New US IPO

• Wish is an e-commerce company targeting customers in the low to middle income bracket
• Wish has grown at 31% CAGR, while losses have shrunk from 207 USD mn in 2017 to 5 USD mn in 2019.
• Given that growing US e-commerce players trade at 1.0 – 2.8x Price/GMV, we think an acceptable trading range for Wish will be 1.2 – 1.5x P/GMV, implying USD 26.7 – 33.4 price range.

Founded in 2010, Wish is an online marketplace that features discount goods, targeting low to middle income consumers. Wish currently has more than 100 million Monthly Active Users (MAU) with over 500,000 merchants selling close to 150 million items. Approximately 1.8 million items are sold each day. From 2017 to 2019 Wish grew revenue at 31% CAGR, while maintaining that growth rate in 2020 as 9M20 sales is 32% higher YoY. While the company is still unprofitable, losses have narrowed since 2017, while cumulative operating cash flow is now positive 16 million since 2017.

Wish is looking to IPO at a range of US 22 – 24 per share, and is offering 46 million shares. With 586.4 mn shares outstanding, market cap is likely to be USD 12.9 – 14.1 bn. Gross Merchandise Value (GMV) for Wish is estimated at over USD 10 bn, thus assuming a sustained 30% growth rate, 2021 estimated GMV will be ~13bn, and IPO pricing range is roughly 1 – 1.1x Price/2021e GMV, or 5.7 – 6.2x Price/2021e Sales. We note that this is rather fairly priced versus e-commerce peers, where Chinese peers tend to trade at < 1x P/GMV while US peers trade > 1x P/GMV.

Given DoorDash and AirBnB’s strong IPO performance, we expect Wish’s IPO to follow suit. As top e-commerce player Amazon trades at > 2x P/2021e GMV, we think a 100% share price gain on the first day is not impossible. However, since Wish’s 30% growth falls somewhat short of Shopee’s 50+%, we expect the share price to moderate to a P/GMV lower than that of Shopee’s, which is currently pegged at ~1.3x P/GMV or close to 9x P/Sales.

US Trading recommendations

BUY NETEASE (NTES US) Entry – 84.41, Target – 91.70, Stop Loss – 83.46

• Despite recent market rotation out of COVID-19 plays, we think video gaming stocks should remain resilient, buoyed by the newest console refresh cycle and technological advancement of mobile phones and mobile gaming.
• While NetEase does not benefit from the console refresh cycle, they should still see strong growth from the proliferation of mobile gaming.
• We see NetEase form a series of higher lows in November, and we expect a share price catch-up to its US peers, which are trading near their all-time highs. We set a lower entry price to be on the conservative end, but an entry price in the mid-85 range is also acceptable.

Dashboard amendments

MCD – Given Monday’s bump, we adjust up stop loss from 202.42 to 209.42, which will lock in a minimal profit for this position.

ABEV – We adjust up stop loss from 2.89 to 3.00, as we think further decline below 3.00 would mean little chance for ABEV to mount the climb to 3.39.

Hong Kong

• Li Ning (2331 HK) +5.12%, closing at HK$48.25. Goldman Sachs raised TP from HK$44 to HK$52 and maintained overweight rating.
• Meituan (3690 HK) -2.97%, closing at HK$274.2. Chinese government signals to restrict E-commerce giants from running group purchasing business in communities.
• Alibaba (9988 HK) -2.23%, closing at HK$$246.China’s antitrust regulators fined the company RMB500,000 for its investments in Intime Retail, a department store chain, between 2014 to 2018.