Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

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

China Tourism Group Duty Free Corp Ltd / Equity Capital Markets

<a href="https://www.smartkarma.com/entities/china-tourism-group-duty-free-corp-ltd" target="_blank" data-smartkarma-citation="entities:12278:1" rel="noopener">China Tourism Group Duty Free Corp Ltd (601888 CH)</a> (CDF) aims to raise around US$5-10bn in its H-share listing in Hong Kong. CDF is the largest travel retail operator in the world primarily focusing on sales of high-quality duty-free and duty-paid merchandise to domestic and international travelers. As per Frost &amp; Sullivan, it had 92.3% market share by retail revenue in China duty-free merchandise sales in 2020.As the A-shares are already listed and well covered, we will treat this listing more like a placement rather than an IPO. However, given the large potential size of the listing, we will go into more details than we would for a regular placement. Hence, in this note we will briefly cover the company’s background and recent performance before touching upon the deal dynamics.

China Tourism Group Duty Free Corp Ltd (601888 CH) (CDF) aims to raise around US$5-10bn in its H-share listing in Hong Kong. CDF is the largest travel retail operator in the world primarily focusing on sales of high-quality duty-free and duty-paid merchandise to domestic and international travelers. As per Frost &amp; Sullivan, it had 92.3% market share by retail revenue in China duty-free merchandise sales in 2020.As the A-shares are already listed and well covered, we will treat this listing more like a placement rather than an IPO. However, given the large potential size of the listing, we will go into more details than we would for a regular placement. Hence, in this note we will briefly cover the company’s background and recent performance before touching upon the deal dynamics.

China Tourism Group A/H Listing Early Look - Over US$5bn Raising for a Monopoly on Chinese Tourists

HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/air-china-ltd-h" target="_blank" data-smartkarma-citation="entities:8239:1" rel="noopener">Air China Ltd (H) (753 HK)</a> should see an YoY reduction in loss contribution from the 29.99%-owned associate <a href="https://www.smartkarma.com/entities/cathay-pacific-airways-ltd" target="_blank" data-smartkarma-citation="entities:243:1" rel="noopener">Cathay Pacific Airways (293 HK)</a>, based on CX's latest guidance that losses for 1H21 will be less than both 1H20 and 2H20. If we extrapolate the 1Q21 losses from Air China's associated companies to the full year, we should potentially see as least 30% YoY losses reduction. In our view, this will be of significant help to Air China's bottom-line recovery in FY21.CX's 24.5% MoM passenger traffic rebound in May echoed the sequential improvement of Air China's regional and international traffic. The increase in global vaccination rates and resumption of more long-haul flights suggested an improving outlook for CX's international passenger traffic. This should offer an added support to Air China which, we think as a recovery play, is trading on undemanding 12-month forward P/B multiple of 0.98x - the average level since 2016.

Air China Ltd (H) (753 HK) should see an YoY reduction in loss contribution from the 29.99%-owned associate Cathay Pacific Airways (293 HK), based on CX's latest guidance that losses for 1H21 will be less than both 1H20 and 2H20. If we extrapolate the 1Q21 losses from Air China's associated companies to the full year, we should potentially see as least 30% YoY losses reduction. In our view, this will be of significant help to Air China's bottom-line recovery in FY21.CX's 24.5% MoM passenger traffic rebound in May echoed the sequential improvement of Air China's regional and international traffic. The increase in global vaccination rates and resumption of more long-haul flights suggested an improving outlook for CX's international passenger traffic. This should offer an added support to Air China which, we think as a recovery play, is trading on undemanding 12-month forward P/B multiple of 0.98x - the average level since 2016.   

Air China (753 HK): Positive Implications from CX's May Traffic Announcement

Thematic (Sector/Industry)

A close look on the May traffic for the Chinese airlines will reveal that <a href="https://www.smartkarma.com/entities/air-china-ltd-h" target="_blank" data-smartkarma-citation="entities:8239:1" rel="noopener">Air China Ltd (H) (753 HK)</a> continued to make positive progress to narrow down its gap against <a href="https://www.smartkarma.com/entities/china-southern-airlines-co-ltd" target="_blank" data-smartkarma-citation="entities:1078:1" rel="noopener">China Southern Airlines (1055 HK)</a>. The former's overall passenger traffic YoY growth was 6.7pp better than the latter in the month; and its freight traffic was even at a 25.4% YoY growth, compared with just 5.9% for CSA. We saw that Air China has already stopped its underperformance against CSA starting Apr, with both stocks moving very much in tandem in the last three months. With the recent local COVID-19 case outbreak in Guangdong, particularly Guangzhou which negatively affect scheduled flights into CSA's headquarter hub, we see room for near-term outperformance at Air China. With better pick-up of international traffic going forward, we expect Air China to widen its outperformance into 2H21.

A close look on the May traffic for the Chinese airlines will reveal that Air China Ltd (H) (753 HK) continued to make positive progress to narrow down its gap against China Southern Airlines (1055 HK). The former's overall passenger traffic YoY growth was 6.7pp better than the latter in the month; and its freight traffic was even at a 25.4% YoY growth, compared with just 5.9% for CSA. We saw that Air China has already stopped its underperformance against CSA starting Apr, with both stocks moving very much in tandem in the last three months. With the recent local COVID-19 case outbreak in Guangdong, particularly Guangzhou which negatively affect scheduled flights into CSA's headquarter hub, we see room for near-term outperformance at Air China. With better pick-up of international traffic going forward, we expect Air China to widen its outperformance into 2H21. 

Chinese Airlines: China Southern (1055 HK) Seeing More Pressure than Air China (753 HK)

Founder of Antler Capital

Stanley Tsai, CFA

BOC Aviation | BOCAVI <a href="https://www.smartkarma.com/entities/boc-aviation" target="_blank" data-smartkarma-citation="entities:22689:1" rel="noopener">(2588 HK)</a> 
As a follow-up on <a href="https://www.smartkarma.com/profiles/david-blennerhassett" target="_blank" data-smartkarma-citation="accounts:840" rel="noopener">David Blennerhassett</a>'s Smartkarma Original <a href="https://www.smartkarma.com/insights/asia-pac-airports-ups-but-mostly-downs" target="_blank" data-smartkarma-citation="insights:51855" rel="noopener">Asia-Pac Airports: Ups, But Mostly Downs</a>, we take a look at BOCAVI, which, in our view, is a compelling alternative to APAC airport operators and airlines as a post-Covid trade.
BOCAVI is a highly geared play on the resumption of air travel. The stock has gone through periods of significant out/underperformance against the APAC airports and airlines and may continue to give investors high beta in either direction. The geographical exposure is broad, but there is a heavy skew towards short-haul flights, which will see the earliest acceleration in passenger traffic.
Management's countercyclical capex expansion increasingly looks like a shrewd bet. At its core, BOCAVI is in the capital management business. Strong liquidity and BOC's explicit backing have allowed the lessor to grow its purchase-and-leaseback portfolio through the depths of the pandemic. While airlines are still hemorrhaging cash, over 99% of BOCAVI's aircraft remain cash-generating.  
We expect the firm's undiscounted committed revenues to top USD20bn in 2021. By year-end, the value of the portfolio will have doubled since 2014. We estimate the present value of this cashflow stream to be HKD72.80/share. We are essentially getting free growth optionality. 
We are buyers at book value. The stock is trading at 8x P/E and 1.1x P/B on a 12M forward basis. BOCAVI is reasonably liquid, with a market cap of USD6bn and average daily turnover of USD3.5mn. Besides the obvious risk of protracted lockdowns globally, a well-functioning USD bond market and BOC's funding support are critical to our investment case.
Attachment: BOCAVI Financial Summary

BOC Aviation | BOCAVI (2588 HK) 
As a follow-up on David Blennerhassett's Smartkarma Original Asia-Pac Airports: Ups, But Mostly Downs, we take a look at BOCAVI, which, in our view, is a compelling alternative to APAC airport operators and airlines as a post-Covid trade.
BOCAVI is a highly geared play on the resumption of air travel. The stock has gone through periods of significant out/underperformance against the APAC airports and airlines and may continue to give investors high beta in either direction. The geographical exposure is broad, but there is a heavy skew towards short-haul flights, which will see the earliest acceleration in passenger traffic.
Management's countercyclical capex expansion increasingly looks like a shrewd bet. At its core, BOCAVI is in the capital management business. Strong liquidity and BOC's explicit backing have allowed the lessor to grow its purchase-and-leaseback portfolio through the depths of the pandemic. While airlines are still hemorrhaging cash, over 99% of BOCAVI's aircraft remain cash-generating.  
We expect the firm's undiscounted committed revenues to top USD20bn in 2021. By year-end, the value of the portfolio will have doubled since 2014. We estimate the present value of this cashflow stream to be HKD72.80/share. We are essentially getting free growth optionality. 
We are buyers at book value. The stock is trading at 8x P/E and 1.1x P/B on a 12M forward basis. BOCAVI is reasonably liquid, with a market cap of USD6bn and average daily turnover of USD3.5mn. Besides the obvious risk of protracted lockdowns globally, a well-functioning USD bond market and BOC's funding support are critical to our investment case.
Attachment: BOCAVI Financial Summary

BOC Aviation (2588 HK): The Stars Don't Look Bigger, but They Do Look Brighter

Apr is a good month for <a href="https://www.smartkarma.com/entities/air-china-ltd-h" target="_blank" data-smartkarma-citation="entities:8239:1" rel="noopener">Air China Ltd (H) (753 HK)</a> as it marks the first month since COVID-19 outbreak that its passenger growth outpaced that for <a href="https://www.smartkarma.com/entities/china-southern-airlines-co-ltd" target="_blank" data-smartkarma-citation="entities:1078:1" rel="noopener">China Southern Airlines (1055 HK)</a> - its growth rate is 10.5pp ahead of CSA. In addition, freight traffic growth is also higher, and we think this send out stronger signal for narrower gap between the two going forward.Load factor performance in the month also pointed to a catch-up at Air China, which is a trend that we have been expecting. We believe the increase in vaccination rates, more border openings and resumption of direct international flights will be the major drivers for Air China - the resumption of operations of US Visa offices in China is a clear evidence for the gradual return to business as usual, in our view.

Apr is a good month for Air China Ltd (H) (753 HK) as it marks the first month since COVID-19 outbreak that its passenger growth outpaced that for China Southern Airlines (1055 HK) - its growth rate is 10.5pp ahead of CSA. In addition, freight traffic growth is also higher, and we think this send out stronger signal for narrower gap between the two going forward.Load factor performance in the month also pointed to a catch-up at Air China, which is a trend that we have been expecting. We believe the increase in vaccination rates, more border openings and resumption of direct international flights will be the major drivers for Air China - the resumption of operations of US Visa offices in China is a clear evidence for the gradual return to business as usual, in our view.

Air China (753 HK): Sending Out Stronger Signals

China

China Eastern Airlines Corporation Limited operates airline businesses. The Company provides passenger transport, air freight, air catering, and other related services. China Eastern Airlines conducts businesses worldwide.

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China Eastern Airlines Lt (600115 CH)

China Tourism Group A/H Listing Early Look - Over US$5bn Raising for a Monopoly on Chinese Tourists

China Tourism Group Duty Free Corp Ltd (601888 CH) aims to raise around US$5-10bn in its H-share listing in Hong Kong. It had 92.3% market share by...

Sumeet Singh

Air China (753 HK): Positive Implications from CX's May Traffic Announcement

CX's guidance of triming of losses in 1H21, vs. 1H20 and 2H20, is a positive note to Air China. The 24.5% MoM in passenger traffic echoed Air...

Osbert Tang, CFA

Chinese Airlines: China Southern (1055 HK) Seeing More Pressure than Air China (753 HK)

May traffic revealed that Air China sustaining its trend of narrowing down operational gap against CSA. Local COVID-19 cases in Guangzhou means a...

Osbert Tang, CFA

BOC Aviation (2588 HK): The Stars Don't Look Bigger, but They Do Look Brighter

As downstream players continue to hemorrhage cash, over 99% of BOCAVI’s aircraft are still cash-generating. Valuation is undemanding for a high...

Stanley Tsai, CFA

Air China (753 HK): Sending Out Stronger Signals

Apr is the first month since the pandemic that Air China outperformed CSA on overall passenger traffic growth. We expect this trend to gather...

Osbert Tang, CFA

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