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Smartkarma Originals

Carbon Markets Original: An In-Depth Analysis into the Evolution of Carbon Markets

By | Smartkarma Originals

What’s Original?

Global warming and climate change have now started to cause major problems such as heatwaves and wildfires which when coupled with more awareness about the environment due to COVID-19, has led to increasing interest in reducing carbon emissions. Governments moves to implement regulations to control emissions and encourage a shift to renewable energy sources are accelerating particularly in Asia. 

In this original, we will be discussing the history of carbon emission regulation systems and the types of systems. The different types of markets and offsets will also be discussed. Given that the EU is one of the most significant emission trading systems – the world’s first international trading market and the largest for many years (until the launch of China’s ETS), we will be discussing this in much detail with a focus on the history of the EU ETS (Emission Trading System), and recent developments. We will also be focusing on how the EU ETS impacted other countries when creating their own emission trading systems.

Carbon pricing has also been affected by a number of recent developments and trends which have pushed regulators to make faster decisions and we will examine what is believed to be an optimal price in order to meet the targets under the Paris Agreement.

LightStream Research • Japan/Asia Long-Short • (Opens in a new window) ⧉

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China Private Education: This Is Where the Future Lies

By | Smartkarma Originals

The China Private Education Sector presents an exciting growth story, riding on the increase in spending on education, rise in demand for quality education, support from local governments for private investments and increase in acceptance towards online delivery mode, among others. These positive factors, however, are balanced by the decrease in birth rates and the tight regulatory regime. Despite so, we continue to see good prospects given that earnings growth will remain ahead of the overall market by significant magnitude. Meanwhile, valuations have already returned to more reasonable levels, with investment value started to emerge on some names.

Companies in the sector have different focuses, including K-12 education, higher education, vocational education, tutoring (online) and tutoring (online and offline), and we have to be very selective. We prefer companies that focus on higher education which face lower regulatory risks, have a clear defined expansion strategy and specialise in a niche market segment. Out of the ten companies covered in this Smartkarma Original, we put forward China Education Group (839 HK), Tianli Education (1773 HK) and China Yuhua Education (6169 HK) as our top picks.

What’s Original?

This Smartkarma Original takes an in-depth analysis on 10 companies in the Private Education Sector in China, covering stocks listed in the HKEx, NYSE, Shenzhen Stock Exchange as well as dual listings. In the A-share space, we cover Offcn Education Technology (002607 CH), which is sizeable (market cap of almost HK$210bn) and with unique exposure to the civil servants recruitment examination training.

Besides addressing the key evolving trends of the industry and the all-important regulatory issues, we also touched on the private funding aspects for some prominent unlisted companies and the IPO trends of the industry. Where appropriate, we share some of our on-ground experiences with the aim to provide a closer feel on the industry and companies. We hope this Smartkarma Original will be a comprehensive and updated reference for China’s Private Education Sector.

• China Analyst – Onshore Credit, Equity Long-Short • (Opens in a new window) ⧉

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Male Grooming in Asia: Blooming Prospects. Skincare to Drive Growth

By | Smartkarma Originals

Emerging Asia – notably China and India –  is witnessing a  steady expansion in the Male grooming sector as men’s habits around personal care is shifting – led by a confluence of social, economic and compelling demographic factors. Expect this trend to gather more momentum as image-conscious young men adopt a wider array of personal care products. Skincare products that address specific needs/concerns of male customers will drive the early stage of segment growth; light cosmetics are picking up demand too. Companies that are quick to identify and address the demand with male-specific products/brands stand to gain from early mover advantage given male customers, reportedly, are far more brand loyal compared to female counterparts.

What is original in this report? We discuss the social, economic and compelling demographic factors driving the shift and growth in the Male grooming sector in China and India. We look at the emerging trends across segments and in both the markets to arrive at a pecking order in terms of investment potential. We have scanned the personal care and cosmetics products landscape to shortlist brands and companies that offer a male-specific product range. A brief on select companies – private and listed –  are presented for further investment analysis and evaluation. 

Investory • Asia Consumer Research, Equity Analyst • (Opens in a new window) ⧉

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ESports – Entering the Third Innings

By | Smartkarma Originals

eSports offer intriguing investment possibilities to investors given very large projected TAMs, high growth rates and links to a variety of other fast growing industries including games, streaming, animation, tech hardware and social media. This makes eSports important to understand and below we examine key themes that investors should be aware of, before delving into a full primer on the space, companies with exposure to eSports, Asian eSports franchises and key eSports games to be aware of.

LightStream Research • Japan/Asia Long-Short • (Opens in a new window) ⧉

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Asian Nuclear Energy Industry: The Value Chain

By | Smartkarma Originals

Asia is the focal region globally where nuclear power is growing significantly to meet its increasing demand for clean electricity. There are approximately 135 operable nuclear power reactors, with 35 under construction – around two-thirds of the reactors under construction worldwide. China is the clear leader in nuclear generation growth.

There were divergent responses to the Fukushima accident, leading some countries to reassess their long-term domestic energy policy, while others experienced a short-term pause, before continuing with long-term strategies, with few to no changes. 

The debate is ongoing whether nuclear power is a safe energy source for mitigating global climate change, or presents an unnecessary risk, given past disasters, coupled with the unavoidable by-product of radioactive waste. Additionally, renewable energy such as solar and wind has become increasingly competitive and sustainable.

For countries such as China, India, and South Korea, there remain solid economic reasons for the expansion of global nuclear power, and its role in lowering emissions from energy production.

The vast majority of nuclear power plants in Asia are operated by unlisted government entities; or in Japan, the bulk of reactors remain in shutdown mode after Fukushima.

CGN Power Co Ltd H (1816 HK) is one of the few listed nuclear pure-plays in Asia, and trades at undemanding multiples, together with an attractive ROE and yield.

What’s Original?

This insight presents a comprehensive view of the Asian nuclear energy industry, and its value chain

Quiddity Advisors • Pan-Asia Catalysts/Events • (Opens in a new window) ⧉

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Pet Care Sector in Asia: Saga Has Just Started. Opportunities Galore.

By | Smartkarma Originals

In this Smartkarma Original Series report, we look at how the pet care industry in Asia, specifically China, grew 10x fold in the past 10 years and what sets it apart. Compared to the west, the pet care industry is a relatively recent development in emerging Asia. It is still early days of growth and evolution for the various segments of the industry and local players are still trying to establish a meaningful presence in most categories. However, the unique social/demographic factors that have spurred the pet boom in China has also opened up new product needs that are being addressed by local players – smart petting gadgets being one of them. Investors have been active in segments where local players have established a strong presence, like medical facilities; an IPO is reportedly on the anvil in 2021. This could attract more market attention to this high-growth sector especially if investors get an option to ride the sector growth. 

What is original about this report? In this report, we analyse the data available on Pet ownership in Asia, predominantly China, and compare it with the US to understand and assess the scope of growth for Asia’s pet care sector. We study the underlying factors driving the pet boom and spending spree in China and discuss the various segments of the pet care industry and highlight emerging trends and pockets of opportunity. Lastly, we scan the Asia-based branded pet industry space in each segment, to select and study players that have built a meaningful presence in the market place. We see attractive growth potential for many of the early entrants – listed and unlisted- in the sector. We believe there is room for more branded players to enter the industry and tap into the existing and emerging product white spaces.

Investory • Asia Consumer Research, Equity Analyst • (Opens in a new window) ⧉

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Unlisted Gaming Companies in Asia – The Acquisition Landscape Heats Up

By | Smartkarma Originals

With Microsoft making a big splash acquiring Zenimax Media for $7.5bn last September and Sony rumoured to have been interested in acquiring Leyou Games prior to its agreement with serial acquirer Tencent, it is clear that the war for IP is well underway. With many acquisitions having already taken place in Europe and the US over the last decade however, perhaps it is time to examine the landscape in Asia to identify both potential acquisition targets that could sway the competitive balance amongst the console and mobile giants as well as fast growing unlisted players in the mobile space who are aiming to establish themselves as genuine rivals to the likes of Tencent and Netease.

What’s Original?

Perusing through Asia’s unlisted gaming companies, we profile a variety of companies from China, Japan, Korea and ASEAN, highlighting companies to watch for a variety reasons. Some are threatening Tencent’s dominance in China while expanding overseas to also encroach on the mobile game earnings of foreign players, some are helping PC and console game makers manage escalating development costs from increasing graphical fidelity while others specialise in remastering old hit titles to provide publishers an easy way to monetise past successes and their IP library. We also examine the connection of gaming to anime and the ways in which both incumbents and challengers are exploiting this link to enhance their competitiveness.

LightStream Research • Japan/Asia Long-Short • (Opens in a new window) ⧉

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Asian OTT Wars

By | Smartkarma Originals

The Asian OTT sector is one of the most attractive industries to be in the next five years. In this report, we highlight numerous major potential winners and discuss some of the most important factors impacting the OTT sector in Asia. There are three crucial trends that will impact the Asian OTT sector:

  • A surging growth of 5G services
  • Increased consolidations and partnerships especially among the global OTTs and local content providers/OTTs
  • Greater spending on higher quality contents in efforts to improve consumer retention

The main purpose of this report is as follows:

  • Identify the major players (both public & private) in the OTT sector in Asia
  • Specify the key trends driving the Asian OTT industry
  • Provide an initial overview of the key companies in the Asian OTT industry

• Korea/Asia, New Economy, IPOs, Events • (Opens in a new window) ⧉

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Asia Buyback Forecasting | Which Companies Are Likely to Raise/Cut Buybacks?

By | Smartkarma Originals

In this Smartkarma Original, we bring to you a quantitative approach for identifying Asian companies that are likely to raise/cut buyback. Applying this approach to a universe of 920+ companies listed across Asia helped us identify 40+ and 50+ companies that have a high likelihood of raising and cutting buybacks, respectively, over the next five years.

What’s Original?

  • We have two separate models, one for forecasting Buyback Raise and the other for Buyback Cut.
  • Our back test results are very encouraging with >85% hit rate for our Buyback Raise model and >94% hit rate for our Buyback Cut model.
  • For our Buyback Raise model, we differentiate from other quantitative buyback models by incorporating competing uses of cash like inorganic acquisitions through “Goodwill as % of Total Assets” parameter. Based on our analysis, we have also determined that, contrary to usual perception, any dividend payout is not a competing use of cash vs buyback but a healthy sign of capital return discipline and have incorporated it accordingly in our model. We also use long-term ROE vs growth trends to filter companies where the cash levels maybe low but the capability to do buyback with time can grow significantly. At the same time, we ensure to weed off very high growth companies that may have high re-investment needs through our carefully selected threshold for the “Long-term Revenue CAGR” parameter. 

Insight Flow

  • Live Dashboard
  •  Methodology
    • Buyback Raise Model
    • Buyback Cut Model
  • Universe
  • Back Test Results
    • Buyback Raise Model
    • Buyback Cut Model
  • Model Results
    • Summary Statistics
    • Companies with High Probability of Buyback Raise
    • Companies with High Probability of Buyback Cut
  • Buyback Timing
  • Model Risks & Limitations
  • Conclusion

• Equity L/S Analyst | Forensic Accounting | India • (Opens in a new window) ⧉

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Asia and the Era of Activism Part 3: Corporate Readiness for Activism

By | Smartkarma Originals

“The measure of intelligence is the ability to change.” ― Albert Einstein

In Part One of Asia and the Era of Activism, we outlined why activism cannot be ignored. The data presented highlighted that it is not just the traditional activist driving this growth, but the non-traditional Activist is increasingly being drawn into these campaigns. 
As Part Two of this series stated, 2021 is expected to see unprecedented increases in the level of activism as investors play catch up and corporates are called out on actions made during the pandemic when the spotlight was off them.
Part Three, our final component of this series, explores company readiness strategies and potential responses to Activist campaigns.

SR Services DMCC • Global Special Situations & Strategy • (Opens in a new window) ⧉

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