Forensic Analyst

Jason Yap, CFA

Equity Bottom-Up

<p>The Epic Apple duel has recently concluded its first inning. The latest US ruling disrupts Apple's stranglehold over the App Store and consequently its cut of developer revenues but fell short of confirming that Apple operated as an illegal monopoly.  An Epic appeal is underway.  While a certain segment of the US population gushed with anger over Apple's 30% cut of revenue charged to developers, elsewhere in China the situation is starkly different.</p>
<p>China app developers typically aim to secure all available distribution channels at all costs, which means simultaneous pre-launch conversations with multiple app store vendors.  The most popular apps often gain the most traction through push adverts on these app stores, or so the developers rationalise to themselves as they fork up to 50% commission fees to app stores and mobile carriers. By this measure, Apple seems almost benevolent!  But, why?</p>
<p>This article explores the App Store dynamic in China, which is dominated by Android smartphone manufacturers, and discusses whether an Epic Apple esque duel might unravel in China. </p>

The Epic Apple duel has recently concluded its first inning. The latest US ruling disrupts Apple's stranglehold over the App Store and consequently its cut of developer revenues but fell short of confirming that Apple operated as an illegal monopoly.  An Epic appeal is underway.  While a certain segment of the US population gushed with anger over Apple's 30% cut of revenue charged to developers, elsewhere in China the situation is starkly different.
China app developers typically aim to secure all available distribution channels at all costs, which means simultaneous pre-launch conversations with multiple app store vendors.  The most popular apps often gain the most traction through push adverts on these app stores, or so the developers rationalise to themselves as they fork up to 50% commission fees to app stores and mobile carriers. By this measure, Apple seems almost benevolent!  But, why?
This article explores the App Store dynamic in China, which is dominated by Android smartphone manufacturers, and discusses whether an Epic Apple esque duel might unravel in China. 

Global Emerging Market Equities, Propitious Research

Wium Malan, CFA

Global Emerging Market Equities

Independent, Fundamental Quantitative Research

Propitious Research

Fully independent, fundamental and quantitative equity research, focused on companies in the Telecommunication, Media, Technology, Internet and Healthcare sectors in the Global Emerging Markets. Idea generation focused on Quality stocks, trading below their intrinsic Value, with sound Corporate Governance.

Thematic (Sector/Industry)

<p>This insight provides a summary of the key news developments impacting the largest countries and constituents of the Global Emerging Markets equity indices. </p><p><strong><em>Companies mentioned this week:</em></strong></p><p><a href="https://www.smartkarma.com/entities/kakao-corp" target="_blank" data-smartkarma-citation="entities:15002:1" rel="noopener">Kakao Corp (035720 KS)</a>, <a href="https://www.smartkarma.com/entities/naver-corp" target="_blank" data-smartkarma-citation="entities:16029:1" rel="noopener">Naver Corp (035420 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>, <a href="https://www.smartkarma.com/entities/netease" target="_blank" data-smartkarma-citation="entities:29030:1" rel="noopener">NetEase (9999 HK)</a>, <a href="https://www.smartkarma.com/entities/nio-inc" target="_blank" data-smartkarma-citation="entities:27399:1" rel="noopener">NIO Inc (NIO US)</a> </p>

This insight provides a summary of the key news developments impacting the largest countries and constituents of the Global Emerging Markets equity indices. Companies mentioned this week:Kakao Corp (035720 KS), Naver Corp (035420 KS), Tencent (700 HK), NetEase (9999 HK), NIO Inc (NIO US) 

Global Emerging Markets Weekly: 10 September 2021

Smartkarma Research Team, Smartkarma

Smartkarma Research

Smartkarma Research Team

Smartkarma

Smartkarma unites the fragmented investment industry, connecting institutional investors, independent research providers, and corporates within a single network.

Research Reinvented

<p>For our next webinar, we have the pleasure of welcoming Insight Provider <a href="https://www.smartkarma.com/profiles/evelyn-zhang-9bc04495-920c-480f-b9e9-1c086391bea6" target="_blank" data-smartkarma-citation="accounts:21235" rel="noopener">Evelyn Zhang</a>, who will examine the impact of recent policy decisions on the future of China's tech companies.</p><div><div><h3>The webinar will be hosted on Wednesday, 15 September 2021, 17:00 SGT/HKT.</h3></div></div><div><div>
<div class="content-highlight"><h2><a href="https://share.hsforms.com/1H9pFZOB-RF2J00kbvMmxcw2c5gj?zoom_webinar_id=85993480041" target="_blank" rel="noopener">Register for the Webinar here</a></h2></div>
<p>Evelyn Zhang has over a decade of experience at firms like Morgan Stanley, Bank of America Merrill Lynch, Agricultural Bank of China, and Lenovo. Her expertise includes research and investment into tech companies of all stages. She has a particular focus on emerging technologies, but is experienced in asset management, private equity, strategic investment, investment banking, equity research, and corporate finance.</p>
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For our next webinar, we have the pleasure of welcoming Insight Provider Evelyn Zhang, who will examine the impact of recent policy decisions on the future of China's tech companies.The webinar will be hosted on Wednesday, 15 September 2021, 17:00 SGT/HKT.
Register for the Webinar here
Evelyn Zhang has over a decade of experience at firms like Morgan Stanley, Bank of America Merrill Lynch, Agricultural Bank of China, and Lenovo. Her expertise includes research and investment into tech companies of all stages. She has a particular focus on emerging technologies, but is experienced in asset management, private equity, strategic investment, investment banking, equity research, and corporate finance.


Smartkarma Webinar | Law and Order: What the New Data Security Laws Mean for China's Tech Sector

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.

Event-Driven

<p>The government of China announced last week a set of rules aimed at the country’s gaming sector in order to reduce the long-term impact of gaming on the country’s younger population (those under 18 years of age). Those new rules on limiting the mobile gaming time, we think was taken lightly by the market, however, regulators continue to ramp up regulation and tighten their grip on the mobile gaming sector. Executives 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> , <a href="https://www.smartkarma.com/entities/netease" target="_blank" data-smartkarma-citation="entities:29030:1" rel="noopener">NetEase (9999 HK)</a>  and other mobile gaming companies were called in for a meeting on Wednesday and were instructed to end their “Solitary focus of pursuing profit” in order to prevent minors from getting addicted to games. This no doubt will require gaming companies to change their game rules and designs that induce addiction and at the same time, changes to operating models that will severely impact revenue and margins of games.</p><p>As China tackles to bring down gaming addiction among minor users, SCMP reports that the Chinese regulators will temporarily freeze approvals for new online games.</p>

The government of China announced last week a set of rules aimed at the country’s gaming sector in order to reduce the long-term impact of gaming on the country’s younger population (those under 18 years of age). Those new rules on limiting the mobile gaming time, we think was taken lightly by the market, however, regulators continue to ramp up regulation and tighten their grip on the mobile gaming sector. Executives from Tencent (700 HK) , NetEase (9999 HK)  and other mobile gaming companies were called in for a meeting on Wednesday and were instructed to end their “Solitary focus of pursuing profit” in order to prevent minors from getting addicted to games. This no doubt will require gaming companies to change their game rules and designs that induce addiction and at the same time, changes to operating models that will severely impact revenue and margins of games.As China tackles to bring down gaming addiction among minor users, SCMP reports that the Chinese regulators will temporarily freeze approvals for new online games.

Tencent: Temporary Freeze of New Game Approvals to Further Impact Slowing Games Business

ASEAN Insight Provider, CrossASEAN Research

Angus Mackintosh

ASEAN Insight Provider

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

<p><a href="https://www.smartkarma.com/entities/sea-ltd" target="_blank" data-smartkarma-citation="entities:8509:1" rel="noopener">Sea Ltd (SE US)</a>, South-East Asia's largest market cap company, has announced that it aims to raise US$6.3bn in the largest equity offering of 2021. The deal will allow the company to accelerate its global expansion and give the company the financial firepower for potential acquisitions.</p>
<p>The company will offer 11m shares or a stake worth about US$3.8bn at the close on 8th September plus it intends to issue US$2.5bn in equity-linked debt to bring the total funds raised to circa US$6.8bn. </p>
<p>Apart from continuing to grow its business in South-East Asia, the company is now expanding its e-commerce presence in South America, with a focus on Brazil, Mexico, Chile, and Colombia. </p>
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<div>According to local press reports, Shopee may also look to enter Eastern Europe, with Poland as its first target market.  Shopee has also launched a recruitment campaign for vendors to sell on what it called "Shopee India" and is ramping up hiring in the country. It has also been looking for office space in the country.</div>
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<p><a href="https://www.smartkarma.com/entities/sea-ltd" target="_blank" data-smartkarma-citation="entities:8509:1" rel="noopener">Sea Ltd (SE US)</a> continues to grow its ShopeeFood business both in Indonesia and Vietnam and has seen a very strong performance and positive reception from users as well as driver communities in both markets. There has also been some talk of the company expanding food delivery into Malaysia, as it has already been advertising for drivers.</p>
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<p>Assuming the completion of this fundraising goes smoothly <a href="https://www.smartkarma.com/entities/sea-ltd" target="_blank" data-smartkarma-citation="entities:8509:1" rel="noopener">Sea Ltd (SE US)</a> will have a war chest of around US$13bn at its disposal to finance its ongoing expansion, though it is not yet clear what it needs this money for.</p>
<p>This may be seen as opportunistic fundraising in some camps but given its aspiration to expand globally into other emerging markets plus growing its digital finance and food delivery arms quite aggressively, this will certainly give the company the financial firepower to do so. </p>
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<p>We continue to take a positive view on <a href="https://www.smartkarma.com/entities/sea-ltd" target="_blank" data-smartkarma-citation="entities:8509:1" rel="noopener">Sea Ltd (SE US)</a> which currently trades on 16x FY21E EV/Sales, 10.4x FY22E EV/Sales, and 7.8x FY23E EV/Sales, justified by sales growth of +105% YoY in FY2021, +47% YoY in FY22E, and +32.8% YoY growth in FY2023. </p>
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Sea Ltd (SE US), South-East Asia's largest market cap company, has announced that it aims to raise US$6.3bn in the largest equity offering of 2021. The deal will allow the company to accelerate its global expansion and give the company the financial firepower for potential acquisitions.
The company will offer 11m shares or a stake worth about US$3.8bn at the close on 8th September plus it intends to issue US$2.5bn in equity-linked debt to bring the total funds raised to circa US$6.8bn. 
Apart from continuing to grow its business in South-East Asia, the company is now expanding its e-commerce presence in South America, with a focus on Brazil, Mexico, Chile, and Colombia. 


According to local press reports, Shopee may also look to enter Eastern Europe, with Poland as its first target market.  Shopee has also launched a recruitment campaign for vendors to sell on what it called "Shopee India" and is ramping up hiring in the country. It has also been looking for office space in the country.



Sea Ltd (SE US) continues to grow its ShopeeFood business both in Indonesia and Vietnam and has seen a very strong performance and positive reception from users as well as driver communities in both markets. There has also been some talk of the company expanding food delivery into Malaysia, as it has already been advertising for drivers.


Assuming the completion of this fundraising goes smoothly Sea Ltd (SE US) will have a war chest of around US$13bn at its disposal to finance its ongoing expansion, though it is not yet clear what it needs this money for.
This may be seen as opportunistic fundraising in some camps but given its aspiration to expand globally into other emerging markets plus growing its digital finance and food delivery arms quite aggressively, this will certainly give the company the financial firepower to do so. 


We continue to take a positive view on Sea Ltd (SE US) which currently trades on 16x FY21E EV/Sales, 10.4x FY22E EV/Sales, and 7.8x FY23E EV/Sales, justified by sales growth of +105% YoY in FY2021, +47% YoY in FY22E, and +32.8% YoY growth in FY2023. 



Sea Ltd (SE US) - The Runway Just Got Longer

China

NetEase, Inc. operates as an leading internet technology company providing online services including content, community, communication, and commerce. The Company develops and operates online games, electronic commerce, internet media, innovative business, and other businesses. NetEase expands its businesses to Japan, North American, and other other international markets.

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NetEase (9999 HK)

Epic Apple Esque Duel in China? or Nah?

The Epic Apple ruling disrupts Apple's share of developer revenues. Yet, the 30% charges seem low versus China. What is the App Store landscape in...

Jason Yap, CFA

Global Emerging Markets Weekly: 10 September 2021

This insight provides a summary of the key news developments impacting the largest countries and constituents of the Global Emerging Markets equity...

Wium Malan, CFA

Smartkarma Webinar | Law and Order: What the New Data Security Laws Mean for China's Tech Sector

On 15 September, 5pm SGT, join our webinar featuring Insight Provider Evelyn Zhang, who will examine the impact of recent policy decisions on the...

Smartkarma Research

Tencent: Temporary Freeze of New Game Approvals to Further Impact Slowing Games Business

The new video game approval freeze in China in 2018 severely impacted Tencent’s online games revenues where it declined YoY for three consecutive...

Shifara Samsudeen, ACMA, CGMA

Sea Ltd (SE US) - The Runway Just Got Longer

Sea Ltd just announced a US$6.8bn fundraise which gives the company a war chest of US$13bn to expand both geographically and into new areas such as...

Angus Mackintosh

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