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.

Equity Bottom-Up

<ul>
<li>
<a href="https://www.smartkarma.com/entities/magic-empire-global" target="_blank" data-smartkarma-citation="entities:36219:1" rel="noopener">Magic Empire Global (MEGL US)</a> shares are currently up 45x since its listing at US$4.00 per share on 5 August. Its market cap currently stands at US$3.6 billion.</li>
<li>Just like <a href="https://www.smartkarma.com/entities/amtd-digital" target="_blank" data-smartkarma-citation="entities:36214:1" rel="noopener">AMTD Digital (HKD US)</a>, it is hard to pinpoint the real reason for MEGL’s share price surge. MEGL’s financials are uninspiring and cannot justify the share price ramp.</li>
<li>MEGL has no unique competitive advantage which could justify it's current large premium multiple compared to larger and better-established peers.    </li>
</ul>



Magic Empire Global (MEGL US) shares are currently up 45x since its listing at US$4.00 per share on 5 August. Its market cap currently stands at US$3.6 billion.
Just like AMTD Digital (HKD US), it is hard to pinpoint the real reason for MEGL’s share price surge. MEGL’s financials are uninspiring and cannot justify the share price ramp.
MEGL has no unique competitive advantage which could justify it's current large premium multiple compared to larger and better-established peers.    


Magic Empire Global: More Trick than Treat

Forensic Analyst

Jason Yap, CFA

Forensic Accounting

<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>  is China’s largest online brokerage, both by revenue and market cap, and backed by <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/up-fintech-holding-ltd" target="_blank" data-smartkarma-citation="entities:27957:1" rel="noopener">UP Fintech (TIGR US)</a>, also known as Tiger Brokers, is backed by veteran American investor Jim Rogers, smartphone giant <a href="https://www.smartkarma.com/entities/xiaomi-corp" target="_blank" data-smartkarma-citation="entities:24409:1" rel="noopener">Xiaomi Corp (1810 HK)</a>, and U.S. brokerage giant Interactive Brokers Group Inc. Both had looked to cash in on the growing amount of Chinese retail investor money pouring into U.S. stocks following a banner year in 2020.
On 14 October 2021, the People's Daily <a href="http://sh.people.com.cn/n2/2021/1014/c139965-34956684.html" target="_blank" rel="noopener">stated</a> that online brokerages, naming Futu and Up Fintech specifically, that operate across borders run the risk of violating data privacy rules and personal information protection laws, the latter taking effect from 1 November 2021. 
On the same day, Futu’s shares plummeted more than 13% to USD73.11, down 62% from the peak in February. UP Fintech fell more than 20% to USD8.19, down 78% from its February high. 
The additional regulatory scrutiny compounds the woes of China's online brokerages following a torrid 2 quarters, where investor appetite and trading volumes slumped, particularly for US ADRs and HK tech stocks, amidst a weak market environment.
In statements issued last Friday (15 Oct), both firms affirmed that they have pro-actively complied with relevant regulations and addressed issues raised by the Special Task Force on the Regulation of Apps since July 2019, seeking to quell investor concerns following the People's Daily Report. 
In this Insight, we discuss the following: 
<ol>
<li>What are the Relevant Data Laws?</li>
<li>What was new in the People's Daily report? </li>
<li>How have the Online Brokerages sought to mitigate Data Regulations?</li>
<li>Can Online Brokerages Allow Mainland Investors to Trade Offshore Assets in the First Place? </li>
</ol>
More details below the fold.

Futu Holdings Ltd (FUTU US)  is China’s largest online brokerage, both by revenue and market cap, and backed by Tencent (700 HK). UP Fintech (TIGR US), also known as Tiger Brokers, is backed by veteran American investor Jim Rogers, smartphone giant Xiaomi Corp (1810 HK), and U.S. brokerage giant Interactive Brokers Group Inc. Both had looked to cash in on the growing amount of Chinese retail investor money pouring into U.S. stocks following a banner year in 2020.
On 14 October 2021, the People's Daily stated that online brokerages, naming Futu and Up Fintech specifically, that operate across borders run the risk of violating data privacy rules and personal information protection laws, the latter taking effect from 1 November 2021. 
On the same day, Futu’s shares plummeted more than 13% to USD73.11, down 62% from the peak in February. UP Fintech fell more than 20% to USD8.19, down 78% from its February high. 
The additional regulatory scrutiny compounds the woes of China's online brokerages following a torrid 2 quarters, where investor appetite and trading volumes slumped, particularly for US ADRs and HK tech stocks, amidst a weak market environment.
In statements issued last Friday (15 Oct), both firms affirmed that they have pro-actively complied with relevant regulations and addressed issues raised by the Special Task Force on the Regulation of Apps since July 2019, seeking to quell investor concerns following the People's Daily Report. 
In this Insight, we discuss the following: 

What are the Relevant Data Laws?
What was new in the People's Daily report? 
How have the Online Brokerages sought to mitigate Data Regulations?
Can Online Brokerages Allow Mainland Investors to Trade Offshore Assets in the First Place? 

More details below the fold.

China Online Brokerages - "No Critical and Sensitive Personal Data to See Here!"

Equity Capital Markets

<a href="https://www.smartkarma.com/entities/up-fintech-holding-ltd" target="_blank" data-smartkarma-citation="entities:27957:1" rel="noopener">UP Fintech (TIGR US)</a> is a leading online brokerage firm. Its mobile and online trading platform enable investors to trade in equities and other financial instruments on multiple exchanges around the world. Up Fintech has launched an ADS follow-on to sell 6.5 million ADSs. At the last close price of $26.79 per ADS, the placing would raise gross proceeds of $174 million. The placing follows the convertible bond issuances in February and April 2021 which raised $155 million. <div class="content-highlight">Up Fintech’s shares are up 3.4x YTD but down 27% from its February highs due to the recent sell-off on high growth tech stocks. The strong YTD performance is supported by the large addressable market opportunity, strong growth and rising margins. However, Up Fintech trades at a frothy and undeserved premium multiple in comparison to <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>, the key listed peer, in our view. Consequently, we would be inclined to pass on this follow-on ADS offering. </div>

UP Fintech (TIGR US) is a leading online brokerage firm. Its mobile and online trading platform enable investors to trade in equities and other financial instruments on multiple exchanges around the world. Up Fintech has launched an ADS follow-on to sell 6.5 million ADSs. At the last close price of $26.79 per ADS, the placing would raise gross proceeds of $174 million. The placing follows the convertible bond issuances in February and April 2021 which raised $155 million. Up Fintech’s shares are up 3.4x YTD but down 27% from its February highs due to the recent sell-off on high growth tech stocks. The strong YTD performance is supported by the large addressable market opportunity, strong growth and rising margins. However, Up Fintech trades at a frothy and undeserved premium multiple in comparison to Futu Holdings Ltd (FUTU US), the key listed peer, in our view. Consequently, we would be inclined to pass on this follow-on ADS offering. 

Up Fintech (Tiger Brokers) ADS Placement: Trade Creates Losers

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, 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.

<a href="https://www.smartkarma.com/entities/up-fintech-holding-ltd" target="_blank" data-smartkarma-citation="entities:27957:1" rel="noopener">Up Fintech (TIGR US)</a> aims to raise around US$165m via a follow-on offering. This will be the first raising by the company since it was listed in 2019. It comes close on the heels of the US$1.7bn raising by its competitor <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> in Apr 2021.We covered the IPO across a series of note, links to which are below:<ul>
<li><a href="https://www.smartkarma.com/insights/futu-holdings-ipo-quick-note-comparison-with-tiger-brokers-same-market-different-economics" target="_blank" rel="noopener">Futu Holdings IPO Quick Note - Comparison with Tiger Brokers - Same Market, Different Economics</a></li>
<li><a href="https://www.smartkarma.com/insights/up-fintech-tiger-brokers-pre-ipo-quick-note-much-too-reliant-on-ibkr" target="_blank" rel="noopener">Up Fintech (Tiger Brokers) Pre-IPO Quick Note - Much Too Reliant on IBKR</a></li>
<li><a href="https://www.smartkarma.com/insights/up-fintech-tiger-brokers-ipo-quick-take-it-s-not-like-futu-won-t-perform-like-it-either" target="_blank" rel="noopener">Up Fintech (Tiger Brokers) IPO Quick Take - It’s Not like Futu, Won’t Perform like It Either</a></li>
<li><a href="https://www.smartkarma.com/insights/up-fintech-tiger-brokers-ipo-trading-update-first-day-volume-was-higher-than-futu-close-to-qtt" target="_blank" rel="noopener">Up Fintech (Tiger Brokers) IPO Trading Update - First Day Volume Was Higher than Futu, Close to QTT</a></li>
</ul>In this note, we will run the deal through our ECM framework and talk about the deal dynamics.

Up Fintech (TIGR US) aims to raise around US$165m via a follow-on offering. This will be the first raising by the company since it was listed in 2019. It comes close on the heels of the US$1.7bn raising by its competitor Futu Holdings Ltd (FUTU US) in Apr 2021.We covered the IPO across a series of note, links to which are below:
Futu Holdings IPO Quick Note - Comparison with Tiger Brokers - Same Market, Different Economics
Up Fintech (Tiger Brokers) Pre-IPO Quick Note - Much Too Reliant on IBKR
Up Fintech (Tiger Brokers) IPO Quick Take - It’s Not like Futu, Won’t Perform like It Either
Up Fintech (Tiger Brokers) IPO Trading Update - First Day Volume Was Higher than Futu, Close to QTT
In this note, we will run the deal through our ECM framework and talk about the deal dynamics.

Up Fintech (Tiger Brokers) Placement - Needs a Large Correction, Just like Futu

Fintech & EM-focused Analyst, KT Capital Group

Alec Tseung

Fintech & EM-focused Analyst

Thematic (Sector/Industry)

This Original aims to identify the key investment opportunities among the listed brokers in the three major East Asian countries - China, Japan, and Korea. By looking at the development of the brokerage sectors in these three countries, we observe a general trend where upstart online brokers first compete against the more established brokers based on their cost and technological advantages. This then pushes the more established brokers to either focus on more lucrative wholesale businesses or adopt and invest in tech initiatives in order to stay competitive in the retail market.After further establishing themselves in the retail market, these upstart online brokers then also diversify and expand into the more lucrative wealth/asset management or even wholesale businesses.  By gauging at which phase the broker is in this cycle, investors can have a good understanding of its future outlook.In our opinion, Korean brokers currently offer the best value, while the Chinese pure-play online brokers offer the highest growth potential. As such, our pecking order, in terms of investment attractiveness, is <a href="https://www.smartkarma.com/entities/kiwoom-securities-co-ltd" target="_blank" data-smartkarma-citation="entities:20418:1" rel="noopener">Kiwoom Securities (039490 KS)</a>, <a href="https://www.smartkarma.com/entities/east-money-information-co-a" target="_blank" data-smartkarma-citation="entities:8075:1" rel="noopener">East Money Information Co A (300059 CH)</a>, <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>, <a href="https://www.smartkarma.com/entities/monex-group-inc" target="_blank" data-smartkarma-citation="entities:14211:1" rel="noopener">Monex Group Inc (8698 JP)</a> / <a href="https://www.smartkarma.com/entities/huatai-securities-co-ltd-h" target="_blank" data-smartkarma-citation="entities:449:1" rel="noopener">Huatai Securities Co Ltd (H) (6886 HK)</a>.  <h2>What is Original?</h2>In this Original, we look into the competitive landscape of the brokerage sectors in China, Japan, and Korea. 55 listed brokers from these three countries are included in this Original as the company universe for regression analysis. Among them, a total of 8 brokers are chosen, with their company profiles separately presented, to further showcase and contrast the impact of competition and technological disruption. Based on this, a pecking order is then developed, both on a country and a company basis.

This Original aims to identify the key investment opportunities among the listed brokers in the three major East Asian countries - China, Japan, and Korea. By looking at the development of the brokerage sectors in these three countries, we observe a general trend where upstart online brokers first compete against the more established brokers based on their cost and technological advantages. This then pushes the more established brokers to either focus on more lucrative wholesale businesses or adopt and invest in tech initiatives in order to stay competitive in the retail market.After further establishing themselves in the retail market, these upstart online brokers then also diversify and expand into the more lucrative wealth/asset management or even wholesale businesses.  By gauging at which phase the broker is in this cycle, investors can have a good understanding of its future outlook.In our opinion, Korean brokers currently offer the best value, while the Chinese pure-play online brokers offer the highest growth potential. As such, our pecking order, in terms of investment attractiveness, is Kiwoom Securities (039490 KS), East Money Information Co A (300059 CH), Futu Holdings Ltd (FUTU US), Monex Group Inc (8698 JP) / Huatai Securities Co Ltd (H) (6886 HK).  What is Original?In this Original, we look into the competitive landscape of the brokerage sectors in China, Japan, and Korea. 55 listed brokers from these three countries are included in this Original as the company universe for regression analysis. Among them, a total of 8 brokers are chosen, with their company profiles separately presented, to further showcase and contrast the impact of competition and technological disruption. Based on this, a pecking order is then developed, both on a country and a company basis.

Asian Brokers: A Competition Between Value and Growth

United States

UP Fintech Holding Limited operates as a holding company. The Company, through its subsidiaries, provides online securities brokerage services. Up Fintech Holding serves customers in China.

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UP Fintech (TIGR US)

Magic Empire Global: More Trick than Treat

It is hard to pinpoint the real reason for MEGL’s share price surge. While it is difficult to predict when the share price will reflect...

Arun George

China Online Brokerages - "No Critical and Sensitive Personal Data to See Here!"

China's online brokerages risk running afoul of new data privacy rules and personal information protection laws. This is compounded by poor trading...

Jason Yap, CFA

Up Fintech (Tiger Brokers) ADS Placement: Trade Creates Losers

Up Fintech has launched an ADS follow-on to sell 6.5 million ADSs to raise potentially $174 m. Overall, we would be inclined to pass on this follow...

Arun George

Up Fintech (Tiger Brokers) Placement - Needs a Large Correction, Just like Futu

Up Fintech (TIGR US) aims to raise around US$165m via a follow-on offering. This will be the first raising by the company since it was listed in 2019.

Sumeet Singh

Asian Brokers: A Competition Between Value and Growth

The Original looks into the current competitive landscape of the brokerage sectors in China, Japan, and Korea, with a view to developing a list of...

Alec Tseung

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52-week Range

Market Cap (USDm)

P/E

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