TMT/Internet

*One Reorganization Down, One More To Go: Tencent Holdings (700.HK) [Tencent] announced a new round of organizational and employee adjustments in its Platform and Content Group (PCG) – the largest reshuffle since it began in 2018. With Alibaba Holdings (BABA] agreeing to form a financial holding company. Tencent cannot be far behind; and  

*Earnings To Decline, Capital Requirements To Increase: For Tencent, WeChat Pay and the broader lending/deposit taking business are likely to be reined-in. At CNY 38.5 bn, FinTech represents a growing 28.8% of revenue – and are key component of Tencent’s current and future results.  No matter what spin that Tencent wants to place on its other businesses, an FHC represents significant downside risks. Earnings will compress, as capital requirements increase.

The April 30 tax report/payment deadline is around the corner.

The Samsung Lee family must report all of the inheritance tax to the local tax authorities by April 30.

They are also obligated to pay at least one-sixth of the total by then if they opt for a 5-year grace period option, which is very likely at this point.

So, it works like this:

• One-sixth by April 30
• The reminder (five-sixth) in 5 annual installments (an equal one-sixth) at an interest rate of 1.8% per annum

The late Lee’s artwork collection is estimated at ₩2.8T, and his other assets (real-estates and cash) are valued at ₩2T.

All combined, the total gross taxable amount comes at ₩23.9T, which then spits out a total inheritance tax of ₩12T after deductibles and extra charges at a 60% tax rate.

Unless specified in the will, the inheritance will go at a 1/3 (spouse) to 2/3/N (each child) ratio.

SEMCNS is the market leader in Korea in the ceramic STFs (space transformers) market, which is mainly used in the semiconductor sector. Ceramic STF is a core component of a probe card for evaluating the electrical performance of a wafer. It supports MEMS PIN and transmits an electrical signal to the test inspection equipment through a PCB. Its main competitors are based in Japan. Major customers of the company’s products include Samsung Electronics and SK Hynix.

SEMCNS Co Ltd (252990 KS) is getting ready to complete its IPO in Korea in May. The IPO price range is from 5,000 won to 5,700 won. The IPO base deal size is from $54 million to $61 million. According to the bankers’ valuation, the expected market cap after the IPO ranges from 251 billion won to 286 billion won. Of the 12 million shares slated for this IPO, 10 million are new shares and 2 million are old shares. The book building for the institutional investors starts on 3 March 2021.

The company plans to spend the bulk of its IPO proceeds to double its capacity of STF from 5,000 units per year to 10,000 units per year at its Osong facility. The company has excellent technology and competes in a high barriers to entry industry. 

Square Enix is up 13% today as Bloomberg has reported that M&A Reporting company CTFN has said that Square Enix is the subject of M&A interest from a variety of companies, according to two investment banking sources.

• Southeast Asia’s eCommerce is Set to Grow Almost 3x in the Next 5 Years. A decade’s worth of digital transformation was achieved within one year as total Southeast Asian digital consumers in 2020 reached 310 million, a number previously forecasted would only be achieved by 2025. Southeast Asia’s eCommerce gross merchandise value (GMV) in the region is estimated to grow 3x to US$175 billion by 2025, according to Bain, Google, and Temasek.

• Secondhand eCommerce: a Bright Spot Within Broader eCommerce. COVID-19 has strengthened use cases for Secondhand eCommerce as job insecurity and financial pressures cause people to rethink spending habits and shift to more cost-effective secondhand goods. Rising environmental consciousness, especially among younger consumers, is expected to further drive demand for secondhand.

• Carousell is Poised to Reap the Rewards of a Secondhand eCommerce Boom and Expand into New Businesses. With over 250 million listings to date, an engaged userbase spanning 8 markets, and financials supporting long-term growth, Carousell stands as one of the leaders of secondhand eCommerce in the region and is in the prime position to reap the rewards of both a secondhand eCommerce boom and potential new businesses such as advertising solutions, commissions from add-on services, and online-to-offline home services.

• Carousell Gears Up for Investor Exit by 2024. Regulatory filings reveal that Carousell is committed to providing its investors an exit by 2024 through IPO or trade sale with an implied exit valuation of at least US$1.1 billion. The latest US$80 million investment from South Korea’s Naver Corp saw partial returns for investors, with an implied return of up to 12x for shares purchased from Series A investors. As Carousell’s value continues to grow, it serves as a viable acquisition for eCommerce, classifieds, or social media companies looking to expand or cement their growth in Southeast Asia.

On the 7 December, 2020, a consortium including co-founder and former Hollysys Automation Technology (HOLI US) CEO Baiqing Shao, Ace Funds, and Chinese PE outfit CPE Funds Management pitched an unsolicited US$15.47/share cash Offer for Hollysys, a leading automation control system solutions provider in China, which was summarily rejected on the 8 January as the Offer “substantially undervalues the Company and is not in the best interest of the Company’s shareholders …. (and that it) would deprive our shareholders of the value inherent in Hollysys for inadequate consideration.”

Undeterred, the consortium bumped its Offer to acquire the company to US$17.10/share on the 1 February. Hollysys has yet to make public its opinion on the revised Offer, other than there is no need for shareholders to “take any action at this time”.

Concerning the legal dispute over the beneficial ownership of the Hollysys’ shares held by Ace Lead and the beneficial ownership of the shares of Ace Lead held by Shao, Hollysys announced a legal action had commenced in the Hong Kong High Court against Shao and Ace Lead on March 9, 2021.

In a press release on the 14 March, Shao Baiqing and Ace Lead Profits allege they had won a preliminary victory against Hollysys.

Hollysys countered these statements were highly misleading.  The fact is that the Court has yet to adjudicate on the validity of the claim brought by Shao and Ace Lead and the legality of certain amendments to the Memorandum and Articles of Association. 

The New News

CPE has critiqued Hollysys’ 1H21 results (to 31 December 2020), and concluded that:

It is clear that existing management and the board of directors of the Company do not know how to run the business successfully.

Quite the soap opera. Currently trading at a 34% gross spread to terms.

As always, more below the fold.

UiPath has generated strong revenue growth and even turned profitable in its last reported quarter. With an attractive business model backing these strong financial metrics we consider what sort of valuation the company might command considering the premium multiples of many high growth software names.

Post market close on 16 April, S&P Dow Jones Indices announced that Redbubble Ltd (RBL AU) would replace Coca Cola Amatil (CCL AU) in the S&P/ASX 200 (AS51 INDEX) following the shareholders of Amatil voting in favour of the Scheme of Arrangement pursuant to which all the shares held by independent shareholders would be acquired by Coca-Cola European Partners (CCEP US). The index change is subject to final court approval of Coca Cola Amatil (CCL AU)‘s Scheme of Arrangement and will be implemented at the close of trading on 21 April.

FTSE and MSCI have also announced the deletion of Coca Cola Amatil (CCL AU) from the FTSE All-World and MSCI Standard indices with effect from the close of trading on 21 April.

The data cutoff period for the next scheduled review of the S&P/ASX 200 (AS51 INDEX) in June ends on 28 May. S&P DJI will announce the changes on 11 June and the changes will be effective after the close on 18 June.

We see two potential changes currently with Orocobre Ltd (ORE AU) and Chalice Gold Mines (CHN AU) replacing Resolute Mining (RSG AU) and Austal Ltd (ASB AU).

De Grey Mining (DEG AU) is a close add and Perenti Global (PRN AU) is a close delete.

Kakao’s founder, Kim Beom-Su, is looking sell about US$450m worth of shares.

 In this note, we will share our thoughts and run the deal through our ECM framework.  

We have covered earlier placements in:

• Kakao Corp Placement – A Quick Trade Post Solid 4Q Results 
• Kakao Corp Placement – Poor Track Record and Seems to Be an Unexpected Deal 

The NIFTY Index (NIFTY INDEX) is the flagship index of the National Stock Exchange of India (NSE). The index has 50 stocks and is a free float weighted market cap index. The next rebalance will be effective after the close of trading on 29 September 2021 and the announcement of the changes will be made four weeks prior to the effective date.

More than a third of the way through the review period that runs from February to July, we see one possible change to the index with Info Edge India (INFOE IN) replacing Indian Oil Corp (IOCL IN). There could be more changes if some large stocks like Adani Green Energy Ltd (ADANIGR IN) and Avenue Supermarts Ltd (DMART IN) are included in the Futures & Options (F&O) segment of the market.

Vedanta Ltd (VEDL IN) does not make the cut for index inclusion following the 10% reduction in its free float following the open offer.

Passive funds benchmarked to the NIFTY Index (NIFTY INDEX) will need to trade around 3 days of ADV on Info Edge India (INFOE IN) and Indian Oil Corp (IOCL IN). Plus there will be flow from active funds and from cash and carry baskets on the index.

Info Edge India (INFOE IN) trades at a valuation premium to its regional peers, while Indian Oil Corp (IOCL IN) trades at a discount to its domestic peers.

The big event to watch for is the potential inclusion of Adani Green Energy Ltd (ADANIGR IN) and Avenue Supermarts Ltd (DMART IN) in the F&O segment that will open the door for index inclusion.

Dida (DIDA HK)  operates the largest carpooling marketplace in China and according to Frost & Sullivan, the company had a market share of 66.5% in terms of the number of carpooling rides in 2019. The company has filed for an IPO to list its shares on the Hong Kong Stock Exchange.

The company generates a majority of its revenues from carpooling and has reported strong growth in revenue during 2017-2020. Despite decline in the number of carpooling rides in 2020 compared to 2019 due to safety concerns related to the Covid-19 outbreak, Dida’s carpooling marketplace revenues have continued to increase as a result of growth in service fee rates charged by the company. We expect Dida’s carpooling marketplace revenues to continue to expand though pandemic related safety concerns remain a short-term risk.

Dida launched online ride-hailing services in 2017 and began monetising the business in 2019. The company’s online taxi-hailing services currently accounts for only 5% of revenues and given the fierce competition in the ride-hailing market in China, we do not expect the segment to be a key driver of growth for Dida over the next few years.

The company’s gross profit margin has continued to expand driven by improvement in service fee rates, higher scale and drop in incentives and subsidies to the company’s users. Our adjusted operating profit calculation reveals that the company has been profitable at the operating profit line over the last two years.

It seems that the company’s strategy of focusing on carpooling is paying off and we remain positive on the company’s future growth prospects.

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 quarterly rebalance will be effective after the close of trading on 18 June and the changes will be announced on 4 June. Data from close of trading on 24 May will be used to determine the list of inclusions and exclusions.

Using data from the close of trading on 15 April, we see Evergreen Marine Corp (2603 TT), AU Optronics (2409 TT) and Innolux Corp (3481 TT) being added to the index at the June review, while the three deletions are Wiwynn Corp (6669 TT), Taishin Financial Holding (2887 TT) and Catcher Technology (2474 TT).

The estimated passive buying on the potential inclusions is very low given their high trading volumes, but the expected impact on the likely deletions is a lot higher.

We consider Internet Initiative Japan (IIJ) to be a core holding in the Japan telecom space, supported by exposure to faster growth corporate revenue buoyed by a track record of success in bringing new products and services to market. The company has generally operated at the leading edge of service offerings being among the first to offer cloud services and MVNO mobile, followed more recently by network tools like security and IoT solutions. This progression of adding services to sell into a receptive enterprise user base has helped generate consistent top-line growth for over 20 years with margin improvement and free cash flow generation now ramping up. We value IIJ at ¥3,270/share and with 25% potential upside we are initiating coverage at Buy.  

Tata Consultancy Svcs (TCS IN) reported its Q4FY21 earnings. Optically, it reported strong growth but the devil lies in the details. There is not much to cheer about! Adjusted for TCS’ inorganic captive acquisitions, the growth appears to be moderate. All that is there to cheer about, is already priced in. While the Digital Transformation and Cloud Services segments no doubt present a long runway for growth, the current valuation seems to be already pricing this in. 

• Our base case valuation of UiPath is $60.7 per share, which represents a 21% upside from the high end of the IPO price range of $50 per share. Given the moderate upside in the share price using our base case valuation, we have a Positive view of the UiPath IPO. 
• We forecast the company to generate sales of $982.5 million (up 61.7% YoY), gross profit of $877.8 million (up 62.0% YoY), and an operating loss of $71.2 million in FY ending Jan 2022. From FY ending Jan 2021 to FY ending Jan 2026, we estimate the company’s sales to increase by 37.9% CAGR.

• UiPath is one of the global leaders in the RPA (robotic process automation) market. Robotic process automation is a form of business process automation technology based on software robots or on artificial intelligence. The company provides a comprehensive range of automation solutions via numerous interrelated software offerings. 

Pearl Abyss resumes trading today after a 3-day suspension due to a 1:5 stock split.

The float is 41.72% at a post-split SO of 65.9M. The FO sits at 23.88% with a DTV of 0.27% SO. 30D avg x Open is 3.64%p.

The base price is ₩67,300 at an MC of ₩4.35T.

Now, look at Kakao’s early morning momentum trading yesterday.

Kakao also underwent a 1:5 stock split only one day ahead of Pearl Abyss.

The float is 71.86% at a post-split SO of 443.8M. The FO sits at 34.15% with a DTV of 0.63% SO.

As can be seen, Kakao is more liquid than Pearl Abyss, but daily price volatility is lower as 30D avg x Open is 2.64%p.

The base price is ₩67,300 at an MC of ₩4.35T.

The base was ₩112,000 on the post-split d-day, April 15.

The gap was 7.97% from the previous session as the price opened at ₩120,500. It then quickly soared to ₩132,500, a 10% flash gain in the very early morning.

The benchmark (KOSPI 200) rose 1.51% during the 3-day suspension. Kakao’s 1W and 1M yields were 11.38% and 21.30%, respectively.

The local street consensus on 12M forward PER has risen by 14.29% MoM. 

We previously showed that Coinbase’s revenue was highly correlated with average bitcoin prices during the quarter in Coinbase IPO – Why You Can Justify a $100bn Valuation… If You Want | Smartkarma. We have now improved correlations further by incorporating Ethereum prices. Based on these correlations and the also tight correlations between revenue and OP we provide investors with some simple theoretical stock price calculations.

The PBOC, CBIRC, CSRC, and SAFE summoned Ant Group for a second joint meeting, ordering the fintech giant to rectify its business operations so that it is compliant with regulations and law. This also includes serving the real economy and supporting national development strategies.

Grab (0967655D SP) is Southeast Asia’s leading super-app and the largest online delivery platform, ride-hailing platform and digital wallet payments platform in Southeast Asia, according to Euromonitor. Grab intends to go public in the US through a SPAC merger with Altimeter Growth Corp (AGC US).

In Grab SPAC Deal: Delivering the Goods, we looked at Grab’s fundamentals and management forecasts. We noted that Grab is using its super-app status to deliver high-growth with declining loss margin and cash burn. While certain management forecasts seem bullish, the overall forecasts are not outlandish.  

In this note, we look at the valuation. As a reminder, the deal values Grab at a post-money market cap of $39.6 billion and post-money EV of $31.3 billion. The deal implies 9.6x 2022 EV/Sales based on Grab’s forecasted adjusted net revenue.

• Ant Financial Services Group (6688 HK) is restructuring its business holdings, with at its core the setting up of a financial holding company
• In addition, Ant will return to its roots in the payments division, it will set up a personal credit reporting company as well as establishing a consumer finance company
• The official press release does not mention the investmentech arm that includes Ant’s in-house asset manager, but there is financial press speculation that it may be required to shrink its asset base
• In essence, the new structure and more intrusive regulation will limit Ant’s ability to extract synergies from its – previously – tight knit financial eco-system, which can only hurt its potential develop further economies of scale and deliver premium revenue and earnings growth
• It is also likely that in its consumer credit business it will need to retain a higher proportion of loans originated, thereby necessitating higher capital levels; the personal credit reporting company will also provide PBoC with access to Ant’s “big data” on payments, credit and other financial products
• Despite the need for further clarity on the regulatory structure going forward, as well as the lack of any updated Ant financials to December 2020, we have arrived at a revised valuation range for Ant, based on our pre-money SOTP, of USD122-144bn
• The regulator’s focus on big FinTech in China and especially Ant is constructive for the prospects of other less dominant non-bank financial companies (NBFCs) in China, such as Lexinfintech Holdings (LX US) and Lufax Holdings (LU US), as well as retail focused banks like Postal Savings Bank of China (1658 HK) 
• Risks to our cautious view on Ant include an ability for management to navigate the climate of tighter regulatory constraints and to deliver better than expected premium growth and returns from its digital financial platform

Korea has had 2 milestone cases that have been settled this year in the US courts – one was regards to botox (AbbVie/Allergan/ Medy Tox Inc (086900 KS) vs. Evolus Inc (EOLS US) / Daewoong Pharmaceutical Co (069620 KS) ) and now, LG Chem Ltd (051910 KS) vs. SK Innovation (096770 KS) – while both finally settled, what does this say about Korea to minority investors?

We are nearly 95% through the review period for the June review of the Shanghai Shenzhen CSI 300 Index (SHSZ300 INDEX). With a large AUM in ETFs tracking the index, large open interest on the CFFEX listed futures, and volatile stocks, it could pay to look at the potential changes to the index.

China Securities Index Co (CSI) will announce the changes end May/beginning June and the changes will be effective after the close of trading on 11 June.

We expect 30 changes at the upcoming June 2021 index review – this is the maximum number of changes that are permitted at a single review. Estimated one-way turnover is 4.08% and will result in a one-way trade of CNY 10.8bn.

The expected inclusions have outperformed the Shanghai Shenzhen CSI 300 Index (SHSZ300 INDEX) on a year to date basis even post the momentum selloff that started in February. Buying the inclusion basket vs selling the CSI300 futures as a hedge could provide good market neutral returns over the next few weeks.

Tusimple, a US-based leading autonomous technology vendor in the global truck freight industry, is looking to raise USD 1.5bn.

We find the company very interesting for the following reasons: 1) the company is able to monetize the AI technology in a tangible manner in a captive market, 2) the company received investment from both financial investors and the partners in the supply chain, and 3) the company was founded by the Chinese scholars with entrepreneurship experience in the US. 

We think the deal will do well and will participate at strike. 

WeDoctor Holdings (1737089D HK) , the Chinese digital medical services platform has filed to list its shares on the Hong Kong Stock Exchange and plans to raise proceeds of approx. US$2bn through the IPO.

The company offers online medical appointment, diagnosis and treatment, consultation, medical bill settlement and prescription fulfilment. According to Frost & Sullivan, We Doctor was ranked the largest digital medical service platform in China in terms of both the number of internet hospitals (as of December 2020) and volume of digital medical consultations provided in 2019.

This is the First of a series of reports on We Doctor where we will be discussing the company’s business model, revenues, margins and peer comparison in detail. This insight will focus on the company’s business model and an analysis of its revenues.

Grab (0967655D SP) is Southeast Asia’s leading superapp and the largest online delivery platform, ride-hailing platform and digital wallet payments platform in Southeast Asia, according to Euromonitor. Grab is backed by SoftBank Vision Fund (21.7% stake), Uber (UBER US) (16.6%), DiDi Chuxing (1284375D CH) (8.7%) and Toyota Motor (7203 JP) (6.9%). 

Grab intends to go public in the US through a SPAC merger with Altimeter Growth Corp (AGC US). The deal proceeds include more than $4.0 billion of fully committed PIPE led by $750 million from Altimeter Capital Management. Investors in the PIPE include BlackRock, Morgan Stanley Investment Management, Fidelity International, FMR, Janus Henderson Investors, Mubadala, Nuveen, Permodalan Nasional Berhad and Temasek. Altimeter will commit to a three-year lock-up period for its sponsor promote shares. 

The deal values Grab at a post-money market cap of $39.6 billion and post-money EV of $31.3 billion. The deal implies 9.6x 2022 EV/Sales based on Grab’s forecasted adjusted net revenue. Post-close of the transaction, the existing Grab shareholders will represent 87.7% of outstanding shares. 

• Tencent raised its online TV subscription fees by 17%~50%.
• The fundamental cause is the loss in online TV, but the direct cause is competitor iQiyi raised the fees last November.
• We believe Tencent’s operating margin will improve slightly in 2021.
• We also believe the stock price will have an upside of 19% by the end of 2021.

Our previous coverage on Tencent:

• Tencent (700 HK): Q4, Promising in All Businesses, Price Down, Upgrade to Buy Again
• 2021 High Conviction: Long Tencent as All Competitors Are in Trouble

WeDoctor Holdings (1737089D HK) is looking to raise US$2bn in its upcoming Hong Kong IPO. 

We Doctor Holdings (WDH) is a digital medical service platform. As per Frost & Sullivan (F&S), WDH is the largest platform in China in terms of the number of Internet hospitals, as of December 31, 2020, and the volume of digital medical consultations provided in 2019. 

Prior to the filing, we had looked at the background of the company, did an app walkthrough, and brief comparison with other online medical providers like JD Health and Ping An Good Doctor

• WeDoctor (微医) Pre-IPO – A More Focused Online Medical Svc Provider than Ping An Good Doctor 
• WeDoctor (微医) Pre-IPO -App Walk Through – The Online Medical Directory and More
• We Doctor Pre-IPO (微医) – Remedying Pain Points 

In this note, we will compare WDH to other listed China online healthcare tech companies.

PC Partner (1263 HK) reported solid 2020 results but last week’s earnings call provided a mixed outlook. 

On the one hand, there is great demand for GPU’s and this is likely to continue into 2H21. On the other hand, the companies’ two main suppliers Advanced Micro Devices (AMD US) and NVIDIA Corp (NVDA US) can not deliver GPUs fast enough. On the positive side, this is leading to increased ASP (+15%) but on the negative side, volumes are dropping (-20/-30%) while costs (labor, logistics, memory) are rising.

Clearly, this is an industry-wide issue and not Pc Partner specific but it does mean that 1H21 will still be stronger than 1H20 but weaker vs 2H20. Fortunately, Pc Partner remains cheap and it will pay a 0.22 HKD dividend (6.4% dividend yield) by mid-July. Investors can also look forward to an interim dividend in August. The downside in the stock is limited but the upside is capped until supply issues at Nvidia and AMD are resolved. 

We lower our Fair Value estimate to 4 HKD (based on 6x 0.67 HKD FY21 EPS vs 0.75 HKD prior estimate), which leaves another 17% upside. Since IPO the company has traded on a multiple of 4x (low end)-6x (high-end). 

Samsung’s huge special dividend (+ quarterly div) for FY2020 comes on April 16.

The total div amounts to ₩13.1T: 2.31% of the Ord SO and 2.57% of the 1P SO.

As a % of DTV, it is 7.6x for Ord and 13.6x for 1P.

Out of ₩13.1T, ₩7.7T (59%) will be going to the foreign shareholders.

PBoC (People’s Bank of China) said on Monday that a “comprehensive, viable rectification plan” for Ant Group had been agreed to and Ant Group will overhaul its business in compliance with higher regulations for Internet finance platform companies.  As a result, Ant Group will apply to become a financial holding company. 

Similar to the AML fine on Alibaba, we believe this directive will now allow Ant Group to move forward possibly with a slightly lower valuation but share overhang lifted.  At the same time, I believe the market will be relieved to hear the regulator’s carefully crafted supportive tone towards the Internet platforms.   

Impact: 

• The impact on Alibaba Group (BABA US) is nominal, in my view.  Alibaba owns 33% of Ant Group.  With the market already having priced-in a bear case scenario, we believe this news has minimal impact on Alibaba’s valuation.  
• I believe the market already valued Ant Group at USD170-180 billion after the failed IPO.  This news does not change the valuation significantly.  

Implications: 

• As a holding company, Ant will be subject to higher capital requirements.  But the market is well aware of this already.  (Please see our report, Alibaba (BABA US): Ant Group Woes Overly Priced-In, dated 27 February 2021)
•  Ant will have to reduce the liquidity risks of its investment products including the InsureTech products and specifically rein-in the AUM of Yue’bao, its money-market mutual fund.  This was broader than expected.  It is difficult to imagine how to stop consumers from selecting an investment product.  
• Set up a consumer credit reporting company and strengthen the protection of personal information.  

On March 26, 2021, it was announced that MagnaChip Semiconductor Corp (MX US) had entered into an agreement to be acquired by Wise Road Capital in all cash go-private transaction of $29 per share placing  an equity value of ~$1.4BN on MX. MX is the second largest company in the world after Samsung Electronics in the OLED panel driving chip field, and is listed on the NYSE, while Wise Road Capital is a Chinese owned private equity fund that is focused on investing into high tech companies globally. The transaction is targeted to be completed in the second half of the year.

With the prevailing share price of $25.29 as at the close of business on April 12, 2021, the spread at ~15% offers a potentially attractive IRR of between 20% and 32% should the transaction close by the end of December or September. This insight lays out  why think the spread indicates a rewarding risk-arb opportunity.

• The CEO of pre-IPO Anjuke (ANJ HK) said, authorities should fine KE RMB4 billion for its exclusive contracts.
• Anjuke’s user base is larger than KE, but its revenue is lower than KE.
• We believe KE’s database of real apartments for sale angers Mr. Yao.
• We also believe there is no evidence that KE abuses market power.

Our previous coverage on KE (BEKE):

KE (BEKE): The Estate Agency Grew 53% and Housing Market Continues to Boom

KE (BEKE): Outperform Competitors in Booming Property Market 

UiPath Inc (PATH US) plans to complete its IPO in the coming days. The IPO price range is between $43 to $50 per share. The company is offering 6.81 million Class A shares in the IPO. The existing shareholders are offering 14.47 million Class A shares. At the high end of the IPO price of $50 per share, the total amount from the IPO proceeds would be $1.06 billion. After the IPO, there will be a total of 516.55 million Class A and Class B shares outstanding.

At the high end of the IPO price range ($50 per share) the company could be valued at nearly $25.8 billion. This is below the company’s recent private market valuation of $35 billion in February 2021, which was more than three times the value of its previous financing round in July 2020. It appears that the recent tech IPO weakness has negatively impacted the pricing of UiPath’s IPO as the implied valuation of $25.8 billion represents nearly 26% haircut from its recent private market valuation of $35 billion.

The average % YoY change in sales in 2020 [A] for the major enterprise software/platform stocks was 46.8% in 2020 and UiPath’s sales growth was nearly double the comps’ average. The average operating margin [B] of the major enterprise software/platform stocks was -14.6% in 2020, which was slightly lower than UiPath’s operating margin of -18.2%. The combination of [A] and [B] for UiPath was 62.6%, which was nearly double the figure for average of the major enterprise software/platform stocks (32.2%). 

Following the cancelled Ant IPO in November of last year, sentiment towards Alibaba Group (BABA US) turned negative.  Average weights in EM portfolios fell from 6.57% in October to 3.82% today, the percentage of funds holding Alibaba Group (BABA US) fell from 83.4% to 81.7%, the percentage of funds overweight Alibaba Group (BABA US) fell from 41.1% to 30.3% and for the first time since 2018, the there was an excess of sellers over buyers.

With the regulatory overhang seen largely as done for now, we present 4 reasons why we believe EM managers will be incentivized to increase allocations from here.

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

We believe this is a positive outcome for Alibaba: 

1. We did not see any hint of additional rectifications related to AML (Anti-monopoly law) other than the penalty amount. (Alibaba has already pledged to modify its “exclusivity” practice to allow for merchants to have greater freedom to list their products on multiple platforms. Share overhang related to this issue should dissipate. 
2. Alibaba could have been penalized more severely (as much as 10% of its revenues for antitrust violations).  The penalty amount represents only about 3.5% of Alibaba’s FY20 revenues (4% of CY2019 revenues).
3. The lower-than-expected fine amount appears to signal that the regulators are not trying to excessively debilitate the industry.  

We have highlighted the AML and the consumer lending regulation risks to be key share overhang on the BABA shares in our February report, Alibaba (BABA US): Ant Group Woes Overly Priced-In.   We believe BABA shares are undervalued due to the overhang.  The latest regulatory announcement signals the lifting of share overhang related to AML, in our view.  

• SAMR’s RMB18.2bn fine for abuse of market dominance could potentially be seen as a watershed marking that the worst of regulatory risk is past
• In terms of Alibaba’s relative share performance, since the start of November 2020, it has clearly underperformed Tencent as well as Meituan and Pinduoduo
• Relative to these peers, Alibaba Group (BABA US) trades at a discount on the core valuation metrics; versus its closest competitor Tencent Holdings (700 HK) , Alibaba trades at a 28% discount to 2022E PE multiple and at a 21% discount to 2022E EV/EBITDA ratio
• Nonetheless, in terms of long term growth potential, Alibaba’s PEG ratio discount of 5% to Tencent is low
• In our view, Alibaba’s outlook, especially relating to regulatory risks, remain unclear, especially with regard to the future of Ant Financial Services Group (6688 HK), its value and its potential IPO
• Risks to our bearish view on Alibaba include a better than expected performance versus its core competitors and a fast resolution to regulatory risks with SAMR

*Focus On Positives: Given the scrutiny that Tencent Holdings (700.HK) [Tencent] has come under, it comes as no surprise that Tencent wanted to highlight its positive developments such as international expansion and tailwinds in gaming, potential ad load expansion in Video Accounts, and Mini Programs enrichment; and

*Elephant In The Room: Over time, it is our belief that Tencent likely will be required to create a financial holding company for all of its banking, insurance, and payment services businesses – and be regulated along the lines of the banking sector. For Tencent, WeChat Pay and the broader lending/deposit taking business are likely to be reined-in. No matter what spin that Tencent wants to place on its other businesses, an FHC represents significant downside risks.

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

Our previous coverage on Alibaba:

Alibaba (BABA): Many Positive Signals in December Quarter, 27% Upside

Alibaba (BABA): This Online Antitrust Wave, A Risk, But Not A Massacre 

Anjuke (ANJ HK) is the largest online marketing platform for new and existing properties by revenue in 2020, according to iResearch. Anjuke is a subsidiary of 58.com. Anjuke’s shareholders include Tencent Holdings (700 HK) (14.3% stake), General Atlantic (7.7%), Warburg Pincus (7.9%), Country Garden Holdings Co (2007 HK) and Agile Property Holdings (3383 HK). It is seeking to raise $1 billion through an HKEx IPO, according to press reports.

Anjuke is using its core online marketing services business, which is cash generative, to fund its foray into transaction services, a market where KE Holdings Inc (BEKE US) dominates. However, this growth is margin dilutive as transaction services is structurally a lower margin business. We think that the compromise is acceptable as investors continue to be willing to pay up for high-growth tech companies. 

Hong Kong Exchange publishes share repurchases by listed companies on a daily basis. In our weekly note, we will provide statistics on top repurchases over one week, one month, one quarter and one year periods ended on Apr 09.

In the past 7 days, the top 3 companies that repurchased the most shares from the market were Xiaomi Corp (1810 HK) (HKD 1,199.4 million worth of buybacks), Hengan Intl Group (1044 HK) (HKD 75.9 million worth of buybacks), Fosun International Limited (656 HK) (HKD 33.5 million worth of buybacks).

On April 1, WeDoctor Holdings (1737089D HK) filed its prospectus on the Hong Kong Stock Exchange. As one of the earliest digital medical service platform, We Doctor has been reported to be going public since 2018. Finally, the Company officially started the IPO process this time. Different from JD Health (6618 HK) and Alibaba Health Information Technology (241 HK) whose core business is online pharmacy business, We Doctor mainly focuses on digital medical and health maintenance service. So how about this business model? This insight mainly analyzed the concerns of the Company that deserve to be paid attention to.

Yaskawa kicked off earnings season for the FA segment on Friday posting revenue of ¥390bn, above consensus of ¥388bn and guidance of ¥381bn. However, OP was just ¥27.2bn, marginally below guidance and significantly below consensus of ¥28.7bn. Yaskawa’s weak margins make us bullish on future margins.

(This insight covers specific insights & comments involving Stubs, Pairs, Arbitrage, share Classifications, and Events – or SPACE – in the past week)

The following large movement(s) concern recently listed companies, and therefore are (likely) lock-up related.

Kind of a mediocre underwhelming analyst presentation by one of our favorite software companies, but the larger long term picture remains intact: a huge pool of legacy incumbent endpoint providers that Crowdstrike will feast on for years to come.

It looks increasingly likely that Grab (0967655D SP) will bite the bullet and forge ahead with a SPAC listing through Altimeter Capital, with a slated valuation of US$35bn, making it the first South-East Asian Unicorn to list apart from Sea Ltd (SE US) of course. This would be the largest SPAC listing to date. 

Grab (0967655D SP)‘s apparent rush to market probably comes with active encouragement from Softbank after its failed attempt to merge with competitor Gojek (1379371D IJ).

Grab (0967655D SP) is looking increasingly vulnerable since the announcement that Gojek will merge with Tokopedia PT (1087142D IJ), creating a much more formidable rival with a strong e-commerce business and a lead in digital payments and finance.

The recent entry of ShopeeFood into the food delivery space in Indonesia is also more of a threat to Grab versus Gojek, given the discounts and free deliveries ShopeeFood is offering. 

Using available public information and peer group we look at whether these valuations can be justified for the Grab SPAC listing. 

Rarely do I write a title like this. I think it is my first one. But I think it is worthwhile.

In late December 2020, the Board of NIIT Ltd (NIIT IN) met to approve a proposal for a Share Buyback. A Postal Ballot followed and was passed. On 15 February the Public Announcement was made with a Record Date of 24 February. The Buyback was set to open on 12 April 2021 and end on 28 April 2021. 

On 5 April 2021, we got the Letter of Offer.

If you own the stock, in an active or passive portfolio, you should consider the parameters and the possibilities.

The Korea NPS made it official that it would increase the SAA tolerable band from ±2.0%p to ±3.0%p but reducing the TAA to ±2.0%p to keep the overall tolerable band at ±5.0%p.

Several news media outlets reported on Thursday (08^th April 2021) that the Chinese mobile games and Video streaming platform Bilibili Inc (BILI US) is in talks to buy a 24% stake in Yoozoo Games.

Yoozoo Games based in China is engaged in the development, distribution, publishing and operation of mobile games and internet games.

In addition to acquiring a 24% stake in Yoozoo Games, Bilibili is said to be in talks to acquire Yoozoo’s headquarters building in Shanghai and also take over nearly RMB700m in debt that is left by the company’s late founder.

A majority of Bilibili’s users are aged below 35 years and the company aims to make use of these young users to tap into the video games market. Bilibili itself offers mobile games that accounted for about 29% of total revenues in 4Q2020. Mobile games used to account for a majority of the company’s revenues, however, with strong growth in revenue from value-added services, the segment’s revenue contribution has declined to about 30%.

Our bull view called to buy tactical weakness (SPX 3,850) for a push into ideal high targets centered around the top of the SPX rising wedge near 4,140/50. Mid April top near SPX 4,100 for a pullback and rally to this objective is our preferred sequence.

Tech and growth sectors are favored at the expense of energy, banks, small caps and now the DJI as the underperform group.

Bearish rising wedge patterns are due to mature into late April in the SPX, Japan, Taiwan, India, MIB and FTSE stand out as clear red flags going into late April.