Equity Analyst, LightStream Research

Oshadhi Kumarasiri

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.

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/base-inc" target="_blank" data-smartkarma-citation="entities:28353:1" rel="noopener">BASE Inc (4477 JP)</a> delivered 4Q20 results yesterday with revenue and gross profit growth of 104.8% and 108.4% YoY respectively in 4Q20. However, operating loss expanded 113% YoY to ¥343m due to an increase in promotional expenditure.The company’s 2021 revenue guidance of ¥9,750-10,536m (17.6%-27.1% YoY) suggests that BASE Inc’s revenue growth is expected to decelerate rapidly following a temporary increase in 2020 due to COVID. This rapid deceleration in revenue growth is expected while there is a substantial increase in promotional spending. 2021 OP guidance ¥-1,433 to -929m compared to an operating profit of ¥803m in 2020. Therefore, Base Inc’s growth prospects in the domestic market could be somewhat limited and at 15.8x consensus FY+2 EV/Sales (2022 revenue: ¥15,593, 48% YoY), Base Inc appears significantly overvalued. However, the announced five to one stock split effective on 1st April 2021 could be a catalyst for a short-term rally. Thus, we would wait for Base Inc’s share price to react to the stock split news before arranging a short position.

BASE Inc (4477 JP) delivered 4Q20 results yesterday with revenue and gross profit growth of 104.8% and 108.4% YoY respectively in 4Q20. However, operating loss expanded 113% YoY to ¥343m due to an increase in promotional expenditure.The company’s 2021 revenue guidance of ¥9,750-10,536m (17.6%-27.1% YoY) suggests that BASE Inc’s revenue growth is expected to decelerate rapidly following a temporary increase in 2020 due to COVID. This rapid deceleration in revenue growth is expected while there is a substantial increase in promotional spending. 2021 OP guidance ¥-1,433 to -929m compared to an operating profit of ¥803m in 2020. Therefore, Base Inc’s growth prospects in the domestic market could be somewhat limited and at 15.8x consensus FY+2 EV/Sales (2022 revenue: ¥15,593, 48% YoY), Base Inc appears significantly overvalued. However, the announced five to one stock split effective on 1st April 2021 could be a catalyst for a short-term rally. Thus, we would wait for Base Inc’s share price to react to the stock split news before arranging a short position.

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

Bairong, an independent AI-powered technology platform in China serving the financial services industry, plans to raise around US$300m in its Hong Kong IPO. According to F&amp;S, it was the largest independent financial big data analytics solutions provider in China by revenue in 2019, with a market share of 8.7%.Bairong has three main revenue generating segments: data analytics services, precision marketing services and insurance distribution services. As of FY19, data analytics accounted for 41.4% of revenue, with the next largest segment being precision marketing at 32.1% of revenue and insurance distribution making up for the rest.Over 2017-19, Bairong’s revenue expanded by 3.56x or at 88.8% CAGR. While its data analytics revenue increased by 66% over the period, its precision marketing services revenue grew 22.6x, and insurance distribution grew 54.5x. Over the same time, gross profit grew 3.99x and adjusted EBITDA, PAT and OCF all turned positive during that period.In this insight, I'll talk about the positive aspects of the deal.

Bairong, an independent AI-powered technology platform in China serving the financial services industry, plans to raise around US$300m in its Hong Kong IPO. According to F&amp;S, it was the largest independent financial big data analytics solutions provider in China by revenue in 2019, with a market share of 8.7%.Bairong has three main revenue generating segments: data analytics services, precision marketing services and insurance distribution services. As of FY19, data analytics accounted for 41.4% of revenue, with the next largest segment being precision marketing at 32.1% of revenue and insurance distribution making up for the rest.Over 2017-19, Bairong’s revenue expanded by 3.56x or at 88.8% CAGR. While its data analytics revenue increased by 66% over the period, its precision marketing services revenue grew 22.6x, and insurance distribution grew 54.5x. Over the same time, gross profit grew 3.99x and adjusted EBITDA, PAT and OCF all turned positive during that period.In this insight, I'll talk about the positive aspects of the deal. 

Bairong Pre-IPO - The Positives - Largest Independent Big-Data Analytics Provider

Alibaba Group Holding  / Equity Bottom-Up

Yesterday, China's competition regulator, the State Administration for Market Regulation (SAMR), formally approved the draft anti-monopoly law released in November 2020 to tighten restrictions faced by the tech giants. In this insight, we revisit the impact of the anti-monopoly law on <a href="https://www.smartkarma.com/entities/alibaba-group" target="_blank" data-smartkarma-citation="entities:28434:1" rel="noopener">Alibaba Group (9988 HK)</a>.<div style="text-align: left;" class="content-caption"><a href="http://www.samr.gov.cn/xw/zj/202102/t20210207_325968.html" target="_blank" rel="noopener">http://www.samr.gov.cn/xw/zj/202102/t20210207_325968.html</a></div>

Yesterday, China's competition regulator, the State Administration for Market Regulation (SAMR), formally approved the draft anti-monopoly law released in November 2020 to tighten restrictions faced by the tech giants. In this insight, we revisit the impact of the anti-monopoly law on Alibaba Group (9988 HK).http://www.samr.gov.cn/xw/zj/202102/t20210207_325968.html

Global TMT analyst with Asia ex-Japan focus.

Mitchell Kim

Alibaba shares have significantly underperformed its peers over the last twelve months due both to the share overhang stemming from both China’s trade conflict with the US and internal risks related to China’s own anti-monopoly investigations as well as concerns over the cancellation of Ant Financial’s IPO. Its share price has partially recovered YTD as some of the share overhang concerns were allayed, but the share overhang lingers, in our view. However, in the current market where the majority of the tech stocks have nearly doubled or more in the last twelve months, we believe this underperformed stock offers an attractive risk-return proposition at current levels.  If the bulls were looking for an outstanding December quarter to trigger a rebound, it did not happen, even though the Dec quarter results were solid.  What we took away from the results is that the operating fundamentals are strong and there are positive signs of loss-making segments turning the corner:   <ul>
<li>Highest quarterly revenue growth in 2020 (37% YoY). </li>
<li>Historic high adjusted EBITA for Core Commerce and highest quarterly operating profit in history. </li>
<li>The cloud segment has turned profitable for the first time.</li>
<li>Cainiao has recorded positive operating cash flow. </li>
</ul>The key risk for the company is higher than expected margin erosion from investments in new businesses.

Alibaba shares have significantly underperformed its peers over the last twelve months due both to the share overhang stemming from both China’s trade conflict with the US and internal risks related to China’s own anti-monopoly investigations as well as concerns over the cancellation of Ant Financial’s IPO. Its share price has partially recovered YTD as some of the share overhang concerns were allayed, but the share overhang lingers, in our view. However, in the current market where the majority of the tech stocks have nearly doubled or more in the last twelve months, we believe this underperformed stock offers an attractive risk-return proposition at current levels.  If the bulls were looking for an outstanding December quarter to trigger a rebound, it did not happen, even though the Dec quarter results were solid.  What we took away from the results is that the operating fundamentals are strong and there are positive signs of loss-making segments turning the corner:   
Highest quarterly revenue growth in 2020 (37% YoY). 
Historic high adjusted EBITA for Core Commerce and highest quarterly operating profit in history. 
The cloud segment has turned profitable for the first time.
Cainiao has recorded positive operating cash flow. 
The key risk for the company is higher than expected margin erosion from investments in new businesses. 

Alibaba (BABA US): Unloved but Undeterred

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

As we have said many time before, 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> 2021 and 2022 dividend futures are a structural sell due to changes to the index composition that will lower the fair value of the futures.There were 18 inclusions and 17 deletions from 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> in 2020 with a shift from higher dividend yield Financials and Energy stocks to lower dividend yield stocks (or zero dividend yield stocks) from the Consumer Discretionary and Information Technology sectors.We see this trend continuing in 2021 with quite a few changes front-loaded that will affect the fair value of the HSCEI 2021 dividend futures. More changes at the back end along with potential changes to the index methodology could lower the fair value of the HSCEI 2022 dividend futures too.In this Insight, we lay out the possible changes to the index constituents and 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> methodology that will impact the dividend futures.

As we have said many time before, the Hang Seng China Enterprises Index (HSCEI INDEX) 2021 and 2022 dividend futures are a structural sell due to changes to the index composition that will lower the fair value of the futures.There were 18 inclusions and 17 deletions from the Hang Seng China Enterprises Index (HSCEI INDEX) in 2020 with a shift from higher dividend yield Financials and Energy stocks to lower dividend yield stocks (or zero dividend yield stocks) from the Consumer Discretionary and Information Technology sectors.We see this trend continuing in 2021 with quite a few changes front-loaded that will affect the fair value of the HSCEI 2021 dividend futures. More changes at the back end along with potential changes to the index methodology could lower the fair value of the HSCEI 2022 dividend futures too.In this Insight, we lay out the possible changes to the index constituents and to the Hang Seng China Enterprises Index (HSCEI INDEX) methodology that will impact the dividend futures.

HSCEI Dividends - Structural Sell; Bank Dividends the Swing Factor

China

PDD Holdings Inc. is a multinational commerce group that owns and operates a portfolio of businesses. The Company focuses on digital economy so that local communities and small businesses can benefit from the increased productivity and new opportunities. PDD Holdings has built a network of sourcing, logistics, and fulfillment capabilities for its underlying businesses.

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PDD Holdings (PDD US)

Base Inc: Taking a Wrong Turn

We loved Base at the time of the IPO. However, we are considering changing that opinion, as losses are starting to head the wrong way while Base...

Oshadhi Kumarasiri

Bairong Pre-IPO - The Positives - Largest Independent Big-Data Analytics Provider

Bairong, an independent AI-powered technology platform in China serving the financial services industry, plans to raise around US$300m in its Hong...

Sumeet Singh

Alibaba: Superiority Threatened

Yesterday, China's competition regulator, the State Administration for Market Regulation (SAMR), formally approved the draft anti-monopoly law...

Oshadhi Kumarasiri

Alibaba (BABA US): Unloved but Undeterred

Alibaba shares underperformed its peers significantly in the last 12 months. We reviewed the company's FY21Q3 results which prime the stock for an...

Mitchell Kim

HSCEI Dividends - Structural Sell; Bank Dividends the Swing Factor

We see downside in the HSCEI 2021 and 2022 div futures due to changes in the index composition and potential changes in the index methodology....

Brian Freitas

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