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.

Equity Capital Markets

Zhihu Technology / Equity Capital Markets

<ul>
<li>
<a href="https://www.smartkarma.com/entities/zhihu-technology-ltd" target="_blank" data-smartkarma-citation="entities:32185:1" rel="noopener">Zhihu Technology (ZH US)</a> has launched an HKEx dual-primary listing to raise $150-200 million. Zhihu will not receive any of the net proceeds as it is offering from selling shareholders.</li>
<li>Zhihu shares are down 73% from the IPO price of $9.50 per ADS (March 2021) largely due to the tech sell-off and regulatory uncertainty on ADR listings.  </li>
<li>While a loss-making Chinese tech name is not everybody's cup of tea in the current environment, Zhihu has delivered resilient performance and the valuation is undemanding. </li>
</ul>



Zhihu Technology (ZH US) has launched an HKEx dual-primary listing to raise $150-200 million. Zhihu will not receive any of the net proceeds as it is offering from selling shareholders.
Zhihu shares are down 73% from the IPO price of $9.50 per ADS (March 2021) largely due to the tech sell-off and regulatory uncertainty on ADR listings.  
While a loss-making Chinese tech name is not everybody's cup of tea in the current environment, Zhihu has delivered resilient performance and the valuation is undemanding. 


Zhihu Dual-Primary Listing: A Question of Judgment

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.

Alibaba Group Holding  / Equity Capital Markets

<ul>
<li>On 2nd Apr 2022, CSRC put out a draft for public comments on the revision of certain provisions which would allow easier access by overseas regulators to China ADRs audits.</li>
<li>On 8th Mar 2022, Securities Exchange Commission (SEC) had added five China ADR names to its provisional list of issuers under HFCAA, which set the clock ticking for their delisting.</li>
<li>In this note, we'll talk about the latest developments and its implications.</li>
</ul>


On 2nd Apr 2022, CSRC put out a draft for public comments on the revision of certain provisions which would allow easier access by overseas regulators to China ADRs audits.
On 8th Mar 2022, Securities Exchange Commission (SEC) had added five China ADR names to its provisional list of issuers under HFCAA, which set the clock ticking for their delisting.
In this note, we'll talk about the latest developments and its implications.


China ADRs Delisting - Tide Is Turning with CSRC Showing Signs of a Compromise

<ul>
<li>
<a href="https://www.smartkarma.com/entities/cloud-village-inc" target="_blank" data-smartkarma-citation="entities:33412:1" rel="noopener">Cloud Village (CLV HK)</a> is the second-largest online music platform after <a href="https://www.smartkarma.com/entities/tencent-music-entertainment" target="_blank" data-smartkarma-citation="entities:27255:1" rel="noopener">Tencent Music (TME US)</a> in China. It has launched its IPO to raise $400 million at the IPO mid-point.</li>
<li>In <a href="https://www.smartkarma.com/insights/cloud-village-netease-music-ipo-not-yet-a-sound-investment" target="_blank" data-smartkarma-citation="insights:61441" rel="noopener">Cloud Village (NetEase Music) IPO: Not yet a Sound Investment</a>, we stated that the 9M21 update is underwhelming with slowing growth and a marginal decline in losses. </li>
<li>Our valuation analysis suggests that the IPO price is unattractive. We would give the IPO a pass. </li>
</ul>



Cloud Village (CLV HK) is the second-largest online music platform after Tencent Music (TME US) in China. It has launched its IPO to raise $400 million at the IPO mid-point.
In Cloud Village (NetEase Music) IPO: Not yet a Sound Investment, we stated that the 9M21 update is underwhelming with slowing growth and a marginal decline in losses. 
Our valuation analysis suggests that the IPO price is unattractive. We would give the IPO a pass. 


Cloud Village (NetEase Music) IPO: Valuation Insights

Event-Driven

<p><a href="https://www.smartkarma.com/entities/joyy-inc" target="_blank" data-smartkarma-citation="entities:285:1" rel="noopener">JOYY (YY US)</a> may be subject to a privatisation bid from Mr David Li (co-founder and Chairman) and Mr Jun Lei (founder and Chairman of <a href="https://www.smartkarma.com/entities/xiaomi-corp" target="_blank" data-smartkarma-citation="entities:24409:1" rel="noopener">Xiaomi Corp (1810 HK)</a>), its top two shareholders, according to Reuters report on 26 August. Mr David Li and Mr Jun Lei are looking to privatise Joyy at $75-$100 per ADS and finalise the deal by the end of 2021. Mr David Li and Mr Jun Lei aim to spin off Joyy's key asset, BIGO, and list it in Hong Kong, to take advantage of higher valuations, according to Reuters. On 27 August, Joyy said it has not received any formal takeover offers, according to Chinese media reports.  </p><p>Joyy shares are around 60% below their February peak due to weak guidance (3Q21 revenue guidance was around 16% below consensus), the delay of SAMR anti-trust approval for the YY Live disposal and ongoing policy uncertainty on Chinese tech.</p><p>As a reminder, on 16 November 2020, Joyy entered into a definitive agreement with <a href="https://www.smartkarma.com/entities/baidu-inc" target="_blank" data-smartkarma-citation="entities:179:1" rel="noopener">Baidu (BIDU US)</a> for the disposal of YY Live for $3.6 billion in cash, subject to certain adjustments. The sale was substantially completed on 8 February 2021 resulting in a $1.9 billion payment from Baidu. Notably, Joyy’s market cap of $4.9 billion is 7% below its net cash of $5.2 billion, which is the sum of the 2Q1 net cash of $3.9 billion and Baidu's remaining payment net of tax $1.4 billion.</p><p>As Joyy is incorporated in the Cayman Islands, for potential privatisation to succeed, shareholders representing two-thirds of shares present and voting need to approve the deal. Mr David Li represents 76.0% of the voting interest and has the two-thirds voting interest threshold needed to approve any potential privatisation deal.</p><div class="content-highlight"><p>Our SOTP and relative valuation suggest that the rumoured privatisation range of $75-100 per ADS is justifiable and reasonable. Our base-case SOTP valuation is $71.69 per ADS, which is a 16% premium to the last close price of $61.97 per ADS. Despite Joyy's insistence that no formal bid has been received, we would be buyers as the shares offer a favourable risk/reward profile to the emergence of a formal privatisation bid.</p></div>

JOYY (YY US) may be subject to a privatisation bid from Mr David Li (co-founder and Chairman) and Mr Jun Lei (founder and Chairman of Xiaomi Corp (1810 HK)), its top two shareholders, according to Reuters report on 26 August. Mr David Li and Mr Jun Lei are looking to privatise Joyy at $75-$100 per ADS and finalise the deal by the end of 2021. Mr David Li and Mr Jun Lei aim to spin off Joyy's key asset, BIGO, and list it in Hong Kong, to take advantage of higher valuations, according to Reuters. On 27 August, Joyy said it has not received any formal takeover offers, according to Chinese media reports.  Joyy shares are around 60% below their February peak due to weak guidance (3Q21 revenue guidance was around 16% below consensus), the delay of SAMR anti-trust approval for the YY Live disposal and ongoing policy uncertainty on Chinese tech.As a reminder, on 16 November 2020, Joyy entered into a definitive agreement with Baidu (BIDU US) for the disposal of YY Live for $3.6 billion in cash, subject to certain adjustments. The sale was substantially completed on 8 February 2021 resulting in a $1.9 billion payment from Baidu. Notably, Joyy’s market cap of $4.9 billion is 7% below its net cash of $5.2 billion, which is the sum of the 2Q1 net cash of $3.9 billion and Baidu's remaining payment net of tax $1.4 billion.As Joyy is incorporated in the Cayman Islands, for potential privatisation to succeed, shareholders representing two-thirds of shares present and voting need to approve the deal. Mr David Li represents 76.0% of the voting interest and has the two-thirds voting interest threshold needed to approve any potential privatisation deal.Our SOTP and relative valuation suggest that the rumoured privatisation range of $75-100 per ADS is justifiable and reasonable. Our base-case SOTP valuation is $71.69 per ADS, which is a 16% premium to the last close price of $61.97 per ADS. Despite Joyy's insistence that no formal bid has been received, we would be buyers as the shares offer a favourable risk/reward profile to the emergence of a formal privatisation bid.

Joyy’s Potential Privatisation by Top Two Shareholders

<div>
<p><a href="https://www.smartkarma.com/entities/cloud-village-inc" target="_blank" data-smartkarma-citation="entities:33412:1" rel="noopener">Cloud Village (CLV HK)</a> is the second-largest online music platform after <a href="https://www.smartkarma.com/entities/tencent-music-entertainment" target="_blank" data-smartkarma-citation="entities:27255:1" rel="noopener">Tencent Music (TME US)</a> as measured by users and revenue in China. The cornerstone product is <em>NetEase Cloud Music</em> that delivers diverse music and music-inspired content and provides interactive community features. Cloud Village is braving the moribund Chinese IPO market by pre-marketing an HKEx IPO to raise around $1 billion, according to press reports. </p>
<p>In <a href="https://www.smartkarma.com/insights/cloud-village-netease-music-ipo-initiation-musical-shares" target="_blank" data-smartkarma-citation="insights:52266" rel="noopener">Cloud Village (NetEase Music) IPO Initiation: Musical Shares</a>, we stated that at first sight, Cloud Village performance seems poor as its high growth has come at the cost of negative gross margin and cash burn. However, Cloud Village is on the cusp of turning around its performance due to a fundamental change in its cost structure. We concluded that Cloud Village has the potential to shed its underdog status vs the much larger Tencent Music.  </p>
<p>In <a href="https://www.smartkarma.com/insights/cloud-village-netease-music-ipo-play-list" target="_blank" data-smartkarma-citation="insights:55506" rel="noopener">Cloud Village (NetEase Music) IPO: Play List</a>, we examined the 1Q21 results and the recent developments disclosed in the PHIP. We noted that while Cloud Village expects to remain unprofitable over the next three years, the 1Q21 results and the recent SAMR ruling on Tencent Music support our view that Cloud Village is on track to combine its high growth with an improving cost structure. </p>
</div><div><div><div class="content-highlight"><p>In this note, we present our forecasts and take the first look at Cloud Village's potential valuation range. </p></div></div></div>


Cloud Village (CLV HK) is the second-largest online music platform after Tencent Music (TME US) as measured by users and revenue in China. The cornerstone product is NetEase Cloud Music that delivers diverse music and music-inspired content and provides interactive community features. Cloud Village is braving the moribund Chinese IPO market by pre-marketing an HKEx IPO to raise around $1 billion, according to press reports. 
In Cloud Village (NetEase Music) IPO Initiation: Musical Shares, we stated that at first sight, Cloud Village performance seems poor as its high growth has come at the cost of negative gross margin and cash burn. However, Cloud Village is on the cusp of turning around its performance due to a fundamental change in its cost structure. We concluded that Cloud Village has the potential to shed its underdog status vs the much larger Tencent Music.  
In Cloud Village (NetEase Music) IPO: Play List, we examined the 1Q21 results and the recent developments disclosed in the PHIP. We noted that while Cloud Village expects to remain unprofitable over the next three years, the 1Q21 results and the recent SAMR ruling on Tencent Music support our view that Cloud Village is on track to combine its high growth with an improving cost structure. 
In this note, we present our forecasts and take the first look at Cloud Village's potential valuation range. 

Cloud Village (NetEase Music) IPO: Valuation First-Look

China

Hello Group Inc. operates as a mobile-based social networking platform. The Company enables users to establish and expand social relationships based on location and interests. Hello Group operates out of the Peoples Republic of China.

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Hello Group (MOMO US)

Zhihu Dual-Primary Listing: A Question of Judgment

Zhihu has launched an HKEx dual-primary listing to raise $150-200m. While a loss-making Chinese tech name is not enticing, Zhihu has delivered...

Arun George

China ADRs Delisting - Tide Is Turning with CSRC Showing Signs of a Compromise

On 2nd Apr 2022, CSRC put out a draft for public comments on the revision of certain provisions which would allow easier access by overseas...

Sumeet Singh

Cloud Village (NetEase Music) IPO: Valuation Insights

Cloud Village has launched its IPO to raise $400 million at the IPO mid-point. Our valuation analysis suggests that the IPO price is unattractive....

Arun George

Joyy’s Potential Privatisation by Top Two Shareholders

Joyy's rumoured privatisation bid is at $75-$100 per ADS. Our base-case SOTP valuation is $71.69, a 16% premium to the last close. Consequently,...

Arun George

Cloud Village (NetEase Music) IPO: Valuation First-Look

Cloud Village is braving the moribund Chinese IPO market by pre-marketing an HKEx IPO to raise around $1 bn. In this note, we present our forecasts...

Arun George

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