected common shares outstanding, fully diluted (post-IPO):  
36.63m shares
Expected market cap after IPO:
1,722 billion won (low)/2,161 billion won (high)
Book open: 
3-Aug-21
Book closed:
4-Aug-21
Listing date: 
TBD
Source: Company data
 

Japan’s Governance: Unclear Medium-Term Management Plan – Kusuri No Aoki (3549)

By Aki Matsumoto

On Wednesday, July 7, I attended the analyst meeting for the FY5/2021 financial repirting of Kusuri No Aoki (3549). The drugstore industry is still growing in this country, and according to data from the Japan Association of Chain Drug Stores (JACDS), the industry increased from 5,631 billion yen in 2010 to 8,036 billion yen in 2020 and is expected to grow to 100,000 billion yen in 2025. On the other hand, competition in this industry is becoming increasingly fierce. The number of stores has increased from 16,259 in 2010 to 21,284 in 2020, and the trade area population (people/store) has decreased from 7,846 to 5,890. It is expected that the trade area population will continue to decrease, and competition will become more intense. Considering this environment, Aoki released its current medium-term management plan.


DOHOME: Expect 2Q21 Earnings to Hit the Record High

By Research Group at Country Group Securities

We maintain a HOLD rating with a new target price of Bt28 (+6% from Previous TP at 26.5) derived from 35xPE’22E, which is close to the major listed home-improvement players in Thailand.

• We expect DOHOME to report 2Q21 net profit of Bt600m (+310%YoY, +11%QoQ) supported by (1) solid SSSG at 25%YoY from the low base in 2Q20 ,(2) strong revenue from four new stores expansion in the past 12 months, (3) gross profit margin expansion from increasing bargaining power against suppliers, DC cross-dock strategies and an increase in profit margin from steel products (roughly 40% of total sales).
• DOHOME announced the Stock Exchange of Thailand on 8th July 2021 to raise capital by Bt1.98bn through Private Placement (PP) with additional 75.5 million shares at the transaction price of Bt26.25 per share, causing a dilution effect by 3.1%. We have positive view toward the transaction as the company will benefit from a decrease in financial cost along with cleaner balance sheet. In addition, there will be no concern on capital raising for 360 days except ESOP warrant and stock dividends.

Lotte Rental (Feat. Car Sharing Unicorn Green Car) IPO: Offering Details & Valuation Issues

By Sanghyun Park

Offering size

Lotte Rental offers 14.4M shares, which account for 49.02% of the pre-IPO total shares, of which 55-75% are allocated to institutions. It will be listed on KOSPI.

Offering size
Ticker089862
BourseKOSPI
Offering14,422,000
– % of pre-IPO SO49.02%
Institutional allotment55.00~75.00%
Source: DART

Who is Lotte Rental?

Lotte Rental is the number one car rental company in Korea. Lotte Rental has 220 branches and sales offices nationwide and operates 210,000 vehicles.

In 1990, Kumho Asiana Group partnered with Hertz to establish Lotte Rental. Since then, it has grown into the largest car rental company in Korea. In 2010, Kumho Group sold it to KT for ₩300B. Five years after KT acquired it, it was again sold to Lotte Group for ₩1.2T, and the corporate name was changed to the current Lotte Rental. Meanwhile, in 2020, Lotte Rental solidified its No. 1 position in the industry by acquiring the rental car division owned by Hanjin.

Lotte Rental is currently engaged in car rental and used car sales, and office/construction equipment rentals.

As of the first quarter of 2021,

  • Car rental sales accounted for 62.07% of total sales.
  • Used car sales accounted for 28.77% of total sales.
  • Office/construction equipment rentals accounted for 9.16% of total sales.

Split

This IPO is a split offering with a primary of 50% and a secondary of 50%. As a result, this offering will see a capital increase rate of 24.5% with a shareholding dilution of 19.7%. This event is free of any additional options: cornerstone, clawback, or greenshoe.

Split
Primary %50.00%
Secondary %50.00%
Capital increase rate24.51%
Dilution19.68%
Source: DART

Schedule

The book opens on August 3 (for both local and overseas investors) and runs for two days until August 4. The allotment will be on August 6, finalizing an offering price. The subscription falls on August 9.

Schedule
Book open2021. 8. 3
Book close2021. 8. 4
Allotment2021. 8. 6
Subscription2021. 8. 9
Payment2021. 8. 12
ListingTBA
Source: DART

Pricing

This IPO also uses EV/EBITDA. The corporate value was determined after selecting only two local rental companies:

  1. SK Rent A Car (068400)
  2. AJ Networks (095570)

The respective EV/EBITDA multiples are 5.47x for SK Rent A Car and 5.44x for AJ Networks, giving an average of 5.46x.

Valuation peers: EV/EBITDASK Rent A Car Co LtdAJ Networks Co LtdNote
Ticker068400095570
Reference market cap₩657.7B₩272.6BA = a) × b)
Shares outstanding47,285,84046,822,295a)
Reference share price: MIN[1M Avg, 1W Avg, 1D Close]₩13,910₩5,823b)
Net debt, as of 1Q21₩1,569.0B₩911.2BB
Enterprise value (EV)₩2,226.7B₩1,183.8BC = A + B
EBITDA: 2Q20~1Q21₩407.0B₩217.5BD = c) + d)
Operating profit: 2Q20~1Q21₩71.2B₩18.3Bc)
Depreciation & Amortization: 2Q20~1Q21₩335.8B₩199.2Bd)
EV/EBITDA5.47x5.44xE = C / D
Average EV/EBITDA5.46x
Source: DART
The averaged EV/EBITDA multiple of 5.46x was applied to Lott Rental’s EBITDA of ₩1,120.6B from the second quarter of last year to the first quarter of this year. As a result, we have a price per share of ₩77,708, giving a market cap of ₩2.85T.
Lotte Rental: EV/EBITDA
EBITDA: 2Q20~1Q21₩1,120.6BA
EV/EBITDA5.46xB
Enterprise value (EV)₩6,114.4BC = A X B
Net debt₩3,267.7BD
Market cap₩2,846.7BE = C – D
Post-IPO total shares36,634,063F
Price per share₩77,708G = E / F
Source: DART
The indicative price band lies between ₩47,000 and ₩59,000. This is obtained by applying a discount rate of 24.07% to 39.52% to the market cap of ₩2.85T calculated through EV/EBITDA. This much discount gives an EV/EBITDA multiple of 4.45x to 4.84x.
Indicative price bandLowHigh
Price₩47,000₩59,000
Base deal size₩677.8B₩850.9B
– Institutional allotment₩372.8B₩468.0B
Implied market cap₩1,721.8B₩2,161.4B
– Discount39.52%24.07%
EV/EBITDA4.45x4.84x
Source: DART

Result Update:Avenue Super.

By Axis Direct

We believe is fairly valued given store revenue growth while store expansion may moderate in the near to medium term due to the pandemic-induced uncertainties and consequent lockdown restrictions. We increase our target price to Rs 3,110/share (prev – Rs 2,890/share) valuing at 40x FY24E EV/EBITDA

Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

Avenue Supermarts Ltd

By ICICI Securities Limited

Accelerated store addition to spur revenue growth the D-Mart’ brand with a core focus on value retailing. D-Mart, through its proven business model, has been able to maintain consistent profitability and remains an exceptional performer in its peer group. D-Mart has progressively enhanced its return ratios (RoIC: 20%+) despite…

Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

HSIE Results Daily: Avenue Supermarts

By HDFC Securities

We maintain our SELL recommendation on DMART with a revised DCF-based TP of INR 2,260/sh (earlier 2,160/sh), implying 34x Jun-23E for the standalone business + 4x Jun-23E sales for DMART Ready. Note: the target price change is a function of EPS change (+3%; led by lower cost of retailing) for FY23 and DCF rollover (+2%) to Jun-23. Avenue Supermarts: While D-MARTs revenue recovery came in line with expectations, its profitability disappointed. Revenue grew 31% to INR 50.3bn (in-line), while curbs on non-essential sales during the second COVID-led lockdown put pressure on its gross margin (GM), which contracted 129bps to 12.4% (HSIE: 13.5%).

Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

Gross margin disappoints amid a steady revenue recovery

By Motilal Oswal

The revenue recovery in DMART has been much better than that during the previous lockdown, growing 33% YoY (13% below pre-COVID levels). Gross margin declined by 110bp YoY, despite the base quarter having seen a…

Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

Before it’s here, it’s on Smartkarma

Consumer: Zomato, Tesla Motors, Kakao Pay, Bajaj Auto Ltd, Avanti Feeds and more

By | Consumer, Daily Briefs

In today’s briefing:

  • ECM Weekly (11th July 2021) – Zomato, Bukalapak, Kakao Bank, Krafton, Didi, Kanzhun, Full Truck
  • 2H21 Obex Research Short Portfolio
  • Kakao Pay IPO: Do Not Worry About Maturing MAU Growth
  • Morning India: Bajaj Auto: Exports cushion domestic weakness
  • Avanti Feeds: Favourable Culture Conditions Provide Better Outlook

ECM Weekly (11th July 2021) – Zomato, Bukalapak, Kakao Bank, Krafton, Didi, Kanzhun, Full Truck

By Zhen Zhou, Toh

Aequitas Research puts out a weekly update on the deals that have been covered by the team recently along with updates for upcoming IPOs.

China ADRs were rattled this week. It began with announcements of a cyber security review into newly-listed DiDi Chuxing, Kanzhun and Full Truck Alliance by the Cyberspace Administration of China (CAC). 

Since then, China has pledged greater scrutiny of data for listed companies and is considering regulations that will hinder Chinese firms from listing overseas. In our notes this week, we discuss the news in greater detail and what it means for future listings:

China ADR ECM pipeline will be subject to greater uncertainty and deal flow should come to a halt for the foreseeable future. Expectedly, LinkDoc, which closed its books early for its US$211m bookbuild, has since shelved its IPO and China e-Commerce platform, Meicai, has also postponed its US IPO plan.

Prior to the news, we initiated on Alibaba and 58.com-backed Daojia Limited, one of the largest one-stop home services platforms in China. 

For live IPOs, attention finally shifted away from Hong Kong to other APAC countries. In India, food delivery platform, Zomato, secured SEBI approval for its listing and launched its upsized bookbuild to raise US$1.26bn (up from US$1.1bn). The firm is backed by Alipay, Temasek, Uber and Sequoia. Demand for the deal has been considerably high thus far, with anchor books set to open on Tuesday. Shares will debut on 27 July.

In Hong Kong, the focus next week will be on biotech/healthcare names. Medlive Technology and Kindstar Globalgene Technology both closed their bookbuilds earlier than stipulated, citing strong investor demand. Both deals were priced at the top end. Medlive will debut on Thursday, and Kindstar, on Friday. We covered both deals earlier: 

Brii Biosciences closed its books a day earlier as well, raising US$320m. The deal boasts an impressive lineup of 11 cornerstones that includes Oppenheimer, UBS, Boyu, Yunfeng, Sequoia etc., combining to take up half the total deal size. 

For our ongoing coverage, we followed up with peer comparison and preliminary valuation on fresh food and FMCG retailer, WM Tech, and its US$1bn deal.  

Tencent-backed games developer Krafton Inc. is also set to launch its US$3.8bn bookbuild this coming Wednesday. The company is known for developing the global hit, PlayerUnknown’s Battlegrounds (PUBG), an online multiplayer battle royale game. Books are expected to close on 27 July and to trade on 10 August. 

Despite the general market weakness mid week, Hong Kong debuts have mostly done well except for Xpeng which closed 5.8% below deal price largely due to its ADR trading lower. On the other hand, Chaoju Eye Care and Keymed closed 40.4% and 30.2% above their respective IPO price by Friday’s close.

For placements and potential ones this week, we think that there is a good chance that RLX Technology Inc (RLX US)‘s pre-IPO investors could come to market to sell considering the impact from regulation.

Jinxin Fertility Investment Group sold part of its stake in Jinxin Fertility Group to raise US$99m. Deal was priced at a 6.6% to undisturbed price and has traded downwards, closing 9.15% below deal price on Friday. 

Accuracy Rate:

Our overall accuracy rate is 73.8% for IPOs and 67.5% for Placements 

(Performance measurement criteria is explained at the end of the note)

New IPO filings this week

  • Bukalapak (Indonesia, US$1bn)

News on Upcoming IPOs

Hong Kong/China

US/China ADRs

India

Others

Analysis on Upcoming IPOs

NameInsight
Hong Kong
Anjuke

Anjuke Pre-IPO – Mixed (Positive and Negative) Developments 

Betta Pharma

Betta Pharma (贝达医药) A+H: Tier 2 Player Struggled to Break Out 

Broncus

Broncus (堃博医疗) Pre-IPO: Big Potential to Be Tested 

ByteDance

ByteDance (字节跳动) IPO: How Jinri Toutiao Paves The Way for a Bigger Empire (Part 1)

ByteDance

ByteDance (字节跳动) Pre-IPO: Why Facebook Should Worry About TikTok 

ByteDance

ByteDance (字节跳动) IPO: Tiktok the No.1 Short Video App for a Good Reason (Part 2)

ByteDance

ByteDance (字节跳动) Pre-IPO: How Has It Done in 1H? 

ByteDance

ByteDance: The Unlisted Company’s Video Apps Leading the Market and Threatening Internet Giants 

ByteDance

ByteDance (字节跳动) Pre-IPO: Why Facebook Should Worry About TikTok 

ByteDance

ByteDance (字节跳动) Pre-IPO – Globally the Most Downloaded App for Jan 2020 Driven by India 

ByteDance

ByteDance (字节跳动) Pre-IPO: Global Ambition Meets Regulatory Challenges 

Dida

Dida Pre-IPO – Making Hay While Big Brother Retreats 

Dida

Dida Pre-IPO – Earnings Forecast and First Stab at Valuation 

Dida

Dida Pre-IPO – Peer Comparison – Lagging in Scale, Leading in Profitability 

Edding Grp

Edding Group (亿腾医药) Pre-IPO: Notes from Latest Financials and Its Related Party 

Edding Grp

Edding Group (亿腾医药) Pre-IPO: Notes from Latest Financials and Its Related Party 

Hanyu

Shanghai Hanyu (捍宇医疗) Pre-IPO: Not a Straight-A but Listing at Right Time 

Intco Med

Intco Medical (英科医疗) A+H: From China No.1 to Global No. 1 

Kilcoy

Kilcoy Global Foods Pre-IPO – Rapid Earnings Growth on the Back of Margin Improvement 

Kilcoy

Kilcoy Global Foods Pre-IPO – A Lot of Things Still Remain Unexplained 

Novotech

Novotech Pre-IPO: Biotech Focused CRO at Hefty Pre-IPO Valuation 

RemeGen RemeGen (荣昌生物) Pre-IPO: Thoughts on Valuation of RC18 and RC48 
SH Bio-heart Shanghai Bio-Heart (上海百心安) Pre-IPO: Needs a Long Runway 
Toplist Toplist China Pre-IPO – Overwhelmingly More Negatives than Positives 
Tasly Tasly Biopharm (天士力生物) IPO: Visible Growth from Approved Drug but Lacks Blockbusters 
WeDoctor WeDoctor (微医) Pre-IPO -App Walk Through – The Online Medical Directory and More 
WeDoctor WeDoctor (微医) Pre-IPO – A More Focused Online Medical Svc Provider than Ping An Good Doctor 
WeDoctor We Doctor (微医) Pre-IPO – Peer Comparison – Picking Its Battles Wisely 
WeDoctor We Doctor (微医) Pre-IPO – Forecasts, Early Thoughts on Valuation, and Acquisition Gripes 
Weilong Weilong Delicious Global Pre-IPO – The Positives – Fast Growth, Strong Backers 
Weilong Weilong Delicious Global Pre-IPO – The Negatives – Spicy Valuation 
WM Tech WM Tech Pre-IPO – Digitalization Efforts Coming Through but Not Well Substantiated 
WM Tech WM Tech Pre-IPO – Peer Comparison and Pre-IPO Valuation – Some Signs of Advantage 
India
Aadhar Housing Aadhar Housing Finance Pre-IPO – Decent past Growth but Comes with Weird Disclosures 
ASK ASK Investment Managers Pre-IPO – Riding on a Wave of Wealth 
Anmol IndAnmol Industries Pre-IPO Quick Take – No Growth, Generous Payments to Founders
Bharat Hotel

Bharat Hotels Pre-IPO – Catching up with Peers 

Bajaj En

Bajaj Energy Pre-IPO – Supposed to Deliver Steady Performance if Only Its Sole Client Would Let It 

CMS InfoCMS Info Systems Pre-IPO – When a PE Sells to Another PE… Only One Gets the Timing Right
Crystal CropCrystal Crop Protection Pre-IPO – DRHP Raises More Questions than in Answers
ESAF SFB ESAF Small Finance Bank Pre-IPO – Growing Fast but Remains Highly Dependant on a Related Party 
Flemingo Flemingo Travel Retail Pre-IPO – Its a Different Business in Every Country
Emami Cem Emami Cement Pre-IPO – Still in Ramp Up Phase but Shares Pledge Might Lead to an Early IPO 
NSENSE IPO Preview- Not Only Fast..its Risky and Expensive
NSENational Stock Exchange Pre-IPO Review – Bigger, Better, Stronger but a Little Too Fast for Some

LIC

Life Insurance Corporation of India Pre-IPO – Early Take on India’s Largest IPO 
Penna Cem Penna Cement – Aggressive Expansion Plans Even Though Past Performance Has Been Tepid 
PNB MetPNB Metlife Pre-IPO Quick Take – Doesn’t Stack up Well Versus Its Larger Peers
Samhi Hotels Samhi Hotels Pre-IPO – Assets and Borrowings Are Growing, but Earnings Haven’t Kept Pace 
Zomato Zomato Pre-IPO – Filings Lack Narrative, a Little Bit of History Helps 
Zomato Zomato Pre-IPO – Food Delivery Revenue Was Probably up 16x 
Malaysia
QSRQSR Brands Pre-IPO – As Healthy as Fast Food
The U.S.
ForU ForU Worldwide Pre-IPO – Mostly Negatives 
Qiniu Qiniu Cloud (七牛云) Pre-IPO: PaaS Doesn’t Warrant a Premium 

2H21 Obex Research Short Portfolio

By Aaron Gabin

Some updated thinking on our shorts: We like the Teradata short setup into 2Q21, and think Tesla may finally be safe to short. Well, safe as it ever gets. Apple remains our preferred large cap short, while Disney we flip from long biased to short biased as Disney+ subscriber numbers have decelerated massively. 

Obex’s fundamental research process is focused on secular change in the TMT and Consumer sectors. We seek to differentiate between fundamental business analysis and security analysis. Before deciding if a security’s pricing and positioning merit a long or short position, we analyze the four pillars of business fundamentals (Secular Factors, TAM, Competitive Advantage, Business Model) in order to determine if this is a “good” or “not so good” opportunity.  


Kakao Pay IPO: Do Not Worry About Maturing MAU Growth

By Oshadhi Kumarasiri

Backed by Ant Financial Services Group (6688 HK) and the South Korean Internet company Kakao Corp (035720 KS), Kakao Pay (KAK KS) started off as a mobile wallet/mobile payment service capable of handling payments, remittances, and P2P transactions. While the mobile wallet business is considered rather important, as it is the foundation for creating a cashless society, mobile wallet is not really a profitable venture capable of surviving on its own (it is unable to charge sufficient amounts from merchants and customers to offset high operating costs such as IPG costs). However, the payment business provides the platform to attract and retain customers for Kakao Pay’s financial services business, which is more profitable.

With 19.5m monthly active users (MAU) (around 45% of South Korea’s adult population) as of March 2021, alongside stiff competition from Naver Pay, Toss, Payco, and Samsung Pay, it is natural that Kakao Pay’s payment business may experience a deceleration in MAU growth in the next few years.

Nonetheless, we are unrattled by the payment business’ slower growth prospects, as the financial services business, which is just starting to gain momentum, is more than capable of replacing the payment business’ lost growth potential and that too in a profitable manner.


Morning India: Bajaj Auto: Exports cushion domestic weakness

By Motilal Oswal

While its share in the domestic Motorcycle market declined marginally (50bp to 18%), led by market share loss of 770bp in the Sports segment due to cannibalization by Pulsar 125cc. It expects to further strengthen its position in the Premium segment, with…

Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

Avanti Feeds: Favourable Culture Conditions Provide Better Outlook

By Geojit BNP Paribas

Revenue/PAT to grow at 18%/23% CAGR over FY21-23E. We value AFL at FY23E P/E of 19x considering healthy growth & RoE, and no debt. Revenue growth aided by healthy growth in feed volumes For Q4FY21, revenue grew by 6% YoY on account of 16%YoY growth in Feed segment while Exports de-grew by 23%YoY. Feed volumes improved by 14%YoY while export volumes declined by 19%YoY mainly due to disruption in marine logistics, weak demand, and recall of certain products sold in USA. As restaurants & malls are reopening, demand is picking up which is supporting prices also.

Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

Before it’s here, it’s on Smartkarma

Consumer: WH Group, Alibaba Group, RLX Technology Inc and more

By | Consumer, Daily Briefs

In today’s briefing:

  • WH Group – Long-Only Fundamental Investors Can Take Advantage Too
  • Index Rebalance & ETF Flow Recap: EPRA NAREIT, HSCEI, ASX200, FTSE CH50/A50, TW50, SEA, Exec Order
  • RLX Lock-Up Expiry- Stung by Regulation, What Early Investors Do Will Be Telling, >US$1bn Comes Free

WH Group – Long-Only Fundamental Investors Can Take Advantage Too

By Travis Lundy

WH Group (288 HK) is currently in the pre-event stage of a proposed Buyback Tender Offer as discussed 6 June in WH Group Buyback Offer Announced – Strong Accretion Creates Accretion Risk.

Two weeks later on 20 June, I wrote about the WH Group (288 HK) arb bullishly in WH Group Vs Peers – Too Many Piggies Going to Market?, noting that live hog prices had fallen sharply and if live hog prices rebounded as futures indicated they might, you’d want to be prepared to think about getting in as the HK-listed and CH-listed peer group rebounded. The Peer Baskets hit their lows on the 21st of January, and the CH/HK-listed Peer Basket of 7 names rebounded 8.7% in the next five days. During that period, WH Group’s price hit an intraday price implying 90% shareholder participation in the tender. That was relatively cheap. 

A little less than a week ago, I wrote WH Group – Trading Opportunities Abound when WH Group hit a price implying 50% participation in the proposed Buyback Tender. That was too expensive.

Four trading days later and we are at 80% implied participation against a Global Basket and high 70% implied participation rate against the HK-CH-listed Comp Basket. 

There is a way to think about Partial Offers. This one has the added quirk of being a buyback which affects the back end. 

Both short-term and long-term investors should take special care to understand the options available to them. Those options are worth money.

 To both arbitrageurs and long-term investors. 


Index Rebalance & ETF Flow Recap: EPRA NAREIT, HSCEI, ASX200, FTSE CH50/A50, TW50, SEA, Exec Order

By Brian Freitas

In this weeks recap, we look at:

Events This Week

Click on the link under Detail to go to the Insight

Date

Index

Detail

14 July
MSCI
15 July
ASX200
16 July
HSI, HSCEI, HSTECH
Monthly rebalance: potential Alibaba Group (9988 HK) weight increase

RLX Lock-Up Expiry- Stung by Regulation, What Early Investors Do Will Be Telling, >US$1bn Comes Free

By Sumeet Singh

RLX Technology Inc (RLX US) raised around US$1.4bn in its US listing in Jan 2021. RLX was the largest branded e-vapor company in China with a market share of closed-system e-vapor products in terms of retail sales value. RLX only sells its e-vapor products in China.

While the company didn’t have cornerstone investors in the deal, it did have a lot of pre-IPO investors. The lock-up will expire over the next few days.

Links to our previous notes:


Before it’s here, it’s on Smartkarma

Consumer: DiDi Chuxing, Melco International Development, Sappe Pcl and more

By | Consumer, Daily Briefs

In today’s briefing:

  • Smartkarma Webinar | 2021 IPO Pipeline
  • StubWorld: Lock In Profits As Melco’s NAV Discount Narrows
  • SAPPE: Expect 2Q21 Earnings to Grow YoY and QoQ

Smartkarma Webinar | 2021 IPO Pipeline

By Smartkarma Research

For our next Webinar, we are excited to host Insight Provider Sumeet Singh, Head of IPOs & Placements for Aequitas Research, to give us an overview of Equity Capital Markets activity during busy 1H21 and take us through the 2H21 pipeline, highlighting IPOs to look out for.

The webinar will be hosted on Wednesday, 28 July 2021, 17:00 SGT/HKT.

Sumeet Singh is Head of IPOs & Placements for Aequitas Research. Aequitas covers all IPOs and Placements across Asia-Pacific with a deal size of at least US$100m. As of June 2021, the team had covered 581 IPOs with a hit rate of 73.8% and 752 placements with a hit rate of 67.6%. Prior to Aequitas, Sumeet was heading Content Strategy for Smartkarma, along with covering IPOs & Placements, and in an earlier life covered ASEAN property and the banking space in India.


StubWorld: Lock In Profits As Melco’s NAV Discount Narrows

By David Blennerhassett

This week in StubWorld …

Melco International Development (200 HK)‘s has bounced off its all-time low NAV discount and implied stub back in March, and is now back to +2 STD levels. 

Preceding my comments on Melco are the weekly setup/unwind tables for Asia-Pacific Holdcos.

These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold – the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent – of at least 20%.

As always, more below the fold.


SAPPE: Expect 2Q21 Earnings to Grow YoY and QoQ

By Research Group at Country Group Securities

We expect SAPPE to report 2Q21 net profit of Bt111m (+34%YoY, +28%QoQ) supported by entering the high season period.

• We expect 2Q21 revenue at Bt850m (+21%YoY, +16%QoQ) driven by increasing in export sales due to economic recovery from the vaccination against COVID-19 globally, seasonal factor and a low base compared to the previous year.
• We expect 2Q21 gross profit margin of 37.0%, +1.6ppts YoY, due to the reduction of excise tax to 3% since Jul 2020.
• We expect 3Q21 earnings to drop YoY due to high base, but expand QoQ thanks to seasonal effect and economic recovery.
•However, we maintain our positive long-term outlook supported by the successful in introducing new products and market expansion in the next three years.
We maintain BUY rating with a target price of Bt36.50 based on 24.2xPE’21E, which is equal to Asia-ex Japan consumer staple peer.

Before it’s here, it’s on Smartkarma

Consumer: Fu Shou Yuan International, Nayuki Holdings, Zomato, Momo.Com Inc, Seven & I Holdings, Xpeng, WM Tech Corporation, SHEIN, Sands China Ltd, Carabao Group and more

By | Consumer, Daily Briefs

In today’s briefing:

  • Fu Shou Yuan (1448 HK): No Stiff Competition
  • Nayuki (奈雪の茶): Teahouse Competition on the Ground
  • Zomato IPO – Strong 4Q21, Has a Very Long Runway
  • FTSE TWSE Taiwan 50 Index Rebalance Preview: Momo & Index Inclusion
  • 1QFY22 Results: Underperforms Consensus, A Minor Blip Could Be a Good Entry Point
  • Xpeng Rally Met Our 46 Target, Pullback in Progress
  • WM Tech Pre-IPO – Peer Comparison and Pre-IPO Valuation – Some Signs of Advantage
  • SHEIN: The Fastest Growing E-Commerce Company in the World & Ready to Overtake Zara in 2022?
  • Sands China – Tear Sheet – Lucror Analytics
  • CBG: Expect 2Q21 Earnings Improve QoQ

Fu Shou Yuan (1448 HK): No Stiff Competition

By David Blennerhassett

Headquartered in Shanghai, Fu Shou Yuan International (1448 HK) (FSY) is one of the largest funeral home companies worldwide with revenue of US$289mn in 2020.

China has high entry barriers for the death care industry as local governments enforce licensing caps. Coupled with a shortage of burial space, an increasing wealthy portion of the population, and the social stigma attached to the business, FSY enjoys high margins amid a relatively inelastic demand.

Shares are down 12% from the recent high in May. A sound investment or is this dead money?


Nayuki (奈雪の茶): Teahouse Competition on the Ground

By Ming Lu

  • We visited the stores of Nayuki and its competitors.
  • Nayuki has the No. 4 largest customer base among Chinese teahouses, but we believe Heytea is the only competitor to Nayuki.
  • Fruit tea is still popular, but customers are loyal to one or two brands.

Zomato IPO – Strong 4Q21, Has a Very Long Runway

By Sumeet Singh

Zomato (ZOM IN)  aims to raise US$1.3bn in its India IPO. This will be the largest listing in India from the technology sector.

Zomato operates a technology platform that provides services for restaurant partners, customers, and delivery partners. During FY20, Zomato recorded 41.5m average MAU and was one of the leading Food Services platforms in India, in terms of value of goods sold, according to RedSeer. As of 31 Dec 20, it had a presence in 526 Indian cities and had 350,174 active restaurant listings.

In this note, we will talk about the updates from the RHP and the deal pricing.


FTSE TWSE Taiwan 50 Index Rebalance Preview: Momo & Index Inclusion

By Brian Freitas

The FTSE TWSE Taiwan 50 Index is a market cap weighted index adjusted for free float and Foreign Ownership Limits and is designed to represent the performance of 50 of the largest and most liquid stocks that trade on the Taiwan stock market.

The next rebalance will be effective after the close of trading on 17 September and the changes will be announced on 3 September. The September review will use data from close of trading on 23 August to determine the stocks to be included and excluded.

As of the close on 7 July, we see Momo.Com Inc (8454 TT) being included in the index replacing Chang Hwa Commercial Bank (2801 TT).

There are no close adds at this time, so there is likely to be only one change at the review. Estimated one-way turnover is small at 0.35%.

Momo.Com Inc (8454 TT) has run up a lot over the last few months and has momentum going for it. Apart from being included in the FTSE TWSE Taiwan 50 Index, there is the possibility of the stock moving from the MSCI Small Cap index to the MSCI Standard index in August which would bring in additional passive inflows.


1QFY22 Results: Underperforms Consensus, A Minor Blip Could Be a Good Entry Point

By Oshadhi Kumarasiri

Our 2021 High Conviction call, Seven & I Holdings (3382 JP) delivered 1QFY22 results today with revenue surpassing consensus estimate by around 2.0%. The company’s 1QFY22 operating income was 10% below consensus.

Although Q1 results seemed a bit weak on profitability, we think the weakness is somewhat exaggerated by inflated consensus OP estimates. The consolidated OP increased 8.6% YoY in the quarter and the weak profitability in Superstores was the only real surprise. Weaknesses in superstore and department store business could provoke activists which might even be a good thing for Seven & I’s share price. Hence, there is not a lot to do here unless the shares fall 5-6% tomorrow, which we think could be a good entry point to ride a rally towards Seven & I’s all-time high of ¥5,906 per share in the short term.


Xpeng Rally Met Our 46 Target, Pullback in Progress

By Thomas Schroeder

Xpeng has rallied nicely from our buy in level at 23 and met our ideal target at 46, a pullback is now in the cards back to the old pivot support at 31.

Trendline resistance was cleared back at 27 and does represent a macro breakout, suggesting the next pullback is a higher degree buying opportunity that will lead to highs back above 46.

RSI has not confirmed recent new highs and is a negative tactically once below 39.


WM Tech Pre-IPO – Peer Comparison and Pre-IPO Valuation – Some Signs of Advantage

By Zhen Zhou, Toh

WM Tech Corporation (WMT HK) is looking to raise US$1bn in its upcoming Hong Kong IPO. 

WM Tech (WMT) is a fresh food and FMCG retailer in China. The company operates its business primarily through two brands, Wumart (物美) and Metro (麦德龙). The Metro brand belonged to Metro China in which WMT acquired an 80% stake in and started consolidating in April 2020.

In this note, we have  compared WMT to other supermarket operators.

We have previously covered the IPO in:


SHEIN: The Fastest Growing E-Commerce Company in the World & Ready to Overtake Zara in 2022?

By Douglas Kim

Shein is a monster e-commerce company based in China. Shein is the fastest growing e-commerce company in the world. The company generated nearly $10 billion in revenues in 2020, up nearly 250% YoY. Shein could realistically overtake Zara in terms of revenues by 2022. 

Shein’s core business model is to sell clothing (mostly women’s apparel) online to the younger generation consumers in the US, Europe, and other parts of the world. Shein is especially popular among the budget conscious younger generation in the Americas, Europe, and Asia (excluding China). 

The following are the key competitive advantages of Shein:

  • Superb execution of “art of trend setting” in apparel products
  • Extremely attractive pricing
  • Faster adoption of new fashion styles
  • Aggressive promotions through influencers and discount codes
  • Effective use of data analytics and technology
  • Capitalize on the tax loop holes between the US and China

The tremendous growth of Shein and other pure-play fashion companies have had major negative impact on some of the largest apparel companies with signficant brick and mortar operations such as Fast Retailing (9983 JP), Gap Inc/The (GPS US), and Industria De Diseno Textil Sa (ITX SM).


Sands China – Tear Sheet – Lucror Analytics

By Leonard Law, CFA

We initiate coverage of Sands China, with a “Hold” recommendation on the SANLTD Notes. 

We view Sands China as “Low Risk” on the LARA scale. Parent Las Vegas Sands Corp​ (LVSC) is a pioneer of the integrated resorts business model, which combines casino gaming with ancillary facilities such as MICE and entertainment. Among the six concession/sub-concession holders in Macau, Sands China has the largest scale and the highest market share in the territory’s fast-growing mass-market gaming segment. Our view also considers the company’s track record of strong operations and sound financial management, with a robust leverage profile prior to the COVID-19 pandemic. 

Our fundamental Credit Bias on Sands China is “Negative”, as the company is still incurring an operating cash burn due to the pandemic. We expect the company’s OCF to turn positive towards FYE 2021, assuming the Macau/Mainland travel visa requirements continue to ease. That said, its FCF should remain negative in FY 2021, owing to planned capex for The Londoner Macao. Hence, we foresee that the company’s debt will increase further throughout the year. 

We view Sands China’s corporate governance as “Effective” on the LAGA scale. We believe the company is now run by professional managers, following the death of founder Sheldon Adelson. This is despite the 57% stake that his wife, Miriam Adelson, and family hold in LVSC. Related party transactions are immaterial. That said, the absence of an independent chairman is a minor negative.


CBG: Expect 2Q21 Earnings Improve QoQ

By Research Group at Country Group Securities

We reiterate our BUY rating with a higher target price of Bt165 (+5% from Previous TP) based on 35xPE’22E, the average of the Thailand energy drink stocks.

• We expect CBG to report 2Q21 net profit of Bt894m (+1%YoY, +28%QoQ) support by re-stocking products in CLMV market, solid China sales growth at triple digit growth, new functional Drink product (Woody C+ Lock Vitamin C Drink Mixed Berry) on  19 April 2021, two new alcohol products distribution in 2Q21.
• In 2H21, we expect CBG earnings to improve HoH caused by (1) Recovering sales in CLMV market, (2) Solid china sales growth, and (3) Reduction of excise tax and lower sugar costs after the company gradually adjust sugar formula by 2H21.
• Revised up 2021-22E earnings to factor in reduction of excise tax and lower sugar costs.

Before it’s here, it’s on Smartkarma

Consumer: Sands China Ltd, Alibaba Group, DiDi Chuxing, Zomato, NIO Inc, Kakao Pay, Cloud Village, Luckin Coffee, Great Wall Motor and more

By | Consumer, Daily Briefs

In today’s briefing:

  • Sands China (1928 HK): Gambling On The Future
  • Alibaba: Still Too Risky to Own
  • Daojia Pre-IPO – Can’t Pinpoint the True Growth
  • Zomato (ZOM IN) | How to Avoid a Deliveroo
  • Zomato Pre-IPO – Peer Comparison – Listed and Domestic
  • NIO: Market Waking Up to VIE Risk?
  • Kakao Pay Immediate Float Is Too Tight at 10%: Alipay Exit Possibilities & Indices Fast Entry
  • Cloud Village IPO: Improving Financials and Less Fear of Regulatory Crackdowns for Investors
  • Tougher Chinese Regulatory Oversight of Foreign Listed Chinese Companies (With Caveats)
  • Great Wall Motor: Too Early to Get Excited

Sands China (1928 HK): Gambling On The Future

By David Blennerhassett

One step forward …

The travel bubble – or perhaps travel corridor has a nicer ring to it – between Hong Kong and China remains very much a work in progress. 

There were earlier reports that cross-border travel between the two SARs would resume on July 11, under certain conditions.

Yet Hong Kong’s tourism sector lawmaker Yiu Si-wing said cross-border travel between Hong Kong and Macau is unlikely to resume next week as the two administrations have yet to put forward any concrete plans regarding the travel arrangement.

As it stands,  the Macau government raised the threshold for resumption of travel, with Hong Kong required to reach 14 days without either local coronavirus infections or community ones linked to imported cases. Previously, the requirement was for no untraceable cases for 28 days.

The Macau Tourism website mentions if departing from Hong Kong, you need a clear Covid test within the last 24 hours, and you will still need to go to designated places for a 14-day medical observation. Visitors from China face similar restrictions – although the Covid test must be within a 7-day window.

This brings us to the Macau gaming sector.

Despite meaningfully reduced visitation (~16% of 2019 levels in the 1Q21), positive EBITDA in Macau is occurring. 1Q21 mass gaming has recovered to approximately 38% of 1Q19 levels.

In this insight, I look at how Sands China Ltd (1928 HK) has weathered the pandemic and how it is placed for a recovery.


Alibaba: Still Too Risky to Own

By Oshadhi Kumarasiri

Mega cap tech stocks rarely underperform the market to the same extent as Alibaba Group (9988 HK) during the last seven months, especially with no deterioration in earnings growth potential.

Source: Cap IQ

After trading sideways during May/June 2021, technicals were pointing the right way for the very first time for Alibaba in 2021.

The stock rallied by 10% in the last week of June to $229.4 per share, causing most of us to assume that Alibaba was making a comeback.

Unfortunately, the joy lasted just a short time, as Xi Jinping’s government went back on the offence with a broadened crackdown on tech platforms, especially the US-listed Chinese tech companies like the recent ride sharing IPO DiDi Chuxing (DIDI US).

After underperforming the S&P for almost seven months, most Chinese technology stocks, especially Alibaba, seem very cheap, but it is not cheap enough to call it a bottom amidst ongoing regulatory crackdowns and the geopolitical rivalry between the US and China. As such, we would not rush to buy any dips and recommend that we wait till the rally well and truly begins.


Daojia Pre-IPO – Can’t Pinpoint the True Growth

By Sumeet Singh

Daojia Limited (DL), one of the largest one-stop home services platforms in China, aims to raise at least US$300m in its US IPO, which now may or may not happen. The company is backed by 58.com and Baba.

DL operates Swan Daojia, a platform where it offers multiple services across categories such as maternity nurse, nanny, housekeeping services, along with training services and SaaS-based solutions.


Zomato (ZOM IN) | How to Avoid a Deliveroo

By Pranav Bhavsar

Deliveroo (ROO LN) ‘s IPO debut and its ESG related backlash should provide valuable lessons to Zomato (ZOM IN) which is expected to open for subscription in less than two weeks.

Deliveroo’s ESG concerns especially the poor treatment of delivery workers were one of the prominent reasons for ROO’s flop debut. In this insight, we address the key ESG concerns ZOM should address and improve its ESG disclosures as it prepares to hit the capital markets.


Zomato Pre-IPO – Peer Comparison – Listed and Domestic

By Sumeet Singh

Zomato (ZOM IN)  aims to raise US$1.1bn in its upcoming India IPO, which will be launched next week. This would be the largest listing in India from the technology sector.

Zomato operates a technology platform that provides services for restaurant partners, customers, and delivery partners. During FY20, Zomato recorded 41.5m average MAU and was one of the leading Food Services platforms in India, in terms of value of goods sold, according to RedSeer. As of 31 Dec 20, it had a presence in 526 Indian cities and had 350,174 active restaurant listings.

In this note, we will undertake a peer comparison with its global peers and its main local peer.


NIO: Market Waking Up to VIE Risk?

By Henry Kwon

NIO closed down at $46.03 (-8.47%), breaking through both its 10-day EMA ($48.51) and 21-day EMA ($46.64). The 38.2% Fibonacci Retracement ($49.49) which used to be support, has now become resistance. In the wake of the Cyberspace Administration of China’s removal order to app stores of the Didi Chuxing app citing issues with Didi’s personal information collection and usage, U.S.-listed China stocks have been showing weakness following the 4th of July holiday weekend. We see three major market concerns as they specifically apply to NIO at this point:

  • VIE Structure Risk: NIO is, strictly speaking, a Cayman Islands offshore entity with ADS listed in the U.S. having a VIE structure in China. The market could be concerned that the listed shares of NIO in the U.S. are not actually shares in the operational entities in China, and legal loopholes that have allowed this structure to persist in the past may be addressed by the Chinese government in the near future. Historically we do not believe this was a potential risk that was priced into NIO’s shares.
  • U.S. Regulatory Risk: The SEC has already adopted measures to require stricter disclosure for U.S.-listed Chinese firms under the Holding Foreign Companies Accountable Act enacted during the Trump Administration (https://www.sec.gov/news/press-release/2021-53). The Biden Administration has not backtracked on the Trump Administration’s basic policy direction and the June 3 Executive Order that goes into effect on August 2 will prohibit U.S. investors from investing in 59 Chinese companies “in a targeted manner – U.S. investments in Chinese companies that undermine the security or democratic values of the United States and our allies.”(https://www.whitehouse.gov/briefing-room/statements-releases/2021/06/03/fact-sheet-executive-order-addressing-the-threat-from-securities-investments-that-finance-certain-companies-of-the-peoples-republic-of-china/). As U.S.-listed Chinese stocks now seem like they are caught between a rock and a hard place, investors may become wary about bottom fishing so long as the de-listing risk theme is alive in the market.
  • Concerns about June Auto Demand in China and what it may imply for 2H21: According to media reports, CAAM expects to see 1.93m units of vehicle sales (-9.3% MoM, -16.1% YoY) in June (see https://www.reuters.com/business/autos-transportation/chinas-auto-sales-likely-fall-16-june-trade-body-says-2021-07-05/). The figures refer to combined PV and CV sales based on the expected YoY drop, which implies that we are likely to see June SAAR falling to 24.4m units (-15.6% MoM, -18.2% YoY). If June sales comes in at the 1.93m units that media reports have attributed to CAAM, then it would suggest that China demand may be showing decline, not just decelerating growth.

NIO’s ascending channel was broken today. The 50% Fibonacci Retracement level sits at $44.08 while the 200 DMA currently sits at $42.29. With RSI at 51 as of close, there is still technical room for a further drop based on our observation. If the 50% Fibonacci Retracement level holds, then first resistance would likely come in at the $46-48 zone.


Kakao Pay Immediate Float Is Too Tight at 10%: Alipay Exit Possibilities & Indices Fast Entry

By Sanghyun Park

Another important consideration for the Kakao Pay listing is a fairly tight immediate free float.

Kakao Pay’s current shareholder composition is simple: Kakao and Alipay Singapore Holding, owned by China’s Ant Group. They currently hold 55% and 45% stakes, respectively, on a pre-IPO shareholding basis.

Pre-IPO shareholdingShares%
Kakao62,351,92055.00%
Alipay Singapore Holding Pte. Ltd.51,015,20545.00%
Source: DART

Kakao Pay has stated in its IPO prospectus that nominally up to 38.91% on a post-IPO shareholding basis will be an immediate float.

But the problem is the 39.12% stake held by Alipay Singapore Holdings.

Alipay said 8.95% of its stake in Kakao Pay would be locked up for 6 months, and 1.70% will be locked up for 1 year. And the remaining 28.47% are not locked up.

Post-IPO shareholding%Lock-up
Kakao47.83%1 year
Alipay Singapore Holding Pte. Ltd.
8.95%6 months
1.70%1 year
28.47%No lockup
ESOP (post-IPO shareholders)2.61%1 year
IPO shareholders (institutional & retail)10.44%
Total100.00%
Source: DART

Alipay’s investment history on Kakao Pay

Kakao Pay, established in April 2017 by separating the fintech business from Kakao, welcomed Alipay, which participated in a capital increase of ₩224.2B in June of the same year, as its second-largest shareholder. Alipay also invested ₩113.7B in 2020. This year too, Alipay participated in a rights increase (₩20.2B) following the exercise of a call option in April, increasing its stake to 45%.

Based on the prior bonus share offering, Alipay participated in the capital increase in 2017 and 2020 at ₩32,202 and ₩48,726, respectively. In addition, considering the recent rights issue issuance price is ₩9,101, the average purchase price per share of all current stocks is lowered to ₩7,020.

Alipay Singapore Holding investment historyTotal investment valueStake %Purchase price per share
February 2017₩224.2B32.74%₩6,040
June 2020₩113.7B10.30%₩9,745
April 2021₩20.2B1.96%₩9,101
– Average purchase price per share₩7,020
Gain at the upper end of the indicative price band1267.46%
Source: DART

Alipay has invested ₩358.1B in Kakao Pay so far, and the value of its stake jumps to ₩4,897.5B based on the upper end of the indicative price band (₩96,000). This results in a return of more than 12 times the investment amount.

Alipay Exit Possibilities

As we all know, the level of an immediate float is essential for an IPO that is about the size of the Kakao Pay IPO. This is because it can estimate the fast entry of major domestic and foreign indices and predict overhang issues that significantly impact the short-term stock price.

So, how likely is Alipay’s early exit?

Alipay can sell 28.47% of its total shares immediately after listing. Even at the lower end of the indicative price band, the company is already able to reap 8x profit.

Alipay’s early exit may cause overhang risk in the short term, but it can also act as a positive for the company to be included in MSCI and FTSE as soon as possible. However, the possibility of Alipay’s early profit-taking is low at this point. If they had planned to sell their shares early, they would have done it through the secondary offering of this IPO.

In fact, in terms of its global expansion strategy, Alipay has enough justification for maintaining its stake in Kakao Pay for the time being. In addition to Kakao Pay, Alipay continues to invest in the Asian electronic payment market. Ant Group Chief Technology Officer (CTO) Chun-li called this the ‘Belt and Road Initiative for Payment’ and said, “Ant Group plans to build a simple payment market without borders.”

In a situation where Ant Group is trying to become an unrivaled payment service provider at the global level, there is no reason to terminate its relationship with Kakao Pay, a strategic partner in the Korean market, at this point.

Similarly, the prevailing opinion on local streets is that Kakao Pay wants to continue its current relationship with Alipay. This is because Alipay is essential for Kakao Pay’s overseas expansion.

In fact, Kakao Pay joined hands with Alipay to launch overseas payment services in Japan and Macau. Using this system, Korean users can pay electronically without exchanging money even when they travel abroad. In addition, Kakao Pay is expanding its business scope through cooperation with Alipay in online malls such as Ali Express and iHerb.


Cloud Village IPO: Improving Financials and Less Fear of Regulatory Crackdowns for Investors

By Shifara Samsudeen, ACMA, CGMA

Cloud Village (CLV HK)  is a leading music streaming platform in China and the company is backed-by NetEase Inc (NTES US) , one of the largest games and entertainment company in China. The company has filed for an IPO to list its shares on the Hong Kong Stock Exchange (HKEx) and according to news media outlets, the company plans to raise proceeds of about US$1bn.

Cloud Village generates revenues from online music services and social entertainment services (live streaming) and the competes with Tencent Music (TME US)  in China and the two companies operate similar business models and are backed by two large internet companies in China.

Tencent Music (TME US) has a large paid user base compared to Cloud Village and generates operating profits whereas Cloud Village has not yet been able to make gross margins though gross losses are declining. However, TME is currently probed by the State Administration of Market Regulation (SAMR) in China over its past deals. TME is formed by the acquisition of Kugou and Kuwo apps and the regulators have informed TME should expect to give up exclusive music rights and may even be forced to sell its previously acquired businesses of Kugou and Kuwo in 2016. Kugou and Kuwo account for about 64% of the total MAUs of TME’s online music streaming business and having to let go of these two businesses will wipe out a significant portion of TME’s users and revenues.

In this insight, we examine Cloud Village’s business model, its segments and financials. We plan to compare the company’s financials and KPIs against TME in a follow-up insight.


Tougher Chinese Regulatory Oversight of Foreign Listed Chinese Companies (With Caveats)

By Jason Yap, CFA

On 6 July 2021, Chinese regulators introduces guidelines for a crackdown on capital markets misconduct including, amongst others, data security lapses and financial fraud.  This article focuses on the financial fraud aspects of the latest guidelines, including how the Luckin Coffee (LKNCY US) incident might have been an impetus for the introduction of these guidelines, what the Chinese regulators’ attitude had been, and how future developments might unfold.


Great Wall Motor: Too Early to Get Excited

By Victoria Li

It’s unprecedented for an OEM which focuses on SUVs, to achieve annual sales of 1mn in the past. In April, GWM (Great Wall Motor) unveiled new exciting plans for its 5 brands to drive sales upside. However, after a deep dive analysis, we conclude that upside potential may not match current high valuation the market gives to the stock.

Where could GWM gain additional sales from current about100,000 cars of monthly sales volume? Our best guess is: 10,000 cars from ORA new models; 5,000 cars from pick-ups; 5,000-10,000cars from Haval. This indicates 30% increase on sales volume in the next three years. With ASP trends up and margin improvement, earnings increase over the next three years might reach 50-60%.

Based on Bloomberg consensus, GWM trades at 25x P/E on 2021E, vs. 6-years historical average of 10x P/E and its peers average of 8x (excluding BYD). In our view, valuation re-rating to traditional OEMs are based on brand upgrading and/or breaking into smart EV market. However, whether GWM’s brand upgrading (WEY) or smart EV positioning would be successful or not is highly uncertain.


Before it’s here, it’s on Smartkarma