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>The revenue growth rates accelerated in 4Q20 and 2020.</li>
<li>The operating margins improved in 2020.</li>
<li>Operating cash flow increased 72% in 2020.</li>
<li>Pinduoduo (PDD US) is more likely to compete with Alibaba Group (BABA US)’s Taobao, but not JD.</li>
<li>We believe there will an upside of 15.6% by March 2021.</li>
</ul>


The revenue growth rates accelerated in 4Q20 and 2020.
The operating margins improved in 2020.
Operating cash flow increased 72% in 2020.
Pinduoduo (PDD US) is more likely to compete with Alibaba Group (BABA US)’s Taobao, but not JD.
We believe there will an upside of 15.6% by March 2021.


JD.com (JD): Main Business Accelerated in 4Q20

Global TMT analyst with Asia ex-Japan focus.

Mitchell Kim

<p><a href="https://www.smartkarma.com/entities/coupang" target="_blank" data-smartkarma-citation="entities:28425:1" rel="noopener">Coupang (CPNG US) </a>is set for IPO on 11 March 2021 at a revised-up range of USD32-34.  This is one of the blockbuster listings among the Korean companies and thrusting Coupang to the five largest companies in Korea.  There have been healthy debates on this IPO with a consensus that the valuation is very expensive, yet, Coupang appears to be set to fetch close to USD50 billion valuation.</p><p><strong>We are on the “expensive” camp and willing to wait for a better entry price.</strong> We arrived at this conclusion by focusing on direct head-to-head growth and valuation comparisons with its peer, JD.com, instead of comparing with a broad base of peers. Simply put, would you rather have JD.com or Coupang shares?  They are both mostly online retailers with nearly 90% of revenues from retail.     </p><p><strong>Coupang’s market value is priced at 67% premium to JD.com’s market value in 2015</strong> when the latter was in a similar growth stage but with higher upside potential for online consumption outlook.  The only explanation is the outlook for better growth and other considerations we discuss in this report.   </p><p>In this report, we highlight the following:</p><ol>
<li>How does Coupang stack up against JD.com at the past similar growth stage?</li>
<li>Is Coupang expensive?  Yes, on most multiples including EV/Sales and EV/Gross Profit.</li>
<li>How can the market justify paying such a premium? High growth expectation.</li>
<li>Is Coupang’s growth in 2020 sustainable?  Unlikely.</li>
</ol>

Coupang (CPNG US) is set for IPO on 11 March 2021 at a revised-up range of USD32-34.  This is one of the blockbuster listings among the Korean companies and thrusting Coupang to the five largest companies in Korea.  There have been healthy debates on this IPO with a consensus that the valuation is very expensive, yet, Coupang appears to be set to fetch close to USD50 billion valuation.We are on the “expensive” camp and willing to wait for a better entry price. We arrived at this conclusion by focusing on direct head-to-head growth and valuation comparisons with its peer, JD.com, instead of comparing with a broad base of peers. Simply put, would you rather have JD.com or Coupang shares?  They are both mostly online retailers with nearly 90% of revenues from retail.     Coupang’s market value is priced at 67% premium to JD.com’s market value in 2015 when the latter was in a similar growth stage but with higher upside potential for online consumption outlook.  The only explanation is the outlook for better growth and other considerations we discuss in this report.   In this report, we highlight the following:
How does Coupang stack up against JD.com at the past similar growth stage?
Is Coupang expensive?  Yes, on most multiples including EV/Sales and EV/Gross Profit.
How can the market justify paying such a premium? High growth expectation.
Is Coupang’s growth in 2020 sustainable?  Unlikely.


Coupang (CPNG US): Going Mano E Mano with JD.com

Equity Analyst, LightStream Research

Shifara Samsudeen, ACMA, CGMA

Equity Analyst

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.

Equity Capital Markets

<p>The Chinese internet search giant <a href="https://www.smartkarma.com/entities/baidu-inc" target="_blank" data-smartkarma-citation="entities:179:1" rel="noopener">Baidu (BIDU US)</a>  has passed its listing hearing for a secondary listing on the Hong Kong Stock Exchange. Baidu’s secondary listing document didn’t provide the terms of the IPO, however, according to news media outlets, Baidu could raise as much as US$4-5bn through its HKEX offering.</p><p>Though Baidu has been known as a search engine for the past two decades, the company has finally been able to monetise its efforts in AI and related technologies. Baidu’s core online advertising business growth has slowed down (negative over the last two years), and at the same time, we remain concerned about the prospects of <a href="https://www.smartkarma.com/entities/iqiyi-inc" target="_blank" data-smartkarma-citation="entities:26755:1" rel="noopener">iQIYI Inc (IQ US)</a> as well as recently acquired YY Live business from <a href="https://www.smartkarma.com/entities/joyy-inc" target="_blank" data-smartkarma-citation="entities:285:1" rel="noopener">JOYY (YY US)</a> . However, we believe Baidu’s next phase of growth will be driven by its AI Cloud business that includes self-driving and intelligent EVs. The top line from AI Cloud business has more than tripled over the past three years.</p><p>We believe the motive behind Baidu’s secondary listing close to its home is far from raising funds to fuel its business growth as the company is rich in cash. Baidu reported cash and cash equivalents of US$5.5bn and short-term investments of US$19.3bn as at the end of December 2020. Cash and short-term investments together accounted for nearly 50% of the company’s total assets as of that date. On the other hand, Baidu’s total debt of around US$11.6bn accounted for about 60% of the cash and short-term investment balance.</p>

The Chinese internet search giant Baidu (BIDU US)  has passed its listing hearing for a secondary listing on the Hong Kong Stock Exchange. Baidu’s secondary listing document didn’t provide the terms of the IPO, however, according to news media outlets, Baidu could raise as much as US$4-5bn through its HKEX offering.Though Baidu has been known as a search engine for the past two decades, the company has finally been able to monetise its efforts in AI and related technologies. Baidu’s core online advertising business growth has slowed down (negative over the last two years), and at the same time, we remain concerned about the prospects of iQIYI Inc (IQ US) as well as recently acquired YY Live business from JOYY (YY US) . However, we believe Baidu’s next phase of growth will be driven by its AI Cloud business that includes self-driving and intelligent EVs. The top line from AI Cloud business has more than tripled over the past three years.We believe the motive behind Baidu’s secondary listing close to its home is far from raising funds to fuel its business growth as the company is rich in cash. Baidu reported cash and cash equivalents of US$5.5bn and short-term investments of US$19.3bn as at the end of December 2020. Cash and short-term investments together accounted for nearly 50% of the company’s total assets as of that date. On the other hand, Baidu’s total debt of around US$11.6bn accounted for about 60% of the cash and short-term investment balance.

Baidu Secondary Listing: At the Crossroads

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.

<div><p><a href="https://www.smartkarma.com/entities/coupang" target="_blank" data-smartkarma-citation="entities:28425:1" rel="noopener">Coupang (CPNG US)</a> is the largest e-commerce platform in South Korea, according to Euromonitor. Coupang is best known for Rocket Delivery, which provides free, next-day delivery for orders placed any time of the day.</p></div><div><p>Coupang has priced its IPO at $35 per share, above the previously upsized IPO price range of $32-34 per share. The number of the offer shares has increased from 120 million to 130 million shares due to a 10 million shares increase in the secondary tranche. At the final IPO price of $35 per share, Coupang will have a market cap of $60 billion. </p></div><div><p>In <a href="https://www.smartkarma.com/insights/coupang-ipo-initiation-delivering-the-goods" target="_blank" data-smartkarma-citation="insights:48125" rel="noopener">Coupang IPO Initiation: Delivering the Goods</a>, we opined that Coupang's fundamentals tick all the right boxes and worth a look, in our view. In <a href="https://www.smartkarma.com/insights/coupang-ipo-valuation-insights" target="_blank" data-smartkarma-citation="insights:48708" rel="noopener">Coupang IPO: Valuation Insights</a> we noted was attractively priced for its growth potential vs global e-commerce peers at the original IPO price range of $27-30 per share. In <a href="https://www.smartkarma.com/insights/coupang-ipo-upsized-deal-size" target="_blank" data-smartkarma-citation="insights:48991" rel="noopener">Coupang IPO: Upsized Deal Size</a>, Coupang remained attractive at the upsized IPO price range of $32-34 per share.</p></div><div><div class="content-highlight"><p>Updating for the final IPO net raise, our base-case DCF derived price target of $39.46 per share. As DCF-based target prices are subject to a wide range of variability, we present a sensitivity table to help investors gauge where target prices could head. Our DCF sensitivity analysis shows that the IPO price has reasonable upside potential. </p></div></div>

Coupang (CPNG US) is the largest e-commerce platform in South Korea, according to Euromonitor. Coupang is best known for Rocket Delivery, which provides free, next-day delivery for orders placed any time of the day.Coupang has priced its IPO at $35 per share, above the previously upsized IPO price range of $32-34 per share. The number of the offer shares has increased from 120 million to 130 million shares due to a 10 million shares increase in the secondary tranche. At the final IPO price of $35 per share, Coupang will have a market cap of $60 billion. In Coupang IPO Initiation: Delivering the Goods, we opined that Coupang's fundamentals tick all the right boxes and worth a look, in our view. In Coupang IPO: Valuation Insights we noted was attractively priced for its growth potential vs global e-commerce peers at the original IPO price range of $27-30 per share. In Coupang IPO: Upsized Deal Size, Coupang remained attractive at the upsized IPO price range of $32-34 per share.Updating for the final IPO net raise, our base-case DCF derived price target of $39.46 per share. As DCF-based target prices are subject to a wide range of variability, we present a sensitivity table to help investors gauge where target prices could head. Our DCF sensitivity analysis shows that the IPO price has reasonable upside potential. 

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

<div><p>Coupang, one of the largest product e-commerce players in Korea, raised around US$4.2bn in its US listing via a mix of selling primary and secondary shares. </p></div><div><p>In our previous note, links to which are below, we have spoke about various aspects of the deal. In this note, talk about the trading dynamics and provide a valuation table at different  share price levels.</p></div><div><p>We've covered various aspects of the deal in our earlier insights: </p></div><div><ul style="list-style-type: disc;">
<li>
<a href="https://www.smartkarma.com/insights/coupang-pre-ipo-the-positives-fast-growth-sticky-customers" target="_blank" rel="noopener">Coupang Pre-IPO - The Positives - Fast Growth, Sticky Customers</a>, </li>
<li><a href="https://www.smartkarma.com/insights/coupang-pre-ipo-the-negatives-horrendous-data-disclosures-including-no-mention-of-ott-launch" target="_blank" rel="noopener">Coupang Pre-IPO - The Negatives - Horrendous Data Disclosures, Including No Mention of OTT Launch</a></li>
<li><a href="https://www.smartkarma.com/insights/coupang-pre-ipo-fair-bit-of-competition-but-it-s-doing-better-than-most-local-peers" target="_blank" rel="noopener">Coupang Pre-IPO - Fair Bit of Competition but It’s Doing Better than Most Local Peers</a></li>
<li><a href="https://www.smartkarma.com/insights/coupang-pre-ipo-earnings-forecast-and-valuation" target="_blank" rel="noopener">Coupang Pre-IPO - Earnings Forecast and Valuation</a></li>
<li><a href="https://www.smartkarma.com/insights/coupang-ipo-momentum-play-unequal-lock-up-index-inclusion" target="_blank" rel="noopener">Coupang IPO - Momentum Play, Unequal Lock-Up, Index Inclusion</a></li>
<li><a href="https://www.smartkarma.com/insights/coupang-ipo-quick-note-peers-move-down-range-moves-up-ripe-for-trading" target="_blank" rel="noopener">Coupang IPO - Quick Note - Peers Move Down, Range Moves Up. Ripe for Trading.</a></li>
</ul></div>

Coupang, one of the largest product e-commerce players in Korea, raised around US$4.2bn in its US listing via a mix of selling primary and secondary shares. In our previous note, links to which are below, we have spoke about various aspects of the deal. In this note, talk about the trading dynamics and provide a valuation table at different  share price levels.We've covered various aspects of the deal in our earlier insights: 

Coupang Pre-IPO - The Positives - Fast Growth, Sticky Customers, 
Coupang Pre-IPO - The Negatives - Horrendous Data Disclosures, Including No Mention of OTT Launch
Coupang Pre-IPO - Fair Bit of Competition but It’s Doing Better than Most Local Peers
Coupang Pre-IPO - Earnings Forecast and Valuation
Coupang IPO - Momentum Play, Unequal Lock-Up, Index Inclusion
Coupang IPO - Quick Note - Peers Move Down, Range Moves Up. Ripe for Trading.


Coupang IPO Trading - Most Hit near Term Peak on the First Day - Key Trading/Lock-Up Dates

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)

JD.com (JD): Main Business Accelerated in 4Q20

The revenue growth rates accelerated in 4Q20 and 2020. The operating margins improved in 2020. Operating cash flow increased 72% in 2020.

Ming Lu

Coupang (CPNG US): Going Mano E Mano with JD.com

Coupang (CPNG US) is set for IPO on 11 March 2021 at a revised-up range of USD32-34. Our unique one-on-one comparison with JD.com should help...

Mitchell Kim

Baidu Secondary Listing: At the Crossroads

Baidu’s core online advertising business growth has been slowing down, however, Baidu's efforts in AI and advanced technologies have begun to bear...

Shifara Samsudeen, ACMA, CGMA

Coupang IPO: Trading Debut

Coupang has priced its IPO at $35 per share, above the previously upsized IPO price range of $32-34 per share. Our DCF sensitivity analysis shows...

Arun George

Coupang IPO Trading - Most Hit near Term Peak on the First Day - Key Trading/Lock-Up Dates

Coupang, one of the largest product e-commerce players in Korea, raised around US$4.2bn in its US listing via a mix of selling primary and...

Sumeet Singh

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