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.

Equity Bottom-Up

Alibaba Group Holding  / Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/alibaba-group" target="_blank" data-smartkarma-citation="entities:28434:1" rel="noopener">Alibaba Group (9988 HK)</a> has had a disastrous year, ever since the IPO of their FinTech arm, <a href="https://www.smartkarma.com/entities/ant-group-co-ltd" target="_blank" data-smartkarma-citation="entities:24240:1" rel="noopener">Ant Financial Services Group (6688 HK)</a>, was pulled last minute in November 2020. Since then, they have faced continued regulatory hurdles, including an RMB18.2bn anti-monopoly fine, which has culminated in a 51% share price drop, since its November 2020 peak, which means that Alibaba is currently trading on only a 14.3x forward PE ratio. Given that this is nearly 4 standard deviations below its 5-year historical average trading range, and that this multiple would imply only a 0.72x PEG ratio, for a company with an extremely strong net cash balance sheet, delivering returns on capital well above its cost of capital, with positive free cash flow generation, and a $15bn share buyback program, indicates that there is a massive disconnect between long-term Buy-side expectations and near-term Sell-side estimates. Looking at the reported group financials over this period it does not seem as though the regulatory impact has been that significant on core operations. The key concern, however, is that Alibaba is losing market share in its core businesses. In this insight, I take a closer look at the broader Chinese retail market, as well as the Chinese digital advertising market (I estimate that Alibaba still generates more than 40% of its Chinese commerce revenue, and roughly 1/3rd of group revenue, from marketing activities), to analyse Alibaba’s relative revenue share loss. Finally, I also revisit current valuation levels and analyse what this implies for its Core Commerce operations.

Alibaba Group (9988 HK) has had a disastrous year, ever since the IPO of their FinTech arm, Ant Financial Services Group (6688 HK), was pulled last minute in November 2020. Since then, they have faced continued regulatory hurdles, including an RMB18.2bn anti-monopoly fine, which has culminated in a 51% share price drop, since its November 2020 peak, which means that Alibaba is currently trading on only a 14.3x forward PE ratio. Given that this is nearly 4 standard deviations below its 5-year historical average trading range, and that this multiple would imply only a 0.72x PEG ratio, for a company with an extremely strong net cash balance sheet, delivering returns on capital well above its cost of capital, with positive free cash flow generation, and a $15bn share buyback program, indicates that there is a massive disconnect between long-term Buy-side expectations and near-term Sell-side estimates. Looking at the reported group financials over this period it does not seem as though the regulatory impact has been that significant on core operations. The key concern, however, is that Alibaba is losing market share in its core businesses. In this insight, I take a closer look at the broader Chinese retail market, as well as the Chinese digital advertising market (I estimate that Alibaba still generates more than 40% of its Chinese commerce revenue, and roughly 1/3rd of group revenue, from marketing activities), to analyse Alibaba’s relative revenue share loss. Finally, I also revisit current valuation levels and analyse what this implies for its Core Commerce operations.

Alibaba: How Much Core Market Share Loss Has Been Priced In?

APAC IPOs & Placements, Aequitas Research

Clarence Chu

APAC 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

AIM Vaccine is looking to raise US$1bn in its upcoming Hong Kong IPO. The deal is run by Goldman Sachs, CICC, China Securities, and Macquarie. This is a refiling after its filing in July 2021 was rejected by HKEX.AIM Vaccine is a leading vaccine company covering the full value chain from research to manufacturing and commercialisation. As of the latest practicable date (3 Sept 2021), it had commercialised eight vaccine products against six disease areas. It also has 23 vaccine candidates against 13 disease areas. The firm has four Licensed Manufacturing Facilities in Rong’an Bio, AIM Hanxin, AIM Kanghuai and AIM Weixin, and a total designed annual production capacity of 91.3m doses.

AIM Vaccine is looking to raise US$1bn in its upcoming Hong Kong IPO. The deal is run by Goldman Sachs, CICC, China Securities, and Macquarie. This is a refiling after its filing in July 2021 was rejected by HKEX.AIM Vaccine is a leading vaccine company covering the full value chain from research to manufacturing and commercialisation. As of the latest practicable date (3 Sept 2021), it had commercialised eight vaccine products against six disease areas. It also has 23 vaccine candidates against 13 disease areas. The firm has four Licensed Manufacturing Facilities in Rong’an Bio, AIM Hanxin, AIM Kanghuai and AIM Weixin, and a total designed annual production capacity of 91.3m doses.

AIM Vaccine (艾美疫苗) Pre-IPO Tearsheet (Refiled)

Asia Pac IPO & Placement Research, China biotech, Aequitas Research

Ke Yan, CFA, FRM

Asia Pac IPO & Placement Research, China biotech

Quantitative Analysis

In our weekly HK Connect Flow series, we aim to highlight key stocks and sectors which the mainland investors traded via the southbound Hong Kong Connect, as analyzed by our proprietary data engine.Since the opening of Hong Kong Connect scheme in 2014, southbound Chinese money started to play an increasingly important role in the Hong Kong stock market. In 2020, Southbound trading accounted for 22% of the equity market ADT. We split the stocks eligible for the Hong Kong Connect trade into three groups: HSCEI component stocks, stocks with a market capitalization between USD 1 billion and USD 5 billion, and stocks with a market capitalization between USD 500 million and USD 1 billion.In this insight, we will highlight inflows into Tencent Holdings Limited (700 HK), Hong Kong Exchanges And Clearing Limited (388 HK), Cnooc Limited (883 HK) as well as outflows from Wuxi Biologics (Cayman) Inc. (2269 HK), Byd Company Limited (1211 HK), and Meituan (3690 HK).

In our weekly HK Connect Flow series, we aim to highlight key stocks and sectors which the mainland investors traded via the southbound Hong Kong Connect, as analyzed by our proprietary data engine.Since the opening of Hong Kong Connect scheme in 2014, southbound Chinese money started to play an increasingly important role in the Hong Kong stock market. In 2020, Southbound trading accounted for 22% of the equity market ADT. We split the stocks eligible for the Hong Kong Connect trade into three groups: HSCEI component stocks, stocks with a market capitalization between USD 1 billion and USD 5 billion, and stocks with a market capitalization between USD 500 million and USD 1 billion.In this insight, we will highlight inflows into Tencent Holdings Limited (700 HK), Hong Kong Exchanges And Clearing Limited (388 HK), Cnooc Limited (883 HK) as well as outflows from Wuxi Biologics (Cayman) Inc. (2269 HK), Byd Company Limited (1211 HK), and Meituan (3690 HK).

Hong Kong Connect Flows: Tencent, HKEx, CNOOC

Dongguan Rural Commercial Bank / Equity Capital Markets

<a href="https://www.smartkarma.com/entities/dongguan-rural-commercial-bank" target="_blank" data-smartkarma-citation="entities:34248:1" rel="noopener">Dongguan Rural Commercial Bank (DRCOBZ HK)</a> is looking to raise up to US$1.3bn in its Hong Kong IPO. Dongguan Rural Commercial Bank (DRCB) is the fifth largest rural commercial bank in China by total assets as of Dec 2020, as per China Banking Association in 2021. As of the latest practicable date, the bank has 505 outlets, of which 501 are located in Dongguan city, covering all its administrative districts. The remaining four are located in Guangzhou, Zhuhai, Huizhou and Qingyuan, respectively. Over FY18-20, the bank’s loans had expanded at a CAGR of 26.1%. During the period, net interest income and total income grew at 16.5% and 11% CAGR, respectively.However, margin compression remains an overhang and the IPO valuation is at a premium versus peers, suggesting a huge downside risk potential.

Dongguan Rural Commercial Bank (DRCOBZ HK) is looking to raise up to US$1.3bn in its Hong Kong IPO. Dongguan Rural Commercial Bank (DRCB) is the fifth largest rural commercial bank in China by total assets as of Dec 2020, as per China Banking Association in 2021. As of the latest practicable date, the bank has 505 outlets, of which 501 are located in Dongguan city, covering all its administrative districts. The remaining four are located in Guangzhou, Zhuhai, Huizhou and Qingyuan, respectively. Over FY18-20, the bank’s loans had expanded at a CAGR of 26.1%. During the period, net interest income and total income grew at 16.5% and 11% CAGR, respectively.However, margin compression remains an overhang and the IPO valuation is at a premium versus peers, suggesting a huge downside risk potential.

Dongguan Rural Commercial Bank IPO - Mind the Valuation Gap

Overseas Chinese Equities, Aequitas Research

Ming Lu

Overseas Chinese Equities

<ul class="">
<li>The authorities warned again that app operators should take responsibility for the social security of delivery workers.</li>
<li>However, app operators continue to play all kinds of outsourcing games.</li>
<li>We believe social security will be a significant financial risk.</li>
</ul>


The authorities warned again that app operators should take responsibility for the social security of delivery workers.
However, app operators continue to play all kinds of outsourcing games.
We believe social security will be a significant financial risk.


Meituan (3690 HK): Employment Game Going On, But Still Significant Risk

China

Meituan operates as a web based shopping platform for locally found consumer products and retail services. The Company offers deals of the day by selling vouchers on local services and entertainment, dining, delivery, and other services. Meituan provides its services throughout China.

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Meituan (3690 HK)

AIM Vaccine (艾美疫苗) Pre-IPO Tearsheet (Refiled)

AIM Vaccine is looking to raise US$1bn in its upcoming Hong Kong IPO. The deal is run by Goldman Sachs, CICC, China Securities, and Macquarie.

Clarence Chu

Hong Kong Connect Flows: Tencent, HKEx, CNOOC

We will highlight weekly southbound connect inflows into Tencent (700 HK), HKEx (388 HK), Cnooc (883 HK) as well as outflows from Wuxi Biologics...

Ke Yan, CFA, FRM

Dongguan Rural Commercial Bank IPO - Mind the Valuation Gap

Dongguan Rural Commercial Bank (DRCOBZ HK) is looking to raise up to US$1.3bn in its Hong Kong IPO. It is the fifth largest rural commercial bank...

Clarence Chu

Meituan (3690 HK): Employment Game Going On, But Still Significant Risk

The authorities warned again that app operators should take responsibility for the social securities of delivery workers. However, app operators...

Ming Lu

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52-week Range

Market Cap (USDm)

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Dividend (Yield)

Alibaba: How Much Core Market Share Loss Has Been Priced In?

In this insight, I analyse Chinese retail sales and digital advertising market share changes and what is implied by Alibaba’s current valuation...

Wium Malan, CFA

AIM Vaccine (艾美疫苗) Pre-IPO Tearsheet (Refiled)

AIM Vaccine is looking to raise US$1bn in its upcoming Hong Kong IPO. The deal is run by Goldman Sachs, CICC, China Securities, and Macquarie.

Clarence Chu

Hong Kong Connect Flows: Tencent, HKEx, CNOOC

We will highlight weekly southbound connect inflows into Tencent (700 HK), HKEx (388 HK), Cnooc (883 HK) as well as outflows from Wuxi Biologics...

Ke Yan, CFA, FRM

Dongguan Rural Commercial Bank IPO - Mind the Valuation Gap

Dongguan Rural Commercial Bank (DRCOBZ HK) is looking to raise up to US$1.3bn in its Hong Kong IPO. It is the fifth largest rural commercial bank...

Clarence Chu

Meituan (3690 HK): Employment Game Going On, But Still Significant Risk

The authorities warned again that app operators should take responsibility for the social securities of delivery workers. However, app operators...

Ming Lu