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 class="">
<li>The State Administration for Market Regulation (SAMR) began to investigate Meituan.</li>
<li>We believe Meituan must be fined after the investigation.</li>
<li>We also believe Alibaba’s Ele.me will benefit from the investigation and may possibly change its disadvantageous situation.</li>
<li>We set the downside for Meituan between 21% and 23%.</li>
</ul>


The State Administration for Market Regulation (SAMR) began to investigate Meituan.
We believe Meituan must be fined after the investigation.
We also believe Alibaba’s Ele.me will benefit from the investigation and may possibly change its disadvantageous situation.
We set the downside for Meituan between 21% and 23%.


Meituan (3690 HK): Forthcoming Punishment Will Benefit Alibaba

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

Equity Capital Markets

<div>
Trip.com raised around US$1.2bn in its secondary listing in Hong Kong.
We have covered the background of the deal in our earlier notes:
<ul>
<li>
<a href="https://www.smartkarma.com/insights/trip-com-secondary-listing-probably-needs-to-correct" target="_blank" rel="noopener">Trip.com Secondary Listing - Probably Needs to Correct,</a> and</li>
<li><a href="https://www.smartkarma.com/insights/trip-com-secondary-listing-quick-take-doing-the-bare-minimum-needs-some-more-correction" target="_blank" rel="noopener">Trip.com Secondary Listing Quick Take - Doing the Bare Minimum - Needs Some More Correction.</a></li>
</ul>
</div><div>In this note, we'll talk about the updates since then.</div>


Trip.com raised around US$1.2bn in its secondary listing in Hong Kong.
We have covered the background of the deal in our earlier notes:


Trip.com Secondary Listing - Probably Needs to Correct, and
Trip.com Secondary Listing Quick Take - Doing the Bare Minimum - Needs Some More Correction.

In this note, we'll talk about the updates since then.

Trip.com Secondary Trading Note - Delivered a Good Correction but Seems to Be Widely Distributed

Global Emerging Market Equities, Propitious Research

Wium Malan, CFA

Global Emerging Market Equities

Independent, Fundamental Quantitative Research

Propitious Research

Fully independent, fundamental and quantitative equity research, focused on companies in the Telecommunication, Media, Technology, Internet and Healthcare sectors in the Global Emerging Markets. Idea generation focused on Quality stocks, trading below their intrinsic Value, with sound Corporate Governance.

<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> has been a shining example of what can be achieved through both Operating- and Financial leverage as a business scales up. This has been a commendable performance by its management team over the past nearly a decade, balancing gains from operating and financial leverage, whilst prudently, yet aggressively, investing in growth. Over the past 8 years it has delivered expansion at the Gross margin level (through mix change to advertising revenue and scale in 1P), the Operating margin level (lower losses in 3P), and the net margin level (cash generation and lower losses from associates). With lingering concerns around short-term margin expansion, as the group invests more aggressively in group purchasing aimed at the fresh food segment, in this insight, I analyse the potential for long-term margin expansion and what that implies for current valuation levels for China’s largest direct retailer.

JD.com Inc. (9618 HK) has been a shining example of what can be achieved through both Operating- and Financial leverage as a business scales up. This has been a commendable performance by its management team over the past nearly a decade, balancing gains from operating and financial leverage, whilst prudently, yet aggressively, investing in growth. Over the past 8 years it has delivered expansion at the Gross margin level (through mix change to advertising revenue and scale in 1P), the Operating margin level (lower losses in 3P), and the net margin level (cash generation and lower losses from associates). With lingering concerns around short-term margin expansion, as the group invests more aggressively in group purchasing aimed at the fresh food segment, in this insight, I analyse the potential for long-term margin expansion and what that implies for current valuation levels for China’s largest direct retailer.

JD.com: A Detailed Look at Long-Term Margins and Valuation

Global TMT analyst with Asia ex-Japan focus.

Mitchell Kim

Alibaba Group Holding  / Equity Bottom-Up

PBoC (People's Bank of China) said on Monday that a "comprehensive, viable rectification plan" for Ant Group had been agreed to and Ant Group will overhaul its business in compliance with higher regulations for Internet finance platform companies.  As a result, Ant Group will apply to become a financial holding company. Similar to the AML fine on Alibaba, we believe this directive will now allow Ant Group to move forward possibly with a slightly lower valuation but share overhang lifted.  At the same time, I believe the market will be relieved to hear the regulator's carefully crafted supportive tone towards the Internet platforms.   Impact: <ul>
<li>The impact 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> is nominal, in my view.  Alibaba owns 33% of Ant Group.  With the market already having priced-in a bear case scenario, we believe this news has minimal impact on Alibaba's valuation.  </li>
<li>I believe the market already valued Ant Group at USD170-180 billion after the failed IPO.  This news does not change the valuation significantly.  </li>
</ul>Implications: <ul>
<li>As a holding company, Ant will be subject to higher capital requirements.  But the market is well aware of this already.  (Please see our report, <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>, dated 27 February 2021)
</li>
<li> Ant will have to reduce the liquidity risks of its investment products including the InsureTech products and specifically rein-in the AUM of Yue'bao, its money-market mutual fund.  This was broader than expected.  It is difficult to imagine how to stop consumers from selecting an investment product.  </li>
<li>Set up a consumer credit reporting company and strengthen the protection of personal information.  </li>
</ul>

PBoC (People's Bank of China) said on Monday that a "comprehensive, viable rectification plan" for Ant Group had been agreed to and Ant Group will overhaul its business in compliance with higher regulations for Internet finance platform companies.  As a result, Ant Group will apply to become a financial holding company. Similar to the AML fine on Alibaba, we believe this directive will now allow Ant Group to move forward possibly with a slightly lower valuation but share overhang lifted.  At the same time, I believe the market will be relieved to hear the regulator's carefully crafted supportive tone towards the Internet platforms.   Impact: 
The impact on Alibaba Group (BABA US) is nominal, in my view.  Alibaba owns 33% of Ant Group.  With the market already having priced-in a bear case scenario, we believe this news has minimal impact on Alibaba's valuation.  
I believe the market already valued Ant Group at USD170-180 billion after the failed IPO.  This news does not change the valuation significantly.  
Implications: 
As a holding company, Ant will be subject to higher capital requirements.  But the market is well aware of this already.  (Please see our report, Alibaba (BABA US): Ant Group Woes Overly Priced-In, dated 27 February 2021)

 Ant will have to reduce the liquidity risks of its investment products including the InsureTech products and specifically rein-in the AUM of Yue'bao, its money-market mutual fund.  This was broader than expected.  It is difficult to imagine how to stop consumers from selecting an investment product.  
Set up a consumer credit reporting company and strengthen the protection of personal information.  


Alibaba (BABA US): Ant Group - Pay, Get Out, Move Forward

<ul>
<li>State Administration for Market Regulation (SAMR) fined Alibaba RMB18 billion.</li>
<li>Alibaba had forced retailers to leave competitors via an “either-or” choice since 2015.</li>
<li>The penalty amount is not significant to Alibaba.</li>
<li>We believe that the penalty is just part of SAMR’s action after the new law, but not especially against Alibaba.</li>
<li>We do not believe the penalty will impact Alibaba’s long-term value.</li>
<li>We set an upside of 37% and a price target of USD$306 according to the 3-year P/E average.</li>
</ul>
Our previous coverage on Alibaba:
<a href="https://www.smartkarma.com/insights/alibaba-baba-many-positive-signals-in-december-quarter-27-upside" target="_blank" data-smartkarma-citation="insights:47726" rel="noopener">Alibaba (BABA): Many Positive Signals in December Quarter, 27% Upside</a>
<a href="https://www.smartkarma.com/insights/alibaba-baba-this-online-antitrust-wave-a-risk-but-not-a-massacre" target="_blank" data-smartkarma-citation="insights:46377" rel="noopener">Alibaba (BABA): This Online Antitrust Wave, A Risk, But Not A Massacre</a>


State Administration for Market Regulation (SAMR) fined Alibaba RMB18 billion.
Alibaba had forced retailers to leave competitors via an “either-or” choice since 2015.
The penalty amount is not significant to Alibaba.
We believe that the penalty is just part of SAMR’s action after the new law, but not especially against Alibaba.
We do not believe the penalty will impact Alibaba’s long-term value.
We set an upside of 37% and a price target of USD$306 according to the 3-year P/E average.

Our previous coverage on Alibaba:
Alibaba (BABA): Many Positive Signals in December Quarter, 27% Upside
Alibaba (BABA): This Online Antitrust Wave, A Risk, But Not A Massacre 

Alibaba (BABA): Fined $2.78 Billion for “Either Or”, But Impact Is Neither Big Nor Long Term

China

Vipshop Holdings Ltd. retails branded products at discount over the Internet. The Company retails through flash sales, in which limited quantities of an item are sold at deep discount for a specified period of time.

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Vipshop Holdings (VIPS US)

Meituan (3690 HK): Forthcoming Punishment Will Benefit Alibaba

State Administration for Market Regulation (SAMR) began to investigate Meituan. We believe penalty must follow. We also believe Alibaba’s Ele.me...

Ming Lu

Trip.com Secondary Trading Note - Delivered a Good Correction but Seems to Be Widely Distributed

Trip.com raised around US$1.2bn in its secondary listing in Hong Kong. In this note, we'll talk about the trading dynamics.

Sumeet Singh

JD.com: A Detailed Look at Long-Term Margins and Valuation

In this insight, I analyse the potential for long-term margin expansion and what that implies for current valuation levels for China’s largest...

Wium Malan, CFA

Alibaba (BABA US): Ant Group - Pay, Get Out, Move Forward

Ant Group announced its restructuring plans on Monday. Find out what is the actual impact on Ant Group and Alibaba and how Ant Group's valuations...

Mitchell Kim

Alibaba (BABA): Fined $2.78 Billion for “Either Or”, But Impact Is Neither Big Nor Long Term

The penalty amount is not significant to Alibaba. We believe the penalty is just part of authorities’ action after the new law, but not especially...

Ming Lu

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