Alpha-Centric ESG Research

Kyle Rudden

<p>In past Insights, I have covered Senate Bill 945, titled the Holding Foreign Companies Accountable Act (aka the "delisting Chinese stocks act"). In two reports, I laid out my thesis as to why passage of S945 is unlikely during the current session of Congress. Those two reports are:</p><ul>
<li><a href="https://www.smartkarma.com/insights/delisting-deceitful-chinese-companies-act-not-a-slam-dunk-and-has-more-bark-than-bite-if-it-passes" target="_blank" data-smartkarma-citation="insights:40025" rel="noopener">"Delisting Deceitful Chinese Companies Act" Not a Slam Dunk and Has More Bark Than Bite if It Passes</a></li>
<li>
<a href="https://www.smartkarma.com/insights/delisting-deceitful-chinese-companies-act-update-purgatory-subtexts-and-laughing-to-the-bank" target="_blank" data-smartkarma-citation="insights:41144" rel="noopener">"Delisting Deceitful Chinese Companies Act" (Update): Purgatory, Subtexts, and Laughing to the Bank</a> </li>
</ul><p>I still feel that the passage of S945 is more <em>unlikely</em> than likely, but there are recent developments surrounding this issue that warrant an update. So, here it is. This Insight briefly discusses two of those developments pertaining this bill, and delisting more generally. Specifically, they are:</p><ol>
<li>SEC pushing its own regulation akin to S945, which it hopes to formally propose by year end.</li>
<li>The House of Representative voting on S945, scheduled for this week (Wednesday U.S. time)</li>
</ol>

In past Insights, I have covered Senate Bill 945, titled the Holding Foreign Companies Accountable Act (aka the "delisting Chinese stocks act"). In two reports, I laid out my thesis as to why passage of S945 is unlikely during the current session of Congress. Those two reports are:
"Delisting Deceitful Chinese Companies Act" Not a Slam Dunk and Has More Bark Than Bite if It Passes

"Delisting Deceitful Chinese Companies Act" (Update): Purgatory, Subtexts, and Laughing to the Bank 
I still feel that the passage of S945 is more unlikely than likely, but there are recent developments surrounding this issue that warrant an update. So, here it is. This Insight briefly discusses two of those developments pertaining this bill, and delisting more generally. Specifically, they are:
SEC pushing its own regulation akin to S945, which it hopes to formally propose by year end.
The House of Representative voting on S945, scheduled for this week (Wednesday U.S. time)


Update On "Delisting Chinese Stocks Act" – SEC Activity and a House Vote This Week

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

Alibaba Health Information Tec / Equity Bottom-Up

<ul>
<li>The National Radio and Television Administration forbids juveniles from paying broadcasters.</li>
<li>It was widely rumored that both Alibaba (BABA) and Tencent (700 HK) stopped negotiating the acquisition of iQiyi (IQ).</li>
<li>The National Medical Products Administration formally allow prescription drug to be sold online.</li>
</ul>


The National Radio and Television Administration forbids juveniles from paying broadcasters.
It was widely rumored that both Alibaba (BABA) and Tencent (700 HK) stopped negotiating the acquisition of iQiyi (IQ).
The National Medical Products Administration formally allow prescription drug to be sold online.


China Internet Weekly (30Nov2020): Approve Online Rx Drug, Ban Juveniles from Paying Broadcasters

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

Equity Capital Markets

Pop Mart International Group L / Equity Capital Markets

<div><p><a href="https://www.smartkarma.com/entities/pop-mart-international-group-limited" target="_blank" data-smartkarma-citation="entities:29016:1" rel="noopener">POP MART (POP HK)</a> aims to raise up to US$674m in its Hong Kong IPO</p></div><div><p>Pop Mart (PM) is the largest and fastest growing pop toy company in China, in terms of 2019 revenue and revenue CAGR over 2017-19. PM had a 8.5% market share by retail value, making it the largest player in the pop toy retailing market.</p></div><div><p>In our previous insights, we spoke about the various aspects of the deal: </p></div><div><ul style="list-style-type: disc;">
<li>
<a href="https://www.smartkarma.com/insights/pop-mart-pre-ipo-the-positives-expanding-portfolio-wider-distribution-explosive-earnings-growth" target="_blank" rel="noopener">Pop Mart Pre-IPO - The Positives - Expanding Portfolio+Wider Distribution= Explosive Earnings Growth,</a> and</li>
<li><a href="https://www.smartkarma.com/insights/pop-mart-pre-ipo-the-negatives-is-it-a-brand-owner-or-just-a-retailer" target="_blank" rel="noopener">Pop Mart Pre-IPO - The Negatives - Is It a Brand Owner or Just a Retailer?</a></li>
<li><a href="https://www.smartkarma.com/insights/pop-mart-pre-ipo-peer-set-and-valuation" target="_blank" data-smartkarma-citation="insights:41850" rel="noopener">Pop Mart Pre-IPO - Peer Set and Valuation</a></li>
<li><a href="https://www.smartkarma.com/insights/pop-mart-pre-ipo-quick-note-on-the-ground-pop-up-stores-are-effective" target="_blank" rel="noopener">Pop Mart Pre-IPO Quick Note - On the Ground - Pop-Up Stores Are Effective</a></li>
</ul></div><div><ul style="list-style-type: disc;"><li><a href="https://www.smartkarma.com/insights/pop-mart-pre-ipo-phip-updates-still-riding-on-past-expansion" target="_blank" rel="noopener">Pop Mart Pre-IPO - PHIP Updates - Still Riding on past Expansion</a></li></ul></div><ul><li><a href="https://www.smartkarma.com/insights/pop-mart-pre-ipo-valuation-updates" target="_blank" rel="noopener">Pop Mart Pre-IPO - Valuation Updates</a></li></ul><div><p>In this note, I’ll run the deal through our ECM framework.</p></div>

POP MART (POP HK) aims to raise up to US$674m in its Hong Kong IPOPop Mart (PM) is the largest and fastest growing pop toy company in China, in terms of 2019 revenue and revenue CAGR over 2017-19. PM had a 8.5% market share by retail value, making it the largest player in the pop toy retailing market.In our previous insights, we spoke about the various aspects of the deal: 

Pop Mart Pre-IPO - The Positives - Expanding Portfolio+Wider Distribution= Explosive Earnings Growth, and
Pop Mart Pre-IPO - The Negatives - Is It a Brand Owner or Just a Retailer?
Pop Mart Pre-IPO - Peer Set and Valuation
Pop Mart Pre-IPO Quick Note - On the Ground - Pop-Up Stores Are Effective
Pop Mart Pre-IPO - PHIP Updates - Still Riding on past ExpansionPop Mart Pre-IPO - Valuation UpdatesIn this note, I’ll run the deal through our ECM framework.

Pop Mart IPO - Making You Pay Well for Growth

Equity Analyst, LightStream Research

Oshadhi Kumarasiri

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.

Event-Driven

<ul>
<li>In October 2020, <a href="https://www.smartkarma.com/entities/alibaba-group-holding-ltd" target="_blank" rel="noopener">Alibaba Group (BABA US)</a>-owned Taobao China Holding Limited acquired an additional 70.94% interest in A-RT Retail Holdings Limited (which owns 51% of <a href="https://www.smartkarma.com/entities/sun-art-retail-group-ltd" target="_blank" data-smartkarma-citation="entities:401:1" rel="noopener">Sun Art Retail (6808 HK)</a>) from its owners, the Mulliez Family, for an aggregate consideration of US$ 3.6 billion (HK$ 27.96 billion).</li>
<li>As a result, Alibaba took control of 72.35% of the Chinese supermarket chain’s share capital, triggering a mandatory offer at HK$ 8.10 per share.</li>
<li>
<a href="https://www.smartkarma.com/entities/sun-art-retail-group-ltd" target="_blank" data-smartkarma-citation="entities:401:1" rel="noopener">Sun Art Retail (6808 HK)</a> shares closed 16.7% above the implied acquisition price of HK$ 8.10 per share, on the date of the announcement. Around 170m shares changed hands on the same date, compared to an average daily trading volume of 17.0 million shares in the three months leading up to this transaction.</li>
</ul><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/175/144/original/Picture1.png?1606704586" class="editor-image img-responsive" data-smartkarma-image-id="175144"></figure></section><ul>
<li>From the 19<sup>th</sup> October to 27<sup>th</sup> November, Sun Art Retail shares traded above the minimum mandatory offer price of HK$ 8.10 per share, perhaps an indication that the market may have been expecting an offer of a higher price than HK$ 8.10 per share.</li>
<li>The mandatory offer commenced at the minimum offer price of HK$ 8.10 per share on 27<sup>th</sup> November 2020, and will remain open until 18<sup>th</sup> December 2020.</li>
<li>The independent financial advisor, Somerley Capital Limited, which was appointed by the Independent Board Committee to ascertain the fairness of the mandatory offer, has looked at the company’s historical share price range, PE ratios, and PE discount to the peers and decided that the offer is unfair to the minority shareholders.</li>
</ul>


In October 2020, Alibaba Group (BABA US)-owned Taobao China Holding Limited acquired an additional 70.94% interest in A-RT Retail Holdings Limited (which owns 51% of Sun Art Retail (6808 HK)) from its owners, the Mulliez Family, for an aggregate consideration of US$ 3.6 billion (HK$ 27.96 billion).
As a result, Alibaba took control of 72.35% of the Chinese supermarket chain’s share capital, triggering a mandatory offer at HK$ 8.10 per share.

Sun Art Retail (6808 HK) shares closed 16.7% above the implied acquisition price of HK$ 8.10 per share, on the date of the announcement. Around 170m shares changed hands on the same date, compared to an average daily trading volume of 17.0 million shares in the three months leading up to this transaction.

From the 19th October to 27th November, Sun Art Retail shares traded above the minimum mandatory offer price of HK$ 8.10 per share, perhaps an indication that the market may have been expecting an offer of a higher price than HK$ 8.10 per share.
The mandatory offer commenced at the minimum offer price of HK$ 8.10 per share on 27th November 2020, and will remain open until 18th December 2020.
The independent financial advisor, Somerley Capital Limited, which was appointed by the Independent Board Committee to ascertain the fairness of the mandatory offer, has looked at the company’s historical share price range, PE ratios, and PE discount to the peers and decided that the offer is unfair to the minority shareholders.


A Low-Ball Offer - Aimed to Keep Sun Art Retail Listed

<div><p><a href="https://www.smartkarma.com/entities/pop-mart-international-group-limited" target="_blank" data-smartkarma-citation="entities:29016:1" rel="noopener">POP MART (POP HK)</a>  plans to raise around US$200-300m in its Hong Kong IPO.</p></div><div><p>Pop Mart (PM) is the largest and fastest growing pop toy company in China, in terms of 2019 revenue and revenue CAGR over 2017-19. PM had a 8.5% market share by retail value, making it the largest player in the pop toy retailing market.</p></div><div><p>In our previous insights, we spoke about the positive/negative aspects, peers and valuation, and undertook store and product reviews: </p></div><div><ul style="list-style-type: disc;">
<li>
<a href="https://www.smartkarma.com/insights/pop-mart-pre-ipo-the-positives-expanding-portfolio-wider-distribution-explosive-earnings-growth" target="_blank" rel="noopener">Pop Mart Pre-IPO - The Positives - Expanding Portfolio+Wider Distribution= Explosive Earnings Growth,</a> and</li>
<li><a href="https://www.smartkarma.com/insights/pop-mart-pre-ipo-the-negatives-is-it-a-brand-owner-or-just-a-retailer" target="_blank" rel="noopener">Pop Mart Pre-IPO - The Negatives - Is It a Brand Owner or Just a Retailer?</a></li>
<li><a href="https://www.smartkarma.com/insights/pop-mart-pre-ipo-peer-set-and-valuation" target="_blank" data-smartkarma-citation="insights:41850" rel="noopener">Pop Mart Pre-IPO - Peer Set and Valuation</a></li>
<li><a href="https://www.smartkarma.com/insights/pop-mart-pre-ipo-quick-note-on-the-ground-pop-up-stores-are-effective" target="_blank" rel="noopener">Pop Mart Pre-IPO Quick Note - On the Ground - Pop-Up Stores Are Effective</a></li>
</ul></div><div>
<ul><li><a href="https://www.smartkarma.com/insights/pop-mart-pre-ipo-phip-updates-still-riding-on-past-expansion" target="_blank" rel="noopener">Pop Mart Pre-IPO - PHIP Updates - Still Riding on past Expansion</a></li></ul>
<p>In this note, I’ll talk about the updates to valuation post the PHIP updates.</p>
</div>

POP MART (POP HK)  plans to raise around US$200-300m in its Hong Kong IPO.Pop Mart (PM) is the largest and fastest growing pop toy company in China, in terms of 2019 revenue and revenue CAGR over 2017-19. PM had a 8.5% market share by retail value, making it the largest player in the pop toy retailing market.In our previous insights, we spoke about the positive/negative aspects, peers and valuation, and undertook store and product reviews: 

Pop Mart Pre-IPO - The Positives - Expanding Portfolio+Wider Distribution= Explosive Earnings Growth, and
Pop Mart Pre-IPO - The Negatives - Is It a Brand Owner or Just a Retailer?
Pop Mart Pre-IPO - Peer Set and Valuation
Pop Mart Pre-IPO Quick Note - On the Ground - Pop-Up Stores Are Effective

Pop Mart Pre-IPO - PHIP Updates - Still Riding on past Expansion
In this note, I’ll talk about the updates to valuation post the PHIP updates.


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)

Update On "Delisting Chinese Stocks Act" – SEC Activity and a House Vote This Week

I have published several Insights on the Senate's Holding Foreign Companies Accountable Act, explaining why I believe it will not pass. That's...

Kyle Rudden

China Internet Weekly (30Nov2020): Approve Online Rx Drug, Ban Juveniles from Paying Broadcasters

The authorities forbid juveniles from paying broadcasters. The Medical Administration allows prescription drug to be sold online.

Ming Lu

Pop Mart IPO - Making You Pay Well for Growth

POP MART (POP HK) aims to raise up to US$674m in its Hong Kong IPO Pop Mart is the largest and fastest growing pop toy company in China, in terms...

Sumeet Singh

A Low-Ball Offer - Aimed to Keep Sun Art Retail Listed

It appears that Alibaba is not particularly keen on adding any more to the 72.35% of Sun Art shares it already owns. However, by law, Alibaba is...

Oshadhi Kumarasiri

Pop Mart Pre-IPO - Valuation Updates

POP MART plans to raise around US$200-300m in its Hong Kong IPO. Pop Mart is the largest and fastest growing pop toy company in China, in terms of...

Sumeet Singh

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