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

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.

Equity Capital Markets

<div>
Since the start of 2019 till date, we have covered 96 IPOs. Despite the market turmoil over the past two months, over a third, or 40 IPOs remain above their listing price. 
</div>
<div>
In this insight, we'll take at how some of the US ADR IPOs have been faring. 
</div>


Since the start of 2019 till date, we have covered 96 IPOs. Despite the market turmoil over the past two months, over a third, or 40 IPOs remain above their listing price. 


In this insight, we'll take at how some of the US ADR IPOs have been faring. 


Trade/Investment Ideas for 2019/20 China ADR Listings

Managing Director, Zero One, Zero One

Vincent Fernando, CFA

Managing Director, Zero One

Zero One

Founded in 2015, Zero One produces independent investment research and provides corporate finance advisory services with a focus on both listed and private technology companies. Founder Vincent Fernando has over 20 years of experience in US and Asia capital markets.

Independent Investment Research

Equity Bottom-Up

<ul>
<li>
MOGU mitigated effects of the virus using their KOLs and established live video broadcast business. Driving users to "live video broadcast discount sales" from brand partners.</li>
<li>
MOGU's live video broadcast GMV was strong prior to virus situation. The Company's live video broadcast business accounted for 53.2% of total GMV in 3Q20.</li>
<li>
China's mobile shopping industry showed signs of recovery. According to QuestMobile, the DAU of the total China mobile shopping industry recovered 9.2% to 3.68 billion.</li>
<li>Management guided that virus has bottlenecked supply. However, over the last month, the Company has partnered with 500 brands to expand its range of products.</li>
<li>
Despite growing live video business, 3Q20 revenue fell 26.6%. MOGU's revenue fell 26.6% to RMB269.5 million in 3Q20 as the Company shifted resources towards developing its live video broadcast business</li>
</ul>



MOGU mitigated effects of the virus using their KOLs and established live video broadcast business. Driving users to "live video broadcast discount sales" from brand partners.

MOGU's live video broadcast GMV was strong prior to virus situation. The Company's live video broadcast business accounted for 53.2% of total GMV in 3Q20.

China's mobile shopping industry showed signs of recovery. According to QuestMobile, the DAU of the total China mobile shopping industry recovered 9.2% to 3.68 billion.
Management guided that virus has bottlenecked supply. However, over the last month, the Company has partnered with 500 brands to expand its range of products.

Despite growing live video business, 3Q20 revenue fell 26.6%. MOGU's revenue fell 26.6% to RMB269.5 million in 3Q20 as the Company shifted resources towards developing its live video broadcast business


MOGU Earnings: Influencers Were Key in Mitigating Effects of Coronavirus

Thematic (Sector/Industry)

Since coronavirus fears gripped markets, the majority of Chinese tech stocks have experienced sharp selloffs with travel-related names being especially impacted. In the charts below, we highlight some of the biggest losers in China tech showing the % price drops from January 20 to today.As we highlighted in our previous note <a href="https://www.smartkarma.com/insights/tcel-china-s-new-virus-is-scary-but-one-chart-shows-how-you-can-profit" target="_blank" data-smartkarma-citation="insights:36013" rel="noopener">TCEL: China’s New Virus Is Scary, But One Chart Shows How You Can Profit</a>, market downturns from virus outbreaks tend to be short-lived and have always rebounded strongly after.

Since coronavirus fears gripped markets, the majority of Chinese tech stocks have experienced sharp selloffs with travel-related names being especially impacted. In the charts below, we highlight some of the biggest losers in China tech showing the % price drops from January 20 to today.As we highlighted in our previous note TCEL: China’s New Virus Is Scary, But One Chart Shows How You Can Profit, market downturns from virus outbreaks tend to be short-lived and have always rebounded strongly after.

Coronavirus Casualties: China Tech's Ten Biggest Losers

IPO and L/S equity, 2015 Starmine top stock picker, Global Equity Research Ltd

Rickin Thakrar

IPO and L/S equity, 2015 Starmine top stock picker

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.

Event-Driven

After Tencent's bid for <a href="https://www.smartkarma.com/entities/bitauto-holdings-ltd-adr" target="_blank" data-smartkarma-citation="entities:12004:1" rel="noopener">Bitauto  (BITA US)</a> /<a href="https://www.smartkarma.com/entities/yixin-group-ltd" target="_blank" data-smartkarma-citation="entities:26008:1" rel="noopener">Yixin Group (2858 HK)</a>, we believe Tencent may be in the market to buy back stakes in underperforming IPOs to opportunistically reignite its growth as well as put a floor on the market value of its listed entities.  We look at some M&amp;A targets for Tencent below.

After Tencent's bid for Bitauto  (BITA US) /Yixin Group (2858 HK), we believe Tencent may be in the market to buy back stakes in underperforming IPOs to opportunistically reignite its growth as well as put a floor on the market value of its listed entities.  We look at some M&amp;A targets for Tencent below. 

Could Tencent Bid for NIO to Revive Growth? A Deep-Dive into Potential M&A Targets.

China

MOGU Inc. operates as an online clothing platform. The Company offers fashion, beauty, and lifestyle products and accessories. MOGU also focuses on engaging content comprises live video broadcasts, short-form videos, photographs, and articles covering topics including product reviews, fashion tips, and brand fitting room. MOGU serves customers in China.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

Mogu Inc (MOGU US)

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

Trade/Investment Ideas for 2019/20 China ADR Listings

Since the start of 2019 till date, we have covered 96 IPOs. Despite the market turmoil over the past two months, over a third, or 40 IPOs remain...

Zhen Zhou, Toh

MOGU Earnings: Influencers Were Key in Mitigating Effects of Coronavirus

MOGU mitigated effects of the virus using their KOLs and established live video broadcast business. Driving users to "live video broadcast...

Vincent Fernando, CFA

Coronavirus Casualties: China Tech's Ten Biggest Losers

Since coronavirus fears gripped markets, the majority of Chinese tech stocks have experienced sharp selloffs with travel-related names being...

Vincent Fernando, CFA

Could Tencent Bid for NIO to Revive Growth? A Deep-Dive into Potential M&A Targets.

After Tencent's bid for Bitauto (BITA US) /Yixin Group (2858 HK), we believe Tencent may be in the market to buy back stakes in underperforming...

Rickin Thakrar

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)