ASEAN Insight Provider, CrossASEAN Research

Angus Mackintosh

ASEAN Insight Provider

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Private Capital Markets

<p>Looking at the reports in the press on the news that <a href="https://www.smartkarma.com/entities/grabtaxi-holdings-pte-ltd" target="_blank" data-smartkarma-citation="entities:26950:1" rel="noopener">Grab</a> will seek a listing through an Altimeter Capital SPAC, there seems to be nothing but euphoria, without very much commentary on the potential risks ahead to the company's bullish forecasts and relatively high valuations. </p>
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<p>In terms of profitability, <a href="https://www.smartkarma.com/entities/grabtaxi-holdings-pte-ltd" target="_blank" data-smartkarma-citation="entities:26950:1" rel="noopener">Grab</a> maintains that ride-hailing was EBITDA positive in 4Q2019 but the company still lost US$800m in 2020.</p>
<p><a href="https://www.smartkarma.com/entities/grabtaxi-holdings-pte-ltd" target="_blank" data-smartkarma-citation="entities:26950:1" rel="noopener">Grab</a>'s projections are quite long-dated in the face of increasing and very unpredictable competitive pressures from the other major digital players, more especially the newly merged <a href="https://www.smartkarma.com/entities/gojek" target="_blank" data-smartkarma-citation="entities:25976:1" rel="noopener">Gojek</a> and <a href="https://www.smartkarma.com/entities/tokopedia-pt" target="_blank" data-smartkarma-citation="entities:24239:1" rel="noopener">Tokopedia</a> under "GoTo Group" and from Shopee (<a href="https://www.smartkarma.com/entities/sea-ltd" target="_blank" data-smartkarma-citation="entities:8509:1" rel="noopener">Sea Ltd (SE US)</a>). </p>
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<p>The delivery and mobility take-rate assumptions also look quite high given the potential for heavy promotional activity from major competitors.</p>
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<p>In the company's presentation, there are three pages of detailed "Risk Factors Relating to Grab" in a small font covering a lot of bases, and leaving plenty of room for disappointment.</p>
<p>Our main concern would be the strong competition from Shopee on digital payments plus its move into food delivery in Indonesia under ShopeeFood.  It is also possible OVO stands to lose a good deal of business to GoPay with the merger moving ahead. </p>
<p>We also see the combined force of <a href="https://www.smartkarma.com/entities/gojek" target="_blank" data-smartkarma-citation="entities:25976:1" rel="noopener">Gojek</a> and <a href="https://www.smartkarma.com/entities/tokopedia-pt" target="_blank" data-smartkarma-citation="entities:24239:1" rel="noopener">Tokopedia</a> under GoTo Group will also be a formidable competitor, given it will also have an e-commerce arm. Please see <a href="https://www.smartkarma.com/insights/goto-enter-the-green-dragon" target="_blank" data-smartkarma-citation="insights:51664" rel="noopener">GoTo - Enter the Green Dragon</a> for more background</p>
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<p>The valuations look quite aggressive given that on the stated EV of US$30.36bn, it will be valued at 13.2x FY21E EV/Sales and 9.2x FY22E EV/Sales, which is pretty much in line with <a href="https://www.smartkarma.com/entities/sea-ltd" target="_blank" data-smartkarma-citation="entities:8509:1" rel="noopener">Sea Ltd (SE US)</a>, which currently trades on .</p>
<p>We await more details on the planned floatation of GoTo Group, which is expected to be valued at more than US$40bn but probably deserves a higher multiple, given it has an e-commerce arm and a more established digital finance business, even though still at an early stage.</p>
<p>It is interesting to note that the share price of the Altimeter SPAC is approaching US$11, which suggests there is not much of a premium being built into the float, given that PIPE investors get shares at US$10.</p>
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Looking at the reports in the press on the news that Grab will seek a listing through an Altimeter Capital SPAC, there seems to be nothing but euphoria, without very much commentary on the potential risks ahead to the company's bullish forecasts and relatively high valuations. 

In terms of profitability, Grab maintains that ride-hailing was EBITDA positive in 4Q2019 but the company still lost US$800m in 2020.
Grab's projections are quite long-dated in the face of increasing and very unpredictable competitive pressures from the other major digital players, more especially the newly merged Gojek and Tokopedia under "GoTo Group" and from Shopee (Sea Ltd (SE US)). 


The delivery and mobility take-rate assumptions also look quite high given the potential for heavy promotional activity from major competitors.


In the company's presentation, there are three pages of detailed "Risk Factors Relating to Grab" in a small font covering a lot of bases, and leaving plenty of room for disappointment.
Our main concern would be the strong competition from Shopee on digital payments plus its move into food delivery in Indonesia under ShopeeFood.  It is also possible OVO stands to lose a good deal of business to GoPay with the merger moving ahead. 
We also see the combined force of Gojek and Tokopedia under GoTo Group will also be a formidable competitor, given it will also have an e-commerce arm. Please see GoTo - Enter the Green Dragon for more background



The valuations look quite aggressive given that on the stated EV of US$30.36bn, it will be valued at 13.2x FY21E EV/Sales and 9.2x FY22E EV/Sales, which is pretty much in line with Sea Ltd (SE US), which currently trades on .
We await more details on the planned floatation of GoTo Group, which is expected to be valued at more than US$40bn but probably deserves a higher multiple, given it has an e-commerce arm and a more established digital finance business, even though still at an early stage.
It is interesting to note that the share price of the Altimeter SPAC is approaching US$11, which suggests there is not much of a premium being built into the float, given that PIPE investors get shares at US$10.








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

<p><strong><em>*Meh 1Q21 Result:</em></strong> Tencent Holdings (700.HK) [Tencent] reported 1Q21 total revenues of CNY 135.3 bn - increasing 25% YOY, while non-GAAP operating profit aggregated CNY 42.8 bn - increasing 20% YOY; and</p><p><strong><em>*Capital Raise Likely Coming:</em></strong> For Tencent, WeChat Pay and the broader lending/deposit taking business are likely to be reined-in. At CNY 38.5 bn for full year 2020, FinTech represents a growing 28.8% of revenue – and is a key and growing component of Tencent’s current and future results. No matter what spin that Tencent wants to place on its other businesses, an FHC represents significant downside risks. Earnings will compress, as capital requirements increase.</p>

*Meh 1Q21 Result: Tencent Holdings (700.HK) [Tencent] reported 1Q21 total revenues of CNY 135.3 bn - increasing 25% YOY, while non-GAAP operating profit aggregated CNY 42.8 bn - increasing 20% YOY; and*Capital Raise Likely Coming: For Tencent, WeChat Pay and the broader lending/deposit taking business are likely to be reined-in. At CNY 38.5 bn for full year 2020, FinTech represents a growing 28.8% of revenue – and is a key and growing component of Tencent’s current and future results. No matter what spin that Tencent wants to place on its other businesses, an FHC represents significant downside risks. Earnings will compress, as capital requirements increase.

Tencent Holdings – Awaiting The Big Hit

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.

<ul>
<li>We believe the mobile game growth rate will be back to the level before the pandemic.</li>
<li>WeChat Pay took advantage of AliPay’s poor relation with the government.</li>
<li>WeChat mini-program will be the most promising business.</li>
<li>We set an upside of 19% for the end of 2Q22. Buy.</li>
</ul>


We believe the mobile game growth rate will be back to the level before the pandemic.
WeChat Pay took advantage of AliPay’s poor relation with the government.
WeChat mini-program will be the most promising business.
We set an upside of 19% for the end of 2Q22. Buy.


Tencent (700 HK): Growth Will Be Back to Level Before Pandemic, But Still Healthy, Buy

<p><a href="https://www.smartkarma.com/entities/sea-ltd" target="_blank" data-smartkarma-citation="entities:8509:1" rel="noopener">Sea Ltd (SE US)</a> announced its 1Q2021 results which look like a blowout set of numbers with +147% growth in total GAAP revenues with +117% growth in digital bookings for digital entertainment and +250% YoY growth in e-commerce GAAP revenues.</p>
<p>Gross Profit increased a staggering +212% YoY to US$645.4m in 1Q2021 and the company booked a positive EBITDA of US$88.1m versus a (US$69.9m) loss in 1Q2020.</p>
<p>The gross profit margin increased from 28% in 1Q2020 to 36% in 1Q2021, which is a testament to the fact that the company is moving along the path to profitability. Digital entertainment saw higher margins, while-commerce saw falling EBITDA loss per order.</p>
<p>In Digital Entertainment (DE) division continues to see strong growth in its user base with +61% YoY growth in quarterly active users (QAU) to 648.6m but more importantly quarterly paying users saw growth of +12.3% YoY to 79.8m signifying a higher level of monetization on its self-developed game <em>Free Fire.</em></p>
<p>The company continues to successfully expand its gaming business to new geographies, with India being the latest growth engine and players are spending more time on Free Fire and spending more. It continues to add new content and characters to increase the appeal and stickiness of <em>Free Fire</em>. It is also seeing huge response in the eSports arena for <em>Free Fire.</em></p>
<p>Shopee ranked number one in the shopping category by monthly active users and time spent in app in 1Q2021 for both South East Asia and Taiwan, according to App Annie. E-commerce continues to show supercharged growth and especially in the core market of Indonesia.</p>
<p><a href="https://www.smartkarma.com/entities/sea-ltd" target="_blank" data-smartkarma-citation="entities:8509:1" rel="noopener">Sea Ltd (SE US)</a>'s move into digital payments in South -East Asia under SeaMoney and ShopeePay in Indonesia continues to see strong momentum.  The mobile wallet total payment volume saw total payment volume triple in 1Q2021 to US$3.4bn. </p>
<p>The company is also expanding the offline use-cases for ShopeePay most recently extending use to Indomaret in Indonesia, the largest mini-market operator in the country.</p>
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<p><a href="https://www.smartkarma.com/entities/sea-ltd" target="_blank" data-smartkarma-citation="entities:8509:1" rel="noopener">Sea Ltd (SE US)</a>'s move into food delivery through ShopeeFood and evidence suggests that it has already had a strong reception to its launch in Jakarta, with growth similar to that in other categories.</p>
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<p>This latest set of results provides further proof of the success of the <a href="https://www.smartkarma.com/entities/sea-ltd" target="_blank" data-smartkarma-citation="entities:8509:1" rel="noopener">Sea Ltd (SE US)</a> growth model which generates huge EBITDA from gaming and reinvests that money into growing the company's e-commerce and digital finance businesses, whilst maintaining the investment momentum into the gaming cash cow, buy pushing out into new geographies such as India.</p>
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<p><a href="https://www.smartkarma.com/entities/sea-ltd" target="_blank" data-smartkarma-citation="entities:8509:1" rel="noopener">Sea Ltd (SE US)</a> continues to standout as the best way to play the explosive growth in e-commerce in South East Asia, funded by the popularity of its self developed game <em>Free Fire </em>and its gaming business, together with its move into digital payments a third leg to future growth.</p>
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<section class="figure"><a href="https://www.smartkarma.com/entities/sea-ltd" target="_blank" data-smartkarma-citation="entities:8509:1" rel="noopener">Sea Ltd (SE US)</a> valuations are higher than its listed peers on 13x and 9x EV/Sales for FY21E and FY22E respectively but it is growing at more than twice the pace in terms of sales to justify this. The market is also paying a premium for its unique financing plus its market leadership and strong track record on execution, with 11 consecutive quarters of triple-digit growth.</section>
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Sea Ltd (SE US) announced its 1Q2021 results which look like a blowout set of numbers with +147% growth in total GAAP revenues with +117% growth in digital bookings for digital entertainment and +250% YoY growth in e-commerce GAAP revenues.
Gross Profit increased a staggering +212% YoY to US$645.4m in 1Q2021 and the company booked a positive EBITDA of US$88.1m versus a (US$69.9m) loss in 1Q2020.
The gross profit margin increased from 28% in 1Q2020 to 36% in 1Q2021, which is a testament to the fact that the company is moving along the path to profitability. Digital entertainment saw higher margins, while-commerce saw falling EBITDA loss per order.
In Digital Entertainment (DE) division continues to see strong growth in its user base with +61% YoY growth in quarterly active users (QAU) to 648.6m but more importantly quarterly paying users saw growth of +12.3% YoY to 79.8m signifying a higher level of monetization on its self-developed game Free Fire.
The company continues to successfully expand its gaming business to new geographies, with India being the latest growth engine and players are spending more time on Free Fire and spending more. It continues to add new content and characters to increase the appeal and stickiness of Free Fire. It is also seeing huge response in the eSports arena for Free Fire.
Shopee ranked number one in the shopping category by monthly active users and time spent in app in 1Q2021 for both South East Asia and Taiwan, according to App Annie. E-commerce continues to show supercharged growth and especially in the core market of Indonesia.
Sea Ltd (SE US)'s move into digital payments in South -East Asia under SeaMoney and ShopeePay in Indonesia continues to see strong momentum.  The mobile wallet total payment volume saw total payment volume triple in 1Q2021 to US$3.4bn. 
The company is also expanding the offline use-cases for ShopeePay most recently extending use to Indomaret in Indonesia, the largest mini-market operator in the country.

Sea Ltd (SE US)'s move into food delivery through ShopeeFood and evidence suggests that it has already had a strong reception to its launch in Jakarta, with growth similar to that in other categories.

This latest set of results provides further proof of the success of the Sea Ltd (SE US) growth model which generates huge EBITDA from gaming and reinvests that money into growing the company's e-commerce and digital finance businesses, whilst maintaining the investment momentum into the gaming cash cow, buy pushing out into new geographies such as India.



Sea Ltd (SE US) continues to standout as the best way to play the explosive growth in e-commerce in South East Asia, funded by the popularity of its self developed game Free Fire and its gaming business, together with its move into digital payments a third leg to future growth.

Sea Ltd (SE US) valuations are higher than its listed peers on 13x and 9x EV/Sales for FY21E and FY22E respectively but it is growing at more than twice the pace in terms of sales to justify this. The market is also paying a premium for its unique financing plus its market leadership and strong track record on execution, with 11 consecutive quarters of triple-digit growth.

















Global TMT analyst with Asia ex-Japan focus.

Mitchell Kim

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<strong>There are only a few large cap stocks in Asia that can deliver on 30%+ revenue growth and trade at 1x P/Sales (TTM)</strong> and forward P/E of 40x (on consensus estimate). <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> just happens to be one of them.  </li>
<li>
<strong>JD reported the highest topline growth</strong> (39% YoY) in the last 5 years, aided by the explosive JD Logistics and marketplace revenue growth.  The stock still trades at 34% below the peak in March. </li>
<li>JD's product revenue growth was 35% YoY, outpacing the China over all online physical goods sales growth of 32%.  This suggests <strong>JD is gaining market share. </strong>I highlight this trend in my report, <a href="https://www.smartkarma.com/insights/china-e-commerce-robust-consumption-data-hints-at-online-spending-spree" target="_blank" data-smartkarma-citation="insights:50798" rel="noopener">China E-Commerce: Robust Consumption Data Hints at Online Spending Spree</a>.  </li>
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<strong>Some may be concerned over operating margin declining, but I remain constructive as the core business (JD Retail) operating margin hit 4%</strong>, second highest level in its history.  However, total Non-GAAP operating profit margin declined to 1.7% from 2.2% in 1Q20.  This was due to investments in JD Logistics capacity and in new businesses -- Jingxi, cloud and AI.  </li>
<li>Risk: The market may hold back its enthusiasm as lower revenue growth relative to 1Q21 is estimated in 2Q21 because of the skewed growth in 2Q20.  Management stressed that similar growth is expected for 1H21 compared to 1Q20.  </li>
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There are only a few large cap stocks in Asia that can deliver on 30%+ revenue growth and trade at 1x P/Sales (TTM) and forward P/E of 40x (on consensus estimate). JD.com Inc (ADR) (JD US) just happens to be one of them.  

JD reported the highest topline growth (39% YoY) in the last 5 years, aided by the explosive JD Logistics and marketplace revenue growth.  The stock still trades at 34% below the peak in March. 
JD's product revenue growth was 35% YoY, outpacing the China over all online physical goods sales growth of 32%.  This suggests JD is gaining market share. I highlight this trend in my report, China E-Commerce: Robust Consumption Data Hints at Online Spending Spree.  

Some may be concerned over operating margin declining, but I remain constructive as the core business (JD Retail) operating margin hit 4%, second highest level in its history.  However, total Non-GAAP operating profit margin declined to 1.7% from 2.2% in 1Q20.  This was due to investments in JD Logistics capacity and in new businesses -- Jingxi, cloud and AI.  
Risk: The market may hold back its enthusiasm as lower revenue growth relative to 1Q21 is estimated in 2Q21 because of the skewed growth in 2Q20.  Management stressed that similar growth is expected for 1H21 compared to 1Q20.  


JD.com (JD US): Robust Growth, Impressive Core Profit

China

Alibaba Group Holding Limited provides online sales services. The Company provides internet infrastructure, electronic commerce, online financial, and internet content services through its subsidiaries. Alibaba Group Holding offers its products and services worldwide.

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Alibaba Group Holding (BABA US)

Grab - Too Much Euphoria?

Grab is close to listing through the Altimeter SPAC in New York, which has brought with it much euphoria amongst commentators. We look to some of...

Angus Mackintosh

Tencent Holdings – Awaiting The Big Hit

TENCENT HOLDINGS: Tencent] reported 1Q21 YOY total revenue growth of 25%, while non-GAAP operating profit increased just 20%. An FHC suggests...

Thomas J. Monaco

Tencent (700 HK): Growth Will Be Back to Level Before Pandemic, But Still Healthy, Buy

We believe the mobile game growth will be back to the level before the pandemic. WeChat Pay took advantage of AliPay’s poor relation with the govt....

Ming Lu

Sea Ltd - Supercharged

Sea Ltd (SE US) is the best way to proxy for the explosive growth in e-commerce in South East Asia, funded by its gaming revenue, with its move...

Angus Mackintosh

JD.com (JD US): Robust Growth, Impressive Core Profit

When a USD115 billion revenue company is growing 39% YoY and core business operating margin improving 27 bps to 4%, it is hard to sit on the fence....

Mitchell Kim

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