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

<p><a href="https://www.smartkarma.com/entities/pinduoduo-inc" target="_blank" data-smartkarma-citation="entities:27250:1" rel="noopener">Pinduoduo (PDD US)</a>’s Q1 was not all that bad. Revenue was up 239% YoY to RMB 22.2bn compared to the consensus estimate of RMB 20.6bn. Non-GAAP operating income reached RMB -3.2bn (an OPM of -14.3% compared to OPMs of -54.9%, -5.9%, -2.4% and -4.2% in 1Q20, 2Q20, 3Q20 and 4Q20 respectively) in 1Q21 compared to the consensus estimate of RMB -3.6bn. Yet investors were cautious as shares plunged a 9.9% from the day’s open price of US$ 137.2, to close the day at US$ 123.6 per share. This wasn’t surprising as most tech companies had weak share price performance despite stellar Q1 earnings.</p>

Pinduoduo (PDD US)’s Q1 was not all that bad. Revenue was up 239% YoY to RMB 22.2bn compared to the consensus estimate of RMB 20.6bn. Non-GAAP operating income reached RMB -3.2bn (an OPM of -14.3% compared to OPMs of -54.9%, -5.9%, -2.4% and -4.2% in 1Q20, 2Q20, 3Q20 and 4Q20 respectively) in 1Q21 compared to the consensus estimate of RMB -3.6bn. Yet investors were cautious as shares plunged a 9.9% from the day’s open price of US$ 137.2, to close the day at US$ 123.6 per share. This wasn’t surprising as most tech companies had weak share price performance despite stellar Q1 earnings.

Global TMT analyst with Asia ex-Japan focus.

Mitchell Kim

<p><a href="https://www.smartkarma.com/entities/pinduoduo-inc" target="_blank" data-smartkarma-citation="entities:27250:1" rel="noopener">Pinduoduo (PDD US)'s</a> share price fell 5.5% in the US market after the company reported a 239% revenue growth YoY.   I believe there are three reasons why the market punished the stock (indeed <a href="https://www.smartkarma.com/entities/meituan-dianping" target="_blank" data-smartkarma-citation="entities:26970:1" rel="noopener">Meituan (3690 HK)</a>, <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent (700 HK), and </a><a href="https://www.smartkarma.com/entities/vipshop-holdings-ltd-adr" target="_blank" data-smartkarma-citation="entities:1088:1" rel="noopener">Vipshop Holdings (VIPS US)</a><a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener"> fell too, but </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/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener"> and </a><a href="https://www.smartkarma.com/entities/jd-com-inc-adr" target="_blank" data-smartkarma-citation="entities:446:1" rel="noopener">JD.com Inc (ADR) (JD US)</a>):</p><ul>
<li>The company decided against disclosing the TTM GMV.  Why? </li>
<li>The explosive revenue growth was partly due to the direct sales revenue which was recorded in only the last two quarters and the grocery delivery business, which started in August 2020.</li>
<li>The gross profit margin dropped sequentially while the operating loss ratio expanded. As I have noted in my last note and Webinar, <a href="https://www.smartkarma.com/insights/pin-duo-duo-pdd-us-four-charts-to-make-you-want-to-run" target="_blank" data-smartkarma-citation="insights:49333" rel="noopener">Pin Duo Duo (PDD US): Four Charts To Make You Want to Run</a> and <a href="https://www.smartkarma.com/insights/smartkarma-webinar-pinduoduo-pdd-us-know-when-to-fold" target="_blank" data-smartkarma-citation="insights:49910" rel="noopener">Smartkarma Webinar | Pinduoduo (PDD US): Know When to Fold</a> when revenue growth starts to slow the path to profit much be shown clearly.  </li>
</ul><p>I favor <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 then <a href="https://www.smartkarma.com/entities/jd-com-inc-adr" target="_blank" data-smartkarma-citation="entities:446:1" rel="noopener">JD.com Inc (ADR) (JD US)</a> as they offer much more attractive value and less exposed to the domestic counterfeit claims risk and the potential fine for aggressive use of subsidies to acquire customers.  </p>

Pinduoduo (PDD US)'s share price fell 5.5% in the US market after the company reported a 239% revenue growth YoY.   I believe there are three reasons why the market punished the stock (indeed Meituan (3690 HK), Tencent (700 HK), and Vipshop Holdings (VIPS US) fell too, but Alibaba Group (BABA US) and JD.com Inc (ADR) (JD US)):
The company decided against disclosing the TTM GMV.  Why? 
The explosive revenue growth was partly due to the direct sales revenue which was recorded in only the last two quarters and the grocery delivery business, which started in August 2020.
The gross profit margin dropped sequentially while the operating loss ratio expanded. As I have noted in my last note and Webinar, Pin Duo Duo (PDD US): Four Charts To Make You Want to Run and Smartkarma Webinar | Pinduoduo (PDD US): Know When to Fold when revenue growth starts to slow the path to profit much be shown clearly.  
I favor Alibaba Group (BABA US) and then JD.com Inc (ADR) (JD US) as they offer much more attractive value and less exposed to the domestic counterfeit claims risk and the potential fine for aggressive use of subsidies to acquire customers.  

Pinduoduo (PDD US): Three Reasons Why PDD Fell 5.5% After a 239% Growth

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

<p>Kanzhun, an online recruitment platform in China, aims to raise around US$800m in its US IPO. The company is backed by Tencent. Kanzhun runs BOSS Zhipin APP, which allows enterprise users and jobseekers to directly chat, thus, providing more convenience to both.</p><p>Kanzhun is the largest online recruitment platform in China, as measured by average MAU in 2020, according to the CIC Report. As of Mar 2021, it had 13.0m verified enterprise users, 6.3m verified enterprises, and 85.8m verified job seekers on its platform. For 12 months ended Mar 2021, it had 2.89m paid enterprise customers. Its average MAU (including job seekers and enterprise users) reached 24.0m in 1Q21.</p><p>The company nearly doubled its revenue in 2020 and its 1Q21 revenue was nearly triple that of 1Q20. Furthermore, while it remains loss making, it has been operating cash flow positive since 2020.</p>

Kanzhun, an online recruitment platform in China, aims to raise around US$800m in its US IPO. The company is backed by Tencent. Kanzhun runs BOSS Zhipin APP, which allows enterprise users and jobseekers to directly chat, thus, providing more convenience to both.Kanzhun is the largest online recruitment platform in China, as measured by average MAU in 2020, according to the CIC Report. As of Mar 2021, it had 13.0m verified enterprise users, 6.3m verified enterprises, and 85.8m verified job seekers on its platform. For 12 months ended Mar 2021, it had 2.89m paid enterprise customers. Its average MAU (including job seekers and enterprise users) reached 24.0m in 1Q21.The company nearly doubled its revenue in 2020 and its 1Q21 revenue was nearly triple that of 1Q20. Furthermore, while it remains loss making, it has been operating cash flow positive since 2020.

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<div>
<p>The final price is <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0527/2021052700025.pdf" target="_blank" rel="noopener">HK$40.36</a> for <a href="https://www.smartkarma.com/entities/jd-logistics" target="_blank" data-smartkarma-citation="entities:31500:1" rel="noopener">JD Logistics (2618 HK)</a>, the logistics spin-off of <a href="https://www.smartkarma.com/entities/jd-com-inc" target="_blank" data-smartkarma-citation="entities:29043:1" rel="noopener">JD.com Inc. (9618 HK)</a>, which is towards the low-end of the HK$39.36-HK$43.36 IPO range. This will raise HK$24.6bn and give a market cap of HK$245.9bn - both figures before over-allotment.</p>
<p>Shares commence trading tomorrow.</p>
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<p>Reportedly the retail proportion is 700x+ oversubscribed, with a grey price of HK$64/share, a 58% premium.</p>
</div>
<div>
<p>JD.com's shares are down 31% from its recent high in February after anti-trust regulators in China sought to overhaul the country's largest tech companies.  At the IPO price, JD logistics accounts for ~12% of JD.com's NAV.</p>
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<p>More below the fold.</p>
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The final price is HK$40.36 for JD Logistics (2618 HK), the logistics spin-off of JD.com Inc. (9618 HK), which is towards the low-end of the HK$39.36-HK$43.36 IPO range. This will raise HK$24.6bn and give a market cap of HK$245.9bn - both figures before over-allotment.
Shares commence trading tomorrow.


Reportedly the retail proportion is 700x+ oversubscribed, with a grey price of HK$64/share, a 58% premium.


JD.com's shares are down 31% from its recent high in February after anti-trust regulators in China sought to overhaul the country's largest tech companies.  At the IPO price, JD logistics accounts for ~12% of JD.com's NAV.


More below the fold.


JD Logistics (2618 HK): Priced Towards The Low End

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

<div class="content-highlight">
<p>Unlike 2H 2020 when many global tech stocks were roaring higher, it has been more selective so far in 2021, especially among the Chinese tech stocks. In this insight, we discuss the outlook for <a href="https://www.smartkarma.com/entities/tuya-inc" target="_blank" data-smartkarma-citation="entities:32158:1" rel="noopener">Tuya Inc (TUYA US)</a>, which appears to have one of the best momentum among Chinese tech stocks post first quarter results. <a href="https://www.smartkarma.com/entities/tuya-inc" target="_blank" data-smartkarma-citation="entities:32158:1" rel="noopener">Tuya Inc (TUYA US)</a>'s current share price is $26, up 24% from the IPO price of $21. The stock has especially been very strong in May as it is up 34% this month. </p>
<p>Among the 16 major Chinese tech stocks mentioned in this report, Tuya had the highest sales growth rate of 200% YoY in 1Q 2021. The average YoY sales growth of these 16 stocks were 58.6% in 1Q 2021. There were only three stocks that had more than 100% YoY sales growth rate in 1Q 2021, which included Tuya, <a href="https://www.smartkarma.com/entities/pinduoduo-inc" target="_blank" data-smartkarma-citation="entities:27250:1" rel="noopener">Pinduoduo (PDD US)</a>, and <a href="https://www.smartkarma.com/entities/zhihu-technology-ltd" target="_blank" data-smartkarma-citation="entities:32185:1" rel="noopener">Zhihu Technology (ZH US)</a>. </p>
<p>Our conclusion is that we continue to like Tuya as it has one of the best growth prospects among major Chinese tech stocks. It is also experiencing significant improvement in its operating margins. Although its valuation multiple is the highest among the 16 companies mentioned in this insight, we believe investors are willing to pay higher multiples for companies such as Tuya which is experiencing a combination of very strong sales growth as well as improving operating losses as a percentage of revenues. </p>
</div>


Unlike 2H 2020 when many global tech stocks were roaring higher, it has been more selective so far in 2021, especially among the Chinese tech stocks. In this insight, we discuss the outlook for Tuya Inc (TUYA US), which appears to have one of the best momentum among Chinese tech stocks post first quarter results. Tuya Inc (TUYA US)'s current share price is $26, up 24% from the IPO price of $21. The stock has especially been very strong in May as it is up 34% this month. 
Among the 16 major Chinese tech stocks mentioned in this report, Tuya had the highest sales growth rate of 200% YoY in 1Q 2021. The average YoY sales growth of these 16 stocks were 58.6% in 1Q 2021. There were only three stocks that had more than 100% YoY sales growth rate in 1Q 2021, which included Tuya, Pinduoduo (PDD US), and Zhihu Technology (ZH US). 
Our conclusion is that we continue to like Tuya as it has one of the best growth prospects among major Chinese tech stocks. It is also experiencing significant improvement in its operating margins. Although its valuation multiple is the highest among the 16 companies mentioned in this insight, we believe investors are willing to pay higher multiples for companies such as Tuya which is experiencing a combination of very strong sales growth as well as improving operating losses as a percentage of revenues. 


Tuya's Strong Momentum & A Review of China's Tech Stocks Results in 1Q 2021

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)

Pinduoduo: Downside Not Fully Priced In

Downward trajectory still seems rather steep for Pinduoduo while other EC names like Alibaba, Vipshop & JD.com offers more downside protection....

Oshadhi Kumarasiri

Pinduoduo (PDD US): Three Reasons Why PDD Fell 5.5% After a 239% Growth

Pinduoduo reported 239% revenue growth in 1Q21, but the stock fell 5.5%. I offer three reasons why the stock fell: GMV, revenue, and loss margins.

Mitchell Kim

Kanzhun Pre-IPO - Bumble Meets Linkedin

Kanzhun, an online recruitment platform in China, aims to raise around US$800m in its US IPO. The company is backed by Tencent. Kanzhun runs BOSS...

Sumeet Singh

JD Logistics (2618 HK): Priced Towards The Low End

There are a lot of positive assumptions baked into J.D. Logistics price. I tilt more positive towards to JD.com. Despite the regulatory overhang,...

David Blennerhassett

Tuya's Strong Momentum & A Review of China's Tech Stocks Results in 1Q 2021

We continue to like Tuya as it has one of the best growth prospects among major Chinese tech stocks. It is also experiencing significant...

Douglas Kim

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