In this briefing:
- Sea Ltd (SE US): The Bear Case – A One-Hit Wonder?
- Sea Ltd (SE US): Placing Price Leaves Money on the Table
- Meituan Dianping (美团点评): Thoughts Before Lock-Up Expiry
- Weibo (WB): Revenues Slowed Down Significantly in 4Q2018, Failed in Transition
- Hyundai Autoever IPO Valuation Analysis
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.
In our previous note, we stated that we would participate in the public offering at or below the last close price of $23. While the share price will initially trade around the placing price, we believe that share price will recover as Sea post-placing fundamentals are now materially stronger.
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.
Our previous coverage on Meituan Dianping
- Meituan Dianping IPO Preview: The China O2O Powerhouse
- Meituan Dianping IPO: Understand the Moat From 3 Company Milestones
- Meituan Dianping (美团点评) IPO: Thoughts on Valuation – The Market Structure and the Variables (Part 3)
- Meituan Dianping (美团点评) IPO: New Data, Mobike, Liquidity and Refined Valuation (Part 4)
- Meituan Dianping (美团点评) Post-IPO Lunch-Bite: Near Term Upside and The Liquidity Angle
4. Weibo (WB): Revenues Slowed Down Significantly in 4Q2018, Failed in Transition
- The advertising revenues slowed down significantly in 4Q2018.
- We believe the content transition from politics to entertainment was not as good as the management expected.
- We believe WB will not defeat Tencent’s WeChat.
- We believe the stock price has downside of 9%.
5. Hyundai Autoever IPO Valuation Analysis
Hyundai Autoever Corp (0978519D KS) IPO institutional investors bookbuilding starts in about seven days. In conclusion, we believe a 11-13x EV/EBIT valuation multiples are appropriate for Hyundai Autoever. These multiples are between the average comps multiples and slightly lower multiples than Samsung SDS’ level. Our base case implied market cap is 1.25 trillion won, representing 59,454 won, or 35% higher than the high end of the IPO price range of 44,000 won. As such, we would take this deal.
To value Hyundai Autoever, we prefer to use EV/EBIT multiples. However, we have also referenced P/Sales and P/E multiples based valuations for comparison purposes. The comps have better sales growth, operating profit growth, and balance sheet strength. However, Hyundai Autoever has better net margin and ROE.
We believe that Hyundai Autoever should trade at lower EV/EBIT multiples than Samsung SDS but similar to higher multiples than POSCO ICT and Lotte Data Communications. Hyundai Autoever is expected to play a key role in the Hyundai Motor Group’s push to become a leading global player of autonomous driving in the coming decade.
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