Alpha-Centric ESG Research

Kyle Rudden

This is a pre-IPO ESG assessment of <a href="https://www.smartkarma.com/entities/didi-chuxing-inc" target="_blank" data-smartkarma-citation="entities:27467:1" rel="noopener">DiDi Chuxing (DIDI US)</a>, China's leading ride-hailing platform. DiDi is set to finalise its US$4 billion IPO at an implied valuation of US$65 billion – the largest IPO of a Chinese issuer on a U.S. exchange since Alibaba's (BABA US) US$25 billion IPO in 2014.Impressive, except for one minor nuance. That US$65 billion is less than DiDi's earlier expectations of US$100 million, despite strong interest. Economic factors (e.g., growth rates, profitability) had a lot to do with the lower valuation. Regulatory risk and uncertainty probably factored in as well.Therein lies the quandary of this ESG analysis. Regulatory risk and uncertainty.DiDi is committed to corporate social responsibility, and its ESG performance is strong (though not perfect) in critical areas under its control. DiDi is reducing emissions, improving safety, rooting out corruption, and is lightyears ahead of its peers on gender equality and empowerment of women.DiDi is doing all the right things, where it has some semblance of direct control.But then, there's that quandary. DiDi's ESG achievements are overshadowed by regulatory risks and uncertainty, all beyond DiDi's control. Nearly concerning enough to justify a bearish imperative but the "control" issue – proactive ESG positives, versus passive ESG negatives – ultimately won out.

This is a pre-IPO ESG assessment of DiDi Chuxing (DIDI US), China's leading ride-hailing platform. DiDi is set to finalise its US$4 billion IPO at an implied valuation of US$65 billion – the largest IPO of a Chinese issuer on a U.S. exchange since Alibaba's (BABA US) US$25 billion IPO in 2014.Impressive, except for one minor nuance. That US$65 billion is less than DiDi's earlier expectations of US$100 million, despite strong interest. Economic factors (e.g., growth rates, profitability) had a lot to do with the lower valuation. Regulatory risk and uncertainty probably factored in as well.Therein lies the quandary of this ESG analysis. Regulatory risk and uncertainty.DiDi is committed to corporate social responsibility, and its ESG performance is strong (though not perfect) in critical areas under its control. DiDi is reducing emissions, improving safety, rooting out corruption, and is lightyears ahead of its peers on gender equality and empowerment of women.DiDi is doing all the right things, where it has some semblance of direct control.But then, there's that quandary. DiDi's ESG achievements are overshadowed by regulatory risks and uncertainty, all beyond DiDi's control. Nearly concerning enough to justify a bearish imperative but the "control" issue – proactive ESG positives, versus passive ESG negatives – ultimately won out.

Pre-IPO ESG Analysis: DiDi's Exemplary ESG Achievements Eclipsed By Regulatory Risks and Uncertainty

Global TMT analyst with Asia ex-Japan focus.

Mitchell Kim

Thematic (Sector/Industry)

The latest sales data from the 6.18 (running from June 1st to June 18th) Festival by Syntun suggests potential revenue upside for online shopping platforms but particularly more for the larger market shareholders, Alibaba and JD, and Vipshop as apparel and shoes categories showed the highest sales growth.    I am positive on <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>, <a href="https://www.smartkarma.com/entities/jd-com-inc-adr" target="_blank" data-smartkarma-citation="entities:446:1" rel="noopener">JD.com Inc (ADR) (JD US)</a>, and <a href="https://www.smartkarma.com/entities/vipshop-holdings-ltd-adr" target="_blank" data-smartkarma-citation="entities:1088:1" rel="noopener">Vipshop Holdings (VIPS US)</a> as they provide an attractive balance of growth and value.  I have recently turned more bullish on Vipshop because of its cheap value and the continued improving operating metrics.  I remain cautious on PDD US because of the risk associated with the company’s profit model. Three takeaways from my analysis of the 6.18.21 sales data (some 2020 data):<ol>
<li>Alibaba remains the king of promotions.  The company maintained its top-selling platform position.  Alibaba is particularly strong in personal and beauty care and snack foods.   </li>
<li>Apparel and shoes were the top two growth categories during the 6.18 Festival.  This bodes well for Vipshop and Alibaba. </li>
<li>JD maintains its strong position in appliances and electronics as well as dairy products (based on 2020 detail data for select categories).  JD also leads in New Retail – grocery delivery and supermarkets. </li>
<li>PDD appears to be a distant third on 6.18 sales (based on 2020 detail data breakdown – 2021 is unavailable).         </li>
</ol>

The latest sales data from the 6.18 (running from June 1st to June 18th) Festival by Syntun suggests potential revenue upside for online shopping platforms but particularly more for the larger market shareholders, Alibaba and JD, and Vipshop as apparel and shoes categories showed the highest sales growth.    I am positive on Alibaba Group (BABA US), JD.com Inc (ADR) (JD US), and Vipshop Holdings (VIPS US) as they provide an attractive balance of growth and value.  I have recently turned more bullish on Vipshop because of its cheap value and the continued improving operating metrics.  I remain cautious on PDD US because of the risk associated with the company’s profit model. Three takeaways from my analysis of the 6.18.21 sales data (some 2020 data):
Alibaba remains the king of promotions.  The company maintained its top-selling platform position.  Alibaba is particularly strong in personal and beauty care and snack foods.   
Apparel and shoes were the top two growth categories during the 6.18 Festival.  This bodes well for Vipshop and Alibaba. 
JD maintains its strong position in appliances and electronics as well as dairy products (based on 2020 detail data for select categories).  JD also leads in New Retail – grocery delivery and supermarkets. 
PDD appears to be a distant third on 6.18 sales (based on 2020 detail data breakdown – 2021 is unavailable).         


China E-Commerce: 6.18 Festival Getting Bigger - Good for Alibaba, JD, Vipshop

Silver Point

Thomas J. Monaco

Independent Insight Provider

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

Equity Bottom-Up

*Major US Merchant Deal: Tencent Holding’s (700.HK) [Tencent] Afterpay Touch's (APT.AU) [Afterpay] recently announced that it is further expanding its Buy Now, Pay Later (BNPL) model to several major high profile US merchants in order to boost sales and margins. Afterpay is now allowing all US users to shop at 13 retailers by October 2021 - ahead of the holiday shopping season; and*Tencent’s Midas Touch: Tencent continues to hit it out of the park with its Afterpay stake. In addition to its superb return on investment over the past ten months since the stake announcement - -even after giving back some of its gains, this alliance with Australia’s premier financial technology BNPL company is paying dividends to Tencent in numerous other ways.

*Major US Merchant Deal: Tencent Holding’s (700.HK) [Tencent] Afterpay Touch's (APT.AU) [Afterpay] recently announced that it is further expanding its Buy Now, Pay Later (BNPL) model to several major high profile US merchants in order to boost sales and margins. Afterpay is now allowing all US users to shop at 13 retailers by October 2021 - ahead of the holiday shopping season; and*Tencent’s Midas Touch: Tencent continues to hit it out of the park with its Afterpay stake. In addition to its superb return on investment over the past ten months since the stake announcement - -even after giving back some of its gains, this alliance with Australia’s premier financial technology BNPL company is paying dividends to Tencent in numerous other ways. 

Tencent Holdings – Digging In Their Heals

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Capital Markets

<div class="content-highlight">
Our base case valuation of <a href="https://www.smartkarma.com/entities/didi-chuxing-inc" target="_blank" data-smartkarma-citation="entities:27467:1" rel="noopener">DiDi Chuxing (DIDI US)</a> is implied market cap of $99 billion or target price of $20.4 per share. This represents a 46% upside to the high end of the IPO price range of $14 per share. Given the excellent upside, we continue to maintain a positive view of Didi Chuxing. 
At the high end of the IPO price range of <a href="https://www.scmp.com/business/article/3138683/chinese-ride-hailing-giant-didi-chuxing-plans-raise-us4-billion-us-ipo" target="_blank" rel="noopener">$14 per share,</a> the company would be valued at $67 billion, which is 8% higher than its last private market fundraising valuation of $62 billion in 2019.
The fact that Didi Chuxing is getting priced at much lower levels than what the company was contemplating in early 2021 also suggests increasing investors' concerns about the Chinese government's potential anti-trust related crackdown combined with weaker IPO environment globally in 2021 versus 2020. 
</div>


Our base case valuation of DiDi Chuxing (DIDI US) is implied market cap of $99 billion or target price of $20.4 per share. This represents a 46% upside to the high end of the IPO price range of $14 per share. Given the excellent upside, we continue to maintain a positive view of Didi Chuxing. 
At the high end of the IPO price range of $14 per share, the company would be valued at $67 billion, which is 8% higher than its last private market fundraising valuation of $62 billion in 2019.
The fact that Didi Chuxing is getting priced at much lower levels than what the company was contemplating in early 2021 also suggests increasing investors' concerns about the Chinese government's potential anti-trust related crackdown combined with weaker IPO environment globally in 2021 versus 2020. 


Our base case valuation of Dingdong is $30.9 per share or market cap of $7.6 billion. This would suggest a 21% upside from the high end IPO price range of $25.5 per share. In our base case valuation, we used 2.0x EV/S multiple, using our estimated sales of 21.9 billion RMB in 2022. Our base case valuation multiple of 2.0x is at a 69% discount to the median EV/S multiple of the comps. The comps such as Meituan and Pinduoduo are much larger companies with greater economies of scale of better profitability.However, we do believe that Dingdong should be given some credit since it generated a tremendous sales growth in 2020 (only DoorDash generated higher sales growth in 2020). In addition, despite some slowing sales growth in 1Q 2021, we expect its sales growth in 2022 (34%) to be relatively close to the comps' sales growth (36%).

Our base case valuation of Dingdong is $30.9 per share or market cap of $7.6 billion. This would suggest a 21% upside from the high end IPO price range of $25.5 per share. In our base case valuation, we used 2.0x EV/S multiple, using our estimated sales of 21.9 billion RMB in 2022. Our base case valuation multiple of 2.0x is at a 69% discount to the median EV/S multiple of the comps. The comps such as Meituan and Pinduoduo are much larger companies with greater economies of scale of better profitability.However, we do believe that Dingdong should be given some credit since it generated a tremendous sales growth in 2020 (only DoorDash generated higher sales growth in 2020). In addition, despite some slowing sales growth in 1Q 2021, we expect its sales growth in 2022 (34%) to be relatively close to the comps' sales growth (36%). 

China

PDD Holdings Inc. is a multinational commerce group that owns and operates a portfolio of businesses. The Company focuses on digital economy so that local communities and small businesses can benefit from the increased productivity and new opportunities. PDD Holdings has built a network of sourcing, logistics, and fulfillment capabilities for its underlying businesses.

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PDD Holdings (PDD US)

Pre-IPO ESG Analysis: DiDi's Exemplary ESG Achievements Eclipsed By Regulatory Risks and Uncertainty

DiDi boasts positive ESG achievements in areas under its control, but there's a big ESG issue beyond its control – regulatory risk. But, proactive...

Kyle Rudden

China E-Commerce: 6.18 Festival Getting Bigger - Good for Alibaba, JD, Vipshop

The latest data from the 6.18 Festival suggests potential revenue upside for online shopping platforms. Find out who is strong by category and why...

Mitchell Kim

Tencent Holdings – Digging In Their Heals

TENCENT HOLDINGS: Tencent' s Afterpay recently announced a further expansion of its BNPL model to several major US merchants in order to boost...

Thomas J. Monaco

Didi Chuxing IPO Valuation Analysis

Our base case valuation of DiDi Chuxing is implied market cap of $99 billion or target price of $20.4 per share. This represents a 46% upside to...

Douglas Kim

Dingdong Maicai IPO Valuation Analysis

Our base case valuation of Dingdong is $30.9 per share or market cap of $7.6 billion. This would suggest a 21% upside from the high end IPO price...

Douglas Kim

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