April 30, 2021

Market talk for the week (26 April)

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What happened in markets this week, and what are analysts talking about?

Meituan

The Chinese State Administration for Market Regulation has launched investigations on Meituan over alleged monopolistic behaviors. Meituan has previously been criticized by rivals and merchants for their alleged excesses such as forced exclusive arrangements and had previously also been found guilty of unfair competition where Meituan was ordered to pay compensation to its rival, Alibaba’s Ele.me in food delivery. 

• Goldman Sachs: Meituan has published a statement saying that the Group will actively cooperate with regulators to further improve compliance with the regulations. During the recent briefing, Meituan stated that it has been actively adjusting business practices including the modification of how it charges merchants, separate transaction services, and actual on-demand delivery charges to help create a healthier transparent charging environment. 
•CIMB: Meituan’s total FY20 sales was RMB115b. The amount of fine is estimated to be RMB1.15-11.5b (1-10% of total sales), representing 20-197% of the House’s FY21F adjusted net profit. Previous monopoly investigation towards Alibaba has lasted 3-4 months. 
•UBS: Not surprised by the announcement. Believe Alibaba’s recent investigation could be a good benchmark, and if Meituan is fined also 4% of last year’s business unit revenue, its potential fine could be RMB2.7b. (If it includes store business, the potential fine could be 24% higher). Excluding recent raise of US$10b, Meituan had RMB61.1b cash and short-term investments. Still like Meituan for its long-term growth prospects, and with prices down 31% from recent peak vs Alibaba’s down 27%, suggesting investors have priced in some regulatory concerns. A conclusion to the investigation could be a positive catalyst. 

mm2 Asia

UOB Kayhian; Lucas Teng/John Cheong: Initiate coverage on mm2 Asia with a SOTP target price of S$0.098. mm2 is trading at 0.6x P/B and inexpensive FY20 earnings (pre-COVID-19). Concerns over the Group’s cinema business could be slowly lifted with: a) improved seating capacity, b) a potential spin-off, and c) a  potential merger with Golden Village, while the overhang from its high debt levels has also been addressed. The group has recently completed a rights issue of approximately S$54.7m which reduces net gearing to approximately 0.8x (vs 1.0x previously) and enables interest savings with the repayment of a medium-term note. There is also a possible spin-off for the cinema business, in which convertible bonds of S$47.9m will be converted to equity in the listed cinema entity. If the cinema IPO materializes, this will further reduce the group’s net debt level to 0.4x.

Singapore Exchange

• UOB  Kayhian; Lucas Teng: Initiate Coverage on SGX with Buy recommendation and Target Price of S$12.35. SGX is benefitting from structural tailwinds including the electronification of OTCs and passive investing. Potential catalysts may include Singapore-based secondary listing of foreign listed entities such as Grab or SEA ltd. 

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