Overseas Chinese Equities, Aequitas Research

Ming Lu

Overseas Chinese Equities

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 Bottom-Up

<ul>
<li>The stock price has declined much in 1H21, especially in the past four trading days.</li>
<li>Another wave of pandemic started in China.</li>
<li>Tencent has six of the top games in China.</li>
<li>The China game industry grew steadily in 1H21.</li>
</ul>


The stock price has declined much in 1H21, especially in the past four trading days.
Another wave of pandemic started in China.
Tencent has six of the top games in China.
The China game industry grew steadily in 1H21.


Tencent (700 HK): Pandemic Spreading in China Again, Cancel Travel and Play Game

Forensic Analyst

Jason Yap, CFA

Forensic Accounting

<div>A pandemic fuelled retailed trading frenzy and strong market performance in 2020 enabled <a href="https://www.smartkarma.com/entities/futu-holdings-ltd" target="_blank" data-smartkarma-citation="entities:27858:1" rel="noopener">Futu Holdings Ltd (FUTU US)</a> to benefit from unprecedented growth in paying client additions and trading activities.  A recent USD1 trillion selloff of China offshore equities and a shift in investor sentiment however, compounded by escalating regulatory scrutiny, has led to concerns whether the high growth seen in 2020 and early 2021 would persist in coming quarters.  We lay out 4 hypotheses for a potential negative re-rating focused on growth declines, continued investments, regulations, and licensing concerns. </div>

A pandemic fuelled retailed trading frenzy and strong market performance in 2020 enabled Futu Holdings Ltd (FUTU US) to benefit from unprecedented growth in paying client additions and trading activities.  A recent USD1 trillion selloff of China offshore equities and a shift in investor sentiment however, compounded by escalating regulatory scrutiny, has led to concerns whether the high growth seen in 2020 and early 2021 would persist in coming quarters.  We lay out 4 hypotheses for a potential negative re-rating focused on growth declines, continued investments, regulations, and licensing concerns. 

Futu Holdings - An Inflection Point Imminent?

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

Equity Capital Markets

<div><p>Cloud Village Inc. (CVI), also known as NetEase Music, plans to raise around US$1bn in its Hong Kong IPO. The company has also obtained investments from Baidu and Alibaba, along with other investors.</p></div><div><p>As of Dec 20, it had 181m online music MAUs, 16m online music services monthly paying users, 327,000 social entertainment services monthly paying users. It had over 60m music tracks, of which more than 1m were created by registered independent artists. Its daily active users on average spent 76mins daily listening to music. </p></div><div><p>CVI’s revenue has grown 4.3x over FY18-20, to RMB4.9bn. There have been no signs of slowdown as its revenue increased by 102% in FY19 and was up another 111% in FY20. Both online music services and social entertainment services revenue have shown strong growth. Online music services revenue grew by 73% in 2019 and another 47.6% in 2020. Social entertainment services revenue was the largest driver of growth, as it grew by 344% in 2019 and was up another 320% in 2020. However, it remains a distant second player in the market and has yet to make a profit.</p></div><div><p>We covered various aspects of the deal in our previous notes, <a href="https://www.smartkarma.com/insights/cloud-village-netease-music-pre-ipo-was-in-the-slow-stream-playing-catch-up" target="_blank" rel="noopener">Cloud Village (NetEase Music) Pre-IPO - Was in the slow stream, playing catch-up </a>and <a href="https://www.smartkarma.com/insights/cloud-village-netease-music-pre-ipo-tencent-music-peer-comp-regulatory-impact" target="_blank" rel="noopener">Cloud Village (NetEase Music) Pre-IPO - Tencent Music Peer Comp, Regulatory Impact</a>.</p></div><div><p>In this note, we will comment on valuations.</p></div>

Cloud Village Inc. (CVI), also known as NetEase Music, plans to raise around US$1bn in its Hong Kong IPO. The company has also obtained investments from Baidu and Alibaba, along with other investors.As of Dec 20, it had 181m online music MAUs, 16m online music services monthly paying users, 327,000 social entertainment services monthly paying users. It had over 60m music tracks, of which more than 1m were created by registered independent artists. Its daily active users on average spent 76mins daily listening to music. CVI’s revenue has grown 4.3x over FY18-20, to RMB4.9bn. There have been no signs of slowdown as its revenue increased by 102% in FY19 and was up another 111% in FY20. Both online music services and social entertainment services revenue have shown strong growth. Online music services revenue grew by 73% in 2019 and another 47.6% in 2020. Social entertainment services revenue was the largest driver of growth, as it grew by 344% in 2019 and was up another 320% in 2020. However, it remains a distant second player in the market and has yet to make a profit.We covered various aspects of the deal in our previous notes, Cloud Village (NetEase Music) Pre-IPO - Was in the slow stream, playing catch-up and Cloud Village (NetEase Music) Pre-IPO - Tencent Music Peer Comp, Regulatory Impact.In this note, we will comment on valuations.

Cloud Village (NetEase Music) Pre-IPO - Initial Thoughts on Valuation

Chief Economist & Political Strategist, CrossASEAN Research

Prasenjit K. Basu

Chief Economist & Political Strategist

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Thematic (Sector/Industry)

<p>To be the richest man in communist China is a dangerous perch. Jack Ma of Alibaba and Ant Financial was only the latest in a long line of those answering to the title of "China's richest person" who have had their assets either expropriated outright or suffered severe value-destruction through sudden, arbitrary regulatory actions by the Chinese authorities. Huang Guangyu of the electronics-retail group Gome was arrested in 2011 (when he was China's richest man) and spent a <em>decade </em>in prison/detention before returning to his company earlier this year. </p><p>Alibaba, "China's Amazon" but with a bigger valuation given the size of its market opportunity -- and its celebrated fintech subsidiary Ant Financial (creator of Alipay, and an increasingly sophisticated payments infrastructure and internet-based bank) -- had clearly become too big for the CCP (Chinese communist party) to control. For millennia, China's rulers have prized centralized control above all else (hence the perceived need to stamp out fissiparous tendencies in Xinjiang, Tibet, Inner Mongolia -- and the outlandish claims that Taiwan is an inalienable part of China). Independent privately-owned companies that dominate the technology frontier (like Alibaba, Tencent and Baidu) are clearly seen as threats to that centralized control by the CCP.</p><p>The latest victims of China's arbitrary regulatory actions are shareholders of the ride-hailing company <a href="https://www.smartkarma.com/entities/didi-chuxing-inc" target="_blank" data-smartkarma-citation="entities:27467:1" rel="noopener">DiDi Global (DIDI US)</a>; a couple of days after its New York IPO, Didi Chuxing was ordered to stop signing up new users, and numerous other regulatory actions were taken against the company (including removing its app from all domestic app stores). Later in July, the entire US$100 billion tutoring business in China came under severe regulatory pressure, forcing companies in the sector to operate purely on a "non-profit" basis. Companies listing abroad are facing increasingly severe regulatory scrutiny. Investors need to be aware that expropriation risk for private businesses is very real in communist China, and the valuations of all privately-owned companies need to incorporate a significant "China premium" (i.e., valuations that are 30-40% of what they might be without that expropriation risk) before investors can safely hold onto them. </p>

To be the richest man in communist China is a dangerous perch. Jack Ma of Alibaba and Ant Financial was only the latest in a long line of those answering to the title of "China's richest person" who have had their assets either expropriated outright or suffered severe value-destruction through sudden, arbitrary regulatory actions by the Chinese authorities. Huang Guangyu of the electronics-retail group Gome was arrested in 2011 (when he was China's richest man) and spent a decade in prison/detention before returning to his company earlier this year. Alibaba, "China's Amazon" but with a bigger valuation given the size of its market opportunity -- and its celebrated fintech subsidiary Ant Financial (creator of Alipay, and an increasingly sophisticated payments infrastructure and internet-based bank) -- had clearly become too big for the CCP (Chinese communist party) to control. For millennia, China's rulers have prized centralized control above all else (hence the perceived need to stamp out fissiparous tendencies in Xinjiang, Tibet, Inner Mongolia -- and the outlandish claims that Taiwan is an inalienable part of China). Independent privately-owned companies that dominate the technology frontier (like Alibaba, Tencent and Baidu) are clearly seen as threats to that centralized control by the CCP.The latest victims of China's arbitrary regulatory actions are shareholders of the ride-hailing company DiDi Global (DIDI US); a couple of days after its New York IPO, Didi Chuxing was ordered to stop signing up new users, and numerous other regulatory actions were taken against the company (including removing its app from all domestic app stores). Later in July, the entire US$100 billion tutoring business in China came under severe regulatory pressure, forcing companies in the sector to operate purely on a "non-profit" basis. Companies listing abroad are facing increasingly severe regulatory scrutiny. Investors need to be aware that expropriation risk for private businesses is very real in communist China, and the valuations of all privately-owned companies need to incorporate a significant "China premium" (i.e., valuations that are 30-40% of what they might be without that expropriation risk) before investors can safely hold onto them. 

China Premium: Expropriation Risk Needs to Be Priced in to Privately-Owned Companies

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.

<p>This insight provides a summary of the key news developments impacting the largest countries and constituents of the Global Emerging Markets equity indices. </p><p><strong><em>Companies mentioned this week:</em></strong></p><p><a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent (700 HK)</a>, <a href="https://www.smartkarma.com/entities/tencent-music-entertainment" target="_blank" data-smartkarma-citation="entities:27255:1" rel="noopener">Tencent Music (TME US)</a>, <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>, <a href="https://www.smartkarma.com/entities/didi-chuxing-inc" target="_blank" data-smartkarma-citation="entities:27467:1" rel="noopener">DiDi Global (DIDI US)</a></p>

This insight provides a summary of the key news developments impacting the largest countries and constituents of the Global Emerging Markets equity indices. Companies mentioned this week:Tencent (700 HK), Tencent Music (TME US), TSMC (2330 TT), DiDi Global (DIDI US)

Global Emerging Markets Weekly: 30 July 2021

China

Tencent Holdings Limited operates as an investment holding company. The Company, through its subsidiaries, provides Internet and mobile value-added services (VAS), online advertising, and e-commerce transactions. Tencent Holdings offers services to users worldwide.

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Tencent (700 HK)

Tencent (700 HK): Pandemic Spreading in China Again, Cancel Travel and Play Game

The stock price has declined much in 1H21. Another wave of pandemic started in China. Tencent has six of the top games in China. The China game...

Ming Lu

Futu Holdings - An Inflection Point Imminent?

Strong retail participation and market performance enabled Futu Holdings to benefit from strong growth. Given a shift in investor sentiment, we...

Jason Yap, CFA

Cloud Village (NetEase Music) Pre-IPO - Initial Thoughts on Valuation

Cloud Village Inc. (CVI), also known as NetEase Music, plans to raise around US$1bn in its Hong Kong IPO. The company has also obtained investments...

Sumeet Singh

China Premium: Expropriation Risk Needs to Be Priced in to Privately-Owned Companies

July21 provided many reminders (Didi, education) that Ant Financial isn't the exception but the rule. Expropriation risk is real in the PRC, and...

Prasenjit K. Basu

Global Emerging Markets Weekly: 30 July 2021

This insight provides a summary of the key news developments impacting the largest countries and constituents of the Global Emerging Markets equity...

Wium Malan, CFA

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