China and US Equity Analyst

Roger Xie

Equity Bottom-Up

<ul>
<li>The most positive surprise from <a href="https://www.smartkarma.com/entities/yum-china-holdings-inc" target="_blank" data-smartkarma-citation="entities:23677:1" rel="noopener">Yum China Holdings, Inc (YUMC US)</a> 2021Q2 earning call is its step-up of new store openings in the quarter and management's projection. The company added 404 new stores and total store counts is up 11% year-over-year. More impressively, management targeted to open 1300 stores (up from prior 1000 stores) this year. If this new store openings trajectory will stay, <a href="https://www.smartkarma.com/entities/yum-china-holdings-inc" target="_blank" data-smartkarma-citation="entities:23677:1" rel="noopener">Yum China Holdings, Inc (YUMC US)</a> store counts will delivery 10% annual growth rate, which could be the big positive for Yum China long-term profitability. </li>
<li>2021 Q2 system sales are up 14% year-over-year (or 9% above 2019 Q2), and adjusted operating profits (ex-FX) are up 63% year-over-year. Even though KFC's same-store sales were still 7% behind pre-COVID-19 levels, the company was able to offset weaker unit economics with accelerated store openings. Pizza Hut’s accelerating recovery is also a positive surprise. During the same period, commodity costs declining 7% year-over-year. </li>
<li>As China steps up its effort to curb tech giants (such as <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> , <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 delivery riders' benefits have come to the spotlight. <a href="https://www.smartkarma.com/entities/yum-china-holdings-inc" target="_blank" data-smartkarma-citation="entities:23677:1" rel="noopener">Yum China Holdings, Inc (YUMC US)</a> owns its delivery fleet and it confirmed to be compliant with applicable laws and regulations. YUMC believes they pay competitive rates to their riders and raised staff wages by 2-3% year-over-year in 1H21. We believe the policy impact on rider benefits is limited.  We continue to believe <a href="https://www.smartkarma.com/entities/yum-china-holdings-inc" target="_blank" data-smartkarma-citation="entities:23677:1" rel="noopener">Yum China Holdings, Inc (YUMC US)</a> offers investors better reward/risk potential in China restaurant sector. We reiterate TP US$72 for Yum China, which is based on 30x 2021e P/E. </li>
</ul>


The most positive surprise from Yum China Holdings, Inc (YUMC US) 2021Q2 earning call is its step-up of new store openings in the quarter and management's projection. The company added 404 new stores and total store counts is up 11% year-over-year. More impressively, management targeted to open 1300 stores (up from prior 1000 stores) this year. If this new store openings trajectory will stay, Yum China Holdings, Inc (YUMC US) store counts will delivery 10% annual growth rate, which could be the big positive for Yum China long-term profitability. 
2021 Q2 system sales are up 14% year-over-year (or 9% above 2019 Q2), and adjusted operating profits (ex-FX) are up 63% year-over-year. Even though KFC's same-store sales were still 7% behind pre-COVID-19 levels, the company was able to offset weaker unit economics with accelerated store openings. Pizza Hut’s accelerating recovery is also a positive surprise. During the same period, commodity costs declining 7% year-over-year. 
As China steps up its effort to curb tech giants (such as DiDi Global (DIDI US) , Alibaba Group (BABA US) ), the delivery riders' benefits have come to the spotlight. Yum China Holdings, Inc (YUMC US) owns its delivery fleet and it confirmed to be compliant with applicable laws and regulations. YUMC believes they pay competitive rates to their riders and raised staff wages by 2-3% year-over-year in 1H21. We believe the policy impact on rider benefits is limited.  We continue to believe Yum China Holdings, Inc (YUMC US) offers investors better reward/risk potential in China restaurant sector. We reiterate TP US$72 for Yum China, which is based on 30x 2021e P/E. 


Yum China (YUMC and 9987.HK): Accelerating New Store Openings to Improve Long-Term Profitability

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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

Hang Seng China Enterprises Index / Event-Driven

Most Chinese companies will announce their half yearly results in the next couple of weeks. Some will announce their interim dividends as well.With most of the dividends for 2021 having already gone ex, we see little upside/downside in the HSCEI 2021 dividend futures contract.The HSCEI 2022 dividend futures are another story though. There are a lot of potential events that could change the fair value of the futures. Taking into account all the changes expected to take place by the December rebalance, we see the current dividend futures market trading around 6 index points higher than our fair value. In terms of future events, we find a lot more potential negative catalysts as compared to positive catalysts.We recommend selling the HSCEI 2022 dividend futures at 245 or higher (equivalent to around -25 on the HSCEI 2021/22 dividend steepener) and buying the dividend futures at 230 or lower. These estimates will change as the CNYHKD fx rates move around and some of the catalysts come to pass.

Most Chinese companies will announce their half yearly results in the next couple of weeks. Some will announce their interim dividends as well.With most of the dividends for 2021 having already gone ex, we see little upside/downside in the HSCEI 2021 dividend futures contract.The HSCEI 2022 dividend futures are another story though. There are a lot of potential events that could change the fair value of the futures. Taking into account all the changes expected to take place by the December rebalance, we see the current dividend futures market trading around 6 index points higher than our fair value. In terms of future events, we find a lot more potential negative catalysts as compared to positive catalysts.We recommend selling the HSCEI 2022 dividend futures at 245 or higher (equivalent to around -25 on the HSCEI 2021/22 dividend steepener) and buying the dividend futures at 230 or lower. These estimates will change as the CNYHKD fx rates move around and some of the catalysts come to pass.

HSCEI Dividend Futures: Fair Value & Catalysts Point to Downside for 2022

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.

<div>
Coupang, one of the largest e-commerce players in Korea, was listed on 11th Mar 2021 when it raised around US$4.5bn via selling a mix of primary and secondary shares in its US IPO.
In this note, we'll talk about the upcoming lock-up expiry.
We've covered various aspects of the deal in our earlier insights: 
</div><div><ul style="list-style-type: disc;">
<li>
<a href="https://www.smartkarma.com/insights/coupang-pre-ipo-the-positives-fast-growth-sticky-customers" target="_blank" rel="noopener">Coupang Pre-IPO - The Positives - Fast Growth, Sticky Customers</a>, </li>
<li><a href="https://www.smartkarma.com/insights/coupang-pre-ipo-the-negatives-horrendous-data-disclosures-including-no-mention-of-ott-launch" target="_blank" rel="noopener">Coupang Pre-IPO - The Negatives - Horrendous Data Disclosures, Including No Mention of OTT Launch</a></li>
<li><a href="https://www.smartkarma.com/insights/coupang-pre-ipo-fair-bit-of-competition-but-it-s-doing-better-than-most-local-peers" target="_blank" rel="noopener">Coupang Pre-IPO - Fair Bit of Competition but It’s Doing Better than Most Local Peers</a></li>
<li><a href="https://www.smartkarma.com/insights/coupang-pre-ipo-earnings-forecast-and-valuation" target="_blank" rel="noopener">Coupang Pre-IPO - Earnings Forecast and Valuation</a></li>
<li><a href="https://www.smartkarma.com/insights/coupang-ipo-momentum-play-unequal-lock-up-index-inclusion" target="_blank" rel="noopener">Coupang IPO - Momentum Play, Unequal Lock-Up, Index Inclusion</a></li>
<li><a href="https://www.smartkarma.com/insights/coupang-ipo-quick-note-peers-move-down-range-moves-up-ripe-for-trading" target="_blank" rel="noopener">Coupang IPO - Quick Note - Peers Move Down, Range Moves Up. Ripe for Trading.</a></li>
<li><a href="https://www.smartkarma.com/insights/coupang-ipo-trading-most-hit-near-term-peak-on-the-first-day-key-trading-lock-up-dates" target="_blank" rel="noopener">Coupang IPO Trading - Most Hit near Term Peak on the First Day - Key Trading/​Lock-Up Dates</a></li>
</ul></div>


Coupang, one of the largest e-commerce players in Korea, was listed on 11th Mar 2021 when it raised around US$4.5bn via selling a mix of primary and secondary shares in its US IPO.
In this note, we'll talk about the upcoming lock-up expiry.
We've covered various aspects of the deal in our earlier insights: 


Coupang Pre-IPO - The Positives - Fast Growth, Sticky Customers, 
Coupang Pre-IPO - The Negatives - Horrendous Data Disclosures, Including No Mention of OTT Launch
Coupang Pre-IPO - Fair Bit of Competition but It’s Doing Better than Most Local Peers
Coupang Pre-IPO - Earnings Forecast and Valuation
Coupang IPO - Momentum Play, Unequal Lock-Up, Index Inclusion
Coupang IPO - Quick Note - Peers Move Down, Range Moves Up. Ripe for Trading.
Coupang IPO Trading - Most Hit near Term Peak on the First Day - Key Trading/​Lock-Up Dates


Coupang Lock-Up Expiry - Failed to Meet Multiple Lock-Up Exits; Now Hitting the US$7bn Expiry

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 today that the Chinese antitrust regulators are preparing to impose a fine of US$1bn on the country’s 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> for abusing its market position. The above fine is supposed to be announced over the coming weeks and Meituan will be ordered to make changes to its business operations.An antitrust fine of US$1bn will account for approx. 5.7% of Meituan’s FY12/2020 revenues whereas <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>  record antitrust fine of US$2.75bn in April this year was around 3.6% of its consolidated FY2020 revenues. If Meituan is imposed with an antitrust fine of US$1bn, it will mark the second largest antitrust fine in China after Alibaba’s US$2.75bn (Qualcomm was imposed a fine of US$975m in 2015).

Several news media outlets reported today that the Chinese antitrust regulators are preparing to impose a fine of US$1bn on the country’s food delivery giant Meituan (3690 HK) for abusing its market position. The above fine is supposed to be announced over the coming weeks and Meituan will be ordered to make changes to its business operations.An antitrust fine of US$1bn will account for approx. 5.7% of Meituan’s FY12/2020 revenues whereas Alibaba Group (BABA US)  record antitrust fine of US$2.75bn in April this year was around 3.6% of its consolidated FY2020 revenues. If Meituan is imposed with an antitrust fine of US$1bn, it will mark the second largest antitrust fine in China after Alibaba’s US$2.75bn (Qualcomm was imposed a fine of US$975m in 2015).

Meituan: Is the US$1bn Fine the End of the Regulatory Probe on Meituan?

Chief Economist & Political Strategist, CrossASEAN Research

Prasenjit K. Basu

Chief Economist & Political Strategist

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

Thematic (Sector/Industry)

To be the richest man in communist China is a dangerous perch. Jack Ma of Alibaba and Ant Financial was only the latest in a long line of those answering to the title of "China's richest person" who have had their assets either expropriated outright or suffered severe value-destruction through sudden, arbitrary regulatory actions by the Chinese authorities. Huang Guangyu of the electronics-retail group Gome was arrested in 2011 (when he was China's richest man) and spent a decade in prison/detention before returning to his company earlier this year. Alibaba, "China's Amazon" but with a bigger valuation given the size of its market opportunity -- and its celebrated fintech subsidiary Ant Financial (creator of Alipay, and an increasingly sophisticated payments infrastructure and internet-based bank) -- had clearly become too big for the CCP (Chinese communist party) to control. For millennia, China's rulers have prized centralized control above all else (hence the perceived need to stamp out fissiparous tendencies in Xinjiang, Tibet, Inner Mongolia -- and the outlandish claims that Taiwan is an inalienable part of China). Independent privately-owned companies that dominate the technology frontier (like Alibaba, Tencent and Baidu) are clearly seen as threats to that centralized control by the CCP.The latest victims of China's arbitrary regulatory actions are shareholders of the ride-hailing company <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>; a couple of days after its New York IPO, Didi Chuxing was ordered to stop signing up new users, and numerous other regulatory actions were taken against the company (including removing its app from all domestic app stores). Later in July, the entire US$100 billion tutoring business in China came under severe regulatory pressure, forcing companies in the sector to operate purely on a "non-profit" basis. Companies listing abroad are facing increasingly severe regulatory scrutiny. Investors need to be aware that expropriation risk for private businesses is very real in communist China, and the valuations of all privately-owned companies need to incorporate a significant "China premium" (i.e., valuations that are 30-40% of what they might be without that expropriation risk) before investors can safely hold onto them.

To be the richest man in communist China is a dangerous perch. Jack Ma of Alibaba and Ant Financial was only the latest in a long line of those answering to the title of "China's richest person" who have had their assets either expropriated outright or suffered severe value-destruction through sudden, arbitrary regulatory actions by the Chinese authorities. Huang Guangyu of the electronics-retail group Gome was arrested in 2011 (when he was China's richest man) and spent a decade in prison/detention before returning to his company earlier this year. Alibaba, "China's Amazon" but with a bigger valuation given the size of its market opportunity -- and its celebrated fintech subsidiary Ant Financial (creator of Alipay, and an increasingly sophisticated payments infrastructure and internet-based bank) -- had clearly become too big for the CCP (Chinese communist party) to control. For millennia, China's rulers have prized centralized control above all else (hence the perceived need to stamp out fissiparous tendencies in Xinjiang, Tibet, Inner Mongolia -- and the outlandish claims that Taiwan is an inalienable part of China). Independent privately-owned companies that dominate the technology frontier (like Alibaba, Tencent and Baidu) are clearly seen as threats to that centralized control by the CCP.The latest victims of China's arbitrary regulatory actions are shareholders of the ride-hailing company DiDi Global (DIDI US); a couple of days after its New York IPO, Didi Chuxing was ordered to stop signing up new users, and numerous other regulatory actions were taken against the company (including removing its app from all domestic app stores). Later in July, the entire US$100 billion tutoring business in China came under severe regulatory pressure, forcing companies in the sector to operate purely on a "non-profit" basis. Companies listing abroad are facing increasingly severe regulatory scrutiny. Investors need to be aware that expropriation risk for private businesses is very real in communist China, and the valuations of all privately-owned companies need to incorporate a significant "China premium" (i.e., valuations that are 30-40% of what they might be without that expropriation risk) before investors can safely hold onto them. 

China Premium: Expropriation Risk Needs to Be Priced in to Privately-Owned Companies

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)

Yum China (YUMC and 9987.HK): Accelerating New Store Openings to Improve Long-Term Profitability

We believe that Yum China store counts will delivery 10% annual growth rate, which could be the big positive for Yum China long-term profitability.

Roger Xie

HSCEI Dividend Futures: Fair Value & Catalysts Point to Downside for 2022

We see around 6 points of downside on the HSCEI 2022 dividend futures from the last traded price. There are more negative catalysts for the 2022...

Brian Freitas

Coupang Lock-Up Expiry - Failed to Meet Multiple Lock-Up Exits; Now Hitting the US$7bn Expiry

Coupang was listed on 11th Mar 2021 when it raised around US$4.5bn via selling a mix of primary and secondary shares in its US IPO. In this note,...

Sumeet Singh

Meituan: Is the US$1bn Fine the End of the Regulatory Probe on Meituan?

The Chinese antitrust regulators are preparing to impose a fine of US$1bn (about 5.7% of FY12/2020 revenues) on the country’s food delivery giant...

Shifara Samsudeen, ACMA, CGMA

China Premium: Expropriation Risk Needs to Be Priced in to Privately-Owned Companies

July21 provided many reminders (Didi, education) that Ant Financial isn't the exception but the rule. Expropriation risk is real in the PRC, and...

Prasenjit K. Basu

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