IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

Event-Driven

Douyu International Holdings / Event-Driven

<p><a href="https://www.smartkarma.com/entities/huya-inc" target="_blank" data-smartkarma-citation="entities:26983:1" rel="noopener">HUYA Inc (HUYA US)</a> and <a href="https://www.smartkarma.com/entities/douyu-international-hold-adr" target="_blank" data-smartkarma-citation="entities:28045:1" rel="noopener">Douyu International Holdings (DOYU US)</a> have entered into a merger agreement to create a Chinese game live streaming giant. The proposed share exchange ratio is 0.73 Huya ADS for each DouYu ADS. Based on Friday’s close prices, the share exchange ratio values DouYu at $18.83 per ADS, a 35% premium to the Friday close price. On completion, the shareholders of Huya and DouYu will each hold 50% shares of the combined company on a fully diluted basis, respectively. <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>'s voting power in the combined company will be 67.5% on a fully-diluted basis.</p><div class="content-highlight"><p>With Tencent owning more than two-thirds of the votes in Huya, the approval of the merger largely comes down to securing the backing of DouYu shareholders. As DouYu is incorporated in the Cayman Islands, for the merger to succeed, DouYu shareholders representing two-thirds of shares present and voting need to approve the deal. Tencent collectively has the support of 54.6% of DouYu’s voting rights. In <a href="https://www.smartkarma.com/insights/tencent-sets-in-motion-a-sensible-huya-douyu-merger" target="_blank" rel="noopener">our previous note</a>, we outlined that the merger makes a lot of sense due to potential revenue and cost synergies. In combination with an attractive share exchange ratio, we expect DouYu’s shareholders to support the merger. The merger is expected to close during the first half of 2021.</p></div>

HUYA Inc (HUYA US) and Douyu International Holdings (DOYU US) have entered into a merger agreement to create a Chinese game live streaming giant. The proposed share exchange ratio is 0.73 Huya ADS for each DouYu ADS. Based on Friday’s close prices, the share exchange ratio values DouYu at $18.83 per ADS, a 35% premium to the Friday close price. On completion, the shareholders of Huya and DouYu will each hold 50% shares of the combined company on a fully diluted basis, respectively. Tencent Holdings (700 HK)'s voting power in the combined company will be 67.5% on a fully-diluted basis.With Tencent owning more than two-thirds of the votes in Huya, the approval of the merger largely comes down to securing the backing of DouYu shareholders. As DouYu is incorporated in the Cayman Islands, for the merger to succeed, DouYu shareholders representing two-thirds of shares present and voting need to approve the deal. Tencent collectively has the support of 54.6% of DouYu’s voting rights. In our previous note, we outlined that the merger makes a lot of sense due to potential revenue and cost synergies. In combination with an attractive share exchange ratio, we expect DouYu’s shareholders to support the merger. The merger is expected to close during the first half of 2021.

Equity Capital Markets

<p><a href="https://www.smartkarma.com/entities/yalla-group-ltd" target="_blank" data-smartkarma-citation="entities:29286:1" rel="noopener">Yalla Group Ltd (YALA US)</a> is the largest voice-centric social networking and entertainment platform in MENA as measured by revenue in 2019, according to Frost &amp; Sullivan. The flagship mobile application, <em>Yalla</em>, allows users to spend their leisure time in casual chats. <em>Yalla Ludo</em> enables users to play simple board games that are highly popular in MENA, such as Ludo and Domino. Yalla has filed for an NYSE IPO to raise $100 million. </p><div class="content-highlight"><p>Yalla is a play on the significant demand-supply imbalance for online social networking and entertainment options in MENA. The imbalance is in part due to only a few online social networking and entertainment platforms localising their Arabic user interfaces for MENA culture. Localised appeal enables platforms to build a highly loyal and engaged user community. Overall, we think that Yalla has appealing fundamentals.</p></div>

Yalla Group Ltd (YALA US) is the largest voice-centric social networking and entertainment platform in MENA as measured by revenue in 2019, according to Frost &amp; Sullivan. The flagship mobile application, Yalla, allows users to spend their leisure time in casual chats. Yalla Ludo enables users to play simple board games that are highly popular in MENA, such as Ludo and Domino. Yalla has filed for an NYSE IPO to raise $100 million. Yalla is a play on the significant demand-supply imbalance for online social networking and entertainment options in MENA. The imbalance is in part due to only a few online social networking and entertainment platforms localising their Arabic user interfaces for MENA culture. Localised appeal enables platforms to build a highly loyal and engaged user community. Overall, we think that Yalla has appealing fundamentals.

Yalla Group IPO Initiation: Eat, Pray, Chat

Managing Director, Zero One, Zero One

Vincent Fernando, CFA

Managing Director, Zero One

Zero One

Founded in 2015, Zero One produces independent investment research and provides corporate finance advisory services with a focus on both listed and private technology companies. Founder Vincent Fernando has over 20 years of experience in US and Asia capital markets.

Independent Investment Research

Thematic (Sector/Industry)

<div class="content-highlight"><h2>Huya Merger News Propels Stock Upwards; Tencent Gains Subdued from Rising US-China Tensions</h2></div><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/153/594/original/China%20Portfolio%20Performance.png?1597832603" class="editor-image img-responsive" data-smartkarma-image-id="153594"></figure><p>The months of July and August saw a broad level rise in prices across our entire China tech portfolio. While companies like Huya and Niu outperformed the MSCI China and NASDAQ indices, companies like Tencent remained relatively subdued given rising US-China tensions on mobile app bans.</p><p>We observe that China Tech companies appear to be looking inwards for growth - focusing more on domestic opportunities while the international regulatory outlook remains uncertain.</p><p>We provide updated views on each of our portfolio companies below:</p>

Huya Merger News Propels Stock Upwards; Tencent Gains Subdued from Rising US-China TensionsThe months of July and August saw a broad level rise in prices across our entire China tech portfolio. While companies like Huya and Niu outperformed the MSCI China and NASDAQ indices, companies like Tencent remained relatively subdued given rising US-China tensions on mobile app bans.We observe that China Tech companies appear to be looking inwards for growth - focusing more on domestic opportunities while the international regulatory outlook remains uncertain.We provide updated views on each of our portfolio companies below:

Our Tech Portfolio Update: Capitalizing on Domestic Opportunities Amidst Heightened US-China Tension

<p>After much media speculation, <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> finally showed its hand by proposing that <a href="https://www.smartkarma.com/entities/huya-inc" target="_blank" data-smartkarma-citation="entities:26983:1" rel="noopener">HUYA Inc (HUYA US)</a> and <a href="https://www.smartkarma.com/entities/douyu-international-hold-adr" target="_blank" data-smartkarma-citation="entities:28045:1" rel="noopener">Douyu International Holdings (DOYU US)</a> enter a stock-for-stock merger. Under the plan, Huya would acquire DouYu in exchange for newly issued Class A ordinary shares of Huya. The exchange ratio will be mutually agreed among Tencent, the independent members of the Huya and DouYu Board.  </p><p>Tencent also announced that it has entered into a share transfer agreement with <a href="https://www.smartkarma.com/entities/joyy-inc" target="_blank" data-smartkarma-citation="entities:285:1" rel="noopener">JOYY (YY US)</a> and Mr Rongjie Dong (Huya’s CEO) to purchase 30 million and 1 million Class B ordinary shares of Huya, respectively.  The transfers will be completed on or before 9 September, resulting in Tencent's owning 51.0% of Huya's outstanding shares and 70.4% of the voting power. </p><div class="content-highlight"><p>Tencent is also the DouYu’s largest shareholder and owns 38.0% of the outstanding shares and voting power. With Tencent owning more than two-thirds of the votes in Huya, the approval of the merger largely comes down to securing the backing of DouYu shareholders. Overall, we think that the merger makes a lot of sense and would get the backing from DouYu’s shareholders, subject to a suitable exchange ratio. </p></div>

After much media speculation, Tencent Holdings (700 HK) finally showed its hand by proposing that HUYA Inc (HUYA US) and Douyu International Holdings (DOYU US) enter a stock-for-stock merger. Under the plan, Huya would acquire DouYu in exchange for newly issued Class A ordinary shares of Huya. The exchange ratio will be mutually agreed among Tencent, the independent members of the Huya and DouYu Board.  Tencent also announced that it has entered into a share transfer agreement with JOYY (YY US) and Mr Rongjie Dong (Huya’s CEO) to purchase 30 million and 1 million Class B ordinary shares of Huya, respectively.  The transfers will be completed on or before 9 September, resulting in Tencent's owning 51.0% of Huya's outstanding shares and 70.4% of the voting power. Tencent is also the DouYu’s largest shareholder and owns 38.0% of the outstanding shares and voting power. With Tencent owning more than two-thirds of the votes in Huya, the approval of the merger largely comes down to securing the backing of DouYu shareholders. Overall, we think that the merger makes a lot of sense and would get the backing from DouYu’s shareholders, subject to a suitable exchange ratio. 

Tencent Sets in Motion a Sensible Huya DouYu Merger

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

US Treasury (10 Yr Generic) / Technical Analysis

<p>Considering the absence of breakdowns for the major indexes and for individual Sectors, along with the Fed covering investors’ backs, we continue to have a bullish outlook and we believe that the path of least resistance remains higher. In this report we outline our bullish case and highlight actionable opportunities across all 12 sectors.</p>

Considering the absence of breakdowns for the major indexes and for individual Sectors, along with the Fed covering investors’ backs, we continue to have a bullish outlook and we believe that the path of least resistance remains higher. In this report we outline our bullish case and highlight actionable opportunities across all 12 sectors.

U.S. Equity Strategy - Bullish Outlook Intact

China

JOYY Inc. operates a global social media platform. The Company offers platform which enables users to interact with each other in real time through online live media by creating, sharing, and enjoying a vast range of entertainment content and activities. JOYY serves customers in China.

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JOYY (YY US)

Huya and DouYu’s Merger Is Game On

The merger makes a lot of sense due to potential revenue and cost synergies. In combination with an attractive share exchange ratio, we expect...

Arun George

Yalla Group IPO Initiation: Eat, Pray, Chat

$ is the largest voice-centric social networking and entertainment platform in MENA as measured by revenue in 2019, according to the Frost &...

Arun George

Our Tech Portfolio Update: Capitalizing on Domestic Opportunities Amidst Heightened US-China Tension

Huya Merger News Propels Stock Upwards; Tencent Gains Subdued from Rising US-China TensionsThe months of July and August saw a broad level rise in...

Vincent Fernando, CFA

Tencent Sets in Motion a Sensible Huya DouYu Merger

After much media speculation, Tencent Holdings (700 HK) finally showed its hand by proposing that HUYA Inc (HUYA US) and Douyu International...

Arun George

U.S. Equity Strategy - Bullish Outlook Intact

Considering the absence of breakdowns for the major indexes and for individual Sectors, along with the Fed covering investors’ backs, we continue...

Vermilion Research

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