Telco/Internet specialist

Kirk Boodry

Redex Research

Equity Bottom-Up

Shares of Didi Global appear to have stabilized after regulatory turmoil but whilst the stream of bad news has slowed, the lack of good news (an end to the app ban, any management comments) is also troubling. Even with a hopeful view on the end of regulatory pressure, the company appears less valuable as competition and higher pay for drivers shifts the economics and our new forecasts value the company at $9.74 versus our pre-IPO value of $15.8. We track Didi as part of our Softbank Group coverage.

Shares of Didi Global appear to have stabilized after regulatory turmoil but whilst the stream of bad news has slowed, the lack of good news (an end to the app ban, any management comments) is also troubling. Even with a hopeful view on the end of regulatory pressure, the company appears less valuable as competition and higher pay for drivers shifts the economics and our new forecasts value the company at $9.74 versus our pre-IPO value of $15.8. We track Didi as part of our Softbank Group coverage.

Didi Global - Regulatory Overhang Remains and Long-Term Value Is Falling

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.

The Chinese mobility technology platform <a href="https://www.smartkarma.com/entities/didi-chuxing-inc" target="_blank" data-smartkarma-citation="entities:27467:1" rel="noopener">DiDi Global (DIDI US)</a> has had a tough time since its IPO in the US on the 30th of June. Two days after Didi’s IPO debut in the US, The Cyberspace Administration of China (CAC) announced on 2nd July that it had launched an investigation into Didi to protect national security and the public interest. On 4th July, CAC announced that it had found that Didi’s app had severely violated the country’s data protection laws by illegally collecting and using its users’ personal information and was ordered to remove its app from app stores. According to news media outlets, the Cyberspace Administration has found that the company had illegally collected personal data of its users and was asked to make changes to comply with the country’s data protection rules.According to CIC, Didi operates the world’s largest mobility technology platform based on annual active users and by average daily transactions for the twelve months ended March 2021. Didi priced its IPO at US$14 per ADS and the company’s shares are currently trading at around 40% below its IPO price at US$8.62 per ADS.Since its app ban in July 2021, there has been rumours that the Chinese regulators could impose heavy fines on the company, would be asked to delist from the US Exchange and a complete state takeover of the company. On the other hand, Meituan (Meituan Dache) and other small ride-hailing operators have started to play catch up with Didi losing its momentum with the app ban. Meituan re-launched its stand-alone app for ride-hailing on app stores soon after Didi’s app ban while automaker Geely’s ride-hailing unit Cao Cao Mobility has been raising funds to grab market share from the company.Didi has not yet reported its quarterly earnings for the June quarter nor the company has provided any data for its operations, and in this insight, we present an outlook and our thoughts on the company’s current valuation.

The Chinese mobility technology platform DiDi Global (DIDI US) has had a tough time since its IPO in the US on the 30th of June. Two days after Didi’s IPO debut in the US, The Cyberspace Administration of China (CAC) announced on 2nd July that it had launched an investigation into Didi to protect national security and the public interest. On 4th July, CAC announced that it had found that Didi’s app had severely violated the country’s data protection laws by illegally collecting and using its users’ personal information and was ordered to remove its app from app stores. According to news media outlets, the Cyberspace Administration has found that the company had illegally collected personal data of its users and was asked to make changes to comply with the country’s data protection rules.According to CIC, Didi operates the world’s largest mobility technology platform based on annual active users and by average daily transactions for the twelve months ended March 2021. Didi priced its IPO at US$14 per ADS and the company’s shares are currently trading at around 40% below its IPO price at US$8.62 per ADS.Since its app ban in July 2021, there has been rumours that the Chinese regulators could impose heavy fines on the company, would be asked to delist from the US Exchange and a complete state takeover of the company. On the other hand, Meituan (Meituan Dache) and other small ride-hailing operators have started to play catch up with Didi losing its momentum with the app ban. Meituan re-launched its stand-alone app for ride-hailing on app stores soon after Didi’s app ban while automaker Geely’s ride-hailing unit Cao Cao Mobility has been raising funds to grab market share from the company.Didi has not yet reported its quarterly earnings for the June quarter nor the company has provided any data for its operations, and in this insight, we present an outlook and our thoughts on the company’s current valuation.

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

In this insight, we provide a bullish case for <a href="https://www.smartkarma.com/entities/didi-chuxing-inc" target="_blank" data-smartkarma-citation="entities:27467:1" rel="noopener">DiDi Global (DIDI US)</a>. We argue that there are signs that Xi Jinping is starting to soften the brutal crackdown on China's Internet giants including Didi. At a meeting of Communist Party officials on Monday (18 October), <a href="https://uk.finance.yahoo.com/news/u-listed-chinese-stocks-track-093844642.html" target="_blank" rel="noopener">Xi Jinping</a> stated that “In recent years, the internet, big data, cloud computing, artificial intelligence, blockchain and other technologies have accelerated their innovation and are increasingly integrated into the entire economy and society.” We believe that this statement is a reflection of a softening stance on the Internet giants in China. Xi understands very well that if the government cracks down on China's tech giants too much, this is likely to crush the technological innovation and research. <div class="content-highlight">
Comparable Companies Valuation Analysis - Based on our revised down sales and earnings estimates of the company, our base case valuation of <a href="https://www.smartkarma.com/entities/didi-chuxing-inc" target="_blank" data-smartkarma-citation="entities:27467:1" rel="noopener">DiDi Global (DIDI US)</a> is implied market cap of $58 billion or target price of $12 per share. This represents a 39% upside to the current price of $8.62.
Given the recent softening stance towards China's Internet tech giants combined with their improving share prices in October, we believe that there is a solid upside for Didi Global and we have a Positive view on this stock at current levels.
Our base case valuation $58 billion market cap is based on EV/S multiple of 1.3x using our estimated sales of 236 billion RMB in 2022, which is 70% discount to the median EV/S valuation multiples of the four comps.
</div>

In this insight, we provide a bullish case for DiDi Global (DIDI US). We argue that there are signs that Xi Jinping is starting to soften the brutal crackdown on China's Internet giants including Didi. At a meeting of Communist Party officials on Monday (18 October), Xi Jinping stated that “In recent years, the internet, big data, cloud computing, artificial intelligence, blockchain and other technologies have accelerated their innovation and are increasingly integrated into the entire economy and society.” We believe that this statement is a reflection of a softening stance on the Internet giants in China. Xi understands very well that if the government cracks down on China's tech giants too much, this is likely to crush the technological innovation and research. 
Comparable Companies Valuation Analysis - Based on our revised down sales and earnings estimates of the company, our base case valuation of DiDi Global (DIDI US) is implied market cap of $58 billion or target price of $12 per share. This represents a 39% upside to the current price of $8.62.
Given the recent softening stance towards China's Internet tech giants combined with their improving share prices in October, we believe that there is a solid upside for Didi Global and we have a Positive view on this stock at current levels.
Our base case valuation $58 billion market cap is based on EV/S multiple of 1.3x using our estimated sales of 236 billion RMB in 2022, which is 70% discount to the median EV/S valuation multiples of the four comps.


Didi Global: Xi Jinping Softening the Brutal Crackdown on China's Internet Giants?

IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

<a href="https://www.smartkarma.com/entities/didi-chuxing-inc" target="_blank" data-smartkarma-citation="entities:27467:1" rel="noopener">DiDi Global (DIDI US)</a> is the world's largest mobility technology platform by annual active users and by average daily transactions for the twelve months ended 31 March 2021, according to CIC. DiDi has endured a torrid time since its listing on 30 June to raise net proceeds of $4,331.6 million at $14.00 per ADS. The shares are trading 40% below its IPO price as days after its listing, DiDi’s apps were taken down from app stores in China by the Cyberspace Administration of China (CAC). DiDi ran afoul of CAC when it pressed ahead with its listing, despite CAC asking it to put the listing on hold while it conducted a cybersecurity review of its collection and use of personal information. Subsequently, the official Xinhua news agency on 10 October claimed that the CAC probe was aimed at “effectively preventing potential national security risks relating to procurement, data processing and overseas listings.”DIDi has been ensnared by regulatory probes into its pricing mechanisms and the way it treats its drivers. DiDi also been subject to rumours in the press that the Chinese government is weighing asserting state control by taking a stake in the company. Press reports have also suggested that DiDi is planning to delist from the US which was later confirmed by DiDi to be false.Since the regulatory clampdown, DiDi has not released its 2Q21 results or provided any financial guidance. However, due to the regulatory restrictions, DiDi is losing market share and pricing power to competitors in China. On 6 September, Cao Cao Mobility, a peer, raised RMB3.8 billion ($588 million) from Chinese state-owned funds to accelerate its expansion. DiDi’s average daily user count declined 30% to 10.9 million in August from 15.6 million in June, according to <a href="https://www.smartkarma.com/entities/aurora-mobile-ltd" target="_blank" data-smartkarma-citation="entities:27264:1" rel="noopener">Aurora Mobile Ltd (JG US)</a>.DiDi continues to polarise opinions with some investors suggesting that the stock can double from current levels while others are wary due to unpredictable regulatory risks. Due to the number of unknowns, we examine DiDi's outlook through scenarios analysis. A key difference between the bull and bear case is the timing for the reinstatement of DiDi’s apps on the app stores which will once again enable DiDi to grow market share and regain pricing power. <div class="content-highlight">Our bull-case SoTP valuation points to a 22% upside while our bear-case SoTP valuation points to a -19% downside to the last close price of $8.56 per ADS. Consequently, the shares seem fairly valued and may appeal to investors with a higher risk appetite.  </div>

DiDi Global (DIDI US) is the world's largest mobility technology platform by annual active users and by average daily transactions for the twelve months ended 31 March 2021, according to CIC. DiDi has endured a torrid time since its listing on 30 June to raise net proceeds of $4,331.6 million at $14.00 per ADS. The shares are trading 40% below its IPO price as days after its listing, DiDi’s apps were taken down from app stores in China by the Cyberspace Administration of China (CAC). DiDi ran afoul of CAC when it pressed ahead with its listing, despite CAC asking it to put the listing on hold while it conducted a cybersecurity review of its collection and use of personal information. Subsequently, the official Xinhua news agency on 10 October claimed that the CAC probe was aimed at “effectively preventing potential national security risks relating to procurement, data processing and overseas listings.”DIDi has been ensnared by regulatory probes into its pricing mechanisms and the way it treats its drivers. DiDi also been subject to rumours in the press that the Chinese government is weighing asserting state control by taking a stake in the company. Press reports have also suggested that DiDi is planning to delist from the US which was later confirmed by DiDi to be false.Since the regulatory clampdown, DiDi has not released its 2Q21 results or provided any financial guidance. However, due to the regulatory restrictions, DiDi is losing market share and pricing power to competitors in China. On 6 September, Cao Cao Mobility, a peer, raised RMB3.8 billion ($588 million) from Chinese state-owned funds to accelerate its expansion. DiDi’s average daily user count declined 30% to 10.9 million in August from 15.6 million in June, according to Aurora Mobile Ltd (JG US).DiDi continues to polarise opinions with some investors suggesting that the stock can double from current levels while others are wary due to unpredictable regulatory risks. Due to the number of unknowns, we examine DiDi's outlook through scenarios analysis. A key difference between the bull and bear case is the timing for the reinstatement of DiDi’s apps on the app stores which will once again enable DiDi to grow market share and regain pricing power. Our bull-case SoTP valuation points to a 22% upside while our bear-case SoTP valuation points to a -19% downside to the last close price of $8.56 per ADS. Consequently, the shares seem fairly valued and may appeal to investors with a higher risk appetite.  

Event-Driven

The Chinese food delivery giant <a href="https://www.smartkarma.com/entities/meituan-dianping" target="_blank" data-smartkarma-citation="entities:26970:1" rel="noopener">Meituan (3690 HK)</a> was imposed an antitrust fine of US$534m (RMB3.44bn) on Friday (8th October) for abusing its dominant market position and also ordered to make changes to its business operations. According to the regulators, Meituan was found guilty of pushing merchants to sign exclusive agreements (known as Picking One from Two) with the company and required them to only cooperate with the company and not with any of its rivals taking advantage of its market dominant position. In early August, several news media outlets reported that the antitrust regulators were planning to impose a fine of about US$1bn on the company, and the fine of RMB3.44bn accounts for 3.0% of Meituan’s FY03/2021 revenues of RMB115bn.This all began when China’s State Administration for Market Regulation (SAMR) launched a probe on Alibaba over its suspected monopolistic practices in December last year. The investigation on Alibaba was concluded on 10th April and the company was fined RMB18.2bn (3.6% of its consolidated FY2020 revenues) for breaching anti-monopoly rules where investigations revealed that Alibaba was abusing its market dominance to prevent other merchants from using other platforms since 2015.In our previous insight, we highlighted that Meituan was unlikely to be fined anything more than Alibaba’s antitrust fine and mentioned that Meituan would be imposed a fine of around 3-3.5% of its FY2020 revenues (around RMB3.4-4.0bn).

The Chinese food delivery giant Meituan (3690 HK) was imposed an antitrust fine of US$534m (RMB3.44bn) on Friday (8th October) for abusing its dominant market position and also ordered to make changes to its business operations. According to the regulators, Meituan was found guilty of pushing merchants to sign exclusive agreements (known as Picking One from Two) with the company and required them to only cooperate with the company and not with any of its rivals taking advantage of its market dominant position. In early August, several news media outlets reported that the antitrust regulators were planning to impose a fine of about US$1bn on the company, and the fine of RMB3.44bn accounts for 3.0% of Meituan’s FY03/2021 revenues of RMB115bn.This all began when China’s State Administration for Market Regulation (SAMR) launched a probe on Alibaba over its suspected monopolistic practices in December last year. The investigation on Alibaba was concluded on 10th April and the company was fined RMB18.2bn (3.6% of its consolidated FY2020 revenues) for breaching anti-monopoly rules where investigations revealed that Alibaba was abusing its market dominance to prevent other merchants from using other platforms since 2015.In our previous insight, we highlighted that Meituan was unlikely to be fined anything more than Alibaba’s antitrust fine and mentioned that Meituan would be imposed a fine of around 3-3.5% of its FY2020 revenues (around RMB3.4-4.0bn).

Meituan Fined RMB3.44bn; Expect Short-Term Gains with Positive Shift in Sentiment

China

DiDi Chuxing Incorporated operates passenger transportation platforms. The Company provides mobility solutions, cloud computing and other application based services. DiDi Chuxing serves customers worldwide.

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DiDi Global (DIDI US)

Didi Global - Regulatory Overhang Remains and Long-Term Value Is Falling

Volatility in Didi shares appear has stabilized after regulatory turmoil but whilst the stream of bad news has slowed, a lack of good news is also...

Kirk Boodry

DiDi: Buckle Up Your Seat Belts

Didi's Shares are currently trading at around 40% below its IPO price and our revised forecasts suggests that there is further upside of around 16...

Shifara Samsudeen, ACMA, CGMA

Didi Global: Xi Jinping Softening the Brutal Crackdown on China's Internet Giants?

In this insight, we provide a bullish case for DiDi Global. We argue that there are signs that Xi Jinping is starting to soften the brutal...

Douglas Kim

DiDi Global: Time to Book a Ride?

Our bull-case SoTP valuation points to a 22% upside while our bear-case SoTP valuation points to a -19% downside. The shares seem fairly valued and...

Arun George

Meituan Fined RMB3.44bn; Expect Short-Term Gains with Positive Shift in Sentiment

Meituan was imposed an antitrust fine of US$534m (RMB3.44bn) on Friday and we expect the company’s shares to see gains in the short-term as there...

Shifara Samsudeen, ACMA, CGMA

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