Daily BriefsTMT/Internet

TMT: HUYA Inc, Tencent Holdings, Beijing Kuaishou Technology Co Ltd, freee, Dida, Lyft Inc, Kce Electronics Pub and more

In today’s briefing:

  • Huya – As We Suspected, Huya Shareholders Probably Got a Raw Deal
  • Tencent (700 HK): Every Business Line Looks Great in 3Q20, Upgrade to Buy
  • Kuaishou Technology Pre-IPO – The Negatives – Ample Doubts Remain
  • Freee KK: 1QFY21 Results Show Profits Are Possible Over the Next 12-18 Months
  • Dida IPO (Financial Analysis): Expect Strong Revenue Growth but Not Profits
  • Lyft 3Q Results: Can Ride-Sharing Find a Profitable Path?
  • KCE: Bright Outlook but at Demanding Valuation

Huya – As We Suspected, Huya Shareholders Probably Got a Raw Deal

By Mio Kato

We commented previously that while a merger between Huya and Douyu made a lot of sense, we believed Huya was a noticeably superior company and that a merger of near equals situation seemed a poor deal for Huya shareholders. Comparing Huya and Douyu’s recent results reinforces that image.


Tencent (700 HK): Every Business Line Looks Great in 3Q20, Upgrade to Buy

By Ming Lu

  • Revenue increased by 28% YoY in 3Q20.
  • The worst business lines stopped declining.
  • The growth rate of financial revenue accelerated.
  • Video competitor, iQiyi, ceased the price war.
  • The draft of online antitrust law does not target Tencent.
  • The 5-year P/E band suggests an upside of 15%. Upgrade to Buy.

Kuaishou Technology Pre-IPO – The Negatives – Ample Doubts Remain

By Sumeet Singh

Beijing Kuaishou Technology Co Ltd (1496219D CH) (KT) is a content community and social platform. The company is backed by Tencent Holdings (700 HK), Sequoia China, Baidu (BIDU US), DST Global, Boyu Capital, Temasek and others.

 As of six months ended Jun 2020, it had 302m daily active users (DAUs), who spent 85 mins on average on the app every day. It also had 776m monthly active users (MAUs) and total e-commerce GMV of RMB109.6bn. On an average 1.1bn short videos were uploaded on its app during 1H20.

 As per iResearch, Kuaishou was globally the largest live streaming platform by gross billings from virtual gifting and average live streaming MPUs, the second largest short video platform by average DAUs, and the second largest live streaming e-commerce platform by GMV, over six months ended June 30, 2020.

In my earlier note, Kuaishou Technology Pre-IPO – The Positives – Hot Segment, fast growth, I spoke about the positive aspects of the deal. In this note, I’ll talk about the not so flattering aspects.


Freee KK: 1QFY21 Results Show Profits Are Possible Over the Next 12-18 Months

By Shifara Samsudeen, ACMA, CGMA

freee (4478 JP)  reported its 1QFY06/21 results yesterday (11th November) which saw a 49.2% YoY growth in revenues while operating losses for the quarter dropped to 12.2% of revenues from 32.6% in 1QFY06/20. The reported revenue beat consensus estimates by 4%. The consensus called for operating losses of JPY300m while the company reported operating losses of JPY272m for the first quarter of FY06/2021.


Dida IPO (Financial Analysis): Expect Strong Revenue Growth but Not Profits

By Aqila Ali

In our previous insight Dida Pre-IPO: Carpool-Focused, But Is Main Business in Short-Term Risk? , we looked at Dida’s business model and its growth prospects by comparing the company with its rival DiDi Chuxing (1284375D CH). In this insight, we carry out a financial analysis and outlook on the company. Our key points are:

  • Dida (DIDA HK) has reported strong revenue growth rates during 2017-2019 (CAGR of 244%). Moreover, despite the COVID impact, revenue during 1H 2020, grew by 66% YoY. A majority of the revenue growth came from the carpooling business (CAGR of 339% during 2017-2019). Given the strong industry growth prospects for carpooling and Dida’s dominant position in the market, if we conservatively assume Dida to grow in line with the industry (an outperformance is likely though), we could expect Dida’s revenue to grow at a double-digit CAGR of c. 27% through 2022.
  • Gross profit margins are at 82.2% as of 1H 2020, driven mainly by the carpooling business (GPM: 86.3%). However, based on our MPR analysis, total GPM and the GPM of the carpooling business appears to have reached potential, where significant upside is unlikely.
  • An upside in GPM is likely for the ride-hailing business, which started generating gross profits only in 1H2020 (Dida’s 31.1%), but appears limited given that GPM of peers like Uber (UBER US) and Lyft Inc (LYFT US) range around 34-39%. Moreover, at the overall operating level, this business is unlikely to report profits any time soon as we see with international peers like Uber and Lyft.
  • Selling expenses do not move in line with revenue. Selling expenses usually increase when Dida expects to boost its sales in the upcoming year. This was the case in 2018. Having said that, a majority of selling expenses include user incentive costs, which has levelled out for the carpooling business but is likely to continue for the ride-hailing business which Dida started last year. Overall, given that Dida is yet to grab a share of the ride-hailing market, selling expenses are likely to be a significant expense over the next few years as well.
  • The company is generating losses at the net level and these losses are likely to continue even based on our less conservative assumptions. Though based on adjustments the company makes, profits are reported, we feel that these adjustments do not necessarily justify the company’s loss-making position.

Lyft 3Q Results: Can Ride-Sharing Find a Profitable Path?

By Rickin Thakrar

Lyft Inc (LYFT US) reported 3Q20 results post the close on Tuesday, with top-line revenues down 48% in 3Q20 compared to down 61% in 2Q20 driven by lockdown restrictions and the global pandemic. Shares, however, have moved strongly upward driven by the hope of a global vaccine which has lifted lockdown affected stocks. We look at the latest results and company outlook below and provide an updated view on the stock.


KCE: Bright Outlook but at Demanding Valuation

By Research Group at Country Group Securities

We maintain HOLD rating with a new 2021E target price of Bt31.25, from Bt27.00, derived from 22.7x PE’21E, which is +1 SD of its 5-year trading average.

•KCE net profit in 3Q20 was Bt250m (-2%YoY, +252% QoQ). Effective expenses control help buoying earnings YoY, while the QoQ spike was from recovery from Covid-19.

•We revised down 2020E earnings by 14%,  but revised up 2021-22E earnings forecast by 15% and 12%, respectively

•We believe 2021E revenue would be back to pre trade war level, driven by bright outlook for automotive sector in Europe.

We like KCE as it would ride the European automotive upcycle. However, the share price seems to already reflect its current business strengths, trading beyond +1 SD PE valuation.


Before it’s here, it’s on Smartkarma