Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

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<p>Back on the 1 February, Zhuhai Huafa, wholly-owned by Zhuhai SASAC, entered into a share purchase agreement (SPA) to acquire domestic shares in mobile device manufacturer <a href="https://www.smartkarma.com/entities/beijing-digital-telecom-co-ltd" target="_blank" data-smartkarma-citation="entities:4113:1" rel="noopener">Beijing Digital Telecom (6188 HK)</a> from Di Er Tong and Digital Science &amp; Technology, collectively the controlling shareholders of Beijing Digital.</p>
</div>
<div>
<p>Upon completion of the SPA, Zhuhai Huafa and concert parties would hold 37.99%, triggering a mandatory general offer (MGO). The Offer price will be HK$3.8429 per H-Share, a premium of 7.04% to last close. A concurrent Offer of RM3.2030/share will be made for the domestic shares.</p>
<h3>The New News</h3>
</div>
<div>
<p>The SPA,  which was conditional on, inter alia, SASAC and NDRC approval, together with miscellaneous conditions such as the entering into of loan and concert party agreements, has now <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0407/2021040702361.pdf" target="_blank" rel="noopener">completed</a>. The MGO has subsequently been triggered.</p>
<p>The MGO has a 50% tendering condition - attached to ALL voting rights of Beijing Capital. No irrevocables have been received to date.</p>
<p>The Composite Document is expected to be despatched by the 16 April, at which time the Offer will be open for acceptances.</p>
<p>As always, more below the fold. </p>
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Back on the 1 February, Zhuhai Huafa, wholly-owned by Zhuhai SASAC, entered into a share purchase agreement (SPA) to acquire domestic shares in mobile device manufacturer Beijing Digital Telecom (6188 HK) from Di Er Tong and Digital Science &amp; Technology, collectively the controlling shareholders of Beijing Digital.


Upon completion of the SPA, Zhuhai Huafa and concert parties would hold 37.99%, triggering a mandatory general offer (MGO). The Offer price will be HK$3.8429 per H-Share, a premium of 7.04% to last close. A concurrent Offer of RM3.2030/share will be made for the domestic shares.
The New News


The SPA,  which was conditional on, inter alia, SASAC and NDRC approval, together with miscellaneous conditions such as the entering into of loan and concert party agreements, has now completed. The MGO has subsequently been triggered.
The MGO has a 50% tendering condition - attached to ALL voting rights of Beijing Capital. No irrevocables have been received to date.
The Composite Document is expected to be despatched by the 16 April, at which time the Offer will be open for acceptances.
As always, more below the fold. 









Beijing Digital (6188 HK): Zhuhai SASAC's MGO On Track

Overseas Chinese Equities, Aequitas Research

Ming Lu

Overseas Chinese Equities

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 Bottom-Up

Alibaba Group Holding  / Equity Bottom-Up

<ul>
<li>State Administration for Market Regulation (SAMR) fined Alibaba RMB18 billion.</li>
<li>Alibaba had forced retailers to leave competitors via an “either-or” choice since 2015.</li>
<li>The penalty amount is not significant to Alibaba.</li>
<li>We believe that the penalty is just part of SAMR’s action after the new law, but not especially against Alibaba.</li>
<li>We do not believe the penalty will impact Alibaba’s long-term value.</li>
<li>We set an upside of 37% and a price target of USD$306 according to the 3-year P/E average.</li>
</ul>
<p>Our previous coverage on Alibaba:</p>
<p><a href="https://www.smartkarma.com/insights/alibaba-baba-many-positive-signals-in-december-quarter-27-upside" target="_blank" data-smartkarma-citation="insights:47726" rel="noopener">Alibaba (BABA): Many Positive Signals in December Quarter, 27% Upside</a></p>
<p><a href="https://www.smartkarma.com/insights/alibaba-baba-this-online-antitrust-wave-a-risk-but-not-a-massacre" target="_blank" data-smartkarma-citation="insights:46377" rel="noopener">Alibaba (BABA): This Online Antitrust Wave, A Risk, But Not A Massacre</a> </p>


State Administration for Market Regulation (SAMR) fined Alibaba RMB18 billion.
Alibaba had forced retailers to leave competitors via an “either-or” choice since 2015.
The penalty amount is not significant to Alibaba.
We believe that the penalty is just part of SAMR’s action after the new law, but not especially against Alibaba.
We do not believe the penalty will impact Alibaba’s long-term value.
We set an upside of 37% and a price target of USD$306 according to the 3-year P/E average.

Our previous coverage on Alibaba:
Alibaba (BABA): Many Positive Signals in December Quarter, 27% Upside
Alibaba (BABA): This Online Antitrust Wave, A Risk, But Not A Massacre 

Alibaba (BABA): Fined $2.78 Billion for “Either Or”, But Impact Is Neither Big Nor Long Term

Global TMT analyst with Asia ex-Japan focus.

Mitchell Kim

<p>Chinese regulators announced a record fine 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> amounting to USD2.75 billion for violations related to antitrust regulations.  While the final amount for the fine was previously unknown, the fine itself is not a surprise.  </p><p>We believe this is a positive outcome for Alibaba: </p><ol>
<li>
<strong>We did not see any hint of additional rectifications</strong> related to AML (Anti-monopoly law) other than the penalty amount. (Alibaba has already pledged to modify its "exclusivity" practice to allow for merchants to have greater freedom to list their products on multiple platforms. <strong>Share overhang related to this issue should dissipate. </strong>
</li>
<li>
<strong>Alibaba could have been penalized more severely</strong> (as much as 10% of its revenues for antitrust violations).  The penalty amount represents only about 3.5% of Alibaba's FY20 revenues (4% of CY2019 revenues).</li>
<li><strong>The lower-than-expected fine amount appears to signal that the regulators are not trying to excessively debilitate the industry.  </strong></li>
</ol><p>We have highlighted the AML and the consumer lending regulation risks to be key share overhang on the BABA shares in our February report, <a href="https://www.smartkarma.com/insights/alibaba-baba-us-ant-group-woes-overly-priced-in" target="_blank" data-smartkarma-citation="insights:48648" rel="noopener">Alibaba (BABA US): Ant Group Woes Overly Priced-In</a>.   We believe BABA shares are undervalued due to the overhang.  The latest regulatory announcement signals the lifting of share overhang related to AML, in our view.  </p>

Chinese regulators announced a record fine for Alibaba Group (BABA US) amounting to USD2.75 billion for violations related to antitrust regulations.  While the final amount for the fine was previously unknown, the fine itself is not a surprise.  We believe this is a positive outcome for Alibaba: 

We did not see any hint of additional rectifications related to AML (Anti-monopoly law) other than the penalty amount. (Alibaba has already pledged to modify its "exclusivity" practice to allow for merchants to have greater freedom to list their products on multiple platforms. Share overhang related to this issue should dissipate. 


Alibaba could have been penalized more severely (as much as 10% of its revenues for antitrust violations).  The penalty amount represents only about 3.5% of Alibaba's FY20 revenues (4% of CY2019 revenues).
The lower-than-expected fine amount appears to signal that the regulators are not trying to excessively debilitate the industry.  
We have highlighted the AML and the consumer lending regulation risks to be key share overhang on the BABA shares in our February report, Alibaba (BABA US): Ant Group Woes Overly Priced-In.   We believe BABA shares are undervalued due to the overhang.  The latest regulatory announcement signals the lifting of share overhang related to AML, in our view.  

Alibaba (BABA US): Record Fine - Grin and Bear It as Better Days Are Ahead

China and US Equity Analyst

Roger Xie

<ul>
<li>HKEx is rising as a global trading venue as secondary-listing Chinese companies are moving to swap their US ADRs to Hong Kong shares. Since <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> pioneered the secondary listing scheme in Hong Kong in 2018, the share fungibility has opened the door for swapping its US ADR to Hong Kong. We estimated that 20% of outstanding shares of Alibaba have been moved to Hong Kong.</li>
<li>Some top institutional investors, such as Temasek, Baillie Gifford, and Matthews Asia, are among the major shareholders that have swapped stakes in <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> US ADRs. This has reflected some strategic consideration to  avoid US sanction and delisting of Chinese tech companies. We expect this trend will likely accelerate in the future. For current 13 dual-listing Chinese ADRs, we expect 30% of total trading volume will be shifted to Hong Kong from US in next 2 years. This is a significant jump from around 18% of trading volume at Hong Kong now. Dual-listing Chinese ADRs at Hong Kong will likely accelerate as well. </li>
<li>
<a href="https://www.smartkarma.com/entities/hong-kong-exchanges-clearing" target="_blank" data-smartkarma-citation="entities:490:1" rel="noopener">HKEX (388 HK)</a>  serves as the only offshore gateway to China capital market. HKEx has consistently enjoyed the superior margin and profitability, given that it can charge higher trading fee rates than other bourses. We forecast Securities ADT of HK$240bn in FY 21 (Hong Kong and Stock Connect Northbound). Given the acceleration of US ADRs conversion, there is risk to the upside of the Securities ADT forecast. We continue to favor <a href="https://www.smartkarma.com/entities/hong-kong-exchanges-clearing" target="_blank" data-smartkarma-citation="entities:490:1" rel="noopener">HKEX (388 HK)</a> and reiterate HKEx TP HKD 550. </li>
</ul>


HKEx is rising as a global trading venue as secondary-listing Chinese companies are moving to swap their US ADRs to Hong Kong shares. Since Alibaba Group (BABA US) pioneered the secondary listing scheme in Hong Kong in 2018, the share fungibility has opened the door for swapping its US ADR to Hong Kong. We estimated that 20% of outstanding shares of Alibaba have been moved to Hong Kong.
Some top institutional investors, such as Temasek, Baillie Gifford, and Matthews Asia, are among the major shareholders that have swapped stakes in Alibaba Group (BABA US) US ADRs. This has reflected some strategic consideration to  avoid US sanction and delisting of Chinese tech companies. We expect this trend will likely accelerate in the future. For current 13 dual-listing Chinese ADRs, we expect 30% of total trading volume will be shifted to Hong Kong from US in next 2 years. This is a significant jump from around 18% of trading volume at Hong Kong now. Dual-listing Chinese ADRs at Hong Kong will likely accelerate as well. 

HKEX (388 HK)  serves as the only offshore gateway to China capital market. HKEx has consistently enjoyed the superior margin and profitability, given that it can charge higher trading fee rates than other bourses. We forecast Securities ADT of HK$240bn in FY 21 (Hong Kong and Stock Connect Northbound). Given the acceleration of US ADRs conversion, there is risk to the upside of the Securities ADT forecast. We continue to favor HKEX (388 HK) and reiterate HKEx TP HKD 550. 


Hong Kong Market: Conversion of US ADRs Will Boost HKEx as Global Trading Venue

Global Emerging Market Equities, Propitious Research

Wium Malan, CFA

Global Emerging Market Equities

Independent, Fundamental Quantitative Research

Propitious Research

Fully independent, fundamental and quantitative equity research, focused on companies in the Telecommunication, Media, Technology, Internet and Healthcare sectors in the Global Emerging Markets. Idea generation focused on Quality stocks, trading below their intrinsic Value, with sound Corporate Governance.

Thematic (Sector/Industry)

<p>This insight provides a summary of the key news developments impacting the largest countries and constituents of the Global Emerging Markets equity indices.  </p><p><strong><em>Companies mentioned this week:</em></strong></p><p><a href="https://www.smartkarma.com/entities/jd-com-inc" target="_blank" data-smartkarma-citation="entities:29043:1" rel="noopener">JD.com Inc. (9618 HK)</a>, <a href="https://www.smartkarma.com/entities/prosus-nv" target="_blank" data-smartkarma-citation="entities:28104:1" rel="noopener">Prosus (PRX NA)</a>, <a href="https://www.smartkarma.com/entities/naspers-ltd" target="_blank" data-smartkarma-citation="entities:21085:1" rel="noopener">Naspers (NPN SJ)</a>, <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>, <a href="https://www.smartkarma.com/entities/xiaomi-corp" target="_blank" data-smartkarma-citation="entities:24409:1" rel="noopener">Xiaomi Corp (1810 HK)</a>, <a href="https://www.smartkarma.com/entities/anglo-american-plc" target="_blank" data-smartkarma-citation="entities:21798:1" rel="noopener">Anglo American (AAL LN)</a>, <a href="https://www.smartkarma.com/entities/axiata-group-berhad" target="_blank" data-smartkarma-citation="entities:944:1" rel="noopener">Axiata Group (AXIATA MK)</a>, GlobalFoundries, <a href="https://www.smartkarma.com/entities/taiwan-semiconductor-manufacturing-company" target="_blank" data-smartkarma-citation="entities:11230:1" rel="noopener">TSMC (2330 TT)</a>, <a href="https://www.smartkarma.com/entities/samsung-electronics-co-ltd" target="_blank" data-smartkarma-citation="entities:191:1" rel="noopener">Samsung Electronics (005930 KS)</a></p>

This insight provides a summary of the key news developments impacting the largest countries and constituents of the Global Emerging Markets equity indices.  Companies mentioned this week:JD.com Inc. (9618 HK), Prosus (PRX NA), Naspers (NPN SJ), Tencent Holdings (700 HK), Xiaomi Corp (1810 HK), Anglo American (AAL LN), Axiata Group (AXIATA MK), GlobalFoundries, TSMC (2330 TT), Samsung Electronics (005930 KS)

Global Emerging Markets Weekly: 9 April 2021

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)

Beijing Digital (6188 HK): Zhuhai SASAC's MGO On Track

The Offer price appears fair, with respect to historical trading multiples, and optically. I see a gross/annualised spread of 3%/34.2%. I'd be...

David Blennerhassett

Alibaba (BABA): Fined $2.78 Billion for “Either Or”, But Impact Is Neither Big Nor Long Term

The penalty amount is not significant to Alibaba. We believe the penalty is just part of authorities’ action after the new law, but not especially...

Ming Lu

Alibaba (BABA US): Record Fine - Grin and Bear It as Better Days Are Ahead

A record-setting fine related to the antitrust violations was imposed on Alibaba on Friday. Find out why we think this is a positive outcome for...

Mitchell Kim

Hong Kong Market: Conversion of US ADRs Will Boost HKEx as Global Trading Venue

We expect 30% of total dual-list China ADR trading volume will be shifted to Hong Kong from US in next 2 years, a significant jump from current...

Roger Xie

Global Emerging Markets Weekly: 9 April 2021

This insight provides a summary of the key news developments impacting the largest countries and constituents of the Global Emerging Markets equity...

Wium Malan, CFA

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