Daily BriefsTMT/Internet

TMT: Tencent Holdings, Sea Ltd, Alibaba Group, Tencent Music, ABKO Co, Beijing Kuaishou Technology Co Ltd and more

In today’s briefing:

  • Party Poopers: Reining In China’s Internet
  • MSCI Singapore: SEA Change Coming in May 2021
  • BABA Ugly Bear Gap Toward Support
  • Tencent Music (TME): Real Main Business Continued to Recover in 3Q20, Downside Has Narrowed
  • Abko IPO Valuation Analysis
  • Kuaishou Technology Pre-IPO – The Positives – Hot Segment, Fast Growth

Party Poopers: Reining In China’s Internet

By David Blennerhassett

And the rest, as they say, is history.
At the 11th hour, leading to what would the world’s largest IPO, with an implied valuation of US$316bn – nearly 20% larger than the world’s largest bank, ICBC (H) (1398 HK) – the Shanghai Stock Exchange cancelled the A-Share listing saying that the interviews that authorities had conducted with Jack Ma and regulation changes were not adequately explained in the documents, and the listing could not go ahead. Shortly after, Ant Group pulled its H-Share offering too.
Source: FT
It’s easy to point the finger at Jack Ma’s bellicose speech in Shanghai on the 24 October, in which he suggested traditional Chinese banks should change their “pawnshop” operating model. Arguably, this didn’t help.
But the scuppering of the IPO is not some juicy vendetta – simply the reality of China’s state-controlled banking system.
The runaway success of Alibaba Group (9988 HK)Ant Group (6688 HK) – and other massive tech companies such as Tencent Holdings (700 HK) – pivots off a less regulated entity pitched against more heavily regulated rivals.
The reining in of “disruptors” reach of these tech companies came in for even greater oversight yesterday with proposed new government measures to stomp on monopolistic practices, as a means to curtail their influence.
What does all this mean for big Chinese tech companies? Yesterday’s downward move in BABA and Tencent could be just a sign of things to come.
More below the fold.

MSCI Singapore: SEA Change Coming in May 2021

By Brian Freitas

MSCI announced the results of the November 2021 Semi Annual Index Review (SAIR) earlier today. While there were no surprises, there was also another announcement that flew under the radar.

MSCI announced that foreign listings would become eligible for the MSCI Singapore indices starting from the May 2021 SAIR since the market met the Foreign Listing Materiality Requirements at the November 2020 SAIR.

This means that Sea Ltd (SE US) will be eligible for inclusion in the MSCI Singapore indices at the May 2021 SAIR. We estimate passive buying of US$2.46bn at the close of trading on 27 May 2021.

BABA Ugly Bear Gap Toward Support

By Thomas Schroeder

Alibaba Group (BABA US) is on track to reach for support outlined in our BABA Sell Resistance and Fresh Long Zone after kissing the 300-305 sell zone and gap resistance. This is a follow up given the bearish gap lower and hard close as sell volumes spike. This now brings into question whether our initial support target holds are we overshoot to macro support near 230. Let’s look as some of the key chart points that have evolved.

Tencent Music (TME): Real Main Business Continued to Recover in 3Q20, Downside Has Narrowed

By Ming Lu

  • The real main business, social entertainment, continued to recover in 3Q20.
  • Music, as the nominal main business, is facing a mature market.
  • TME’s largest entertainment platform, Kugou, stopped paying basic salary to live broadcasters; therefore, we believe the margins will prove in 2021.
  • The downside has narrowed from 28% to 2%. We believe the stock is fairly valued now.

Abko IPO Valuation Analysis

By Douglas Kim

Our base case valuation for Abko suggests an implied market cap of 279 billion won or an implied price per share of 27,484 won. The IPO price range is from 21,400 won to 24,300 won so our price target would suggest a 20% upside from the mid-point of the IPO price range. Given the reasonable upside, we have a POSITIVE view of this IPO. The book-building for the institutional investors starts on 17 November. 

Kuaishou Technology Pre-IPO – The Positives – Hot Segment, Fast Growth

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 this note, I’ll talk about the positive aspects of the deal.

Before it’s here, it’s on Smartkarma