Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Thematic (Sector/Industry)

While not unexpected, the train chugs on....China brokers continue to issue equity, and launch IPOs.After GF Securities (1776 HK) launched a US$4bn H-share IPO in April which was up 30+% on Day1, China Galaxy Securities did a HK$24bn (US$3.1bn) top-up on its H-shares in early May (now up 10% since then), and Huatai/HTSC launched a HK$40bn (US$5.15bn) offering (including greenshoe) as its As climbed even higher, CITIC Securities received approval Friday from the CSRC to issue up to 1.5bn new H-shares (going along with the announcement dated 28 Dec 2014, the Circular dated 14 Jan 2015, and the A-share EGM 16 February 2015). That's $6.25bn if placed at a 5% discount to Friday's close. This announcement does not necessarily mean an offering is imminent - CITIC would still need permission from the HKEx - but it clears the way for a mega offering. CONCLUSIONS<ul><li>This would be a BIG offering at US$6bn.</li><li>This adds to the overhang of China broker issuance. There has been a fair bit year-to-date, and there is a fair bit more to come.</li><li>As described in the <a href="http://www.smartkarma.com/insights/huatai-securities-equity-raise-if-you-are-bullish-volumes-it-s-cheaper-than-it-looks" target="_blank">piece on Huatai Offering math</a>, broker issuance at a discount to As when ROEs are lofty means forward PERs are low. And those at the "front of the queue" in terms of issuance will have pro-forma issuance PBRs lower than peers.</li><li>Brokers are still subject to the model of Comms x Market Valuation x Market Turnover x Total Leverage x The Dream. If you think those components are sustainable over the medium-term (especially expectations ("the Dream")), this deal would put CITIC H-shares at 2.1-2.3x book (vs 2.9x now) and something like 13x 2016 forecast earnings (assuming 10% ROE on the incremental capital raised) vs China Galaxy at 2.9x and 15.6x FY2016 PER and Haitong H-shares at 2.7x 2014 PBR and 13.5x consensus 2016 PER.</li><li>Math is presented for a possible Offering.</li><li>THERE IS NO PROMISE OF AN OFFERING TO MADE ISSUED BY THE COMPANY, BY MYSELF, NOR ANYONE ELSE TO MY KNOWLEDGE. I am simply extrapolating from current market expectations, announcements, and other brokers' behavior in recent issuance.</li></ul>

While not unexpected, the train chugs on....China brokers continue to issue equity, and launch IPOs.After GF Securities (1776 HK) launched a US$4bn H-share IPO in April which was up 30+% on Day1, China Galaxy Securities did a HK$24bn (US$3.1bn) top-up on its H-shares in early May (now up 10% since then), and Huatai/HTSC launched a HK$40bn (US$5.15bn) offering (including greenshoe) as its As climbed even higher, CITIC Securities received approval Friday from the CSRC to issue up to 1.5bn new H-shares (going along with the announcement dated 28 Dec 2014, the Circular dated 14 Jan 2015, and the A-share EGM 16 February 2015). That's $6.25bn if placed at a 5% discount to Friday's close. This announcement does not necessarily mean an offering is imminent - CITIC would still need permission from the HKEx - but it clears the way for a mega offering. CONCLUSIONSThis would be a BIG offering at US$6bn.This adds to the overhang of China broker issuance. There has been a fair bit year-to-date, and there is a fair bit more to come.As described in the piece on Huatai Offering math, broker issuance at a discount to As when ROEs are lofty means forward PERs are low. And those at the "front of the queue" in terms of issuance will have pro-forma issuance PBRs lower than peers.Brokers are still subject to the model of Comms x Market Valuation x Market Turnover x Total Leverage x The Dream. If you think those components are sustainable over the medium-term (especially expectations ("the Dream")), this deal would put CITIC H-shares at 2.1-2.3x book (vs 2.9x now) and something like 13x 2016 forecast earnings (assuming 10% ROE on the incremental capital raised) vs China Galaxy at 2.9x and 15.6x FY2016 PER and Haitong H-shares at 2.7x 2014 PBR and 13.5x consensus 2016 PER.Math is presented for a possible Offering.THERE IS NO PROMISE OF AN OFFERING TO MADE ISSUED BY THE COMPANY, BY MYSELF, NOR ANYONE ELSE TO MY KNOWLEDGE. I am simply extrapolating from current market expectations, announcements, and other brokers' behavior in recent issuance. 

QUICK NOTE: China Brokers Share Issuance: CITIC Secs gets CSRC OK to issue US$6bn

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

Ke Yan, CFA, FRM

Asia Pac IPO & Placement Research, China biotech

Smartkarma

Smartkarma unites the fragmented investment industry, connecting institutional investors, independent research providers, and corporates within a single network.

Research Reinvented

Street observers&nbsp;are blaming the slow down in visitor traffic from mainland as a result of the pro-democratic Occupy Central,&nbsp;increasing tension between Hongkongers and mainland Chinese, and anti-corruption campaign in China for the weak retail sales in Hong Kong.Would this be a one off event?Behind the scene, however, we think there are three important long term bearish structural trends that will have persistent&nbsp;impact on Hong Kong's tourism industry:&nbsp;<ul><li>We examined how Hong Kong is loosing its attractiveness to mainland Chinese.</li><li>We looked at how&nbsp;it is getting easier for Chinese to explore the world</li><li>We highlight some factors that are deterring Chinese from choosing Hong Kong &nbsp;as their holiday destination</li></ul>

Street observers&nbsp;are blaming the slow down in visitor traffic from mainland as a result of the pro-democratic Occupy Central,&nbsp;increasing tension between Hongkongers and mainland Chinese, and anti-corruption campaign in China for the weak retail sales in Hong Kong.Would this be a one off event?Behind the scene, however, we think there are three important long term bearish structural trends that will have persistent&nbsp;impact on Hong Kong's tourism industry:&nbsp;We examined how Hong Kong is loosing its attractiveness to mainland Chinese.We looked at how&nbsp;it is getting easier for Chinese to explore the worldWe highlight some factors that are deterring Chinese from choosing Hong Kong &nbsp;as their holiday destination

Hong Kong's Future? 3 structural bears for retailer/tourism

China

China Industrial Securities International Financial Group Limited provides financial services. The Company offers brokerage, loans, financing, and investment management services. China Industrial Securities International Financial Group serves customers around the world.

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China Industrial Securities In (6058 HK)

Hong Kong's Future? 3 structural bears for retailer/tourism

Street observers are blaming the slow down in visitor traffic from mainland as a result of the pro-democratic Occupy Central, increasing tension...

Ke Yan, CFA, FRM

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QUICK NOTE: China Brokers Share Issuance: CITIC Secs gets CSRC OK to issue US$6bn

While not unexpected, the train chugs on....China brokers continue to issue equity, and launch IPOs.After GF Securities (1776 HK) launched a US$4bn...

Travis Lundy

Hong Kong's Future? 3 structural bears for retailer/tourism

Street observers are blaming the slow down in visitor traffic from mainland as a result of the pro-democratic Occupy Central, increasing tension...

Ke Yan, CFA, FRM