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

<ul>
<li>As we expected, existing home slowed down, but new home grew rapidly.</li>
<li>New home pays commission to other estate agents, which pulled down margins.</li>
<li>Compared to other commission-based companies, we still believe the stock price is overly impacted.</li>
</ul>


As we expected, existing home slowed down, but new home grew rapidly.
New home pays commission to other estate agents, which pulled down margins.
Compared to other commission-based companies, we still believe the stock price is overly impacted.


KE (BEKE): 2Q21, Expected Revenue and Unexpected Margin, Still Over Impacted

Telco/Internet specialist

Kirk Boodry

Redex Research

The last three quarters have largely been defined by the potential for Vision Fund portfolio companies to go public but a new theme is emerging as Softbank starts to take money off the table. There was much less discussion of liquidity events but more on asset sales including partial sales of <a href="https://www.smartkarma.com/entities/uber-technologies-inc" target="_blank" data-smartkarma-citation="entities:430:1" rel="noopener">Uber (UBER US)</a> , <a href="https://www.smartkarma.com/entities/ke-holdings-inc" target="_blank" data-smartkarma-citation="entities:29213:1" rel="noopener">KE Holdings Inc (BEKE US)</a> , <a href="https://www.smartkarma.com/entities/doordash-inc" target="_blank" data-smartkarma-citation="entities:28881:1" rel="noopener">DoorDash Inc (DASH US)</a> , Guardant Health and Northstar public equities in the quarter. With a further sale of Uber shares this month, that theme probably picks up steam as the quarter goes on, particularly if <a href="https://www.smartkarma.com/entities/coupang" target="_blank" data-smartkarma-citation="entities:28425:1" rel="noopener">Coupang (CPNG US)</a>  can hold its value into September when lockups expire.Proceeds from these sales will be used to fund Vision Fund 2 commitments, which will get a further boost from Masa/management investing their own money alongside. That would seem to flag corporate governance concerns but as Masa already has an economic stake in Northstar and earlier plans for a management investment in VF1 passed board muster, this probably does not impact sentiment very much.There is some modest dissonance in the results as Softbank said that it was not announcing a buyback because it was not selling assets like it did last year. Apparently that definition excludes investments like the ones above although Masa did tease that they thought about share buybacks every day because of the depth of the holding company discount. That could just be noise as there is no upside in ruling out buybacks entirely but there is precedent as management has been incentivized to act in the past when discounts reached extreme levels. That used to be around 50% (we are at c. 46% now) but last year’s 67%+ discount may have reset the bar on where shares are too cheap.

The last three quarters have largely been defined by the potential for Vision Fund portfolio companies to go public but a new theme is emerging as Softbank starts to take money off the table. There was much less discussion of liquidity events but more on asset sales including partial sales of Uber (UBER US) , KE Holdings Inc (BEKE US) , DoorDash Inc (DASH US) , Guardant Health and Northstar public equities in the quarter. With a further sale of Uber shares this month, that theme probably picks up steam as the quarter goes on, particularly if Coupang (CPNG US)  can hold its value into September when lockups expire.Proceeds from these sales will be used to fund Vision Fund 2 commitments, which will get a further boost from Masa/management investing their own money alongside. That would seem to flag corporate governance concerns but as Masa already has an economic stake in Northstar and earlier plans for a management investment in VF1 passed board muster, this probably does not impact sentiment very much.There is some modest dissonance in the results as Softbank said that it was not announcing a buyback because it was not selling assets like it did last year. Apparently that definition excludes investments like the ones above although Masa did tease that they thought about share buybacks every day because of the depth of the holding company discount. That could just be noise as there is no upside in ruling out buybacks entirely but there is precedent as management has been incentivized to act in the past when discounts reached extreme levels. That used to be around 50% (we are at c. 46% now) but last year’s 67%+ discount may have reset the bar on where shares are too cheap.

Softbank Group - Q1 21 Results Reaction: A Slow Shift in Focus

<ul>
<li>The stock price has fallen below the first trading day after IPO.</li>
<li>The new property policy looks harsh but not fatal.</li>
<li>Most municipal governments use price cap, but it is easily bypassed.</li>
<li>The policy aims at existing home transaction, but not new home sales or home rental.</li>
<li>It is ironic that Anjuke, which is significantly larger than BEKE, criticized BEKE for monopoly.</li>
</ul>


The stock price has fallen below the first trading day after IPO.
The new property policy looks harsh but not fatal.
Most municipal governments use price cap, but it is easily bypassed.
The policy aims at existing home transaction, but not new home sales or home rental.
It is ironic that Anjuke, which is significantly larger than BEKE, criticized BEKE for monopoly.


KE (BEKE): New Policy Not Fatal at All, Time to Accumulate

Alpha-Centric ESG Research

Kyle Rudden

Well, that sure escalated quickly.Early last week, in the Insight <a href="https://www.smartkarma.com/insights/pre-ipo-esg-analysis-didi-s-exemplary-esg-achievements-eclipsed-by-regulatory-risks-and-uncertainty" target="_blank" data-smartkarma-citation="insights:53687" rel="noopener">Pre-IPO ESG Analysis: DiDi's Exemplary ESG Achievements Eclipsed By Regulatory Risks and Uncertainty</a>, I juxtaposed <a href="https://www.smartkarma.com/entities/didi-chuxing-inc" target="_blank" data-smartkarma-citation="entities:27467:1" rel="noopener">DiDi's (DIDI US)</a> relatively strong ESG results in areas under its control with serious concerns about regulatory risk outside of its direct control.Late last week, days after DiDi's successful US$4.4 billion initial public offering, Chinese regulators ordered the removal of DiDi's business-critical ride-hailing apps from online app markets, until the company rectifies "serious violations" pertaining to collection and use of customer data.DiDi is down 5.3% so far (delayed open today).Regulatory risk was central to my thesis in the first Insight. I hardly anticipated this, but I referred to regulatory risk as real, near-term, tangible investment risk; not just some fuzzy ESG risk. Given that, I felt obliged to follow up. At the same time, however, this news is covered ad nauseam.No sense in beating a dead horse with a broken record.So, I decided to do something different. That statement about regulatory risk being a real tangible investment risk is primarily based on anecdotal evidence – i.e., when regulators flex their muscle, stocks go down, not up. But "anecdotal" isn't good enough.Which is why I took this opportunity to quantify the impacts of adverse regulatory events in China. Specifically, with event studies measuring abnormal returns around major regulatory events across four broad categories. That's what most of this Insight is about. But back to DiDi for a moment.Regulatory risk and uncertainty for DiDi is much worse today than it was last week. Typically, the opposite would be true; a negative event out in the open is better than a possible event lurking in the shadows. But not this time. Barring an immediate change of heart by the PRC, this is bad.Therefore, downgrading to bearish.

Well, that sure escalated quickly.Early last week, in the Insight Pre-IPO ESG Analysis: DiDi's Exemplary ESG Achievements Eclipsed By Regulatory Risks and Uncertainty, I juxtaposed DiDi's (DIDI US) relatively strong ESG results in areas under its control with serious concerns about regulatory risk outside of its direct control.Late last week, days after DiDi's successful US$4.4 billion initial public offering, Chinese regulators ordered the removal of DiDi's business-critical ride-hailing apps from online app markets, until the company rectifies "serious violations" pertaining to collection and use of customer data.DiDi is down 5.3% so far (delayed open today).Regulatory risk was central to my thesis in the first Insight. I hardly anticipated this, but I referred to regulatory risk as real, near-term, tangible investment risk; not just some fuzzy ESG risk. Given that, I felt obliged to follow up. At the same time, however, this news is covered ad nauseam.No sense in beating a dead horse with a broken record.So, I decided to do something different. That statement about regulatory risk being a real tangible investment risk is primarily based on anecdotal evidence – i.e., when regulators flex their muscle, stocks go down, not up. But "anecdotal" isn't good enough.Which is why I took this opportunity to quantify the impacts of adverse regulatory events in China. Specifically, with event studies measuring abnormal returns around major regulatory events across four broad categories. That's what most of this Insight is about. But back to DiDi for a moment.Regulatory risk and uncertainty for DiDi is much worse today than it was last week. Typically, the opposite would be true; a negative event out in the open is better than a possible event lurking in the shadows. But not this time. Barring an immediate change of heart by the PRC, this is bad.Therefore, downgrading to bearish.

PRC Shows DiDi Who's Boss: An Analysis of Adverse Regulatory Events on Stock Prices

<a href="https://www.smartkarma.com/entities/softbank-group-corp" target="_blank" data-smartkarma-citation="entities:315:1" rel="noopener">Softbank Group (9984 JP)</a>  shares are down 5% on news that the Cyberspace Admin of China has ordered app stores to pull <a href="https://www.smartkarma.com/entities/didi-chuxing-inc" target="_blank" data-smartkarma-citation="entities:27467:1" rel="noopener">DiDi Chuxing (DIDI US)</a> 's mobile app. The intra-day ~¥365/share decline seems overdone as Didi’s total value to SBG shareholders is c. ¥470 yen but this is Vision Fund's largest single investment and any hopes that it would build on the upside from <a href="https://www.smartkarma.com/entities/coupang" target="_blank" data-smartkarma-citation="entities:28425:1" rel="noopener">Coupang (CPNG US)</a> , <a href="https://www.smartkarma.com/entities/doordash-inc" target="_blank" data-smartkarma-citation="entities:28881:1" rel="noopener">DoorDash Inc (DASH US)</a> and <a href="https://www.smartkarma.com/entities/ke-holdings-inc" target="_blank" data-smartkarma-citation="entities:29213:1" rel="noopener">KE Holdings Inc (BEKE US)</a> have been sidelined. Plus, the company's target to list 20+ companies this year seems less impressive if this is the kind of performance that will result.

Softbank Group (9984 JP)  shares are down 5% on news that the Cyberspace Admin of China has ordered app stores to pull DiDi Chuxing (DIDI US) 's mobile app. The intra-day ~¥365/share decline seems overdone as Didi’s total value to SBG shareholders is c. ¥470 yen but this is Vision Fund's largest single investment and any hopes that it would build on the upside from Coupang (CPNG US) , DoorDash Inc (DASH US) and KE Holdings Inc (BEKE US) have been sidelined. Plus, the company's target to list 20+ companies this year seems less impressive if this is the kind of performance that will result. 

Softbank Group and Didi Chuxing - Regulatory Pressure on the Rise

China

KE Holdings Inc. operates as an integrated online and offline platform for housing transactions and services. The Company offers existing and new home sales, home rentals, home renovation, real estate financial solutions, and other services. KE Holdings conducts businesses in China.

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KE Holdings (BEKE US)

KE (BEKE): 2Q21, Expected Revenue and Unexpected Margin, Still Over Impacted

As we expected, existing home slowed down, but new home grew rapidly.New home pays commission to other estate agents, which pulled down margins....

Ming Lu

Softbank Group - Q1 21 Results Reaction: A Slow Shift in Focus

The messaging is changing at Softbank as the IPO flywheel (20+ liquidity events) gives way to investment sales and realized gains. There are no...

Kirk Boodry

KE (BEKE): New Policy Not Fatal at All, Time to Accumulate

Most municipal governments use price cap, but it is easily bypassed. The policy aims at existing home transaction, but not new home sales or home...

Ming Lu

PRC Shows DiDi Who's Boss: An Analysis of Adverse Regulatory Events on Stock Prices

Last week, I wrote about DiDi's regulatory risk. This week, it's worse. Hence the downgrade. But this is mostly an analysis of how regulatory...

Kyle Rudden

Softbank Group and Didi Chuxing - Regulatory Pressure on the Rise

Softbank is down 5% and the holdco discount is over 45% on Didi weakness. We think our forecasts cover regulatory pressure but the VF IPO flywheel...

Kirk Boodry

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