Global TMT analyst with Asia ex-Japan focus.

Mitchell Kim

Equity Bottom-Up

Alibaba Group Holding  / Equity Bottom-Up

<p>After <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> reported FY2021 results, the stock took a 6% slide in a market that was already skittish and looking for an excuse to jump off the global tech names and even more so for the Chinese platforms because of the continuing regulatory concerns. </p><p>In this environment, it is easy to lose conviction on a stock.  However, I offer three reasons why investors should not be discouraged about BABA and its perceived weak results:</p><ol>
<li>
<strong>Operating profit did NOT decline.</strong>  Excluding the AML penalty of CNY18.2 bn, operating profit in the March quarter would have grown 48% YoY, and 18% on a full-year basis.</li>
<li>
<strong>Revenue growths remain brisk</strong> at 64% for the quarter and 41% for the full year, beating consensus expectations.  Excluding Sun Art consolidation, it would still be a robust 39% and 32%, respectively.  Customer management revenue growth of 40% YoY in the March quarter was promising. </li>
<li>
<strong>Cloud profitability on the rise. </strong> After breaking even in the Dec quarter, the segment EBITA margin rose to 1.8% -- still small but fast improving.       </li>
</ol><p>Keep in mind that Alibaba is out of the crosshair of regulators, while its competitors are only beginning to feel the heat. I believe the company is in a good position to leverage its gigantic free cash flow and the uncertainty facing its competitors to gain market share.   I estimate Alibaba’s operating profit to grow 61% in FY2022.   </p><p><strong>Key risk:</strong> Management stated that it would reallocate incremental profits into generating incremental revenue growth. Alibaba management always states that it does not manage by margins.  However, the company has always maintained its marketplace EBITA margins above 70% (of marketplace revenues, not total revenues).  I believe margins will continue to trend down,  largely because of the faster than expected revenue growth, but its profit growth will remain robust.    </p><p>Previous related reports: </p><p><a href="https://www.smartkarma.com/insights/china-e-commerce-robust-consumption-data-hints-at-online-spending-spree" target="_blank" data-smartkarma-citation="insights:50798" rel="noopener">China E-Commerce: Robust Consumption Data Hints at Online Spending Spree</a></p><p><a href="https://www.smartkarma.com/insights/alibaba-baba-us-record-fine-grin-and-bear-it-as-better-days-are-ahead" target="_blank" data-smartkarma-citation="insights:50219" rel="noopener">Alibaba (BABA US): Record Fine - Grin and Bear It as Better Days Are Ahead</a> </p><p><a href="https://www.smartkarma.com/insights/alibaba-baba-us-ant-group-woes-overly-priced-in" target="_blank" data-smartkarma-citation="insights:48648" rel="noopener">Alibaba (BABA US): Ant Group Woes Overly Priced-In</a> </p>

After Alibaba Group (BABA US) reported FY2021 results, the stock took a 6% slide in a market that was already skittish and looking for an excuse to jump off the global tech names and even more so for the Chinese platforms because of the continuing regulatory concerns. In this environment, it is easy to lose conviction on a stock.  However, I offer three reasons why investors should not be discouraged about BABA and its perceived weak results:

Operating profit did NOT decline.  Excluding the AML penalty of CNY18.2 bn, operating profit in the March quarter would have grown 48% YoY, and 18% on a full-year basis.

Revenue growths remain brisk at 64% for the quarter and 41% for the full year, beating consensus expectations.  Excluding Sun Art consolidation, it would still be a robust 39% and 32%, respectively.  Customer management revenue growth of 40% YoY in the March quarter was promising. 

Cloud profitability on the rise.  After breaking even in the Dec quarter, the segment EBITA margin rose to 1.8% -- still small but fast improving.       
Keep in mind that Alibaba is out of the crosshair of regulators, while its competitors are only beginning to feel the heat. I believe the company is in a good position to leverage its gigantic free cash flow and the uncertainty facing its competitors to gain market share.   I estimate Alibaba’s operating profit to grow 61% in FY2022.   Key risk: Management stated that it would reallocate incremental profits into generating incremental revenue growth. Alibaba management always states that it does not manage by margins.  However, the company has always maintained its marketplace EBITA margins above 70% (of marketplace revenues, not total revenues).  I believe margins will continue to trend down,  largely because of the faster than expected revenue growth, but its profit growth will remain robust.    Previous related reports: China E-Commerce: Robust Consumption Data Hints at Online Spending SpreeAlibaba (BABA US): Record Fine - Grin and Bear It as Better Days Are Ahead Alibaba (BABA US): Ant Group Woes Overly Priced-In 

Alibaba (BABA US): Three Reasons Why Investors Should Not Fret

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

<div><p><a href="https://www.smartkarma.com/entities/ximalaya-inc" target="_blank" data-smartkarma-citation="entities:33232:1" rel="noopener">Ximalaya (XIMA US)</a>, the largest online audio platform in China, is looking to raise around US$1bn in its US listing. </p></div><div><p>As of 1Q21, it had 250m average MAUs, which included 104m mobile MAUs through its apps and 146m MAUs through internet-of-things (IoT) and other third-party platforms. As per CIC, it accounted for 75% of total mobile listening time among all online audio platforms in China. It had 5.2m active content creators in 2020.</p></div><div>
<p>We have covered various aspects of the deal in our previous notes:<a href="https://www.smartkarma.com/insights/ximalaya-pre-ipo-the-positives-a-whole-lot-of-listening" target="_blank" rel="noopener"></a></p>
<ul>
<li>
<a href="https://www.smartkarma.com/insights/ximalaya-pre-ipo-the-positives-a-whole-lot-of-listening" target="_blank" rel="noopener"> Ximalaya Pre-IPO - The Positives - A Whole Lot of Listening</a><a href="https://www.smartkarma.com/insights/ximalaya-pre-ipo-the-negatives" target="_blank" rel="noopener"></a>
</li>
<li><a href="https://www.smartkarma.com/insights/ximalaya-pre-ipo-the-negatives" target="_blank" rel="noopener">Ximalaya Pre-IPO - The Negatives</a></li>
<li><a href="https://www.smartkarma.com/insights/ximalaya-pre-ipo-peer-comparison" target="_blank" rel="noopener">Ximalaya Pre-IPO - Peer Comparison</a></li>
<li><a href="https://www.smartkarma.com/insights/ximalaya-xima-has-large-market-share-but-small-competitors-have-big-bosses" target="_blank" rel="noopener">Ximalaya (XIMA): Has Large Market Share, But Small Competitors Have Big Bosses</a></li>
</ul>
</div><div><p>In this note, we will talk about earnings and valuation.</p></div>

Ximalaya (XIMA US), the largest online audio platform in China, is looking to raise around US$1bn in its US listing. As of 1Q21, it had 250m average MAUs, which included 104m mobile MAUs through its apps and 146m MAUs through internet-of-things (IoT) and other third-party platforms. As per CIC, it accounted for 75% of total mobile listening time among all online audio platforms in China. It had 5.2m active content creators in 2020.
We have covered various aspects of the deal in our previous notes:


 Ximalaya Pre-IPO - The Positives - A Whole Lot of Listening

Ximalaya Pre-IPO - The Negatives
Ximalaya Pre-IPO - Peer Comparison
Ximalaya (XIMA): Has Large Market Share, But Small Competitors Have Big Bosses

In this note, we will talk about earnings and valuation.

Ximalaya Pre-IPO - Earnings Forecast and Valuation

<p>While AML (Anti- Monopoly Law) posed as a share overhang first on <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> starting late 2020, the regulator's recent focus shifted towards the smaller e-commerce platforms, Pin Duo Duo and Meituan. </p><p>On Monday, 10 May 2021, Shanghai Consumer Council, a quasi-government consumer protection agency, called a meeting with <a href="https://www.smartkarma.com/entities/meituan-dianping" target="_blank" data-smartkarma-citation="entities:26970:1" rel="noopener">Meituan (3690 HK)</a> and <a href="https://www.smartkarma.com/entities/pinduoduo-inc" target="_blank" data-smartkarma-citation="entities:27250:1" rel="noopener">Pinduoduo (PDD US)</a> representatives to address counterfeit goods and consumers' and laborers' complaints, according to Wall Street Journal.  PDD and Meituan shares fell 9% and 7%, respectively, on the day, although PDD shares recovered some grounds on Tuesday.    </p><p>Unlike the share overhang lifting for Alibaba with the announcement of the historic fine on 10 April, I believe share overhang will continue to plague the PDD shares as the uncertainty persists.  This is one of the reasons I maintain my cautious stance on the stock.  </p><p>I flagged in my Webinar on PDD, <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> on 7 April, that AML risk could be even more impactful for the leading group buying platform because of its greater reliance on promotions and marketing subsidies which is one of the target violation investigations.  Moreover, I continue to be cautious about the stock because of its expensive valuation (P/Sales) and the risk of deteriorating investors' sentiment as revenue growth decelerates. </p><p><strong>My previous reports on Pin Duo Duo: </strong></p><p><a href="https://www.smartkarma.com/insights/china-e-commerce-robust-consumption-data-hints-at-online-spending-spree" target="_blank" data-smartkarma-citation="insights:50798" rel="noopener">China E-Commerce: Robust Consumption Data Hints at Online Spending Spree</a> </p><p><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></p><p><a href="https://www.smartkarma.com/insights/pinduoduo-pdd-us-know-when-to-fold-know-when-to-run" target="_blank" data-smartkarma-citation="insights:48659" rel="noopener">Pinduoduo (PDD US): Know When to Fold, Know When to Run</a>        </p>

While AML (Anti- Monopoly Law) posed as a share overhang first on Alibaba Group (BABA US) starting late 2020, the regulator's recent focus shifted towards the smaller e-commerce platforms, Pin Duo Duo and Meituan. On Monday, 10 May 2021, Shanghai Consumer Council, a quasi-government consumer protection agency, called a meeting with Meituan (3690 HK) and Pinduoduo (PDD US) representatives to address counterfeit goods and consumers' and laborers' complaints, according to Wall Street Journal.  PDD and Meituan shares fell 9% and 7%, respectively, on the day, although PDD shares recovered some grounds on Tuesday.    Unlike the share overhang lifting for Alibaba with the announcement of the historic fine on 10 April, I believe share overhang will continue to plague the PDD shares as the uncertainty persists.  This is one of the reasons I maintain my cautious stance on the stock.  I flagged in my Webinar on PDD, Smartkarma Webinar | Pinduoduo (PDD US): Know When to Fold on 7 April, that AML risk could be even more impactful for the leading group buying platform because of its greater reliance on promotions and marketing subsidies which is one of the target violation investigations.  Moreover, I continue to be cautious about the stock because of its expensive valuation (P/Sales) and the risk of deteriorating investors' sentiment as revenue growth decelerates. My previous reports on Pin Duo Duo: China E-Commerce: Robust Consumption Data Hints at Online Spending Spree Pin Duo Duo (PDD US): Four Charts To Make You Want to RunPinduoduo (PDD US): Know When to Fold, Know When to Run        

Pin Duo Duo (PDD US): Whipping in the Wind

<div><p><a href="https://www.smartkarma.com/entities/ximalaya-inc" target="_blank" data-smartkarma-citation="entities:33232:1" rel="noopener">Ximalaya (XIMA US)</a>, the largest online audio platform in China, is looking to raise around US$1bn in its US listing. </p></div><div><p>As of 1Q21, it had 250m average MAUs, which included 104m mobile MAUs through its apps and 146m MAUs through internet-of-things (IoT) and other third-party platforms. As per CIC, it accounted for 75% of total mobile listening time among all online audio platforms in China. It had 5.2m active content creators in 2020.</p></div><div><p>In our previous notes,<a href="https://www.smartkarma.com/insights/ximalaya-pre-ipo-the-positives-a-whole-lot-of-listening" target="_blank" rel="noopener"> Ximalaya Pre-IPO - The Positives - A Whole Lot of Listening</a>, and  <a href="https://www.smartkarma.com/insights/ximalaya-pre-ipo-the-negatives" target="_blank" rel="noopener">Ximalaya Pre-IPO - The Negatives</a> we have covered the positive and negative aspects of the deal.</p></div><div><p>In this note, we will compare Ximalaya with some of its listed peers.</p></div>

Ximalaya (XIMA US), the largest online audio platform in China, is looking to raise around US$1bn in its US listing. As of 1Q21, it had 250m average MAUs, which included 104m mobile MAUs through its apps and 146m MAUs through internet-of-things (IoT) and other third-party platforms. As per CIC, it accounted for 75% of total mobile listening time among all online audio platforms in China. It had 5.2m active content creators in 2020.In our previous notes, Ximalaya Pre-IPO - The Positives - A Whole Lot of Listening, and  Ximalaya Pre-IPO - The Negatives we have covered the positive and negative aspects of the deal.In this note, we will compare Ximalaya with some of its listed peers.

Overseas Chinese Equities, Aequitas Research

Ming Lu

Overseas Chinese Equities

<ul>
<li>The government warned that Meituan should raise delivery workers’ benefits and reduce their workload.</li>
<li>The CEO quoted a poem on a social media and we believe all media reports misunderstand it.</li>
<li>We reduced the target price to HK$230.</li>
</ul>
<p>Our previous coverage on Meituan:</p>
<ul>
<li><a href="https://www.smartkarma.com/insights/meituan-3690-hk-forthcoming-punishment-will-benefit-alibaba" target="_blank" data-smartkarma-citation="insights:50794" rel="noopener">Meituan (3690 HK): Forthcoming Punishment Will Benefit Alibaba</a></li>
<li>
<a href="https://www.smartkarma.com/insights/meituan-3690-hk-meituan-spending-money-but-agents-accumulating-customers-for-themselves" target="_blank" data-smartkarma-citation="insights:50118" rel="noopener">Meituan (3690 HK): Meituan Spending Money, But Agents Accumulating Customers for Themselves</a> </li>
</ul>


The government warned that Meituan should raise delivery workers’ benefits and reduce their workload.
The CEO quoted a poem on a social media and we believe all media reports misunderstand it.
We reduced the target price to HK$230.

Our previous coverage on Meituan:

Meituan (3690 HK): Forthcoming Punishment Will Benefit Alibaba

Meituan (3690 HK): Meituan Spending Money, But Agents Accumulating Customers for Themselves 


Meituan (3690 HK): CEO's Poem, as Response to Authorities' Sweat Shop Warning, Could Be Disaster

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)

Alibaba (BABA US): Three Reasons Why Investors Should Not Fret

Alibaba's shares took a hit in a tough market as the media characterized the company's earnings as disappointing. On the contrary, I offer three...

Mitchell Kim

Ximalaya Pre-IPO - Earnings Forecast and Valuation

Ximalaya (XIMA US), the largest online audio platform in China, is looking to raise around US$1bn in its US listing. As of 1Q21, it had 250m...

Sumeet Singh

Pin Duo Duo (PDD US): Whipping in the Wind

Pin Duo Duo shares were rocked on Monday by the news that regulators called PDD to warn about counterfeit goods. Find out why regulatory risk and...

Mitchell Kim

Ximalaya Pre-IPO - Peer Comparison

Ximalaya (XIMA US), the largest online audio platform in China, is looking to raise around US$1bn in its US listing. As of 1Q21, it had 250m MAUs...

Sumeet Singh

Meituan (3690 HK): CEO's Poem, as Response to Authorities' Sweat Shop Warning, Could Be Disaster

The government warned that Meituan should raise delivery workers’ benefits and reduce their workload. The CEO quoted a poem on a social media and...

Ming Lu

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