China and US Equity Analyst

Roger Xie

Equity Bottom-Up

<ul>
<li>Regulatory risk is the major headwind for <a href="https://www.smartkarma.com/entities/weibo-corp-adr" target="_blank" data-smartkarma-citation="entities:3826:1" rel="noopener">Weibo Corp (WB US)</a>, a twitter-like social media platform for sharing news and user opinions.  As Beijing tightening its grip on social media platform, we have observed Weibo's value declining 65% from its high in 3-year period. In the latest move, China reiterates the ban on private enterprise in news organizations. In the past 10 months, the magnitude of policy change on tech giant is unprecedent. The latest rounds of measurements on social media include: 1) crackdown of internet influencer/celebrity culture; 2) adjustment on algorithm-powered feeds; 3) macro impact on SME ad campaign spending. </li>
<li>We believe <a href="https://www.smartkarma.com/entities/weibo-corp-adr" target="_blank" data-smartkarma-citation="entities:3826:1" rel="noopener">Weibo Corp (WB US)</a> has strong presence in celebrity and key opinion leaders on social media, which differentiates it from other major platform such as <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent (700 HK)'s  </a>WeChat/QQ, and <a href="https://www.smartkarma.com/entities/bytedance-technology" target="_blank" data-smartkarma-citation="entities:27936:1" rel="noopener">ByteDance (1439927D CH)</a>'s Toutiao.  With its 521 million monthly active users and 225 million daily active users, Weibo is one of the largest social platform.  As more key opinion leaders join Weibo, more users use Weibo to read view the key opinion leaders’ content and engage with them through replying, sharing, and clicking the “Like” button. These key opinion leaders can also get tipping from or sell merchandise to their fans. We believe Weibo's business model and scale is hard to replicate. </li>
<li>
<a href="https://www.smartkarma.com/entities/weibo-corp-adr" target="_blank" data-smartkarma-citation="entities:3826:1" rel="noopener">Weibo Corp (WB US)</a> has strategic partnership with <a href="https://www.smartkarma.com/entities/sina-corp-china" target="_blank" data-smartkarma-citation="entities:22691:1" rel="noopener">Sina Corp (Class A) (SINA US)</a> and <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> The parent company Sina owns 45% Weibo outstanding shares and has 71% voting right. Alibaba owns 30% Weibo outstanding shares and has 16% voting right. Given the recent scrutiny of Alibaba and forcing exit from media industry, we think the upcoming recapitalization of Weibo could be a positive catalyst. Weibo has already explored the potential Hong Kong secondary listing.  And it could use the IPO proceed to partially buyout Alibaba stake. Another option is that new strategic investors could be introduced to take Alibaba's stake as well. <a href="https://www.smartkarma.com/entities/weibo-corp-adr" target="_blank" data-smartkarma-citation="entities:3826:1" rel="noopener">Weibo Corp (WB US)</a> is traded at forward 15x consensus P/E, and could deliver 15% revenue CAGR in the next 3 year. We think valuation is attractive for Weibo's scale and monetization potential. </li>
</ul>


Regulatory risk is the major headwind for Weibo Corp (WB US), a twitter-like social media platform for sharing news and user opinions.  As Beijing tightening its grip on social media platform, we have observed Weibo's value declining 65% from its high in 3-year period. In the latest move, China reiterates the ban on private enterprise in news organizations. In the past 10 months, the magnitude of policy change on tech giant is unprecedent. The latest rounds of measurements on social media include: 1) crackdown of internet influencer/celebrity culture; 2) adjustment on algorithm-powered feeds; 3) macro impact on SME ad campaign spending. 
We believe Weibo Corp (WB US) has strong presence in celebrity and key opinion leaders on social media, which differentiates it from other major platform such as Tencent (700 HK)'s  WeChat/QQ, and ByteDance (1439927D CH)'s Toutiao.  With its 521 million monthly active users and 225 million daily active users, Weibo is one of the largest social platform.  As more key opinion leaders join Weibo, more users use Weibo to read view the key opinion leaders’ content and engage with them through replying, sharing, and clicking the “Like” button. These key opinion leaders can also get tipping from or sell merchandise to their fans. We believe Weibo's business model and scale is hard to replicate. 

Weibo Corp (WB US) has strategic partnership with Sina Corp (Class A) (SINA US) and Alibaba Group (BABA US). The parent company Sina owns 45% Weibo outstanding shares and has 71% voting right. Alibaba owns 30% Weibo outstanding shares and has 16% voting right. Given the recent scrutiny of Alibaba and forcing exit from media industry, we think the upcoming recapitalization of Weibo could be a positive catalyst. Weibo has already explored the potential Hong Kong secondary listing.  And it could use the IPO proceed to partially buyout Alibaba stake. Another option is that new strategic investors could be introduced to take Alibaba's stake as well. Weibo Corp (WB US) is traded at forward 15x consensus P/E, and could deliver 15% revenue CAGR in the next 3 year. We think valuation is attractive for Weibo's scale and monetization potential. 


Weibo (WB US): Regulatory Risks Overshadow Cheap Valuation And Recapitalization Optionality

Equity Analyst, LightStream Research

Shifara Samsudeen, ACMA, CGMA

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.

Several news media outlets reported in September that ByteDance (1439927D CH) has made plans to launch a music streaming app in China later this year. The online music streaming market in China is long dominated by Tencent Music who previously held exclusive music licensing agreements with global music streaming giants Warner Music Group (WMG), Universal Music (UMG) and Sony Music in China. However, TME was ordered to give-up these exclusive music licensing agreements by the country’s market regulator SAMR (state Administration of Market Regulation) and the company announced in August that it has relinquished all of its exclusive music licensing agreements as per the order of the Chinese regulators.TME’s shares are currently trading at US$6.87 per ADR at its all-time low and the shares are down 77.4% compared to its peak of US$30.42 per ADR in mid-March.

TME: ByteDance’s Entry into Music Streaming to Further Threaten TME’s Dominance

Global Emerging Market Equities, Propitious Research

Wium Malan, CFA

Global Emerging Market Equities

Independent, Fundamental Quantitative Research

Propitious Research

Fully independent, fundamental and quantitative equity research, focused on companies in the Telecommunication, Media, Technology, Internet and Healthcare sectors in the Global Emerging Markets. Idea generation focused on Quality stocks, trading below their intrinsic Value, with sound Corporate Governance.

Alibaba Group Holding  / Equity Bottom-Up

<p><a href="https://www.smartkarma.com/entities/alibaba-group" target="_blank" data-smartkarma-citation="entities:28434:1" rel="noopener">Alibaba Group (9988 HK)</a> has had a disastrous year, ever since the IPO of their FinTech arm, <a href="https://www.smartkarma.com/entities/ant-group-co-ltd" target="_blank" data-smartkarma-citation="entities:24240:1" rel="noopener">Ant Financial Services Group (6688 HK)</a>, was pulled last minute in November 2020. Since then, they have faced continued regulatory hurdles, including an RMB18.2bn anti-monopoly fine, which has culminated in a 51% share price drop, since its November 2020 peak, which means that Alibaba is currently trading on only a 14.3x forward PE ratio. Given that this is nearly 4 standard deviations below its 5-year historical average trading range, and that this multiple would imply only a 0.72x PEG ratio, for a company with an extremely strong net cash balance sheet, delivering returns on capital well above its cost of capital, with positive free cash flow generation, and a $15bn share buyback program, indicates that there is a massive disconnect between long-term Buy-side expectations and near-term Sell-side estimates. </p><p>Looking at the reported group financials over this period it does not seem as though the regulatory impact has been that significant on core operations. The key concern, however, is that Alibaba is losing market share in its core businesses. </p><p>In this insight, I take a closer look at the broader Chinese retail market, as well as the Chinese digital advertising market (I estimate that Alibaba still generates more than 40% of its Chinese commerce revenue, and roughly 1/3<sup>rd</sup> of group revenue, from marketing activities), to analyse Alibaba’s relative revenue share loss. Finally, I also revisit current valuation levels and analyse what this implies for its Core Commerce operations.</p>

Alibaba Group (9988 HK) has had a disastrous year, ever since the IPO of their FinTech arm, Ant Financial Services Group (6688 HK), was pulled last minute in November 2020. Since then, they have faced continued regulatory hurdles, including an RMB18.2bn anti-monopoly fine, which has culminated in a 51% share price drop, since its November 2020 peak, which means that Alibaba is currently trading on only a 14.3x forward PE ratio. Given that this is nearly 4 standard deviations below its 5-year historical average trading range, and that this multiple would imply only a 0.72x PEG ratio, for a company with an extremely strong net cash balance sheet, delivering returns on capital well above its cost of capital, with positive free cash flow generation, and a $15bn share buyback program, indicates that there is a massive disconnect between long-term Buy-side expectations and near-term Sell-side estimates. Looking at the reported group financials over this period it does not seem as though the regulatory impact has been that significant on core operations. The key concern, however, is that Alibaba is losing market share in its core businesses. In this insight, I take a closer look at the broader Chinese retail market, as well as the Chinese digital advertising market (I estimate that Alibaba still generates more than 40% of its Chinese commerce revenue, and roughly 1/3rd of group revenue, from marketing activities), to analyse Alibaba’s relative revenue share loss. Finally, I also revisit current valuation levels and analyse what this implies for its Core Commerce operations.

Alibaba: How Much Core Market Share Loss Has Been Priced In?

Thematic (Sector/Industry)

<p>This insight provides a summary of the key news developments impacting the largest countries and constituents of the Global Emerging Markets equity indices. </p><p><strong><em>Companies mentioned this week:</em></strong></p><p><a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent (700 HK)</a>, <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/huawei-technologies-co-ltd" target="_blank" data-smartkarma-citation="entities:8231:1" rel="noopener">Huawei Technology (40978Z CH)</a>, <a href="https://www.smartkarma.com/entities/bytedance-technology" target="_blank" data-smartkarma-citation="entities:27936:1" rel="noopener">ByteDance (1439927D CH)</a>, <a href="https://www.smartkarma.com/entities/baidu-inc-a55ca720-5968-48f0-8194-ac94390d065c" target="_blank" data-smartkarma-citation="entities:32212:1" rel="noopener">Baidu (9888 HK)</a>, <a href="https://www.smartkarma.com/entities/ant-group-co-ltd" target="_blank" data-smartkarma-citation="entities:24240:1" rel="noopener">Ant Financial Services Group (6688 HK)</a>, <a href="https://www.smartkarma.com/entities/taiwan-semiconductor-manufacturing-company" target="_blank" data-smartkarma-citation="entities:11230:1" rel="noopener">TSMC (2330 TT)</a>, <a href="https://www.smartkarma.com/entities/kakao-corp" target="_blank" data-smartkarma-citation="entities:15002:1" rel="noopener">Kakao Corp (035720 KS)</a>, <a href="https://www.smartkarma.com/entities/kakao-pay-corp" target="_blank" data-smartkarma-citation="entities:29675:1" rel="noopener">Kakao Pay (377300 KS)</a>, <a href="https://www.smartkarma.com/entities/ooredoo-q-s-c" target="_blank" data-smartkarma-citation="entities:24199:1" rel="noopener">Ooredoo Q.S.C (ORDS QD)</a>, <a href="https://www.smartkarma.com/entities/ck-hutchison-holdings-ltd" target="_blank" data-smartkarma-citation="entities:132:1" rel="noopener">CK Hutchison Holdings (1 HK)</a></p>

This insight provides a summary of the key news developments impacting the largest countries and constituents of the Global Emerging Markets equity indices. Companies mentioned this week:Tencent (700 HK), Alibaba Group (9988 HK), Huawei Technology (40978Z CH), ByteDance (1439927D CH), Baidu (9888 HK), Ant Financial Services Group (6688 HK), TSMC (2330 TT), Kakao Corp (035720 KS), Kakao Pay (377300 KS), Ooredoo Q.S.C (ORDS QD), CK Hutchison Holdings (1 HK)

Global Emerging Markets Weekly: 17 September 2021

Chief Economist

Diana Choyleva

Enodo Economics

Enodo Economics is an independent macroeconomic forecasting company that untangles complexity, challenges the consensus, and makes sense of the future. Our focus is on China – one of the most misunderstood economies in the world, but one of the most important to figure out.  Enodo’s chief economist, Diana Choyleva, has been analysing China for almost 20 years, while Enodo’s team boasts a combined 140 years’ experience covering China’s economy, politics and markets. 

Macroeconomics

<h2>China News That Matters</h2><ul>
<li>Aukus makes a ruckus</li>
<li>Comprehensive and progressive? Sign us up.</li>
<li>Crackdowns leave China with no top ten firms </li>
<li>The red Shaanxi sun in our hearts</li>
<li>A nuclear revolution cranks up in the Gobi</li>
</ul><div class="content-remarks"><ul style="list-style-type: none;"><li><div>In my weekly digest China News That Matters, I will give you selected summaries, sourced from a variety of local Chinese-language and international news outlets, and highlight why I think the news is significant. These posts are meant to neither be bullish nor bearish, but help you separate the signal from the noise.</div></li></ul></div>

China News That Matters
Aukus makes a ruckus
Comprehensive and progressive? Sign us up.
Crackdowns leave China with no top ten firms 
The red Shaanxi sun in our hearts
A nuclear revolution cranks up in the Gobi
In my weekly digest China News That Matters, I will give you selected summaries, sourced from a variety of local Chinese-language and international news outlets, and highlight why I think the news is significant. These posts are meant to neither be bullish nor bearish, but help you separate the signal from the noise.

China

Beijing Douyin Information Service Co. Ltd. provides online information and contents. The Company develops and operates short video platform, original short video community, news platform, and other related products. Beijing Douyin Information Service offers services worldwide.

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ByteDance (1439927D CH)

Weibo (WB US): Regulatory Risks Overshadow Cheap Valuation And Recapitalization Optionality

Although Weibo (WB.US) is facing regulatory risk and growth is slow, we think valuation is attractive for its scale and monetization potential....

Roger Xie

TME: ByteDance’s Entry into Music Streaming to Further Threaten TME’s Dominance

ByteDance has made plans to launch a music streaming app in China later this year which is likely to further threaten TME's market dominance as it...

Shifara Samsudeen, ACMA, CGMA

Global Emerging Markets Weekly: 17 September 2021

This insight provides a summary of the key news developments impacting the largest countries and constituents of the Global Emerging Markets equity...

Wium Malan, CFA

AUKUS/ CPTPP/ Crackdowns/ CCP/ TMSR-LF1

In my weekly digest, I will give you selected summaries, sourced from a variety of local Chinese-language and international news outlets, and...

Diana Choyleva

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

Weibo (WB US): Regulatory Risks Overshadow Cheap Valuation And Recapitalization Optionality

Although Weibo (WB.US) is facing regulatory risk and growth is slow, we think valuation is attractive for its scale and monetization potential....

Roger Xie

TME: ByteDance’s Entry into Music Streaming to Further Threaten TME’s Dominance

ByteDance has made plans to launch a music streaming app in China later this year which is likely to further threaten TME's market dominance as it...

Shifara Samsudeen, ACMA, CGMA

Alibaba: How Much Core Market Share Loss Has Been Priced In?

In this insight, I analyse Chinese retail sales and digital advertising market share changes and what is implied by Alibaba’s current valuation...

Wium Malan, CFA

Global Emerging Markets Weekly: 17 September 2021

This insight provides a summary of the key news developments impacting the largest countries and constituents of the Global Emerging Markets equity...

Wium Malan, CFA

AUKUS/ CPTPP/ Crackdowns/ CCP/ TMSR-LF1

In my weekly digest, I will give you selected summaries, sourced from a variety of local Chinese-language and international news outlets, and...

Diana Choyleva