Global TMT analyst with Asia ex-Japan focus.

Mitchell Kim

Equity Bottom-Up

<p>We have been flagging that despite the appeal of ultra-growth the risk-return favors the downside on both operating momentum and valuations.  In our last report, <a href="https://www.smartkarma.com/insights/pinduoduo-pdd-us-know-when-to-fold-know-when-to-run" target="_blank" data-smartkarma-citation="insights:48659" rel="noopener">Pinduoduo (PDD US): Know When to Fold, Know When to Run</a>, we highlighted that <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> offers much better value than PDD on P/GMV.  PDD's share price fell 18% in the month of March, but the stock still trades at a 29% premium to BABA shares (however, we do note the share overhang on BABA shares from the anti-monopoly uncertainty in the near-term.)   </p><p>In this report, we highlight four charts that would make PDD holders nervous:</p><ol>
<li>
<strong>P/Sales chart</strong> – PDD trades at 3x BABA’s multiple.  PDD is not profitable.  BABA’s operating margin was 22% in the Dec quarter and 72% EBITA margin for the marketplace. </li>
<li>Once the growth rate breaks below 100%, the rate of deceleration is rapid.  Take a look at <a href="https://www.smartkarma.com/entities/vipshop-holdings-ltd-adr" target="_blank" data-smartkarma-citation="entities:1088:1" rel="noopener">Vipshop Holdings (VIPS US)</a>, <a href="https://www.smartkarma.com/entities/jd-com-inc-adr" target="_blank" data-smartkarma-citation="entities:446:1" rel="noopener">JD.com Inc (ADR) (JD US)</a>, and BABA’s <strong>historical revenue deceleration rates.</strong>  PDD’s revenue growth in 2020 fell to 62% (normalized to exclude merchandise sales) from 130% in 2019.</li>
<li>
<strong>GMV (Gross Merchandise Value) growth</strong> continued to decelerate in 4Q20.  PDD needs both buyer number and revenue per buyer increase to grow 30%+ respectably to maintain 60%+ revenue growth.  PDD recorded 35% and 23% growth, respectively, in 4Q20. </li>
<li>The path to profitability remains unclear.  <strong>Gross margin continues to come under pressure</strong> and operating loss margin widened instead of narrowing QoQ, excluding the new merchandise sales. We don't see meaningful evidence of ready to turn profitable yet, although the new merchandise sales appear to be margin accretive.         </li>
</ol>

We have been flagging that despite the appeal of ultra-growth the risk-return favors the downside on both operating momentum and valuations.  In our last report, Pinduoduo (PDD US): Know When to Fold, Know When to Run, we highlighted that Alibaba Group (BABA US) offers much better value than PDD on P/GMV.  PDD's share price fell 18% in the month of March, but the stock still trades at a 29% premium to BABA shares (however, we do note the share overhang on BABA shares from the anti-monopoly uncertainty in the near-term.)   In this report, we highlight four charts that would make PDD holders nervous:

P/Sales chart – PDD trades at 3x BABA’s multiple.  PDD is not profitable.  BABA’s operating margin was 22% in the Dec quarter and 72% EBITA margin for the marketplace. 
Once the growth rate breaks below 100%, the rate of deceleration is rapid.  Take a look at Vipshop Holdings (VIPS US), JD.com Inc (ADR) (JD US), and BABA’s historical revenue deceleration rates.  PDD’s revenue growth in 2020 fell to 62% (normalized to exclude merchandise sales) from 130% in 2019.

GMV (Gross Merchandise Value) growth continued to decelerate in 4Q20.  PDD needs both buyer number and revenue per buyer increase to grow 30%+ respectably to maintain 60%+ revenue growth.  PDD recorded 35% and 23% growth, respectively, in 4Q20. 
The path to profitability remains unclear.  Gross margin continues to come under pressure and operating loss margin widened instead of narrowing QoQ, excluding the new merchandise sales. We don't see meaningful evidence of ready to turn profitable yet, although the new merchandise sales appear to be margin accretive.         


Pin Duo Duo (PDD US): Four Charts To Make You Want to Run

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

<div><p>Bairong, an independent AI-powered technology platform in China serving the financial services industry, aims to raise up to US$508m in its Hong Kong IPO. According to F&amp;S, it was the largest independent financial big data analytics solutions provider in China by revenue in 2019, with a market share of 8.7%.</p></div><div>
<p>We have covered various aspects of the deal in our earlier notes:</p>
<ul>
<li>
<a href="https://www.smartkarma.com/insights/bairong-pre-ipo-the-positives-largest-independent-big-data-analytics-provider" target="_blank" rel="noopener">Bairong Pre-IPO - The Positives - Largest Independent Big-Data Analytics Provider,</a> </li>
<li>
<a href="https://www.smartkarma.com/insights/bairong-pre-ipo-the-negatives-playing-with-its-own-data" target="_blank" rel="noopener">Bairong Pre-IPO - The Negatives - Playing with Its Own Data</a>,</li>
<li><a href="https://www.smartkarma.com/insights/bairong-pre-ipo-earnings-forecast-peer-comparison-and-valuation" target="_blank" rel="noopener">Bairong Pre-IPO - Earnings Forecast, Peer Comparison and Valuation, and</a></li>
<li><a href="https://www.smartkarma.com/insights/bairong-pre-ipo-phip-and-valuation-updates-better-4q20-but-client-data-isn-t-as-encouraging" target="_blank" rel="noopener">Bairong Pre-IPO - PHIP and Valuation Updates - Better 4Q20, but Client Data Isn’t as Encouraging</a></li>
</ul>
</div><div><p>In this note, we will talk about deal dynamics and valuation.</p></div>

Bairong, an independent AI-powered technology platform in China serving the financial services industry, aims to raise up to US$508m in its Hong Kong IPO. According to F&amp;S, it was the largest independent financial big data analytics solutions provider in China by revenue in 2019, with a market share of 8.7%.
We have covered various aspects of the deal in our earlier notes:


Bairong Pre-IPO - The Positives - Largest Independent Big-Data Analytics Provider, 

Bairong Pre-IPO - The Negatives - Playing with Its Own Data,
Bairong Pre-IPO - Earnings Forecast, Peer Comparison and Valuation, and
Bairong Pre-IPO - PHIP and Valuation Updates - Better 4Q20, but Client Data Isn’t as Encouraging

In this note, we will talk about deal dynamics and valuation.

Bairong IPO - Decent Valuation Probably Weighed Down by Regulation

<div><p>Bilibili plans to raise around US$3bn in its secondary listing in Hong Kong. </p></div><div><p>We have covered the background of the deal in our earlier notes, <a href="https://www.smartkarma.com/insights/bilibili-secondary-listing-early-look-will-probably-be-more-like-jd-and-netease" target="_blank" rel="noopener">Bilibili Secondary Listing Early Look - Will Probably Be More like JD and NetEase</a> and <a href="https://www.smartkarma.com/insights/bilibili-secondary-listing-early-look-4q20-results-quick-note" target="_blank" rel="noopener">Bilibili Secondary Listing Early Look - 4Q20 Results Quick Note</a>.</p></div><div><p>In this note, we'll touch upon the updates since our last note.</p></div>

Bilibili plans to raise around US$3bn in its secondary listing in Hong Kong. We have covered the background of the deal in our earlier notes, Bilibili Secondary Listing Early Look - Will Probably Be More like JD and NetEase and Bilibili Secondary Listing Early Look - 4Q20 Results Quick Note.In this note, we'll touch upon the updates since our last note.

Bilibili Secondary Listing - Volatile but Should Be Hot

<div><p>Bairong, an independent AI-powered technology platform in China serving the financial services industry, plans to raise around US$500m in its Hong Kong IPO. According to F&amp;S, it was the largest independent financial big data analytics solutions provider in China by revenue in 2019, with a market share of 8.7%.</p></div><div><p>Over 2017-19, Bairong’s revenue expanded by 3.56x or at 88.8% CAGR. While its data analytics revenue increased by 66% over the period, its precision marketing services revenue grew 22.6x, and insurance distribution grew 54.5x. Over the same time, gross profit grew 3.99x and adjusted EBITDA, PAT and OCF all turned positive during that period.</p></div><div><p>We have various aspects of the deal in our earlier notes, <a href="https://www.smartkarma.com/insights/bairong-pre-ipo-the-positives-largest-independent-big-data-analytics-provider" target="_blank" rel="noopener">Bairong Pre-IPO - The Positives - Largest Independent Big-Data Analytics Provider ,</a> <a href="https://www.smartkarma.com/insights/bairong-pre-ipo-the-negatives-playing-with-its-own-data" target="_blank" rel="noopener">Bairong Pre-IPO - The Negatives - Playing with Its Own Data</a> and <a href="https://www.smartkarma.com/insights/bairong-pre-ipo-earnings-forecast-peer-comparison-and-valuation" target="_blank" rel="noopener">Bairong Pre-IPO - Earnings Forecast, Peer Comparison and Valuation</a>.</p></div><div><p>In this note, we will talk about the updates from its recently filed PHIP.</p></div>

Bairong, an independent AI-powered technology platform in China serving the financial services industry, plans to raise around US$500m in its Hong Kong IPO. According to F&amp;S, it was the largest independent financial big data analytics solutions provider in China by revenue in 2019, with a market share of 8.7%.Over 2017-19, Bairong’s revenue expanded by 3.56x or at 88.8% CAGR. While its data analytics revenue increased by 66% over the period, its precision marketing services revenue grew 22.6x, and insurance distribution grew 54.5x. Over the same time, gross profit grew 3.99x and adjusted EBITDA, PAT and OCF all turned positive during that period.We have various aspects of the deal in our earlier notes, Bairong Pre-IPO - The Positives - Largest Independent Big-Data Analytics Provider , Bairong Pre-IPO - The Negatives - Playing with Its Own Data and Bairong Pre-IPO - Earnings Forecast, Peer Comparison and Valuation.In this note, we will talk about the updates from its recently filed PHIP.

Bairong Pre-IPO - PHIP and Valuation Updates - Better 4Q20, but Client Data Isn’t as Encouraging

Event-Driven

<div><p>On 22nd March 2018, after market close in Hong Kong one of the largest overnight placements was launched. On that day, <a href="https://www.smartkarma.com/entities/naspers-ltd" target="_blank" data-smartkarma-citation="entities:21085:1" rel="noopener">Naspers (NPN SJ)</a> reluctantly sold US$10bn worth of <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> shares.  <span>I say reluctantly because Naspers provided a three year lock-up at the time of the deal. That lock-up will expire next week. </span></p></div><div><p>We have covered the previous placement in our earlier note, <a href="https://www.smartkarma.com/insights/tencent-placement-huge-deal-in-size-small-in-relative-terms-succumbing-to-the-holdco-discount" target="_blank" rel="noopener">Tencent Placement - Huge Deal in Size, Small in Relative Terms - Succumbing to the HoldCo Discount</a> and spoken about the implications of the lock-up expiry in our Feb 2021 note <a href="https://www.smartkarma.com/insights/tencent-placement-lock-up-expiry-us-10bn-block-and-buyback-linked-holdco-trade" target="_blank" rel="noopener">Tencent Placement Lock-Up Expiry - US$10bn+ Block and Buyback Linked Holdco Trade</a>.</p></div><div><p>In this note, I’ll talk about the updates since then.</p></div>

On 22nd March 2018, after market close in Hong Kong one of the largest overnight placements was launched. On that day, Naspers (NPN SJ) reluctantly sold US$10bn worth of Tencent Holdings (700 HK) shares.  I say reluctantly because Naspers provided a three year lock-up at the time of the deal. That lock-up will expire next week. We have covered the previous placement in our earlier note, Tencent Placement - Huge Deal in Size, Small in Relative Terms - Succumbing to the HoldCo Discount and spoken about the implications of the lock-up expiry in our Feb 2021 note Tencent Placement Lock-Up Expiry - US$10bn+ Block and Buyback Linked Holdco Trade.In this note, I’ll talk about the updates since then.

Tencent Placement Lock-Up Expiry -  Block and Buyback Linked Holdco Trade Update

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)

Pin Duo Duo (PDD US): Four Charts To Make You Want to Run

We believe BABA and JD shares offer better value than the ultra-growth PDD shares. In this report, we highlight four charts that would make PDD...

Mitchell Kim

Bairong IPO - Decent Valuation Probably Weighed Down by Regulation

Bairong, an independent AI-powered technology platform in China serving the financial services industry, aims to raise up to US$508m in its Hong...

Sumeet Singh

Bilibili Secondary Listing - Volatile but Should Be Hot

Bilibili plans to raise around US$3bn in its secondary listing in Hong Kong. We have covered the background of the deal in our earlier notes. In...

Sumeet Singh

Bairong Pre-IPO - PHIP and Valuation Updates - Better 4Q20, but Client Data Isn’t as Encouraging

Bairong, an independent AI-powered technology platform in China serving the financial services industry, plans to raise around US$500m in its HK...

Sumeet Singh

Tencent Placement Lock-Up Expiry - Block and Buyback Linked Holdco Trade Update

On 22nd March 2018, in Hong Kong one of the largest overnight placements was launched. On that day, Naspers sold US$10bn worth of Tencent shares....

Sumeet Singh

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