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

JD Health International  / Equity Capital Markets

<a href="https://www.smartkarma.com/entities/jd-health-international" target="_blank" data-smartkarma-citation="entities:29677:1" rel="noopener">JD Health (JDH HK)</a> is the largest online healthcare platform and the largest online retail pharmacy by revenue in China in 2019, according to Frost &amp; Sullivan. JD Health is seeking to raise $4 billion at a $29 billion valuation, according to IFR. The rumoured valuation is a significant increase to the August 2020 Series B round - a raise of $914 million at a $19.2 billion valuation. <div class="content-highlight">In <a href="https://www.smartkarma.com/insights/jd-health-ipo-initiation-e-ppointments" target="_blank" data-smartkarma-citation="insights:45106" rel="noopener">JD Health IPO Initiation: E-Ppointments</a>, we opined that JD Health’s fundamentals suggest that it is an attractive play on China’s online healthcare platform industry. In <a href="https://www.smartkarma.com/insights/jd-health-ipo-phip-new-data-points-and-peer-comparison" target="_blank" data-smartkarma-citation="insights:45377" rel="noopener">JD Health IPO: PHIP New Data Points and Peer Comparison</a>, we stated that the new data points disclosed in the PHIP along with our peer analysis reinforce our view that JD Health has attractive fundamentals. In this note, we take a first look at JD Health's valuation. Overall, based on valuation analysis, we think that the rumoured IPO valuation can be justified.</div>

JD Health (JDH HK) is the largest online healthcare platform and the largest online retail pharmacy by revenue in China in 2019, according to Frost &amp; Sullivan. JD Health is seeking to raise $4 billion at a $29 billion valuation, according to IFR. The rumoured valuation is a significant increase to the August 2020 Series B round - a raise of $914 million at a $19.2 billion valuation. In JD Health IPO Initiation: E-Ppointments, we opined that JD Health’s fundamentals suggest that it is an attractive play on China’s online healthcare platform industry. In JD Health IPO: PHIP New Data Points and Peer Comparison, we stated that the new data points disclosed in the PHIP along with our peer analysis reinforce our view that JD Health has attractive fundamentals. In this note, we take a first look at JD Health's valuation. Overall, based on valuation analysis, we think that the rumoured IPO valuation can be justified.

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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Index Rebalance

Shimao Services Holdings Limited / Index Rebalance

Hang Seng Indexes Company (HSIL) reviews the constituents of the Hang Seng Composite Index (HSCI) on a half yearly basis in March and September with data cut-off dates as of the end of December and June. The review announcement for the March 2021 review should be made on 12 February and will be effective after the close of trading on 5 March.Although there are almost no assets indexed to the HSCI, the index forms the basis of stocks that are eligible for Southbound Stock Connect. Stocks that are included in the HSCI and subsequently included in the Stock Connect program get inflows from mainland investors.Secondary Listings and Biotech stocks listed under Chapter 18A of the Listing Rules are not eligible for inclusion in the Stock Connect program.There are a lot of stocks that will join the HSCI and subsequently included as a part of the Southbound Stock Connect program - these stocks will see buying from mainland investors and could outperform their peers and the market.There are stocks that will be deleted from the HSCI and consequently deleted from the Southbound Stock Connect buy list. There are other stocks that will remain a part of the HSCI but will be removed from the Southbound Stock Connect buy list since their average market cap drops below HKD 5bn.Read on for more details and stocks affected by the changes.

Hang Seng Indexes Company (HSIL) reviews the constituents of the Hang Seng Composite Index (HSCI) on a half yearly basis in March and September with data cut-off dates as of the end of December and June. The review announcement for the March 2021 review should be made on 12 February and will be effective after the close of trading on 5 March.Although there are almost no assets indexed to the HSCI, the index forms the basis of stocks that are eligible for Southbound Stock Connect. Stocks that are included in the HSCI and subsequently included in the Stock Connect program get inflows from mainland investors.Secondary Listings and Biotech stocks listed under Chapter 18A of the Listing Rules are not eligible for inclusion in the Stock Connect program.There are a lot of stocks that will join the HSCI and subsequently included as a part of the Southbound Stock Connect program - these stocks will see buying from mainland investors and could outperform their peers and the market.There are stocks that will be deleted from the HSCI and consequently deleted from the Southbound Stock Connect buy list. There are other stocks that will remain a part of the HSCI but will be removed from the Southbound Stock Connect buy list since their average market cap drops below HKD 5bn.Read on for more details and stocks affected by the changes.

HSCI Index Rebalance and Stock Connect: Early Look at Potential Changes

Equity Analyst, LightStream Research

Oshadhi Kumarasiri

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Event-Driven

Earlier this month, struggling Chinese electrical appliance retailer, <a href="https://www.smartkarma.com/entities/gome-retail-holdings-ltd" target="_blank" data-smartkarma-citation="entities:170:1" rel="noopener">Gome Electrical Appliances (493 HK)</a> repurchased 5 million shares at a price range of HK$ 0.89-0.90 per share, 44-45% discount to the past five-year high share price attained following <a href="https://www.smartkarma.com/entities/jd-com-inc" target="_blank" data-smartkarma-citation="entities:29043:1" rel="noopener">JD.com (HK) (9618 HK)</a>’s and <a href="https://www.smartkarma.com/entities/pinduoduo-inc" target="_blank" data-smartkarma-citation="entities:27250:1" rel="noopener">Pinduoduo (PDD US)</a>’s capital injection in 2Q20.Buybacks are not a regular part of shareholder returns of Gome Retail and they have only done share buybacks when the share price has declined 25% or more during a short time frame. Most of the times, Gome Retail's share buybacks managed to temporarily maintain the share price but have failed to make an impact on the medium-term direction. Moreover, the latest share buyback is immaterial/symbolic, and the company’s current financial difficulties prevent it from conducting a share buyback of a considerable size capable of making a significant impact to the share price.Gome Retail needs money urgently to finance debt falling due in the next 8 months and banks may be unwilling to lend more money to a struggling business with insufficient cash flows to service debt.However, Gome Retail is strategically important to both Pinduoduo and JD.com and the two e-commerce giants could be biding time till Gome Retail’s shares hit rock bottom before going to war against each other to acquire the struggling electrical appliance retailer.

Earlier this month, struggling Chinese electrical appliance retailer, Gome Electrical Appliances (493 HK) repurchased 5 million shares at a price range of HK$ 0.89-0.90 per share, 44-45% discount to the past five-year high share price attained following JD.com (HK) (9618 HK)’s and Pinduoduo (PDD US)’s capital injection in 2Q20.Buybacks are not a regular part of shareholder returns of Gome Retail and they have only done share buybacks when the share price has declined 25% or more during a short time frame. Most of the times, Gome Retail's share buybacks managed to temporarily maintain the share price but have failed to make an impact on the medium-term direction. Moreover, the latest share buyback is immaterial/symbolic, and the company’s current financial difficulties prevent it from conducting a share buyback of a considerable size capable of making a significant impact to the share price.Gome Retail needs money urgently to finance debt falling due in the next 8 months and banks may be unwilling to lend more money to a struggling business with insufficient cash flows to service debt.However, Gome Retail is strategically important to both Pinduoduo and JD.com and the two e-commerce giants could be biding time till Gome Retail’s shares hit rock bottom before going to war against each other to acquire the struggling electrical appliance retailer.

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

The role of lock-ups in IPOs is, as one journal <a href="https://www.jstor.org/stable/1262724?seq=1" target="_blank" rel="noopener">put it</a>, a "commitment device to alleviate moral hazard problems".
Lock-ups can be entered into and negotiated with underwriters, as is the case for secondary listings for <a href="https://www.smartkarma.com/entities/netease" target="_blank" data-smartkarma-citation="entities:29030:1" rel="noopener">NetEase (9999 HK)</a>, <a href="https://www.smartkarma.com/entities/jd-com-inc" target="_blank" data-smartkarma-citation="entities:29043:1" rel="noopener">JD.com (HK) (9618 HK)</a>, amongst others. For primary listings in Hong Kong, there are standard rules as to the lock-up duration.
According to <a href="https://en-rules.hkex.com.hk/rulebook/1007-0" target="_blank" rel="noopener">Main Board Rule 10.07(1)</a> (or <a href="https://en-rules.hkex.com.hk/rulebook/1316a" target="_blank" rel="noopener">GEM rule 13.16A(1)</a>), if a person/group of persons is/are listed as the controlling shareholder(s) of the issuer's listing application, shall not (apart from any offer of shares for sale discussed in the listing document):
<ol>
<li>dispose of shares (nor enter into agreements) in a period commencing on the date by reference to which disclosure of the shareholding of the controlling shareholder is made in the listing document and ending on the date which is 6 months from the date of listing (the “First Six-month Period”); and</li>
<li>dispose of shares in the period of 6 months commencing on the date on which the First Six-month Period expires, if immediately following such disposal that person or group of persons would cease to be a controlling shareholder (the “Second Six-month Period”).</li>
</ol>
An example of such wording can be found in Yadong's Group (1795 HK)'s (the most recent Main Board listing) "<a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/1117/9515120/2020111700040.pdf" target="_blank" rel="noopener">Share Offer - Announcement of allotment results</a>".
For cornerstone investors, the following is often stated in the share offer document:
<blockquote>
Each of the Cornerstone Investors has agreed that it will not, whether directly or indirectly, at any time during the period of six months following the Listing Date, dispose of any of the Offer Shares it has purchased pursuant to the relevant Cornerstone Investment Agreement, save for certain limited circumstances ...
</blockquote>
Every week in my Event SPACE wrap, I flag large moves (~10%) in CCASS holdings over the past week or so, moves that are often outside normal market transactions.  These may be indicative of share pledges.  Or potential takeovers. Or simply help understand volume swings. 
Large movement(s) concerning recently listed companies are likely lock-up related. 
This insight looks at companies that have been listed for nearly six months or 12 months, as a guide to when insiders/controlling shareholders are permitted to sell, potentially depressing prices and creating an overhang.
A summary of Main Board listings in 2020 is attached at the bottom of this insight.

The role of lock-ups in IPOs is, as one journal put it, a "commitment device to alleviate moral hazard problems".
Lock-ups can be entered into and negotiated with underwriters, as is the case for secondary listings for NetEase (9999 HK), JD.com (HK) (9618 HK), amongst others. For primary listings in Hong Kong, there are standard rules as to the lock-up duration.
According to Main Board Rule 10.07(1) (or GEM rule 13.16A(1)), if a person/group of persons is/are listed as the controlling shareholder(s) of the issuer's listing application, shall not (apart from any offer of shares for sale discussed in the listing document):

dispose of shares (nor enter into agreements) in a period commencing on the date by reference to which disclosure of the shareholding of the controlling shareholder is made in the listing document and ending on the date which is 6 months from the date of listing (the “First Six-month Period”); and
dispose of shares in the period of 6 months commencing on the date on which the First Six-month Period expires, if immediately following such disposal that person or group of persons would cease to be a controlling shareholder (the “Second Six-month Period”).

An example of such wording can be found in Yadong's Group (1795 HK)'s (the most recent Main Board listing) "Share Offer - Announcement of allotment results".
For cornerstone investors, the following is often stated in the share offer document:

Each of the Cornerstone Investors has agreed that it will not, whether directly or indirectly, at any time during the period of six months following the Listing Date, dispose of any of the Offer Shares it has purchased pursuant to the relevant Cornerstone Investment Agreement, save for certain limited circumstances ...

Every week in my Event SPACE wrap, I flag large moves (~10%) in CCASS holdings over the past week or so, moves that are often outside normal market transactions.  These may be indicative of share pledges.  Or potential takeovers. Or simply help understand volume swings. 
Large movement(s) concerning recently listed companies are likely lock-up related. 
This insight looks at companies that have been listed for nearly six months or 12 months, as a guide to when insiders/controlling shareholders are permitted to sell, potentially depressing prices and creating an overhang.
A summary of Main Board listings in 2020 is attached at the bottom of this insight.

Supun Walpola

<a href="https://www.smartkarma.com/entities/pinduoduo-inc" target="_blank" data-smartkarma-citation="entities:27250:1" rel="noopener">Pinduoduo (PDD US)</a> plans to raise around $5bn through an issue of ADS and convertible bonds. PDD will offer $1.75bn worth of 5-year bonds convertible from 2023-25 and around 22m ADS worth around $3bn (at the market price of $132.4 as of 17/11/2020).
Proceeds from the placement will be used to invest in agricultural logistics infrastructure and responsive manufacturing as a part of the company’s broader strategy to take on e-commerce giants like <a href="https://www.smartkarma.com/entities/alibaba-group-holding-ltd" target="_blank" data-smartkarma-citation="entities:787:1" rel="noopener">Alibaba Group (BABA US)</a> and <a href="https://www.smartkarma.com/entities/jd-com-inc-adr" target="_blank" data-smartkarma-citation="entities:446:1" rel="noopener">JD.com Inc (ADR) (JD US)</a> by tapping into the emerging online grocery shopping market.
In this note, we revisit our thesis on PDD ahead of the proposed placement.
PDD’s valuation looks bit of a stretch against Chinese e-commerce peers, however, not so much against other high-growth large-cap names. PDD’s share price has increased by more than 200% YTD and the momentum is still quite strong. With PDD potentially nearing profitability, we believe there could be further gains to be made on good news over the next few quarters. We would participate in the placement at the current valuation.

Pinduoduo (PDD US) plans to raise around $5bn through an issue of ADS and convertible bonds. PDD will offer $1.75bn worth of 5-year bonds convertible from 2023-25 and around 22m ADS worth around $3bn (at the market price of $132.4 as of 17/11/2020).
Proceeds from the placement will be used to invest in agricultural logistics infrastructure and responsive manufacturing as a part of the company’s broader strategy to take on e-commerce giants like Alibaba Group (BABA US) and JD.com Inc (ADR) (JD US) by tapping into the emerging online grocery shopping market.
In this note, we revisit our thesis on PDD ahead of the proposed placement.
PDD’s valuation looks bit of a stretch against Chinese e-commerce peers, however, not so much against other high-growth large-cap names. PDD’s share price has increased by more than 200% YTD and the momentum is still quite strong. With PDD potentially nearing profitability, we believe there could be further gains to be made on good news over the next few quarters. We would participate in the placement at the current valuation.  

Pinduoduo Placement: As Expensive As It May Seem, There Could Be More Upside

China

JD.com Inc is an online direct sales company in China.  The Company offers a wide selection of products through its website and mobile applications.  JD.com sells appliances, computers, digital products, communication products, garments, books, and household items to consumers and vendors.

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JD.com (ADR) (JD US)

JD Health IPO: Valuation First Look

JD Health is seeking to raise $4 billion at a $29 billion valuation, according to IFR. Overall, based on valuation analysis, we think that the...

Arun George

HSCI Index Rebalance and Stock Connect: Early Look at Potential Changes

While the HSCI does not have assets benchmarked to it, the index review is closely watched since the index forms the basis of stocks that are a...

Brian Freitas

Gome Retail: Easy Prey

Gome Retail is strategically important to both Pinduoduo and JD.com and the two e-commerce giants could be biding time till Gome’s shares hit rock...

Oshadhi Kumarasiri

Hong Kong IPOs: Lock-Up Expiries

A look at companies that have been listed for nearly six/12 months, as a guide to when insiders/controlling shareholders are permitted to sell,...

David Blennerhassett

Pinduoduo Placement: As Expensive As It May Seem, There Could Be More Upside

Pinduoduo (PDD US) plans to raise around $5bn through an issue of ADS and convertible bonds. In this note, we revisit our thesis on PDD ahead of...

Supun Walpola

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