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

Zhihu Technology / Equity Capital Markets

<div><p><a href="https://www.smartkarma.com/entities/zhihu-technology-ltd" target="_blank" data-smartkarma-citation="entities:32185:1" rel="noopener">Zhihu Technology (ZH US)</a> is the largest Q&amp;A-inspired online community and one of the top five comprehensive online content communities in China, both in terms of average mobile MAUs and revenue in 2020, according to CIC.</p></div><div><p>Zhihu has priced its IPO at $9.50 per ADS which at the low-end of the IPO price range of $9.50-11.50 per ADS, according to press reports. At the final IPO price of $9.50 per share, Zhihu will have a market cap of $5.7 billion. Zhihu will also raise an additional $250 million in a concurrent private placement to <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>, <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 Lilith Games.</p></div><div><p>In <a href="https://www.smartkarma.com/insights/zhihu-ipo-initiation-question-time" target="_blank" data-smartkarma-citation="insights:48928" rel="noopener">Zhihu IPO Initiation: Question Time</a>, we opined that as the largest Q&amp;A-inspired online community, Zhihu is well-positioned to benefit from favourable industry trends. We concluded that Zhihu’s fundamentals are attractive. In <a href="https://www.smartkarma.com/insights/zhihu-ipo-valuation-insights" target="_blank" data-smartkarma-citation="insights:49410" rel="noopener">Zhihu IPO: Valuation Insights,</a> we noted that the IPO price range is attractive. </p></div><div><div><div class="content-highlight"><p>However, since the launch of the IPO, a brutal sell-off on Chinese ADRs was triggered by SEC adopting measures that would kick foreign companies off US stock exchanges if they do not comply with US auditing standards. Despite the subsequent de-rating of peers, Zhihu remains attractive at the IPO price. Updating for the final IPO net raise, our base-case DCF derived price target of $12.35 per ADS. As DCF-based target prices are subject to a wide range of variability, we present a sensitivity table to help investors gauge where target prices could head. Our DCF sensitivity analysis points to a meaningful upside based on securing a modest share of the addressable market. </p></div></div></div>

Zhihu Technology (ZH US) is the largest Q&amp;A-inspired online community and one of the top five comprehensive online content communities in China, both in terms of average mobile MAUs and revenue in 2020, according to CIC.Zhihu has priced its IPO at $9.50 per ADS which at the low-end of the IPO price range of $9.50-11.50 per ADS, according to press reports. At the final IPO price of $9.50 per share, Zhihu will have a market cap of $5.7 billion. Zhihu will also raise an additional $250 million in a concurrent private placement to Alibaba Group (BABA US), JD.com Inc (ADR) (JD US), Tencent Holdings (700 HK) and Lilith Games.In Zhihu IPO Initiation: Question Time, we opined that as the largest Q&amp;A-inspired online community, Zhihu is well-positioned to benefit from favourable industry trends. We concluded that Zhihu’s fundamentals are attractive. In Zhihu IPO: Valuation Insights, we noted that the IPO price range is attractive. However, since the launch of the IPO, a brutal sell-off on Chinese ADRs was triggered by SEC adopting measures that would kick foreign companies off US stock exchanges if they do not comply with US auditing standards. Despite the subsequent de-rating of peers, Zhihu remains attractive at the IPO price. Updating for the final IPO net raise, our base-case DCF derived price target of $12.35 per ADS. As DCF-based target prices are subject to a wide range of variability, we present a sensitivity table to help investors gauge where target prices could head. Our DCF sensitivity analysis points to a meaningful upside based on securing a modest share of the addressable market. 

APAC IPOs & Placements

Zhen Zhou, Toh

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.

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<p><a href="https://www.smartkarma.com/entities/zhihu-technology-ltd" target="_blank" data-smartkarma-citation="entities:32185:1" rel="noopener">Zhihu Technology (ZH US)</a> was said to have raised US$773m at the bottom-end of the IPO price range (including the US$250m concurrent placement).</p>
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<p>Zhihu is a question-and-answer (Q&amp;A) focused online content community. According to CIC, the company is the largest Q&amp;A-inspired online community and one of the top five online content communities in China in terms of mobile monthly active users (MAUs)  and revenue. As of 4Q20, the company has 75.7m average MAU, a cumulative 315.3m questions and answers contributed by 43.1m content creators.</p>
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<p>In this note, we will look at deal dynamics and updates on valuation.</p>
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<p>Our previous coverage of Zhihu:</p>
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<ul style="list-style-type: disc;">
<li>
<a href="https://www.smartkarma.com/insights/zhihu-pre-ipo-in-the-early-stages-of-monetization" target="_blank" data-smartkarma-citation="insights:49157" rel="noopener">Zhihu (知乎) Pre-IPO - In the Early Stages of Monetization</a> </li>
<li>
<a href="https://www.smartkarma.com/insights/zhihu-censorship-as-top-risk-may-follow-fate-of-weibo" target="_blank" data-smartkarma-citation="insights:49184" rel="noopener">Zhihu (知乎): Censorship as Top Risk, May Follow Fate of Weibo</a> </li>
<li>
<a href="https://www.smartkarma.com/insights/zhihu-ipo-monetizing-curiosity" target="_blank" data-smartkarma-citation="insights:49467" rel="noopener">Zhihu (知乎) IPO - Monetizing Curiosity</a> </li>
</ul>
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Zhihu Technology (ZH US) was said to have raised US$773m at the bottom-end of the IPO price range (including the US$250m concurrent placement).


Zhihu is a question-and-answer (Q&amp;A) focused online content community. According to CIC, the company is the largest Q&amp;A-inspired online community and one of the top five online content communities in China in terms of mobile monthly active users (MAUs)  and revenue. As of 4Q20, the company has 75.7m average MAU, a cumulative 315.3m questions and answers contributed by 43.1m content creators.


In this note, we will look at deal dynamics and updates on valuation.


Our previous coverage of Zhihu:




Zhihu (知乎) Pre-IPO - In the Early Stages of Monetization 

Zhihu (知乎): Censorship as Top Risk, May Follow Fate of Weibo 

Zhihu (知乎) IPO - Monetizing Curiosity 



Zhihu (知乎) IPO Trading - Peers Have Corrected Significantly but Still Has a Modest Upside

Equity Analyst, LightStream Research

Shifara Samsudeen, ACMA, CGMA

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

<p>The Chinese Q&amp;A inspired online community platform <a href="https://www.smartkarma.com/entities/zhihu-technology-ltd" target="_blank" data-smartkarma-citation="entities:32185:1" rel="noopener">Zhihu Technology (ZH US)</a>  has set the terms for its IPO. The company plans to sell 55m ADS’ (two ADS’ represent one ordinary share of the company) at an indicative price range of US$9.5-11.5 per ADS. Concurrent with the company’s IPO, Zhihu also has entered into agreements with Alibaba, JD.com, Image Frame Investment (an affiliate of Tencent Holdings) and Lilith Games to sell approx. US$250m worth of ordinary shares of the company.</p><p>At the midpoint of the above IPO pricing, Zhihu will raise approx. US$884.7m (assuming underwriters exercise their option) from the IPO as well as from the concurrent private placement. At the above IPO price range, Zhihu will have a market capitalisation of US$5.4-6.5bn and an enterprise value of US$4-5.2bn (after adjusting for net cash and net IPO proceeds assuming underwriters exercise their option).</p><p>Zhihu plans to use the above net proceeds on developing its products and services, marketing and user growth, R&amp;D and other general corporate purposes.</p>

The Chinese Q&amp;A inspired online community platform Zhihu Technology (ZH US)  has set the terms for its IPO. The company plans to sell 55m ADS’ (two ADS’ represent one ordinary share of the company) at an indicative price range of US$9.5-11.5 per ADS. Concurrent with the company’s IPO, Zhihu also has entered into agreements with Alibaba, JD.com, Image Frame Investment (an affiliate of Tencent Holdings) and Lilith Games to sell approx. US$250m worth of ordinary shares of the company.At the midpoint of the above IPO pricing, Zhihu will raise approx. US$884.7m (assuming underwriters exercise their option) from the IPO as well as from the concurrent private placement. At the above IPO price range, Zhihu will have a market capitalisation of US$5.4-6.5bn and an enterprise value of US$4-5.2bn (after adjusting for net cash and net IPO proceeds assuming underwriters exercise their option).Zhihu plans to use the above net proceeds on developing its products and services, marketing and user growth, R&amp;D and other general corporate purposes.

Zhihu IPO Valuation: Attractive at the Lower End of the IPO Pricing

Overseas Chinese Equities, Aequitas Research

Ming Lu

Overseas Chinese Equities

Equity Bottom-Up

<ul>
<li>The revenue growth rate accelerated further to 53% yoy in 4Q20.</li>
<li>Online market revenue surged by 195% yoy in 4Q20.</li>
<li>We believe total revenue will grow 53% in 2021 versus 50% in 2020.</li>
<li>The gross margin improved significantly to 47% in 4Q20 versus 39% in 4Q19.</li>
<li>We believe the company will make operating profit in 2022.</li>
<li>However, we believe the stock price has a downside of 18% for the end of 2022.</li>
</ul>


The revenue growth rate accelerated further to 53% yoy in 4Q20.
Online market revenue surged by 195% yoy in 4Q20.
We believe total revenue will grow 53% in 2021 versus 50% in 2020.
The gross margin improved significantly to 47% in 4Q20 versus 39% in 4Q19.
We believe the company will make operating profit in 2022.
However, we believe the stock price has a downside of 18% for the end of 2022.


Kuaishou (1024 HK): Q4, Higher Growth , Higher Margin, User Base Closer to TikTok, But Overvalued

<p>The Chinese mobile games and video platform <a href="https://www.smartkarma.com/entities/bilibili-inc" target="_blank" data-smartkarma-citation="entities:26793:1" rel="noopener">Bilibili Inc (BILI US)</a>  has set the terms for its secondary listing in Hong Kong Exchange. Bilibili plans to offer 25m shares at a maximum offer price of HK$988 per share and will raise net proceeds of HK$24.3bn (approx. US$3.13bn) at the above pricing.</p><p>Bilibili’s shares closed at US$108.87 per ADS at the end of trading on Friday (19<sup>th</sup> March), and each ADS represents one ordinary share of the company. The maximum HK offer price of HK$988 per share implies approx. US$127.2 per ADS, a 17% premium to Bilibili’s last close price of US$108.87 per ADS.</p><p>The company plans to use approx. 50% of the net IPO proceeds on enhancing and broadening its content offerings to expand its user base. Bilibili plans to use 20% of net proceeds on enhancing its R&amp;D capabilities to improve user experience and another 20% on sales and marketing expenses.</p><p>In our previous insight on the company’s secondary listing, we discussed Bilibili’s valuation against its peers.</p>

The Chinese mobile games and video platform Bilibili Inc (BILI US)  has set the terms for its secondary listing in Hong Kong Exchange. Bilibili plans to offer 25m shares at a maximum offer price of HK$988 per share and will raise net proceeds of HK$24.3bn (approx. US$3.13bn) at the above pricing.Bilibili’s shares closed at US$108.87 per ADS at the end of trading on Friday (19th March), and each ADS represents one ordinary share of the company. The maximum HK offer price of HK$988 per share implies approx. US$127.2 per ADS, a 17% premium to Bilibili’s last close price of US$108.87 per ADS.The company plans to use approx. 50% of the net IPO proceeds on enhancing and broadening its content offerings to expand its user base. Bilibili plans to use 20% of net proceeds on enhancing its R&amp;D capabilities to improve user experience and another 20% on sales and marketing expenses.In our previous insight on the company’s secondary listing, we discussed Bilibili’s valuation against its peers.

Bilibili: Secondary Listing in HK Offers a Good Alternative to Kuaishou

China

Kuaishou Technology operates as a content community and social platform. The Company helps users create, upload and watch short videos on mobile devices. Kuaishou Technology offers services worldwide.

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Kuaishou Technology (1024 HK)

Zhihu IPO: Trading Debut

Zhihu has priced its IPO at $9.50 per ADS which at the low-end of the IPO price range, according to press reports. Despite the recent de-rating of...

Arun George

Zhihu (知乎) IPO Trading - Peers Have Corrected Significantly but Still Has a Modest Upside

Zhihu Technology (ZH US) was said to have raised US$773m at the bottom-end of the IPO price range (including the US$250m concurrent placement)

Zhen Zhou, Toh

Zhihu IPO Valuation: Attractive at the Lower End of the IPO Pricing

We believe Zhihu’s IPO is attractive at the lower end of the IPO price of US$9.5 per ADS. The company is still in early stages of monetising its...

Shifara Samsudeen, ACMA, CGMA

Kuaishou (1024 HK): Q4, Higher Growth , Higher Margin, User Base Closer to TikTok, But Overvalued

The revenue growth rate accelerated further to 53% yoy in 4Q20. Online market revenue surged by 195% yoy in 4Q20. The gross margin improved...

Ming Lu

Bilibili: Secondary Listing in HK Offers a Good Alternative to Kuaishou

Bilibili’s HK listing offers an alternative to Kuaishou which is currently trading at exorbitant multiples. Both companies have strong desire to...

Shifara Samsudeen, ACMA, CGMA

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