Alpha-Centric ESG Research

Kyle Rudden

Well, that sure escalated quickly.Early last week, in the Insight <a href="https://www.smartkarma.com/insights/pre-ipo-esg-analysis-didi-s-exemplary-esg-achievements-eclipsed-by-regulatory-risks-and-uncertainty" target="_blank" data-smartkarma-citation="insights:53687" rel="noopener">Pre-IPO ESG Analysis: DiDi's Exemplary ESG Achievements Eclipsed By Regulatory Risks and Uncertainty</a>, I juxtaposed <a href="https://www.smartkarma.com/entities/didi-chuxing-inc" target="_blank" data-smartkarma-citation="entities:27467:1" rel="noopener">DiDi's (DIDI US)</a> relatively strong ESG results in areas under its control with serious concerns about regulatory risk outside of its direct control.Late last week, days after DiDi's successful US$4.4 billion initial public offering, Chinese regulators ordered the removal of DiDi's business-critical ride-hailing apps from online app markets, until the company rectifies "serious violations" pertaining to collection and use of customer data.DiDi is down 5.3% so far (delayed open today).Regulatory risk was central to my thesis in the first Insight. I hardly anticipated this, but I referred to regulatory risk as real, near-term, tangible investment risk; not just some fuzzy ESG risk. Given that, I felt obliged to follow up. At the same time, however, this news is covered ad nauseam.No sense in beating a dead horse with a broken record.So, I decided to do something different. That statement about regulatory risk being a real tangible investment risk is primarily based on anecdotal evidence – i.e., when regulators flex their muscle, stocks go down, not up. But "anecdotal" isn't good enough.Which is why I took this opportunity to quantify the impacts of adverse regulatory events in China. Specifically, with event studies measuring abnormal returns around major regulatory events across four broad categories. That's what most of this Insight is about. But back to DiDi for a moment.Regulatory risk and uncertainty for DiDi is much worse today than it was last week. Typically, the opposite would be true; a negative event out in the open is better than a possible event lurking in the shadows. But not this time. Barring an immediate change of heart by the PRC, this is bad.Therefore, downgrading to bearish.

Well, that sure escalated quickly.Early last week, in the Insight Pre-IPO ESG Analysis: DiDi's Exemplary ESG Achievements Eclipsed By Regulatory Risks and Uncertainty, I juxtaposed DiDi's (DIDI US) relatively strong ESG results in areas under its control with serious concerns about regulatory risk outside of its direct control.Late last week, days after DiDi's successful US$4.4 billion initial public offering, Chinese regulators ordered the removal of DiDi's business-critical ride-hailing apps from online app markets, until the company rectifies "serious violations" pertaining to collection and use of customer data.DiDi is down 5.3% so far (delayed open today).Regulatory risk was central to my thesis in the first Insight. I hardly anticipated this, but I referred to regulatory risk as real, near-term, tangible investment risk; not just some fuzzy ESG risk. Given that, I felt obliged to follow up. At the same time, however, this news is covered ad nauseam.No sense in beating a dead horse with a broken record.So, I decided to do something different. That statement about regulatory risk being a real tangible investment risk is primarily based on anecdotal evidence – i.e., when regulators flex their muscle, stocks go down, not up. But "anecdotal" isn't good enough.Which is why I took this opportunity to quantify the impacts of adverse regulatory events in China. Specifically, with event studies measuring abnormal returns around major regulatory events across four broad categories. That's what most of this Insight is about. But back to DiDi for a moment.Regulatory risk and uncertainty for DiDi is much worse today than it was last week. Typically, the opposite would be true; a negative event out in the open is better than a possible event lurking in the shadows. But not this time. Barring an immediate change of heart by the PRC, this is bad.Therefore, downgrading to bearish.

PRC Shows DiDi Who's Boss: An Analysis of Adverse Regulatory Events on Stock Prices

Global TMT analyst with Asia ex-Japan focus.

Mitchell Kim

Thematic (Sector/Industry)

The latest sales data from the 6.18 (running from June 1st to June 18th) Festival by Syntun suggests potential revenue upside for online shopping platforms but particularly more for the larger market shareholders, Alibaba and JD, and Vipshop as apparel and shoes categories showed the highest sales growth.    I am positive 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>, <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>, and <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> as they provide an attractive balance of growth and value.  I have recently turned more bullish on Vipshop because of its cheap value and the continued improving operating metrics.  I remain cautious on PDD US because of the risk associated with the company’s profit model. Three takeaways from my analysis of the 6.18.21 sales data (some 2020 data):<ol>
<li>Alibaba remains the king of promotions.  The company maintained its top-selling platform position.  Alibaba is particularly strong in personal and beauty care and snack foods.   </li>
<li>Apparel and shoes were the top two growth categories during the 6.18 Festival.  This bodes well for Vipshop and Alibaba. </li>
<li>JD maintains its strong position in appliances and electronics as well as dairy products (based on 2020 detail data for select categories).  JD also leads in New Retail – grocery delivery and supermarkets. </li>
<li>PDD appears to be a distant third on 6.18 sales (based on 2020 detail data breakdown – 2021 is unavailable).         </li>
</ol>

The latest sales data from the 6.18 (running from June 1st to June 18th) Festival by Syntun suggests potential revenue upside for online shopping platforms but particularly more for the larger market shareholders, Alibaba and JD, and Vipshop as apparel and shoes categories showed the highest sales growth.    I am positive on Alibaba Group (BABA US), JD.com Inc (ADR) (JD US), and Vipshop Holdings (VIPS US) as they provide an attractive balance of growth and value.  I have recently turned more bullish on Vipshop because of its cheap value and the continued improving operating metrics.  I remain cautious on PDD US because of the risk associated with the company’s profit model. Three takeaways from my analysis of the 6.18.21 sales data (some 2020 data):
Alibaba remains the king of promotions.  The company maintained its top-selling platform position.  Alibaba is particularly strong in personal and beauty care and snack foods.   
Apparel and shoes were the top two growth categories during the 6.18 Festival.  This bodes well for Vipshop and Alibaba. 
JD maintains its strong position in appliances and electronics as well as dairy products (based on 2020 detail data for select categories).  JD also leads in New Retail – grocery delivery and supermarkets. 
PDD appears to be a distant third on 6.18 sales (based on 2020 detail data breakdown – 2021 is unavailable).         


China E-Commerce: 6.18 Festival Getting Bigger - Good for Alibaba, JD, Vipshop

Overseas Chinese Equities, Aequitas Research

Ming Lu

Overseas Chinese Equities

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 Bottom-Up

<ul>
<li>JD’s revenue growth accelerated in 1Q21.</li>
<li>An important competitor, Suning, is shrinking.</li>
<li>The Logistics service for third parties is rewarding.</li>
<li>JD's GMV (Gross Merchandise Value) is still No. 2 in China.</li>
<li>We set an upside of 58% for the end of 1H22.</li>
</ul>


JD’s revenue growth accelerated in 1Q21.
An important competitor, Suning, is shrinking.
The Logistics service for third parties is rewarding.
JD's GMV (Gross Merchandise Value) is still No. 2 in China.
We set an upside of 58% for the end of 1H22.


JD.com (JD): 1Q21, Direct Sales Got Opportunity and Service Got Reward

<ul>
<li>Most Xiaomi new smartphones are priced high.</li>
<li>At a Xiaomi store, we found customers were very interested in the highly-priced products.</li>
<li>The risk is the competition from Apple, Oppo, and Vivo.</li>
</ul>
Our previous coverage on Xiaomi:
<a href="https://www.smartkarma.com/insights/xiaomi-1810-hk-market-was-wrong-after-4q20-result-upgrade-to-buy" target="_blank" data-smartkarma-citation="insights:49672" rel="noopener">Xiaomi (1810 HK): Market Was Wrong After 4Q20 Result, Upgrade to Buy</a> 
<a href="https://www.smartkarma.com/insights/xiaomi-1810-hk-terminate-contracts-with-small-authorized-stores" target="_blank" data-smartkarma-citation="insights:48499" rel="noopener">Xiaomi (1810 HK): Terminate Contracts with Small Authorized Stores</a> 
<a href="https://www.smartkarma.com/insights/xiaomi-1810-hk-taking-advantage-of-huawei-s-sale-of-smartphone-brand-but-overvalued" target="_blank" data-smartkarma-citation="insights:46324" rel="noopener">Xiaomi (1810 HK): Taking Advantage of Huawei’s Sale of Smartphone Brand, But Overvalued</a>


Most Xiaomi new smartphones are priced high.
At a Xiaomi store, we found customers were very interested in the highly-priced products.
The risk is the competition from Apple, Oppo, and Vivo.

Our previous coverage on Xiaomi:
Xiaomi (1810 HK): Market Was Wrong After 4Q20 Result, Upgrade to Buy 
Xiaomi (1810 HK): Terminate Contracts with Small Authorized Stores 
Xiaomi (1810 HK): Taking Advantage of Huawei’s Sale of Smartphone Brand, But Overvalued 

Xiaomi (1810 HK): No Longer Concerned About High Prices of New Smartphones, A Store Visit

HK/China Equity Long-Short

Osbert Tang, CFA

Shenzhen International / Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/shenzhen-intl-holdings" target="_blank" data-smartkarma-citation="entities:9:1" rel="noopener">Shenzhen Intl (152 HK)</a> managed to engine a rebound in 2H20 after the serious negative impact of COVID-19 outbreak on its two key businesses - <a href="https://www.smartkarma.com/entities/shenzhen-expressway-co-h" target="_blank" data-smartkarma-citation="entities:2875:1" rel="noopener">Shenzhen Expressway Co H (548 HK)</a> and Shenzhen Airlines. Instead of the 20% YoY decline in headline FY20 profit, we think the market's focus should be on the sharp HoH turnaround in its bottomline (excluding one-off items).In the post-FY20 result call, management believes that SZ Int has significant potential to be released in the future. Besides the recovery of logistics, toll road and airlines operations, it will benefit from the expansion in logistics network, securitisation of logistics facilities, contribution from Qianhai project and in the longer term, the transformation and upgrade of South China Logistics Park. We remain positive on SZ Int and believe the stock's current multiples are far from being able to fully reflect its value.

Shenzhen Intl (152 HK) managed to engine a rebound in 2H20 after the serious negative impact of COVID-19 outbreak on its two key businesses - Shenzhen Expressway Co H (548 HK) and Shenzhen Airlines. Instead of the 20% YoY decline in headline FY20 profit, we think the market's focus should be on the sharp HoH turnaround in its bottomline (excluding one-off items).In the post-FY20 result call, management believes that SZ Int has significant potential to be released in the future. Besides the recovery of logistics, toll road and airlines operations, it will benefit from the expansion in logistics network, securitisation of logistics facilities, contribution from Qianhai project and in the longer term, the transformation and upgrade of South China Logistics Park. We remain positive on SZ Int and believe the stock's current multiples are far from being able to fully reflect its value.

Shenzhen Intl (152 HK): Remarkable 2H20; Promising Prospects Revealed in Post-Result Call

China

Suning.com Co., Ltd. operates retail chain stores to sell household appliances, electronic products, office equipment, and communication products. The Company also provides installation and maintenance services.

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Suning.com (002024 CH)

PRC Shows DiDi Who's Boss: An Analysis of Adverse Regulatory Events on Stock Prices

Last week, I wrote about DiDi's regulatory risk. This week, it's worse. Hence the downgrade. But this is mostly an analysis of how regulatory...

Kyle Rudden

China E-Commerce: 6.18 Festival Getting Bigger - Good for Alibaba, JD, Vipshop

The latest data from the 6.18 Festival suggests potential revenue upside for online shopping platforms. Find out who is strong by category and why...

Mitchell Kim

JD.com (JD): 1Q21, Direct Sales Got Opportunity and Service Got Reward

JD’s revenue growth accelerated in 1Q21. An important competitor, Suning, is shrinking.The Logistics service for third parties is rewarding. JD's...

Ming Lu

Xiaomi (1810 HK): No Longer Concerned About High Prices of New Smartphones, A Store Visit

Most Xiaomi new smartphones are priced high.At a Xiaomi store, we find customers are very interested in the highly-priced products.The risk is the...

Ming Lu

Shenzhen Intl (152 HK): Remarkable 2H20; Promising Prospects Revealed in Post-Result Call

After a good 2H20, we see good future potential at SZ Int and a step up in corporate activities. Its multiples are unable to reflect its recovery...

Osbert Tang, CFA

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