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

<a href="https://www.smartkarma.com/entities/foru-worldwide-inc" target="_blank" data-smartkarma-citation="entities:33314:1" rel="noopener">Foru Worldwide (FOYO US)</a> is the largest technology-driven road freight transportation platform in China as measured by revenue in 2020, according to CIC. ForU claims to have fully digitalized every step of freight transportation by offering a Freight-as-a-Service (FaaS) service to shippers. ForU is seeking to raise $500 million through a Nasdaq listing, according to press reports. ForU is backed by <a href="https://www.smartkarma.com/entities/jd-logistics" target="_blank" data-smartkarma-citation="entities:31500:1" rel="noopener">JD Logistics (2618 HK)</a> which owns 6.3% of the outstanding shares. <div class="content-highlight">At first sight, ForU recent results look stunning due to fast-paced growth and declining loss margin. However, a closer look, suggests that the business faces several challenges and the financials on a normalised basis appears to be middling at best. Overall, we are inclined to give the ForU IPO a pass.    </div>As an aside, for readers interested in the upcoming JD Logistics IPO, we highlight some of our coverage - <a href="https://www.smartkarma.com/insights/jd-logistics-ipo-initiation-the-flow-of-things" target="_blank" data-smartkarma-citation="insights:48279" rel="noopener">JD Logistics IPO Initiation: The Flow of Things</a> and <a href="https://www.smartkarma.com/insights/jd-logistics-ipo-valuation-insights" target="_blank" data-smartkarma-citation="insights:51524" rel="noopener">JD Logistics IPO: Valuation Insights</a>.

Foru Worldwide (FOYO US) is the largest technology-driven road freight transportation platform in China as measured by revenue in 2020, according to CIC. ForU claims to have fully digitalized every step of freight transportation by offering a Freight-as-a-Service (FaaS) service to shippers. ForU is seeking to raise $500 million through a Nasdaq listing, according to press reports. ForU is backed by JD Logistics (2618 HK) which owns 6.3% of the outstanding shares. At first sight, ForU recent results look stunning due to fast-paced growth and declining loss margin. However, a closer look, suggests that the business faces several challenges and the financials on a normalised basis appears to be middling at best. Overall, we are inclined to give the ForU IPO a pass.    As an aside, for readers interested in the upcoming JD Logistics IPO, we highlight some of our coverage - JD Logistics IPO Initiation: The Flow of Things and JD Logistics IPO: Valuation Insights. 

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)

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:<a href="https://www.smartkarma.com/entities/gojek" target="_blank" data-smartkarma-citation="entities:25976:1" rel="noopener">Gojek (1379371D IJ)</a>, <a href="https://www.smartkarma.com/entities/tokopedia-pt" target="_blank" data-smartkarma-citation="entities:24239:1" rel="noopener">Tokopedia PT (1087142D IJ)</a>, <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/jd-logistics" target="_blank" data-smartkarma-citation="entities:31500:1" rel="noopener">JD Logistics (2618 HK)</a>, <a href="https://www.smartkarma.com/entities/alibaba-group" target="_blank" data-smartkarma-citation="entities:28434:1" rel="noopener">Alibaba Group (9988 HK)</a>, <a href="https://www.smartkarma.com/entities/bytedance-technology" target="_blank" data-smartkarma-citation="entities:27936:1" rel="noopener">ByteDance (1460967D CH)</a>

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:Gojek (1379371D IJ), Tokopedia PT (1087142D IJ), JD.com Inc. (9618 HK), JD Logistics (2618 HK), Alibaba Group (9988 HK), ByteDance (1460967D CH)

Global Emerging Markets Weekly: 21 May 2021

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>Cracking down on cryptocurrency</li>
<li>And on Big Tech too</li>
<li>World-beating vaccination rates</li>
<li>“Cold War mindset and gross interference” </li>
<li>You sent your battleship!</li>
</ul><div class="content-remarks">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.</div>

China News That Matters
Cracking down on cryptocurrency
And on Big Tech too
World-beating vaccination rates
“Cold War mindset and gross interference” 
You sent your battleship!
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.

Crypto/ Tech/ Covid-19/ US-China/ UK-China

Global TMT analyst with Asia ex-Japan focus.

Mitchell Kim

Equity Bottom-Up

<ul>
<li>While Tencent’s 25% YoY total revenue growth in 1Q21 was respectable, extended slow online games revenue growth increases the downside risk for the stock, in my view.  In 2018, Tencent's share price fell from the peak of HKD470 to nearly HKD250 as game revenue growth fell from 30%+ to single digits. </li>
<li> I flagged that <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent (700 HK)</a> will not be able to sustain the 30-40% YoY game revenue growth in my report, <a href="https://www.smartkarma.com/insights/tencent-700-hk-taking-foot-off-the-pedal" target="_blank" data-smartkarma-citation="insights:49643" rel="noopener">Tencent (700 HK): Taking Foot Off the Pedal</a>, after Tencent’s 4Q20 results on 25 March 2021.  In 1Q21, Tencent’s total online game revenue (including smartphone revenues in social media) growth decelerated to 15% YoY, the lowest rate since 3Q19. </li>
<li>
Games revenue growth remains a key share price driver because the segment still contributes 64% of the total gross profit (Game business is the majority of VAS segment) even though it only makes up 40% of the total revenues.</li>
<li> Added to the game revenue slowdown risk, the Fintech restructuring risk is still looming. In my Tencent report, <a href="https://www.smartkarma.com/insights/tencent-700-hk-fintech-risk-is-lurking" target="_blank" data-smartkarma-citation="insights:50512" rel="noopener">Tencent (700 HK): Fintech Risk Is Lurking</a>, I noted that stricter consumer loan and asset management regulation will adversely impact Tencent shares more than Alibaba because of Tencent’s greater ownership of its fintech business.      </li>
<li>
The saving grace for Tencent in 1Q21 was fintech and cloud businesses.  Fintech and business services (incl Cloud) was the largest growth driver in 1Q21.  However, FinTech Service revenue growth benefitted from the comparison with the stay-at-home law impacted 1Q20.  </li>
<li>
Tencent's 1Q21 results were broadly at par with <a href="https://www.smartkarma.com/entities/netease-inc-adr" target="_blank" data-smartkarma-citation="entities:17203:1" rel="noopener">NetEase Inc (NTES US)</a> but underperformed e-commerce platforms' results -- <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>, <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 <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> -- on revenue, gross profit and operating profit (normalized) growth.  </li>
</ul>


While Tencent’s 25% YoY total revenue growth in 1Q21 was respectable, extended slow online games revenue growth increases the downside risk for the stock, in my view.  In 2018, Tencent's share price fell from the peak of HKD470 to nearly HKD250 as game revenue growth fell from 30%+ to single digits. 
 I flagged that Tencent (700 HK) will not be able to sustain the 30-40% YoY game revenue growth in my report, Tencent (700 HK): Taking Foot Off the Pedal, after Tencent’s 4Q20 results on 25 March 2021.  In 1Q21, Tencent’s total online game revenue (including smartphone revenues in social media) growth decelerated to 15% YoY, the lowest rate since 3Q19. 

Games revenue growth remains a key share price driver because the segment still contributes 64% of the total gross profit (Game business is the majority of VAS segment) even though it only makes up 40% of the total revenues.
 Added to the game revenue slowdown risk, the Fintech restructuring risk is still looming. In my Tencent report, Tencent (700 HK): Fintech Risk Is Lurking, I noted that stricter consumer loan and asset management regulation will adversely impact Tencent shares more than Alibaba because of Tencent’s greater ownership of its fintech business.      

The saving grace for Tencent in 1Q21 was fintech and cloud businesses.  Fintech and business services (incl Cloud) was the largest growth driver in 1Q21.  However, FinTech Service revenue growth benefitted from the comparison with the stay-at-home law impacted 1Q20.  

Tencent's 1Q21 results were broadly at par with NetEase Inc (NTES US) but underperformed e-commerce platforms' results -- Alibaba Group (BABA US), JD.com Inc (ADR) (JD US), and Vipshop Holdings (VIPS US) -- on revenue, gross profit and operating profit (normalized) growth.  


Tencent (700 HK): Take a Deep Breath and Reassess: Online Game Growth Is Slowing

<ul>
<li>
There are only a few large cap stocks in Asia that can deliver on 30%+ revenue growth and trade at 1x P/Sales (TTM) and forward P/E of 40x (on consensus estimate). <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> just happens to be one of them.  </li>
<li>
JD reported the highest topline growth (39% YoY) in the last 5 years, aided by the explosive JD Logistics and marketplace revenue growth.  The stock still trades at 34% below the peak in March. </li>
<li>JD's product revenue growth was 35% YoY, outpacing the China over all online physical goods sales growth of 32%.  This suggests JD is gaining market share. I highlight this trend in my report, <a href="https://www.smartkarma.com/insights/china-e-commerce-robust-consumption-data-hints-at-online-spending-spree" target="_blank" data-smartkarma-citation="insights:50798" rel="noopener">China E-Commerce: Robust Consumption Data Hints at Online Spending Spree</a>.  </li>
<li>
Some may be concerned over operating margin declining, but I remain constructive as the core business (JD Retail) operating margin hit 4%, second highest level in its history.  However, total Non-GAAP operating profit margin declined to 1.7% from 2.2% in 1Q20.  This was due to investments in JD Logistics capacity and in new businesses -- Jingxi, cloud and AI.  </li>
<li>Risk: The market may hold back its enthusiasm as lower revenue growth relative to 1Q21 is estimated in 2Q21 because of the skewed growth in 2Q20.  Management stressed that similar growth is expected for 1H21 compared to 1Q20.  </li>
</ul>



There are only a few large cap stocks in Asia that can deliver on 30%+ revenue growth and trade at 1x P/Sales (TTM) and forward P/E of 40x (on consensus estimate). JD.com Inc (ADR) (JD US) just happens to be one of them.  

JD reported the highest topline growth (39% YoY) in the last 5 years, aided by the explosive JD Logistics and marketplace revenue growth.  The stock still trades at 34% below the peak in March. 
JD's product revenue growth was 35% YoY, outpacing the China over all online physical goods sales growth of 32%.  This suggests JD is gaining market share. I highlight this trend in my report, China E-Commerce: Robust Consumption Data Hints at Online Spending Spree.  

Some may be concerned over operating margin declining, but I remain constructive as the core business (JD Retail) operating margin hit 4%, second highest level in its history.  However, total Non-GAAP operating profit margin declined to 1.7% from 2.2% in 1Q20.  This was due to investments in JD Logistics capacity and in new businesses -- Jingxi, cloud and AI.  
Risk: The market may hold back its enthusiasm as lower revenue growth relative to 1Q21 is estimated in 2Q21 because of the skewed growth in 2Q20.  Management stressed that similar growth is expected for 1H21 compared to 1Q20.  


JD.com (JD US): Robust Growth, Impressive Core Profit

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 (9618 HK)

ForU Worldwide IPO Initiation: Not ForU

ForU is seeking to raise $500 m through a Nasdaq listing. We think that the business faces several challenges and the financials on a normalised...

Arun George

Global Emerging Markets Weekly: 21 May 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

Crypto/ Tech/ Covid-19/ US-China/ UK-China

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

Tencent (700 HK): Take a Deep Breath and Reassess: Online Game Growth Is Slowing

Tencent's online game revenue growth slowed to 15% YoY. The stock nearly halved in 2018 when the growth rate fell to single digits. Can it happen...

Mitchell Kim

JD.com (JD US): Robust Growth, Impressive Core Profit

When a USD115 billion revenue company is growing 39% YoY and core business operating margin improving 27 bps to 4%, it is hard to sit on the fence....

Mitchell Kim

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