IPO and L/S equity, 2015 Starmine top stock picker, Global Equity Research Ltd

Rickin Thakrar

14 years of experience in global investment research and trading. In relation to research, we focus on IPO, Event-driven and large-cap non-consensual ideas. In relation to trading, we focus on generating positive index-adjusted returns and have had several top-decile or top-quartile performances over the past three years. In terms of background, I have worked at several sell-side firms (JP, Redburn, Haitong, Mainfirst), won Starmine as top stock picker in European Food Retail in 2015 and have been voted top one to top-five by institutions and hedge funds.

IPO and L/S equity, 2015 Starmine top stock picker

COFCO Womai IPO: Can SOE Succeed in E-Commerce?

Will Alibaba Prevent an All-Out Food Crisis in China?

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.

Equity Capital Markets

We believe <a href="https://www.smartkarma.com/entities/26061" target="_blank" data-smartkarma-citation="entities:26061:1">COFCO Womai Ltd (1556961D HK)</a> may run out of money over the next 1.5-2 years. Womai, a leading online grocery chain in China, plans to open its books to investors over the next month. Womai is backed by state-owned Cofco group and web services giant <a href="https://www.smartkarma.com/entities/179" target="_blank" data-smartkarma-citation="entities:179:1">Baidu Inc (ADR) (BIDU US)</a>. We note three points:1. Womai overview indicates weak sales trends and deep losses - Womai’s sales growth is slower than the market despite recent acquisitions and an expansion of range. Moreover, Womai is making deep losses at the EBIT level despite recent price increases driven by a low gross margin and tough competition.2. Losses likely to continue due to limited margin opportunity – we believe Womai will continue to lose money as we believe it will struggle to raise prices of its imported branded goods due to price competition alongside potentially endemic supply chain waste. As a result, we believe Womai would need to triple its prices in its major divisions to break-even. This is exclusive of the fact that many online grocers already struggle to make money and whilst major retailers such as <a href="https://www.smartkarma.com/entities/787" target="_blank" data-smartkarma-citation="entities:787:1">Alibaba Group Holding Ltd (BABA US)</a>, <a href="https://www.smartkarma.com/entities/409" target="_blank" data-smartkarma-citation="entities:409:1">Amazon.com Inc (AMZN US)</a> and <a href="https://www.smartkarma.com/entities/26" target="_blank" data-smartkarma-citation="entities:26:1">Tencent Holdings Ltd (700 HK)</a> make acquisitions into physical grocery chains.3. Womai may run out of cash in the next 1.5-2 years– our analysis of Womai’s cash flow and balance sheet suggests that if it does not receive IPO funding, it will run out of cash over the next 1.5-2 years.Valuation and thoughts on the deal – Womai has yet to release its pricing range and earnings metrics would not prove valuable given Womai’s losses. At this stage, we would avoid any deal.<blockquote>“This industry is bitter because everyone is losing money,” said President of JD Fresh, Wang Xiaosong, in an interview with local media last September. “The average net loss is at 35-40%. That’s why from the second half of last year [2015] to this year, fresh food e-commerce companies have shut down one by one. As soon as capital dries up, cash flow is in trouble.” </blockquote>

We believe COFCO Womai Ltd (1556961D HK) may run out of money over the next 1.5-2 years. Womai, a leading online grocery chain in China, plans to open its books to investors over the next month. Womai is backed by state-owned Cofco group and web services giant Baidu Inc (ADR) (BIDU US). We note three points:1. Womai overview indicates weak sales trends and deep losses - Womai’s sales growth is slower than the market despite recent acquisitions and an expansion of range. Moreover, Womai is making deep losses at the EBIT level despite recent price increases driven by a low gross margin and tough competition.2. Losses likely to continue due to limited margin opportunity – we believe Womai will continue to lose money as we believe it will struggle to raise prices of its imported branded goods due to price competition alongside potentially endemic supply chain waste. As a result, we believe Womai would need to triple its prices in its major divisions to break-even. This is exclusive of the fact that many online grocers already struggle to make money and whilst major retailers such as Alibaba Group Holding Ltd (BABA US), Amazon.com Inc (AMZN US) and Tencent Holdings Ltd (700 HK) make acquisitions into physical grocery chains.3. Womai may run out of cash in the next 1.5-2 years– our analysis of Womai’s cash flow and balance sheet suggests that if it does not receive IPO funding, it will run out of cash over the next 1.5-2 years.Valuation and thoughts on the deal – Womai has yet to release its pricing range and earnings metrics would not prove valuable given Womai’s losses. At this stage, we would avoid any deal.“This industry is bitter because everyone is losing money,” said President of JD Fresh, Wang Xiaosong, in an interview with local media last September. “The average net loss is at 35-40%. That’s why from the second half of last year [2015] to this year, fresh food e-commerce companies have shut down one by one. As soon as capital dries up, cash flow is in trouble.” 

The State-Owned and Baidu Backed Online Grocer that Loses Lots of Money