Brief IPOs & Placements: Sea Ltd (SE US): The Bear Case – A One-Hit Wonder? and more

In this briefing:

1. Sea Ltd (SE US): The Bear Case – A One-Hit Wonder?
2. Sea Ltd (SE US): Placing Price Leaves Money on the Table
3. Meituan Dianping (美团点评): Thoughts Before Lock-Up Expiry
4. NIO’s (蔚来) Guidance Makes Selling upon Lock-Expiry More Compelling

1. Sea Ltd (SE US): The Bear Case – A One-Hit Wonder?

Despite burning through $700mn in cash in 2018, investors decided to give another $1.3bn to Sea Ltd (SE US) . We believe investors should treat Sea Ltd with caution for the following reasons:

A significant slowdown in e-commerce

Is the gaming division a one-hit wonder?

Expecting another 800mn cash burn into 2019

Consensus has priced in further upgrades while cash flow metrics worst in the sector

NB. Our team has taken both sides of the Sea Ltd investment case as we think this makes for better decision making and encourages unique thinking within our team. We strongly recommend that investors read my colleague Arun’s positive notes on the company listed below, if you have not already done so.

Sea Ltd (SE US): Placing Price Leaves Money on the Table

Sea Ltd (SE US): Placement a Good Opportunity to Enter an Attractive Story

2. Sea Ltd (SE US): Placing Price Leaves Money on the Table

Sea Ltd (SE US) announced that it would raise gross proceeds of $1.35 billion after increasing the size of its placement from 50 million to 60 million ADS. The placement is priced at $22.50 per ADS, 6.5% discount to its last close price. Tencent Holdings (700 HK), as well as one of Sea’s directors, are expected to buy 6.3 million ADS in the placement. The placing is expected to close on or about 8 March 2019.

3. Meituan Dianping (美团点评): Thoughts Before Lock-Up Expiry

Meituan Dianping, the largest O2O platform in China, was listed on September 20th last year and lock-up expiry will be on March 20th. The stock has returned -13% since listing. 

• As it heads into lock-up expiry on March 20th, we will examine Meituan Dianping shareholder structure and potential shares up for sale.
• Meituan was included by MSCI recently and will be eligible for the Hong Kong Connect soon thanks to rule amendment.
• The company delivered a decent topline growth in 3Q2018 but its profit fell short of expectation. We highlight potentials from the food supply chain solution. We also discuss implication from MoBike acquisition.
• We review our SOTP valuation of Meituan and believe there is an upside. 

4. NIO’s (蔚来) Guidance Makes Selling upon Lock-Expiry More Compelling

NIO Inc (NIO US) fell 17% in its after-hour trading session post announcement of its Q4 results.  The company turned a gross profit in Q4 while the number of cars delivered in the full year 2018 was 11,348 has beaten their own 10,000 cars target. The company is currently trading 62% above its IPO price.

However, the worrying part lies in its guidance which could mean that pre-IPO investors have more compelling reasons to lock-in some profits upon lock-up expiry.