Asia Pac IPO & Placement Research, China biotech, Aequitas Research

Ke Yan, CFA, FRM

Asia Pac IPO & Placement Research, China biotech

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.

Quantitative Analysis

In our weekly HK Connect Flow series, we aim to highlight key stocks and sectors which the mainland investors traded via the southbound Hong Kong Connect, as analyzed by our proprietary data engine. Since the opening of Hong Kong Connect scheme in 2014, southbound Chinese money started to play an increasingly important role in the Hong Kong stock market. In a Hong Kong exchange report released in July 2019, the exchange highlighted that flows from mainland China accounted for 12% of the total trading volume in the market and is ahead of the US investors' 10% and UK investors' 7% share respectively.  We split the stocks eligible for the Hong Kong Connect trade into three groups: HSCEI component stocks, stocks with a market capitalization between USD 1 billion and USD 5 billion, and stocks with a market capitalization between USD 500 million and USD 1 billion. In this insight, we will highlight inflows into <a href="https://www.smartkarma.com/entities/li-ning-co-ltd" target="_blank" data-smartkarma-citation="entities:6047:1" rel="noopener">Li Ning Co Ltd (2331 HK)</a>, <a href="https://www.smartkarma.com/entities/meituan-dianping" target="_blank" data-smartkarma-citation="entities:26970:1" rel="noopener">Meituan (3690 HK)</a>, as well as outflows from  <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent (700 HK)</a>.

In our weekly HK Connect Flow series, we aim to highlight key stocks and sectors which the mainland investors traded via the southbound Hong Kong Connect, as analyzed by our proprietary data engine.  Since the opening of Hong Kong Connect scheme in 2014, southbound Chinese money started to play an increasingly important role in the Hong Kong stock market. In a Hong Kong exchange report released in July 2019, the exchange highlighted that flows from mainland China accounted for 12% of the total trading volume in the market and is ahead of the US investors' 10% and UK investors' 7% share respectively.   We split the stocks eligible for the Hong Kong Connect trade into three groups: HSCEI component stocks, stocks with a market capitalization between USD 1 billion and USD 5 billion, and stocks with a market capitalization between USD 500 million and USD 1 billion.   In this insight, we will highlight inflows into Li Ning Co Ltd (2331 HK), Meituan (3690 HK), as well as outflows from  Tencent (700 HK).

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<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> - China's largest ride-hailing app/service which is backed by <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> and <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent (700 HK)</a> launched, then upsized, a mega-IPO to raise US$4.4bn. It was MUCH discussed on Smartkarma pre-IPO. Shares rose 1% on the IPO, rose 16% on Day 2, then fell 5% on Day 3 as the Cyberspace Administration of China <a href="http://www.cac.gov.cn/2021-07/02/c_1626811521011934.htm" target="_blank" rel="noopener">announced</a> (<a href="http://www.cac.gov.cn/2021-07/02/c_1626811521011934.htm" target="_blank" rel="noopener">http://www.cac.gov.cn/2021-07/02/c_1626811521011934.htm</a>) a cyber security review of the Didi Travel app. Didi said they would cooperate with regulators. But there was a background to this.On 11 June, the Cyberspace Administration of China <a href="http://www.cac.gov.cn/2021-06/11/c_1624994586637626.htm" target="_blank" rel="noopener">announced</a> (<a href="http://www.cac.gov.cn/2021-06/11/c_1624994586637626.htm" target="_blank" rel="noopener">http://www.cac.gov.cn/2021-06/11/c_1624994586637626.htm</a>) that 129 apps were being investigated for illegal collection and use of personal information. The investigation was noted in the IPO documents and Didi said then that they were working with regulators. Less well noted in public commentary because the list was long and the "work requirement" was all the way at the bottom of the page was that "the relevant App operator[s] shall complete the rectification within 15 working days from the date of this announcement, and send the rectification report with an official seal to" such-and-such an email address, and "If the rectification is not completed within the time limit, our office will deal with it in accordance with the law."Friday 2 July was the 15th working day. Today, the Cyberspace Administration of China took it one step further, <a href="http://www.cac.gov.cn/2021-07/04/c_1627016782176163.htm" target="_blank" rel="noopener">announcing</a> (<a href="http://www.cac.gov.cn/2021-07/04/c_1627016782176163.htm" target="_blank" rel="noopener">http://www.cac.gov.cn/2021-07/04/c_1627016782176163.htm</a>) it was instructing all platforms to remove the app from distribution. The stock was down 11% on Friday at one point before closing -5%. Monday is a holiday on the NYSE but a lot of attention will be paid to this news. Didi now has pride of place at the top of the league table for Who Has The Most Mentions On The Front Page of Regulator Websites.That's not necessarily a good thing for the stock. A brief review follows.

DiDi Chuxing (DIDI US) - China's largest ride-hailing app/service which is backed by Softbank Group (9984 JP) and Tencent (700 HK) launched, then upsized, a mega-IPO to raise US$4.4bn. It was MUCH discussed on Smartkarma pre-IPO. Shares rose 1% on the IPO, rose 16% on Day 2, then fell 5% on Day 3 as the Cyberspace Administration of China announced (http://www.cac.gov.cn/2021-07/02/c_1626811521011934.htm) a cyber security review of the Didi Travel app. Didi said they would cooperate with regulators. But there was a background to this.On 11 June, the Cyberspace Administration of China announced (http://www.cac.gov.cn/2021-06/11/c_1624994586637626.htm) that 129 apps were being investigated for illegal collection and use of personal information. The investigation was noted in the IPO documents and Didi said then that they were working with regulators. Less well noted in public commentary because the list was long and the "work requirement" was all the way at the bottom of the page was that "the relevant App operator[s] shall complete the rectification within 15 working days from the date of this announcement, and send the rectification report with an official seal to" such-and-such an email address, and "If the rectification is not completed within the time limit, our office will deal with it in accordance with the law."Friday 2 July was the 15th working day. Today, the Cyberspace Administration of China took it one step further, announcing (http://www.cac.gov.cn/2021-07/04/c_1627016782176163.htm) it was instructing all platforms to remove the app from distribution. The stock was down 11% on Friday at one point before closing -5%. Monday is a holiday on the NYSE but a lot of attention will be paid to this news. Didi now has pride of place at the top of the league table for Who Has The Most Mentions On The Front Page of Regulator Websites.That's not necessarily a good thing for the stock. A brief review follows.

Didi Chuxing - Slammed by Regulators, Again. A Review of the Regulatory Timeline

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>This party keeps on rocking</li>
<li>More stocks, and students, to make better chips</li>
<li>Abandon engagement with China?</li>
<li>A toast, Good-Neighbourliness!</li>
<li>Western water powers Eastern China</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
This party keeps on rocking
More stocks, and students, to make better chips
Abandon engagement with China?
A toast, Good-Neighbourliness!
Western water powers Eastern China
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.

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/didi-chuxing-inc" target="_blank" data-smartkarma-citation="entities:27467:1" rel="noopener">DiDi Chuxing (DIDI US)</a> is the world's largest mobility technology platform by annual active users and by average daily transactions for the twelve months ended 31 March 2021, according to CIC. The DiDi Chuxing app in China where consumers can access mobility and other essential services. Didi is backed by Softbank Vision Fund (21.5% stake), <a href="https://www.smartkarma.com/entities/uber-technologies-inc" target="_blank" data-smartkarma-citation="entities:430:1" rel="noopener">Uber (UBER US)</a> (12.8%), <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent (700 HK)</a> (6.8%), <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> and <a href="https://www.smartkarma.com/entities/toyota-motor-corp" target="_blank" data-smartkarma-citation="entities:73:1" rel="noopener">Toyota Motor (7203 JP)</a>. Didi has priced its IPO at $14.00 per ADS, which is at the top-end of the IPO price range of $13.00-14.00 per ADS, <a href="https://www.reuters.com/business/chinas-didi-raises-4-billion-us-ipo-source-2021-06-29/" target="_blank" rel="noopener">according to Reuters</a>. Reuters also noted that Didi sold a higher 317 million ADS versus the planned 288 million ADS (10% more), resulting in a fully-diluted market cap of $73 billion ($67.5 billion on a non-diluted basis).<div>In <a href="https://www.smartkarma.com/insights/didi-chuxing-xiaoju-kuaizhi-initiation-in-for-a-bumpy-ride" target="_blank" data-smartkarma-citation="insights:53014" rel="noopener">Didi Chuxing (Xiaoju Kuaizhi) Initiation: In for a Bumpy Ride?</a>, we opined that Didi’s core china mobility business is heading on the right trajectory with rising growth and improving margin. However, Didi is saddled with two other businesses (international and other initiatives) which are driven by its global ambitions and its desire to provide a broad array of service offerings to consumers and drivers. This ecosystem strategy is sensible for a company that possesses a highly profitable and cash generative core business. Unfortunately, Didi’s core china mobility business is not close to achieving this status and the international and other initiatives business look like unnecessary and costly distractions. </div><div>
In <a href="https://www.smartkarma.com/insights/xiaoju-kuaizhi-didi-chuxing-ipo-growth-vs-margin" target="_blank" data-smartkarma-citation="insights:53232" rel="noopener">Xiaoju Kuaizhi (Didi Chuxing) IPO: Growth Vs Margin</a>, we examined the key financial metrics of Didi china mobility and international business to the relevant business units of its peers - Uber, <a href="https://www.smartkarma.com/entities/lyft-inc" target="_blank" data-smartkarma-citation="entities:24423:1" rel="noopener">Lyft Inc (LYFT US)</a> and <a href="https://www.smartkarma.com/entities/grabtaxi-holdings-pte-ltd" target="_blank" data-smartkarma-citation="entities:26950:1" rel="noopener">Grab (0967655D SP)</a>. Our analysis showed that Didi offered a trade-off between growth and profitability in comparison to its peers. We concluded that in combination with the ongoing regulatory overhang, we are inclined to remain on the sidelines.
In <a href="https://www.smartkarma.com/insights/didi-global-ipo-valuation-insights" target="_blank" data-smartkarma-citation="insights:53626" rel="noopener">DiDi Global IPO: Valuation Insights</a>, we noted that the proposed IPO valuation is materially below the previously rumoured top-end valuation of $100 billion. In combination with our SoTP valuation, we opined that Didi is fairly valued at the IPO price range.   
<div class="content-highlight">Our relative valuation suggests that the IPO price is full. Updating for the final IPO raise and the latest peer multiples, our SoTP valuation is $13.54 per ADS, which is marginally below the IPO price of $14 per ADS. Consequently, we would take profits on any meaningful first day IPO pop.</div>
</div>

DiDi Chuxing (DIDI US) is the world's largest mobility technology platform by annual active users and by average daily transactions for the twelve months ended 31 March 2021, according to CIC. The DiDi Chuxing app in China where consumers can access mobility and other essential services. Didi is backed by Softbank Vision Fund (21.5% stake), Uber (UBER US) (12.8%), Tencent (700 HK) (6.8%), Alibaba Group (BABA US) and Toyota Motor (7203 JP). Didi has priced its IPO at $14.00 per ADS, which is at the top-end of the IPO price range of $13.00-14.00 per ADS, according to Reuters. Reuters also noted that Didi sold a higher 317 million ADS versus the planned 288 million ADS (10% more), resulting in a fully-diluted market cap of $73 billion ($67.5 billion on a non-diluted basis).In Didi Chuxing (Xiaoju Kuaizhi) Initiation: In for a Bumpy Ride?, we opined that Didi’s core china mobility business is heading on the right trajectory with rising growth and improving margin. However, Didi is saddled with two other businesses (international and other initiatives) which are driven by its global ambitions and its desire to provide a broad array of service offerings to consumers and drivers. This ecosystem strategy is sensible for a company that possesses a highly profitable and cash generative core business. Unfortunately, Didi’s core china mobility business is not close to achieving this status and the international and other initiatives business look like unnecessary and costly distractions. 
In Xiaoju Kuaizhi (Didi Chuxing) IPO: Growth Vs Margin, we examined the key financial metrics of Didi china mobility and international business to the relevant business units of its peers - Uber, Lyft Inc (LYFT US) and Grab (0967655D SP). Our analysis showed that Didi offered a trade-off between growth and profitability in comparison to its peers. We concluded that in combination with the ongoing regulatory overhang, we are inclined to remain on the sidelines.
In DiDi Global IPO: Valuation Insights, we noted that the proposed IPO valuation is materially below the previously rumoured top-end valuation of $100 billion. In combination with our SoTP valuation, we opined that Didi is fairly valued at the IPO price range.   
Our relative valuation suggests that the IPO price is full. Updating for the final IPO raise and the latest peer multiples, our SoTP valuation is $13.54 per ADS, which is marginally below the IPO price of $14 per ADS. Consequently, we would take profits on any meaningful first day IPO pop.


Asset Allocation & Fund Positioning, Copley Fund Research

Steven Holden

Asset Allocation & Fund Positioning

Copley Fund Research

Copley Fund Research provide research and data on asset allocation among Global and Emerging Market equity funds.  The analysis details absolute and relative positioning across countries, sectors and industries together with highly granular data on single stock and single fund allocations.  The data is updated monthly with time series going back to January 2011.

Global Research - Analysis of 165 prominent Global equity funds, combined AUM $335bn
GEM Research - Analysis of 127 prominent global EM equity funds, combined AUM $250bn

Asset Allocation - Global and GEM Equity

Cross Asset Strategy

Active Global managers are running record underweights in Emerging Market stocks.  The average Emerging Markets allocation among the active Global funds in our analysis stands at 9.44%, underweight -4.56% compared to the MSCI ACWI weight with 78.3% of funds underweight the benchmark.
Whilst India Financials are the largest overweight, China &amp; HK Consumer Discretionary and Health Care, Taiwan Financials and Saudi Financials have driven the underweight to all-time highs.
On a stock level, <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> is the most widely held stock, owned by 48% of the 383 active Global managers in our analysis.  The top 6 most widely held stocks, which are <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/aia-group-ltd" target="_blank" data-smartkarma-citation="entities:14895:1" rel="noopener">AIA Group Ltd (1299 HK)</a> , <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/samsung-electronics-co-ltd" target="_blank" data-smartkarma-citation="entities:191:1" rel="noopener">Samsung Electronics (005930 KS)</a> , <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent (700 HK)</a> and <a href="https://www.smartkarma.com/entities/hdfc-bank-ltd-4b6b7a92-9087-468d-9dbe-ab169e77f014" target="_blank" data-smartkarma-citation="entities:558:1" rel="noopener">HDFC Bank (HDFCB IN)</a> occupy the top tier.  They are held by significantly more managers and at larger average weight than those below them.
In fact, active Global managers have come to rely on these top 6 names more and more over the last decade.  Almost 40% of all EM allocations are in these 6 stocks.  Should Global managers be better diversifying their EM allocations?
Analysis taken from our Global fund research, covering 383 active Global strategies with combined AUM of $1.05tr

Active Global managers are running record underweights in Emerging Market stocks.  The average Emerging Markets allocation among the active Global funds in our analysis stands at 9.44%, underweight -4.56% compared to the MSCI ACWI weight with 78.3% of funds underweight the benchmark.
Whilst India Financials are the largest overweight, China &amp; HK Consumer Discretionary and Health Care, Taiwan Financials and Saudi Financials have driven the underweight to all-time highs.
On a stock level, TSMC (2330 TT) is the most widely held stock, owned by 48% of the 383 active Global managers in our analysis.  The top 6 most widely held stocks, which are TSMC (2330 TT) , AIA Group Ltd (1299 HK) , Alibaba Group (BABA US) , Samsung Electronics (005930 KS) , Tencent (700 HK) and HDFC Bank (HDFCB IN) occupy the top tier.  They are held by significantly more managers and at larger average weight than those below them.
In fact, active Global managers have come to rely on these top 6 names more and more over the last decade.  Almost 40% of all EM allocations are in these 6 stocks.  Should Global managers be better diversifying their EM allocations?
Analysis taken from our Global fund research, covering 383 active Global strategies with combined AUM of $1.05tr

EM Underweight Hits Record High Among Global Managers

China

Meituan operates as a web based shopping platform for locally found consumer products and retail services. The Company offers deals of the day by selling vouchers on local services and entertainment, dining, delivery, and other services. Meituan provides its services throughout China.

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Meituan (3690 HK)

Hong Kong Connect Flows: Li Ning Inflows

We will highlight weekly Hong Kong Connect inflows into Li Ning Company Limited (2331 HK), Meituan (3690 HK), and outflows from Tencent Holdings...

Ke Yan, CFA, FRM

Didi Chuxing - Slammed by Regulators, Again. A Review of the Regulatory Timeline

Didi is slammed by regulators. Again. March, then April, then June by the CAC, then June by SAMR, then Friday by CAC, now Sunday. A message is...

Travis Lundy

CCP/ Chips/ US-China/ Russia/ Hydro

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

DiDi Global IPO: Trading Debut

Didi has priced its IPO at $14 per ADS and sold 10% more ADSs than planned. Our relative valuation and SoTP valuation suggests a full price. We...

Arun George

EM Underweight Hits Record High Among Global Managers

Active Global managers are running record underweights in Emerging Market stocks. The average Emerging Markets allocation sits underweight -4.56%...

Steven Holden

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