Asia Pac IPO & Placement Research, China biotech, Aequitas Research

Ke Yan, CFA, FRM

Asia Pac IPO & Placement Research, China biotech

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Equity Capital Markets

Novotech Holdings / Equity Capital Markets

<p>Novotech is a leading biotech focused contract research organization in Asia Pacific. The company is looking to raise up to USD 1.5bn via a Hong Kong listing.</p><p>The company has a long history of operation since 1997 and was formed by a merger of two companies. It has a customer focus on biotech companies with its flexible services, particularly services in the clinical research stage. We like the company's leading market position in Australia/New Zealand and South Korea. </p><p>The company is run by a decent team and has obtained investments from a strong line-up of investors. It has been growing at a rate above the industry average but it only turned profitable in 2020. Looking at the company's pre-IPO valuation, we think the investors have been bullish on the prospect of margin improvement. </p>

Novotech is a leading biotech focused contract research organization in Asia Pacific. The company is looking to raise up to USD 1.5bn via a Hong Kong listing.The company has a long history of operation since 1997 and was formed by a merger of two companies. It has a customer focus on biotech companies with its flexible services, particularly services in the clinical research stage. We like the company's leading market position in Australia/New Zealand and South Korea. The company is run by a decent team and has obtained investments from a strong line-up of investors. It has been growing at a rate above the industry average but it only turned profitable in 2020. Looking at the company's pre-IPO valuation, we think the investors have been bullish on the prospect of margin improvement. 

Novotech Pre-IPO: Biotech Focused CRO at Hefty Pre-IPO Valuation

HK/China Healthcare Analyst (ex-Fosun Pharma)

Xinyao (Criss) Wang

Thematic (Sector/Industry)

<p><strong>Executive Summary</strong></p><p>With the natural growth of the population and the inevitable trend of population aging, the demand in the healthcare industry will continue to rise. In addition, the improvement of people’s health consciousness, the upgrade of medical consumption and related favorable policies are the core factors driving the demand of China's medical device industry. Over the past five years, the global medical device market has maintained an annual growth rate of about 5%, while the growth rate of China's medical device market was more than 15%. It is expected that the gap between China and the global medical device market size would be gradually narrowed and China’s medical device market would play a more important role in the future. Therefore, the investment opportunities in China medical device market are very attractive and unmissable. On the other hand, with the promotion of the centralized procurement of high-value medical consumables nationwide, related medical device companies are facing pressure. So, how to find valuable investment targets that can avoid the influence of government's centralized procurement policy is important to investors. This Original mainly analyzed good investment opportunities, the industry characteristics, the investment rationale and the potential risks.</p><p><strong>What’s Original?</strong></p><p>We have identified the following investment opportunities in the Health Care Equipment and Services category in MSCI China:</p><ul>
<li>
<a href="https://www.smartkarma.com/entities/shenzhen-mindray-bio-medic-a" target="_blank" data-smartkarma-citation="entities:28017:1" rel="noopener">Shenzhen Mindray Bio-Medical Electronics (300760 CH)</a>: Mindray is the largest medical device and solution supplier in China. Its three core businesses are all in the forefront in China, and is also one of the few domestic companies that is truly capable of achieving import substitution and internationalization and could compete with overseas giants. Meanwhile, because of the Company's business layout, Mindray is not greatly affected by the centralized procurement policy in the short term. Together with the strategy of “innovation + M&amp;A + internationalization”, Mindray has formed the high moat and become the industry benchmark.</li>
<li>
<a href="https://www.smartkarma.com/entities/ovctek-china-inc" target="_blank" data-smartkarma-citation="entities:29638:1" rel="noopener">Ovctek China Inc (300595 CH)</a>: OVCTEK is the leading company in China orthokeratology lens market, with broad market prospect. Considering the high prosperity of the industry in which the Company is located, the good competition pattern, and the low penetration rate of orthokeratology lens, OVCTEK is expected to continue to maintain rapid growth in the future. Meanwhile, because the products have strong consumption attributes, OVCTEK’s business will not be affected by the centralized procurement policy. The obvious product performance advantage, the strong sales channel and the large market potential are the drivers for revenue and margins.</li>
<li>
<a href="https://www.smartkarma.com/entities/jafron-biomedical-co-ltd" target="_blank" data-smartkarma-citation="entities:29575:1" rel="noopener">Jafron Biomedical Co Ltd (300529 CH)</a>: JAFRON is the leading company in the field of hemoperfusion in China. As there are very limited competing products in the market, the Company is currently in a monopoly position of hemoperfusion cartridge, with strong pricing power and over 80% gross margin for more than five years. In addition, there is still a lot of room for growth in the hemoperfusion cartridge market, together with the strong product competitiveness, and the technical, raw material and channel advantages, JAFRON has established a high moat in this market.</li>
</ul><p>The pecking order is: Mindray, OVCTEK and JAFRON.</p>

Executive SummaryWith the natural growth of the population and the inevitable trend of population aging, the demand in the healthcare industry will continue to rise. In addition, the improvement of people’s health consciousness, the upgrade of medical consumption and related favorable policies are the core factors driving the demand of China's medical device industry. Over the past five years, the global medical device market has maintained an annual growth rate of about 5%, while the growth rate of China's medical device market was more than 15%. It is expected that the gap between China and the global medical device market size would be gradually narrowed and China’s medical device market would play a more important role in the future. Therefore, the investment opportunities in China medical device market are very attractive and unmissable. On the other hand, with the promotion of the centralized procurement of high-value medical consumables nationwide, related medical device companies are facing pressure. So, how to find valuable investment targets that can avoid the influence of government's centralized procurement policy is important to investors. This Original mainly analyzed good investment opportunities, the industry characteristics, the investment rationale and the potential risks.What’s Original?We have identified the following investment opportunities in the Health Care Equipment and Services category in MSCI China:

Shenzhen Mindray Bio-Medical Electronics (300760 CH): Mindray is the largest medical device and solution supplier in China. Its three core businesses are all in the forefront in China, and is also one of the few domestic companies that is truly capable of achieving import substitution and internationalization and could compete with overseas giants. Meanwhile, because of the Company's business layout, Mindray is not greatly affected by the centralized procurement policy in the short term. Together with the strategy of “innovation + M&amp;A + internationalization”, Mindray has formed the high moat and become the industry benchmark.

Ovctek China Inc (300595 CH): OVCTEK is the leading company in China orthokeratology lens market, with broad market prospect. Considering the high prosperity of the industry in which the Company is located, the good competition pattern, and the low penetration rate of orthokeratology lens, OVCTEK is expected to continue to maintain rapid growth in the future. Meanwhile, because the products have strong consumption attributes, OVCTEK’s business will not be affected by the centralized procurement policy. The obvious product performance advantage, the strong sales channel and the large market potential are the drivers for revenue and margins.

Jafron Biomedical Co Ltd (300529 CH): JAFRON is the leading company in the field of hemoperfusion in China. As there are very limited competing products in the market, the Company is currently in a monopoly position of hemoperfusion cartridge, with strong pricing power and over 80% gross margin for more than five years. In addition, there is still a lot of room for growth in the hemoperfusion cartridge market, together with the strong product competitiveness, and the technical, raw material and channel advantages, JAFRON has established a high moat in this market.
The pecking order is: Mindray, OVCTEK and JAFRON.

Investment Opportunities in China Medical Device Industry

Quantitative Analysis

<p>Hong Kong SFC reported aggregate short position as of Apr 23. The aggregate short value for equities increased by $1,521m (+2.2%) WoW and increased by $2,239m (+3.2%) over the preceding four weeks.<br><br>Most shorted stocks by aggregate short value of positions are Ping An Insurance (Group) Company Of China, Ltd./2318 HK($7,718m, -5.4% WoW), Tencent Holdings Limited/700 HK($1,974m, +13.9% WoW), Meituan/3690 HK($1,680m, +15.4% WoW), Zhongsheng Group Holdings Limited/881 HK($1,466m, +2.7% WoW), China Merchants Bank Co., Ltd./3968 HK($1,422m, +17.4% WoW).</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/203/957/original/Hong_Kong_Market_Short_Position_Value_%28line%29_and_1W_Changes_%28bar%29_%28%24m%292021-05-01+11_34_40.png?1620010455" class="editor-image img-responsive" data-smartkarma-image-id="203957"></figure></section>

Hong Kong SFC reported aggregate short position as of Apr 23. The aggregate short value for equities increased by $1,521m (+2.2%) WoW and increased by $2,239m (+3.2%) over the preceding four weeks.  Most shorted stocks by aggregate short value of positions are Ping An Insurance (Group) Company Of China, Ltd./2318 HK($7,718m, -5.4% WoW), Tencent Holdings Limited/700 HK($1,974m, +13.9% WoW), Meituan/3690 HK($1,680m, +15.4% WoW), Zhongsheng Group Holdings Limited/881 HK($1,466m, +2.7% WoW), China Merchants Bank Co., Ltd./3968 HK($1,422m, +17.4% WoW).

HK Short Interest: Wuxi Apptec, Sunny Optical

<p><strong>Industry viewpoints:</strong></p><ul>
<li>At present, the market is too enthusiastic about innovative drugs, which could result in a serious decline in the rate of return on investment and output.</li>
<li>The demand of CDMO of cell and gene therapy would be higher than that of biological drug CDMO in the future.</li>
<li>China's meal replacement market is currently the fastest growing in the world.</li>
</ul><p><strong>Company news:</strong></p><p style="text-align: start;">News about the updated progress on new drugs of <a href="https://www.smartkarma.com/entities/shanghai-junshi-bioscience-h" target="_blank" data-smartkarma-citation="entities:27760:1" rel="noopener">Shanghai Junshi Bioscience Co. Ltd. (1877 HK), </a><a href="https://www.smartkarma.com/entities/jiangsu-hengrui-medicine-co-ltd" target="_blank" data-smartkarma-citation="entities:14128:1" rel="noopener">Jiangsu Hengrui Medicine (600276 CH)</a>, <a href="https://www.smartkarma.com/entities/akeso-biopharma-inc" target="_blank" data-smartkarma-citation="entities:28830:1" rel="noopener">Akeso Biopharma Inc (9926 HK)</a> and <a href="https://www.smartkarma.com/entities/beigene-ltd" target="_blank" data-smartkarma-citation="entities:27352:1" rel="noopener">BeiGene Ltd (6160 HK)</a>.</p><p><strong>Market review:</strong></p><p style="text-align: start;">Last week, stock price for healthcare sector in A share increased (+4.72%), while CSI 300 decreased (-0.23%) over the same period of time.</p><p><strong>Risk disclosure:</strong></p><p style="text-align: start;">Policy risk, R&amp;D risk, Company risk and COVID-19 risk.</p>

Industry viewpoints:
At present, the market is too enthusiastic about innovative drugs, which could result in a serious decline in the rate of return on investment and output.
The demand of CDMO of cell and gene therapy would be higher than that of biological drug CDMO in the future.
China's meal replacement market is currently the fastest growing in the world.
Company news:News about the updated progress on new drugs of Shanghai Junshi Bioscience Co. Ltd. (1877 HK), Jiangsu Hengrui Medicine (600276 CH), Akeso Biopharma Inc (9926 HK) and BeiGene Ltd (6160 HK).Market review:Last week, stock price for healthcare sector in A share increased (+4.72%), while CSI 300 decreased (-0.23%) over the same period of time.Risk disclosure:Policy risk, R&amp;D risk, Company risk and COVID-19 risk.

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

<div><p>The Asia Short Interest weekly looks at moves in market wide short interest and highlights movements in stock specific short interest across Hong Kong, Japan, Korea and Taiwan using the last available data published by the relevant authorities.</p></div><div><p>Hong Kong saw shorts rise on <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent Holdings (700 HK)</a>, <a href="https://www.smartkarma.com/entities/meituan-dianping" target="_blank" data-smartkarma-citation="entities:26970:1" rel="noopener">Meituan (3690 HK)</a>, <a href="https://www.smartkarma.com/entities/china-merchants-bank-co-ltd-3388a037-4214-4997-b45d-520518cfdb57" target="_blank" data-smartkarma-citation="entities:10987:1" rel="noopener">China Merchants Bank H (3968 HK)</a>, <a href="https://www.smartkarma.com/entities/wuxi-apptec-co-ltd-bf4a1265-beef-48b6-b82d-29308426030f" target="_blank" data-smartkarma-citation="entities:27795:1" rel="noopener">WuXi AppTec Co. Ltd. (2359 HK)</a> and <a href="https://www.smartkarma.com/entities/sunny-optical-tech" target="_blank" data-smartkarma-citation="entities:13363:1" rel="noopener">Sunny Optical (2382 HK)</a> while there was short covering on <a href="https://www.smartkarma.com/entities/ping-an-insurance-grp-co-of-china-ltd" target="_blank" data-smartkarma-citation="entities:12880:1" rel="noopener">Ping An Insurance (H) (2318 HK)</a>, <a href="https://www.smartkarma.com/entities/baidu-inc-a55ca720-5968-48f0-8194-ac94390d065c" target="_blank" data-smartkarma-citation="entities:32212:1" rel="noopener">Baidu (9888 HK)</a>, <a href="https://www.smartkarma.com/entities/haier-smart-home-co-ltd-b3ef445f-0f54-4586-8c58-9073de98d60e" target="_blank" data-smartkarma-citation="entities:31105:1" rel="noopener">Haier Smart Home Co Ltd (6690 HK)</a>, <a href="https://www.smartkarma.com/entities/alibaba-group" target="_blank" data-smartkarma-citation="entities:28434:1" rel="noopener">Alibaba Group (9988 HK)</a> and <a href="https://www.smartkarma.com/entities/citic-securities-h" target="_blank" data-smartkarma-citation="entities:463:1" rel="noopener">Citic Securities (H) (6030 HK)</a>. Shorts increased in the Communication Services, Consumer Discretionary, Health Care and Real Estate sectors, and decreased in the Financials, Industrials, and Information Technology sectors.</p></div><div><p>In Japan, stocks that saw the most shorts were <a href="https://www.smartkarma.com/entities/lasertec-corp" target="_blank" data-smartkarma-citation="entities:4126:1" rel="noopener">Lasertec Corp (6920 JP)</a>, <a href="https://www.smartkarma.com/entities/anritsu-corp" target="_blank" data-smartkarma-citation="entities:3700:1" rel="noopener">Anritsu Corp (6754 JP)</a>, <a href="https://www.smartkarma.com/entities/daito-trust-construct-co-ltd" target="_blank" data-smartkarma-citation="entities:10503:1" rel="noopener">Daito Trust Construct (1878 JP)</a>, <a href="https://www.smartkarma.com/entities/jfe-holdings-inc" target="_blank" data-smartkarma-citation="entities:210:1" rel="noopener">JFE Holdings (5411 JP)</a> and <a href="https://www.smartkarma.com/entities/tokyu-fudosan-holdings-corp" target="_blank" data-smartkarma-citation="entities:8355:1" rel="noopener">Tokyu Fudosan Holdings (3289 JP)</a> while shorts decreased on <a href="https://www.smartkarma.com/entities/toshiba-corp" target="_blank" data-smartkarma-citation="entities:637:1" rel="noopener">Toshiba Corp (6502 JP)</a>, <a href="https://www.smartkarma.com/entities/ana-holdings-inc" target="_blank" data-smartkarma-citation="entities:5308:1" rel="noopener">Ana Holdings (9202 JP)</a>, <a href="https://www.smartkarma.com/entities/h-i-s-co-ltd" target="_blank" data-smartkarma-citation="entities:19311:1" rel="noopener">H I S Co Ltd (9603 JP)</a>, <a href="https://www.smartkarma.com/entities/outsourcing-inc" target="_blank" data-smartkarma-citation="entities:7431:1" rel="noopener">Outsourcing Inc (2427 JP)</a> and <a href="https://www.smartkarma.com/entities/euglena-co-ltd" target="_blank" data-smartkarma-citation="entities:8414:1" rel="noopener">Euglena Co Ltd (2931 JP)</a>. Shorts increased in the Real Estate and Consumer Discretionary sectors, and decreased in the Industrials sector.</p></div><div><p>In Korea, shorts increased on <a href="https://www.smartkarma.com/entities/celltrion-inc" target="_blank" data-smartkarma-citation="entities:991:1" rel="noopener">Celltrion Inc (068270 KS)</a> and <a href="https://www.smartkarma.com/entities/hyundai-motor-co" target="_blank" data-smartkarma-citation="entities:155:1" rel="noopener">Hyundai Motor Co (005380 KS)</a> during the week while decreasing on <a href="https://www.smartkarma.com/entities/samsung-electronics-co-ltd" target="_blank" data-smartkarma-citation="entities:191:1" rel="noopener">Samsung Electronics (005930 KS)</a>, <a href="https://www.smartkarma.com/entities/hyundai-heavy-industries" target="_blank" data-smartkarma-citation="entities:10155:1" rel="noopener">Hyundai Heavy Industries (009540 KS)</a> and <a href="https://www.smartkarma.com/entities/doosan-infracore-co-ltd" target="_blank" data-smartkarma-citation="entities:3982:1" rel="noopener">Doosan Infracore (042670 KS)</a>. The short sell ban has ended today and short selling will be permitted on <a href="https://www.smartkarma.com/entities/korea-stock-exchange-kospi-200-index" target="_blank" data-smartkarma-citation="entities:26021:1" rel="noopener">Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX)</a> and <a href="https://www.smartkarma.com/entities/kosdaq-150-index" target="_blank" data-smartkarma-citation="entities:31077:1" rel="noopener">KOSDAQ 150 Index (KOSDQ150 INDEX)</a> constituents from Monday, 3 May.</p></div><div><p>Stocks in Taiwan that saw the highest increase in shorts were <a href="https://www.smartkarma.com/entities/china-development-financial" target="_blank" data-smartkarma-citation="entities:13818:1" rel="noopener">China Development Financial (2883 TT)</a>, <a href="https://www.smartkarma.com/entities/yang-ming-marine-transport" target="_blank" data-smartkarma-citation="entities:8502:1" rel="noopener">Yang Ming Marine Transport (2609 TT)</a>, <a href="https://www.smartkarma.com/entities/evergreen-marine-corp-ltd" target="_blank" data-smartkarma-citation="entities:15428:1" rel="noopener">Evergreen Marine Corp (2603 TT)</a>, <a href="https://www.smartkarma.com/entities/walsin-lihwa-corp" target="_blank" data-smartkarma-citation="entities:17142:1" rel="noopener">Walsin Lihwa (1605 TT)</a> and <a href="https://www.smartkarma.com/entities/compal-electronics" target="_blank" data-smartkarma-citation="entities:4620:1" rel="noopener">Compal Electronics (2324 TT)</a> while shorts were covered on <a href="https://www.smartkarma.com/entities/au-optronics-corp" target="_blank" data-smartkarma-citation="entities:6704:1" rel="noopener">AU Optronics (2409 TT)</a>, <a href="https://www.smartkarma.com/entities/winbond-electronics-corp" target="_blank" data-smartkarma-citation="entities:9177:1" rel="noopener">Winbond Electronics (2344 TT)</a>, <a href="https://www.smartkarma.com/entities/asmedia-technology-inc" target="_blank" data-smartkarma-citation="entities:15732:1" rel="noopener">Asmedia Technology (5269 TT)</a>, <a href="https://www.smartkarma.com/entities/genius-electronic-optical-co-ltd" target="_blank" data-smartkarma-citation="entities:9632:1" rel="noopener">Genius Electronic Optical (3406 TT)</a> and <a href="https://www.smartkarma.com/entities/novatek-microelectronics-corp" target="_blank" data-smartkarma-citation="entities:10904:1" rel="noopener">Novatek Microelectronics Corp (3034 TT)</a>.</p></div>

The Asia Short Interest weekly looks at moves in market wide short interest and highlights movements in stock specific short interest across Hong Kong, Japan, Korea and Taiwan using the last available data published by the relevant authorities.Hong Kong saw shorts rise on Tencent Holdings (700 HK), Meituan (3690 HK), China Merchants Bank H (3968 HK), WuXi AppTec Co. Ltd. (2359 HK) and Sunny Optical (2382 HK) while there was short covering on Ping An Insurance (H) (2318 HK), Baidu (9888 HK), Haier Smart Home Co Ltd (6690 HK), Alibaba Group (9988 HK) and Citic Securities (H) (6030 HK). Shorts increased in the Communication Services, Consumer Discretionary, Health Care and Real Estate sectors, and decreased in the Financials, Industrials, and Information Technology sectors.In Japan, stocks that saw the most shorts were Lasertec Corp (6920 JP), Anritsu Corp (6754 JP), Daito Trust Construct (1878 JP), JFE Holdings (5411 JP) and Tokyu Fudosan Holdings (3289 JP) while shorts decreased on Toshiba Corp (6502 JP), Ana Holdings (9202 JP), H I S Co Ltd (9603 JP), Outsourcing Inc (2427 JP) and Euglena Co Ltd (2931 JP). Shorts increased in the Real Estate and Consumer Discretionary sectors, and decreased in the Industrials sector.In Korea, shorts increased on Celltrion Inc (068270 KS) and Hyundai Motor Co (005380 KS) during the week while decreasing on Samsung Electronics (005930 KS), Hyundai Heavy Industries (009540 KS) and Doosan Infracore (042670 KS). The short sell ban has ended today and short selling will be permitted on Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX) and KOSDAQ 150 Index (KOSDQ150 INDEX) constituents from Monday, 3 May.Stocks in Taiwan that saw the highest increase in shorts were China Development Financial (2883 TT), Yang Ming Marine Transport (2609 TT), Evergreen Marine Corp (2603 TT), Walsin Lihwa (1605 TT) and Compal Electronics (2324 TT) while shorts were covered on AU Optronics (2409 TT), Winbond Electronics (2344 TT), Asmedia Technology (5269 TT), Genius Electronic Optical (3406 TT) and Novatek Microelectronics Corp (3034 TT).

Asia Shorts: Tencent, CM Bank, Wuxi Apptec, Baidu, Anritsu, Daito, Ana, Yang Ming, Evergreen Marine

China

WuXi AppTec Co., Ltd. manufactures medical products. The Company produces biological agents, antibodies, biological diagnostic reagents, and other products. WuXi AppTec also provides biological analysis, technical study, and other services.

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WuXi AppTec (2359 HK)

Novotech Pre-IPO: Biotech Focused CRO at Hefty Pre-IPO Valuation

Novotech has an interesting value proposition as a biotech focused CRO in the APAC region. The company has a decent growth in the past but we think...

Ke Yan, CFA, FRM

Investment Opportunities in China Medical Device Industry

This Original mainly analyzed good investment opportunities, the industry characteristics, the investment rationale and the potential risks in...

Xinyao (Criss) Wang

HK Short Interest: Wuxi Apptec, Sunny Optical

We note that Meituan's short interest continued to build up. Meanwhile, we highlight that Wuxi Apptec and Sunny Optical see the most short interest...

Ke Yan, CFA, FRM

China Healthcare Weekly (Apr.30)

The insight analyzed industry viewpoints including the concerns on ROE of innovative drugs, the demand of CDMO of cell and gene therapy, China's...

Xinyao (Criss) Wang

Asia Shorts: Tencent, CM Bank, Wuxi Apptec, Baidu, Anritsu, Daito, Ana, Yang Ming, Evergreen Marine

The Insight looks at large short interest movements across HK, Japan, Korea and Taiwan stocks and highlights large increases/decreases in shorts to...

Brian Freitas

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