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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<p>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. </p>
<p>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.</p>
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<p>In our previous notes:</p>
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<ul style="list-style-type: disc;">
<li>
<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>
</ul>
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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

Equity Analyst, LightStream Research

Shifara Samsudeen, ACMA, CGMA

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.

<p><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> reported its 4Q2020 results on Wednesday (24<sup>th</sup> March 2021) which saw revenues increasing 26% YoY to RMB133.7bn (consensus revenue of RMB132.2bn) while operating profit (non-IFRS) was up 26% YoY to RMB38bn (IFRS OP of RMB63bn vs consensus OP of RMB38bn) during the fourth quarter.</p><p>Despite the ongoing regulatory concerns regarding the company’s fintech business, Tencent’s core businesses continued to see strong performance in 2020, which led to 28% YoY increase in revenues for full-year 2020. Tencent’s Value added services segment performed better than the rest of the businesses during 2020.</p>

Tencent Holdings (700 HK) reported its 4Q2020 results on Wednesday (24th March 2021) which saw revenues increasing 26% YoY to RMB133.7bn (consensus revenue of RMB132.2bn) while operating profit (non-IFRS) was up 26% YoY to RMB38bn (IFRS OP of RMB63bn vs consensus OP of RMB38bn) during the fourth quarter.Despite the ongoing regulatory concerns regarding the company’s fintech business, Tencent’s core businesses continued to see strong performance in 2020, which led to 28% YoY increase in revenues for full-year 2020. Tencent’s Value added services segment performed better than the rest of the businesses during 2020.

Tencent 4Q: Solid Performance Across All Businesses Despite Ongoing Regulatory Concerns

Global TMT analyst with Asia ex-Japan focus.

Mitchell Kim

Equity Bottom-Up

<p><strong><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.</strong> 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. </p><p>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. </p><p>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:</p><ul>
<li>
<strong>The online game growth of 2Q-3Q20 is not sustainable.</strong>  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>
<li>
<strong>Online advertising revenue growth re-accelerated marginally in 2020.</strong>  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>
<strong> Fintech growth is promising, notwithstanding the government risk. </strong> 4Q20 growth remained healthy at 29%.  We believe 19% growth in 2021e is achievable.   </li>
</ul><p><strong>Valuation:</strong> 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.  <strong>Even though operating metrics still look solid, Tencent’s risk-return profile looks less compelling despite the 18% fall. </strong>    </p>

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

Overseas Chinese Equities, Aequitas Research

Ming Lu

Overseas Chinese Equities

<ul>
<li>We suggested buying Tencent on December 7, 2020, when the stock price closed at K$583. When the stock surged to HK$775, we recommended selling. Now the stock price has plunged to HK$623.</li>
<li>Again, Tencent released a good result in 4Q20. Almost all business lines are promising. We set an upside of 20%. Upgrade to Buy.</li>
</ul>


We suggested buying Tencent on December 7, 2020, when the stock price closed at K$583. When the stock surged to HK$775, we recommended selling. Now the stock price has plunged to HK$623.
Again, Tencent released a good result in 4Q20. Almost all business lines are promising. We set an upside of 20%. Upgrade to Buy.


Tencent (700 HK): Q4, Promising in All Businesses, Price Down, Upgrade to Buy Again

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

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<p>This week in StubWorld ...</p>
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<p><a href="https://www.smartkarma.com/entities/pccw-ltd" target="_blank" data-smartkarma-citation="entities:873:1" rel="noopener">PCCW Ltd (8 HK)</a>'s NAV discount has widened to levels around last August's Partial Offer - yet the longer-term discount remains wider still.</p>
<p>And <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> releases its FY20 results after the close of market today. Will this be accompanied by a large placement by <a href="https://www.smartkarma.com/entities/prosus-nv" target="_blank" data-smartkarma-citation="entities:28104:1" rel="noopener">Prosus (PRX NA)</a>?</p>
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<p>Preceding my comments on PCCW and Tencent are the weekly setup/unwind tables for Asia-Pacific Holdcos.</p>
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<p>These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold - the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent - of at least 20%.</p>
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<p><span>Reports are now emerging PCCW is in the cross-hairs to be deleted from the MSCI in the May review.</span></p>
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<p>As always, more below the fold.</p>
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This week in StubWorld ...




PCCW Ltd (8 HK)'s NAV discount has widened to levels around last August's Partial Offer - yet the longer-term discount remains wider still.
And Tencent Holdings (700 HK) releases its FY20 results after the close of market today. Will this be accompanied by a large placement by Prosus (PRX NA)?




Preceding my comments on PCCW and Tencent are the weekly setup/unwind tables for Asia-Pacific Holdcos.



These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold - the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent - of at least 20%.




Reports are now emerging PCCW is in the cross-hairs to be deleted from the MSCI in the May review.


As always, more below the fold.


China

Tencent Holdings Limited operates as an investment holding company. The Company, through its subsidiaries, provides Internet and mobile value-added services (VAS), online advertising, and e-commerce transactions. Tencent Holdings offers services to users worldwide.

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Tencent (700 HK)

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 4Q: Solid Performance Across All Businesses Despite Ongoing Regulatory Concerns

Though it seems inevitable that Tencent could come under regulatory pressures, we believe Tencent may be well prepared to avoid the same level of...

Shifara Samsudeen, ACMA, CGMA

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

Tencent (700 HK): Q4, Promising in All Businesses, Price Down, Upgrade to Buy Again

The stock price has plunged. But Tencent released a good result again in 4Q20. Almost all business lines are promising. We set an upside of 20%....

Ming Lu

StubWorld: PCCW, Naspers/Tencent

There exit few positives in PCCW's stub ops. I would look to reverse the stub - Short PCCW, Long HKT. I believe a more suitable discount to NAV is...

David Blennerhassett

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