In this briefing:
- HK Connect Discovery – February Snapshot (Tencent, COFCO Meat)
- 58.com (WUBA): Weak Membership Growth Suggests More Volatile Performance, 17% Downside
- Sea Ltd: Follow-On Public Offering an Opportunistic Fundraising?
- Nexon Controlling Stake Sale: Names Included in Short List
- Rakuten (4755 JP): Lyft IPO’s Big Lift Unlikely to Lead to a Sustained Re-Rating
1. HK Connect Discovery – February Snapshot (Tencent, COFCO Meat)
This is a monthly version of our HK Connect Weekly note, in which I highlight Hong Kong-listed companies leading the southbound flow weekly. Over the past month, we have seen the outflow continue from January. In February, we have seen Chinese investors were selling Tencent in February after buying Tencent in January. Chinese investors were also buying domestic automotive manufacturers and Macau gaming sectors.
Our February Coverage of Hong Kong Connect southbound flow
- HK Connect Discovery Weekly: China Tower, Geely, COFCO Meat (2019-02-15)
- HK Connect Discovery Weekly: Geely, Great Wall Motor and Sands China (2019-02-22)
2. 58.com (WUBA): Weak Membership Growth Suggests More Volatile Performance, 17% Downside
* We believe that the stagnancy in membership was due to the new competitor Ke.com and will make total revenues more volatile in the future.
* We assume total revenues will slow down, but the operating margin will be stable in 2019.
* We compare WUBA’s expected P/E for 2019 with other vertical platforms in China and conclude 17% downside.
3. Sea Ltd: Follow-On Public Offering an Opportunistic Fundraising?
- We evaluate the attractiveness of Sea Ltd’s (SE US) US$1 bn follow-on public offering announced last Fri.
- This offering is a typical opportunistic fundraising as its ADR price has recently surged.
- At assumed deal price of US$21, SE post deal would trade at 4.6x 2019E P/adjusted sales (excl. 1P e-commerce sales), vs. peers average of 5.2x.
- We would recommend investors to go for the deal if it is priced at US$20 or lower.
4. Nexon Controlling Stake Sale: Names Included in Short List
- Korea’s local news house Hankyung reported the names that should be included in the short list. They are Kakao, MBK Partners (with NetMarble), Tencent, Bain Capital and another foreign PE whose name isn’t disclosed. Apparently, Amazon, Comcast and EA, didn’t make the short list. Those in the short list now get a chance to do due diligence. They will then participate in the main bidding round that is scheduled for early April.
- It is being reported that only Kakao and NetMarble (with MBK Partners) are truly interested in taking over Nexon’s management right. Tencent is expected to join either Kakao or NetMarble-led consortium in the end. Bain is looking into possible investment opportunities that may be created if this sale leads to a mandatory tender offer to Nexon minority shareholders. It seems safe to say that this comes down to a two-horse race: either Kakao or NetMarble.
5. Rakuten (4755 JP): Lyft IPO’s Big Lift Unlikely to Lead to a Sustained Re-Rating
Lyft Inc (0812823D US) has kicked off its IPO by posting its S-1 filing last Friday. Rakuten Inc (4755 JP) is Lyft’s single largest shareholder with a 13.05% stake. Rakuten has invested around $700 million to acquire its current Lyft stake and stands to make 3-4 times its investment if Lyft achieves its rumoured IPO valuation range of $20-25 billion.
Lyft’s IPO valuation range was first reported by Reuters on 20 February 2019. On the back of the news, Rakuten’s shares have so far risen around 10%. Notably, at the IPO valuation range, the Lyft stake would account for 20-25% of Rakuten’s current market cap. While the Lyft IPO will prove to be a big winner for Rakuten from an ROI perspective, we believe that from a valuation perspective, the upside is modest.
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