IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

Equity Capital Markets

<ul>
<li>
<a href="https://www.smartkarma.com/entities/jst-group" target="_blank" data-smartkarma-citation="entities:39885:1" rel="noopener">JST Group (1703609D CH)</a> is China’s largest e-commerce SaaS ERP provider. It is seeking to raise US$250 million to US$300 million.     </li>
<li>JST (Jushuitan) is China’s largest e-commerce SaaS ERP provider in terms of relevant revenue in 2024, with a market share of 24.4%, according to CIC.</li>
<li>The investment case is bullish due to robust book-to-bill ratios, strong growth, high contract liabilities, underlying profitability and cash generation.  </li>
</ul>



JST Group (1703609D CH) is China’s largest e-commerce SaaS ERP provider. It is seeking to raise US$250 million to US$300 million.     
JST (Jushuitan) is China’s largest e-commerce SaaS ERP provider in terms of relevant revenue in 2024, with a market share of 24.4%, according to CIC.
The investment case is bullish due to robust book-to-bill ratios, strong growth, high contract liabilities, underlying profitability and cash generation.  


External broker reports(aggregated public sources), CMB International

CMB International

External broker reports(aggregated public sources)

Incorporated in Hong Kong, supported by the mainland and targeting in global market, CMB International Capital Corporation Limited (“CMBI”) is an integrated financial institution providing comprehensive and professional services. As a wholly-owned subsidiary of China Merchants Bank ("CMB"), by leveraging on the Group’s synergy and coordination in domestic and overseas markets, as well as CMB’s strong resources and outstanding social reputation, CMBI and its subsidiaries have been actively implementing diversified business strategies and set up an overall layout of main business segments including Corporate Finance, Asset Management, Wealth Management, Global Markets and Structured Finance, etc. Adhering to the philosophy of “being clients oriented and increasing our own values by the way of creating value for clients”, CMBI endeavors to provide quality and integrated financial services to institutional, corporate and individual customers both domestic and overseas including Hong Kong IPO sponsorship and underwriting, share placement and rights issue for listed companies, financial advisors, bonds issuance services, asset management, direct investment, wealth management, equity sales and trading, etc.

Thematic (Sector/Industry)

<ul><li>Growing macro concerns related to stagflation, US rate hike, geopolitical tensions <span style="font-size: var(--content-font-size);">and RMB depreciation continue to weigh on growth stocks, especially to software </span><span style="font-size: var(--content-font-size);">tech. </span></li><li><span style="font-size: var(--content-font-size);">We use five criteria including 1) valuation, 2) profitability, 3) cash level, 4) </span><span style="font-size: var(--content-font-size);">short ratio and 5) RMB/USD depreciation to determine companies that are less </span><span style="font-size: var(--content-font-size);">vulnerable to market fluctuations. We find Hikvision (BUY), Glodon (BUY) and </span><span style="font-size: var(--content-font-size);">AsiaInfo (NR) in the best positions under these five criteria.</span></li><li><div><div><div><p>Heightened macro uncertainties unfavorable to software tech stocks. </p></div></div></div></li></ul><p><em>Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.</em></p>

Growing macro concerns related to stagflation, US rate hike, geopolitical tensions and RMB depreciation continue to weigh on growth stocks, especially to software tech. We use five criteria including 1) valuation, 2) profitability, 3) cash level, 4) short ratio and 5) RMB/USD depreciation to determine companies that are less vulnerable to market fluctuations. We find Hikvision (BUY), Glodon (BUY) and AsiaInfo (NR) in the best positions under these five criteria.Heightened macro uncertainties unfavorable to software tech stocks. Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

China Software & IT Services - Which Stocks Are Less Vulnerable to Market Volatility?

Event-Driven

<p><a href="https://www.smartkarma.com/entities/bairong" target="_blank" data-smartkarma-citation="entities:31486:1" rel="noopener">Bairong (6608 HK)</a> is a leading independent AI-powered technology platform in China serving the financial services industry. It is the largest independent financial big data analytics solutions provider in China with a 9.0% revenue market share in 2020, according to Frost &amp; Sullivan.</p><p>Bairong was listed on the HKEx on 31 March 2021 and raised net proceeds of HK$3,759.0 million at HK$31.80 per share. The shares currently trade 62% below their IPO price. Bairong priced its IPO at the market peak and the shares have collapsed in part due to China’s regulatory reset. </p><p><a href="https://www.smartkarma.com/entities/beijing-kuaishou-technology-co-ltd" target="_blank" data-smartkarma-citation="entities:29725:1" rel="noopener">Kuaishou Technology (1024 HK)</a> fell 15% on 5 August after a lockup expiry, as early backers headed for the exit amid fears of China’s widening online crackdown. The ongoing regulatory crackdown has alerted investors to the risk of upcoming expiring lockups.  </p><div class="content-highlight"><p>Bairong’s pre-IPO investors’ lock-up period expires on 20 September. The cornerstones investors lock-up period expires on 30 September. In this note, we look at the returns of the pre-IPO investors and potential share sales post-lockup expiry.</p></div>

Bairong (6608 HK) is a leading independent AI-powered technology platform in China serving the financial services industry. It is the largest independent financial big data analytics solutions provider in China with a 9.0% revenue market share in 2020, according to Frost &amp; Sullivan.Bairong was listed on the HKEx on 31 March 2021 and raised net proceeds of HK$3,759.0 million at HK$31.80 per share. The shares currently trade 62% below their IPO price. Bairong priced its IPO at the market peak and the shares have collapsed in part due to China’s regulatory reset. Kuaishou Technology (1024 HK) fell 15% on 5 August after a lockup expiry, as early backers headed for the exit amid fears of China’s widening online crackdown. The ongoing regulatory crackdown has alerted investors to the risk of upcoming expiring lockups.  Bairong’s pre-IPO investors’ lock-up period expires on 20 September. The cornerstones investors lock-up period expires on 30 September. In this note, we look at the returns of the pre-IPO investors and potential share sales post-lockup expiry.

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

<div>
<p>Back on the 28 February this year, SaaS provider <a href="https://www.smartkarma.com/entities/china-youzan-limited" target="_blank" data-smartkarma-citation="entities:11467:1" rel="noopener">China Youzan Limited (8083 HK)</a> <a href="https://www1.hkexnews.hk/listedco/listconews/gem/2021/0228/2021022800069.pdf" target="_blank" rel="noopener">announced</a> a pre-conditional Offer by way of a Scheme to take its GEM-listed shares private, then list 51.7%-held Youzan Technology on Hong Kong's mainboard by "<em>way of introduction</em>". Shareholders were to be offered HK$0.1352/share in cash plus an in-specie distribution of 0.05077265 Youzan Technology shares for every China Youzan share held. The total indicative Offer price was HK$2.3088/share, a 30.2% discount to last close. The scrip portion was based on a fair value of RMB35.73/share for Youzan Tech.</p>
</div>
<div>
<p>In <em><a href="https://skr.ma/qgiJ9" target="_blank" rel="noopener">China Youzan (8083 HK): Proposal Towards Relisting Youzan Tech</a></em>, I recommended avoiding the stock -  China Youzan was up 283% in the past year, and 44% YTD prior to the Offer announcement. </p>
</div>
<div>
<p>Disinterested Scheme Shareholders <a href="https://www1.hkexnews.hk/listedco/listconews/gem/2021/0506/2021050602278.pdf" target="_blank" rel="noopener">approved</a> at the First SGM on the 6 May, a rollover arrangement and other side-agreements - not the take-private proposal as was incorrectly reported by some media sources.</p>
<p>At the time, shares were trading at $2.09/share, down 37% since the delisting proposal. </p>
<p>And shares continued to fall, with double-digit declines on multiple days including 19.5% on the 11 May on significant volume. </p>
<p>The Scheme Document was expected to be posted on or before the 15 June, but was <a href="https://www1.hkexnews.hk/listedco/listconews/gem/2021/0715/2021071500984.pdf" target="_blank" rel="noopener">delayed</a> on that day to at least the 19 October. </p>
<p>Reportedly Youzan Tech's listing application had been rejected, however, the wording in the monthly update on the <a href="https://www1.hkexnews.hk/listedco/listconews/gem/2021/0813/2021081300886.pdf" target="_blank" rel="noopener">13 August</a> said <em>"Youzan Technology has been revising features of its application</em>", a slightly varied statement to "<em>Youzan Technology has continued to progress its application with the Stock Exchange</em>" seen in previous monthly <a href="https://www1.hkexnews.hk/listedco/listconews/gem/2021/0715/2021071500984.pdf" target="_blank" rel="noopener">updates</a>. </p>
<p>Shares touched a low of HK$0.71/share on the 23 August. </p>
<h3>The New News</h3>
<p>China Youzan <a href="https://www1.hkexnews.hk/listedco/listconews/gem/2021/0830/2021083000295.pdf" target="_blank" rel="noopener">announced</a> yesterday Youzan Tech has re-filed its application for the listing of shares, which will now be done by way of an offering of new shares, not a listing by introduction. </p>
<p>Both the scrip ratio and cash portion remain unchanged under China Youzan's delisting transaction, by way of Scheme.</p>
<p>The estimated value per Youzan Tech shares by an independent valuer is now RMB21.76 (~HK$26.20/share), down 39% from the previous indicative price. </p>
<p>Therefore the proposed consideration for China Youan shareholders is HK$1.4654/share (HK$0.1352 +(HK$0.05077265 x HK$26.20)), a 100.7% premium to last close, but a 55.7% discount to last close ahead of the initial announcement in February this year. </p>
<p>Shares are up ~16% in the last two trading days, but down 74% since the delisting proposal and 37% adrift of the indicative Offer price in February. Those are pretty grim performance numbers.</p>
<p>There's probably value to be had here at the current level, but there are a multitude of factors at work in arriving at a "fair value." Further delays in the dispatch of the Scheme Doc are feasible. And will the Exchange grant this listing application, when it clearly had issues with the prior submission?</p>
<p>More below the fold.</p>
</div>


Back on the 28 February this year, SaaS provider China Youzan Limited (8083 HK) announced a pre-conditional Offer by way of a Scheme to take its GEM-listed shares private, then list 51.7%-held Youzan Technology on Hong Kong's mainboard by "way of introduction". Shareholders were to be offered HK$0.1352/share in cash plus an in-specie distribution of 0.05077265 Youzan Technology shares for every China Youzan share held. The total indicative Offer price was HK$2.3088/share, a 30.2% discount to last close. The scrip portion was based on a fair value of RMB35.73/share for Youzan Tech.


In China Youzan (8083 HK): Proposal Towards Relisting Youzan Tech, I recommended avoiding the stock -  China Youzan was up 283% in the past year, and 44% YTD prior to the Offer announcement. 


Disinterested Scheme Shareholders approved at the First SGM on the 6 May, a rollover arrangement and other side-agreements - not the take-private proposal as was incorrectly reported by some media sources.
At the time, shares were trading at $2.09/share, down 37% since the delisting proposal. 
And shares continued to fall, with double-digit declines on multiple days including 19.5% on the 11 May on significant volume. 
The Scheme Document was expected to be posted on or before the 15 June, but was delayed on that day to at least the 19 October. 
Reportedly Youzan Tech's listing application had been rejected, however, the wording in the monthly update on the 13 August said "Youzan Technology has been revising features of its application", a slightly varied statement to "Youzan Technology has continued to progress its application with the Stock Exchange" seen in previous monthly updates. 
Shares touched a low of HK$0.71/share on the 23 August. 
The New News
China Youzan announced yesterday Youzan Tech has re-filed its application for the listing of shares, which will now be done by way of an offering of new shares, not a listing by introduction. 
Both the scrip ratio and cash portion remain unchanged under China Youzan's delisting transaction, by way of Scheme.
The estimated value per Youzan Tech shares by an independent valuer is now RMB21.76 (~HK$26.20/share), down 39% from the previous indicative price. 
Therefore the proposed consideration for China Youan shareholders is HK$1.4654/share (HK$0.1352 +(HK$0.05077265 x HK$26.20)), a 100.7% premium to last close, but a 55.7% discount to last close ahead of the initial announcement in February this year. 
Shares are up ~16% in the last two trading days, but down 74% since the delisting proposal and 37% adrift of the indicative Offer price in February. Those are pretty grim performance numbers.
There's probably value to be had here at the current level, but there are a multitude of factors at work in arriving at a "fair value." Further delays in the dispatch of the Scheme Doc are feasible. And will the Exchange grant this listing application, when it clearly had issues with the prior submission?
More below the fold.


<p><a href="https://www.smartkarma.com/entities/china-youzan-limited" target="_blank" data-smartkarma-citation="entities:11467:1" rel="noopener">China Youzan (8083 HK)</a> has provided an update on its privatisation proposal. There is no change to the scheme consideration (HK$0.1352 in cash per scheme share) and the terms of the Youzan Technology distribution (0.05077265 Youzan Technology share for every China Youzan share). The key change is that Youzan Technology shares will be listed on the HKEx by way of an offering of new shares, instead of by way of introduction. </p><p>The privatisation offer implies a total value of HK$1.4654 per share, which is a 100.7% premium to the last trading day price of HK$0.73 (27 August). However, the implied valuation of HK$1.4654 per share is -37% lower than the original valuation of HK$2.3088 per share (announced on 28 February 2021). As the cash consideration is unchanged, the lower valuation is driven by the decline in Youzan Technology’s estimated value between the original valuation reference date (30 November 2020) and the new valuation reference date (30 June 2021). </p><p>The key conditions precedent are the headcount test and the scheme approved by at least 75% disinterested shareholders (&lt;10% disinterested shareholders rejection). No independent shareholder holds a blocking stake.</p><p>The valuer continues to base Youzan Technology's valuation by deducting the market value of the payment &amp; other business from the market cap of China Youzan. However, since the latest assessment date (30 June 2021), China Youzan’s shares have further declined -45% in part due to the Chinese tech selloff driven by the regulatory reset. Consequently, based on the valuer’s methodology, Youzan Technology’s valuation is RMB11.02 per share at the last close vs the valuation of RMB21.76 per share at the valuation reference date (30 June 2021). </p><div class="content-highlight">
<p>The privatisation offer remains broadly fair in both the distribution in-specie (distribution ratio in line with the control ratio) and the cash consideration (marginally below the value of the payments business due to peer multiple re-rating).</p>
<p>China Youzan’s valuation hinges on the valuation of Youzan Technology, which remains in a state of flux due to the uncertain regulatory backdrop. China Youzan’s last close price of HK$0.82 per share implies that Youzan Technology is valued at a trailing EV/Sales multiple of 12.7x, broadly in line with SaaS commerce peers' current trailing EV/Sales multiple of 13.4x (but at a premium to Chinese peers). As Youzan Technology is at best fairly valued at China Youzan’s last close price, we would remain on the sidelines. </p>
</div>

China Youzan (8083 HK) has provided an update on its privatisation proposal. There is no change to the scheme consideration (HK$0.1352 in cash per scheme share) and the terms of the Youzan Technology distribution (0.05077265 Youzan Technology share for every China Youzan share). The key change is that Youzan Technology shares will be listed on the HKEx by way of an offering of new shares, instead of by way of introduction. The privatisation offer implies a total value of HK$1.4654 per share, which is a 100.7% premium to the last trading day price of HK$0.73 (27 August). However, the implied valuation of HK$1.4654 per share is -37% lower than the original valuation of HK$2.3088 per share (announced on 28 February 2021). As the cash consideration is unchanged, the lower valuation is driven by the decline in Youzan Technology’s estimated value between the original valuation reference date (30 November 2020) and the new valuation reference date (30 June 2021). The key conditions precedent are the headcount test and the scheme approved by at least 75% disinterested shareholders (&lt;10% disinterested shareholders rejection). No independent shareholder holds a blocking stake.The valuer continues to base Youzan Technology's valuation by deducting the market value of the payment &amp; other business from the market cap of China Youzan. However, since the latest assessment date (30 June 2021), China Youzan’s shares have further declined -45% in part due to the Chinese tech selloff driven by the regulatory reset. Consequently, based on the valuer’s methodology, Youzan Technology’s valuation is RMB11.02 per share at the last close vs the valuation of RMB21.76 per share at the valuation reference date (30 June 2021). 
The privatisation offer remains broadly fair in both the distribution in-specie (distribution ratio in line with the control ratio) and the cash consideration (marginally below the value of the payments business due to peer multiple re-rating).
China Youzan’s valuation hinges on the valuation of Youzan Technology, which remains in a state of flux due to the uncertain regulatory backdrop. China Youzan’s last close price of HK$0.82 per share implies that Youzan Technology is valued at a trailing EV/Sales multiple of 12.7x, broadly in line with SaaS commerce peers' current trailing EV/Sales multiple of 13.4x (but at a premium to Chinese peers). As Youzan Technology is at best fairly valued at China Youzan’s last close price, we would remain on the sidelines. 


China Youzan’s Updated Privatisation Proposal

China

China Youzan Limited operates as an investment holding company principally engaged in the merchant service business. The Company provides e-commerce platform with SaaS products and comprehensive services, third-party payment services and related consultancy services, general trading, sales of integrated smart point of sales (POS) devices. China Youzan markets its products worldwide.

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China Youzan (8083 HK)

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