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

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/sea-ltd" target="_blank" data-smartkarma-citation="entities:8509:1" rel="noopener">Sea Ltd (SE US)</a> just released its 3Q2020 numbers and yet again hit the ball out of the park on revenue growth, with +110% growth in its digital entertainment (DE) revenues to US$944.7m and +173% growth in its e-commerce (EC) revenues to US$618.7m.
Digital Entertainment revenues grew by +31.9% QoQ in 3Q2020, whilst e-commerce expanded by +39.7% QoQ. Total group revenues for 3Q2020 grew by +98.7% YoY to US$1,212.2m.
The company also registered a positive EBITDA of US$120.4m in 3Q2020 versus (US$30.8m) loss for 3Q2019 and US$7.7m in 2Q2020 but it still booked a net loss of (US$346m) after share-based compensation and changes in the value of the 2017 convertible notes versus (US$175m) in 3Q2019.
<a href="https://www.smartkarma.com/entities/sea-ltd" target="_blank" data-smartkarma-citation="entities:8509:1" rel="noopener">Sea Ltd (SE US)</a> booked a +99% growth rate in total GAAP revenue US$1.2bn, whilst gross profits grew by +100.6% YoY in 3Q2020 to US$407.6m. Gross merchandise value (GMV) increased +103% to US$9.3bn in 3Q2020. 
<a href="https://www.smartkarma.com/entities/sea-ltd" target="_blank" data-smartkarma-citation="entities:8509:1" rel="noopener">Sea Ltd (SE US)</a> has yet again demonstrated its ability to lead the pack both through Garena in gaming and Shopee for e-commerce in terms of extraordinary rates of revenue growth, with its digital entertainment effectively bankrolling its e-commerce business.
E-commerce is also marching in the right direction with the EBITDA loss per order continuing to decline QoQ as it winds its way towards profitability, although that will not happen until 2023.
<div class="content-highlight">
Looking out to FY21E, the average EV/Sales for the company's peers stands at 5.5x versus <a href="https://www.smartkarma.com/entities/sea-ltd" target="_blank" data-smartkarma-citation="entities:8509:1" rel="noopener">Sea Ltd (SE US)</a> on 9.45x but it is forecast to grow sales at +43.6%, twice the average growth rate of peers. Investors will pay a premium for this growth and its market leadership, with an increasing focus on profitability. 
</div>

Sea Ltd (SE US) just released its 3Q2020 numbers and yet again hit the ball out of the park on revenue growth, with +110% growth in its digital entertainment (DE) revenues to US$944.7m and +173% growth in its e-commerce (EC) revenues to US$618.7m.
Digital Entertainment revenues grew by +31.9% QoQ in 3Q2020, whilst e-commerce expanded by +39.7% QoQ. Total group revenues for 3Q2020 grew by +98.7% YoY to US$1,212.2m.
The company also registered a positive EBITDA of US$120.4m in 3Q2020 versus (US$30.8m) loss for 3Q2019 and US$7.7m in 2Q2020 but it still booked a net loss of (US$346m) after share-based compensation and changes in the value of the 2017 convertible notes versus (US$175m) in 3Q2019.
Sea Ltd (SE US) booked a +99% growth rate in total GAAP revenue US$1.2bn, whilst gross profits grew by +100.6% YoY in 3Q2020 to US$407.6m. Gross merchandise value (GMV) increased +103% to US$9.3bn in 3Q2020. 
Sea Ltd (SE US) has yet again demonstrated its ability to lead the pack both through Garena in gaming and Shopee for e-commerce in terms of extraordinary rates of revenue growth, with its digital entertainment effectively bankrolling its e-commerce business.
E-commerce is also marching in the right direction with the EBITDA loss per order continuing to decline QoQ as it winds its way towards profitability, although that will not happen until 2023.

Looking out to FY21E, the average EV/Sales for the company's peers stands at 5.5x versus Sea Ltd (SE US) on 9.45x but it is forecast to grow sales at +43.6%, twice the average growth rate of peers. Investors will pay a premium for this growth and its market leadership, with an increasing focus on profitability. 


Sea Ltd (SE US) - Gaming the E-Commerce Epiphany

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

The role of lock-ups in IPOs is, as one journal <a href="https://www.jstor.org/stable/1262724?seq=1" target="_blank" rel="noopener">put it</a>, a "commitment device to alleviate moral hazard problems".
Lock-ups can be entered into and negotiated with underwriters, as is the case for secondary listings for <a href="https://www.smartkarma.com/entities/netease" target="_blank" data-smartkarma-citation="entities:29030:1" rel="noopener">NetEase (9999 HK)</a>, <a href="https://www.smartkarma.com/entities/jd-com-inc" target="_blank" data-smartkarma-citation="entities:29043:1" rel="noopener">JD.com (HK) (9618 HK)</a>, amongst others. For primary listings in Hong Kong, there are standard rules as to the lock-up duration.
According to <a href="https://en-rules.hkex.com.hk/rulebook/1007-0" target="_blank" rel="noopener">Main Board Rule 10.07(1)</a> (or <a href="https://en-rules.hkex.com.hk/rulebook/1316a" target="_blank" rel="noopener">GEM rule 13.16A(1)</a>), if a person/group of persons is/are listed as the controlling shareholder(s) of the issuer's listing application, shall not (apart from any offer of shares for sale discussed in the listing document):
<ol>
<li>dispose of shares (nor enter into agreements) in a period commencing on the date by reference to which disclosure of the shareholding of the controlling shareholder is made in the listing document and ending on the date which is 6 months from the date of listing (the “First Six-month Period”); and</li>
<li>dispose of shares in the period of 6 months commencing on the date on which the First Six-month Period expires, if immediately following such disposal that person or group of persons would cease to be a controlling shareholder (the “Second Six-month Period”).</li>
</ol>
An example of such wording can be found in Yadong's Group (1795 HK)'s (the most recent Main Board listing) "<a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/1117/9515120/2020111700040.pdf" target="_blank" rel="noopener">Share Offer - Announcement of allotment results</a>".
For cornerstone investors, the following is often stated in the share offer document:
<blockquote>
Each of the Cornerstone Investors has agreed that it will not, whether directly or indirectly, at any time during the period of six months following the Listing Date, dispose of any of the Offer Shares it has purchased pursuant to the relevant Cornerstone Investment Agreement, save for certain limited circumstances ...
</blockquote>
Every week in my Event SPACE wrap, I flag large moves (~10%) in CCASS holdings over the past week or so, moves that are often outside normal market transactions.  These may be indicative of share pledges.  Or potential takeovers. Or simply help understand volume swings. 
Large movement(s) concerning recently listed companies are likely lock-up related. 
This insight looks at companies that have been listed for nearly six months or 12 months, as a guide to when insiders/controlling shareholders are permitted to sell, potentially depressing prices and creating an overhang.
A summary of Main Board listings in 2020 is attached at the bottom of this insight.

The role of lock-ups in IPOs is, as one journal put it, a "commitment device to alleviate moral hazard problems".
Lock-ups can be entered into and negotiated with underwriters, as is the case for secondary listings for NetEase (9999 HK), JD.com (HK) (9618 HK), amongst others. For primary listings in Hong Kong, there are standard rules as to the lock-up duration.
According to Main Board Rule 10.07(1) (or GEM rule 13.16A(1)), if a person/group of persons is/are listed as the controlling shareholder(s) of the issuer's listing application, shall not (apart from any offer of shares for sale discussed in the listing document):

dispose of shares (nor enter into agreements) in a period commencing on the date by reference to which disclosure of the shareholding of the controlling shareholder is made in the listing document and ending on the date which is 6 months from the date of listing (the “First Six-month Period”); and
dispose of shares in the period of 6 months commencing on the date on which the First Six-month Period expires, if immediately following such disposal that person or group of persons would cease to be a controlling shareholder (the “Second Six-month Period”).

An example of such wording can be found in Yadong's Group (1795 HK)'s (the most recent Main Board listing) "Share Offer - Announcement of allotment results".
For cornerstone investors, the following is often stated in the share offer document:

Each of the Cornerstone Investors has agreed that it will not, whether directly or indirectly, at any time during the period of six months following the Listing Date, dispose of any of the Offer Shares it has purchased pursuant to the relevant Cornerstone Investment Agreement, save for certain limited circumstances ...

Every week in my Event SPACE wrap, I flag large moves (~10%) in CCASS holdings over the past week or so, moves that are often outside normal market transactions.  These may be indicative of share pledges.  Or potential takeovers. Or simply help understand volume swings. 
Large movement(s) concerning recently listed companies are likely lock-up related. 
This insight looks at companies that have been listed for nearly six months or 12 months, as a guide to when insiders/controlling shareholders are permitted to sell, potentially depressing prices and creating an overhang.
A summary of Main Board listings in 2020 is attached at the bottom of this insight.

Asian Equities Analyst, Logistics & Transport, Tracking Traffic

Daniel Hellberg

Asian Equities Analyst, Logistics & Transport

Tracking Traffic

Focusing on Asian logistics, transportation, and travel companies

<a href="https://www.smartkarma.com/entities/zto-express" target="_blank" data-smartkarma-citation="entities:23628:1" rel="noopener">ZTO Express (ZTO US)</a> reported Q3 earnings results after the US close on Wednesday. While parcel volume and revenue both showed strong growth -- up 51% and 26% YoY, respectively -- core margins imploded and diluted net earnings per share fell about 10% versus Q3 2019. The collapse of ZTO's core express margins shows ZTO has fallen back to the pack it used to lead convincingly.We also note sharp YoY increases in gross profit from non-express activities, 'other operating income', and tax breaks, all of which flattered the company's weak bottom line. Without these, we estimate net profit would have fallen by around a third in Q3. ZTO's growing reliance on 'other' items indicates worsening earnings quality, in our view. Despite these, ZTO continues to enjoy rich valuation multiples, which we believe is undeserved, given our expectation of continued margin pressure in 2021. We retain our SELL rating on ZTO.

ZTO Express (ZTO US) reported Q3 earnings results after the US close on Wednesday. While parcel volume and revenue both showed strong growth -- up 51% and 26% YoY, respectively -- core margins imploded and diluted net earnings per share fell about 10% versus Q3 2019. The collapse of ZTO's core express margins shows ZTO has fallen back to the pack it used to lead convincingly.We also note sharp YoY increases in gross profit from non-express activities, 'other operating income', and tax breaks, all of which flattered the company's weak bottom line. Without these, we estimate net profit would have fallen by around a third in Q3. ZTO's growing reliance on 'other' items indicates worsening earnings quality, in our view. Despite these, ZTO continues to enjoy rich valuation multiples, which we believe is undeserved, given our expectation of continued margin pressure in 2021. We retain our SELL rating on ZTO. 

ZTO Q3 Results: As Margins Implode, It's Coming 'Back To the Pack', Retain SELL

Equity Analyst, LightStream Research

Supun Walpola

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

<a href="https://www.smartkarma.com/entities/pinduoduo-inc" target="_blank" data-smartkarma-citation="entities:27250:1" rel="noopener">Pinduoduo (PDD US)</a> plans to raise around $5bn through an issue of ADS and convertible bonds. PDD will offer $1.75bn worth of 5-year bonds convertible from 2023-25 and around 22m ADS worth around $3bn (at the market price of $132.4 as of 17/11/2020).
Proceeds from the placement will be used to invest in agricultural logistics infrastructure and responsive manufacturing as a part of the company’s broader strategy to take on e-commerce giants like <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> by tapping into the emerging online grocery shopping market.
In this note, we revisit our thesis on PDD ahead of the proposed placement.
PDD’s valuation looks bit of a stretch against Chinese e-commerce peers, however, not so much against other high-growth large-cap names. PDD’s share price has increased by more than 200% YTD and the momentum is still quite strong. With PDD potentially nearing profitability, we believe there could be further gains to be made on good news over the next few quarters. We would participate in the placement at the current valuation.

Pinduoduo (PDD US) plans to raise around $5bn through an issue of ADS and convertible bonds. PDD will offer $1.75bn worth of 5-year bonds convertible from 2023-25 and around 22m ADS worth around $3bn (at the market price of $132.4 as of 17/11/2020).
Proceeds from the placement will be used to invest in agricultural logistics infrastructure and responsive manufacturing as a part of the company’s broader strategy to take on e-commerce giants like Alibaba Group (BABA US) and JD.com Inc (ADR) (JD US) by tapping into the emerging online grocery shopping market.
In this note, we revisit our thesis on PDD ahead of the proposed placement.
PDD’s valuation looks bit of a stretch against Chinese e-commerce peers, however, not so much against other high-growth large-cap names. PDD’s share price has increased by more than 200% YTD and the momentum is still quite strong. With PDD potentially nearing profitability, we believe there could be further gains to be made on good news over the next few quarters. We would participate in the placement at the current valuation.  

Pinduoduo Placement: As Expensive As It May Seem, There Could Be More Upside

Asian Insight Provider - Actionable ideas, CrossASEAN Research

Henry Soediarko

Asian Insight Provider - Actionable ideas

<a href="https://www.smartkarma.com/entities/singapore-post-ltd" target="_blank" data-smartkarma-citation="entities:150:1" rel="noopener">Singapore Post (SPOST SP)</a> has transitioned from a conventional postal delivery service to an e-commerce delivery service provider and currently, the revenue contribution from e-commerce almost offset the declining legacy business. It should happen either this Christmas holiday season or in Q1 2021. The declining conveyance cost that ate up margin in 1H 2020 will provide an additional income booster that investors can look forward to. 
Singpost trades at the lowest EV/EBITDA multiples to its peers and a 0.98x PBR. Q4 has traditionally been a strong season and now that it has transitioned into an e-commerce delivery platform, the time is NOW to start building a position in Singpost.

Singapore Post (SPOST SP) has transitioned from a conventional postal delivery service to an e-commerce delivery service provider and currently, the revenue contribution from e-commerce almost offset the declining legacy business. It should happen either this Christmas holiday season or in Q1 2021. The declining conveyance cost that ate up margin in 1H 2020 will provide an additional income booster that investors can look forward to. 
Singpost trades at the lowest EV/EBITDA multiples to its peers and a 0.98x PBR. Q4 has traditionally been a strong season and now that it has transitioned into an e-commerce delivery platform, the time is NOW to start building a position in Singpost. 

Singpost (SPOST): Riding the E-Commerce Awakening in ASEAN

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)

Sea Ltd (SE US) - Gaming the E-Commerce Epiphany

Sea Ltd (SE US) continues to generate increasingly robust cashflows from its gaming business, which is used to bankroll the growth in its e...

Angus Mackintosh

Hong Kong IPOs: Lock-Up Expiries

A look at companies that have been listed for nearly six/12 months, as a guide to when insiders/controlling shareholders are permitted to sell,...

David Blennerhassett

ZTO Q3 Results: As Margins Implode, It's Coming 'Back To the Pack', Retain SELL

ZTO reported weak results again in Q3, as a steep decline in margins was partially offset by increased contributions from 'other'. We expect...

Tracking Traffic

Pinduoduo Placement: As Expensive As It May Seem, There Could Be More Upside

Pinduoduo (PDD US) plans to raise around $5bn through an issue of ADS and convertible bonds. In this note, we revisit our thesis on PDD ahead of...

Supun Walpola

Singpost (SPOST): Riding the E-Commerce Awakening in ASEAN

SPOST trades at the lowest EV/EBITDA multiples to its peers and below book value. Q4 has traditionally a strong season and now that it has become...

Henry Soediarko

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