Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Bottom-Up

<ul>
<li>Numerous media accounts have mentioned that Didi could relaunch its ride-hailing app in China by the end of 2021.</li>
<li>In terms of share price trend, it is starting to form an attractive double bottom pattern, with increasing prices on rising volume. </li>
<li>Our base case valuation of DiDi Global is a target price of $12 per share, which represents a 35% upside from current levels.</li>
</ul>


Numerous media accounts have mentioned that Didi could relaunch its ride-hailing app in China by the end of 2021.
In terms of share price trend, it is starting to form an attractive double bottom pattern, with increasing prices on rising volume. 
Our base case valuation of DiDi Global is a target price of $12 per share, which represents a 35% upside from current levels.


Didi Global - Higher Probability of Relaunching Ride Hailing App in China by the End of 2021

Global Emerging Market Equities, Propitious Research

Wium Malan, CFA

Global Emerging Market Equities

Independent, Fundamental Quantitative Research

Propitious Research

Fully independent, fundamental and quantitative equity research, focused on companies in the Telecommunication, Media, Technology, Internet and Healthcare sectors in the Global Emerging Markets. Idea generation focused on Quality stocks, trading below their intrinsic Value, with sound Corporate Governance.

Quantitative Analysis

This insight provides the output, and an overview of our, machine learning-driven, proprietary GEM screening model, which takes a three-pronged approach to find the best medium-term long ideas within the top100 largest stocks in the MSCI GEM Index. 
The model is based on 1) a typical quantitative multifactor screening model, enhanced by two Artificial Intelligence Technology-based approaches using 2) a Deep Neural Network model, and 3) a Recurrent Neural Network model. 
This model, which has been developed and tweaked over the past 3 years (and implemented in its current state for 17 months), has a solid real-world performance track record, which I set out in the detail below. 
Notable new entrants to the top decile this month include Russian internet company <a href="https://www.smartkarma.com/entities/yandex-nv-a" target="_blank" data-smartkarma-citation="entities:414:1" rel="noopener">Yandex (YNDX US)</a>, Indian IT Services company <a href="https://www.smartkarma.com/entities/hcl-technologies-ltd" target="_blank" data-smartkarma-citation="entities:20025:1" rel="noopener">Hcl Technologies (HCLT IN)</a>, and a return to the top 10 for <a href="https://www.smartkarma.com/entities/taiwan-semiconductor-manufacturing-company" target="_blank" data-smartkarma-citation="entities:11230:1" rel="noopener">TSMC (2330 TT)</a>.
<table class="table table-striped">
<colgroup> <col> <col> <col> <col> <col> </colgroup>
<tbody>
<tr>
<td style="text-align: center; width: 48pt;">rank</td>
<td style="width: 169pt;">Name</td>
<td style="width: 119pt;">Sector</td>
<td style="width: 95pt;">Location</td>
<td style="text-align: center; width: 48pt;">prev.</td>
</tr>
<tr>
<td style="text-align: center;">1</td>
<td>
<a href="https://www.smartkarma.com/entities/lg-household-health-care" target="_blank" data-smartkarma-citation="entities:6501:1" rel="noopener">LG Household &amp; Health Care (051900 KS)</a> </td>
<td>Consumer Staples</td>
<td>Korea (South)</td>
<td style="text-align: center;">12</td>
</tr>
<tr>
<td style="text-align: center;">2</td>
<td>
<a href="https://www.smartkarma.com/entities/netease" target="_blank" data-smartkarma-citation="entities:29030:1" rel="noopener">NetEase (9999 HK)</a> </td>
<td>Communication</td>
<td>China</td>
<td style="text-align: center;">2</td>
</tr>
<tr>
<td style="text-align: center;">3</td>
<td>
<a href="https://www.smartkarma.com/entities/jd-com-inc" target="_blank" data-smartkarma-citation="entities:29043:1" rel="noopener">JD.com Inc. (9618 HK)</a> </td>
<td>Consumer Discretionary</td>
<td>China</td>
<td style="text-align: center;">10</td>
</tr>
<tr>
<td style="text-align: center;">4</td>
<td>
<a href="https://www.smartkarma.com/entities/xiaomi-corp" target="_blank" data-smartkarma-citation="entities:24409:1" rel="noopener">Xiaomi Corp (1810 HK)</a> </td>
<td>Information Technology</td>
<td>China</td>
<td style="text-align: center;">4</td>
</tr>
<tr>
<td style="text-align: center;">5</td>
<td>
<a href="https://www.smartkarma.com/entities/yandex-nv-a" target="_blank" data-smartkarma-citation="entities:414:1" rel="noopener">Yandex (YNDX US)</a> </td>
<td>Communication</td>
<td>Russian Federation</td>
<td style="text-align: center;">49</td>
</tr>
<tr>
<td style="text-align: center;">6</td>
<td>
<a href="https://www.smartkarma.com/entities/new-oriental-education-technology-group" target="_blank" data-smartkarma-citation="entities:32210:1" rel="noopener">New Oriental Education &amp; Technology Group (9901 HK)</a> </td>
<td>Consumer Discretionary</td>
<td>China</td>
<td style="text-align: center;">1</td>
</tr>
<tr>
<td style="text-align: center;">7</td>
<td>
<a href="https://www.smartkarma.com/entities/taiwan-semiconductor-manufacturing-company" target="_blank" data-smartkarma-citation="entities:11230:1" rel="noopener">TSMC (2330 TT)</a> </td>
<td>Information Technology</td>
<td>Taiwan</td>
<td style="text-align: center;">16</td>
</tr>
<tr>
<td style="text-align: center;">8</td>
<td>
<a href="https://www.smartkarma.com/entities/al-rajhi-bank" target="_blank" data-smartkarma-citation="entities:27038:1" rel="noopener">Al Rajhi Bank (RJHI AB)</a> </td>
<td>Financials</td>
<td>Saudi Arabia</td>
<td style="text-align: center;">33</td>
</tr>
<tr>
<td style="text-align: center;">9</td>
<td>
<a href="https://www.smartkarma.com/entities/magazine-luiza-sa" target="_blank" data-smartkarma-citation="entities:27676:1" rel="noopener">Magazine Luiza SA (MGLU3 BZ)</a> </td>
<td>Consumer Discretionary</td>
<td>Brazil</td>
<td style="text-align: center;">15</td>
</tr>
<tr>
<td style="text-align: center;">10</td>
<td>
<a href="https://www.smartkarma.com/entities/hcl-technologies-ltd" target="_blank" data-smartkarma-citation="entities:20025:1" rel="noopener">Hcl Technologies (HCLT IN)</a> </td>
<td>Information Technology</td>
<td>India</td>
<td style="text-align: center;">83</td>
</tr>
<tr>
<td colspan="5" style="text-align: left;">Source: FactSet financial data and analytics, my estimates and calculations, Tensorflow, Keras, Google Colaboratory, pandas</td>
</tr>
</tbody>
</table>
As usual, please feel free to reach out for the full output table, any questions, clarifications needed or suggestions.

This insight provides the output, and an overview of our, machine learning-driven, proprietary GEM screening model, which takes a three-pronged approach to find the best medium-term long ideas within the top100 largest stocks in the MSCI GEM Index. 
The model is based on 1) a typical quantitative multifactor screening model, enhanced by two Artificial Intelligence Technology-based approaches using 2) a Deep Neural Network model, and 3) a Recurrent Neural Network model. 
This model, which has been developed and tweaked over the past 3 years (and implemented in its current state for 17 months), has a solid real-world performance track record, which I set out in the detail below. 
Notable new entrants to the top decile this month include Russian internet company Yandex (YNDX US), Indian IT Services company Hcl Technologies (HCLT IN), and a return to the top 10 for TSMC (2330 TT).

      


rank
Name
Sector
Location
prev.


1

LG Household &amp; Health Care (051900 KS) 
Consumer Staples
Korea (South)
12


2

NetEase (9999 HK) 
Communication
China
2


3

JD.com Inc. (9618 HK) 
Consumer Discretionary
China
10


4

Xiaomi Corp (1810 HK) 
Information Technology
China
4


5

Yandex (YNDX US) 
Communication
Russian Federation
49


6

New Oriental Education &amp; Technology Group (9901 HK) 
Consumer Discretionary
China
1


7

TSMC (2330 TT) 
Information Technology
Taiwan
16


8

Al Rajhi Bank (RJHI AB) 
Financials
Saudi Arabia
33


9

Magazine Luiza SA (MGLU3 BZ) 
Consumer Discretionary
Brazil
15


10

Hcl Technologies (HCLT IN) 
Information Technology
India
83


Source: FactSet financial data and analytics, my estimates and calculations, Tensorflow, Keras, Google Colaboratory, pandas



As usual, please feel free to reach out for the full output table, any questions, clarifications needed or suggestions.

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Equity Capital Markets

China Education Group / Equity Capital Markets

China Education Group (839 HK) is looking to raise up to US$154m in its top-up placement. This will be the third placement by the group over the past 15 months.We covered the previous placement in Jan 21, China Education Group Placement - Back for More, past Deal Didn’t Do Well.In this note, we will look  at the deal dynamics and run the deal through framework.

China Education Group (839 HK) is looking to raise up to US$154m in its top-up placement. This will be the third placement by the group over the past 15 months.We covered the previous placement in Jan 21, China Education Group Placement - Back for More, past Deal Didn’t Do Well.In this note, we will look  at the deal dynamics and run the deal through framework.

China Education Group Placement - Recent Momentum Is Strong but past Deal Record Isn’t Supportive

HK/China Equity Long-Short

Osbert Tang, CFA

We highlight that <a href="https://www.smartkarma.com/entities/china-east-education-holdings" target="_blank" data-smartkarma-citation="entities:27843:1" rel="noopener">China East Education (667 HK)</a>, given its focus on vocational training, is an off-target victim of the government's regulations on the Private Education Sector and the "Double Reduction" policies. We think it will ride on government's latest supportive measures on vocational training; and with its schools providing training in culinary arts, IT &amp; Internet Technology and auto services, China East will benefit from the shortage of skills workers in China. Also, unlike K-12 education, private participation in vocational education is very encouraged by the government. China East's good post-COVID recovery can be demonstrated by the sharp rebound in student number and stable tuition fees in 1H21. With 90% of students enrolling in long-term program, it has good revenue visibility. We like its sound financial position - Rmb3.5bn net cash, and consideration of shareholder value - bought back nearly 14m shares in Jul and Aug. While valuations are high in absolute terms, China East is clearly another interesting name in the sector after our preferred play <a href="https://www.smartkarma.com/entities/china-education-group-holdin" target="_blank" data-smartkarma-citation="entities:18218:1" rel="noopener">China Education Group (839 HK)</a>.

We highlight that China East Education (667 HK), given its focus on vocational training, is an off-target victim of the government's regulations on the Private Education Sector and the "Double Reduction" policies. We think it will ride on government's latest supportive measures on vocational training; and with its schools providing training in culinary arts, IT &amp; Internet Technology and auto services, China East will benefit from the shortage of skills workers in China. Also, unlike K-12 education, private participation in vocational education is very encouraged by the government. China East's good post-COVID recovery can be demonstrated by the sharp rebound in student number and stable tuition fees in 1H21. With 90% of students enrolling in long-term program, it has good revenue visibility. We like its sound financial position - Rmb3.5bn net cash, and consideration of shareholder value - bought back nearly 14m shares in Jul and Aug. While valuations are high in absolute terms, China East is clearly another interesting name in the sector after our preferred play China Education Group (839 HK).

China East Education (667 HK): Riding on Government's Push for Vocational Schools

Asset Allocation & Fund Positioning, Copley Fund Research

Steven Holden

Asset Allocation & Fund Positioning

Copley Fund Research

Copley Fund Research provide research and data on asset allocation among Global and Emerging Market equity funds.  The analysis details absolute and relative positioning across countries, sectors and industries together with highly granular data on single stock and single fund allocations.  The data is updated monthly with time series going back to January 2011.

Global Research - Analysis of 165 prominent Global equity funds, combined AUM $335bn
GEM Research - Analysis of 127 prominent global EM equity funds, combined AUM $250bn

Asset Allocation - Global and GEM Equity

Thematic (Sector/Industry)

We look in to the recent collapse of Consumer Discretionary allocations among active GEM managers.Consumer Discretionary allocations have dropped down to 3rd in the sector rankings among active EM managers.  Average weights stand at 14.1%, in line with the benchmark with just under half of the 247 managers in our analysis overweight the benchmark MSCI EM Index.  Over the period 10/31/2020 to 09/30/2021, average holding weights dropped by -4.99%, the most of any sector.Analysis of stock positioning changes over the same period reveals the bulk of the decline was caused by one stock, <a href="https://www.smartkarma.com/entities/alibaba-group-holding-ltd" target="_blank" data-smartkarma-citation="entities:787:1" rel="noopener">Alibaba Group (BABA US)</a>, with average holding weights falling by 4.04%, outflows of $2.26bn and 5.2% of funds closing positions.  Other contributors on the negative side were the educators, with <a href="https://www.smartkarma.com/entities/new-oriental-education-technology-group" target="_blank" data-smartkarma-citation="entities:32210:1" rel="noopener">New Oriental Education &amp; Technology Group (9901 HK)</a> and <a href="https://www.smartkarma.com/entities/tal-education-group" target="_blank" data-smartkarma-citation="entities:1124:1" rel="noopener">TAL Education (TAL US)</a> losing 18% and 12.6% of investors respectively.  Despite these closures, <a href="https://www.smartkarma.com/entities/alibaba-group-holding-ltd" target="_blank" data-smartkarma-citation="entities:787:1" rel="noopener">Alibaba Group (BABA US)</a> remains by far the most widely held stock in the sector, with 78.5% of funds holding a position at an average weight of 2.54%, though only 35.2% of managers are overweight the benchmark.  Widely held though it is, Alibaba's relevance in the sector has been hugely diminished.  At its peak, average holding weights in <a href="https://www.smartkarma.com/entities/alibaba-group-holding-ltd" target="_blank" data-smartkarma-citation="entities:787:1" rel="noopener">Alibaba Group (BABA US)</a> across the 247 active funds in our analysis stood at 6.57%.Analysis taken from our EM research, covering 247 active GEM funds with combined AUM of $500bn

We look in to the recent collapse of Consumer Discretionary allocations among active GEM managers.Consumer Discretionary allocations have dropped down to 3rd in the sector rankings among active EM managers.  Average weights stand at 14.1%, in line with the benchmark with just under half of the 247 managers in our analysis overweight the benchmark MSCI EM Index.  Over the period 10/31/2020 to 09/30/2021, average holding weights dropped by -4.99%, the most of any sector.Analysis of stock positioning changes over the same period reveals the bulk of the decline was caused by one stock, Alibaba Group (BABA US), with average holding weights falling by 4.04%, outflows of $2.26bn and 5.2% of funds closing positions.  Other contributors on the negative side were the educators, with New Oriental Education &amp; Technology Group (9901 HK) and TAL Education (TAL US) losing 18% and 12.6% of investors respectively.  Despite these closures, Alibaba Group (BABA US) remains by far the most widely held stock in the sector, with 78.5% of funds holding a position at an average weight of 2.54%, though only 35.2% of managers are overweight the benchmark.  Widely held though it is, Alibaba's relevance in the sector has been hugely diminished.  At its peak, average holding weights in Alibaba Group (BABA US) across the 247 active funds in our analysis stood at 6.57%.Analysis taken from our EM research, covering 247 active GEM funds with combined AUM of $500bn 

EM Consumer Discretionary:  Turbulent Times for Alibaba

China

TAL Education Group provides educational services. The Company offers comprehensive tutoring services to students covering core academic subjects such as mathematics, English, Chinese, physics, chemistry, political science, history, and biology. TAL Education Group serves students in China.

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TAL Education (TAL US)

Didi Global - Higher Probability of Relaunching Ride Hailing App in China by the End of 2021

There have been numerous media accounts in the past two days that have mentioned that DiDi Global (DIDI US) is likely to relaunch its ride-hailing...

Douglas Kim

Screening for GEMs: November 2021

This insight provides an overview of our, machine learning-driven, proprietary GEM screening model, based on a Multifactor model, a Deep Neural...

Wium Malan, CFA

China Education Group Placement - Recent Momentum Is Strong but past Deal Record Isn’t Supportive

China Education Group (839 HK) is looking to raise up to US$154m in its top-up placement. This will be the third placement by the group over the...

Sumeet Singh

China East Education (667 HK): Riding on Government's Push for Vocational Schools

China East should benefit from the government's push on vocational education and its businesses have less regulatory risks. The net cash position...

Osbert Tang, CFA

EM Consumer Discretionary: Turbulent Times for Alibaba

We look in to the recent collapse of Consumer Discretionary allocations among active GEM managers, and find that Alibaba is the driving force...

Steven Holden

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