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

Alibaba Group Holding  / Equity Capital Markets

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On 24th Mar 2021, Securities Exchange Commission (SEC) issued Amendments, Seeks Public Comment on Holding Foreign Companies Accountable Act. On the back of this, large China ADRs fell by 7.5% on average. 
We have covered various aspects of this topic before in our prior note, links to which are below. In this note, I'll talk about the SEC updates.
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In our previous notes:
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<ul style="list-style-type: disc;">
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<a href="https://www.smartkarma.com/insights/china-adrs-secondary-listing-deep-dive-yin-and-yang" target="_blank" rel="noopener">China ADRs Secondary Listing Deep-Dive: Yin and Yang,</a> published in Feb 2020,  we looked at the background and rules around undertaking a secondary listing in Hong Kong and then came up with a short-list of companies that might undertake a secondary listing. </li>
<li>
<a href="https://www.smartkarma.com/insights/china-adrs-secondary-listing-covid-19-has-increased-the-tension-but-narrowed-the-short-list" target="_blank" rel="noopener">In China ADRs Secondary Listing: COVID-19 Has Increased the Tension but Narrowed the Short List</a> published in May 2020, we looked at the recent developments and provided an revised short-list</li>
<li>In <a href="https://www.smartkarma.com/insights/china-adrs-secondary-listing-holding-foreign-companies-accountable-act-i-m-coming-home" target="_blank" rel="noopener">China ADRs Secondary Listing - Holding Foreign Companies Accountable Act - I’m Coming Home</a>, published in May 2020, we spoke about the implication of the act which had made its way through the senate.</li>
<li>In <a href="https://www.smartkarma.com/insights/china-adrs-secondary-listing-pipeline-looks-rich-have-three-years-to-move" target="_blank" rel="noopener">China ADRs Secondary Listing - Pipeline Looks Rich, Have Three Years to Move</a>, published in Feb 2021 we looked at the ADR pipeline and spoke about the updates from the Holding Foreign Companies Accountable Act becoming law and the updates at Hong Kong end as well. </li>
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On 24th Mar 2021, Securities Exchange Commission (SEC) issued Amendments, Seeks Public Comment on Holding Foreign Companies Accountable Act. On the back of this, large China ADRs fell by 7.5% on average. 
We have covered various aspects of this topic before in our prior note, links to which are below. In this note, I'll talk about the SEC updates.


In our previous notes:




China ADRs Secondary Listing Deep-Dive: Yin and Yang, published in Feb 2020,  we looked at the background and rules around undertaking a secondary listing in Hong Kong and then came up with a short-list of companies that might undertake a secondary listing. 

In China ADRs Secondary Listing: COVID-19 Has Increased the Tension but Narrowed the Short List published in May 2020, we looked at the recent developments and provided an revised short-list
In China ADRs Secondary Listing - Holding Foreign Companies Accountable Act - I’m Coming Home, published in May 2020, we spoke about the implication of the act which had made its way through the senate.
In China ADRs Secondary Listing - Pipeline Looks Rich, Have Three Years to Move, published in Feb 2021 we looked at the ADR pipeline and spoke about the updates from the Holding Foreign Companies Accountable Act becoming law and the updates at Hong Kong end as well. 



China ADRs - SEC Notice - Instead of Three, Probably Have Four Years till 2025 - Correction Overdone

Global TMT analyst with Asia ex-Japan focus.

Mitchell Kim

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent Holdings (700 HK)</a> shares slid 18% in the two months after reaching the record high on 25 January 2021. The shares have been under pressure mostly on regulatory risks along with Alibaba.  As Tencent reported solid 4Q20 earnings on 24 March 2021, many of the Chinese Internet stocks took a hit on news that Chinese Internet platforms may be “encouraged” to contribute their digital payment and eCommerce transaction data to a joint venture company overseeing such lucrative data collection. While this news has been slowly reverberating since the beginning of the year, we are likely to have more clarity in the coming months. Our preliminary view on the Fintech risk is that Tencent will likely face a smaller impact than <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>  – albeit, Alibaba shares have more than fully reflected such known risk, in our view – because Tenpay has a smaller exposure to consumer loans.  We will cover this discussion at another time. While investors certain can blame such share overhang risks undercutting the bullish momentum from the beginning of the year, we flag that Tencent’s results hint that the company’s benefit from the COVID-19 is fading.  Our key observations from the results are:<ul>
<li>
The online game growth of 2Q-3Q20 is not sustainable.  The growth for 2020 was impressive and the 4Q20 growth was still solid but there are signs that the growth is slowing even with new game introductions.  We estimate online game revenue growth to slow to 25% in 2021. </li>
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Online advertising revenue growth re-accelerated marginally in 2020.  Tencent’s social advertising growth is gaining momentum as P4P is picking up with Moments ads.  We estimate advertising revenue growth remains stable at 19% in 2021. </li>
<li>
 Fintech growth is promising, notwithstanding the government risk.  4Q20 growth remained healthy at 29%.  We believe 19% growth in 2021e is achievable.   </li>
</ul>Valuation: Our SOTP based on 2020 valuation comparables suggests a fair value at over HKD700, but there is a lower upside as we roll over to 2021 valuation comps.  Even though operating metrics still look solid, Tencent’s risk-return profile looks less compelling despite the 18% fall.

Tencent Holdings (700 HK) shares slid 18% in the two months after reaching the record high on 25 January 2021. The shares have been under pressure mostly on regulatory risks along with Alibaba.  As Tencent reported solid 4Q20 earnings on 24 March 2021, many of the Chinese Internet stocks took a hit on news that Chinese Internet platforms may be “encouraged” to contribute their digital payment and eCommerce transaction data to a joint venture company overseeing such lucrative data collection. While this news has been slowly reverberating since the beginning of the year, we are likely to have more clarity in the coming months. Our preliminary view on the Fintech risk is that Tencent will likely face a smaller impact than Alibaba Group (BABA US)  – albeit, Alibaba shares have more than fully reflected such known risk, in our view – because Tenpay has a smaller exposure to consumer loans.  We will cover this discussion at another time. While investors certain can blame such share overhang risks undercutting the bullish momentum from the beginning of the year, we flag that Tencent’s results hint that the company’s benefit from the COVID-19 is fading.  Our key observations from the results are:

The online game growth of 2Q-3Q20 is not sustainable.  The growth for 2020 was impressive and the 4Q20 growth was still solid but there are signs that the growth is slowing even with new game introductions.  We estimate online game revenue growth to slow to 25% in 2021. 

Online advertising revenue growth re-accelerated marginally in 2020.  Tencent’s social advertising growth is gaining momentum as P4P is picking up with Moments ads.  We estimate advertising revenue growth remains stable at 19% in 2021. 

 Fintech growth is promising, notwithstanding the government risk.  4Q20 growth remained healthy at 29%.  We believe 19% growth in 2021e is achievable.   
Valuation: Our SOTP based on 2020 valuation comparables suggests a fair value at over HKD700, but there is a lower upside as we roll over to 2021 valuation comps.  Even though operating metrics still look solid, Tencent’s risk-return profile looks less compelling despite the 18% fall.     

Tencent (700 HK): Taking Foot Off the Pedal

Lead Equity Research Analyst

Sameer Merchant, CFA

Pinduoduo (PDD) has fast become the quintessential disruptor, pioneering a new social form of e-commerce, now imitated by incumbents. Fronted by its pioneering team purchase model and supported by WeChat app integration, Pinduoduo has recorded impressive revenue CAGR of 217% (excl. merchandise) over the past three years to become the largest e-commerce player in China by number of users (788m in 2020 vs Alibaba’s 779m) and third largest by GMV. However, the recent departure of Chairman and founder, Colin Huan pushed share prices down 12%, overshadowing its Q4 2020 earnings beat.We see PDD as one of the best-in-class tech companies in China benefitting from its strong industry positioning, best-in-class growth prospects, a pioneering business model and exceptional management, spearheaded by CEO, Lei Chen, who given his long track-record of working with Colin Huang is a plug and play substitute for the departing Chairman.      The avant-garde turns disruptor: Much of the success of PDD can be attributed to its pioneering team purchase platform, built to thrive on the WeChat app. In the same vein, it was also the first of its kind to build the Customer to Merchants business model, allowing manufacturers to cut out the middlemen and sell directly to customers. It has also brought to market several products to drive customer engagement such as gaming. PDD dominates the e-commerce space in rural China given its roots in agricultural e-commerce and is investing heavily to roll out its in-house agricultural logistics network, which if done well will be its key differentiator.Multitude of drivers lends us confidence in its growth trajectory: We expect PDD's number of users to grow @14% CAGR over the next three years driven primarily by the ongoing penetration of WeChat users. Even though the diffusion rate of PDD into WeChat users has increased from 14% in 2017 to 59% in 2020, we see significant room for growth over the next three years. Moreover, PDDs ARPU is significantly lower than peers and one we see as a significant driver of growth for the young tech company. Management is focused on increasing both higher Average Selling Prices and increasing order frequency to drive revenue growth.New regulations heighten competitive intensity: New anti-trust regulations published in February and aimed to tackle monopolistic behaviours have already fined multiple internet players including PDD. Whilst some regulations such as exclusivity of merchants will benefit PDD, others such as curtailing price incentives will likely impinge future growth prospects. Also, the new regulations bars social media platforms and live video streaming websites to block third party e-commerce sellers which we understand will allow PDD to launch its app on rival’s apps such as Douyin (TikTok) but will also increase competition on native apps such as WeChat.Departing Chairman adds to PDD’s risk profile: In its FY 2020 earnings release, PDD announced that its Founder and Chairman, Colin Huang will be stepping down from the Board. Current CEO, Chen Lei, who replaced Colin as CEO last July, will now also become Chairman. We see the fundamentals of the business unchanged and continue to monitor the performance of the new CEO who worked on a number of start-ups with Colin before setting up PDD. Even though Colin Huang has stepped down from the business he will continue to work with PDD in agricultural research.

Pinduoduo (PDD) has fast become the quintessential disruptor, pioneering a new social form of e-commerce, now imitated by incumbents. Fronted by its pioneering team purchase model and supported by WeChat app integration, Pinduoduo has recorded impressive revenue CAGR of 217% (excl. merchandise) over the past three years to become the largest e-commerce player in China by number of users (788m in 2020 vs Alibaba’s 779m) and third largest by GMV. However, the recent departure of Chairman and founder, Colin Huan pushed share prices down 12%, overshadowing its Q4 2020 earnings beat.We see PDD as one of the best-in-class tech companies in China benefitting from its strong industry positioning, best-in-class growth prospects, a pioneering business model and exceptional management, spearheaded by CEO, Lei Chen, who given his long track-record of working with Colin Huang is a plug and play substitute for the departing Chairman.      The avant-garde turns disruptor: Much of the success of PDD can be attributed to its pioneering team purchase platform, built to thrive on the WeChat app. In the same vein, it was also the first of its kind to build the Customer to Merchants business model, allowing manufacturers to cut out the middlemen and sell directly to customers. It has also brought to market several products to drive customer engagement such as gaming. PDD dominates the e-commerce space in rural China given its roots in agricultural e-commerce and is investing heavily to roll out its in-house agricultural logistics network, which if done well will be its key differentiator.Multitude of drivers lends us confidence in its growth trajectory: We expect PDD's number of users to grow @14% CAGR over the next three years driven primarily by the ongoing penetration of WeChat users. Even though the diffusion rate of PDD into WeChat users has increased from 14% in 2017 to 59% in 2020, we see significant room for growth over the next three years. Moreover, PDDs ARPU is significantly lower than peers and one we see as a significant driver of growth for the young tech company. Management is focused on increasing both higher Average Selling Prices and increasing order frequency to drive revenue growth.New regulations heighten competitive intensity: New anti-trust regulations published in February and aimed to tackle monopolistic behaviours have already fined multiple internet players including PDD. Whilst some regulations such as exclusivity of merchants will benefit PDD, others such as curtailing price incentives will likely impinge future growth prospects. Also, the new regulations bars social media platforms and live video streaming websites to block third party e-commerce sellers which we understand will allow PDD to launch its app on rival’s apps such as Douyin (TikTok) but will also increase competition on native apps such as WeChat.Departing Chairman adds to PDD’s risk profile: In its FY 2020 earnings release, PDD announced that its Founder and Chairman, Colin Huang will be stepping down from the Board. Current CEO, Chen Lei, who replaced Colin as CEO last July, will now also become Chairman. We see the fundamentals of the business unchanged and continue to monitor the performance of the new CEO who worked on a number of start-ups with Colin before setting up PDD. Even though Colin Huang has stepped down from the business he will continue to work with PDD in agricultural research.

Pinduoduo (PDD US): Time to Shine for the Sorcerer’s Apprentice: Initiating Coverage

<a href="https://www.smartkarma.com/entities/baidu-inc" target="_blank" data-smartkarma-citation="entities:179:1" rel="noopener">Baidu (BIDU US)</a> raised around US$3bn in its secondary listing in Hong Kong.We have covered most aspects of the deal in our earlier notes, <a href="https://www.smartkarma.com/insights/baidu-secondary-listing-early-look-will-be-one-of-the-largest-secondary-listings-this-year" target="_blank" rel="noopener">Baidu Secondary Listing Early Look - Will Be One of the Largest Secondary Listings This Year</a> and <a href="https://www.smartkarma.com/insights/baidu-secondary-listing-smaller-than-expected-doing-the-bare-minimum" target="_blank" rel="noopener">Baidu Secondary Listing - Smaller than Expected, Doing the Bare Minimum</a>.In this note, we'll talk about the trading dynamics.

Baidu (BIDU US) raised around US$3bn in its secondary listing in Hong Kong.We have covered most aspects of the deal in our earlier notes, Baidu Secondary Listing Early Look - Will Be One of the Largest Secondary Listings This Year and Baidu Secondary Listing - Smaller than Expected, Doing the Bare Minimum.In this note, we'll talk about the trading dynamics.

Baidu Secondary Listing Trading - Strong Demand but Weak Price Action

Overseas Chinese Equities, Aequitas Research

Ming Lu

Overseas Chinese Equities

<ul class="">
<li>The U.S. court suspended the investment ban on Xiaomi.</li>
<li>For the first two months of 2021, China express parcels increased by 100.3% over 2020 and 80% over 2019.</li>
<li>The founder of Pinduoduo (PDD), Colin Huang, resigned as chairman of board.</li>
</ul>


The U.S. court suspended the investment ban on Xiaomi.
For the first two months of 2021, China express parcels increased by 100.3% over 2020 and 80% over 2019.
The founder of Pinduoduo (PDD), Colin Huang, resigned as chairman of board.


China Internet Weekly (Mar 22): U.S. Ban on Xiaomi Lifted, PDD Chair Resigned, China Parcels Up 100%

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)

China ADRs - SEC Notice - Instead of Three, Probably Have Four Years till 2025 - Correction Overdone

On 24th Mar 2021, SEC issued Amendments, Seeks Public Comment on Holding Foreign Companies Accountable Act. On the back of this, large China ADRs...

Sumeet Singh

Tencent (700 HK): Taking Foot Off the Pedal

Tencent shares are under pressure due to regulatory uncertainty, but its game growth is also slowing as the benefit of COVID-19 stay-at-home order...

Mitchell Kim

Pinduoduo (PDD US): Time to Shine for the Sorcerer’s Apprentice: Initiating Coverage

Pinduoduo - Recent departure of Chairman has weighed on shares. We see the growth story fundamentally intact and Chen Lei as an ideal plug and play...

Sameer Merchant, CFA

Baidu Secondary Listing Trading - Strong Demand but Weak Price Action

Baidu (BIDU US) raised around US$3bn in its secondary listing in Hong Kong. In this note, we'll talk about the trading dynamics.

Sumeet Singh

China Internet Weekly (Mar 22): U.S. Ban on Xiaomi Lifted, PDD Chair Resigned, China Parcels Up 100%

U.S. court suspended the investment ban on Xiaomi. For January and February, China express parcels increased by 80% over 2019.The founder of...

Ming Lu

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