Asian Equities Analyst, Logistics & Transport, Tracking Traffic

Daniel Hellberg

Asian Equities Analyst, Logistics & Transport

Tracking Traffic

Focusing on Asian logistics, transportation, and travel companies

Equity Bottom-Up

The express sector's big news is that <a href="https://www.smartkarma.com/entities/zto-express" target="_blank" data-smartkarma-citation="entities:23628:1" rel="noopener">ZTO Express (ZTO US) </a>is seeking an IPO in Hong Kong, as many large Chinese tech companies have done in recent months. We understand the rationale for this move, but still dislike the company's deteriorating fundamentals and rich valuation. 
In August, express sector volume growth remained firm (+36.5% YoY), but revenue growth slowed (+17.9%, slowest since March) as average unit pricing tumbled. We believe the current price war will continue in the medium-term, eating into express companies' margins and cash flow.
Outside of China, <a href="https://www.smartkarma.com/entities/kerry-express-thailand" target="_blank" data-smartkarma-citation="entities:29253:1" rel="noopener">Kerry Express Thailand (KEX TB)</a> has filed IPO documents. We believe this offering is worth watching, as KEX may be the only public 'pure play' on eCommerce logistics in SE Asia. A successful IPO should also boost sentiment toward <a href="https://www.smartkarma.com/entities/kerry-logistics-network-ltd" target="_blank" data-smartkarma-citation="entities:367:1" rel="noopener">Kerry Logistics Network (636 HK)</a>.
Conclusion: Owning independent market leader <a href="https://www.smartkarma.com/entities/maanshan-dingtai-rare-a" target="_blank" data-smartkarma-citation="entities:4128:1" rel="noopener">S.F. Holding (002352 CH)</a> against short positions in any of the listed express companies aligned with <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> has been a winning strategy in 2020, and we see no reason to change course in the near-term.

The express sector's big news is that ZTO Express (ZTO US) is seeking an IPO in Hong Kong, as many large Chinese tech companies have done in recent months. We understand the rationale for this move, but still dislike the company's deteriorating fundamentals and rich valuation. 
In August, express sector volume growth remained firm (+36.5% YoY), but revenue growth slowed (+17.9%, slowest since March) as average unit pricing tumbled. We believe the current price war will continue in the medium-term, eating into express companies' margins and cash flow.
Outside of China, Kerry Express Thailand (KEX TB) has filed IPO documents. We believe this offering is worth watching, as KEX may be the only public 'pure play' on eCommerce logistics in SE Asia. A successful IPO should also boost sentiment toward Kerry Logistics Network (636 HK).
Conclusion: Owning independent market leader S.F. Holding (002352 CH) against short positions in any of the listed express companies aligned with Alibaba Group (BABA US) has been a winning strategy in 2020, and we see no reason to change course in the near-term. 

TRACKING TRAFFIC/Chinese Express: ZTO HK Listing | August Pricing Still Weak | KEX IPO in Bangkok

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><a href="https://www.smartkarma.com/entities/huazhu-group-ltd" target="_blank" data-smartkarma-citation="entities:17527:1" rel="noopener">Huazhu Group (HTHT US)</a> raised around US$900m in its secondary listing in Hong Kong.</div><div>I have covered the background of the deal in my earlier notes, <a href="https://www.smartkarma.com/insights/huazhu-hk-secondary-listing-early-look-needs-the-cash-more-than-most-secondary-candidates" target="_blank" rel="noopener">Huazhu HK Secondary Listing - Early Look - Needs the Cash More than Most Secondary Candidates</a> and <a href="https://www.smartkarma.com/insights/huazhu-hk-secondary-listing-needs-the-money-but-looks-toppish" target="_blank" rel="noopener">Huazhu HK Secondary Listing - Needs the Money but Looks Toppish.</a></div><div>In this insight, I'll talk about the deal dynamics and updates over the past week.</div>

Huazhu Group (HTHT US) raised around US$900m in its secondary listing in Hong Kong.I have covered the background of the deal in my earlier notes, Huazhu HK Secondary Listing - Early Look - Needs the Cash More than Most Secondary Candidates and Huazhu HK Secondary Listing - Needs the Money but Looks Toppish.In this insight, I'll talk about the deal dynamics and updates over the past week.

Huazhu HK Secondary Listing Trading - Lowest Coverage, Biggest Correction, Highest Concentration

Overseas Chinese Equities, Aequitas Research

Ming Lu

Overseas Chinese Equities

Alibaba Group Holding  / Equity Bottom-Up

<ul>
<li>Alibaba (BABA) launched a platform of real estate agency.</li>
<li>Alibaba (BABA) promoted its interactive entertainment unit to first-level department because of a popular game.</li>
<li>We do not believe BABA’s acquisition of an online job agency is rational or true.</li>
</ul>


Alibaba (BABA) launched a platform of real estate agency.
Alibaba (BABA) promoted its interactive entertainment unit to first-level department because of a popular game.
We do not believe BABA’s acquisition of an online job agency is rational or true.


China Internet Weekly (21Sep2020): BABA Launched Property Agency and Promoted Game Department

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

Thematic (Sector/Industry)

*High Court Ruling: The United Kingdom High Court ruled on a test case brought forth by the Financial Conduct Authority (FCA) indicates that the "COVID-19 pandemic and the government and public response were a single cause of the covered loss, which is a key requirement for claims to be paid even if the policy provides cover". The decision on th Business Interruption (BI) case against the insurance industry is mostly in favorable to policyholders; and *Asia-Pac To Follow: As many countries in Asia-Pacific are Common Law nations, High Court rulings such as this have a tendency to set precedent. It also wouldn’t be a surprise to see significant capital raises given the challenges to solvency.

*High Court Ruling: The United Kingdom High Court ruled on a test case brought forth by the Financial Conduct Authority (FCA) indicates that the "COVID-19 pandemic and the government and public response were a single cause of the covered loss, which is a key requirement for claims to be paid even if the policy provides cover". The decision on th Business Interruption (BI) case against the insurance industry is mostly in favorable to policyholders; and *Asia-Pac To Follow: As many countries in Asia-Pacific are Common Law nations, High Court rulings such as this have a tendency to set precedent. It also wouldn’t be a surprise to see significant capital raises given the challenges to solvency.  

Asian Insurers – High Court Ruling A Harbinger For Region

Global Emerging Market Equities, Propitious Research

Wium Malan, CFA

Global Emerging Market Equities

<a href="https://www.smartkarma.com/entities/baidu-inc" target="_blank" data-smartkarma-citation="entities:179:1" rel="noopener">Baidu (BIDU US)</a>, and the rest of the Chinese Online Search industry, has consistently been losing market share to the likes of <a href="https://www.smartkarma.com/entities/alibaba-group" target="_blank" data-smartkarma-citation="entities:28434:1" rel="noopener">Alibaba Group (9988 HK)</a>, <a href="https://www.smartkarma.com/entities/bytedance-technology" target="_blank" data-smartkarma-citation="entities:27936:1" rel="noopener">ByteDance (1460967D CH)</a>, <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="https://www.smartkarma.com/entities/pinduoduo-inc" target="_blank" data-smartkarma-citation="entities:27250:1" rel="noopener">Pinduoduo (PDD US)</a> and <a href="https://www.smartkarma.com/entities/meituan-dianping" target="_blank" data-smartkarma-citation="entities:26970:1" rel="noopener">Meituan Dianping (3690 HK)</a> over the past two years. Although I still believe there is significant long term growth left for the Chinese digital advertising market, it can easily be argued that this growth will be heavily skewed and that the “pure” Search market is in effect an “industry in decline”. 
In his book “Competitive Strategy: Techniques for Analysing Industries and Competitors”, Michael Porter expands on four key strategies which firms could successfully follow when they find themselves in a declining industry. In this insight, I analyse Baidu’s current strategy against these offered strategies to assess if there is indeed value left in the company (or at least the core search business). 
Baidu should be able to continue to produce significant cash flow from its core search business as long as it sticks to the “leadership” strategy – given their dominant share of search queries, the low penetration they have in the SME market, the suitability to Search advertising for certain industry verticals and their superior profitability. I estimate Baidu’s fair value at US$168/ADS based on a SOTP valuation. The values used in my SOTP for <a href="https://www.smartkarma.com/entities/iqiyi-inc" target="_blank" data-smartkarma-citation="entities:26755:1" rel="noopener">iQIYI Inc (IQ US)</a>, <a href="https://www.smartkarma.com/entities/trip-com-group-ltd" target="_blank" data-smartkarma-citation="entities:180:1" rel="noopener">Trip.com (TCOM US)</a> (market value), Net Cash and Other investments (book value) would imply that Baidu’s core operations are currently valued at only $10.4bn ex-cash, which equates to only 9.1x 2021F PE (only 3.9x PE ex-cash).

Baidu (BIDU US), and the rest of the Chinese Online Search industry, has consistently been losing market share to the likes of Alibaba Group (9988 HK), ByteDance (1460967D CH), Tencent Holdings (700 HK), Pinduoduo (PDD US) and Meituan Dianping (3690 HK) over the past two years. Although I still believe there is significant long term growth left for the Chinese digital advertising market, it can easily be argued that this growth will be heavily skewed and that the “pure” Search market is in effect an “industry in decline”. 
In his book “Competitive Strategy: Techniques for Analysing Industries and Competitors”, Michael Porter expands on four key strategies which firms could successfully follow when they find themselves in a declining industry. In this insight, I analyse Baidu’s current strategy against these offered strategies to assess if there is indeed value left in the company (or at least the core search business). 
Baidu should be able to continue to produce significant cash flow from its core search business as long as it sticks to the “leadership” strategy – given their dominant share of search queries, the low penetration they have in the SME market, the suitability to Search advertising for certain industry verticals and their superior profitability. I estimate Baidu’s fair value at US$168/ADS based on a SOTP valuation. The values used in my SOTP for iQIYI Inc (IQ US), Trip.com (TCOM US) (market value), Net Cash and Other investments (book value) would imply that Baidu’s core operations are currently valued at only $10.4bn ex-cash, which equates to only 9.1x 2021F PE (only 3.9x PE ex-cash).

Baidu: Strategies for Operating in an Industry in Decline

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.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

Alibaba Group Holding (BABA US)

TRACKING TRAFFIC/Chinese Express: ZTO HK Listing | August Pricing Still Weak | KEX IPO in Bangkok

Big news is ZTO Express (ZTO US) launching

Tracking Traffic

Huazhu HK Secondary Listing Trading - Lowest Coverage, Biggest Correction, Highest Concentration

Huazhu Group (HTHT US) raised around US$900m in its secondary listing in Hong Kong. I have covered the background of the deal in my earlier...

Sumeet Singh

China Internet Weekly (21Sep2020): BABA Launched Property Agency and Promoted Game Department

Alibaba (BABA) launched a platform of real estate agency. Alibaba (BABA) promoted its interactive entertainment unit to first-level department...

Ming Lu

Asian Insurers – High Court Ruling A Harbinger For Region

*High Court Ruling: The United Kingdom High Court ruled on a test case brought forth by the Financial Conduct Authority (FCA) indicates that the...

Thomas J. Monaco

Baidu: Strategies for Operating in an Industry in Decline

Baidu, and the rest of the Chinese Online Search industry, has consistently been losing market share to the likes of Alibaba, ByteDance, Tencent,...

Wium Malan, CFA

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)