Global TMT analyst with Asia ex-Japan focus.

Mitchell Kim

Equity Bottom-Up

<p>On Monday, 12 April 2021, PBoC stated that Ant Group met with regulators and announced its business restructuring to comply with new regulations.  (See our report, <a href="https://www.smartkarma.com/insights/alibaba-baba-us-ant-group-pay-get-out-move-forward" target="_blank" data-smartkarma-citation="insights:50254" rel="noopener">Alibaba (BABA US): Ant Group - Pay, Get Out, Move Forward)</a> While the media and the global investment community focused on Ant Group because of the much-publicized canceled IPO in November 2020, we believe the potential valuation risk of Tencent <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent Holdings (700 HK)</a> and its associate, Webank, was overlooked, in my view.</p><p>This report highlights three key thoughts:</p><ul>
<li>While Ant Group’s devaluation weighed down Alibaba’s shares, Tencent’s shares did not fully price in the adverse impact of the regulatory change.</li>
<li>Tencent’s shares could be overvalued by 20% as the market did not reflect the lower fintech value.</li>
<li>Even though Ant Group’s fintech business is larger (see our direct comparison chart), I argue that the impact on Tencent’s shares is bigger than it does for <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> because Tencent’s fintech business is wholly owned compared to Alibaba’s 33% stake in Ant Group. </li>
</ul><p>In this report, we also provide a detailed look at Tencent’s fintech business and WeBank’s financials based on WeBank’s 2019 annual report.</p>

On Monday, 12 April 2021, PBoC stated that Ant Group met with regulators and announced its business restructuring to comply with new regulations.  (See our report, Alibaba (BABA US): Ant Group - Pay, Get Out, Move Forward) While the media and the global investment community focused on Ant Group because of the much-publicized canceled IPO in November 2020, we believe the potential valuation risk of Tencent Tencent Holdings (700 HK) and its associate, Webank, was overlooked, in my view.This report highlights three key thoughts:
While Ant Group’s devaluation weighed down Alibaba’s shares, Tencent’s shares did not fully price in the adverse impact of the regulatory change.
Tencent’s shares could be overvalued by 20% as the market did not reflect the lower fintech value.
Even though Ant Group’s fintech business is larger (see our direct comparison chart), I argue that the impact on Tencent’s shares is bigger than it does for Alibaba Group (BABA US) because Tencent’s fintech business is wholly owned compared to Alibaba’s 33% stake in Ant Group. 
In this report, we also provide a detailed look at Tencent’s fintech business and WeBank’s financials based on WeBank’s 2019 annual report.

Tencent (700 HK): Fintech Risk Is Lurking

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><a href="https://www.smartkarma.com/entities/meituan-dianping" target="_blank" data-smartkarma-citation="entities:26970:1" rel="noopener">Meituan (3690 HK)</a> aims to raise around US$10bn via a combination of an equity placement and convertible bond issuance. </p><p>Along with the US$6.6bn top-up placement, its largest shareholder <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent Holdings (700 HK)</a> will chip in another US$400m. In this note, we will run the deal through our framework and talk about deal dynamics.</p>

Meituan (3690 HK) aims to raise around US$10bn via a combination of an equity placement and convertible bond issuance. Along with the US$6.6bn top-up placement, its largest shareholder Tencent Holdings (700 HK) will chip in another US$400m. In this note, we will run the deal through our framework and talk about deal dynamics.

Meituan Placement - Might Not Do a Tencent but Low-End Looks Enticing

<div>
<p>Trip.com raised around US$1.2bn in its secondary listing in Hong Kong.</p>
<p>We have covered the background of the deal in our earlier notes:</p>
<ul>
<li>
<a href="https://www.smartkarma.com/insights/trip-com-secondary-listing-probably-needs-to-correct" target="_blank" rel="noopener">Trip.com Secondary Listing - Probably Needs to Correct,</a> and</li>
<li><a href="https://www.smartkarma.com/insights/trip-com-secondary-listing-quick-take-doing-the-bare-minimum-needs-some-more-correction" target="_blank" rel="noopener">Trip.com Secondary Listing Quick Take - Doing the Bare Minimum - Needs Some More Correction.</a></li>
</ul>
</div><div><p>In this note, we'll talk about the updates since then.</p></div>


Trip.com raised around US$1.2bn in its secondary listing in Hong Kong.
We have covered the background of the deal in our earlier notes:


Trip.com Secondary Listing - Probably Needs to Correct, and
Trip.com Secondary Listing Quick Take - Doing the Bare Minimum - Needs Some More Correction.

In this note, we'll talk about the updates since then.

Trip.com Secondary Trading Note - Delivered a Good Correction but Seems to Be Widely Distributed

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>China posts fastest GDP growth on record</li>
<li>One month to comply, Beijing tells big tech</li>
<li>You can even spend DCEP deep in the South China Sea</li>
<li>Climate talks for veteran envoys </li>
<li>Debt trap? Montenegro’s road to nowhere</li>
</ul><div class="content-remarks"><p>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.</p></div>

China News That Matters
China posts fastest GDP growth on record
One month to comply, Beijing tells big tech
You can even spend DCEP deep in the South China Sea
Climate talks for veteran envoys 
Debt trap? Montenegro’s road to nowhere
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.

Research on Tech Companies

Evelyn Zhang

Thematic (Sector/Industry)

<ol><li>The top 3 live streaming ecommerce platforms in China:</li></ol><ul>
<li>
<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> Alibaba’s Taobao Live</li>
<li><a href="https://www.smartkarma.com/entities/beijing-kuaishou-technology-co-ltd" target="_blank" data-smartkarma-citation="entities:29725:1" rel="noopener">Kuaishou Technology (1024 HK)</a></li>
<li>and ByteDance’s Douyin (aka Tiktok)</li>
</ul><ol start="2">
<li>User trust, traffic/algorithms to find right users and supply chain/ fulfillment capability are considering as the 3 most important factors to success.</li>
<li>Influencers take the largest piece of the pie (10-20%). Social media platforms are just a traffic funnel for traditional ecommerce platforms, taking in &lt;10% commission rate.</li>
<li>
<a href="https://www.smartkarma.com/entities/beijing-kuaishou-technology-co-ltd" target="_blank" data-smartkarma-citation="entities:29725:1" rel="noopener">Kuaishou Technology (1024 HK)</a> and Douyin are both building their own ecommerce shops to retain users and fulfill the orders within their own platform by using algorithms to change the traditional “people looking for products” model to “products looking for people” model.</li>
<li>
<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> will  give up its restrictions on trading (“one out of two”）, this allow those brands that have signed exclusive platform agreements to switch to other ecommerce and social media platform. <section class="figure"></section><p></p>
</li>
</ol>

The top 3 live streaming ecommerce platforms in China:

Alibaba Group (BABA US) Alibaba’s Taobao Live
Kuaishou Technology (1024 HK)
and ByteDance’s Douyin (aka Tiktok)

User trust, traffic/algorithms to find right users and supply chain/ fulfillment capability are considering as the 3 most important factors to success.
Influencers take the largest piece of the pie (10-20%). Social media platforms are just a traffic funnel for traditional ecommerce platforms, taking in &lt;10% commission rate.

Kuaishou Technology (1024 HK) and Douyin are both building their own ecommerce shops to retain users and fulfill the orders within their own platform by using algorithms to change the traditional “people looking for products” model to “products looking for people” model.

Alibaba Group (BABA US) will  give up its restrictions on trading (“one out of two”）, this allow those brands that have signed exclusive platform agreements to switch to other ecommerce and social media platform. 



Show and Sell – China’s Live Streaming E-Commerce

China

JD.com Inc is an online direct sales company in China.  The Company offers a wide selection of products through its website and mobile applications.  JD.com sells appliances, computers, digital products, communication products, garments, books, and household items to consumers and vendors.

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JD.com Inc (ADR) (JD US)

Tencent (700 HK): Fintech Risk Is Lurking

BABA is down 19% since 9 Nov 2020 when the Ant Group IPO was canceled. Fintech business has an even greater impact on Tencent's value. Tencent is...

Mitchell Kim

Meituan Placement - Might Not Do a Tencent but Low-End Looks Enticing

Meituan aims to raise around US$10bn via a combination of an equity placement and convertible bond issuance. In this note, we will run the deal...

Sumeet Singh

Trip.com Secondary Trading Note - Delivered a Good Correction but Seems to Be Widely Distributed

Trip.com raised around US$1.2bn in its secondary listing in Hong Kong. In this note, we'll talk about the trading dynamics.

Sumeet Singh

GDP, SAMR, DCEP, USA-PRC and BRI

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

Show and Sell – China’s Live Streaming E-Commerce

Livestreaming is quietly revolutionizing e-commerce in China. Who are the winners? How does the industry work? How is it different from the plain...

Evelyn Zhang

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