Daily BriefsTMT/Internet

TMT: Tencent Holdings, Alibaba Group, Prosus , Xiaomi Corp, Trip.com, Visional Inc, Vinagame Corp, Coinbase and more

In today’s briefing:

  • Tencent Placement – Another Reluctant but Well-Flagged Sell Down, Lifting the US$14.5bn Overhang
  • Tencent Placement – Limited Passive Flow; HSI, HSCEI Trackers to Sell in June
  • China ADRs Quick Update – SEC, Archegos, Blocks – Showing Signs of Life
  • Tencent Placement and the Holdco Implications – Deal Almost Done, Now What?
  • Xiaomi (1810 HK): No Longer Concerned About High Prices of New Smartphones, A Store Visit
  • Be Careful What You Wish For REDUX – Prosus Selling US$15bn in Tencent
  • Trip.com Secondary Listing: HK-ADS Premium/​​(Discount) Views
  • Visional IPO – VCs Bizreaching for the Exit but We Like This Anyway
  • VNG (VinaGame): The Only Tech Unicorn In Vietnam
  • Coinbase: Excellent 1Q 2021 Earnings, But Is It Sustainable?

Tencent Placement – Another Reluctant but Well-Flagged Sell Down, Lifting the US$14.5bn Overhang

By Sumeet Singh

Prosus NV (PROSY US) aims to raise around US$14.5bn via selling a 2% stake in Tencent Holdings (700 HK).

The deal comes nearly three years, and right after the lock-up expiry, from the previous placement when on 22nd March 2018, Naspers (NPN SJ) reluctantly sold US$10bn worth of Tencent Holdings (700 HK) shares.  We have covered the previous placement in our earlier note, Tencent Placement – Huge Deal in Size, Small in Relative Terms – Succumbing to the HoldCo Discount.

We have been covering the lock-up expiry since Feb 2021 in:

In this note, we will talk about the deal dynamics.


Tencent Placement – Limited Passive Flow; HSI, HSCEI Trackers to Sell in June

By Brian Freitas

Last evening, Prosus (PRX NA) announced that it would sell up to 191.89m shares in Tencent Holdings (700 HK), raising up to US$14.6bn. This would bring its stake down to 28.9% and Prosus (PRX NA) has committed not to sell any more Tencent Holdings (700 HK) shares for at least the next three years.

Tencent Holdings (ADR) (TCEHY US) dropped 7.54% overnight, Naspers (NPN SJ) fell 5.03% and Prosus (PRX NA) lost 4.61%.

Apart from buying from FTSE passive trackers, we do not see any other passive inflows for Tencent Holdings (700 HK) in the near term. The MSCI increase in free float could only happen at the May 2022 SAIR, while any increase in the free float in the Hong Kong Hang Seng Index (HSI INDEX), Hang Seng China Enterprises Index (HSCEI INDEX) and Hang Seng Tech Index (HSTECH INDEX) will be offset by a lower capping factor.

The stock faces many headwinds: unwanted attention from SAMR, an increased number of floating shares, little passive buying flow to alleviate the impact of a larger float, and a reduction in the capped index weight in the HSI and HSCEI indices from 10% to 8%. The stock could remain under pressure in the near future.


China ADRs Quick Update – SEC, Archegos, Blocks – Showing Signs of Life

By Sumeet Singh

On 29th Mar 2021, we spoke about the Archegos driven correction in some of the China ADRs,  China ADRs- Blocks, Liquidation, Buyback – Implications. That in turn had followed close on the heels of the SEC driven correction for the sector, which we looked at in China ADRs – SEC Notice – Instead of Three, Probably Have Four Years till 2025 – Correction Overdone.

In this note, we’ll talk about the updates since our previous note.


Tencent Placement and the Holdco Implications – Deal Almost Done, Now What?

By Sumeet Singh

Prosus NV (PROSY US) aims to raise around US$14.5bn via selling a 2% stake in Tencent Holdings (700 HK) overnight in Hong Kong.

We spoke about the placement in Tencent Placement – Another Reluctant but Well-Flagged Sell Down, Lifting the US$14.5bn Overhang.

We have been covering the lock-up expiry since Feb 2021 in:

While the overall cash being raised should be positive for Prosus and Naspers, not all aspects of the deal will be viewed positively. 


Xiaomi (1810 HK): No Longer Concerned About High Prices of New Smartphones, A Store Visit

By Ming Lu

  • Most Xiaomi new smartphones are priced high.
  • At a Xiaomi store, we found customers were very interested in the highly-priced products.
  • The risk is the competition from Apple, Oppo, and Vivo.

Our previous coverage on Xiaomi:

Xiaomi (1810 HK): Market Was Wrong After 4Q20 Result, Upgrade to Buy 

Xiaomi (1810 HK): Terminate Contracts with Small Authorized Stores 

Xiaomi (1810 HK): Taking Advantage of Huawei’s Sale of Smartphone Brand, But Overvalued 


Be Careful What You Wish For REDUX – Prosus Selling US$15bn in Tencent

By Travis Lundy

Three years ago on 22 March 2018, after Tencent Holdings (700 HK) reported full year earnings for the year to December 2017, Naspers (NPN SJ) launched a sale of shares in Tencent of about 2.0% of shares out, lowering their stake and raising cash which was supposed to be used to buy more e-commerce assets, with the lofty but separately-stated goal being to “balance the portfolio” over the coming years. 

At the time, Naspers was trading at a 40% discount – a level with which Naspers management was clearly unhappy – and Tencent was roughly 91% of Naspers NAV. 

At the time, apparently wary of signalling more pressure on Tencent shares from potential future sales, Naspers promised it would not sell any more Tencent shares for three years. 

But that set up the likelihood of a sale after Tencent reported earnings in March 2021, this time by Prosus (PRX NA) which inherited the listed equity positions from Naspers in a dropdown spinoff 18 months ago.

Then that sale did not arrive. 

There were, of course, ructions in the market that same week as Family Office Archegos Capital Management ran into a spot of difficulty and both it and its financiers had to sell (in a hurry) tens of billions of dollars of concentrated positions – many in the category of Chinese stocks listed outside of mainland China. It was clearly not the best time to sell a large block, so it appears Naspers/Prosus waited. 

Today, Prosus announced an accelerated offering of Tencent shares – again selling 2.0% of shares out, dropping their position from 30.9% to 28.9% of shares outstanding, at an indicated 5.5-8.7% discount to last close – a price range of HK$575-595/share. Again Prosus has locked themselves up for longer than normal.

Prosus has committed not to sell any further Tencent shares for at least the next three years, in line with its long-term belief in the potential of the business. 

This leaves one with the question… what next?


Trip.com Secondary Listing: HK-ADS Premium/​​(Discount) Views

By Arun George

Trip.com (TCOM US) has launched a $1.4 billion secondary listing in Hong Kong by offering 31.6 million ordinary shares. Bookbuilding is scheduled to run until the pricing on 13 April. The net proceeds will be used to fund the expansion of its travel offerings, improve user experience and invest in technology. 

In Trip.com Secondary Listing: No Heads in the Clouds, we outlined our views on Trip.com’s fundamentals and valuation. Trip.com is a play on the expected reopening and recovery of travel in 2021 due to the global rollout of vaccines. In combination with the potential valuation upside to the last close price (based on SoTP), we concluded that the equity story is attractive. 

In this note, we will look at Trip.com’s potential HK-ADS premium/(discount). As per the norm, Trip.com will price its H-shares at a discount to its ADSs to entice investors to participate in the secondary listing. However, market conditions remain volatile and Chinese tech names are losing their shine due to the US delisting threat and the trend of investors rotating out of tech stocks. The NASDAQ Golden Dragon China Index is down -18% since March 2021. Trip.com shares are up 15% YTD but down -2% since March 2021.  

Due to the weakening market sentiment on Chinese tech names, Trip.com will likely price its H-shares at a wider discount than the median of past secondary listings. Trip.com pricing its H-shares at a discount of 3-4% to its ADSs will be reasonable, in our view.


Visional IPO – VCs Bizreaching for the Exit but We Like This Anyway

By Mio Kato

Visional, parent company of Japan’s high class job seeker database Bizreach is scheduled to IPO on the 22nd of April on the Mothers market. We examine the company’s business model and financials below.


VNG (VinaGame): The Only Tech Unicorn In Vietnam

By Alec Tseung

  • Underpinned by strong economic growth and a growing population, Southeast Asia has been one of the hottest emerging markets for investors in recent years
  • This is especially the case for the largest economy in the region, Indonesia, where there has been a significant increase in venture investments and their valuations
  • Vietnam is also becoming an increasingly interesting place to tap into the growth potential of the region, given its strong economic growth outlook, and at a more reasonable valuation
  • The article looks to introduce the only tech unicorn currently in the country – VNG

Coinbase: Excellent 1Q 2021 Earnings, But Is It Sustainable?

By Douglas Kim

In the direct listing on 14 April, Coinbase is aiming for about $100 billion in valuation. In 1Q 2021, it had sales of $1.8 billion and high end net profit of $800 million. If we annualize these figures, this would result in annual sales of $7.2 billion and annual net profit of $3.2 billion. These are phenomenal figures. At $100 billion valuation, this would suggest a P/E of 31x. Many investors would be comfortable with these kind of multiples as being reasonable. 

All in all, we stick with our original thesis and valuation on Coinbase over a one year view. Our valuation analysis suggests a range of $31.9 billion to $47.9 billion in market cap for Coinbase. Our base case valuation of Coinbase is $39.9 billion, which is nearly 60% lower than the $100 billion value that Coinbase is trying to aim in this direct listing. 

In terms of short-term trading post IPO, given the excellent 1Q 2021 results, we believe that the company’s valuation could indeed reach $100 billion. However, we believe this kind of valuation to be short lasting. Over a longer view (one year), we believe there is a higher probability that the company’s valuation declines to our base case level (about $40 billion). This will become more evident as numerous other competitors offer extremely low pricing and many customers switch to their services. 


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