IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

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Event-Driven

<p><a href="https://www.smartkarma.com/entities/ausnutria-dairy-corp-ltd" target="_blank" data-smartkarma-citation="entities:13799:1" rel="noopener">Ausnutria Dairy Corp (1717 HK)</a> is an international high-end dairy and nutrition products company with an entire business chain of raw milk collection, R&amp;D, production, and end-market sales. Ausnutria is the fifth largest infant formula player in China with a 6.3% market share in 2020.   </p><p>As discussed in <a href="https://www.smartkarma.com/insights/ausnutria-in-trading-halt-will-yili-lob-an-offer" target="_blank" data-smartkarma-citation="insights:58863" rel="noopener">Ausnutria in Trading Halt - Will Yili Lob an Offer?</a>,  Ausnutria entered a trading halt on 12 October pursuant to the Hong Kong Code on Takeovers and Mergers. Earlier, on 1 October, Bloomberg reported that <a href="https://www.smartkarma.com/entities/inner-mongolia-yili-indus-a" target="_blank" data-smartkarma-citation="entities:3220:1" rel="noopener">Inner Mongolia Yili Industrial Group (A) (600887 CH)</a> is exploring a potential takeover of Ausnutria. We noted that Yili is the likely suitor as it has a strategy to increase its scale in the milk powder business through mergers and acquisitions.</p><p>Today, Ausnutria announced a share purchase and subscription agreement with Yili. Yili has entered into a share purchase agreement to acquire 530.8 million shares which represent 30.89% of the outstanding shares at a purchase price is HK$10.06 per sale share. Second, Yili has also entered into a subscription agreement to purchase 90.0 newly issued shares at a purchase price of HK$10.06 per subscription share. The subscription agreement requires EGM approval while both agreements require SAMR approval.</p><p>The completion of the two agreements will result in Yili owning 34.33% of the enlarged share capital and voting rights, which will trigger a mandatory share offer under Rule 26.1 of the Takeovers Code. The potential MGO price of HK$10.06 per share represents a premium of 13.67% over the closing price of HK$8.85 per share on the last trading date (11 October prior to the trading halt) and a premium of 25.1% over the closing price of HK$8.04 per share on the unaffected date (30 September prior to the Bloomberg article).</p><p>The mandatory share offer is conditional on the offeror and parties acting in concert with it holding more than 50% of the voting rights. The offeror has received irrecovables not to accept the offer which represents 24.23% of the enlarged share capital. </p><div class="content-highlight"><p>The 50%+ voting threshold will be satisfied if Yili's MGO secures an additional 283 million shares. Due to the irrecovables not to accept, 37.5% of public shareholders (assuming other directors accept the offer) will need to accept the MGO for it to become unconditional. As the MGO price implies a modest premium to peer multiples and long-term share prices, we think achieving the 50%+ voting threshold could be a tough task. We also note that Yili has stated that it has no intention to privatize Ausnutria. </p></div>

Ausnutria Dairy Corp (1717 HK) is an international high-end dairy and nutrition products company with an entire business chain of raw milk collection, R&amp;D, production, and end-market sales. Ausnutria is the fifth largest infant formula player in China with a 6.3% market share in 2020.   As discussed in Ausnutria in Trading Halt - Will Yili Lob an Offer?,  Ausnutria entered a trading halt on 12 October pursuant to the Hong Kong Code on Takeovers and Mergers. Earlier, on 1 October, Bloomberg reported that Inner Mongolia Yili Industrial Group (A) (600887 CH) is exploring a potential takeover of Ausnutria. We noted that Yili is the likely suitor as it has a strategy to increase its scale in the milk powder business through mergers and acquisitions.Today, Ausnutria announced a share purchase and subscription agreement with Yili. Yili has entered into a share purchase agreement to acquire 530.8 million shares which represent 30.89% of the outstanding shares at a purchase price is HK$10.06 per sale share. Second, Yili has also entered into a subscription agreement to purchase 90.0 newly issued shares at a purchase price of HK$10.06 per subscription share. The subscription agreement requires EGM approval while both agreements require SAMR approval.The completion of the two agreements will result in Yili owning 34.33% of the enlarged share capital and voting rights, which will trigger a mandatory share offer under Rule 26.1 of the Takeovers Code. The potential MGO price of HK$10.06 per share represents a premium of 13.67% over the closing price of HK$8.85 per share on the last trading date (11 October prior to the trading halt) and a premium of 25.1% over the closing price of HK$8.04 per share on the unaffected date (30 September prior to the Bloomberg article).The mandatory share offer is conditional on the offeror and parties acting in concert with it holding more than 50% of the voting rights. The offeror has received irrecovables not to accept the offer which represents 24.23% of the enlarged share capital. The 50%+ voting threshold will be satisfied if Yili's MGO secures an additional 283 million shares. Due to the irrecovables not to accept, 37.5% of public shareholders (assuming other directors accept the offer) will need to accept the MGO for it to become unconditional. As the MGO price implies a modest premium to peer multiples and long-term share prices, we think achieving the 50%+ voting threshold could be a tough task. We also note that Yili has stated that it has no intention to privatize Ausnutria. 

Ausnutria’s Potential Conditional MGO from Yili

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

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<p>A little over a week ago, Bloomberg <a href="https://www.just-food.com/news/chinese-dairy-firm-yili-said-to-be-weighing-approach-for-infant-formula-maker-ausnutria/" target="_blank" rel="noopener">reported</a> <a href="https://www.smartkarma.com/entities/inner-mongolia-yili-indus-a" target="_blank" data-smartkarma-citation="entities:3220:1" rel="noopener">Inner Mongolia Yili Industrial Group (A) (600887 CH)</a>, China’s biggest dairy producer, had been running a ruler over infant-formula firm <a href="https://www.smartkarma.com/entities/ausnutria-dairy-corp-ltd" target="_blank" data-smartkarma-citation="entities:13799:1" rel="noopener">Ausnutria Dairy Corp (1717 HK)</a>.</p>
<p>Before the commencement of trading yesterday, Ausnutria was <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/1012/2021101200109.pdf" target="_blank" rel="noopener">suspended</a> pursuant to the Hong Kong Code on Takeovers and Mergers. Shares had gained 7.8% on Monday (the 11th) on the largest volume since November of last year. </p>
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<p><a href="https://www.smartkarma.com/entities/charoen-pokphand-foods-public-company-limited" target="_blank" data-smartkarma-citation="entities:16131:1" rel="noopener"></a>SOE CITIC Group is the largest shareholder with <a href="https://di.hkex.com.hk/di/NSForm2.aspx?fn=CS20200831E00300&amp;sa2=as&amp;sid=37215&amp;corpn=Ausnutria+Dairy+Corporation+Ltd.&amp;sd=13%2f10%2f2020&amp;ed=13%2f10%2f2021&amp;cid=0&amp;sa1=cl&amp;scsd=13%2f10%2f2020&amp;sced=13%2f10%2f2021&amp;sc=1717&amp;src=MAIN&amp;lang=EN&amp;g_lang=en&amp;" target="_blank" rel="noopener">22.05%</a>, having being introduced as a strategic investor back in October 2018.</p>
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<p>This insight provides some brief background on Ausnutria, plus speculates on a fair price should a firm Offer unfold. </p>
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A little over a week ago, Bloomberg reported Inner Mongolia Yili Industrial Group (A) (600887 CH), China’s biggest dairy producer, had been running a ruler over infant-formula firm Ausnutria Dairy Corp (1717 HK).
Before the commencement of trading yesterday, Ausnutria was suspended pursuant to the Hong Kong Code on Takeovers and Mergers. Shares had gained 7.8% on Monday (the 11th) on the largest volume since November of last year. 


SOE CITIC Group is the largest shareholder with 22.05%, having being introduced as a strategic investor back in October 2018.


This insight provides some brief background on Ausnutria, plus speculates on a fair price should a firm Offer unfold. 


<p><a href="https://www.smartkarma.com/entities/ausnutria-dairy-corp-ltd" target="_blank" data-smartkarma-citation="entities:13799:1" rel="noopener">Ausnutria Dairy Corp (1717 HK)</a> is an international high-end dairy and nutrition products company with an entire business chain of raw milk collection, R&amp;D, production, and end-market sales. Ausnutria is the fifth largest infant formula player in China with a 6.3% market share in 2020.   </p><p>Ausnutria entered a trading halt today pursuant to the Hong Kong Code on Takeovers and Mergers. On 1 October, Bloomberg reported that <a href="https://www.smartkarma.com/entities/inner-mongolia-yili-indus-a" target="_blank" data-smartkarma-citation="entities:3220:1" rel="noopener">Inner Mongolia Yili Industrial Group (A) (600887 CH)</a> is exploring a potential takeover of Ausnutria. Yili was said to be in talks with banks to finance a potential deal. The article also speculated that Ausnutria could attract takeover interest from other industry players. There was no takeover price or valuation mentioned in the article.  </p><p>We think that Yili is the likely suitor as there is a strong strategic rationale in acquiring Ausnutria. Yili has a strategy to increase its scale in the milk powder business through mergers and acquisitions. Yili was recently unsuccessful in its bid to acquire <a href="https://www.smartkarma.com/entities/reckitt-benckiser-group-plc" target="_blank" data-smartkarma-citation="entities:22105:1" rel="noopener">Reckitt Benckiser (RB/ LN)</a>’s infant-formula and child nutrition business in China. </p><div class="content-highlight"><p>In this note, we look at the strategic rationale for Yili’s potential bid and take a stab at estimating the potential offer price.  </p></div>

Ausnutria Dairy Corp (1717 HK) is an international high-end dairy and nutrition products company with an entire business chain of raw milk collection, R&amp;D, production, and end-market sales. Ausnutria is the fifth largest infant formula player in China with a 6.3% market share in 2020.   Ausnutria entered a trading halt today pursuant to the Hong Kong Code on Takeovers and Mergers. On 1 October, Bloomberg reported that Inner Mongolia Yili Industrial Group (A) (600887 CH) is exploring a potential takeover of Ausnutria. Yili was said to be in talks with banks to finance a potential deal. The article also speculated that Ausnutria could attract takeover interest from other industry players. There was no takeover price or valuation mentioned in the article.  We think that Yili is the likely suitor as there is a strong strategic rationale in acquiring Ausnutria. Yili has a strategy to increase its scale in the milk powder business through mergers and acquisitions. Yili was recently unsuccessful in its bid to acquire Reckitt Benckiser (RB/ LN)’s infant-formula and child nutrition business in China. In this note, we look at the strategic rationale for Yili’s potential bid and take a stab at estimating the potential offer price.  

Ausnutria in Trading Halt - Will Yili Lob an Offer?

Equity Capital Markets

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<p><a href="https://www.smartkarma.com/entities/china-youran-dairy-group-ltd" target="_blank" data-smartkarma-citation="entities:31075:1" rel="noopener">China Youran Dairy Group Ltd (9858 HK)</a> is the world’s largest raw milk provider as measured by herd size of dairy cows as of 30 June 2020 and raw milk production volume in 1H20, according to Frost &amp; Sullivan. Youran was once a wholly-owned subsidiary of <a href="https://www.smartkarma.com/entities/inner-mongolia-yili-indus-a" target="_blank" data-smartkarma-citation="entities:3220:1" rel="noopener">Inner Mongolia Yili Industrial Group (A) (600887 CH)</a> until PAG Capital’s investment in 2015.</p>
<p>At the proposed IPO price range of HK$6.98-8.66 per share, Youran will have a market cap of HK$26,492-32,868 million ($3.4-4.2 billion). At the mid-point of the IPO price range, the gross proceeds are HK$5,595 million ($722 million). The primary/secondary split is 69%/31%. The selling shareholder is PAG Capital.</p>
<p>The cornerstone support is unusually low. Two cornerstone investors will purchase $50 million worth of the offer shares (6.94% of the offer shares at the mid-point of the IPO price range). The cornerstone investors are CITIC-Prudential Life Insurance and Harvest Fund Management.</p>
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<p>In <a href="https://www.smartkarma.com/insights/china-youran-dairy-group-ipo-initiation-ecownomics" target="_blank" data-smartkarma-citation="insights:51709" rel="noopener">China Youran Dairy Group IPO Initiation: Ecownomics</a>, we stated that notwithstanding its high revenue dependence on Yili, Youran is capitalising on the favourable demand-supply imbalance for raw milk in China by delivering strong organic growth (on a pro-forma basis), rising margins and accretive acquisitions. We concluded that Youran is worth a look.</p>
<div class="content-highlight"><p>Based on our forecasts, Youran is attractively valued to its H-share peer group, which are largely downstream players, at the low-end of the IPO price range. Compared to <a href="https://www.smartkarma.com/entities/china-modern-dairy-holdings" target="_blank" data-smartkarma-citation="entities:6785:1" rel="noopener">China Modern Dairy (1117 HK)</a>, an upstream dairy peer (arguably the key listed comp), Youran trades at a substantial premium on a CY2021 P/E basis but trades at a substantial discount on a CY2021 PEG basis. Overall, we are inclined to participate at most at the low end of the IPO price range due to the decent upside potential. </p></div>
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China Youran Dairy Group Ltd (9858 HK) is the world’s largest raw milk provider as measured by herd size of dairy cows as of 30 June 2020 and raw milk production volume in 1H20, according to Frost &amp; Sullivan. Youran was once a wholly-owned subsidiary of Inner Mongolia Yili Industrial Group (A) (600887 CH) until PAG Capital’s investment in 2015.
At the proposed IPO price range of HK$6.98-8.66 per share, Youran will have a market cap of HK$26,492-32,868 million ($3.4-4.2 billion). At the mid-point of the IPO price range, the gross proceeds are HK$5,595 million ($722 million). The primary/secondary split is 69%/31%. The selling shareholder is PAG Capital.
The cornerstone support is unusually low. Two cornerstone investors will purchase $50 million worth of the offer shares (6.94% of the offer shares at the mid-point of the IPO price range). The cornerstone investors are CITIC-Prudential Life Insurance and Harvest Fund Management.

In China Youran Dairy Group IPO Initiation: Ecownomics, we stated that notwithstanding its high revenue dependence on Yili, Youran is capitalising on the favourable demand-supply imbalance for raw milk in China by delivering strong organic growth (on a pro-forma basis), rising margins and accretive acquisitions. We concluded that Youran is worth a look.
Based on our forecasts, Youran is attractively valued to its H-share peer group, which are largely downstream players, at the low-end of the IPO price range. Compared to China Modern Dairy (1117 HK), an upstream dairy peer (arguably the key listed comp), Youran trades at a substantial premium on a CY2021 P/E basis but trades at a substantial discount on a CY2021 PEG basis. Overall, we are inclined to participate at most at the low end of the IPO price range due to the decent upside potential. 


China Youran Dairy Group IPO: Valuation Insights

<div><p><a href="https://www.smartkarma.com/entities/china-youran-dairy-group-ltd" target="_blank" data-smartkarma-citation="entities:31075:1" rel="noopener">China Youran Dairy Group Ltd (1836774D CH)</a> is the world’s largest raw milk provider as measured by herd size of dairy cows as of 30 June 2020 and raw milk production volume in 1H20, according to Frost &amp; Sullivan. Youran was once a wholly-owned subsidiary of <a href="https://www.smartkarma.com/entities/inner-mongolia-yili-indus-a" target="_blank" data-smartkarma-citation="entities:3220:1" rel="noopener">Inner Mongolia Yili Industrial Group (A) (600887 CH)</a> until PAG Capital’s investment in 2015. Youran is pre-marketing an HKEx IPO to raise $800 million, according to press reports.   </p></div><div><div><div class="content-highlight"><p>In <a href="https://www.smartkarma.com/insights/china-youran-dairy-group-ipo-initiation-ecownomics" target="_blank" data-smartkarma-citation="insights:51709" rel="noopener">China Youran Dairy Group IPO Initiation: Ecownomics</a>, we stated that notwithstanding its high revenue dependence on Yili, Youran is capitalising on the favourable demand-supply imbalance for raw milk in China by delivering strong organic growth (on a pro-forma basis), rising margins and accretive acquisitions. We concluded that Youran is worth a look. In this note, we present our forecasts and take the first look at Youran's potential valuation range. </p></div></div></div>

China Youran Dairy Group Ltd (1836774D CH) is the world’s largest raw milk provider as measured by herd size of dairy cows as of 30 June 2020 and raw milk production volume in 1H20, according to Frost &amp; Sullivan. Youran was once a wholly-owned subsidiary of Inner Mongolia Yili Industrial Group (A) (600887 CH) until PAG Capital’s investment in 2015. Youran is pre-marketing an HKEx IPO to raise $800 million, according to press reports.   In China Youran Dairy Group IPO Initiation: Ecownomics, we stated that notwithstanding its high revenue dependence on Yili, Youran is capitalising on the favourable demand-supply imbalance for raw milk in China by delivering strong organic growth (on a pro-forma basis), rising margins and accretive acquisitions. We concluded that Youran is worth a look. In this note, we present our forecasts and take the first look at Youran's potential valuation range. 

China Youran Dairy Group IPO: Valuation First-Look

Hong Kong

Ausnutria Dairy is an international company specializing in the research, development, production, marketing, and distribution of dairy and nutrition products. Its diverse portfolio includes infant formula (cow and goat milk-based), adult formula, and probiotic products, sold under various brands globally. The company was founded in 2003 and is headquartered in Sheung Wan, Hong Kong.

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Ausnutria Dairy (1717 HK)

Ausnutria’s Potential Conditional MGO from Yili

The completion of the agreements will result in Yili owning 34.33% voting rights, triggering an MGO at HK$10.06 per share. However, we think...

Arun George

Will Yili Gulp Down Ausnutria (1717 HK)?

Ausnutria is currently trading around multi-year high lows on all metrics despite edging towards an all-time profit high. Optically, this could...

David Blennerhassett

Ausnutria in Trading Halt - Will Yili Lob an Offer?

Bloomberg reported on 1 Oct that Yili is weighing a bid for Ausnutria. We look at the strategic rationale for Yili/Ausnutria combination and take a...

Arun George

China Youran Dairy Group IPO: Valuation Insights

At the mid-point of the IPO price range, the gross proceeds are $722 million. Overall, we are inclined to participate at most at the low end of the...

Arun George

China Youran Dairy Group IPO: Valuation First-Look

Youran is pre-marketing an HKEx IPO to raise $800 million, according to press reports. In this note, we present our forecasts and take the first...

Arun George

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