Brief TMT & Internet: FMCG Is the Next Big Growth Driver & Battleground for China E-Commerce; Big Tech Moves In Force and more

In this briefing:

  1. FMCG Is the Next Big Growth Driver & Battleground for China E-Commerce; Big Tech Moves In Force
  2. ME2ZEN IPO: Absence of Local Pension Funds Vs. Market Friendly Pricing
  3. Softbank Reverse from Long to Short Target
  4. King Yuan Electronics Co(2449 TT) – Time To Buy On Robust Demand For 5G, AI, and CMOS Image Sensor
  5. Leyou in Tencent’s Crosshairs

1. FMCG Is the Next Big Growth Driver & Battleground for China E-Commerce; Big Tech Moves In Force

Image 76095397341594366725190

FMCG E-Comm is China Tech’s Next Big Growth Driver & Battleground

At a time when overall retail e-commerce in China has already reached 44% penetration, e-commerce penetration for fast-moving consumer goods (“FMCG”) still lags behind tremendously. According to Euromonitor International, only 6.3% of fresh foods and 8.8% of alcoholic beverages were purchased online in 2019.

This gap represents a major growth opportunity as consumers, having grown accustomed to the convenience and safety of ordering FMCG products online, are now permanently shifting purchasing behaviors.

Already, Chinese Tech giants such as Alibaba and JD.com have moved in force – doubling down on their FMCG investments via Freshippo and JD Supermarket. Tencent is also making its own moves – investing in grocery startup Xingsheng Youxuan and valuing it at US$3bn.

Investors have taken note of this upcoming structural trend and have also moved in size. As seen in the chart below, companies with exposure to FMCG e-commerce have handily beat the broader market with names like Pinduoduo and Meituan Dianping doubling in value in just two months. Dada Nexus, an online grocery firm backed by JD.com, also chose to IPO in early June despite the COVID backdrop – its stock price has since soared by 100%+.

Source: Capital IQ, Zero One. Note: Dada Nexus return calculated based on IPO date (June 5, 2020).

Read our previous FMCG E-Commerce Insights:

2. ME2ZEN IPO: Absence of Local Pension Funds Vs. Market Friendly Pricing

5

First, here is an overview of ME2ZEN’s second IPO attempt.

It plans to offer 3.2M shares (52% primary and 48% secondary). The total offering represents 28.74% of the total shares at a 14.94% capital increase rate.

Mirae is working as a sole banker with a firm commitment.

The indicative price band is at ₩21,000~27,000, which gives an implied market cap of ₩289.9~372.7bil.

July 30~31 will be for book-building, followed by the allotment on August 4. The following day will be a subscription. The payment date is August 7.

Once again, the float will be tight on this one. A total of 72.48% shares will be in a lock-up for one month to three years. Of those, 65.26% is for more than six months.

3. Softbank Reverse from Long to Short Target

Softbank%20for%20sk

Softbank Group (9984 JP) has witnessed a sharp rise from our recent 4,400 long entry and nearing the ideal 6,600 target representing the top end of the intermediate expanding wedge range. We made a bull call near lower wedge support at 2,800.

Recent breakout point at 5,900 will act as pivot support that will induce a reaction back upward.

RSI shows synergy with dual tops in this zone to mark key cycle tops which fits with a top near 6,600. RSI is also forming a rising wedge that has a better than 70% probability of breaking down amid bear divergence.

Macro pivots are 6,800 and 4,900 as the expanding wedge defines a clear range (6,800 and 2,500).

4. King Yuan Electronics Co(2449 TT) – Time To Buy On Robust Demand For 5G, AI, and CMOS Image Sensor

Image 76439973941594114498597

In our view, KYEC embraces 5G migration cycle at infrastructure base stations and smartphones, as well as many other IoT devices, RF filter/PA, CMOS image sensors and server chips. We expect KYEC to post double digit YoY revenue growth in 2020. As such, we initiate coverage on KYEC with a Buy call and 12-month TP of TWD50.

5. Leyou in Tencent’s Crosshairs

Steam%20numbers%202

Leyou Technologies (1089 HK)’s long-drawn takeover saga has potentially taken its final twist. After market close on Friday, Leyou announced that Mr Yuk, Leyou’s controlling shareholder with a 69.2% stake, entered into a three months exclusivity agreement with Tencent Mobility, a wholly-owned subsidiary of Tencent Holdings (700 HK), to sell his stake. If the stake sale completes, it can result in the possible acquisition and privatization of Leyou by Tencent. 

Leyou has been subject to intense privatisation speculation with various suitors such as iDreamsky Technology Limited (1119 HK)/CVC, Zhejiang Century Huatong A (002602 CH), Sony Corp (6758 JP) and Tencent in pole position at different points in time since September 2019.

Ultimately, the previous negotiations collapsed as although Mr Yuk wants to sell his Leyou stake as evidenced by his long-drawn negotiations with the bidders, he is holding firm with his valuation. Warframe’s improving performance, Tencent’s deep-pockets and Mr Yuk’s stubbornness suggest that the chances of a deal getting done are high. At the last close price of HK$2.89 per share, our privatisation price estimate of HK$3.31 per share implies a gross spread of 14.4%.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.