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>Management reduced shareholding in Tencent (700 HK).</li>
<li>Funds withdrew from game developers such as 37 Interactive (002555 CN).</li>
<li>Huya (HUYA) and Douyu (DOYU) merged in the way we expected in April.</li>
<li>Delivered parcels increased 28% YoY in 1~3Q20.</li>
</ul>


Management reduced shareholding in Tencent (700 HK).
Funds withdrew from game developers such as 37 Interactive (002555 CN).
Huya (HUYA) and Douyu (DOYU) merged in the way we expected in April.
Delivered parcels increased 28% YoY in 1~3Q20.


China Internet Weekly (19Oct20): Tencent Mgt Reduced Shares, HUYA & DOYU Merged in Our Expected Way

Japan/Asia Long-Short, LightStream Research

Mio Kato

Japan/Asia Long-Short

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

<p>The announcement of the merger ratio for Huya and Douyu came yesterday with Huya offering 7.3 of it’s A shares per share of Douyu in turn implying a ratio of 0.73 Huya ADS per Douyu ADS. Concurrent with the merger will be the assignment of Tencent’s Penguin e-Sports to Douyu for $500m creating a dominant player within China’s game streaming and esports markets.</p>

The announcement of the merger ratio for Huya and Douyu came yesterday with Huya offering 7.3 of it’s A shares per share of Douyu in turn implying a ratio of 0.73 Huya ADS per Douyu ADS. Concurrent with the merger will be the assignment of Tencent’s Penguin e-Sports to Douyu for $500m creating a dominant player within China’s game streaming and esports markets.

Huya – Generous for Douyu and the New Global Streaming Landscape Gets Interesting

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.

Douyu International Holdings / Event-Driven

<p><a href="https://www.smartkarma.com/entities/huya-inc" target="_blank" data-smartkarma-citation="entities:26983:1" rel="noopener">HUYA Inc (HUYA US)</a> and <a href="https://www.smartkarma.com/entities/douyu-international-hold-adr" target="_blank" data-smartkarma-citation="entities:28045:1" rel="noopener">Douyu International Holdings (DOYU US)</a> have entered into a merger agreement to create a Chinese game live streaming giant. The proposed share exchange ratio is 0.73 Huya ADS for each DouYu ADS. Based on Friday’s close prices, the share exchange ratio values DouYu at $18.83 per ADS, a 35% premium to the Friday close price. On completion, the shareholders of Huya and DouYu will each hold 50% shares of the combined company on a fully diluted basis, respectively. <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent Holdings (700 HK)</a>'s voting power in the combined company will be 67.5% on a fully-diluted basis.</p><div class="content-highlight"><p>With Tencent owning more than two-thirds of the votes in Huya, the approval of the merger largely comes down to securing the backing of DouYu shareholders. As DouYu is incorporated in the Cayman Islands, for the merger to succeed, DouYu shareholders representing two-thirds of shares present and voting need to approve the deal. Tencent collectively has the support of 54.6% of DouYu’s voting rights. In <a href="https://www.smartkarma.com/insights/tencent-sets-in-motion-a-sensible-huya-douyu-merger" target="_blank" rel="noopener">our previous note</a>, we outlined that the merger makes a lot of sense due to potential revenue and cost synergies. In combination with an attractive share exchange ratio, we expect DouYu’s shareholders to support the merger. The merger is expected to close during the first half of 2021.</p></div>

HUYA Inc (HUYA US) and Douyu International Holdings (DOYU US) have entered into a merger agreement to create a Chinese game live streaming giant. The proposed share exchange ratio is 0.73 Huya ADS for each DouYu ADS. Based on Friday’s close prices, the share exchange ratio values DouYu at $18.83 per ADS, a 35% premium to the Friday close price. On completion, the shareholders of Huya and DouYu will each hold 50% shares of the combined company on a fully diluted basis, respectively. Tencent Holdings (700 HK)'s voting power in the combined company will be 67.5% on a fully-diluted basis.With Tencent owning more than two-thirds of the votes in Huya, the approval of the merger largely comes down to securing the backing of DouYu shareholders. As DouYu is incorporated in the Cayman Islands, for the merger to succeed, DouYu shareholders representing two-thirds of shares present and voting need to approve the deal. Tencent collectively has the support of 54.6% of DouYu’s voting rights. In our previous note, we outlined that the merger makes a lot of sense due to potential revenue and cost synergies. In combination with an attractive share exchange ratio, we expect DouYu’s shareholders to support the merger. The merger is expected to close during the first half of 2021.

<ul>
<li>Baidu (BIDU)’s manager was arrested for gambling advertisements.</li>
<li>iQiyi (IQ) was banned in Taiwan.</li>
<li>Trip.com (TCOM)’s revenue continued to decrease QoQ in 2Q20.</li>
<li>China Literature (772 HK) raised novel writers’ revenue share from 50% to 70%.</li>
</ul>


Baidu (BIDU)’s manager was arrested for gambling advertisements.
iQiyi (IQ) was banned in Taiwan.
Trip.com (TCOM)’s revenue continued to decrease QoQ in 2Q20.
China Literature (772 HK) raised novel writers’ revenue share from 50% to 70%.


China Internet Weekly (28Sep2020): BIDU Manager Arrested, TCOM Revenue Shrank QoQ

Managing Director, Zero One, Zero One

Vincent Fernando, CFA

Managing Director, Zero One

Zero One

Founded in 2015, Zero One produces independent investment research and provides corporate finance advisory services with a focus on both listed and private technology companies. Founder Vincent Fernando has over 20 years of experience in US and Asia capital markets.

Independent Investment Research

Thematic (Sector/Industry)

<div class="content-highlight"><h2>Huya Merger News Propels Stock Upwards; Tencent Gains Subdued from Rising US-China Tensions</h2></div><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/153/594/original/China%20Portfolio%20Performance.png?1597832603" class="editor-image img-responsive" data-smartkarma-image-id="153594"></figure><p>The months of July and August saw a broad level rise in prices across our entire China tech portfolio. While companies like Huya and Niu outperformed the MSCI China and NASDAQ indices, companies like Tencent remained relatively subdued given rising US-China tensions on mobile app bans.</p><p>We observe that China Tech companies appear to be looking inwards for growth - focusing more on domestic opportunities while the international regulatory outlook remains uncertain.</p><p>We provide updated views on each of our portfolio companies below:</p>

Huya Merger News Propels Stock Upwards; Tencent Gains Subdued from Rising US-China TensionsThe months of July and August saw a broad level rise in prices across our entire China tech portfolio. While companies like Huya and Niu outperformed the MSCI China and NASDAQ indices, companies like Tencent remained relatively subdued given rising US-China tensions on mobile app bans.We observe that China Tech companies appear to be looking inwards for growth - focusing more on domestic opportunities while the international regulatory outlook remains uncertain.We provide updated views on each of our portfolio companies below:

Our Tech Portfolio Update: Capitalizing on Domestic Opportunities Amidst Heightened US-China Tension

United States

HUYA Inc. operates as a game live streaming platform. The Company offers interactive video broadcast services including e-sports, music, reality show, entertainment genres, talent shows, and anime and outdoor activities. HUYA serves customers in China.

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HUYA (HUYA US)

China Internet Weekly (19Oct20): Tencent Mgt Reduced Shares, HUYA & DOYU Merged in Our Expected Way

News about online games. Mgt reduced shares in Tencent. Funds withdrew from game developers such as 37 Interactive. Huya and Douyu merged in the...

Ming Lu

Huya – Generous for Douyu and the New Global Streaming Landscape Gets Interesting

Why the Huya-Douyu ratio is generous to Douyu, the implications of the merger are positive for prospects in the domestic market and unlikely to...

Mio Kato

Huya and DouYu’s Merger Is Game On

The merger makes a lot of sense due to potential revenue and cost synergies. In combination with an attractive share exchange ratio, we expect...

Arun George

China Internet Weekly (28Sep2020): BIDU Manager Arrested, TCOM Revenue Shrank QoQ

Baidu (BIDU)’s manager was arrested for gambling advertisements. iQiyi (IQ) was banned in Taiwan. Trip.com (TCOM)’s revenue continued to decrease...

Ming Lu

Our Tech Portfolio Update: Capitalizing on Domestic Opportunities Amidst Heightened US-China Tension

Huya Merger News Propels Stock Upwards; Tencent Gains Subdued from Rising US-China TensionsThe months of July and August saw a broad level rise in...

Vincent Fernando, CFA

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