Telco/Internet specialist

Kirk Boodry

Redex Research

Equity Bottom-Up

<a target="_blank"></a>Coupang is by far the leader in one of the most compelling markets for eCommerce globally and one of the most attractive of the Vision Fund portfolio companies. But it is expensive: the $30 max offer price implies a 5x appreciation in value from its last private funding round in 2018 and a FY21 EV/sales multiple of 2.6x almost on par with Amazon which is a global leader in both eCommerce and cloud.  We value Coupang below the range at $26 using a 9-year DCF driven by 17% revenue CAGR and an 8% terminal OP margin.    This report includes our initial forecasts, valuation, a summary of the investment highlights and a list of questions we would ask on the roadshow.<h2>Highlights</h2>Coupang dominates a very attractive eCommerce market.  Korea scores high on two measures of eCommerce predictive success, Internet penetration and population density and Coupang is by-far the leading provider. It helps that global competition has been unable to gain traction whilst traditional retailers are smaller scale relative to other markets.eCommerce demand has accelerated as Covid-19 accelerates augments a secular shift in retail sales to online platforms.  Revenue growth expanded from 71% in Q4 19 to 100% in Q4 20 but expanding growth was a feature through 2019 as well. eCommerce penetration of c. 25% may have nearly doubled in FY20 although some of that demand shift may revert as the impact of Covid-19 fades.The company is flirting with profitability. Operating margins have moved from -30% in FY16 to -4% in FY20 with corresponding improvement in EBITDA (-30% to -3%).  In our model, we assume Coupang breaks even in FY21 although higher share-based compensation and/or higher spending as it puts IPO proceeds to work could extend that.But it is still burning a lot of cash.  Coupang might be close to break-even operationally but it has largely spent the money it received from <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>  in 2018. Over the last three years, $2.7bn has gone out the door including c. $800mn in FY20 alone (our measure of operating cash flow).Comparable valuations and relative changes to valuation highlight the premium valuation. <a href="https://www.smartkarma.com/entities/coupang" target="_blank" data-smartkarma-citation="entities:28425:1" rel="noopener">Coupang (CPNG US)</a>  max offer price values the company similarly to Amazon on FY21 EV/sales (2.7x v 2.8x) but the latter is a global leader and not just in eCommerce but cloud too. Similarly, Coupang’s value appreciation from its last private funding and March 2020 lows has outpaced peer group, sometimes significantly.

Coupang is by far the leader in one of the most compelling markets for eCommerce globally and one of the most attractive of the Vision Fund portfolio companies. But it is expensive: the $30 max offer price implies a 5x appreciation in value from its last private funding round in 2018 and a FY21 EV/sales multiple of 2.6x almost on par with Amazon which is a global leader in both eCommerce and cloud.  We value Coupang below the range at $26 using a 9-year DCF driven by 17% revenue CAGR and an 8% terminal OP margin.    This report includes our initial forecasts, valuation, a summary of the investment highlights and a list of questions we would ask on the roadshow.HighlightsCoupang dominates a very attractive eCommerce market.  Korea scores high on two measures of eCommerce predictive success, Internet penetration and population density and Coupang is by-far the leading provider. It helps that global competition has been unable to gain traction whilst traditional retailers are smaller scale relative to other markets.eCommerce demand has accelerated as Covid-19 accelerates augments a secular shift in retail sales to online platforms.  Revenue growth expanded from 71% in Q4 19 to 100% in Q4 20 but expanding growth was a feature through 2019 as well. eCommerce penetration of c. 25% may have nearly doubled in FY20 although some of that demand shift may revert as the impact of Covid-19 fades.The company is flirting with profitability. Operating margins have moved from -30% in FY16 to -4% in FY20 with corresponding improvement in EBITDA (-30% to -3%).  In our model, we assume Coupang breaks even in FY21 although higher share-based compensation and/or higher spending as it puts IPO proceeds to work could extend that.But it is still burning a lot of cash.  Coupang might be close to break-even operationally but it has largely spent the money it received from Softbank Group (9984 JP)  in 2018. Over the last three years, $2.7bn has gone out the door including c. $800mn in FY20 alone (our measure of operating cash flow).Comparable valuations and relative changes to valuation highlight the premium valuation. Coupang (CPNG US)  max offer price values the company similarly to Amazon on FY21 EV/sales (2.7x v 2.8x) but the latter is a global leader and not just in eCommerce but cloud too. Similarly, Coupang’s value appreciation from its last private funding and March 2020 lows has outpaced peer group, sometimes significantly.

Coupang IPO and Softbank Group - A Vision Fund Jewel Emerges but It Is Pricey

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

<a href="https://www.smartkarma.com/entities/baidu-inc" target="_blank" data-smartkarma-citation="entities:179:1" rel="noopener">Baidu (BIDU US)</a> plans to raise around US$4-5bn in its secondary listing in Hong Kong. The company is said to be looking at launching an offering this month. Yesterday, it undertook a share subdivision and ADR to shares ratio adjustment in its EGM.  So far ten companies have undertaken a secondary listing in Hong Kong, raising a total of US$28bn with a range of US$0.5-11.4bn. Along with covering all of the past listings, we have also looked at the drivers for the secondary listings in our earlier notes, links to which are below: <ul>
<li>
<a href="https://www.smartkarma.com/insights/china-adrs-secondary-listing-deep-dive-yin-and-yang" target="_blank" rel="noopener">China ADRs Secondary Listing Deep-Dive: Yin and Yang,</a> published in Feb 2020,  we looked at the background and rules around undertaking a secondary listing in Hong Kong and then came up with a short-list of companies that might undertake a secondary listing. </li>
<li>
<a href="https://www.smartkarma.com/insights/china-adrs-secondary-listing-covid-19-has-increased-the-tension-but-narrowed-the-short-list" target="_blank" rel="noopener">In China ADRs Secondary Listing: COVID-19 Has Increased the Tension but Narrowed the Short List</a> published in May 2020, we looked at the recent developments and provided an revised short-list</li>
<li>In <a href="https://www.smartkarma.com/insights/china-adrs-secondary-listing-holding-foreign-companies-accountable-act-i-m-coming-home" target="_blank" rel="noopener">China ADRs Secondary Listing - Holding Foreign Companies Accountable Act - I’m Coming Home</a>, published in May 2020, we spoke about the implication of the act which had made its way through the senate.</li>
<li>In <a href="https://www.smartkarma.com/insights/china-adrs-secondary-listing-pipeline-looks-rich-have-three-years-to-move" target="_blank" rel="noopener">China ADRs Secondary Listing - Pipeline looks rich, have three years to move</a>, published in Feb 2021, we looked at the recent updates from the Holding Foreign Companies Accountable Act and Hong Kong Exchanges changes to corporate weighted average voting rights. In this note, we’ll take an early look at the deal and talk about likely timing and impact of the raising.</li>
</ul>In this note, we’ll take a look at the deal and talk about the likely impact of the raising.

Baidu (BIDU US) plans to raise around US$4-5bn in its secondary listing in Hong Kong. The company is said to be looking at launching an offering this month. Yesterday, it undertook a share subdivision and ADR to shares ratio adjustment in its EGM.  So far ten companies have undertaken a secondary listing in Hong Kong, raising a total of US$28bn with a range of US$0.5-11.4bn. Along with covering all of the past listings, we have also looked at the drivers for the secondary listings in our earlier notes, links to which are below: 

China ADRs Secondary Listing Deep-Dive: Yin and Yang, published in Feb 2020,  we looked at the background and rules around undertaking a secondary listing in Hong Kong and then came up with a short-list of companies that might undertake a secondary listing. 

In China ADRs Secondary Listing: COVID-19 Has Increased the Tension but Narrowed the Short List published in May 2020, we looked at the recent developments and provided an revised short-list
In China ADRs Secondary Listing - Holding Foreign Companies Accountable Act - I’m Coming Home, published in May 2020, we spoke about the implication of the act which had made its way through the senate.
In China ADRs Secondary Listing - Pipeline looks rich, have three years to move, published in Feb 2021, we looked at the recent updates from the Holding Foreign Companies Accountable Act and Hong Kong Exchanges changes to corporate weighted average voting rights. In this note, we’ll take an early look at the deal and talk about likely timing and impact of the raising.
In this note, we’ll take a look at the deal and talk about the likely impact of the raising.

Baidu Secondary Listing Early Look - Will Be One of the Largest Secondary Listings This Year

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

Hang Seng China Enterprises Index / Event-Driven

Last evening, Hang Seng Indexes announced the conclusions of the market consultation on the "Proposal to enhance the Hang Seng Index as regards continuing to serve as the most representative and important benchmark of the Hong Kong stock market".Apart from the changes to the <a href="https://www.smartkarma.com/entities/hong-kong-hang-seng-index" target="_blank" data-smartkarma-citation="entities:22899:1" rel="noopener">Hong Kong Hang Seng Index (HSI INDEX)</a>, it was also decided that the weight of all <a href="https://www.smartkarma.com/entities/hang-seng-china-enterprises-index" target="_blank" data-smartkarma-citation="entities:22900:1" rel="noopener">Hang Seng China Enterprises Index (HSCEI INDEX)</a> constituents, including Secondary Listings and WVR Securities, would be capped at 8%. While this was not a part of the market consultation, we had highlighted this as a possibility in our earlier <a href="https://www.smartkarma.com/insights/hscei-dividends-structural-sell-bank-dividends-the-swing-factor" target="_blank" rel="noopener">Insight</a>.Post the 2 inclusions and 4 deletions in the March review, we see a further 3 potential changes at the June review.The big impact of the 8% cap on index constituents will be felt on the HSCEI dividend futures market. With a bulk of the 2021 dividends scheduled to go ex after the implementation of the rebalance, the dividend futures should move lower. The HSCEI 2021/22 dividend steepener should trade less negative than where it has been trading prior to the announcement.In this Insight, we look at the potential changes and their impact on the stocks and the dividend futures.<div class="content-highlight">This Insight is marked Bearish since we expect the HSCEI 2021 dividend futures to move lower.</div>

Last evening, Hang Seng Indexes announced the conclusions of the market consultation on the "Proposal to enhance the Hang Seng Index as regards continuing to serve as the most representative and important benchmark of the Hong Kong stock market".Apart from the changes to the Hong Kong Hang Seng Index (HSI INDEX), it was also decided that the weight of all Hang Seng China Enterprises Index (HSCEI INDEX) constituents, including Secondary Listings and WVR Securities, would be capped at 8%. While this was not a part of the market consultation, we had highlighted this as a possibility in our earlier Insight.Post the 2 inclusions and 4 deletions in the March review, we see a further 3 potential changes at the June review.The big impact of the 8% cap on index constituents will be felt on the HSCEI dividend futures market. With a bulk of the 2021 dividends scheduled to go ex after the implementation of the rebalance, the dividend futures should move lower. The HSCEI 2021/22 dividend steepener should trade less negative than where it has been trading prior to the announcement.In this Insight, we look at the potential changes and their impact on the stocks and the dividend futures.This Insight is marked Bearish since we expect the HSCEI 2021 dividend futures to move lower.

HSCEI June Index Rebalance Preview: Potential Changes & Impact of 8% Cap on Dividends

TMT & Consumer Independent Equity Research Analyst, Obex Capital Research

Aaron Gabin

TMT & Consumer Independent Equity Research Analyst

TMT & Consumer Independent Equity Research

Obex Capital Research

“Obex” is Latin for Barriers to Entry. Obex Capital Management’s investment philosophy is driven by an intense focus on which business model’s Barriers to Entry are able to withstand the ever increasing competitive disruption in the TMT and Consumer Sectors.

DoorDash’s first earnings call confirmed many of the concerns from our initiation. The key point for 2021? We think estimates that came up to reflect the easy COVID comp for 1Q21 will fall the rest of the year as COVID recedes, which will result in the rising customer acquisition costs cited in 4Q and 2021 meeting falling LTVs as customers return to dining out. DoorDash is likely to continually underperform expectations.Why do we think DoorDash is worth maybe half its current valuation?We’ll leave it to “NEUTRAL” rated Goldman Sachs to sum it up, “With the stock trading near 20x 2022E EV/Gross Profit vs. GSe 28% 3-year Gross Profit CAGR compared to the peer average of 10x on 30% growth we believe much of that opportunity is reflected in the current valuation. Therefore, we remain Neutral rated, while our 12-month price target goes to $145 from $135 to reflect revised estimates and current comp multiples.”As always, if you can’t explain why one company is worth 2x more then all its peers…it’s a neutral.<div class="content-highlight">Obex’s fundamental research process is focused on secular change in the TMT and Consumer sectors. We seek to differentiate between fundamental business analysis and security analysis. Before deciding if a security’s pricing and positioning merit a long or short position, we analyze the four pillars of business fundamentals (Secular Factors, TAM, Competitive Advantage, Business Model) in order to determine if this is a “good” or “not so good” opportunity.</div>

DoorDash’s first earnings call confirmed many of the concerns from our initiation. The key point for 2021? We think estimates that came up to reflect the easy COVID comp for 1Q21 will fall the rest of the year as COVID recedes, which will result in the rising customer acquisition costs cited in 4Q and 2021 meeting falling LTVs as customers return to dining out. DoorDash is likely to continually underperform expectations.Why do we think DoorDash is worth maybe half its current valuation?We’ll leave it to “NEUTRAL” rated Goldman Sachs to sum it up, “With the stock trading near 20x 2022E EV/Gross Profit vs. GSe 28% 3-year Gross Profit CAGR compared to the peer average of 10x on 30% growth we believe much of that opportunity is reflected in the current valuation. Therefore, we remain Neutral rated, while our 12-month price target goes to $145 from $135 to reflect revised estimates and current comp multiples.”As always, if you can’t explain why one company is worth 2x more then all its peers…it’s a neutral.Obex’s fundamental research process is focused on secular change in the TMT and Consumer sectors. We seek to differentiate between fundamental business analysis and security analysis. Before deciding if a security’s pricing and positioning merit a long or short position, we analyze the four pillars of business fundamentals (Secular Factors, TAM, Competitive Advantage, Business Model) in order to determine if this is a “good” or “not so good” opportunity.

DoorDash 4Q20 Earnings: This Is a Business Worth $50B?

Hang Seng Indexes have announced the conclusions of the market consultation on the "Proposal to enhance the Hang Seng Index as regards continuing to serve as the most representative and important benchmark of the Hong Kong stock market".The main changes to the index are:<ul>
<li>Increase the number of constituents to 80 by mid-2022 and ultimately to have 100 stocks in the <a href="https://www.smartkarma.com/entities/hong-kong-hang-seng-index" target="_blank" data-smartkarma-citation="entities:22899:1" rel="noopener">Hong Kong Hang Seng Index (HSI INDEX)</a>. </li>
<li>To have a more balanced representation of the Hong Kong stock market, the <a href="https://www.smartkarma.com/entities/hong-kong-hang-seng-index" target="_blank" data-smartkarma-citation="entities:22899:1" rel="noopener">Hong Kong Hang Seng Index (HSI INDEX)</a> constituents will be selected from seven Industry Groups. The target is to achieve a market cap coverage of not less than 50% for each Industry Group.</li>
<li>To provide flexibility for the timely addition of new listings, the listing history requirement will be lowered to 3 months.</li>
<li>There will be 20-25 'Hong Kong companies' in the <a href="https://www.smartkarma.com/entities/hong-kong-hang-seng-index" target="_blank" data-smartkarma-citation="entities:22899:1" rel="noopener">Hong Kong Hang Seng Index (HSI INDEX)</a> and this number will be evaluated at least every 2 years.</li>
<li>All index constituents, including Secondary Listings and WVR Securities, will be subject to a weighting cap of 8%. The 8% cap will be applied to the <a href="https://www.smartkarma.com/entities/hang-seng-china-enterprises-index" target="_blank" data-smartkarma-citation="entities:22900:1" rel="noopener">Hang Seng China Enterprises Index (HSCEI INDEX)</a> constituents as well.</li>
</ul>There is no mention of the tranched inclusion of stocks in the index. This leads us to believe that 5 stocks (net) could be included in the index at each review, starting in June 2021 and concluding in June 2022.With a change in the Industry groups and a reduction in the target coverage (in terms of market cap) from 80% to 50% for each Industry group, we refresh our list of potential inclusions into and exclusions from the index.

Hang Seng Indexes have announced the conclusions of the market consultation on the "Proposal to enhance the Hang Seng Index as regards continuing to serve as the most representative and important benchmark of the Hong Kong stock market".The main changes to the index are:
Increase the number of constituents to 80 by mid-2022 and ultimately to have 100 stocks in the Hong Kong Hang Seng Index (HSI INDEX). 
To have a more balanced representation of the Hong Kong stock market, the Hong Kong Hang Seng Index (HSI INDEX) constituents will be selected from seven Industry Groups. The target is to achieve a market cap coverage of not less than 50% for each Industry Group.
To provide flexibility for the timely addition of new listings, the listing history requirement will be lowered to 3 months.
There will be 20-25 'Hong Kong companies' in the Hong Kong Hang Seng Index (HSI INDEX) and this number will be evaluated at least every 2 years.
All index constituents, including Secondary Listings and WVR Securities, will be subject to a weighting cap of 8%. The 8% cap will be applied to the Hang Seng China Enterprises Index (HSCEI INDEX) constituents as well.
There is no mention of the tranched inclusion of stocks in the index. This leads us to believe that 5 stocks (net) could be included in the index at each review, starting in June 2021 and concluding in June 2022.With a change in the Industry groups and a reduction in the target coverage (in terms of market cap) from 80% to 50% for each Industry group, we refresh our list of potential inclusions into and exclusions from the index.

HSI Market Consultation: BIG Changes Coming

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)

Coupang IPO and Softbank Group - A Vision Fund Jewel Emerges but It Is Pricey

Coupang's IPO is a win for the company and its largest holder Softbank but the max offer price of $30 is too pricey - we think it is worth closer...

Kirk Boodry

Baidu Secondary Listing Early Look - Will Be One of the Largest Secondary Listings This Year

Baidu plans to raise around US$4-5bn in its secondary listing in Hong Kong. The company is said to be looking at launching an offering this month.

Sumeet Singh

HSCEI June Index Rebalance Preview: Potential Changes & Impact of 8% Cap on Dividends

The change in capping at 8% in the HSCEI at the June 21 review will result in large turnover at the review. The change will have a large impact on...

Brian Freitas

DoorDash 4Q20 Earnings: This Is a Business Worth $50B?

DoorDash's 4Q20 earnings confirmed our bearish thesis. The company is continuing to spend higher and higher amounts on customer acquisition due to...

Aaron Gabin

HSI Market Consultation: BIG Changes Coming

Hang Seng Indexes has announced the conclusions of the market consultation and the HSI is going to look different in a years time. Financials see a...

Brian Freitas

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