Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

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<div>And the rest, as they say, is history.</div>
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<div>At the 11th hour, leading to what would the world's largest IPO, with an implied valuation of US$316bn - nearly 20% larger than the world's largest bank, <a href="https://www.smartkarma.com/entities/ind-comm-bk-of-china-h" target="_blank" data-smartkarma-citation="entities:1119:1" rel="noopener">ICBC (H) (1398 HK)</a> - the Shanghai Stock Exchange <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/1103/2020110302285.pdf" target="_blank" rel="noopener">cancelled</a> the A-Share listing saying that the interviews that authorities had conducted with Jack Ma and regulation changes were not adequately explained in the documents, and the listing could not go ahead. Shortly after, Ant Group pulled its H-Share offering too.</div>
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<div class="content-caption">Source: FT</div>
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<div>It's easy to point the finger at Jack Ma's bellicose speech in Shanghai on the 24 October, in which he suggested traditional Chinese banks should change their “pawnshop” operating model. Arguably, this didn't help.</div>
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<div>But the scuppering of the IPO is not some juicy vendetta - simply the reality of China's state-controlled banking system.</div>
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<div>The runaway success 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/ant-financial-services-group" target="_blank" data-smartkarma-citation="entities:24240:1" rel="noopener">Ant Group (6688 HK)</a> - and other massive tech companies such as <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> - pivots off a less regulated entity pitched against more heavily regulated rivals.</div>
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<div>The reining in of "disruptors" reach of these tech companies came in for even greater oversight yesterday with proposed new government measures to stomp on monopolistic practices, as a means to curtail their influence.</div>
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<div>What does all this mean for big Chinese tech companies? Yesterday's downward move in BABA and Tencent could be just a sign of things to come.</div>
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<div>More below the fold.</div>
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And the rest, as they say, is history.






At the 11th hour, leading to what would the world's largest IPO, with an implied valuation of US$316bn - nearly 20% larger than the world's largest bank, ICBC (H) (1398 HK) - the Shanghai Stock Exchange cancelled the A-Share listing saying that the interviews that authorities had conducted with Jack Ma and regulation changes were not adequately explained in the documents, and the listing could not go ahead. Shortly after, Ant Group pulled its H-Share offering too.





Source: FT




It's easy to point the finger at Jack Ma's bellicose speech in Shanghai on the 24 October, in which he suggested traditional Chinese banks should change their “pawnshop” operating model. Arguably, this didn't help.

But the scuppering of the IPO is not some juicy vendetta - simply the reality of China's state-controlled banking system.

The runaway success of Alibaba Group (9988 HK) / Ant Group (6688 HK) - and other massive tech companies such as Tencent Holdings (700 HK) - pivots off a less regulated entity pitched against more heavily regulated rivals.


The reining in of "disruptors" reach of these tech companies came in for even greater oversight yesterday with proposed new government measures to stomp on monopolistic practices, as a means to curtail their influence.

What does all this mean for big Chinese tech companies? Yesterday's downward move in BABA and Tencent could be just a sign of things to come.

More below the fold.

















































Party Poopers: Reining In China's Internet

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

Kuaishou Technology / Equity Capital Markets

<p><a href="https://www.smartkarma.com/entities/beijing-kuaishou-technology-co-ltd" target="_blank" data-smartkarma-citation="entities:29725:1" rel="noopener">Beijing Kuaishou Technology Co Ltd (1496219D CH)</a> (KT) is a content community and social platform. The company is backed by <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>, Sequoia China, <a href="https://www.smartkarma.com/entities/baidu-inc" target="_blank" data-smartkarma-citation="entities:179:1" rel="noopener">Baidu (BIDU US)</a>, DST Global, Boyu Capital, Temasek and others.</p><p> As of six months ended Jun 2020, it had 302m daily active users (DAUs), who spent 85 mins on average on the app every day. It also had 776m monthly active users (MAUs) and total e-commerce GMV of RMB109.6bn. On an average 1.1bn short videos were uploaded on its app during 1H20.</p><p> As per iResearch, Kuaishou was globally the largest live streaming platform by gross billings from virtual gifting and average live streaming MPUs, the second largest short video platform by average DAUs, and the second largest live streaming e-commerce platform by GMV, over six months ended June 30, 2020.</p><p>In this note, I'll talk about the positive aspects of the deal.</p>

Beijing Kuaishou Technology Co Ltd (1496219D CH) (KT) is a content community and social platform. The company is backed by Tencent Holdings (700 HK), Sequoia China, Baidu (BIDU US), DST Global, Boyu Capital, Temasek and others. As of six months ended Jun 2020, it had 302m daily active users (DAUs), who spent 85 mins on average on the app every day. It also had 776m monthly active users (MAUs) and total e-commerce GMV of RMB109.6bn. On an average 1.1bn short videos were uploaded on its app during 1H20. As per iResearch, Kuaishou was globally the largest live streaming platform by gross billings from virtual gifting and average live streaming MPUs, the second largest short video platform by average DAUs, and the second largest live streaming e-commerce platform by GMV, over six months ended June 30, 2020.In this note, I'll talk about the positive aspects of the deal.

Kuaishou Technology Pre-IPO - The Positives - Hot Segment, Fast Growth

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 Bottom-Up

Alibaba Group Holding  / Equity Bottom-Up

<p>We feel that the market has not been as enthusiastic as it should be about <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>’s 2Q FY03/21 financial results. While this cautious response could have been due to <a href="https://www.smartkarma.com/entities/ant-financial-services-group" target="_blank" data-smartkarma-citation="entities:24240:1" rel="noopener">Ant Group (6688 HK)</a>’s failed IPO earlier in the month, we believe Alibaba’s 2Q positives are too hard to ignore. With marketplace business revenue growth decelerating at a much slower rate than before, and non-marketplace retail and cloud businesses moving closer to making profits, we believe it is a good time to have long exposure to Alibaba, regardless of how Ant’s IPO eventually plays out.</p>

We feel that the market has not been as enthusiastic as it should be about Alibaba Group (BABA US)’s 2Q FY03/21 financial results. While this cautious response could have been due to Ant Group (6688 HK)’s failed IPO earlier in the month, we believe Alibaba’s 2Q positives are too hard to ignore. With marketplace business revenue growth decelerating at a much slower rate than before, and non-marketplace retail and cloud businesses moving closer to making profits, we believe it is a good time to have long exposure to Alibaba, regardless of how Ant’s IPO eventually plays out.

Japan/Asia Long-Short, LightStream Research

Mio Kato

Japan/Asia Long-Short

<p>Softbank released its 2Q earnings yesterday with a bounce back to profitability thanks to strong gains by global stock markets. We would direct readers to Kirk Boodry’s analysis of the details <a href="https://www.smartkarma.com/insights/softbank-group-q2-20-results-vision-fund-luster-tarnished-by-derivative-losses" target="_blank" rel="noopener">here</a>, but what we would focus on is the question that Masayoshi tried, and in our opinion failed, to address.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/170/512/original/image_30076723321604989772377.png?1604989774" class="editor-image img-responsive" data-smartkarma-image-id="170512"></figure>

Softbank released its 2Q earnings yesterday with a bounce back to profitability thanks to strong gains by global stock markets. We would direct readers to Kirk Boodry’s analysis of the details here, but what we would focus on is the question that Masayoshi tried, and in our opinion failed, to address.

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

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<p><a href="https://www.smartkarma.com/entities/elang-mahkota-teknologi-tbk" target="_blank" data-smartkarma-citation="entities:7752:1" rel="noopener">Emtek (EMTK IJ)</a> has announced that it intends to seek approval for A stock split at its AGM on 14th December, the normal reason for which is to improve liquidity in the shares by making a company more accessible for retail investors. We see this as a potential precursor to further corporate actions along the line, involving some form of group restructuring, and this gives the company a more liquid currency to do this.</p>
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<p>This may involve some form of reorganization within the group, which holds its media assets under <a href="https://www.smartkarma.com/entities/surya-citra-media-pt-tbk" target="_blank" data-stringify-link="https://www.smartkarma.com/entities/surya-citra-media-pt-tbk" data-sk="tooltip_parent" rel="noopener">PT Surya Citra Media Tbk (SCMA IJ)</a> but a number of other digital economy assets under <a href="https://www.smartkarma.com/entities/elang-mahkota-teknologi-tbk" target="_blank" data-stringify-link="https://www.smartkarma.com/entities/elang-mahkota-teknologi-tbk" data-sk="tooltip_parent" rel="noopener">Emtek (EMTK IJ)</a> including a stake in e-commerce player Bukalapak and leading digital payments company Dana (a 50/50 JV with Ant Financial (<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>).</p>
<p><a href="https://www.smartkarma.com/entities/microsoft-corp" target="_blank" data-stringify-link="https://www.smartkarma.com/entities/microsoft-corp" data-sk="tooltip_parent" rel="noopener">Microsoft Corp (MSFT US)</a> has recently announced it will invest US$100m into Bukalapak, which is now valued at US$3bn.</p>
<p>Looking at the valuation of <a href="https://www.smartkarma.com/entities/sea-ltd" target="_blank" data-stringify-link="https://www.smartkarma.com/entities/sea-ltd" data-sk="tooltip_parent" rel="noopener">Sea Ltd (SE US),</a> which is trading on 13x EV/Sales, it is highly likely the <a href="https://www.smartkarma.com/entities/elang-mahkota-teknologi-tbk" target="_blank" data-stringify-link="https://www.smartkarma.com/entities/elang-mahkota-teknologi-tbk" data-sk="tooltip_parent" rel="noopener">Emtek (EMTK IJ)</a> can command a higher valuation if it becomes more accessible, given there are no other ways to get listed exposure to Indonesia's booming e-commerce.</p>
<p><a href="https://www.smartkarma.com/entities/elang-mahkota-teknologi-tbk" target="_blank" data-smartkarma-citation="entities:7752:1" rel="noopener">Emtek (EMTK IJ)</a> currently trades on 4.6x FY20E EV/Sales.  Investors are likely to pay a premium for access to a liquid <a href="https://www.smartkarma.com/entities/elang-mahkota-teknologi-tbk" target="_blank" data-smartkarma-citation="entities:7752:1" rel="noopener">Emtek (EMTK IJ)</a>, with a strong mix of cash-generating media assets and high growth digital assets.  </p>
<p>We also continue to like <a href="https://www.smartkarma.com/entities/surya-citra-media-pt-tbk" target="_blank" data-stringify-link="https://www.smartkarma.com/entities/surya-citra-media-pt-tbk" data-sk="tooltip_parent" rel="noopener">PT Surya Citra Media Tbk (SCMA IJ),</a> as Indonesia's top media player with an increasingly digital twist through <a href="http://vidio.com/" target="_blank" data-stringify-link="http://Vidio.com" data-sk="tooltip_parent" rel="noopener">Vidio.com</a>. Please see <a href="https://www.smartkarma.com/insights/pt-surya-citra-media-tbk-scma-ij-let-the-games-begin" target="_blank" data-stringify-link="https://www.smartkarma.com/insights/pt-surya-citra-media-tbk-scma-ij-let-the-games-begin" data-sk="tooltip_parent" rel="noopener">PT Surya Citra Media Tbk (SCMA IJ) - Let the Games Begin</a> for more details.</p>


Emtek (EMTK IJ) has announced that it intends to seek approval for A stock split at its AGM on 14th December, the normal reason for which is to improve liquidity in the shares by making a company more accessible for retail investors. We see this as a potential precursor to further corporate actions along the line, involving some form of group restructuring, and this gives the company a more liquid currency to do this.

This may involve some form of reorganization within the group, which holds its media assets under PT Surya Citra Media Tbk (SCMA IJ) but a number of other digital economy assets under Emtek (EMTK IJ) including a stake in e-commerce player Bukalapak and leading digital payments company Dana (a 50/50 JV with Ant Financial (Alibaba Group (BABA US)).
Microsoft Corp (MSFT US) has recently announced it will invest US$100m into Bukalapak, which is now valued at US$3bn.
Looking at the valuation of Sea Ltd (SE US), which is trading on 13x EV/Sales, it is highly likely the Emtek (EMTK IJ) can command a higher valuation if it becomes more accessible, given there are no other ways to get listed exposure to Indonesia's booming e-commerce.
Emtek (EMTK IJ) currently trades on 4.6x FY20E EV/Sales.  Investors are likely to pay a premium for access to a liquid Emtek (EMTK IJ), with a strong mix of cash-generating media assets and high growth digital assets.  
We also continue to like PT Surya Citra Media Tbk (SCMA IJ), as Indonesia's top media player with an increasingly digital twist through Vidio.com. Please see PT Surya Citra Media Tbk (SCMA IJ) - Let the Games Begin for more details.

Emtek (EMTK IJ) - Arise a New Champion of Indonesia Tech?

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 (9988 HK)

Party Poopers: Reining In China's Internet

It is a delicate dance to promote home-grown tech companies while keeping existing market forces in check. But it is no secret the PRC government's...

David Blennerhassett

Kuaishou Technology Pre-IPO - The Positives - Hot Segment, Fast Growth

Kuaishou Technology is a content community and social platform. The company is backed by Tencent Holdings (700 HK), Sequoia China, Baidu (BIDU US),...

Sumeet Singh

Alibaba: 2Q Positives Are Hard to Ignore

We feel that the market has not been as enthusiastic as it should be about Alibaba Group (BABA US)’s 2Q FY03/21 financial results.

Supun Walpola

Softbank – What Is Softbank Indeed

Softbank continues to try and convince investors that it is a better investor than they are, whereas we argue that really they are just more...

Mio Kato

Emtek (EMTK IJ) - Arise a New Champion of Indonesia Tech?

Emtek recently announced its intention to seek approval for a stock split at its AGM in December. We see this as a precursor for further corporate...

Angus Mackintosh

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