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>Value added service and advertising revenue grew rapidly in 3Q21.</li>
<li>However, we believe there are problems in the way BILI loses money.</li>
<li>We also believe BILI is overvalued based on other internet companies’ price / sales ratios.</li>
</ul>


Value added service and advertising revenue grew rapidly in 3Q21.
However, we believe there are problems in the way BILI loses money.
We also believe BILI is overvalued based on other internet companies’ price / sales ratios.


Bilibili: (BILI): 3Q21, Revenue and Users Growing Fast, Loss Problem Larger than It Looks

Equity Analyst, LightStream Research

Shifara Samsudeen, ACMA, CGMA

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Event-Driven

It was reported by Reuters and several other news media outlets that <a href="https://www.smartkarma.com/entities/joyy-inc" target="_blank" data-smartkarma-citation="entities:285:1" rel="noopener">JOYY (YY US)</a> top two shareholders: David Li - Chairman and Lei Jun – founder of Xiaomi, plan to take the Nasdaq-listed company private. David Li and Lei Jun respectively owned 23.2% and 7.8% of JOYY with David Li having 76% of voting power. Li and Len are said to be planning to offer about US$75-100 per JOYY’s share which will value the company at US$5.8-8bn and is aimed to be finalised by the end of 2021. As at the end of Friday (27th August), JOYY’s shares closed at US$61.97 per share at a market capitalisation of US$4.9bn and an EV of US$1.3bn.Tightening audit requirements and higher regulatory scrutiny have led to a number of New-York listed Chinese companies to opt out of the US through either going private or carrying out secondary listings in markets closer to China.

It was reported by Reuters and several other news media outlets that JOYY (YY US) top two shareholders: David Li - Chairman and Lei Jun – founder of Xiaomi, plan to take the Nasdaq-listed company private. David Li and Lei Jun respectively owned 23.2% and 7.8% of JOYY with David Li having 76% of voting power. Li and Len are said to be planning to offer about US$75-100 per JOYY’s share which will value the company at US$5.8-8bn and is aimed to be finalised by the end of 2021. As at the end of Friday (27th August), JOYY’s shares closed at US$61.97 per share at a market capitalisation of US$4.9bn and an EV of US$1.3bn.Tightening audit requirements and higher regulatory scrutiny have led to a number of New-York listed Chinese companies to opt out of the US through either going private or carrying out secondary listings in markets closer to China.

JOYY Inc Privatisation: Our Thoughts on Valuation

IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

<a href="https://www.smartkarma.com/entities/joyy-inc" target="_blank" data-smartkarma-citation="entities:285:1" rel="noopener">JOYY (YY US)</a> may be subject to a privatisation bid from Mr David Li (co-founder and Chairman) and Mr Jun Lei (founder and Chairman of <a href="https://www.smartkarma.com/entities/xiaomi-corp" target="_blank" data-smartkarma-citation="entities:24409:1" rel="noopener">Xiaomi Corp (1810 HK)</a>), its top two shareholders, according to Reuters report on 26 August. Mr David Li and Mr Jun Lei are looking to privatise Joyy at $75-$100 per ADS and finalise the deal by the end of 2021. Mr David Li and Mr Jun Lei aim to spin off Joyy's key asset, BIGO, and list it in Hong Kong, to take advantage of higher valuations, according to Reuters. On 27 August, Joyy said it has not received any formal takeover offers, according to Chinese media reports.  Joyy shares are around 60% below their February peak due to weak guidance (3Q21 revenue guidance was around 16% below consensus), the delay of SAMR anti-trust approval for the YY Live disposal and ongoing policy uncertainty on Chinese tech.As a reminder, on 16 November 2020, Joyy entered into a definitive agreement with <a href="https://www.smartkarma.com/entities/baidu-inc" target="_blank" data-smartkarma-citation="entities:179:1" rel="noopener">Baidu (BIDU US)</a> for the disposal of YY Live for $3.6 billion in cash, subject to certain adjustments. The sale was substantially completed on 8 February 2021 resulting in a $1.9 billion payment from Baidu. Notably, Joyy’s market cap of $4.9 billion is 7% below its net cash of $5.2 billion, which is the sum of the 2Q1 net cash of $3.9 billion and Baidu's remaining payment net of tax $1.4 billion.As Joyy is incorporated in the Cayman Islands, for potential privatisation to succeed, shareholders representing two-thirds of shares present and voting need to approve the deal. Mr David Li represents 76.0% of the voting interest and has the two-thirds voting interest threshold needed to approve any potential privatisation deal.<div class="content-highlight">Our SOTP and relative valuation suggest that the rumoured privatisation range of $75-100 per ADS is justifiable and reasonable. Our base-case SOTP valuation is $71.69 per ADS, which is a 16% premium to the last close price of $61.97 per ADS. Despite Joyy's insistence that no formal bid has been received, we would be buyers as the shares offer a favourable risk/reward profile to the emergence of a formal privatisation bid.</div>

JOYY (YY US) may be subject to a privatisation bid from Mr David Li (co-founder and Chairman) and Mr Jun Lei (founder and Chairman of Xiaomi Corp (1810 HK)), its top two shareholders, according to Reuters report on 26 August. Mr David Li and Mr Jun Lei are looking to privatise Joyy at $75-$100 per ADS and finalise the deal by the end of 2021. Mr David Li and Mr Jun Lei aim to spin off Joyy's key asset, BIGO, and list it in Hong Kong, to take advantage of higher valuations, according to Reuters. On 27 August, Joyy said it has not received any formal takeover offers, according to Chinese media reports.  Joyy shares are around 60% below their February peak due to weak guidance (3Q21 revenue guidance was around 16% below consensus), the delay of SAMR anti-trust approval for the YY Live disposal and ongoing policy uncertainty on Chinese tech.As a reminder, on 16 November 2020, Joyy entered into a definitive agreement with Baidu (BIDU US) for the disposal of YY Live for $3.6 billion in cash, subject to certain adjustments. The sale was substantially completed on 8 February 2021 resulting in a $1.9 billion payment from Baidu. Notably, Joyy’s market cap of $4.9 billion is 7% below its net cash of $5.2 billion, which is the sum of the 2Q1 net cash of $3.9 billion and Baidu's remaining payment net of tax $1.4 billion.As Joyy is incorporated in the Cayman Islands, for potential privatisation to succeed, shareholders representing two-thirds of shares present and voting need to approve the deal. Mr David Li represents 76.0% of the voting interest and has the two-thirds voting interest threshold needed to approve any potential privatisation deal.Our SOTP and relative valuation suggest that the rumoured privatisation range of $75-100 per ADS is justifiable and reasonable. Our base-case SOTP valuation is $71.69 per ADS, which is a 16% premium to the last close price of $61.97 per ADS. Despite Joyy's insistence that no formal bid has been received, we would be buyers as the shares offer a favourable risk/reward profile to the emergence of a formal privatisation bid.

Joyy’s Potential Privatisation by Top Two Shareholders

<a href="https://www.smartkarma.com/entities/bilibili-inc" target="_blank" data-smartkarma-citation="entities:26793:1" rel="noopener">Bilibili Inc (BILI US)</a> reported 2Q2021 results on Thursday (19th August 2021) which saw revenues growing 71.7% YoY to RMB4.5bn (vs consensus revenues of RMB4.3bn) while operating losses for the quarter increased to 33.8% of revenues to RMB1.52bn (vs consensus operating losses of RMB1.4bn).
The company’s Mobile games’ revenue dropped YoY for the first time, however, growth in revenue from other segment’s helped Bilibili continue its strong top line growth. The online games’ companies in China (Including <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent (700 HK)</a> and <a href="https://www.smartkarma.com/entities/huya-inc" target="_blank" data-smartkarma-citation="entities:26983:1" rel="noopener">HUYA Inc (HUYA US)</a>) have seen weaknesses in their gaming revenues during the June quarter due to intense competition in the market and regulatory uncertainties. The diversified revenue base of Bilibili has helped grow its top line at much higher rates compared to its peers.

Bilibili Inc (BILI US) reported 2Q2021 results on Thursday (19th August 2021) which saw revenues growing 71.7% YoY to RMB4.5bn (vs consensus revenues of RMB4.3bn) while operating losses for the quarter increased to 33.8% of revenues to RMB1.52bn (vs consensus operating losses of RMB1.4bn).
The company’s Mobile games’ revenue dropped YoY for the first time, however, growth in revenue from other segment’s helped Bilibili continue its strong top line growth. The online games’ companies in China (Including Tencent (700 HK) and HUYA Inc (HUYA US)) have seen weaknesses in their gaming revenues during the June quarter due to intense competition in the market and regulatory uncertainties. The diversified revenue base of Bilibili has helped grow its top line at much higher rates compared to its peers.

Bilibili: Mobile Games Decline and Losses Expand but Other Verticals Continue to Grow

<ul>
<li>Revenue and paying users grew strongly in 2Q21.</li>
<li>Game revenue was worse than our expectation, but video revenues were higher than our expectation.</li>
<li>Operating loss reached its record high since IPO.</li>
<li>We do not believe BILI will be “next Tencent”, but believe the stock has significant downside.</li>
</ul>


Revenue and paying users grew strongly in 2Q21.
Game revenue was worse than our expectation, but video revenues were higher than our expectation.
Operating loss reached its record high since IPO.
We do not believe BILI will be “next Tencent”, but believe the stock has significant downside.


Bilibili (BILI): 2Q21, Rapid Growth and Record Loss, Significantly Overvalued

China

Bilibili Inc. provides online entertainment services. The Company offers a platform that covers a wide array of genres and media formats, including videos, live broadcasting, mobile games, animation, and comics. Bilibili serves customers in China.

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Bilibili (BILI US)

Bilibili: (BILI): 3Q21, Revenue and Users Growing Fast, Loss Problem Larger than It Looks

Value added service and advertising grew rapidly in 3Q21, but we believe there are problems in the way BILI loses money. BILI is overvalued based...

Ming Lu

JOYY Inc Privatisation: Our Thoughts on Valuation

The rumoured deal price of US$75-100 per share offers a good upside to our SOTP price of US$74.27 per share. Assigning a target EV/Revenue of 1.0x...

Shifara Samsudeen, ACMA, CGMA

Joyy’s Potential Privatisation by Top Two Shareholders

Joyy's rumoured privatisation bid is at $75-$100 per ADS. Our base-case SOTP valuation is $71.69, a 16% premium to the last close. Consequently,...

Arun George

Bilibili: Mobile Games Decline and Losses Expand but Other Verticals Continue to Grow

Bilibili’s results was a mixed bag where growth in Value-Added services, advertising and E-commerce have seen strong growth while mobile games has...

Shifara Samsudeen, ACMA, CGMA

Bilibili (BILI): 2Q21, Rapid Growth and Record Loss, Significantly Overvalued

Revenue and paying users grew strongly in 2Q21. Operating loss reached its record high since IPO. We do not believe BILI will be “next Tencent”,...

Ming Lu

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