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

<p>Cloud Village Inc. (CVI), also known as NetEase Music, plans to raise around US$1bn in its Hong Kong IPO. The company has also obtained investments from Baidu and Alibaba, along with other investors.</p><p>As of Dec 20, it had 181m online music MAUs, 16m online music services monthly paying users, 327,000 social entertainment services monthly paying users. It had over 60m music tracks, of which more than 1m were created by registered independent artists. Its daily active users on average spent 76mins daily listening to music. </p><p>CVI’s revenue has grown 4.3x over FY18-20, to RMB4.9bn. There have been no signs of slowdown as its revenue increased by 102% in FY19 and was up another 111% in FY20. Both online music services and social entertainment services revenue have shown strong growth. Online music services revenue grew by 73% in 2019 and another 47.6% in 2020. Social entertainment services revenue was the largest driver of growth, as it grew by 344% in 2019 and was up another 320% in 2020. However, it remains a distant second player in the market and has yet to make a profit.</p><p>We covered various aspects of the deal in our previous note, <a href="https://www.smartkarma.com/insights/cloud-village-netease-music-pre-ipo-was-in-the-slow-stream-playing-catch-up" target="_blank" rel="noopener">Cloud Village (NetEase Music) Pre-IPO - Was in the slow stream, playing catch-up</a>.</p><p>In this note, we compare CVI with its main peer Tencent Music Entertainment (TME) and comment on the recent regulatory announcement with respect to TME.</p>

Cloud Village Inc. (CVI), also known as NetEase Music, plans to raise around US$1bn in its Hong Kong IPO. The company has also obtained investments from Baidu and Alibaba, along with other investors.As of Dec 20, it had 181m online music MAUs, 16m online music services monthly paying users, 327,000 social entertainment services monthly paying users. It had over 60m music tracks, of which more than 1m were created by registered independent artists. Its daily active users on average spent 76mins daily listening to music. CVI’s revenue has grown 4.3x over FY18-20, to RMB4.9bn. There have been no signs of slowdown as its revenue increased by 102% in FY19 and was up another 111% in FY20. Both online music services and social entertainment services revenue have shown strong growth. Online music services revenue grew by 73% in 2019 and another 47.6% in 2020. Social entertainment services revenue was the largest driver of growth, as it grew by 344% in 2019 and was up another 320% in 2020. However, it remains a distant second player in the market and has yet to make a profit.We covered various aspects of the deal in our previous note, Cloud Village (NetEase Music) Pre-IPO - Was in the slow stream, playing catch-up.In this note, we compare CVI with its main peer Tencent Music Entertainment (TME) and comment on the recent regulatory announcement with respect to TME.

Cloud Village (NetEase Music) Pre-IPO - Tencent Music Peer Comp, Regulatory Impact

Telco/Internet specialist

Kirk Boodry

Redex Research

Equity Bottom-Up

<p>Softbank has been touting Vision Fund’s IPO flywheel for almost all of 2021 but expect that to fade as the reality of China’s crackdown sinks in. It’s stake in Didi is worth $8bn as of Friday down from $10.6bn invested at the parent and $12bn total whilst other recent IPOs (YMM -28% on 23 July, ZME -35%, DDL -8%) are also under pressure. The good news is Vision Fund China assets are &lt;10% of total China exposure and Alibaba has been through the regulatory wringer already. That limits China downside but it does call into question Vision Fund hopes for valuation gains from liquidity events. There is a direct read across with Zuoyebang and VIPThink which are banned from going public whilst three of the largest private investments remaining in Vision Fund 1 (Bytedance, ele.me and Guazi) are likely to remain on the sidelines. We expect the holding company discount is likely to remain in the 44% range.</p>

Softbank has been touting Vision Fund’s IPO flywheel for almost all of 2021 but expect that to fade as the reality of China’s crackdown sinks in. It’s stake in Didi is worth $8bn as of Friday down from $10.6bn invested at the parent and $12bn total whilst other recent IPOs (YMM -28% on 23 July, ZME -35%, DDL -8%) are also under pressure. The good news is Vision Fund China assets are &lt;10% of total China exposure and Alibaba has been through the regulatory wringer already. That limits China downside but it does call into question Vision Fund hopes for valuation gains from liquidity events. There is a direct read across with Zuoyebang and VIPThink which are banned from going public whilst three of the largest private investments remaining in Vision Fund 1 (Bytedance, ele.me and Guazi) are likely to remain on the sidelines. We expect the holding company discount is likely to remain in the 44% range.

Softbank Group - China Has Just Blown a Hole in Vision Fund’s Rapid Listing Theme

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

<p>Xpeng (9868 HK) listed in Hong Kong on 7 July was added to the Hang Seng Composite Index (HSCI) at the close of trading on 20 July. However, being a WVR security, the stock will not be eligible for Southbound Stock Connect till early 2022.</p><p>Subject to passing the velocity test, we see Xpeng (9868 HK) as an inclusion in the <a href="https://www.smartkarma.com/entities/hang-seng-china-enterprises-index" target="_blank" data-smartkarma-citation="entities:22900:1" rel="noopener">Hang Seng China Enterprises Index (HSCEI INDEX)</a> at the December rebalance, replacing <a href="https://www.smartkarma.com/entities/china-evergrande-group" target="_blank" data-smartkarma-citation="entities:479:1" rel="noopener">Evergrande Real Estate Group (3333 HK)</a>.</p><p>With Hang Seng Indexes treating the stock as a primary listing, HSCEI passive trackers will need to buy a large part of the stock that was offered in Hong Kong. This could push Xpeng (9868 HK) to trade at a premium to <a href="https://www.smartkarma.com/entities/xpeng-inc" target="_blank" data-smartkarma-citation="entities:29217:1" rel="noopener">Xpeng (XPEV US)</a> and there will be arb opportunities which could result in conversion from the ADS to the HK listing.</p><p>The inclusion of Xpeng (9868 HK) in the index will push the <a href="https://www.smartkarma.com/entities/hang-seng-china-enterprises-index" target="_blank" data-smartkarma-citation="entities:22900:1" rel="noopener">Hang Seng China Enterprises Index (HSCEI INDEX)</a> 2022 dividend futures lower. With the recent changes in China to companies looking to list on a foreign exchange, the HFCAA, and other structural changes to the index, we prefer a short position in the HSCEI 2022 dividend futures.</p>

Xpeng (9868 HK) listed in Hong Kong on 7 July was added to the Hang Seng Composite Index (HSCI) at the close of trading on 20 July. However, being a WVR security, the stock will not be eligible for Southbound Stock Connect till early 2022.Subject to passing the velocity test, we see Xpeng (9868 HK) as an inclusion in the Hang Seng China Enterprises Index (HSCEI INDEX) at the December rebalance, replacing Evergrande Real Estate Group (3333 HK).With Hang Seng Indexes treating the stock as a primary listing, HSCEI passive trackers will need to buy a large part of the stock that was offered in Hong Kong. This could push Xpeng (9868 HK) to trade at a premium to Xpeng (XPEV US) and there will be arb opportunities which could result in conversion from the ADS to the HK listing.The inclusion of Xpeng (9868 HK) in the index will push the Hang Seng China Enterprises Index (HSCEI INDEX) 2022 dividend futures lower. With the recent changes in China to companies looking to list on a foreign exchange, the HFCAA, and other structural changes to the index, we prefer a short position in the HSCEI 2022 dividend futures.

Xpeng (9868 HK): Potential HSCEI Inclusion & Impact on 2022 Dividends

<p>Softbank has boosted its Vision Fund 2 commitments to $40bn even as a series of recent investments have been concurrent with IPOs or just before. These are effectively investments in public equities, nominally what Northstar covers, but with some optionality on a valuation pop if demand is high although that has not happened so far. Confirmation today of a $1.7bn investment in Korean online travel firm Yanolja appears to be an extension of this trend. The series of late-stage investments also highlights a lack of activity at VF2’s collection of SPACs which were created with these kinds of targets in mind. China weakness appears to be settling but Softbank shares remain range-bound at a mid-40% discount to underlying public values.</p>

Softbank has boosted its Vision Fund 2 commitments to $40bn even as a series of recent investments have been concurrent with IPOs or just before. These are effectively investments in public equities, nominally what Northstar covers, but with some optionality on a valuation pop if demand is high although that has not happened so far. Confirmation today of a $1.7bn investment in Korean online travel firm Yanolja appears to be an extension of this trend. The series of late-stage investments also highlights a lack of activity at VF2’s collection of SPACs which were created with these kinds of targets in mind. China weakness appears to be settling but Softbank shares remain range-bound at a mid-40% discount to underlying public values.

Softbank Group - Vision Fund 2’s Late-Private Investments Blur the Lines with Northstar

Alibaba Group Holding  / Equity Capital Markets

<div>
<p>In our previous notes <a href="https://www.smartkarma.com/insights/china-adrs-kanzhun-full-truck-and-didi-regulators-sending-a-message" target="_blank" rel="noopener">China ADRs - Kanzhun, Full Truck and Didi - Regulators Sending a Message </a>and <a href="https://www.smartkarma.com/insights/china-adrs-now-the-message-is-loud-and-getting-clearer" target="_blank" rel="noopener">China ADRs - Now the Message Is Loud and Getting Clearer, </a>we spoke about the recent crackdown on the three US listed firms along with the general crackdown on overseas listings for Chinese companies. </p>
<p>The Cyberspace Administration of China (CAC) came out with draft cyber security review measures. </p>
</div><div><p>We have looked at the ADRs in the past, in our previous notes:</p></div><div><ul style="list-style-type: disc;">
<li>
<a href="https://www.smartkarma.com/insights/china-adrs-secondary-listing-deep-dive-yin-and-yang" target="_blank" rel="noopener">China ADRs Secondary Listing Deep-Dive: Yin and Yang,</a> published in Feb 2020,  we looked at the background and rules around undertaking a secondary listing in Hong Kong and then came up with a short-list of companies that might undertake a secondary listing. </li>
<li>
<a href="https://www.smartkarma.com/insights/china-adrs-secondary-listing-covid-19-has-increased-the-tension-but-narrowed-the-short-list" target="_blank" rel="noopener">In China ADRs Secondary Listing: COVID-19 Has Increased the Tension but Narrowed the Short List</a> published in May 2020, we looked at the recent developments and provided an revised short-list</li>
<li>In <a href="https://www.smartkarma.com/insights/china-adrs-secondary-listing-holding-foreign-companies-accountable-act-i-m-coming-home" target="_blank" rel="noopener">China ADRs Secondary Listing - Holding Foreign Companies Accountable Act - I’m Coming Home</a>, published in May 2020, we spoke about the implication of the act which had made its way through the senate.</li>
<li>In <a href="https://www.smartkarma.com/insights/china-adrs-secondary-listing-pipeline-looks-rich-have-three-years-to-move" target="_blank" rel="noopener">China ADRs Secondary Listing - Pipeline Looks Rich, Have Three Years to Move</a>, published in Feb 2021 we looked at the ADR pipeline and spoke about the updates from the Holding Foreign Companies Accountable Act becoming law and the updates at Hong Kong end as well. </li>
<li>In <a href="https://www.smartkarma.com/insights/china-adrs-sec-notice-instead-of-three-probably-have-four-years-till-2025-correction-overdone" target="_blank" rel="noopener">China ADRs - SEC Notice - Instead of Three, Probably Have Four Years till 2025 - Correction Overdone, </a> we spoke about the new SEC notice and its implications. </li>
<li>In <a href="https://www.smartkarma.com/insights/china-adrs-a-new-act-aims-to-put-an-end-to-china-adr-ipos" target="_blank" rel="noopener">China ADRs - A New Act Aims to Put an End to China ADR IPOs</a>, we spoke about the No IPOs for Unaccountable Actors Act, which aims to prohibit IPO on U.S. exchanges for Chinese companies.</li>
</ul></div>


In our previous notes China ADRs - Kanzhun, Full Truck and Didi - Regulators Sending a Message and China ADRs - Now the Message Is Loud and Getting Clearer, we spoke about the recent crackdown on the three US listed firms along with the general crackdown on overseas listings for Chinese companies. 
The Cyberspace Administration of China (CAC) came out with draft cyber security review measures. 
We have looked at the ADRs in the past, in our previous notes:

China ADRs Secondary Listing Deep-Dive: Yin and Yang, published in Feb 2020,  we looked at the background and rules around undertaking a secondary listing in Hong Kong and then came up with a short-list of companies that might undertake a secondary listing. 

In China ADRs Secondary Listing: COVID-19 Has Increased the Tension but Narrowed the Short List published in May 2020, we looked at the recent developments and provided an revised short-list
In China ADRs Secondary Listing - Holding Foreign Companies Accountable Act - I’m Coming Home, published in May 2020, we spoke about the implication of the act which had made its way through the senate.
In China ADRs Secondary Listing - Pipeline Looks Rich, Have Three Years to Move, published in Feb 2021 we looked at the ADR pipeline and spoke about the updates from the Holding Foreign Companies Accountable Act becoming law and the updates at Hong Kong end as well. 
In China ADRs - SEC Notice - Instead of Three, Probably Have Four Years till 2025 - Correction Overdone,  we spoke about the new SEC notice and its implications. 
In China ADRs - A New Act Aims to Put an End to China ADR IPOs, we spoke about the No IPOs for Unaccountable Actors Act, which aims to prohibit IPO on U.S. exchanges for Chinese companies.


China ADRs - Draft Cyber Security Review Measures - ADRs Listing Likely Shut, HK Might Face Delay

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)

Cloud Village (NetEase Music) Pre-IPO - Tencent Music Peer Comp, Regulatory Impact

Cloud Village Inc. (CVI), also known as NetEase Music, plans to raise around US$1bn in its Hong Kong IPO. The company has also obtained investments...

Sumeet Singh

Softbank Group - China Has Just Blown a Hole in Vision Fund’s Rapid Listing Theme

Softbank has been touting Vision Fund’s IPO flywheel and 4 of 6 recent listings have been Chinese but that is fading as the reality of China’s...

Kirk Boodry

Xpeng (9868 HK): Potential HSCEI Inclusion & Impact on 2022 Dividends

Xpeng (9868 HK) could be added to the HSCEI in December. Limited liquidity in HK could create arb opportunities with XPEV US. Xpeng index inclusion...

Brian Freitas

Softbank Group - Vision Fund 2’s Late-Private Investments Blur the Lines with Northstar

A series of VF investments at or just before the IPO seem to overlap with Northstar's role whilst highlighting a lack of SPAC activity. Meanwhile, ...

Kirk Boodry

China ADRs - Draft Cyber Security Review Measures - ADRs Listing Likely Shut, HK Might Face Delay

In our previous notes we spoke about the recent crackdown on the three US listed firms. The Cyberspace Administration of China (CAC) recently came...

Sumeet Singh

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