Golden Gate Ventures - Daiwa ASEAN Propagating China Growth.pdf

See important disclosures, including any required research certifications, beginning on page 93
China Information Technology 5 June 2020
China Internet
ASEAN: propagating China growth
ASEAN: Indonesia and Vietnam stand to be the main beneficiaries of China-
led innovations; we identify four key ASEAN sectors to watch
China Internet: two themes likely to drive growth: 1) from China to Southeast
Asia, and 2) from “To C” to “To B”
We reaffirm our Positive view on the sector; our top picks are Alibaba,
Tencent, and JD
John Choi
(852) 2773 8730
john.choi@hk.daiwacm.com
Robin Leung, CFA
(852) 2848 4435
robin.leung@hk.daiwacm.com

See important disclosures, including any required research certifications, beginning on page 93
China Information Technology
What's new: Although COVID-19 has caused short-term turbulence in
some verticals globally, we believe ASEAN remains one of the most
attractive regions on a long-term investment horizon. Hence, we have
teamed up with Golden Gate Ventures, a venture capital firm with highly
specialised knowledge of ASEAN markets, to highlight the top trends in the
years leading up to 2020, and our expectations for trends through to 2022.
What's the impact: The two key points we would highlight to investors are:
1) the improving funding environment in ASEAN, helped by the maturing
exit landscape and increasing funding from China Internet companies,
which should lead to lower liquidity and exit risk, and 2) our view that the
next investment opportunities lie in adjacent verticals such as logistics,
social-ecommerce, Insurtech, and co-living. While we see a favourable
macro backdrop, with Indonesia and Vietnam considered to have the
greatest investing potential, we urge investors to be selective among the
aforementioned verticals as we factor in the nuances of their demographic
fundamentals within ASEAN — key considerations when assessing the
sustainability of value creation in these sectors, in our view.
Four ASEAN sectors to watch in 2020. Several innovations from China
— e-commerce, ride hailing, Fintech, and entertainment/media — can be
readily applied to ASEAN and have attracted significant funding. As such,
we believe the next areas of capital inflow will be in these adjacent
verticals: logistics, social e-commerce, Insurtech and co-living.
China Internet – dual engines to drive the next growth phase: 1) from
China to Southeast Asia, and 2) from “To C” to “To B”. We see the next
stage of revenue growth for China Internet companies coming from: 1)
expanding their core businesses to overseas markets, among which
Southeast Asia is the most sought-after destination given the present geo-
political backdrop, and 2) expanding their competitiveness to other verticals
that leverage their cloud solutions and payment infrastructures, which we
believe would augur well for their user/merchant penetration in ASEAN.
What we recommend: We favour Alibaba and Tencent for their first-mover
advantages in penetrating ASEAN through investments and industrial
Internet initiatives (ie, cloud, payment), and argue that network effects will
allow them to harness sustainable leadership in their core business. We
also like JD’s exposure to Indonesia, Thailand, and Vietnam, where it is
building long-term foundations to strengthen its e-commerce business.
How we differ: We are among the first to provide an in-depth report on the
Southeast Asia tech eco-system with a parallel analysis of China.
5 June 2020
China Internet
ASEAN: propagating China growth
ASEAN: Indonesia and Vietnam stand to be the main beneficiaries of China-
led innovations; we identify four key ASEAN sectors to watch
China Internet: two themes likely to drive growth: 1) from China to Southeast
Asia, and 2) from “To C” to “To B”
We reaffirm our Positive view on the sector; our top picks are Alibaba,
Tencent, and JD
Key stock calls
Source: Daiwa forecasts
John Choi
(852) 2773 8730
john.choi@hk.daiwacm.com
Robin Leung, CFA
(852) 2848 4435
robin.leung@hk.daiwacm.com
New Prev.
Tencent Holdings (700 HK)
Rating Buy Buy
Target 515.00 515.00
Upside p 19%
Alibaba Group (BABA US)
Rating Buy Buy
Target 265.00 265.00
Upside p 21.2%
JD.com (JD US)
Rating Buy Buy
Target 65.00 65.00
Upside p 14.6%

2
China Internet: 5 June 2020
Sector stocks: key indicators
Source: Bloomberg, Daiwa forecasts
Number of ASEAN start-ups seeking funding No. of projected opportunities in ASEAN by stage (2019-22)
Source: Golden Gate Ventures Source: Golden Gate Ventures
Share
Company Name Stock code Price New Prev. New Prev. % chg New Prev. % chg New Prev. % chg
Alibaba Group BABA US 218.60 Buy Buy 265.00 265.00 0.0% 57.441 57.441 0.0% 73.528 73.528 0.0%
Alibaba Group - H 9988 HK 209.60 Buy Buy 260.00 260.00 0.0% 7.180 7.180 0.0% 9.191 9.191 0.0%
Baidu BIDU US 112.45 Outperform Outperform 120.00 120.00 0.0% 35.130 35.130 0.0% 55.056 55.056 0.0%
Baozun BZUN US 34.15 Buy Buy 45.00 45.00 0.0% 10.032 10.032 0.0% 13.065 13.065 0.0%
Bilibili BILI US 34.15 Outperform Outperform 36.00 36.00 0.0% (7.077) (7.077) n.a. (5.662) (5.662) n.a.
HUYA HUYA US 16.82 Outperform Outperform 21.00 21.00 0.0% 5.094 5.094 0.0% 6.483 6.483 0.0%
JD.com JD US 56.73 Buy Buy 65.00 65.00 0.0% 12.861 12.861 0.0% 15.639 15.639 0.0%
JOYY YY US 73.11 Buy Buy 85.00 85.00 0.0% 24.195 24.195 0.0% 38.148 38.148 0.0%
Kingdee International Software Group 268 HK 14.66 Buy Buy 16.00 16.00 0.0% 0.083 0.083 0.0% 0.114 0.114 0.0%
Meituan Dianping 3690 HK 155.30 Buy Buy 155.00 155.00 0.0% 0.890 0.890 0.0% 2.273 2.273 0.0%
Momo MOMO US 20.60 Hold Hold 22.00 22.00 0.0% 15.394 15.394 0.0% 21.178 21.178 0.0%
NetEase NTES US 414.58 Buy Buy 500.00 500.00 0.0% 124.183 124.183 0.0% 141.263 141.263 0.0%
Tencent Holdings 700 HK 432.60 Buy Buy 515.00 515.00 0.0% 12.079 12.079 0.0% 14.604 14.604 0.0%
Trip.com Group TCOM US 27.95 Hold Hold 24.50 24.50 0.0% (3.264) (3.264) n.a. 9.077 9.077 0.0%
Vipshop VIPS US 17.48 Buy Buy 21.00 21.00 0.0% 8.765 8.765 0.0% 9.822 9.822 0.0%
Xiaomi 1810 HK 12.76 Buy Buy 15.00 15.00 0.0% 0.483 0.483 0.0% 0.656 0.656 0.0%
Rating Target price (local curr.) FY1
EPS (local curr.)
FY2
903 967 1,078
1,306
1,742
122
164
305
656
0%
10%
20%
30%
40%
50%
60%
0
500
1,000
1,500
2,000
2,500
3,000
Year 2015 Year 2016 Year 2017 Year 2018 Year 2019
Deal Originated Follow Up Fund Raising % Change
36 43 51 62
72 86 102
124
160
206
268
350
0
100
200
300
400
500
600
2019 2020 2021 2022
Seed Series A Series B
When a report covers six or more subject companies please access important disclosures for Daiwa Capital Markets Hong Kong Limited at http://www.hk.daiwacm.com/research_disclaimer.html
or contact your investment representative or Daiwa Capital Markets Hong Kong Limited at Level 26, One Pacific Place, 88 Queensway, Hong Kong.

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Table of contents
An introduction to Golden Gate Ventures.............................................................. 5
Executive summary.................................................................................................. 8
The rise of ASEAN...................................................................................................13
Four ASEAN sectors to watch................................................................................27
China seizing a leading position in the Big Data era............................................47
China Internet stock recommendations ................................................................54
Appendix ..................................................................................................................55
Company Section
Alibaba Group..................................................................................................................58
Alibaba Group - H............................................................................................................67
Tencent Holdings.............................................................................................................76
JD.com ............................................................................................................................83

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A note on the structure of this joint report
Combining the expertise of Golden Gate Ventures and Daiwa Capital
Markets, this report examines the rise of ASEAN markets and
verticals, and looks at the role played by China’s Internet giants in
these verticals, both historically and going forward. Sections in red
reflect the views of Golden Gate Ventures. Sections in blue are
contributed by Daiwa Capital Markets. Related investment advice on
China’s Internet players is provided by Daiwa analysts alone.

5
An introduction to Golden Gate Ventures
Dear investors,
The COVID-19 pandemic has caught global economies and businesses off guard, and the venture
capital and start-up space has not gone unscathed. While some start-ups are struggling to navigate
the untimely turbulence, others have found that the unprecedented shutdown and isolation have
propelled their revenue growth and unlocked new opportunities for their businesses.
Holding a long-term view, we at Golden Gate Ventures see a clear opportunity after the storm. The
present economic uncertainty is a cycle we face nearly every decade. Having personally experienced
two downturns since working at my first dotcom start-up in 1997, it is evident to me that having the
rigor to navigate the current climate will be paramount to a start-up’s success.
As one of the pioneering early-stage venture capital firms in ASEAN, Golden Gate Ventures has
witnessed the explosive growth of innovation across the region throughout the past decade and
continues to be optimistic – even more so at this time where countries are experiencing heightened
reliance on digital platforms which will inevitably become an integral part of their new lifestyle.
With the aim of spotting the most valuable start-ups at their burgeoning stages and to be able to grow
alongside them as a meaningful investor, we have studied previous trends and transformations in
China, a market that is around 10-15 years ahead in maturity compared with Southeast Asia. This
exercise has allowed us to draw inspiration for what will likely come next for Southeast Asia, while
also consolidating our insights on the nuances, risks and potential challenges that could lie ahead
should start-ups in Southeast Asia attempt to tackle the same industries.
This collaboration and exchange with Daiwa Capital Markets has given us an opportunity to derive
additional insights from capital-market activities and late-stage developments of the technology
giants in China. Combined with our understanding of local markets, we are better able to chart paths
and identify fractures in business models that will likely not be sustainable in the long term.
This collaborative project concludes with a long-term bullish view on truck hailing, co-living, social e-
commerce and Insurtech, which we see as rising verticals that will inevitably flourish in the next 5
years, regardless of the present climate. These sectors will almost certainly give rise to new
unicorns. We also recognise that many of the proven business models from abroad must be
significantly localised to cater to the unique industry dynamics within ASEAN countries. And we
highlight the comparative lack of private and public capital in the ASEAN region.
While we see existing ASEAN tech behemoths, which we have named “2G2T” — namely Grab,
GoJek, Traveloka and Tokopedia — being a likely source of capital and exit opportunities given their
acquisition activities, we have spotted a growth capital gap (Series B to Series D) and are looking to
provide value in this area, which we find critical to nurturing successful Southeast Asian companies
to their full potential. While the present economic climate may present a short-term challenge for
some 2G2T business models (eg, ride hailing and travel), we are confident that these models have
long-term value that will flourish post COVID and in the years thereafter.
We trust that the combined findings of Golden Gate Ventures and Daiwa Capital Markets will help
paint a more complete picture of technology trends in Asia and highlight the opportunities unfolding
within ASEAN as the region breaks new ground.
Vinnie Lauria,
Founding Partner,
Golden Gate Ventures
https://goldengate.vc

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Golden Gate Ventures contributors
Jeffrey CHUA
Senior Associate, Southeast Asia
: 65 9298 3809 | : chua@goldengate.vc
Jeffrey Chua was one of the earliest members of the investment team at Golden Gate Ventures.
Over 4.5 years, Jeffrey has participated in over 25 transactions and has sourced or led more
than 10 of those deals. He remains sector-agnostic and has a wide portfolio of companies
across Insurtech, Marketplaces, B2B SaaS, Edutech, Logistics, and Digital Content Platforms.
His core duties at Golden Gate Ventures include deal sourcing, fundraising, due diligence and
portfolio management.
He graduated from Pace University with a Bachelors of the Arts in Economics, IBF level 1
(Treasury) certified.
Michelle HUANG
Associate, Southeast Asia
: 65 9817 3805 | : mich@goldengate.vc
As part of the investment team at Golden Gate Ventures, Michelle Huang coordinates
investment thesis-driven research within the firm to inform and support deal sourcing and
execution. She covers several industries with expertise in FinTech, Insurtech and Logistics and
has participated in over 10 transactions. Her portfolio of companies includes Ride Hailing,
Social e-commerce, Agent Networks and Payment.
Prior to Golden Gate Ventures, Michelle was a Co-founder at an EdTech startup in Singapore
and worked at a growth-stage Fintech investment firm with a similar focus on Southeast Asia.
Viktoria OUSHATOVA
MBA Intern
: 65 8686 5740
Viktoria Oushatova is an MBA intern at Golden Gate Ventures. Previously she worked for three
years as an Equity Research analyst covering the Automotive Sector and for two years as a
Wholesale Credit analyst covering Leveraged Finance in the London office of Bank of America
Merrill Lynch. She is currently pursuing an MBA with INSEAD. She has a BSc in International
Management from the University of Warwick and a Master's in Management from London
Business School. She is also a CFA charterholder.

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Daiwa contributors
John CHOI
Head of Hong Kong and China Internet
: (852) 2773 8730 | : john.choi@hk.daiwacm.com
John joined Daiwa as an equity analyst covering regional mid/small-cap companies in 2010. He
took on additional responsibilities in 2012 by heading up the company’s China Internet
coverage, for which he has developed a successful franchise. John is regularly recognised by
investors for his high-quality and thought-provoking research. Prior to joining Daiwa, he worked
for BNP Paribas and Merrill Lynch covering regional small-cap companies. John received his
BA from Korea University Business School, majoring in Business Administration.
Robin LEUNG
Research associate, China Internet
: (852) 2848 4435 | : robin.leung@hk.daiwacm.com
Robin Leung is a member of Daiwa’s China Internet research team. Prior to joining Daiwa in
July 2018, he interned at Citigroup and worked at various sell-side firms covering regional
technology and strategy. Robin holds a Bachelor’s degree in Economics from the University of
California, Berkeley, and is a CFA charterholder.

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Executive summary
The rise of ASEAN
Developments in ASEAN: key highlights
Strong economic and demographic fundamentals. ASEAN nominal GDP (combined
across 10 countries) almost doubled from USD1.6tn in 2009 to USD3.1tn in 2019, with
the region currently being the fifth-largest economy in the world. Indonesia and Vietnam
have been the main contributors to the region’s GDP growth, with 2009-19 GDP CAGRs
of 12.2% and 9.4%, respectively.
Transition to a service-dependent economy. Over the past 10 years, the services
sector has grown at a 6.0% CAGR, surpassing the growth rates of the industrial and
agriculture sectors, at 5.2% and 3.5%, respectively. Subsequently, the services sector’s
contribution to ASEAN’s overall GDP increased by 3% during the period to 50% in 2019,
at the expense of the agriculture sector.
Vietnam witnessing similar trade patterns to China. Indonesia’s economy remains
agriculture-driven, while China and Vietnam rely significantly on manufacturing.
ASEAN anticipated to have the second-largest young labour force by 2030.
ASEAN will add a further 59m people to its workforce by 2030, according to the
International Labour Organisation, making it the second-largest-growing labour force in
the world behind India (it is currently the third largest behind India and China).
ASEAN is the third-largest region for FDI inflows. ASEAN recorded substantial FDI
growth between 1990 and 2019, becoming the third-largest region in terms of FDI
inflows globally as of 2019 and the second-largest destination in Asia after China.
Key macro drivers to sustain growth
Government initiatives supportive of innovation. Similar to the situation in China, the
start-up scene in Southeast Asia has been widely driven by supportive initiatives that
have helped spur venture capital investments and start-up innovations.
Diverse investor profile. According to Crunchbase, there are about 1,098 active
investors in the region that have completed a total of 5,928 investments in start-ups
worth USD31.2bn since 1997.
Growing pool of private investors. Currently, there are 944 early-stage investors with
investments in Southeast Asia, which have completed 57,207 investments worth
USD3.3bn since 2000.
Rising demand for private capital. According to Golden Gate Ventures’ (GGV)
proprietary database of start-ups seeking funding since 2015, the number of start-ups
raising early-stage venture capital increased from 903 in 2015 to 1,742 in 2019.
Maturing exit landscape. Since 2015, the region has witnessed 68 M&A deals backed
by venture-capital funding, raising a total of USD1.1bn. Likewise, since 2015, the region
has seen 9 IPOs backed by venture-capital funding, raising a total of USD4.1bn during
their lifecycle. Six of the companies that went public were incorporated in Singapore,
accounting for 70% of the total funding.
Trends to anticipate in ASEAN
Growth-capital gap – Series B and beyond. Based on GGV’s internal research, only
30% of Series A funded companies in the 2008-14 cohort in Southeast Asia progressed
to receive Series B funding.
Room for ASEAN-focused growth funds to fill Series B and C gap. Southeast Asia
is experiencing a gap in Series B and C capital, opening up opportunities for
international investors and regional-focused growth funds. The situation is similar to the
environment in China's ecosystem more than 10 years ago, when it was still fairly
nascent. The funding gap in China at that time led to international investors such as
Warburg Pincus, General Atlantic and TPG Growth participating. As start-ups in China
reached a mature stage, they too became a source of funding for their budding
counterparts. We anticipate further exits will be driven by the behemoths of ASEAN –
the “2G2T”, namely Grab, GoJek, Traveloka, and Tokopedia.

9
Acquisitions by tech unicorns (2G2T) similar to Alibaba, Tencent and Baidu (BAT)
in China. In recent years, ASEAN has seen several highly funded start-ups acquire
smaller peers to propel their growth, with all the region’s unicorns to date having made
at least one acquisition since achieving unicorn status. GoJek is an exception, having
acquired companies even prior to achieving unicorn status, and it is now the most active
acquirer among the unicorns.
Sectors to watch
China-led innovations in ASEAN
Given that ASEAN is showing similar growth patterns to those seen in China a decade
ago, it would seem that several innovations from China are more readily applied to ASEAN
compared with European- or North America-originated ideas and business models.
The next wave of start-ups that we expect to attract significant capital and bolster the exit
environment in ASEAN over the next decade is likely to mirror the major spotlighted
verticals in China in recent years. This group would likely comprise truck hailing, social e-
commerce, Insurtech, co-living, agriproduce marketplaces, and Super Apps. To
successfully tackle the Indonesia and Vietnam markets, start-ups incorporate varying
levels of localisation in order to adapt to local nuances.
Truck hailing
Based on overall GDP contribution statistics for 2018-19, we see logistics accounting for
a larger proportion of GDP in Indonesia and Vietnam than China, at 24% for Indonesia
and 17% for Vietnam, vs. 15% for China.
In ASEAN, truck-hailing start-ups have been burgeoning from 2017, but notable traction
has only been observed in Indonesia and Vietnam.
Social e-commerce
Indonesia looks to be witnessing the initial phases of a social e-commerce evolution
akin to the one in China during 2010-15. Both countries exhibit similar purchasing
habits, in particular: 1) online consumption habits, 2) deeper social-media penetration
relative to e-commerce, and 3) the rapid growth of mobile usage (at a YoY change of
larger than 8% since 2017).
Tier-1 cities in Indonesia at present fall short of tier-4 cities in China in terms of
population density and purchasing power. This implies that there are few cities in
Indonesia where the social e-commerce business model can be applied in the short
term, limiting the serviceable market for social e-commerce.
Nonetheless, in ASEAN, e-commerce giants Lazada, Shopee, Tokopedia, Bukalapak,
Tiki, Sendo and others, have not achieved as much dominance as platforms in China
(ecommerce accounts for only 4% of the Indonesia retail market, whereas the figure in
China is 25%), leaving more room for social e-commerce start-ups to thrive without
intense competition.
Insurtech
There are 3 main players — Pasar Polis, Qoala, and Axinan (aka IglooInsure) — looking
to be the Zhong An of Southeast Asia. The nascent space is recording growth, albeit not
as rapidly as it is facing the obstacle of educating consumers on the value of insurance.
For Indonesia, the start-up and Insurtech landscapes tend to emulate India more so
than China, as the latter has tech giants such as Ping An significantly fuelling and
shaping the industry.
Mutual insurance
While mutual insurance appears to be relevant and a clever way of acclimatising
consumers to the concept of insuring themselves, it is still a nascent space in ASEAN
awaiting disruption.

10
Co-living
In China, drivers of co-living include: 1) increasingly mobile society migrating into cities,
2) delayed marriages leading to later ownership, and 3) unaffordable housing
ownership.
Unlike China and other markets (the US and the UK) where co-living is synonymous
with a community and premium amenities, co-living in Southeast Asia looks to solve
practical pain points in the rental market and to aggregate people in a sharing economy
in order to maintain affordability for consumers.
Ride hailing and Super Apps
Southeast Asia Super Apps. Founded in 2010, Go Jek has developed very differently
from its counterparts, with Indonesia as its home ground. Similarly, Grab, having
stemmed from Malaysia, bears more similarities to GoJek than it does to Uber and Didi
Chuxing.
Opportunity to expand into industries that have a low reach or digital presence.
Ride hailing has revolutionised the logistics space, and consequently developed a digital
payment network on the back of its e-wallet. This has enabled ride-hailing platforms to
enter industries such as digital banking, telehealth, insurance, video streaming, and on-
demand services. Such expansion is even more impactful in the Southeast Asia markets
where: 1) consumers are just starting to go online and mostly are engaged via offline
means, and 2) products and services are unable to reach these consumers due to
geographical or infrastructure barriers.
Decoding the ascendance of Chinese Internet companies
Three key listing options for Chinese companies
The US – the primary and most popular destination for ADRs. But geo-political
concerns and uncertainties over variable interest entity (VIE) structures that are adopted
by many Chinese Internet ADRs add uncertainties to the value proposition of US
exchanges to Chinese tech companies.
Hong Kong – a dual-listing destination for ADRs gaining in popularity. The Hong
Kong Stock Exchange has introduced additional conditions, such as Chapter 19C and
18A, to attract more Chinese companies to list in Hong Kong.
China – a market-efficient stock exchange still in the making. Although China’s
government has been encouraging Chinese Internet companies to list on the China A-
share market, the longer lock-up period and lower transparency of the listing process,
as well as other listing rules, have deterred some Chinese Internet ADRs from returning
to Chinese stock exchanges in the past few years.
For companies in Southeast Asia, the US is the preferred listing destination due to the
availability of valuation and comparative analyses, as most technology companies are
listed in the US.
Favourable funding environment for Chinese Internet companies
The abundance of financial resources in China has resulted in numerous
successful exits. We believe the large number of listings of Chinese start-ups is due to
the abundant financial resources available in China from venture capital, private equity
and Internet companies, in which Qutoutiao took 27 months and Pinduoduo took 34
months to complete their IPOs, respectively.
Declining number of investments made by BAT (Baidu, Alibaba, Tencent) in China.
The BAT companies have been active investors in the primary market, and we believe
their investments in the primary market have accounted for a sizeable share of total
investments being made in private companies. However, since 2019, the number of
investments made by BAT has declined. In 2018, Alibaba invested in over 160
companies with an investment amount of over CNY180bn, Tencent invested in over 170
companies with an investment amount of over CNY90bn, while Baidu invested in over
70 companies with an investment amount of CNY7.5bn. According to IT Juzi and “Deep

11
Echo” (Chinese-language link), in 2019 (from 1 January 2019 to 10 December 2019),
BAT invested in only 127 companies. The decline is partially explained by the
consolidation phase that some verticals have been experiencing.
Rising Internet giants starting to become more active in primary market
investments. Despite the lower number of investments made by BAT in 2019 compared
with that in 2018, we have seen the rise of Internet giants, namely Meituan, Xiaomi and
Bytedance, being active in primary market investments.
BAT has also invested less in the US due to political tensions. The decline in the
number of investments made by BAT has also been seen in the US due to heightened
US-China trade tensions and scrutiny by the US government.
Companies in Southeast Asia could benefit from increased funding from Chinese
investors. Since 2015, we note that major Internet companies in China have expanded
their investee portfolios in Southeast Asia, with the goal of branching out of their core
competence in China.
Chinese Internet companies: three driving forces
We believe there are three key driving forces that have led to the success of Chinese
Internet companies and hence are relevant to the development of Internet companies in
Southeast Asia.
Three growth pillars
Well-established infrastructure: logistics and payment infrastructures are key
We believe a well-established infrastructure, like logistics and payment, is the pre-
requisite to achieving a satisfactory user experience for e-commerce customers. A
highly penetrated online digital payment platform also enables early-stage companies to
ramp up without spending aggressively on payment infrastructure.
Social element and demand for local services are part of the DNA of effective user
acquisitions
We believe social-networking apps in China (eg, WeChat, Mini Programs) and demand
for local services (food delivery, car hailing) are effective user acquisition channels for
Internet companies and can boost the success of a few business models, such as those
adopted by leader Pinduoduo and super-app player Meituan.
Lower-tier cities have also played a key role for some Chinese Internet companies as
they have been able to capture the pent-up demand from users in these cities.
Data as a fuel to help a company morph into an ecosystem; reversing the copy-
paste trend and forming a leading data-driven economy
As China has less strict restrictions on users’ data privacy compared with the US,
Internet giants can gather data from cameras, sensors, social media feeds and
government data, and use AI to provide solutions to various verticals. We believe this
lays a strong foundation and a favourable operational backdrop for innovative business
models in the future. We believe companies that stand to benefit from this environment
include Sensetime and Megvii.
More importantly, data (ie, consumption pattern, digital payment and food delivery
orders) is the backbone for an Internet company’s cross-selling capability, which we see
as the next key driver of Internet users’ ARPU.
5G technology to drive convergence and evolution in Southeast Asia
Although online penetration and infrastructure development in Southeast Asia still lags
behind that in China, upcoming 5G technology could enable a swift shift in consumer
behaviour towards higher online penetration in different verticals.
From “To C” to “To B” – the industrial Internet era has arrived
We believe the aforementioned factors are the key pillars that have driven China to
become the leader in “consumer” Internet. Meanwhile, the conversion to industrial
Internet from consumer Internet is gaining momentum and enhanced efforts by Internet
companies will continue to underpin the secular growth of this segment, in our view.

12
We highlight how Internet companies are expanding from their core businesses to
various verticals by leveraging their cloud computing capabilities.
Government and regulatory support for tech companies
In recent years, the Chinese government has been supportive of the Internet sector and
encouraged Internet companies to further improve the efficiency of the country’s
economy (eg, bike sharing and autonomous driving). The relatively lax regulations have
allowed many new initiatives and business models to be tested in the domestic market.
While the overall regulatory environment in China is favourable for the Internet sector,
there have been some regulatory actions taken in certain verticals. For example, in the
game vertical, card games are strictly regulated given their similar nature to gambling,
while the suspension of banhao (game monetisation licences) in 2018 impacted small
companies such that primary investors’ willingness to invest in online games companies
has been adversely impacted. Overall, going forward we see supportive government
policies on verticals such as e-commerce, cloud and online education.
Post-IPO performance of Chinese Internet companies since 2018
More than 35 Internet companies from China have IPO’ed in the US or Hong Kong
since 2018. Among them, the top performers among Chinese Internet ADRs have been
GSX Technology and Koolearn Technology. Although half of the companies were still
loss-making as of June 2020, their share-price performance is not solely dependent on
their profitability status, as factors such as a pick-up in market share, and long-term
monetisation capability play a key role in driving investors’ expectations, in our view.
Capital markets now more comfortable with unprofitable tech listings so
long as sustainable competitive moat is formed
We believe the perception of investing in loss-making companies has changed over the
past decade as investors’ comfort level with unprofitable tech listings and the loss-
making duration has increased given the successful example of companies such as
Amazon. In China, Meituan has turned profitable while Pinduoduo’s share price is still
subject to the dynamics of the competitive landscape and its selling and marketing
expenses.

13
The rise of ASEAN
Since the Global Financial Crisis (GFC) in 2009, the Association of South East Asian
Nations (ASEAN1
) has become the fastest-growing region in the world in terms of
economic and demographic indicators, such as GDP, population growth and FDI
investment. A mix of favourable drivers in the public (relaxed monetary policy and
infrastructure investment) and private (increased household income driving consumer
spending) sectors is likely to sustain regional growth going forward. As a result, the region
has attracted an increased amount of invested capital in the private sector over the past 10
years, as investors have drawn parallels between ASEAN and China’s development over
2005-20, with Indonesia and Vietnam likely to be the main beneficiaries of the positive
development of the region, in our view.
Strong economic and demographic fundamentals
ASEAN is the fifth-largest economy in the world, accounting for 3.6% of the global
economy. The region’s nominal GDP (combined across 10 countries) almost doubled from
USD1.6tn in 2009 to USD3.1tn in 2019. Indonesia and Vietnam have been the main
contributors to the regional GDP growth with a 2009-19 GDP CAGR of 12.2% and 9.4%,
respectively. Currently, Indonesia accounts for more than one-third of the total nominal
GDP (35.7% of total) at USD1.1tn, while Vietnam accounts for 8.4% of total nominal GDP
at USD262bn. According to the International Monetary Fund (IMF), the GDP growth
outlook for the region will be stable at 5% for the 2020-25 period. Similarly, China’s nominal
GDP grew at a CAGR of 9.9% to USD14.1tn during 2009-19. As of now, China is the
second-largest economy in the world after the US, accounting for 16.3% of the world’s
nominal GDP (up from 9% in 2009).
Transition to a service-dependent economy. In recent years, there has been a clear
regional shift in economic dependence from agriculture to services in ASEAN, similar to the
one witnessed in China a couple of decades ago. From 2010-20, the services sector grew
by a 6.0% CAGR, surpassing the growth of the industrial and agriculture sectors at 5.2%
and 3.5%, respectively. Subsequently, the services sector’s contribution to ASEAN’s overall
GDP increased by 3% over the period to 50% in 2019, at the expense of the agriculture
sector, while the industry sector remained broadly unchanged (according to the ASEAN
Integration Report 2019).
Vietnam has similar trade patterns to China. ASEAN’s multilateral trade with the rest of
the world as well as the bilateral trade interdependence between China and ASEAN have
been a significant contributor to the economic growth in both regions. Both China and
ASEAN have a positive trade balance in net exports. However, there are significant sector
differences in the export/import composition for the 2 regions. Indonesia’s economy
remains agriculture-driven, while China and Vietnam rely significantly on manufacturing.
China’s economy mainly relies on exports of broadcasting equipment and computers
(15.7% of total combined), while imports are driven by integrated circuits and crude
petroleum (22.4%). Indonesia’s economy differs significantly with exports mainly
comprising coal briquettes and palm oil (19.6%), while main imports are refined and crude
petroleum (15%). Vietnam’s trade is more similar to China’s with the country remaining one
of the key manufacturing hubs in ASEAN. Vietnam’s exports are mainly broadcasting
equipment and telephones (20.7%), while imports are led by integrated circuits and
telephones (12.6%).
With 670m people, ASEAN is the third most populous region after China and India.
There are 3 main demographic trends in ASEAN – a growing population, an increasing
workforce share of the total population, and a low median age compared with developed
1
ASEAN member states include Brunei Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, Philippines, Singapore, Thailand,
Vietnam

14
countries. Over the past decade, ASEAN’s population has expanded by a steady rate of
around 1.2% pa and should reach 669m in 2020.
Anticipated to have the second-largest young labour force by 2030. ASEAN’s
workforce consists of about 415m people, accounting for 62% of the total population of the
region. It is estimated that over 100m people have joined the region’s workforce over the
past 20 years (2000-20) and we expect this trend to follow an upward trajectory over the
next 5 years. According to the International Labour Organisation, ASEAN will add a further
59m people to its workforce by 2030, making it the second-largest growing labour force in
the world behind India (currently third-largest behind India and China).
ASEAN’s population is significantly younger than most developed economies and China.
The median age of the region’s population is 28.9 years as of now (vs. 38.4 years in
China), and is expected to rise to only 33.6 years in 2030, according to the International
Labour Organisation. Furthermore, the region is seeing a growing middle class with
increasing household incomes, which presents a significant opportunity.
ASEAN the third-largest region for FDI inflows
Despite global trends of declining FDI inflows across the board (-19% in 2018), ASEAN
and China are the 2 main regions still seeing strong FDI growth (5.9% and
19.0% for 2019 in China and ASEAN, respectively). ASEAN recorded substantial FDI
growth, which rose from USD13bn in 1990 to USD177bn in 2019, becoming the third-
largest region in FDI inflows globally and the second-largest destination in Asia after China.
FDI inflows into developing countries in Asia rose by 3.9% to USD512bn for 2018,
accounting for one-third of global investment and for the majority of investment growth. FDI
inflows into Southeast Asia surpassed those in China by USD40bn for the first time in
2019.
Key macro drivers to sustain growth
ASEAN’s recent GDP, which increased at a CAGR of 5.4% over 2010-19, per the IMF, has
been supported by a mix of favourable public and private sector factors, which are
expected to persist going forward, according to ASEAN. In the public sector, ASEAN
governments have significantly increased infrastructure investment as part of the Belt and
Road Initiative launched by the Chinese government in 2013, and adopted a relaxed
monetary policy to stimulate consumer spending. According to the Asian Development
Bank (ADB) infrastructure investment in ASEAN in the period 2016-30 is expected to be
USD2.8tn.
Investments in education are still lagging behind developed economies, but we have seen
signs of improvement, with Singapore leading the way in education with funding
accounting for c.20% of government spending in 2019. The private sector has been
supported by increased consumer spending, driven by improved household incomes.
Private consumption expenditure in ASEAN is forecast to increase from USD1.2tn in 2015
to USD1.8tn in 2020, according to Frontera Investment research. We expect macro
fundamentals to remain strong over the next 5 years, driven by a healthy trade balance,
supportive demographics, and double-digit foreign investment growth.
Strong macro fundamentals coupled with favourable drivers, which we expect to sustain
the region’s growth in the near future, have resulted in increased investment activity in the
private sector.
Supportive government initiatives towards innovation. Similar to the situation in China,
the start-up scene in Southeast Asia has been widely driven by supportive initiatives that
have helped spur venture capital investments and start-up innovation. In Singapore, the
National Research Foundation founded in 2006 started providing start-up funding from
grants to debt to LP investments, ranging from USD400,000 to USD7m. Singapore is also
home to 3 of Southeast Asia’s unicorns, namely, Grab, Sea Group and Lazada. In

15
Indonesia (also home to 3 of Southeast Asia’s unicorns, Go-Jek, Tokopedia and
Traveloka), the government launched the Next Indonesian Unicorn (NextICorn) Foundation
in 2017, which provides funding and mentorship to start-ups. Vietnam has among the most
supportive government initiatives, such as the Saigon Innovation Hub, SpeedUp
(USD520,000 fund investing in start-ups) and Project 844 (funding support for 200 start-
ups), and has grown one unicorn in the gaming space, VNG.
Diverse investor profiles. Supportive government initiatives have attracted a diverse mix
of active investors, both local and international, and private and institutional. According to
Crunchbase, there are about 1,098 active investors in the ASEAN region that have
completed 5,928 investments in start-ups worth USD31.2bn since 1997. New investors are
attracted by the region’s strong macroeconomic fundamentals, the chance to invest in
emerging regional well-performing economies, and a deepening secondary market for
deals of all sizes, in our view.
Growing pool of private investors. The pool of both private and institutional investors
has expanded significantly over the past 10 years. In the private investment space, there
are a total of 226 private equity funds in Southeast Asia that have completed 8,501
investments worth USD9.7bn. Currently, there are 944 early-stage investors in Southeast
Asia that have completed a total of 57,207 investments worth USD3.3bn since 2000.
Rising demand for private capital
Overall, the region’s increasing demand for capital has dovetailed with rising supply – a
sign that company owners across the region are growing more receptive to venture capital
and private equity investments.
According to Golden Gate Ventures’ proprietary database of start-ups seeking funding
since 2015, the number of start-ups raising early-stage venture capital increased from 903
in 2015 to 1,742 in 2019. Taking into consideration subsequent rounds of fundraising within
the early stage, demand for venture capital increased at CAGRs of 24% during 2017-18
and 49% during 2018-19.
Number of ASEAN start-ups seeking funding
Source: Golden Gate Ventures
Significant capital raised by the top-funded companies
The top-13 funded companies in Southeast Asia have raised a total of USD30bn capital
since being founded. Singapore attracted the most capital, with 7 deals worth USD15.2bn.
In terms of sectors, there was a great variety across the top-13 deals.
903 967 1,078
1,306
1,742
122
164
305
656
0%
10%
20%
30%
40%
50%
60%
0
500
1,000
1,500
2,000
2,500
3,000
Year 2015 Year 2016 Year 2017 Year 2018 Year 2019
Deal Originated Follow Up Fund Raising % Change

16
Top-funded private technology companies in ASEAN (2020)
Company Country Industry Amount (USDm)
Grab Singapore Transportation 9,900
GoJek Indonesia Transportation 4,500
Lazada Singapore Marketplace 4,200
Tokopedia Indonesia Marketplace 2,400
Traveloka Indonesia Travel, Tourism 920
Trax Image Recognition Singapore Data and Analytics 387
iFlix Malaysia Media & Entertainment 348
PropertyGuru Group Singapore Real Estate 311
Zilingo Singapore B2B Commerce 308
VNPay Vietnam Payments and remittance 300
BIGO Technology Singapore Data and Analytics 272
One Championship Singapore Broadcasting 266
NinjaVan Singapore Logistics 242
Source: Crunchbase
Note: Top funded deal tab
Country breakdown of top-15 deals (2020) Country breakdown of total deal value (2020)
Source: Crunchbase Source: Crunchbase
Sector breakdown of top-15 deals (2020)
Source: Crunchbase
Sector breakdown of total deal value (2020)
Source: Crunchbase
Singapore
9
Philippines
1
Indonesia
5
Top 15 deals in SEA by country
Singapore
16,384
Philippines
215
Indonesia
3,490
Top 15 deals (USD M) in SEA by country
Transportation
2
Internet technology, games
1
Marketplace
2
Broadcasting
2
Telecommunications
1
Travel, Tourism
1
B2B e-commerce
1
Image recognition
1
Internet marketing
1
Payments and remittance
1
Lending, loans, credit
1
Enterprise Resource
Planning
1
Top 15 deals in SEA by sector
Transportation
9300
Internet technology, games
3100
Marketplace
3,100
Broadcasting
1966
Telecommunications
953
Travel, Tourism
420
B2B e-commerce
280
Image recognition
225
Internet marketing
215
Payments and remittance
200
Lending, loans, credit
170
Enterprise Resource
Planning
160
Top 15 deals (USDm) in SEA by sector

17
Maturing exit landscape
Strong exit momentum and healthy returns are increasing the pace of investments, due to
the quicker recycling of capital. In 2017, exit deal value rose to USD16bn, up 86% from the
2012-16 average. There are 3 main exit routes observed historically in Southeast Asia –
IPOs, strategic acquisitions and trade sales. Among potential exits, M&A has proved to be
the most popular, followed by IPOs.
M&A
Since 2015, the region has recorded 68 M&A deals backed by venture capital funding,
raising a total of USD1.1bn. Singapore and Indonesia were the countries that saw the
highest activity in M&A deals and capital raised. E-commerce, financial services and media
were the sectors that had the highest number of M&A exits (44 out of 68). AI technology, e-
commerce, hardware and information technology were the sectors that raised the majority
of funding (c. 90% of the total).
There have been 68 M&A deals in Southeast Asia since 2015 with a total funding of
USD1.1bn.

18
List of M&A activities in ASEAN since 2015
Target Acquirer Country Sector Year Total funding (USDm) Acquisition price (USDm)
Tiki Corp Sen Do Technology JSC Vietnam E-commerce 2020 - -
BIGO Technology Huanju Group Singapore AI technology 2019 272.0 1,450.0
ezbuy LightInTheBox.com Malaysia E-commerce 2019 37.6 85.6
Coins.ph Gojek Philippines Financial Services 2019 10.0 72.0
MoneySmart Kakaku.com Singapore Financial Services 2019 12.5 -
Wavecell 8x8 Singapore Information Technology 2019 9.9 125.0
TradeHero ayondo Singapore Financial Services 2019 10.5 -
Heptagon Advanced Micro Optics ams Singapore Hardware 2019 213.8 570.0
Red Dot Payment PayU Singapore E-commerce 2019 5.2 -
Vidi (formerly Touristly) Air Asia Malaysia E-commerce 2019 2.6 2.6
GuavaPass ClassPass Singapore Fitness 2019 5.0 -
Gushcloud International Yello Mobile Singapore Media 2019 14.0 -
Luxola LVMH Singapore E-commerce 2019 16.4 -
Duriana Carousell Singapore E-commerce 2019 3.3 -
Hermo istyle Inc. Malaysia E-commerce 2019 2.0 13.2
LYKE Jollychic Indonesia AI technology 2019 4.0 -
WalletKu TNG Fintech Group Inc. Indonesia Financial Services 2019 33.0 -
Capital Match SESAMi Singapore Financial Services 2019 0.7 -
RedMart Lazada Group Singapore E-commerce 2019 55.1 -
Berry Kitchen Yummy Corp Indonesia E-commerce 2019 1.3 -
Pie Google Singapore Information Technology 2019 4.0 -
HUBBA TribeHired Thailand Real Estate 2019 0.4 -
klinify Zuellig Pharma China Singapore Healthcare 2019 0.6 -
FemaleDaily Network CT Corp Indonesia E-commerce 2018 1.0 -
Seedly ShopBack Singapore Financial Services 2018 0.0 -
Spacemob The We Company Singapore Co-working 2018 5.5 -
TrustedCompany Net Reviews Malaysia E-commerce 2018 1.0 -
PT Link Net Tbk PT Media Nusantara Citra Tbk. (MNC Media Group) Indonesia Information Technology 2018 275.0 -
Jurnal.id Sleekr Indonesia Financial Services 2018 0.1 -
Dressabelle iFashion Group Singapore E-commerce 2018 1.0 5.5
Talenta Sleekr Indonesia HR 2018 0.1 -
Giosis eBay Singapore E-commerce 2018 82.1 -
Collabspot SugarCRM Singapore Software 2018 0.1 -
Ascenz Gaztransport & Technigaz Singapore Information Technology 2018 2.9 -
UrbanIndo 99.co Indonesia E-commerce 2018 2.0 -
Threadsol Coats plc Singapore Software 2018 0.2 12.0
Art of Click Xurpas Singapore Media 2018 0.5 45.0
iTwin Cloudaron Singapore Financial Services 2018 1.3 -
DealStreetAsia Nikkei Inc Singapore Media 2018 - -
Inzen Studio iCandy Interactive Limited Singapore Media 2018 1.3 4.4
7home ANGI Homeservices Vietnam Real Estate 2017 29.0 -
ActSocial Linkfluence Singapore Media 2017 2.6 -
Prinzio Gogoprint Pte Ltd Indonesia Media 2017 0.4 -
Foody Sea Limited Vietnam E-commerce 2017 - 64.0
Tappy PTE. LTD. Weeby.co Vietnam Lifestyle 2017 0.2 -
WiFi Chua Appota Singapore Information Technology 2017 0.2 -
Properin Group Newland Indonesia Financial Services 2017 0.1 -
Bridestory Tokopedia Indonesia E-commerce 2017 - -
Smartly VinaCapital Investment Management Singapore Financial Services 2017 - -
CombineSell Shopmatic Singapore E-commerce 2017 - -
TicketBox Tiki Corporation Vietnam E-commerce 2017 - -
Kyna.vn Navigos Group Vietnam E-learning 2016 - -
Jualo Carro Singapore E-commerce 2016 - -
Limakilo Warung Pintar Indonesia Agriculture and Farming 2016 - -
PT RUMA Gojek Indonesia Hardware 2016 - -
LOKET Gojek Indonesia Media 2016 - -
Varbs Digital General Technology Indonesia Information Technology 2016 0.2 -
VIMO Technology MPOS Vietnam E-commerce 2016 - 30.0
Prelo Bukalapak Indonesia E-commerce 2016 - -
Lion & Lion Septeni Malaysia Media 2016 - -
Caarly Carousell Singapore Automotive 2016 - -
Watch Over Me Carousell Singapore Privacy and Security 2016 - -
Kudo Grab Indonesia E-commerce 2016 - 100.0
Canvas Singlife Singapore Financial Services 2016 - -
Nirvana Asia CVC Capital Partners Malaysia Real Estate 2015 - -
Shopdeca.com migme Indonesia E-commerce 2015 - 0.7
Valuklik Dentsu Aegis Network Indonesia Media 2015 - -
MYPAY MySQUAR Myanmar Financial Services 2015 - -
bDigital Heroleads Asia Indonesia Media 2015 - -
Source: Crunchbase,

19
Breakdown of Southeast Asia M&A activity by country and sector since 2015
Country No. of deals Total funding (USDm)
Indonesia 20 317.0
Malaysia 6 43.2
Myanmar 1 0.0
Philippines 1 10.0
Singapore 33 720.6
Thailand 1 0.4
Vietnam 6 29.2
Total 68 1,120.3
Sector No. of deals Total funding (USDm)
Agriculture and Farming 1 0.0
AI technology 2 276.0
Automotive 1 0.0
Co-working 1 5.5
E-commerce 22 210.6
E-learning 1 0.0
Financial Services 12 68.1
Fitness 1 5.0
Hardware 2 213.8
Healthcare 1 0.6
HR 1 0.1
Information Technology 6 292.1
Lifestyle 1 0.2
Media 10 18.7
Privacy and Security 1 0.0
Real Estate 3 29.4
Software 2 0.3
Total 68 1,120.3
Source: Crunchbase
IPO activities
Since 2015, the region has recorded 9 IPOs backed by venture-capital funding, raising a
total of USD4.1bn during their lifecycle. Six of the companies that went public were
incorporated in Singapore, accounting for 70% of the total funding. The sectors that
recorded the most IPO exits in terms of the number of deals were media and software,
while technology and financial services attracted the majority of the funding.
Southeast Asia IPOs since 2015
Company Country Sector Ticker Year Total funding (USDm)
ASLAN Pharmaceuticals Singapore Healthcare NASDAQ: ASLN 2018 118.0
Geniee Singapore Media TYO: 6562 2017 20.2
Sea Limited Singapore Technology NYSE: SE 2017 2,647.0
Reebonz Singapore Consumer retail NasdaqGM: RBZ 2017 64.0
BDO Unibank Philippines Financial services Other OTC: BDOUY 2017 1,200.0
DropSuite Singapore Software ASX: DSE 2016 5.0
Anacle Systems Singapore Software HKSE: 8353.HK 2016 6.5
FLEXIROAM Malaysia Hardware ASX: FRX.AX 2015 0.4
Plan B Media Thailand Media Other OTC: PLANB 2015 0.5
Source: Crunchbase
Breakdown of Southeast Asia IPOs by country and sector (since 2015)
Country No. of deals Total funding (USDm)
Malaysia 1 0.4
Philippines 1 1,200.0
Singapore 6 2,860.6
Thailand 1 0.5
Total 9 4,061.5
Sector No. of deals Total funding (USDm)
Consumer retail 1 64.0
Financial services 1 1,200.0
Hardware 1 0.4
Healthcare 1 118.0
Media 2 20.7
Software 2 11.5
Technology 1 2,647.0
Total 9 4,061.5
Source: Crunchbase

20
China at a glance: listing options for Chinese companies
Given the government restrictions on foreign investments in sensitive industries such as
Internet and online education, Chinese high-growth technology companies typically look for
international listing destinations. According to the China Internet Network Information
Centre (CNNIC), as of December 2019, there were 54 Chinese Internet companies listed
in the US, accounting for 40% of the listed China Internet companies by listing destination,
and 42% of the listed China Internet companies by market capitalisation.
China Internet companies: listings by geography (2019) China Internet companies: geographic distribution by market
capitalisation (2019)
Source: CNNIC Source: CNNIC
US – the primary and most popular destination for ADRs
The US is the primary and preferred listing destination for many Chinese Internet
companies given most tech companies are listed in the US, making comparative analyses
easier. First, the US has access to international investors. Second, investors seem to have
a greater tolerance for loss-making companies listed in the US than those listed in Hong
Kong. However, geopolitical concerns and uncertainties over VIE structures that many
Chinese Internet ADRs adopt add uncertainties to the value proposition of US exchanges
to Chinese tech companies. And since the Luckin Coffee scandal in April 2020, we believe
the US’s scrutiny of Chinese companies will be further tightened.
Hong Kong – a dual-listing destination for ADRs gaining in popularity
Benefiting from a diversified institutional investor base and well-established capital market,
Hong Kong is one of the primary listing destinations for home-grown new technology
companies in China. The geographic proximity and minimal language barrier in Hong Kong
also incentivise Chinese companies to list in Hong Kong. Although some Chinese
companies in the past may not have been eligible to list on the Hong Kong Stock
Exchange due to regulatory concerns, on 30 April 2018, Hong Kong Stock Exchange’s new
listing regime came into effect when it introduced Chapter 19C secondary listing rules,
which allow weighted voting rights and looser profitability requirements.
Meituan Dianping and Xiaomi were among the first few Chinese Internet companies with
weighted voting rights to go public on the Hong Kong Stock Exchange in 2018. In
November 2019, Alibaba also completed its secondary listing in Hong Kong. We believe
the introduction of weighted voting rights has paved the way for more Chinese high growth
technology companies to be listed in Hong Kong in the coming years.
On 1 June 2020, NetEase announced the launch of its secondary Hong Kong Public
Offering, and it is looking to raise around USD3bn. Besides, JD filed a draft prospectus for
its Hong Kong IPO on 5 June. According to Reuters, JD plans to raise around USD3bn and
to list as soon as June.
In 2018, the Hong Kong Stock Exchange set out additional listing conditions (Chapter 18A)
for biotech companies that do not meet the profit, market capitalisation, revenue, or cash
flow tests, with the goal of incentivising Chinese biotech companies to list in Hong Kong.
United States
40%
Hong Kong
23%
China
37%
United States
42%
Hong Kong
53%
China
6%

21
China – market-efficient stock exchange still in the making
Back in 2015, China’s government became more proactive in incentivising ADRs to return
to China. In the following few years, some China ADRs, such as Focus Media, Qihoo 360,
Perfect World, and CMGE, delisted from US stock exchanges and relisted in China either
through a re-submission of their IPO or a backdoor listing in order the reap the benefits of
higher valuation multiples assigned by domestic investors. However, due to the longer
lock-up period and lower transparency of the listing process, as well as other listing rules,
not many Chinese Internet ADRs have returned to China’s stock exchanges in recent
years.
Listing options for ASEAN companies
For companies in Southeast Asia, the US is the preferred destination for valuation and
comparative analyses reasons, as most technology companies are listed in the US.
Future funding trends in ASEAN
% of Series A-funded start-ups that received Series B funding
(2008-14 cohort)
No. of projected opportunities in ASEAN by stage (2019-22)
Source: Golden Gate Ventures Source: Golden Gate Ventures
Growth-capital gap – Series B and beyond
Based on Golden Gate Ventures’ internal research, only 30% of Series A funded
companies of the 2008-14 cohort in Southeast Asia progressed to receive Series B
funding. This is a result of a lack of dedicated funds, in contrast to seed funding and Series
A funding.
In comparison, for more developed capital markets, such as the US and UK, around 50%
of Series A start-ups continue to receive funding at the Series B stage.
Also, further corroborated by research published in the Asia Partners 2019 Southeast Asia
Report, there were 511 USD1-20m investments made in Southeast Asia for the period from
2014 to October 2019 that will require significant growth capital in the coming years.
Historically, only around 20% of these early stage start-ups have received a USD20-100m
follow-up capital investment to further propel their expansion.
The region’s maturing bench of start-ups is another powerful catalyst that is contributing to
the growth-capital gap. More than 1,300 companies in Southeast Asia have received seed
funding, or Series A financing, since 2011, including 261 in 2017 – 5 times the level in
2011.
Room for ASEAN-focused growth funds to fill the Series B and C gap
Analysis on historical investments made at the Series B and Series C stages across
Southeast Asia over 2015-19 suggests that ASEAN-focused investors participated in only
around 35% of the funding rounds – which would translate into an estimated USD750m
committed by foreign investors assuming cheque sizes were relatively equal.
51 50 49
35
30
0
10
20
30
40
50
60
CA UK US India SEA
36 43 51 62
72 86 102
124
160
206
268
350
0
100
200
300
400
500
600
2019 2020 2021 2022
Seed Series A Series B

22
Looking forward, a combined 229 companies that received USD2-10m (Series A) funding
in 2018 and 2019 will be due to raise growth capital this year. Given an average cheque
size of USD11m for Series B, that would constitute at least USD1.25bn worth of capital to
be deployed, of which 65% could be further capitalised by region-focused funds in place of
global investors.
Investment activity in ASEAN (2013-19)
Source: Cento Ventures: https://www.cento.vc/wp-content/uploads/2020/02/Cento-Ventures-SE-Asia-Tech-Investment-FY2019.pdf
Southeast Asia is experiencing a gap in Series B and C capital, opening up opportunities
for international investors and regional-focused growth funds. This situation is similar to the
environment in China's ecosystem more than 10 years ago, when it was still fairly nascent.
The funding gap in China at that time led to international investors such as Warburg
Pincus, General Atlantic and TPG Growth participating. Sizeable local funds in China soon
emerged, such as Qiming Ventures, Legend Capital, ShunWei Capital, which supported
both early- and growth-stage start-ups.
As start-ups in China approached the mature stage, they too became a source of funding
for their budding counterparts.
The rise in acquisitions by ASEAN tech unicorns since 2015 highlights how the unicorns
have emerged as potentially the biggest drivers of exits in the region. We anticipate that
further exits will be driven by the behemoths of the region – the “2G2T”, namely Grab,
GoJek, Traveloka and Tokopedia.
Acquisitions by tech unicorns (2G2T) similar to BAT in China
The prospect of IPO exits for venture-backed firms within Southeast Asia is lacklustre
compared with other regions, pointing to strategic acquisitions as a much more likely exit
option. In recent years, ASEAN has observed several highly funded start-ups acquiring
other start-ups to propel their growth, with all the region’s unicorns to date having made at
least one acquisition since they achieved their unicorn status. GoJek is a little different,
having acquired companies even prior to achieving unicorn status and is now the most
active acquirer among them.
39
108
207
147
126
85
255
19
33
60
71
90 87
142
6 11
26 26 36 40
61
2 6 7 8 13 20 16
0
50
100
150
200
250
300
2013 2014 2015 2016 2017 2018 2019
$0.5m or smaller deals $0.5m to $2m deals $2m to $10m deals $10 to $50m deals $50m + deals

23
Acquisitions by ASEAN tech unicorns
China at a glance: favourable funding backdrop for Internet companies in
China
Funding environment
We believe the large number of listings of Chinese start-ups is attributable to the abundant
financial resources in China from venture capital (VC), to private equity (PE), and Internet
companies. For example, Qutoutiao took 27 months and Pinduoduo took 34 months to
complete their IPOs, respectively.
Funding from PE/VC
We note that PE/VC went through a frantic phase of investment prior to 2019, when user
growth was the key parameter while the monetisation model had not yet proven to be
successful (eg, shared bikes). We note that the funding environment in China has become
more cautious since 2019.
For example, in December 2019, e-commerce player Taojiji filed for bankruptcy. Although
Taojiji was able to grow its registered user base to more than 130m since its launch in
August 2018 and secured USD200m in the last Series B funding round in June 2019, its
strategy to acquire users through massive subsidies weighed on its cash flow. In the past
few years, some PE/VC investors have been willing to invest in start-ups as long as they
could deliver rapid monthly active user (MAU)/daily active user (DAU) growth, regardless
of clarity on the company’s monetisation path. Although investments from PE/VC will
continue to be major investment channels for start-ups, they have started to place more
focus on companies’ monetisation capabilities and cash flows, in addition to user growth, in
our view. Also, investors are now more focused on the sustainable competitive moat that a
company can deliver in the long run and their cash flow, in our view.
Unicorn Year of Unicorn Status No. of Acquisitions Acquisitions (Year)
Go-Jek 2018 11
AirCTO ('19), Coins.ph ('19), Promogo ('18), Pianta ('16),
Midtrans ('17), PT Ruma ('17), C42 ('16), MVCommerce ('16),
Leftshift Tech ('16), Kartuku ('17), LOKET ('17)
Trax 2019 4 Planorama ('19), Shopkick ('19), LenzTech ('19), Quri ('18)
Razer 2015 4 OUYA ('15), MOL ('18), THX ('16), Nextbit ('17)
Traveloka 2017 3 Mytour ('18), Pegipegi ('18), Travel Book ('18)
Grab 2018 2 Kudo ('17), iKaaz ('18)
Sea 2015 1 Foody ('17)
Tokopedia 2018 1 Bridestory ('19)
Bukalapak 2017 1 Prelo ('18)
Lazada 2014 1 Red Mart ('16)

24
Funding from Internet giants
The BAT companies have been active investors in the primary market over the past 5
years, and we believe their investment in the primary market accounted for a sizeable
share of total investments being made in private companies. However, since 2019, the
number of investments made by BAT has declined compared with 2018, according to IT
Juzi and “Deep Echo”.
In 2018, Alibaba invested in over 160 companies with an investment amount of over
CNY180bn, Tencent invested in over 170 companies with an investment amount of over
CNY90bn, while Baidu invested in over 70 companies with an investment amount of
CNY7.5bn. According to IT Juzi and “Deep Echo” (Chinese-language link), from 1 January
2019 to 10 December 2019, BAT invested in 127 companies, JD in 14 companies,
Bytedance in 13 companies, and Meituan in 3 companies, with enterprise solution
companies being the most sought-after areas for major Internet companies as they aim to
be first-movers in the industrial Internet space.
In 2019, Tencent focused on investment in media and entertainment and enterprise
solutions, which is in line with its strategic focus on Industrial Internet.
According to Sohu, Tencent management disclosed at the company’s annual Insight and
Forecast (IF) conference in Beijing in January 2020 that Tencent had invested in more than
800 companies to enrich its IP portfolio, of which more than 70 have undergone IPOs and
more than 160 have become unicorns.
Number of investments made by major China Internet
companies (2019)
Number of investments made by Tencent (2019)
Source: IT Juzi and “Deep Echo
Note: Data corresponding to 1/1/2019 – 12/10/2019
In 2019, the areas that Alibaba invested in most heavily were logistics, enterprise solutions
and media and entertainment. Likewise, Baidu focused on enterprise solutions as it is likely
to broaden its exposure in industrial Internet and AI initiatives.
Number of investments made by Alibaba (2019) Number of investments made by Baidu (2019)
0
10
20
30
40
50
60
70
80
Tencent Alibaba Baidu JD Bytedance Meituan
14
13
7
6 6
5
4 4
3 3
2 2 2
0
2
4
6
8
10
12
14
16
Media
and
entertainment
Enterprise
solution
E-commerce
Automotive
Healthcare
FinTech
Hardware
Education
Local
services
Advertising
Property
Games
Travel
4
3 3 3
2 2 2 2
1 1 1
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
Logistic
Enterprise
solution
Property
Media
and
entertainment
Local
services
Healthcare
FinTech
Hardware
Automotive
Games
Education
9
4
3 3 3 3
2
1 1 1 1 1
0
1
2
3
4
5
6
7
8
9
10
Enterprise
solution
Healthcare
Hardware
FinTech
Media
and
entertainment
Education
Automotive
Agricultural
Games
Travel
E-commerce
Social
network

25
Despite the lower number of investments made by BAT in 2019 compared with 2018, we
are seeing a number of rising Internet giants, namely Meituan, Xiaomi and Bytedance,
being more active in primary market investments. For these younger companies, their
investment portfolios are not as well diversified as those of BAT; therefore they may be
more open to invest in all types of companies to broaden their exposure. For example,
Xiaopeng Automotive’s Series C investment was led by Xiaomi, while Lixiang Automotive’s
Series C investment was led by Meituan and Bytedance.
Number of investments made by JD (2019) Number of investments made by Bytedance (2019)
Overseas investments
The decline in the number of investments by BAT has also been seen in the US due to
escalating US-China tensions and heightened scrutiny by the US government. According
to the Financial Times’ Pitchbook data, publicly disclosed investments made by BAT in US
start-ups fell by 84% for 2019 compared with 2018, of which, the 12 publicly disclosed
investments totalled less than USD560m in 2019, a sharp decline from USD4.7bn in 2015.
Investment in Southeast Asia
Given the macro concerns in China and geo-political concerns in the US, the number of
investments made by Internet giants in China has declined in both China and the US, and
thus Internet companies in Southeast Asia could potentially receive more funding in the
future. In fact, since 2015, we note that major Internet companies in China have expanded
their investee portfolios in Southeast Asia, with a goal to branch out from their core
competence in China.
Alibaba: Since 2015, Alibaba has mainly focused on e-commerce and logistics investment
in Southeast Asia, while Ant Financial has been active in investing in payment-related
companies. Alibaba has made 3 major investments in Singapore, which are Lazada,
Singapore Post and Quantium Solutions, while it has also invested in Tokopedia in
Indonesia. In the payment verticals, Ant Financial invested in DANA (Indonesia), Ascend
Money (Thailand), Mynt (Phillippines) and TNG Digital (Malaysia).
Tencent: Since 2008, Tencent has mainly focused on games, Fintech and entertainment
investments in Southeast Asia. Tencent has invested in GoJek (Indonesia), Sea Group
(Singapore), Ookbee U (Thailand), Sanook (Thailand), Voyager Innovations (Philippines)
and VNG (Vietnam)
JD: JD has mainly focused on e-commerce and local services investments in Southeast
Asia, investing in JD.ID (Indonesia), JD Central (Thailand), Tiki (Vietnam), Traveloka
(Indonesia) and Gojek (Indonesia) and the Asian parent (Singapore). We believe JD’s
investment in ASEAN countries has paved the path for its cross-border capability.
3
2 2 2
1 1 1 1 1
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
E-commerce
Enterprise
solution
Local
services
Automotive
Logistic
Utility
Hardware
Advertising
Agricultural
3 3
2 2
1 1 1
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
Enterprise
solution
Media
and
entertainment
Games
Education
Automotive
Hardware
Sports

26
Overall, we believe the investment trend for China Internet companies will continue in the
coming years. Furthermore, Bytedance, Meituan, Didi Chuxing and others are likely to
expand their core competencies into Southeast Asia. Internet leaders such as Alibaba and
Tencent are likely to expand beyond their core competence to various verticals to
strengthen their network effect, in our opinion.

27
Four ASEAN sectors to watch
As ASEAN is experiencing its first wave of venture-backed investments approaching the
end of their cycle, we are also seeing a greater amount of capital pouring into budding
early-stage start-ups across the region. Inspired by the success of technology giants such
as the “2G2T”, recent start-up founders have been more aggressive in raising larger
funding rounds and often take inspiration from more mature start-up ecosystems in
developing markets such as India and China.
With e-commerce, ride hailing, Fintech and entertainment/media having attracted
significant funding already, we believe that adjacent verticals that will grow on the back of
these main trends are the next areas for growth. We see logistics, social e-commerce,
Insurtech, co-living as up-and-coming sectors.
China-led innovations in ASEAN
Given that ASEAN is experiencing similar growth patterns to those China showed a
decade ago, it appears that several innovations from China are more readily applied to
ASEAN as compared with European- or North American-originated ideas and business
models.
The next wave of start-ups that we expect to attract significant capital and bolster the exit
environment in ASEAN over the next decade is likely to mirror the major spotlighted
verticals in China in recent years. These would include truck hailing, social e-commerce,
Insurtech, co-living, agriproduce marketplaces and Super Apps. To successfully tackle the
Indonesia and Vietnam markets, start-ups incorporate varied levels of localisation in order
to adapt to local nuances.
Truck hailing
With ride hailing becoming a global phenomenon, other areas of logistics appear to have
replicated the same proven business model. One area which has done so with notable
success is the trucking industry, commonly referring to the delivery of goods from port to
warehouse in heavy duty trucks such as containers.
Established in the early days of the start-up boom in 2008, Huo Che Bang is one such
truck-hailing company that rose to become one of the largest on-demand platforms in
China, alongside its close competitor, Yunmanman. Post the merger of both firms in
November 2017 to become Full Truck Alliance, both firms combined were reported to be
counting over 5.2m of the 7m total freight trucks and 1.25m of the 1.5m logistics
enterprises in China.
By the end of 2019, the company’s delivery network covered 339 cities and 110,000 routes
and generated an annual GMV of CNY800bn (USD115bn). According to the USD6.4bn
valuation reported after its latest funding round in April 2018, Full Truck Alliance is
significantly more sizeable than its US comparable, Convoy, which was valued at
USD2.75bn as at November 2019.
What is unique to China that made truck hailing so relevant?
1. Largest logistics market globally: Although the US remains a distinctly larger
consumer market than China, China’s logistics market is marginally larger at USD1.75tn
vs. USD1.71tn in the US. It is commonly found across countries that logistics costs are
indirectly correlated with the level of economic development2
.
2
https://transportgeography.org/?page_id=4413

28
2. Fragmented market: China’s highly fragmented trucking industry has around 7m firms
operating an average of 2 trucks each3
. The majority of these businesses are family-run
and reliant on personal connections with shippers.
3. Traditional industry: Drivers are contacted manually or via intermediary companies
using chalkboards to broadcast the delivery projects on the market.
Will truck hailing be a success in Indonesia or Vietnam?
Our investigation of the local landscapes within Indonesia and Vietnam finds similar trends
of fragmentation, manual processes and relationship-driven inefficiencies. The drivers for
innovation to achieve greater profitability amongst players are common between Southeast
Asia and China.
Greater value for disruption in logistics in Indonesia. On the other hand, we find
Indonesia and Vietnam have an even larger proportion of GDP contributed by logistics as
compared with China, at 24% for Indonesia and 17% for Vietnam in 2019. This coincides
with the infrastructure scores assigned by the World Bank for 2018 where Indonesia (2.89)
is behind Vietnam (3.01) and China (3.75).
Logistics as a sector in Indonesia also has greater room for improvement, being less
established than others at a competence score of 3.1 (see table below).
Logistics market – country comparison
US China Indonesia Vietnam
GDP (2019), Trillion USD 21.44 14.3 1.016 0.26
Logistics % of GDP (2019) 8% 15% 24% 17%
Logistics Total Market, Trillion USD 1.71 1.75 0.24 0.04
Number of Shipping Ports (Total) 360 2034 1811 320
Major Ports Not Available 34 111 44
Minor Ports Not Available 2000 1700 276
Infrastructure Score (2018) 4.05 3.75 2.89 3.01
Logistics Competence Score (2018) 3.87 3.59 3.1 3.4
Source: World Bank
Larger proportion of land-based shipments in Vietnam. Though Indonesia appears to
be a larger logistics market on the whole, Vietnam has a larger proportion of land based-
shipments as compared with Indonesia due to the geographical layout of both countries.
Indonesia being an archipelagic country that comprises over 17,500 islands will often
require ships to deliver goods across islands. This is reflected by the number of shipping
ports in Indonesia, both major and minor, being around 6 times that of Vietnam, while
China, a much larger consumer market, has only around 7 times the number of ports as
Vietnam.
Truck-hailing start-ups and challenges
Within ASEAN, truck-hailing start-ups have been burgeoning since 2017 but notable
traction has only been observed in Indonesia and Vietnam. A Jakarta-headquartered start-
up, Ritase, is navigating the trucking industry through an ecosystem approach where the
platform offers a myriad of services including financing, bulk purchase and aftermarket
services outside the matching of shippers with truckers.
Similar to ride hailing, a “Super App” strategy appears necessary for this region where the
per capita spend on transportation remains comparatively much lower than in developed
markets, and is furthermore combined with the thin-margin nature of logistics. Ritase, one
of the leading trucking marketplaces in Jakarta, exemplifies this nature – providing
financing, bulk purchase and relevant services to shippers and truckers onboard the
platform.
3
https://www.mckinsey.com/industries/travel-transport-and-logistics/our-insights/long-haul-china

29
Social e-commerce
Since Pinduoduo’s inception in 2015, the company took merely 3 years to list on the
NASDAQ, raising USD1.6bn and putting the company at a USD24bn valuation post the
IPO in 2018. The firm has successfully garnered global interest and eclipsed Taobao and
JD.com in its speed of growth, with merchandise volume reaching USD14.7bn in just 2
years, whereas Taobao and JD.Com took 5 and 10 years, respectively, to reach this mark,
according to reports from TechCrunch.
Pinduoduo is akin to the poster child of social e-commerce in China, one of the hottest
sectors to receive private funding from institutions and venture capitalists. In 2018 alone
when Pinduoduo was listed, there were 28 successful fundraising rounds that amounted to
over USD2.2bn of capital being deployed into the sector.
China social e-commerce start-ups 2018 funding activities
Year 2018 Month Company Name Series Fund Raising Fund Raise (USD)
March LOOK A 22m
March Men Ya B Undisclosed
April Hua Sheng Ri Ji A 30m
April Pin Duo D 1400m
April Li Wu Shuo C 14m
April Gen Wo Mai Angel <1m
April Wei Meng D1 140m
April Yun Ji B 120m
April Song Li Shen Qi Angel <1m
April Xi Tao Seed <1m
May OOK Pre-A <1m
June Xiao Hong Shu D 300m
June Hao Yu Ku A 14m
June Xiao Qu Le A Undisclosed
July Ai Ku Cun B 83m
July You Zan IPO 150m
July Shang Shi Tech Angel 1m
July Xiao You A Undisclosed
July Hao Yu Ku B >15m
August Lan Jing Tao A Undisclosed
August Plum Hong Bu Lin B 15m
September Beike You Pin A >1m
September Mei Shi Hui Xian Angel Undisclosed
September WhatsMode B <1m
September Nian Gao Mama B+ Undisclosed
October Zai Jia A >15m
November Xiao Qu Le A Undisclosed
November Mei Ling Mei She Qu Angel >1m
China at a glance: social e-commerce
While traditional e-commerce platforms are facing increasing customer acquisition costs,
social e-commerce platforms have started to emerge. These new platforms offer a
seamless shopping experience, such that customers can browse, promote, share,
purchase and complete online transactions, by leveraging the user’s social network and
sharing initiatives. Advantages of social e-commerce platform include the ability to achieve
high GMV in a short period, backed by an effective user acquisition strategy. Along with
Pinduoduo, another example of social e-commerce platforms is Yunji, a membership-
based model that leverages the power of social interaction.
We are starting to see the emergence of more e-commerce business models that aim to
bring down user acquisition cost through social networks (eg, KOLs and team purchases)
and innovative advertising formats such as short-form videos. On the merchant side, e-
commerce platforms are trying to build a complete ecosystem in supply-chain
management, logistics, and payment services using whichever long-tail merchant can do
business.
We think Pinduoduo’s team purchase model was a successful strategy to cope with rising
user acquisition costs in the initial stages of e-commerce platforms, while its C2M model
will help merchants in rural areas to sell products to online users.

30
Emergence of social e-commerce platforms Trends in e-commerce business models
Source: Daiwa Source: Daiwa
Within social e-commerce, there are three main business models, according to Yunji’s
prospectus.
1) Team purchase model: users can team up with friends, social contacts, or strangers
to place a large order that qualifies for a deep discount
2) Membership-based model: customers can enjoy discounts or member-exclusive
rights if they become a member of the platform
3) Content-sharing model: customers rely on reviews or recommendations to make their
purchase
Pinduoduo
Pinduoduo is the clear leader in China’s social e-commerce segment. It surpassed JD in
terms of number of annual active users in 2018, which has underpinned the momentum in
its transaction volume and GMV. Pinduoduo’s innovative “team purchase” model
encouraged customers to share product information via social networks such as Weixin
and QQ, allowing users to invite their friends, family and social contacts to form a shopping
team that would be eligible for deep discounts on merchandise.
Pinduoduo: unlocking discounts by sharing with friends
Source: Company data, Daiwa
Is the social element critical to online commerce in China?
Lack of confidence in purchasing via e-commerce. Across lower-tier cities where
consumers (especially in tier-2 and tier-3 cities) are less literate and tech savvy, the
majority of consumers lack confidence in searching and browsing catalogues to make an
informed purchase online.
1999 2016
S2B2C
2015
1998
C2B
B2C
Team purchase/
C2M
S2B2C
B2C
2008 2011
Luxury goods
online retailer
Online discount retailer
2013
Comprehensive services
provided to merchants
User acquisition strategies with
social element
Live streaming/KOL
Short video
C2M/ S2B2C
Team purchase
Membership based
Content sharing
Logistic service
Payment service
Marketing service/ feeds
Supply chain management

31
On the flip side, in such cities, the opinion of a neighbour and the wider community is more
trusted and consumers are distinguished by their acute price sensitivity. By having agents
that refer products in a “group buy” fashion on social e-commerce platforms, consumers
can depend on the trusted reviews of others they know on top of enjoying discounts only
possible when purchasing alongside others. By purchasing via PDD.com, users can get
discounts of up to 90%4
.
Higher penetration of social media vs. e-commerce. Unsurprisingly, WeChat’s
penetration has far preceded that of e-commerce since 2013. E-commerce only reached a
penetration of 25.7% in 2019, whereas WeChat’s penetration was already 26% back in
2013. With e-commerce still establishing itself and competing against traditional retail,
Pinduoduo was positioned to reach a more sizable audience by nature of the platform it
decided to operate on.
WeChat penetration rate
2013 2014 2015 2016 2017 2018 2019 2020E
WeChat MAU (mn) 355 500 697 889 989 1,098 1,165 1,223
China total population (mn) 1,361 1,368 1,375 1,383 1,390 1,395 1,400 1,407
WeChat as % of China population 26% 37% 51% 64% 71% 79% 83% 87%
Source: CEIC, Daiwa estimates
Penetration of social e-commerce vs. e-commerce
2016 2017 2018 2019 2020E
Social e-commerce users as % of mobile e-commerce users 36% 47% 52% 61% 73%
Social e-commerce users (m) 1.52 2.23 3.16 4.32 5.77
Mobile e-commerce users (m) 4.18 4.73 6.08 7.13 7.88
E-commerce penetration 15.7% 19.7% 23.6% 25.7%
Source: iiMedia
Note: 2019 Social e-commerce users as % of mobile e-commerce users is calculated as social e-commerce users (2019 actual) divided by mobile e-
commerce users (2019E)
What other factors have been integral to the growth of social e-
commerce?
Presence of the WeChat ecosystem for Mini Apps. The role of the WeChat in
Pinduoduo’s unprecedented trajectory cannot be overstated — an ecosystem
accompanied by WeChat’s MAUs of 1.165bn allowed for an efficient cost of acquisition of
users. Netizens in China’s rural areas who have just started to use the mobile Internet
found it much easier to navigate on Pinduoduo and make payments directly through
WeChat.
China at a glance: popularity of social networking apps fostering a
disruptive force
The massive user bases of WeChat and other Mini Programs such as AliPay serve as an
effective user acquisition channel. More importantly, business models with a strong social
element can ride on the highly penetrated user base of WeChat, eg, social ecommerce.
Level-2 access is found in WeChat wallet and provides easy access for users to nine
affiliated apps, including Elong Tongcheng, Meituan Delivery, Didi Chuxing, and JD. For
some companies, WeChat wallet is the major user acquisition channel. In the year ended
31 December 2019, 62.4% of Elong TongCheng’s newly acquired paying users on Weixin
were from tier-3 or below cities. To illustrate, Weixin users can access their Weixin-based
Mini Program within the Weixin ecosystem mainly through the Weixin Payment (Wallet)
portal and a drop-down list of users’ favourite or most frequently used Mini Programs. Such
user traffic contributed 83.3% of Elong Tongcheng’s total average MAUs on its Tencent-
based platforms in 1Q20. On Elong Tongcheng’s 4Q19 earnings call, management stated
that the GMV generated from Elong Tongcheng on Weixin’s Mini Program platform
exceeded over CNY100bn, which accounts for c.15% of total Mini Program GMV on
Weixin (CNY800bn).
4
https://www.applicoinc.com/blog/how-pinduoduo-became-the-2-ecommerce-marketplace-in-china/

32
WeChat level 2 access
Source: Daiwa
Likewise, Alibaba’s Alipay provides user traffic to Ele.me. As of 4Q19, Ele.me acquired
48% of its new customers via the Alipay app.
The massive user base for social networking app WeChat, together with the consumption
upgrade and demand from lower-tier cities, have given rise to new business models such
as social e-commerce.
Mini Programs
WeChat Mini Programs. Within WeChat, Tencent rolled out its Mini Programs in January
2017 to allow Internet users to use third-party apps without downloading the full version on
their smartphones. This ecosystem allows users to access many apps without having to
spend time downloading apps or having phones’ storage space taken up. For app owners,
the obvious benefit is being able to leverage the huge user base on WeChat. At the same
time, app developers can tailor their apps so they are more suited to the Mini Program
ecosystem. More importantly, we believe this closed-loop ecosystem bodes well for user
retention and engagement. The number of daily transactions generated within Mini
Programs more than doubled year-on-year in 2019.
Mini Program – Trip.com
Source: Daiwa

33
Although Mini Programs were launched less than 3 years ago, they generated a GMV of
more than CNY800bn in 2019 alone. Mini Programs give Internet companies a marketing
channel with relatively low user acquisition costs, which we believe is a major factor in the
ramp-up of companies’ developments on the WeChat ecosystem.
WeChat Mini Programs: operating metrics
Source: Company data, Jisuapp, iResearch
Note: 2019 data according to Weixin official report; 1H19 data according to Jisuapp.com, 8M19 data according to iResearch
Alipay Mini Programs. Baidu and Alipay each have their own Mini Program ecosystems.
In August 2018, Alibaba’s Alipay rolled out Mini Programs allowing users to access other
social media platforms, Ele.me, Koubei, Tmall, DingTalk, and AutoNavi, as well as third-
party Mini Programs.
Alipay’s Mini Programs: Starbucks
Source: Daiwa
(1Q20)
DAU
> 400m
(2019)
GMV
>CNY800bn
(+160% YoY)
(2019)
Average number of
mini program visited
per user
(2019)
Average number of
mini program used
per user
+45% YoY +98% YoY
(8M19)
Number of mini
program
236m
(8M19)
User stickiness
48.7% of users
use mini program
for more than 5
times a day
星巴克

34
Alipay’s Mini Programs: operating metrics
Source: ALDZS, Sohu
What is happening in Southeast Asia in social e-commerce vs. China?
Indonesia is showing signs of experiencing the initial phases of the social e-commerce
evolution that China went through between 2010 and 2015. Both countries show similar
purchasing habits, in particular: 1) online consumption habits, 2) deeper social media
penetration relative to e-commerce, and 3) rapid growth in mobile usage.
Limited addressable market of lower-tier cities. Only Jakarta can be strictly categorised
as a tier-1 city in Indonesia on the basis of GDP per capita and population. Notably, tier-1
cities in Indonesia today fall short of tier-4 cities in China in terms of population density and
purchasing power. This may imply that there are only a few cities in Indonesia where the
business model can be applied successfully in the short term, thereby limiting the
serviceable market for social e-commerce.
(1H19)
Alipay’s mini
program DAU
230m
(May 2020)
Number of mini
programs
1.7
million+
(May 2020)
Alipay’s MAU
600m+

35
Indonesia vs India: city tiers and population density China: city tiers and population density
Southeast Asia Populations India Populations
Countries / City (millions) City (millions)
Indonesia Mumbai 11.98
Jakarta 1st Tier 8.39 Delhi 9.88
Surabaya 2nd Tier 2.59 Bangalore 4.3
Bandung 2.14 Kolkata 4.57
Medan 1.79 Chennai 4.34
Palembang 1.44 Hyderabad 3.64
Semarang 1.35 Ahmedabad 3.52
Malaysia Pune 2.54
Kuala Lumpur 1.46 Surat 2.43
Subang Jaya 1.18 Kanpur 2.55
Klang 1.00 Jaipur 2.32
The Philippines Lucknow 2.19
Metro Manila 11.55 Nagpur 2.05
Quezon City 2.68 Patna 1.37
Manila 1.66 Indore 1.47
Kalookan 1.38 Thane 1.26
Davao 1.36 Bhopal 1.44
Thailand Ludhiana 1.4
Bangkok 5.68 Agra 1.28
Chiang Mai 1.59 Pimpri-Chinchwad 1.01
Nakhon Ratchasima 2.54 Nashik 1.08
Ubon Ratchathani 1.77 Vadodara 1.31
Nakorn Srithammarat 1.52 Faridabad 1.06
Udon Thani 1.52 Meerut 1.07
Vietnam Kalyan-Dombivali 1.19
Ho Chi Minh City 6.35 Varanasi 1.09
Hanoi 3.29 Howrah 1.01
Haiphong 1.83
Southeast Asia China
Countries / City Populations (millions) City Population (millions)
Shanghai 22.32 Zhongshan 3.12
Beijing 11.72 Changsha 3.09
Tianjin 11.09 Urumqi 3.03
Guangzhou 11.07 Shijiazhuang 2.83
Shenzhen 10.36 Lanzhou 2.63
Wuhan 9.79 Yunfu 2.61
Dongguan 8 Nanchang 2.36
Chongqing 7.46 Dadonghai 2
Chengdu 7.42 Ordos 1.94
Nanjing 7.17 Jilin 1.88
Nanchong 7.15 Bayan Nur 1.76
Xi'an 6.5 Kunshan 1.6
Shenyang 6.26 Xinyang 1.59
Hangzhou 6.24 Fushun 1.4
Harbin 5.88 Luoyang 1.39
Tai'an 5.5 Guankou 1.38
Suzhou 5.35 Handan 1.36
Shantou 5.33 Baotou 1.3
Jinan 4.34 Xuchang 1.27
Zhengzhou 4.25 Yueyang 1.2
Changchun 4.19 Anshan 1.2
Dalian 4.09 Tongshan 1.2
Kunming 3.86 Fuzhou 1.18
Qingdao 3.72 Guiyang 1.17
Foshan 3.6 Lijiang 1.14
Puyang 3.59 Datong 1.05
Wuxi 3.54 Changshu City 1.05
Xiamen 3.53 Xianyang 1.03
Tianshui 3.5 Huainan 1.03
Ningbo 3.49 Jieyang 1
Shiyan 3.46 Zhu Cheng City 1
Taiyuan 3.43
Tangshan 3.37
Hefei 3.31
Zibo 3.13
Source: Spire Research and Consulting Source: worldpopulationreview
China at a glance: buoyant purchasing power in less developed areas
Lower-tier cities play an important role in driving user growth for the aforementioned
business models, such as social e-commerce and food delivery, which has led to the
successful IPO exits of Meituan, Pinduoduo, and Qutoutiao in recent years.
Ample upside in expenditure in users from less developed areas. According to
CNNIC, the Internet penetration rate in China’s rural areas expanded by 7.8pp YoY (the
fastest pace so far) to 46.2% as of March 2020, compared with a rate of 76.5% in urban
areas. We believe that Internet penetration in rural areas will continue to increase on the
back of improving telecommunications infrastructure. Besides, NBS data show that
disposable incomes in urban areas grew by 8% to CNY42,359 in 2019, or 2.6x the
CNY16,201 figure for rural areas. Hence, we see ample upside in consumer spending
from rural areas.

36
China: population density (2018) China: Internet penetration – urban vs. rural areas
Source: TalkingData Source: CNNIC
China: average household expenditure (CNY’000) – urban vs.
rural areas
China: disposable income (CNY’000) – urban vs. rural areas
Source: NBS Source: NBS.
Purchasing power in less developed cities is not significantly lower. According to
data disclosed at Alibaba’s investor day in 2019, average spending in less developed
areas in FY19 was not significantly lower than the blended average spending disclosed
in 2018. The suggestion is that Alibaba has been effective in offering products that meet
consumers’ needs. Moreover, purchasing power in less developed areas is not
significantly lower than in other parts of the country and looks poised to increase along
with rising disposable incomes in lower-tier cities, in our view.
To illustrate the upside potential in purchasing power in less developed areas, there are
limited numbers of offline retail stores offering electronic products/appliance products,
such that the online retail marketplace gives users more options and greater price
transparency. Therefore, we believe the purchasing power of less developed cities could
be unleashed if demand in specific categories can be met and purchase frequency
could even exceed that of higher-tier cities ultimately.
China: average spending – 2019 less developed areas (CNY) vs. 2018 blended average (CNY)
Source: Alibaba 2019 Investor Day presentation, Daiwa
Note: Only data for Years 1, 3 and 5 disclosed; other data calculated through extrapolation
Tier 1 and 2
cities
33%
Tier 3 cities
24%
Tier 4 cities
26%
Tier 5 cities
17%
60.3% 62.8% 65.8%
69.1% 71.0%
74.6% 76.5%
28.1% 28.8% 31.6% 33.1% 35.4%
38.4%
46.2%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
12.2013 12.2014 12.2015 12.2016 12.2017 12.2018 03.2020
Urban internet penetration Rural internet penetration
8%
7%
8%
6%
7%
7%
12%
10% 10%
8%
11%
10%
0%
5%
10%
15%
0
10
20
30
2013 2014 2015 2016 2017 2018 2019
Average expenditure - urban area
Average expenditure - rural area
Average expenditure (YoY %) - urban area
Average expenditure (YoY %)- rural area
26.467 28.844 31.195 33.616
36.396
39.251
42.359
9.430 10.489 11.422 12.363 13.432 14.617 16.021
11%
9%
8% 9% 9%
10%
0%
5%
10%
15%
0
20
40
60
2013 2014 2015 2016 2017 2018 2019
Disposable income - urban area
Disposable income - rural area
Disposable income - urban area (YoY growth)
Disposable income - rural area (YoY growth)
3,000
7,500
12,000
2,300
6,700
10,600
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
1 Year 2 Years 3 Years 4 Years 5 Years
Avg. annual spending per consumer (as of 2018) Avg. annual spending per consumer (less developed areas in 2019)

37
E-commerce has yet to establish dominance. In ASEAN, e-commerce giants Lazada,
Shopee, Tokopedia, Bukalapak, Tiki, Sendo and others have not achieved the kind of
dominance enjoyed by platforms in China (e-commerce accounts for only 4% of
Indonesia’s retail market compared with 25% in China5
). In other words, social e-
commerce start-ups have room to thrive without being subject to intense competition.
What challenges are start-ups facing?
Shipping costs compressing margins. Whereas online commerce in China is growing
on the back of a relatively mature logistics ecosystem, higher logistics costs in Indonesia
and Vietnam result in more challenging direct-to-doorstep delivery. Companies have to
work around a more effective model of distribution.
Low digital payments penetration. Credit-card penetration in China is as low as 1.6%,
and only 36% of citizens have digital bank accounts. This lack of bank account holders
may also make it challenging to reach customers in rural or remote areas.
China at a glance: decoding the rise of Chinese Internet companies
We believe there are three key driving forces behind the success of Chinese Internet
companies that are relevant to their development in Southeast Asia. Although online
penetration and infrastructure development in Southeast Asia both still trail China’s, the
region’s market has its own characteristics and dynamics. Plus, we think the advent of 5G
technology could propel a rapid evolution in the near future.
Established infrastructure: logistics and payments
We believed the well-established infrastructures like logistics and payment are the pre-
requisites to achieve a satisfactory user experience for e-commerce customers.
Logistics
China’s major logistics service providers are Alibaba’s Cainiao, JD, SF Holding, ZTO, YTO,
STO, Yunda and Best. Alibaba’s Cainiao has an asset-light asset model, where it owns the
system and hardware of its logistics network but does not have its own carriers. It has
digitally connected warehouses rather than wholly owned warehouses, which give it the
flexibility to expand in a short period of time. By investing in 5 of the 6 express companies
(ZTO, YTO, STO, Yunda and Best), Cainiao can realise synergies with other express
companies and broaden its coverage in urban and rural areas, in our opinion.
Like Amazon, JD has spent aggressively on 1P logistics to build its warehouse
infrastructure and operate its own carrier network with the goal of providing the best user
experience in last-mile delivery. Considering JD’s established in-house logistics network,
we think the company has an advantage in last-mile delivery in rural areas. Compared with
another insourcing express delivery company, SF Holdings, we believe JD’s competitive
edge lies in its warehousing solution, while its 1P business gives it better access to
suppliers, such that JD can cross-sell its logistics services to its merchants.
Among the advantages of the self-ownership model (insourcing) favoured by JD Logistics
and SF Holding is that it gives operators greater control of the whole business, which can
lead to enhanced service quality, allowing express service companies to better target high-
end customers. Also, the model means that operators can access a more comprehensive
range of data, which can give insight into improvements that can be made to operations.
5
https://www.mckinsey.com/~/media/mckinsey/featured%20insights/china/china%20digital%20consumer%20trends%20in%202019/china-
digital-consumer-trends-in-2019.ashx

38
China: logistics service providers
Alibaba Cainiao JD Logistics SF Express
Other express delivery
operators
(ie, YTO, ZTO, STO,
YD)
Business model Digitalised logistic network Self-operated Insourcing (self-ownership) Outsourcing/franchising
Have alliance with STO Express,
ZTO Express, YTO Express,
Best Express and Yunda
Express
Supply chain
management oriented.
Provides logistics
services, covering
warehousing solutions to
last-mile delivery.
Owns most of its equipment and
facilities including warehouses,
transportation vehicles (trucks and
aircraft) and occasionally its IT
systems.
Focused on express
delivery
Share same
warehouse/staff for 1P
and 3P orders
Target
customers
All tiers of customers Mid-high end customers. Mid-high end customers Mid-low end customers
200k+ merchants,
covering apparel, 3C
products, furniture, fresh
food, etc
Warehousing
management
Y Y Y Y(small contribution)
Largest bonded warehouse
network in China.
Large portion of revenue
from warehousing
management
Cold chain
products
Y (Hema, Danniao) Y Y Y(small contribution)
Last-mile
delivery
Y Y Y Y
Source: Daiwa
Payments
The payments landscape in China is dominated by Alibaba’s Alipay and Tencent’s WeChat
Pay, with market shares of 54.5% and 39.5%, respectively, as of 3Q19, according to
iResearch. According to a presentation made at Alibaba’s 2019 investor day, as of 30 June
2019, Alipay had 900m annual active users in China while Alipay and local wallets’ AAU
stood at 1.2bn globally. We believe the payment infrastructure in China has helped fuel the
rapid growth of e-commerce over the past 10 years.
Proximity mobile payment users as % of smartphone users (2019E)
Source: eMarketer
Note: as of October 2019; age 14+; mobile phone users who have made at least one proximity mobile payment transaction in the past six months;
includes point-of-sale transactions made by using mobile devices as a payment method; excludes transactions made via tablet
The customer-to-manufacturer (C2M) model is a beneficiary of the highly penetrated digital
payment industry which allows end-users and manufacturers to transmit money
seamlessly through an online platform.
Customer-to-manufacturer (C2M)
The C2M model helps merchants improve the supply chain efficiency of the retail market
so that they can adjust their production, inventory planning, sales plans and logistics
services accordingly. As a result, merchants can deliver affordable and high quality
household items to customers.
81.1%
29.0%
19.1%
12.5%
16%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
China US UK Germany France

Golden Gate Ventures - Daiwa ASEAN Propagating China Growth.pdf

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