Global TMT analyst with Asia ex-Japan focus.

Mitchell Kim

Equity Bottom-Up

<p><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> fell more than 50% from the peak in March 2021 despite the company delivering on rejuvenated revenue growth and margin improvements.  I have been cautious on the stock as I believed the market was overpaying for the company's restructuring success.  However, with the share price down sharply, I now believe risk-return is favorable and the stock offers attractive value.  I flagged my upgraded positive view in my last Vipshop report, <a href="https://www.smartkarma.com/insights/china-online-retail-sales-tracker-april-and-may-sales-growth-slows-on-unfavorable-comps" target="_blank" data-smartkarma-citation="insights:53557" rel="noopener">China Online Retail Sales Tracker: April and May Sales Growth Slows on Unfavorable Comps</a>, dated 24 June 2021. </p><p>Three reasons why investors should revisit the stock: </p><ul>
<li>The stock is trading at the lowest forward P/E band (except for the single-digit revenue growth year 2018).   </li>
<li>The company is structured to deliver a growth similar to the pre-2018 period and better margins, yet it is valued as if the company is entering the low growth stage. </li>
<li>Evidence of new customer conversion to repeat buyers will lead to a longer customer life cycle and longer sustainability of double-digit revenue growth.  With top-line growth acceleration, I estimate Vipshop to deliver on historic high profits. Consensus estimates operating profit growth of 29% YoY in 2021.    </li>
</ul>

Vipshop Holdings (VIPS US) fell more than 50% from the peak in March 2021 despite the company delivering on rejuvenated revenue growth and margin improvements.  I have been cautious on the stock as I believed the market was overpaying for the company's restructuring success.  However, with the share price down sharply, I now believe risk-return is favorable and the stock offers attractive value.  I flagged my upgraded positive view in my last Vipshop report, China Online Retail Sales Tracker: April and May Sales Growth Slows on Unfavorable Comps, dated 24 June 2021. Three reasons why investors should revisit the stock: 
The stock is trading at the lowest forward P/E band (except for the single-digit revenue growth year 2018).   
The company is structured to deliver a growth similar to the pre-2018 period and better margins, yet it is valued as if the company is entering the low growth stage. 
Evidence of new customer conversion to repeat buyers will lead to a longer customer life cycle and longer sustainability of double-digit revenue growth.  With top-line growth acceleration, I estimate Vipshop to deliver on historic high profits. Consensus estimates operating profit growth of 29% YoY in 2021.    


Vipshop (VIPS US): Tantalizing Value for China's Discount Brand Retailer

Asset Allocation & Fund Positioning, Copley Fund Research

Steven Holden

Asset Allocation & Fund Positioning

Copley Fund Research

Copley Fund Research provide research and data on asset allocation among Global and Emerging Market equity funds.  The analysis details absolute and relative positioning across countries, sectors and industries together with highly granular data on single stock and single fund allocations.  The data is updated monthly with time series going back to January 2011.

Global Research - Analysis of 165 prominent Global equity funds, combined AUM $335bn
GEM Research - Analysis of 127 prominent global EM equity funds, combined AUM $250bn

Asset Allocation - Global and GEM Equity

Cross Asset Strategy

<p>With Value funds making gains on Growth funds this year, where are EM Value managers positioned?</p><p><strong>Country: </strong></p><p>U/W China &amp; HK and India, O/W South Korea and Mexico.  Note also the overweight in Turkey, with 71% of the Value funds in our analysis positioned overweight versus the iShares MSCI Emerging Markets ETF.</p><p><strong>Sector:</strong></p><p>U/W Consumer Discretionary, Communication Services and Health Care.  O/W  Materials, Industrials and Financials.</p><p>Read on for further data and analysis on Industry and Stock positioning.</p><p><em>Analysis taken from our Emerging Markets Research, covering 242 active GEM funds with combined AUM of $500bn</em></p>

With Value funds making gains on Growth funds this year, where are EM Value managers positioned?Country: U/W China &amp; HK and India, O/W South Korea and Mexico.  Note also the overweight in Turkey, with 71% of the Value funds in our analysis positioned overweight versus the iShares MSCI Emerging Markets ETF.Sector:U/W Consumer Discretionary, Communication Services and Health Care.  O/W  Materials, Industrials and Financials.Read on for further data and analysis on Industry and Stock positioning.Analysis taken from our Emerging Markets Research, covering 242 active GEM funds with combined AUM of $500bn

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.

Equity Capital Markets

<div><p><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>, the world’s largest mobility technology platform, aims to raise up to US$10bn in its US listing. It is backed by <a href="https://www.smartkarma.com/entities/softbank-group-corp" target="_blank" data-smartkarma-citation="entities:315:1" rel="noopener">Softbank Group (9984 JP)</a> and <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent (700 HK)</a>, along with other investors.</p></div><div><p>It is present in over 4,000 cities, counties and towns across 15 countries. As of twelve months ending (LTM) 1Q21, it had 493m annual active users and 15m drivers, who participated in 41m average daily transactions. It generated a gross transaction value of RMB341bn over LTM1Q21.  </p></div><div><p>We provided the deal background and financials overview in our previous notes<a href="https://www.smartkarma.com/insights/didi-chuxing-pre-ipo-one-of-asia-s-largest-ipos-this-year-tearsheet" target="_blank" rel="noopener"></a>:</p></div><div><ul style="list-style-type: disc;">
<li>
<a href="https://www.smartkarma.com/insights/didi-chuxing-pre-ipo-one-of-asia-s-largest-ipos-this-year-tearsheet" target="_blank" rel="noopener">DiDi Chuxing Pre-IPO - One of Asia’s Largest IPOs This Year - Tearsheet</a>.</li>
<li><a href="https://www.smartkarma.com/insights/didi-chuxing-pre-ipo-has-a-principal-agent-problem-rumoured-target-valuation-is-a-stretch" target="_blank" rel="noopener">DiDi Chuxing Pre-IPO - Has a Principal Agent Problem, Rumoured Target Valuation Is a Stretch</a></li>
<li><a href="https://www.smartkarma.com/insights/didi-pre-ipo-competitive-in-car-hailing-uncompetitive-in-others-generally-valuable" target="_blank" rel="noopener">DIDI (滴滴) Pre-IPO: Competitive in Car Hailing, Uncompetitive In “Others”, Generally Valuable</a></li>
<li><a href="https://www.smartkarma.com/insights/didi-chuxing-pre-ipo-peer-comparison" target="_blank" rel="noopener">DiDi Chuxing Pre-IPO - Peer Comparison</a></li>
<li><a href="https://www.smartkarma.com/insights/didi-chuxing-pre-ipo-valuation" target="_blank" rel="noopener">DiDi Chuxing Pre-IPO - Valuation</a></li>
</ul></div><div><p>In this note we will talk about bull-case scenario and index implications</p></div>

DiDi Chuxing (DIDI US), the world’s largest mobility technology platform, aims to raise up to US$10bn in its US listing. It is backed by Softbank Group (9984 JP) and Tencent (700 HK), along with other investors.It is present in over 4,000 cities, counties and towns across 15 countries. As of twelve months ending (LTM) 1Q21, it had 493m annual active users and 15m drivers, who participated in 41m average daily transactions. It generated a gross transaction value of RMB341bn over LTM1Q21.  We provided the deal background and financials overview in our previous notes:

DiDi Chuxing Pre-IPO - One of Asia’s Largest IPOs This Year - Tearsheet.
DiDi Chuxing Pre-IPO - Has a Principal Agent Problem, Rumoured Target Valuation Is a Stretch
DIDI (滴滴) Pre-IPO: Competitive in Car Hailing, Uncompetitive In “Others”, Generally Valuable
DiDi Chuxing Pre-IPO - Peer Comparison
DiDi Chuxing Pre-IPO - Valuation
In this note we will talk about bull-case scenario and index implications

DiDi Chuxing Pre-IPO - Bull Case, Index Inclusion, Uber Exit

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<div>
<p>Back on the 27 July, Chinese search-engine <a href="https://www.smartkarma.com/entities/sogou-inc" target="_blank" data-smartkarma-citation="entities:25996:1" rel="noopener">Sogou Inc (SOGO US)</a>, majority-owned by <a href="https://www.smartkarma.com/entities/sohu-com-ltd" target="_blank" data-smartkarma-citation="entities:22853:1" rel="noopener">Sohu.com Inc (SOHU US)</a>  and <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>, <a href="http://app.quotemedia.com/data/downloadFiling?webmasterId=101533&amp;ref=115257193&amp;type=PDF&amp;symbol=SOGO&amp;companyName=Sogou+Inc.+American+Depositary+Shares+each+representing+one+Class+A&amp;formType=6-K&amp;dateFiled=2020-09-29&amp;CK=1713947" target="_blank" rel="noopener">entered</a> into a definitive agreement for a "Going-Private Transaction" at US$9/share.</p>
<p>Additionally, Sohu entered into a SPA with Tencent concerning its stake in Sogou, which would result in Tencent holding not less than 90% of the voting power in Sogou. Therefore the Merger would be a short-form merger - there is no vote. Dissenting rights will, however, now be afforded following the Grand Court of  Cayman Islands ruling handed down on the 28 January this year and discussed in <em><a href="https://skr.ma/H7E1t" target="_blank" rel="noopener">Changyou (CYOU US): Short-Form Merger Dissent Now Permitted</a></em>. Sohu's privatisation of Changyou competed on the 17 April.</p>
</div><div>
<p>The deal appeared to be a lock, until Sogou's 1 December <a href="http://app.quotemedia.com/data/downloadFiling?webmasterId=101533&amp;ref=115473750&amp;type=PDF&amp;symbol=SOGO&amp;companyName=Sogou+Inc.+American+Depositary+Shares+each+representing+one+Class+A&amp;formType=SC+13E3%2FA&amp;dateFiled=2020-12-01&amp;CK=1713947" target="_blank" rel="noopener">SEC filing</a>, wherein the termination date for the SPA was pushed out to 31 July, from 29 March previously, to allow clearance from the PRC regulatory authorities, specifically State Administration for Market Regulation or SAMR.</p>
<p>What seemed an ample extension at the time now appears less assured as SAMR bears down on the tech sector. </p>
<p>This muddies when (and potentially if) the merger goes through. Plus the knock-on effect to Sohu which would pocket ~US$1.2bn under the merger compared to its current maker cap of ~US$0.7bn.</p>
<p>But Tencent is unlikely to walk - not at this Offer price. </p>
</div><div><p>More below the fold.</p></div>


Back on the 27 July, Chinese search-engine Sogou Inc (SOGO US), majority-owned by Sohu.com Inc (SOHU US)  and Tencent Holdings (700 HK), entered into a definitive agreement for a "Going-Private Transaction" at US$9/share.
Additionally, Sohu entered into a SPA with Tencent concerning its stake in Sogou, which would result in Tencent holding not less than 90% of the voting power in Sogou. Therefore the Merger would be a short-form merger - there is no vote. Dissenting rights will, however, now be afforded following the Grand Court of  Cayman Islands ruling handed down on the 28 January this year and discussed in Changyou (CYOU US): Short-Form Merger Dissent Now Permitted. Sohu's privatisation of Changyou competed on the 17 April.

The deal appeared to be a lock, until Sogou's 1 December SEC filing, wherein the termination date for the SPA was pushed out to 31 July, from 29 March previously, to allow clearance from the PRC regulatory authorities, specifically State Administration for Market Regulation or SAMR.
What seemed an ample extension at the time now appears less assured as SAMR bears down on the tech sector. 
This muddies when (and potentially if) the merger goes through. Plus the knock-on effect to Sohu which would pocket ~US$1.2bn under the merger compared to its current maker cap of ~US$0.7bn.
But Tencent is unlikely to walk - not at this Offer price. 
More below the fold.

Sohu/Sogou: Persuasive Situation Amid Ongoing Antitrust Investigations

<p>China online physical goods retail sales growth for April and May is tracking well below the 1Q21 level.  While this is largely an optics phenomenon due to unfavorable comparisons with the COVID fueled 2Q20, the upcoming 2Q21 earnings are unlikely to provide a catalyst for ecommerce platforms, in my view. However, with a sharp share price fall in the last 3 months, Vipshop shares now stand out as a value play. </p><h3>Key takeaways from the China retail sales data for May: </h3><ul>
<li>China overall retail sales growth YoY for May drops to 12.4% from 34% in 1Q21, but it is at near par with 1Q21 on a two-year CAGR basis.     </li>
<li>Online physical goods sales growth YoY for April and May combined is 7.3% YoY, well below the 26% in 1Q21 but at a similar 15% 2 YR CAGR rate.  </li>
<li>The apparel category sales showed relatively stronger growth in April and May.</li>
<li>Overall, Chinese online shopping platform share prices are down 11% to 60% in the last 3 months.  <a href="https://www.smartkarma.com/entities/vipshop-holdings-ltd-adr" target="_blank" data-smartkarma-citation="entities:1088:1" rel="noopener"><strong>Vipshop Holdings (VIPS US)</strong></a><strong>is now back in the value category with the stock trading at 9-10x FY21 earnings (based on consensus EPS and my own estimate)</strong>. </li>
<li>Consensus estimates for VIPS are likely to continue to fall to rationalize the share price drop.  I see potential value emerging once the revision is complete. </li>
<li>I estimate Vipshop's 2Q21 revenue growth to be 29% YoY, beating consensus estimate and the company's upper range guidance.  <a href="https://www.smartkarma.com/entities/pinduoduo-inc" target="_blank" data-smartkarma-citation="entities:27250:1" rel="noopener">Pinduoduo (PDD US)</a>, <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>, and <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> will see revenue growth deceleration as well with PDD likely to see largest growth deceleration (excluding direct sales).   </li>
</ul>

China online physical goods retail sales growth for April and May is tracking well below the 1Q21 level.  While this is largely an optics phenomenon due to unfavorable comparisons with the COVID fueled 2Q20, the upcoming 2Q21 earnings are unlikely to provide a catalyst for ecommerce platforms, in my view. However, with a sharp share price fall in the last 3 months, Vipshop shares now stand out as a value play. Key takeaways from the China retail sales data for May: 
China overall retail sales growth YoY for May drops to 12.4% from 34% in 1Q21, but it is at near par with 1Q21 on a two-year CAGR basis.     
Online physical goods sales growth YoY for April and May combined is 7.3% YoY, well below the 26% in 1Q21 but at a similar 15% 2 YR CAGR rate.  
The apparel category sales showed relatively stronger growth in April and May.
Overall, Chinese online shopping platform share prices are down 11% to 60% in the last 3 months.  Vipshop Holdings (VIPS US)is now back in the value category with the stock trading at 9-10x FY21 earnings (based on consensus EPS and my own estimate). 
Consensus estimates for VIPS are likely to continue to fall to rationalize the share price drop.  I see potential value emerging once the revision is complete. 
I estimate Vipshop's 2Q21 revenue growth to be 29% YoY, beating consensus estimate and the company's upper range guidance.  Pinduoduo (PDD US), Alibaba Group (BABA US), and JD.com Inc (ADR) (JD US) will see revenue growth deceleration as well with PDD likely to see largest growth deceleration (excluding direct sales).   


China Online Retail Sales Tracker: April and May Sales Growth Slows on Unfavorable Comps

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)

Vipshop (VIPS US): Tantalizing Value for China's Discount Brand Retailer

Vipshop is down 50% from the peak in March 2021 despite the rejuvenated revenue growth and margin improvements. As I flagged my upgraded positive...

Mitchell Kim

EM Value Fund Positioning

With Value funds making gains on Growth funds this year, where are active Emerging Market Value managers positioned across countries, sectors,...

Steven Holden

DiDi Chuxing Pre-IPO - Bull Case, Index Inclusion, Uber Exit

DiDi Chuxing (DIDI US), the world’s largest mobility technology platform, aims to raise up to US$10bn in its US listing. It is backed by Softbank...

Sumeet Singh

Sohu/Sogou: Persuasive Situation Amid Ongoing Antitrust Investigations

Trading at a gross spread of 7.5%. Even assuming another six months out from here to complete the deal, that looks compelling. I still like Sohu...

David Blennerhassett

China Online Retail Sales Tracker: April and May Sales Growth Slows on Unfavorable Comps

Online retail sales growth for April and May is tracking well below the 1Q21 level. This is due to optics, but 2Q21 earnings are unlikely to be a...

Mitchell Kim

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