Category

TMT/Internet

TMT: ByteDance, Tencent Holdings, TeamSpirit Inc and more

By | Daily Briefs, TMT/Internet

In today’s briefing:

  • ECM Weekly (18th April 2021) – ByteDance Zhaoke, We Doctor, Medlive, Bio-Thera, Grab, Ngern Tid Lor
  • Tencent Holdings – FHC Restructure On Its Way
  • Japan Small Cap Growth: TeamSpirit – Better Days Ahead

ECM Weekly (18th April 2021) – ByteDance Zhaoke, We Doctor, Medlive, Bio-Thera, Grab, Ngern Tid Lor

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.

Asia ECM pipeline continued to build up this week. Grab announced the details of its SPAC listing with a target market value of about US$40bn. The company will raise more than US$4bn proceeds from a fully committed PIPE which include BlackRock, MSIM, T. Rowe Price, Fidelity, Janus Henderson, Mubadala, Nuveen, Permodalan Nasional Berhad and Temasek. We shared our initial thoughts in:

In Hong Kong, it was reported that ByteDance has kicked off IPO preparations for some of its main businesses, which includes Douyin. The company was still deliberating on the listing venue but it is likely that it will conduct a separate listing of its overseas assets.

Dida re-filed with HKEX after its initial application from October last year lapsed last week. The company is probably trying to get ahead of Didi Chuxing’s listing as the latter filed confidentially for a US listing last week. There were also news reports of SF REIT looking to pre-market this month and JD Logistics will be seeing listing approval at the end of this month.

Trip.com’s secondary listing in Hong Kong will debut on Monday and the company’s ADR corrected in line with our earlier expectation but the spread out allocation might weigh on near-term performance.

Our upcoming IPO coverage this week centered around Healthcare names. Zhaoke Ophthalmology Pharma (6622 HK) launched its bookbuild on Friday and it is expected to price this coming Wednesday. 

We also looked at We Doctor, Bio-Thera, Medlive, and Edding Group. :

In the US, Waterdrop Inc prospectus is publicly filed with the SEC. The online insurance technology company is looking to raise about US$500m but there had been news reports that the company was facing pushback from local regulators. 

Aside from Didi Chuxing, Ximalaya FM also filed confidentially for up to US$1bn IPO. Soulgate, a Chinese social networking app operator, and Keep, a Chinese fitness app are looking to file their prospectuses this month. 

This week we took a brief look at TuSimple, a pre-commercialization autonomous technology vendor for truck freights, before it debuted on Thursday.  

In Thailand, Ngern Tid Lor (NTL TB), launched its US$1bn bookbuild. Books will close on 27th April.

In the Philippines, we followed-up with a peer comparison of Monde Nissin against competitors. 

Singapore ECM suffered a setback this week.  ThaiBev announced on Friday that they have decided to defer the Proposed Spin-off listing of BeerCo citing uncertain market conditions and volatile outlook. We had discussed management’s valuation expectation of BeerCo vs. the likely valuation it can command in our earlier note. Core REIT has also shelved its IPO citing weak demand and volatile market conditions.

Placements were spread out over the past week, with Regis Resources (RRL AU) in Australia and Lasalle Logiport Reit (3466 JP) in Japan. Kakao Corp (035720 KS)’s founder  sold about US$450m worth of shares.

Credits to Clarence Chu for helping out with the Weekly Update.

Accuracy Rate:

Our overall accuracy rate is 73.9% for IPOs and 67.2% for Placements 

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

New IPO filings this week

  • Dida (HK, US$500m, refiled)
  • Shanghai Hanyu Medical Technology Co., Ltd (HK, US$500m)
  • Waterdrop Inc (The U.S, US$500m)
  • Shriram Properties (India, US$100m)
  • G R Infraprojects (India, US$100m)

News on Upcoming IPOs

Hong Kong/China

U.S.

India

Others

Analysis on Upcoming IPOs

NameInsight
Hong Kong
Betta Pharma

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

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 

Chaoju

Chaoju Eye Care (朝聚眼科) Pre-IPO: Growth Prospect Far from Being Impressive 

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 

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 

Kindstar

Kindstar (康圣环球) Pre-IPO: Issues with Scalability 

Kindstar

Kindstar (康圣环球) Pre-IPO: Is It Worth the Premium? 

RemeGen RemeGen (荣昌生物) Pre-IPO: Thoughts on Valuation of RC18 and RC48 
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 
Youran Dairy China Youran Dairy(悠然牧业) Pre-IPO – A Leader Pulling Ahead in a Fragmented Market 
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 
Malaysia
QSRQSR Brands Pre-IPO – As Healthy as Fast Food

Tencent Holdings – FHC Restructure On Its Way

By Thomas J. Monaco

*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.


Japan Small Cap Growth: TeamSpirit – Better Days Ahead

By Mark Chadwick

Q2 Trading update 

  • TeamSpirit Inc (4397 JP)  reported 2Q FY8/21 earnings after the April 9 close. The stock price fell by around 20% following that and a full-year guidance cut.  
  • The market reacted to the slower than anticpated growth in licences, which is the key revenue driver. Full year sales estimates were cut 8% to ¥2.9b.  
  • We take a positive view of management reaffirming its growth strategy and stepping up marketing activities for the new enterprise product, TeamSpirit EX.  


Before it’s here, it’s on Smartkarma

TMT: Samsung Electronics, SEMCNS Co Ltd and more

By | Daily Briefs, TMT/Internet

In today’s briefing:

  • Samsung Inheritance Tax Event: Why Market Being Bearish on Samsung Electronics?
  • SEMCNS IPO Preview

Samsung Inheritance Tax Event: Why Market Being Bearish on Samsung Electronics?

By Sanghyun Park

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

Tax amount estimations

Inheritance tax on listed company equity is calculated based on the average of 4-month daily closing prices: 2 months before and 2 months after the passing. The calculation period is August 25 to December 25.

At the 2M average prices, it comes at ₩19.1T.

Lee Kun-hee’s shareholding (₩B)TickerShares%60D avg price on Aug 25~Dec 25Value (₩B)
Samsung Electronics Co Ltd005930249,273,2004.18%₩62,78915,651.7
Samsung Electronics Co Ltd Preference Shares Non Voting005935619,9000.08%₩56,15434.8
Samsung Life Insurance co., Ltd03283041,519,18020.76%₩66,7072,769.6
Samsung C&T Corp0282605,425,7332.90%₩115,208625.1
Samsung SDS Co Ltd0182609,7010.01%₩173,3451.7
– Total19,082.9
Source: KRX

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.

Inheritance tax (₩B)
Total shareholding value19,082.89
Artworks2,800.00
Real-estates & cash2,000.00
Total gross taxable23,882.89
Taxable after various deductibles (70%)16,718.03
20% extra charge (management premium)20,061.63
Inheritance tax at a 60% tax rate12,036.98
Source: KRX FIND, Chosun, & Korean NTS

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

The inheritance tax burden for each family member (₩B)
Total Inheritance tax12,036.98
 – Lee JY (oldest)2,674.88
 – Lee Bu-jin (second)2,674.88
 – Lee Seo-hyun (third)2,674.88
 – Hong Ra-hee (spouse)4,012.33
Source: KRX FIND & Korean NTS

SEMCNS IPO Preview

By Douglas Kim

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. 

Deal Specifics of the SEMCNS IPO:
 
Lead underwriters of the IPO: 
Daishin Secuities
Expected IPO price per share: 
5,000 won (low)/5,700 won (high)
Number of Shares for IPO:
12m shares (10m new shares; 2m old shares)
IPO base deal size: 
US$54m (low);  US$61m (high)
Expected common shares outstanding, fully diluted (post-IPO):  
50.2 m shares
Expected market cap after IPO:
251 billion won (low)/286 billion won (high)
Book open: 
03-May-21
Book closed:
04-May-21
Listing date: 
TBD
Source: Company data
 

Before it’s here, it’s on Smartkarma

TMT: Square Enix Holdings, Carousell Pte Ltd, Hollysys Automation Technolo, UiPath Inc, Redbubble Ltd, Coocon Corp and more

By | Daily Briefs, TMT/Internet

In today’s briefing:

  • Square Enix – CTFN Reports M&A Interest
  • Carousell: Southeast Asia’s Secondhand Market Champion
  • Hollysys (HOLI US): CPE Heightens Its Case Amid Shareholding Dispute
  • UiPath IPO – Will There Be a UiPop?
  • ASX200 Index Rebalance: Redbubble to Replace Coca Cola Amatil; More Changes in June
  • COOCON Bookbuilding Results and Trading Strategy Post IPO

Square Enix – CTFN Reports M&A Interest

By Mio Kato

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.


Carousell: Southeast Asia’s Secondhand Market Champion

By Vincent Fernando, CFA

What You Need to Know

  • 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.

Important Note:

This research is commissioned by HG Exchange in collaboration with Zero One. HGX is a private exchange formed by an alliance of leading capital market intermediaries to facilitate cross-border issuance and trading of securities.  Click here to learn more.


Hollysys (HOLI US): CPE Heightens Its Case Amid Shareholding Dispute

By David Blennerhassett

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 IPO – Will There Be a UiPop?

By Mio Kato

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.


ASX200 Index Rebalance: Redbubble to Replace Coca Cola Amatil; More Changes in June

By Brian Freitas

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.


COOCON Bookbuilding Results and Trading Strategy Post IPO

By Douglas Kim

Coocon Corp (294570 KS), the market leader in providing API based information services in Korea, announced excellent book building results. The IPO price of Coocon has been determined at 45,000 won, which is above the IPO price range of 31,000 won to 40,000 won. There were 1,578 institutions that participated in this IPO survey and the demand was extremely strong at 1,595 to 1.

Our base case valuation of Coocon is 66,104 won, which is 47% higher than the IPO price of 45,000 won. Despite the slowing momentum in the global IPO market, we think that Coocon’s IPO will stand out and be able to reach our target price in the first few days of trading. 

Coocon is engaged in the collection and connection of multitude of data involving API, which is essentially a contract between two or more software that results in a certain functionality if the user software provides an input in a pre-defined format. It collects and connects data from 500 domestic institutions such as finance, public, medical, logistics, distribution, and telecommunications, as well as more than 2,000 institutions in 40 countries abroad. 

Institutional Investors Demand Breakdown of Coocon IPO Bookbuilding Results
Domestic Investors
Asset mgmt companiesBrokeragesPension funds/insurance/banksOthers
No. of companies53837209478
Demand541 to 136 to 1206 to 1484 to 1
     
Overseas Investors  
(A)*(B)**  
No. of companies104212  
Demand105 to 1222 to 1  
     
Total (No. of companies)1,578   
Total Demand1,595 to 1   
Note: (A)* refers to overseas investment mgmt companies that have records of trading with the brokers involved in this deal.
(B)** refers to overseas investment mgmt companies that do not have records of trading with the brokers involved in this deal.
Source: Company data   

Before it’s here, it’s on Smartkarma

TMT: Kakao Corp, Info Edge India, Dida, Innolux Corp, Internet Initiative Japan, Tata Consultancy Svcs, UiPath Inc, Pearl Abyss and more

By | Daily Briefs, TMT/Internet

In today’s briefing:

  • Kakao Corp Placement – Selldown by Founder
  • NIFTY50 Index Rebalance Preview: Info Edge Could Replace IOC
  • Dida Pre-IPO: Shared Mobility
  • FTSE TWSE Taiwan 50 Index Rebalance Preview: Price/Volume Surge Brings Three Potential Changes
  • Internet Initiative Japan – Potential Growth Remains Under-Appreciated (Initiation of Coverage)
  • TCS: Organic Growth Was Moderate, Not Much to Cheer About!
  • UiPath IPO Valuation Analysis
  • Pearl Abyss Post-Split D-Day Momentum Trading, Reflecting Kakao D-Day Movement

Kakao Corp Placement – Selldown by Founder

By Zhen Zhou, Toh

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:


NIFTY50 Index Rebalance Preview: Info Edge Could Replace IOC

By Brian Freitas

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 Pre-IPO: Shared Mobility

By Shifara Samsudeen, ACMA, CGMA

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.


FTSE TWSE Taiwan 50 Index Rebalance Preview: Price/Volume Surge Brings Three Potential Changes

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 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.


Internet Initiative Japan – Potential Growth Remains Under-Appreciated (Initiation of Coverage)

By Kirk Boodry

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.  


TCS: Organic Growth Was Moderate, Not Much to Cheer About!

By Ankit Agrawal, CFA

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. 


UiPath IPO Valuation Analysis

By Douglas Kim

  • 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 Post-Split D-Day Momentum Trading, Reflecting Kakao D-Day Movement

By Sanghyun Park

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.

PearlAbyss Corp
Ticker263750
Stock split1 to 5
Pre-split SO13,235,600
Post-split SO65,949,250
Float41.72%
FO23.88%30
30D DTV/SO0.27%
30D avg x Open3.64%p
Trading resumption2021. 4. 16
– Suspension period3 sessions
MC (₩B)4,353.8
Base₩67,300
Source: KRX

Reviewing Kakao post-split d-day

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.

Kakao Corp
Ticker035720
Stock split1 to 5
Pre-split SO88,704,620
Post-split SO443,809,305
Float71.86%
FO34.15%
30D DTV/SO0.63%
30D avg. x Open2.85%
Trading resumption2021. 4. 15
– Suspension period3 sessions
Source: KRX

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.

Kakao Corp on post-split d-day (April 15)
Ticker035720
MC (₩B)53,479.0
x DTV6.11x
TV16,940,427.0
TV/SO3.82%
Base₩112,000
Close₩120,500
Open₩120,500
High₩132,500
Low₩118,000
Δ Daily7.97%
Gap7.97%
x Open12.03%p
Open-High9.96%
U Wick-82.76%
Body0.00%
D Wick17.24%
Source: KRX

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. 

Kakao Corp
Ticker035720
K200 during the suspension1.51%
52WH₩112,200
– % to current-0.53%
– Date2021. 4. 9
52WL₩31,813
– % to current250.80%
– Date2020. 4. 16
1W yield11.38%
1M yield21.30%
Source: KRX
Kakao Corp2021. 4. 16T-1MT-3MT-6MT-1Y
Sales5,559.35,529.15,354.64,925.64,390.1
OP777.2775.5757.8682.8539.2
NP to controlling stake573.0585.8610.9544.0403.9
EPS (₩)6,4566,6046,9026,1644,644
PER (x)86.4072.8065.4059.8034.30
12M PER (x)75.1065.7163.6362.4642.01
TP (₩)558,364561,208486,240434,583215,174
Source: FnGuide

Before it’s here, it’s on Smartkarma

TMT: Coinbase, Alibaba Group, Grab, Ant Financial Services Group, LG Chem Ltd and more

By | Daily Briefs, TMT/Internet

In today’s briefing:

  • Coinbase DPO – A Guide to Implied Prices Based on Bitcoin and Ethereum Prices
  • PBOC Summon Ant Group On Restructuring Once More
  • Grab SPAC Deal: A Sensible Super-App Valuation?
  • Ant Group: Nearing Regulatory Closure
  • LGChem/SKI Deal – Another Korea Discount Worry? Follow the Female Lead

Coinbase DPO – A Guide to Implied Prices Based on Bitcoin and Ethereum Prices

By Mio Kato

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.


PBOC Summon Ant Group On Restructuring Once More

By Li Tang

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 SPAC Deal: A Sensible Super-App Valuation?

By Arun George

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.

At first glance, Grab’s implied multiples are eye-watering in comparison to global peers related to its delivery and mobility businesses. However, we think that judging Grab’s multiples based on such peers is missing the point. Grab’s key competitive advantage and investor pitch is that it can be credibly billed as a super-app rather than just a leading app in a narrow market category.

Super-apps tend to be rare and investors are starved of publicly listed opportunities. With the regulatory heat turned up on the Chinese super-apps, alternative super-app plays in Asia are likely to be in demand. When judged against global super-apps, Grab’s implied multiples seems more justifiable for its forecast growth.  


Ant Group: Nearing Regulatory Closure

By Victor Galliano

  • 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

LGChem/SKI Deal – Another Korea Discount Worry? Follow the Female Lead

By Ken S. Kim

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?


Before it’s here, it’s on Smartkarma

TMT: Beijing Kingsoft Office Software-A, TuSimple Holdings Inc, WeDoctor Holdings, Grab, Tencent Holdings, PC Partner and more

By | Daily Briefs, TMT/Internet

In today’s briefing:

  • CSI300 Index Rebalance Preview: Recovering from the Growth Sell-Off
  • Tusimple IPO: Buy the Autonomous Freight as a Service (AFaaS) Company Founded by Chinese Scholars
  • We Doctor Pre-IPO: Front-Runner in Digital Medical Services in China
  • Grab SPAC Deal: Delivering the Goods
  • Tencent (700 HK): Raises Subscription Fees for Online TV
  • We Doctor (微医) Pre-IPO – Peer Comparison – Picking Its Battles Wisely
  • PC Partner: Great Demand, but Limited Supply of GPU’s Created Mixed 2021 Outlook

CSI300 Index Rebalance Preview: Recovering from the Growth Sell-Off

By Brian Freitas

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 IPO: Buy the Autonomous Freight as a Service (AFaaS) Company Founded by Chinese Scholars

By Ke Yan, CFA, FRM

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. 


We Doctor Pre-IPO: Front-Runner in Digital Medical Services in China

By Shifara Samsudeen, ACMA, CGMA

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 SPAC Deal: Delivering the Goods

By Arun George

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. 

Over the years, Grab has transformed into a superapp that encompasses transactions related to transportation, eating, shopping, and digital payments. The transactions are high-frequency which tend to increase user stickiness. By spanning several categories, Grab has many opportunities to capture a user’s wallet spend. Grab is using its superapp status to deliver high-growth with declining loss margin and cash burn. While certain management forecasts seem bullish, the overall forecasts are not outlandish. We will look at Grab’s valuation in our next note.


Tencent (700 HK): Raises Subscription Fees for Online TV

By Ming Lu

  • 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:


We Doctor (微医) Pre-IPO – Peer Comparison – Picking Its Battles Wisely

By Zhen Zhou, Toh

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

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


PC Partner: Great Demand, but Limited Supply of GPU’s Created Mixed 2021 Outlook

By Nicolas Van Broekhoven

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). 


Before it’s here, it’s on Smartkarma

TMT: Samsung Electronics, Alibaba Group, MagnaChip Semiconductor Corp, KE Holdings Inc, UiPath Inc and more

By | Daily Briefs, TMT/Internet

In today’s briefing:

  • Samsung Special Div Payment Event on April 16: What to Expect
  • Alibaba (BABA US): Ant Group – Pay, Get Out, Move Forward
  • MergerTalk: Magnachip Semiconductor Corp (MX US)-Wising Up To An Attractive Risk-Arb Opportunity
  • KE (BEKE): Pre-IPO Anjuke Asks Authorities to Fine KE Following Alibaba Case
  • UiPath IPO Preview
  • Alibaba:  Reversal Trade Could Run. EM Funds Underweight & Far from Overstretched

Samsung Special Div Payment Event on April 16: What to Expect

By Sanghyun Park

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

Special dividendOrd1P
Div₩1,932₩1,933
– Quarterly₩354₩355
– Special₩1,578₩1,578
Payment date16/4/2116/4/21
Record date31/12/2031/12/20
Ex rights-1D28/12/2028/12/20
Source: KRX

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.

Special dividendOrd1P
SO5,969,782,550822,886,700
Total div (₩B)11,533.61,590.6
% of MC2.31%2.58%
% of DTV758.93%1357.75%
FO55.82%82.04%
FO shares3,332,143,450675,105,949
Total div for FO (₩B)6,437.71,305.0
% of MC1.29%2.11%
Source: KRX

Alibaba (BABA US): Ant Group – Pay, Get Out, Move Forward

By Mitchell Kim

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.  

MergerTalk: Magnachip Semiconductor Corp (MX US)-Wising Up To An Attractive Risk-Arb Opportunity

By Robert Sassoon

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.


KE (BEKE): Pre-IPO Anjuke Asks Authorities to Fine KE Following Alibaba Case

By Ming Lu

  • 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 IPO Preview

By Douglas Kim

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%). 


Alibaba:  Reversal Trade Could Run. EM Funds Underweight & Far from Overstretched

By Steven Holden

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.


Before it’s here, it’s on Smartkarma

TMT: Alibaba Group, Tencent Holdings, Anjuke, Xiaomi Corp, WeDoctor Holdings and more

By | Daily Briefs, TMT/Internet

In today’s briefing:

  • Alibaba (BABA US): Record Fine – Grin and Bear It as Better Days Are Ahead
  • Alibaba (BABA) Fine – Close, but No Cigar
  • Tencent Holdings – What Wasn’t Said
  • Alibaba (BABA): Fined $2.78 Billion for “Either Or”, But Impact Is Neither Big Nor Long Term
  • ECM Weekly (11th April 2021) – Tencent Block, WeDoctor, YiShengBio, Trip HK, Visional, Macrotech Dev
  • Anjuke IPO Initiation: Home Truths
  • Hong Kong Buybacks: Xiaomi Bought Back $1.5bn in past Two Weeks
  • Pre-IPO We Doctor Holdings – Here Are the Concerns

Alibaba (BABA US): Record Fine – Grin and Bear It as Better Days Are Ahead

By Mitchell Kim

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.  


Alibaba (BABA) Fine – Close, but No Cigar

By Victor Galliano

  • 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

Tencent Holdings – What Wasn’t Said

By Thomas J. Monaco

*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.


Alibaba (BABA): Fined $2.78 Billion for “Either Or”, But Impact Is Neither Big Nor Long Term

By Ming Lu

  • 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 


ECM Weekly (11th April 2021) – Tencent Block, WeDoctor, YiShengBio, Trip HK, Visional, Macrotech Dev

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.

Despite a short week in Hong Kong, there were three new filings, Anjuke Group, Brii Biosciences, and Keymed Biosciences. Other notable filings include Harp Holdings in Malaysia, Onion Global in the US, and NHAI InvIT in India. 

But the talk of the town was the second biggest block globally to ever trade. Prosus NV (PROSY US) finally sold a 2% stake (US$14bn) in Tencent (700 HK). Despite the large deal size, it was done with relative ease and was said to be 4x covered, as per media reports. We have been covering the potential sell down leading up to lock-up expiry since February.

In Hong Kong, Linklogis (9959 HK) raised US$1bn at the mid-point of its price range. Linklogis struggled in the grey market but managed to close 9.9% higher on its Friday debut.

We continued our coverage of WeDoctor and shared our thoughts on the business. We had also covered the company’s background and app walkthrough earlier in:

We initiated coverage on YishengBio (1872307D HK). In our note, we covered their main product, the PIKA based rabies vaccine, and shared our thoughts on the management team. We also published a follow-up on Zhaoke Ophthalmic (ZKO HK) and discussed its valuation:

Trip.com’s Hong Kong secondary listing was approved and launched last week. We looked at the deal terms and shared our thoughts on deal dynamics.

In Japan, we looked at Visional Inc’s (4194 JP) IPO, which closed its books on Friday. We shared our thoughts on the business, our forecast and thoughts on valuation in:

In India, Macrotech developers (LODHA IN) closed its bookbuild on Friday with a 1.37x subscription rate. We shared our thoughts on valuation earlier this week.

In other parts of ASEAN, we covered Ngern Tid Lor and ThaiBev BeerCo’s upcoming IPO which are likely to come to market soon.

Credits to Clarence Chu for helping out with the Weekly Update.

Accuracy Rate:

Our overall accuracy rate is 73.9% for IPOs and 67.2% for Placements 

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

New IPO filings this week

  • Anjuke Group Inc. (HK, US$1bn)
  • Brii Biosciences Limited (HK, US$400m)
  • Keymed Biosciences Inc. (HK, US$100m)
  • NHAI InvIt (India, US$600m)
  • Harp Holdings (Malaysia, US$300-500m)
  • Onion Global Ltd. (US, US$100m)

News on Upcoming IPOs

U.S. China ADRs

India

Others

Analysis on Upcoming IPOs

NameInsight
Hong Kong
Betta Pharma

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

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 

Chaoju

Chaoju Eye Care (朝聚眼科) Pre-IPO: Growth Prospect Far from Being Impressive 

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 

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 

Kindstar

Kindstar (康圣环球) Pre-IPO: Issues with Scalability 

Kindstar

Kindstar (康圣环球) Pre-IPO: Is It Worth the Premium? 

RemeGen RemeGen (荣昌生物) Pre-IPO: Thoughts on Valuation of RC18 and RC48 
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 
Youran Dairy China Youran Dairy(悠然牧业) Pre-IPO – A Leader Pulling Ahead in a Fragmented Market 
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 
Malaysia
QSRQSR Brands Pre-IPO – As Healthy as Fast Food
Singapore
ThaiBev Beer ThaiBev BeerCo Pre-IPO – Declining Rev and Mkt Share Concerns but Good Cost Control 
ThaiBev Beer ThaiBev BeerCo Pre-IPO – Thoughts on BeerCo and ThaiBev HoldCo Valuation 

Anjuke IPO Initiation: Home Truths

By Arun George

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. 

The key negative is that Anjuke is saddled with debt related to the privatisation of 58.com in September 2020 – 58.com’s Privatisation Enters into Definitive Agreement. While the healthy cash generation should comfortably service the debt, potential IPO investors could be turned off by the view that the IPO is a way of the privatisation consortium (which arguably privatised 58.com to the detriment of minorities) to make a quick buck. Notwithstanding the optics of the privatisation and relisting trade which tend to enrich insiders at the expense of minorities, we believe that the Anjuke IPO is worth a close look.


Hong Kong Buybacks: Xiaomi Bought Back $1.5bn in past Two Weeks

By Ke Yan, CFA, FRM

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).


Pre-IPO We Doctor Holdings – Here Are the Concerns

By Xinyao (Criss) Wang

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.


Before it’s here, it’s on Smartkarma

TMT: Yaskawa Electric, Tencent Holdings, Crowdstrike Holdings Inc and more

By | Daily Briefs, TMT/Internet

In today’s briefing:

  • Yaskawa – Is Sigma-X Going to Drive Large Margin Gains?
  • Last Week in Event SPACE: Naspers/Tencent, Toshiba, Coca-Cola Amatil, Invesco J-REIT, Tabcorp
  • Crowdstrike Analyst Day: Really, Just $3B in ARR?

Yaskawa – Is Sigma-X Going to Drive Large Margin Gains?

By Mio Kato

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.


Last Week in Event SPACE: Naspers/Tencent, Toshiba, Coca-Cola Amatil, Invesco J-REIT, Tabcorp

By David Blennerhassett

Last Week in Event SPACE …

  • We can assume that if the 3-year promise on locking up shares in Tencent Holdings (700 HK) is important to Naspers (NPN SJ), twice, it may be important again.
  • The headline number of ¥5,000/share for Toshiba Corp (6502 JP) is too low, by a fair bit, and there are a lot of hurdles (which are NOT shareholders wanting more) before this could go forward (allowing shareholders to want more).
  • On the 16 April, Coca Cola Amatil (CCL AU)‘s independent shareholders will vote on what should be a pretty straightforward Scheme.
  • Invesco Office J Reit (3298 JP) is a difficult situation to assess.  There is not much information. It was hostile for full takeout. There hasn’t been a similar precedent. 
  • Entain (ENT LN) pushes its case for an outright sale of Tabcorp Ltd (TAH AU)‘s wagering ops, but this would attract a regulatory minefield, plus CGT rollover relief would likely be lost.
  • Plus, other events, CCASS movements and Mood Spins.

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

STUBS

Naspers (NPN SJ) / Prosus (PRX NA) / Tencent Holdings (700 HK) 

Four years ago – a year before the last block – the Naspers discount to NAV was about 25%. A few years before that and it had been closer to zero. It briefly widened to almost 40% in Q1 2018 prior to the block sale before narrowing to the mid-30s through the block sale. In the past year, the look-through discount narrowed briefly to about 45% after the covid-crash, but then steadily widened to 55% by most of August-September and closing wider than 55% at the end of October.  At that time, Prosus announced a US$5bn buyback. Prosus has now launched another Tencent Offer. This was as expected, but delayed. It is the same 2.0% as before and the price is nearly 50% higher than it was last time, so now it is nearly 50% more money. 

However, the SINGLE MOST IMPORTANT factor to this announcement is that Prosus has committed to not selling more Tencent shares for another three years. That is not positive for Prosus and Naspers investors.  

  • Originally, the selldown was noted as a way to provide more balance and invest more in the other e-commerce businesses to create a group of verticals of best-in-class internet assets.  Since three years ago, there has been some effort to grow them by bolting on some acquisitions, but not a huge amount. And last year Prosus decided that buying its own shares was a better deal than buying external assets to grow inorganically.

  • At this point, it would seem that the most important capital allocation decision would be to see Prosus distribute a large amount of its Tencent shares to its shareholders. That would narrow the dollar discount. Perhaps the shareholders would keep the Tencent and perhaps they would not, but the dollar value of the discount would narrow dramatically.

  • But Travis’ bet is that the existing control group will not decide to give up their control of a US$250bn asset for the sake of good capital management of all its investors. I expect they will simply decide to hold the assets. Even if Tencent were split up into many parts by Chinese regulators I am not sure that Prosus would look to liquidate them for cash.

  • If they liquidated them for cash and ended up with $200bn of cash and $20bn of e-Commerce portfolio, they would almost be obliged to distribute most of the cash. And Travis is not sure they want to give up their hold over the portfolio that size. Simply doing nothing makes them a Very Big Global Investor. Doing something good renders them a lot smaller. 

Links to:
Travis’ insight: Be Careful What You Wish For REDUX – Prosus Selling US$15bn in Tencent
my insight: StubWorld: Naspers/Tencent – And Another Three Years
Brian’s insight: Tencent Placement – Limited Passive Flow; HSI, HSCEI Trackers to Sell in June

Thai Beverage (THBEV SP) 

I currently see ThaiBev’s discount to NAV at ~25% – around its narrowest inside a year. Following the no-objection notice from the SGX on the 4 February concerning its BeerCo IPO, ThaiBev announced that the SGX has issued its conditional eligibility-to-list letter for the potential listing.  

  • ThaiBev’s shares have declined 7% since my last insight. I see perhaps 12% upside from here if assuming a 25% discount to NAV. Given its growth potential, investors may switch out of ThaiBev into BeerCo. That, and comparative liquidity, could push the NAV discount wider. 
  • Using forward EBITDA, my current value for BeerCo of S$10.6bn is 18% below the indicative figure at the time of my last report StubWorld: Double Stub Via ThaiBev’s BeerCo IPO. If extrapolating out the attributable profit in the 1Q21 for the full year and apply a peer multiple of ~26x, you get ~S$8bn. Both this calculation and the material decline in the EBITDA-based value serve to highlight the risks attached to valuing the spin-off. 
  • ThaiBev is trading at 14x trailing EV/EBITDA, compared to its five-year average of 16.5x. The peer average is 12.5x over the same period. But ThaiBev’s forward EV/EBITDA is closer to 20x if you mark the minority interest in Saigon Beer to market.
  • ThaiBev still appears fully priced here. I’d still sell it.

M&A – ASIA

Toshiba Corp (6502 JP) (Mkt Cap: $18.7bn; Liquidity: $120mn)

Exactly one year ago today, Travis Lundy wrote An MBO for Toshiba? Not As Silly As It Sounds after an article in an “investigative” magazine called FACTA (most famous for pre-commenting on the fraud on Olympus nearly a decade ago) put out an article “Toshiba: Kurumatani’s Astonishing MBO Scheme: Will He Be Able to Expel Noisy Shareholders?” Nikkei Asia has now reported that CVC Capital Partners would propose a privatisation of Toshiba valuing the company at $20.8bn or something near ¥5,000/share. CVC will discuss the terms of the deal with management and will also need to win approval from the Finance Ministry. This is not as easy a deal as another deal might be. Toshiba is a FEFTA category 3 stock. It is sensitive enough that there would be global anti-trust concerns

  • ¥5,000/share would be the wrong price. At recently rumored offer valuations and IPO valuations touted in the media, Kioxia shares are worth well upwards of ¥2,000/share to Toshiba. The rest of the business should earn ¥300-350bn in EBITDA according to consensus estimates for 2023-2024. 6x EBITDA would add another ¥3,600-4,400/share. 8x EBITDA for the business would add ¥5,000-5,900/share to the value of Kioxia. ¥6,000/share would probably invite competition. ¥8,000/share would be more appropriate. 
  • Kioxia Timing is Important: The stock price last summer just before a Kioxia IPO was not too dissimilar from the price this past week. But Kioxia is worth more now than it was then given geopolitical concerns, tightness in the chip market, proposed subsidies to capacity buildout, etc. Average FY2022-2023 EBIT and EBITDA forecasts are up slightly since then. And TOPIX investors have bought about 45 million shares and are track to buy another 15mm shares at the end of April. 
  • There is another TOPIX upweight likely at the end of April. This should be known. But it is now more important. It will be another 15mm shares or 3.3% of shares out. It would be more like 5.2% of Real World Float assuming one counts all the Activist Holders now looking at this situation as float. 
  • Travis liked this at ¥3000 in January because of the squeeze to come and the possibility for lack of overhang because of activist action on the EGM and AGM. We have that lack of overhang, and now we have another story. He likes it now at ¥4530 (at the time of his insight). He would not sell or short this at ¥4500-5000/share yet.

Links to 
Travis’ insight: Toshiba – The CEO Gets His MBO Bidder and Toshiba Will Get Interesting
Mio Kato‘s insights: Toshiba – CVC Capital Partners Bid Highlights ValueToshiba – Tsunakawa’s Reappointment as EO Is Probably the End for Kurumatani

Coca Cola Amatil (CCL AU) (Mkt Cap: $7.5bn; Liquidity: $35mn)

Back on the 26 October, Australia’s largest non-alcoholic beverage bottler CCL announced an indicative proposal of A$12.75/share from Coca-Cola European Partners plc (CCEP). A firm Offer was announced on the 4 November. Reports immediately surfaced that some major shareholders considered the proposal inadequate.  Responding to shareholder pushback, CCEP and CCL entered into a Scheme Implementation Deed at A$13.50/share on the 15 February, a 5.9% bump to the firm Offer on the 4 November, and a  25.6% premium to the undisturbed price. The Offer was declared best and final.  Independent CCL shareholders will vote on the proposal at the Scheme Meeting to be held on the 16 April. Coca-Cola Co (KO US) (TCCC) with 30.808% of shares out, will abstain from voting. 

  • The board declared a full-franked dividend of A$0.18/share.  The ex-date/record date is the 16 April/19 April, with payment on the 30 April. The Scheme consideration will be adjusted for this dividend.
  • CCEP has now advised CCL that it has elected to purchase all the remaining shares held by TCCC at the implementation of the Scheme, for cash. TCCC will subsequently cease to be a shareholder of CCL.
  • Trading tight at a gross/annualised spread of ~0.5%/4%. That’s not particularly attractive, although the franking credits attached to the final dividend will represent additional value to those shareholders who are able to realise a tax benefit from those franking credits. Buy on any dips.

(link to my insight: Coca Cola Amatil (CCL AU): This Is It)

Invesco Office J Reit (3298 JP)  (Mkt Cap: $1.6bn; Liquidity: $9mn)

Together with affiliated investors, on Friday Starwood Capital Group filed that it owned just over 5% of Invesco Office and announced its intention to conduct a Tender Offer to buy out minorities. Invesco Office J-REIT, for its part, this morning announced that this was made “unilaterally and with no prior notification.” This classifies the action as hostile. The Tender Offer Price is to be set at JPY 20,000/unit, which is s 13.3% premium to Friday’s close, and a premium of 14.68% and 23.71% to the 1mo and 3mo closing price averages. 

  • The trade is to be long Invesco Office J-REIT at terms or slightly higher. Travis expects that unitholders may tender, but active unitholders may want to sell in the market at a higher price. He expects the Bidder has some flexibility. One’s best and final price is rarely exactly the nearest large rounded number (JPY 20,000/share). 
  • If it comes down to a white knight defense, It may be a tough-run thing. This is a run-off book rather than a growth book. Its assets likely suits a private sale to a re-developer or real estate trader. Starwood fits that bill. Other major office or diversified REITs might not fit that bill. And other non-REIT real estate buyers might balk too.
  • But Ichigo Office Reit Investmen (8975 JP) might fit the bill for a partner pretty well. 
  • The likelihood of Tender Offer success and potential upside from here against the likelihood of failure of this Tender Offer and possible downside to represent an uncomfortable reward/risk situation. 

Think Childcare (TNK AU) (Mkt Cap: $0.1bn; Liquidity: <$1mn)

Although Alceon initially let their matching right lapse, on 24th December 2020, they launched a revised non-binding and indicative proposal for TNK matching that of Busy Bees’ non-binding bid (A$1.75/share) and also announced they had acquired a relevant interest of 19.23% in TNK. Roughly a month later, Busy Bees revised their competitive bid to A$2.10/share –  a 20% bump from the previous bid level. I discussed this situation again in Think Childcare (TNK AU): Bigger Bid by Busy Bees reiterating my bullish stance on the stock. However on 4th March 2021, as the Shares were trading through Terms at A$2.23, considering the deal break risk, Janaghan suggested in Think Childcare (TNK AU): Trading Through Terms. Should You Fold Now? that it might be time to exit.  Turns out he was wrong this time. Busy Bees launched a revised bid at A$3.20.

  • This is still a non-binding proposal and comes with the following key conditions: Completion of satisfactory due diligence; and receipt of any necessary regulatory approvals (eg: FIRB).
  • Alceon, who currently holds 19.21% (11,739,083 shares), has agreed to vote in favour of the transaction in the absence of a superior proposal.  If Alceon, who acquired their stake at ~A$1.75/share roughly 3.5 months ago with a hostile/competitive motive, is willing to accept this Deal, Janaghan expects most of the remaining shareholders will accept this Deal too. 
  • With such a long time til the Scheme meeting (expected Q1 FY2022 which is CQ1 in 2022) and such a large potential gap to the downside, Janaghan expects it to trade wide over time.From a trading perspective however, it is a better reward/risk ratio lower down. 

(link to Janaghan’s insight: Think Childcare (TNK AU): Busy Bees Delivers a Knock-Out Bid)

Jih Sun Financial (5820 TT) (Mkt Cap: $1.7bn; Liquidity: $3mn)

On 23 March, Fubon Financial Holding Co (2881 TT) reported that its Tender Offer for control of Jih Sun was successful.  This was, apparently, possibly a surprise, as local media suggested last week that Shinsei Bank (8303 JP) had received an approach to buy their stake in Jih Sun for NT$15/share – well above the NT$13/share that Fubon had bid.  A day before the close of the Tender Offer, internal directors at Jih Sun were apparently of the opinion Shinsei would not tender, however it appears the NT$13/share in hand was better than the $15/share which was still only indicative, so they sold.  That leaves the squeezeout. 

  • As a risk arb trade, buy NT$12.60 or lower this week.
  • If you can get good leverage, this is a good, quite safe, somewhat high-yielding deal. 
  • If you are a long-only investor and you want a place to “hide out” in Taiwanese financials for whatever reason, this is a good place to do so. It is not likely to be lower (including dividends) in September than here).

(link to Travis’ insight: The Squeezeout of the Remaining 46% of Jih Sun Financial)

The promoter’s Open Offer to buy up to 651mm shares (17.51%) of Vedanta Ltd (VEDL IN) at Rs 235/share is coming to a close.  With two days to go, the shares today closed at Rs. 231.75/share as Hindustan Zinc (HZ IN) closed up 6.07%, briefly touching Rs 300/share intraday. Travis sees no reason why a 100% pro-ration is not possible.  Going forward, float should be substantially smaller. And expect higher volatility. This includes higher outright volatility and higher HZ-relative volatility. Travis sees no particular need to carry a position at the Tender Offer Price. In Vedanta (VEDL) Offer Coming To A Close: Watch For Antics, he would be inclined to buy any large dip in the share price of VEDL.

The Nikkei reported that Bain Capital’s bidding consortium has received preferential negotiating rights from Hitachi Metals (5486 JP). The rumoured valuation is above ¥800bn which would put the premium at just 3.2% above the last close. As Mio said previously, the potential for a large hike to those terms seems limited and better returns may be on offer in trying to identify other potential buyout targets. Link to Mio’s insight: Hitachi Metals – Limited Upside Despite Bain Capital News But Let’s Find the Offshoot Ideas.

The Niit Ltd (NIIT IN) buyback is a decently large Tender Offer Buyback. If everyone tenders to the full extent, pro-ration will be 7.1% for most shareholders. Record Date was 24 February. Those who held then can tender. Those who did not, cannot. Shares have spent most of the last ten years WELL above the Tender Offer Buyback Price. There is a chance that a large number of shareholders do not tender. If one believes only 50% of shareholders are likely to tender, then shareholders should buy 14% of their existing position and tender the shares they held as of 24 February. If the shares go higher than Rs 240 by the end of the Tender Offer, that is a high quality problem and one may sell the 107-114% of the position one had. Link to Travis’ insight: NIIT Limited Buyback – If You Own (Active Or Passive), You Should Read.

EVENTS

Tabcorp Ltd (TAH AU) (Mkt Cap: $8.3bn; Liquidity: $19mn)

TAH merged with Tatts Group Ltd (TTS AU) in November 2017 in an A$11bn transaction. Less than two years later, with the wagering division – which includes the retail betting shops and online betting brands – facing stiff competition on all fronts, and synergistic benefits from the merger not being extracted at expected levels, a demerger was floated. Fast forward another three-plus years: after rejecting a A$3bn offer from Entain (ENT LN) (owner of Ladbrokes) to buy its wagering and media division, Tabcorp said last week it will undertake a strategic review to assess and evaluate all structural and ownership options to maximise value. The strategic review is expected to take between 12 weeks and 13 weeks, the conclusion of which may tie in with the release of the FY21 financials. 

  • A demerger, in Entain’s view, does not address the challenges facing the wagering ops, which needs to recast its agreements with state racing authorities, increase its investment in technology, and introduce innovative products, as it still lags online rivals. TAH’s chairman was less enthusiastic with a sale, as he would prefer shareholders keep as much as they can. Complications involved in separating the lotteries and wagering businesses would also arise, such as certain tax advantages around potential capital gains tax rollover and dividend relief. A demerger would likely enjoy CGT rollover relief that a trade sale would not.
  • It has been argued a demerger – which typically takes 6 to 12 months – is just too long for Tabcorp to get its house in order, and that a sale is a better-fast tacked option. Yet a sale would require approvals from racing regulatory bodies, hotels, pubs and clubs, state governments, the ACCC, and (potentially) FIRB. Changes of control provisions would also be triggered. In addition, probity and regulatory issue may have been ratcheted up in the wake of the Crown Resorts (CWN AU) saga –  Crown Resorts (CWN AU): Blackstone Rolls the Dice.
  • The announcement of a strategic review just three months into Gregg’s tenure as chairman, suggests a sale or demerger may have legs. Especially noting recently departed CEO David Attenborough dismissed the idea of a demerger in August 2019 as “total nonsense“. I’d be picking up shares around here – with 30% upside to my fair value. Currently trading at a 6% premium to its COVID-cliff.

(link to my insight: Tabcorp (TAH AU) – Conscious Uncoupling)

Wakita & Co Ltd (8125 JP)  (Mkt Cap: $0.5bn; Liquidity: $1mn)

Waikita has been a deep value stock for years. It has had deep value investors owning stakes before. However, the company has pretty low ROE based on truly awful capital allocation policy. A very large portion of the long-term assets in the firm are effectively managed by people with little to no experience in the space, in a sub-optimal capital structure. The company has large amounts of net cash, and securities, and more securities and crossholdings. And the entire company is effectively a leasing business with some add-ons, and it finances itself with almost zero debt. While it is dangerous to call a paradigm change on companies where there is a significant corporate cross-holding and significant family holding and control, there are times when the confluence of events make stocks like Wakita worth a deeper look.

  • There is an activist who will push an agenda at the AGM, but who will most likely lose almost all the agenda items. A better bet would have been to push out directors based on bad governance because that would only require 50% support, which even then would have been difficult. 67% for a change in the Articles of Incorporation would be nigh impossible in my opinion. 
  • And the advent of a new version of the Corporate Governance Code would mean pressure on the substantial cross-holding position to unwind itself. There is a non-negligible chance the situation could end up as a possible MBO situation. And if it did, I would expect a fight. And MORE activism than what we have now. IF there is an attempted MBO soonish, Travis would expect it at ¥1500-1600/share. 
  • Big dips should be bought. The company is entirely under-levered which means that owning it using leverage and being “long gamma” market moves is appropriate. 

(link to Travis’ insight: Japan Activism: A Look into Wakita (8125 JP) Potential Pre-Event)

TOPIX Upweights: Big April Basket 2021 Pre-Event Was a WIN

The Tokyo Stock Exchange (TSE) calculates Free-Float Weight (FFW) for each listed company and uses this value as a key component of TOPIX Index Calculation. For companies with “low liquidity” the FFW will be multiplied by a fixed liquidity factor (“LF”) of 0.75 to derive the final FFW used for index calculation. In TOPIX Index Upweights: The Big April Basket 2021, Janaghan Jeyakumar  discussed how the Tokyo Stock Exchange reviews this Liquidity Factor every April and highlighted 50 names (the “Big April Basket 2021”) that could potentially have their liquidity factors removed in this April’s review.

  • Earlier this week, the official review results were announced and 48 out of 50 names in our Big April Basket 2021 were correct translating to a hit ratio of 96%. There were 11 other names added, and two of the names we expected to see the LF lifted did not.
  • As at the close ahead of the announcement, our Big April Basket (equally-weighted) was up +3.61% against the TOPIX Index in 7 trading days (since the close of the day after the insight) and there could be more to come. 
  • Travis chimes in with OTHER names in the TOPIX rebalance for April 2020, including a total of 43 up-weights and 16 down-weights with ~ US$500mm to buy and US$260mm to sell.

Links to:
Janaghan’s insight: TOPIX Upweights: Big April Basket 2021 Pre-Event Is a WIN! Now the Event-Leg!
Travis’ insight: TOPIX April-End Rebalance – The OTHER Trades

M&A – EUROPE

In his previous Insight Creval – Crédit Agricole: Playing Hard to Get, Jesus Rodriguez Aguilar  mentioned that a sweetened bid could come around €12 per share. Whilst that has not yet happened, the Board of Credito Valtellinese Sc (CVAL IM) (CreVal) issued on 29 March a statement that followed the usual script to back the assertion that the offer is “inadequate” on both stand-alone and M&A (developed in the Insight). In CreVal – Crédit Agricole: Grounds for an Improved Offer Jesus reckons Crédit Agricole should be able to increase the offer price to €12.4, for a total cost of c. €117 mn.

PAIRS

Investors unloaded Chinese e-vapor stocks following the announcement of draft amendments to the Tobacco Monopoly Law, if approved could extend the law’s jurisdiction to e-cigarettes. As a result, RLX Technology Inc (RLX US)’s share price fell 48% whileSmoore International (6969 HK)’s (less dependent on China) fell by 23%. Meanwhile, the lock-up period for RLX’s pre-IPO holders’ expiries on 21st July 2021 possibly leading to additional selling pressure in the short term. In Long Smoore/Short RLX: RLX’s Lock-Up Expiry Could Aggravate the Sell-Off, Oshadhi Kumarasiri recommends a Long Smoore/Short RLX pair trade.

ASIAN SPACS

The Singapore Exchange announced a regulatory framework for SPACs to list on the SGX and asked the market for feedback. Subsequent to the feedback phase ending on the 28 April, the framework may be finalised in the middle of this year.  The SGX makes it clear SPACs are susceptible to execution risks where the SPAC is unable to identify a suitable target company or successfully consummate the business combination within the pre-determined period. But given the clear demand for such instruments, the SGX evidently sees the benefits outweigh the risks.

TAKEOVER RULES – THAILAND

This revised guide – Quiddity M&A Guide 2021: Thailand– is part of a series of M&A guides that our Quiddity team are publishing to aid investors in understanding the rules, parameters, possibilities, and processes when companies conduct mergers and acquisitions. 

The initial guide – Quiddity Thailand M&A Guide 2019 – was published in May 2019. Since that time, there have been some new developments/clarifications, many of which relate to voluntary de-listings. This is an update.

M&A – US

The abandonment of its merger transaction with China Oceanwide has freed a financially healthier Genworth Financial Inc Cl A (GNW US) to pursue its revised strategic plan without restrictions and without uncertainty regarding its ultimate ownership. With what had seemingly been a never ending saga now finally over, Robert Sassoon asserts in SpinTalk: How Genworth Financial Holdings (GNW US)Creates More Value Without The Oceanwide Merger that Plan B will likely yield a more beneficial outcome to GNW shareholders than had the Oceanwide transaction moved to completion in the current circumstances.

INDEX REBALS

FTSE GEIS June Index Rebalance Preview. Stocks that could be included in the FTSE All-World index are Evergrande Property Services (6666 HK)China Resources Mixc Lifestyle Services (1209 HK)Pop Mart International Group Limited (9992 HK)Blue Moon Group Holdings (6993 HK)Remegen Co Ltd (9995 HK)Jinke Smart Services (9666 HK)Shimao Services Holdings Limited (873 HK)PTT Oil and Retail (OR TB)Big Hit Entertainment (352820 KS)SCG Packaging Public Company Limited (SCGP TB)MR D.I.Y. Group (MRDIY MK)Gland Pharma Ltd (GLAND IN) and Indian Railway Finance Corporation (IRFC IN). Stocks that could be included in the FTSE All-Country index are Yidu Tech Inc (2158 HK)Everest Medicines (1952 HK)Kerry Express Thailand (KEX TB)Converge ICT Solutions (CNVRG PM)Nanofilm Technologies International (NANO SP), and Roland Corp (7944 JP). Link to Brian’s insight: FTSE GEIS June Index Rebalance Preview: IPOs, J-REITs, India FOL. Read more: FTSE GEIS June Index Rebalance Preview: IPOs, J-REITs, India FOL.

Global Clean Energy Index. The changes to the S&P Global Clean Energy Index have been announced. There are 52 additions to the index to take the number of index constituents up to 82. The changes are effective after the close of trading on 16 April. The 52 additions and capping changes will result in a one-way turnover of close to 55% and will require the ETFs tracking the index to trade US$12bn to rebalance their portfolios. Link to Brian’s insight: Global Clean Energy Index: 52 Adds, 55% Index Turnover, US$12bn to Trade.

Straits Times Index Rebalance Preview. Jardine Strategic Holdings (JS SP) will be deleted from the MSCI and FTSE indices at the close of trading on 12 April. Strategic will also be deleted from the FTSE Straits Times Index (STI) (STI INDEX) at the close of trading on 12 April. The replacement for Strategic in the STI will be determined based on the closing prices on 8 April. Frasers Logistics & Industrial Trust (FLT SP) has a full market cap that is 10.1% higher than Suntec REIT (SUN SP) and is the most likely inclusion in the index with 2 trading days to go before the replacement is chosen. Link to Brian’s insight: Straits Times Index Rebalance Preview: FLT Poised to Replace Jardine Strategic.

OTHER M&A & EVENT UPDATES

CCASS

My ongoing series flags large moves (~10%) in CCASS holdings over the past week or so, moves which are often outside normal market transactions.  These may be indicative of share pledges.  Or potential takeovers. Or simply help understand volume swings. 

Often these moves can easily be explained – the placement of new shares, rights issue, movements subsequent to a takeover, lock-up expiry, amongst others. For those mentioned below, I could not find an obvious reason for the CCASS move.   

Name

% chg

Into

Out of

CTEH (1620 HK)75.00%LegoOutside CCASS
Yunfeng Financial Group (376 HK) 16.13%MSHSBC
Guru (8121 HK)14.40%CelestialOutside CCASS
China International Capital Corporation (3908 HK) 10.90%Std ChartOutside CCASS
Netdragon Websoft (777 HK) 14.51%CitiSt Chart
Pps International Holdings (8201 HK) 64.91%St ChartCTW
Source: HKEx

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

Name

% chg

Into

Out of

Pangaea (1473 HK)44.98HSBCOutside CCASS
Source: HKEx

Crowdstrike Analyst Day: Really, Just $3B in ARR?

By Aaron Gabin

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.

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. 


Before it’s here, it’s on Smartkarma

TMT: Grab, Niit Ltd, Samsung Electronics, Bilibili Inc, Nasdaq-100 Stock Index and more

By | Daily Briefs, TMT/Internet

In today’s briefing:

  • Grab – Biting the Bullet with a SPAC Listing?
  • NIIT Limited Buyback – If You Own (Active Or Passive), You Should Read
  • Korea NPS Local Equity Weight Change: Stocks to Be Affected
  • Bilibili in Talks to Buy 24% Stake in Yoozoo Games to Enhance and Strengthen Content Offerings
  • US Growth to Perform and Short Pairs to Work Into

Grab – Biting the Bullet with a SPAC Listing?

By Angus Mackintosh

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. 


NIIT Limited Buyback – If You Own (Active Or Passive), You Should Read

By Travis Lundy

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.


Korea NPS Local Equity Weight Change: Stocks to Be Affected

By Sanghyun Park

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.

SAA & TAA tolerable bandsSAA (strategic asset allocation)TAA (tactical asset allocation)
Domestic bonds±3.5%p±5.0%p
Overseas bonds±0.5%p±1.0%p
Domestic stocks±3.0%p±2.0%p
Overseas stocks±1.0%p±1.0%p
Alternative±1.2%p±1.2%p
Source: Korea NPS

As of January this year, the actual weight is 21%, 4.2% over the target of 16.8%.

NPS local equity weightFY2020 yearendFY2021 Jan
Target17.30%16.80%
Actual21.20%21.00%
– Excess %3.90%4.20%
Source: SED

It was under SAA ±2.0%p and TAA ±3.0%p.

Assuming the SAA ±2.0%p being filled up, the TAA was filled up at 73% (2.2%p of the 3%p limit).

Now with the SAA extended up to 3%p, 73% of the 2%p room comes at 1.5%p.

Assuming the SAA is filled up and the TAA still stays at the same 73%, the NPS can raise the local equity weight by 0.3%p, which translates into ₩0.5T worth of immediately available funds for additional local equity buying.

* The local equity holding totaled ₩180T as of Jan 2021. The NPS owns 6.95% of KOSPI and KOSDAQ combined and 8.24% of KOSPI.

(₩T) – as of Jan 2021AmountWeight
Total assets855.3100.00%
Financial investment854.199.90%
Domestic equity180.021.00%
Overseas equity201.323.50%
Domestic bonds330.938.70%
Overseas bonds47.65.60%
Alternative92.210.80%
Short-term liquidity2.10.20%
Other1.00.10%
Source: Korea NPS
(₩T)KOSPIKOSDAQ
Number of companies8051,496
Number of constituents9231,499
Market cap2,183.4405.1
Combined2,588.5
Korea NPS-owned local equity180.0
– % of the combined KOSPI and KOSDAQ6.95%
– % of KOSPI8.24%
Source: KRX

Bilibili in Talks to Buy 24% Stake in Yoozoo Games to Enhance and Strengthen Content Offerings

By Shifara Samsudeen, ACMA, CGMA

Several news media outlets reported on Thursday (08th 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%.


US Growth to Perform and Short Pairs to Work Into

By Thomas Schroeder

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.


Before it’s here, it’s on Smartkarma