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

<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 (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>
</div><div>
<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>
</div>


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

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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Index Rebalance

<p>The results of the JPX Nikkei 400 review have been announced. There are 32 inclusions and 27 deletions to bring the number of constituents back to 400 and the changes will be effective after the close of trading on 27 November.</p><p>The index review is normally effective after the close of trading on  the second last trading day in August, but was postponed by 3 months this year because of the extension given to companies to file their annual reports and quarterly reports to 30 September owing to COVID-19.</p><p>These are the stocks that have been included and excluded from the index.</p><table class="table table-striped">
<colgroup>
<col>
<col>
<col>
<col>
</colgroup>
<tbody>
<tr>
<td colspan="2" style="text-align: center; width: 181pt;"><h3>Inclusions</h3></td>
<td colspan="2" style="text-align: center; width: 197pt;"><h3>Exclusions</h3></td>
</tr>
<tr>
<td><strong>Name</strong></td>
<td><strong>Code</strong></td>
<td><strong>Name</strong></td>
<td><strong>Code</strong></td>
</tr>
<tr>
<td>1766.T</td>
<td>Token Corp</td>
<td>2124.T</td>
<td>Jac Recruitment Co Ltd</td>
</tr>
<tr>
<td>2222.T</td>
<td>Kotobuki Spirits Co Ltd</td>
<td>2206.T</td>
<td>Ezaki Glico Co Ltd</td>
</tr>
<tr>
<td>2264.T</td>
<td>Morinaga Milk Industry Co Ltd</td>
<td>2432.T</td>
<td>DeNA Co Ltd</td>
</tr>
<tr>
<td>2317.T</td>
<td>Systena Corp</td>
<td>3254.T</td>
<td>Pressance Corp</td>
</tr>
<tr>
<td>2593.T</td>
<td>Ito En Ltd</td>
<td>3668.T</td>
<td>Colopl Inc</td>
</tr>
<tr>
<td>2811.T</td>
<td>Kagome Co Ltd</td>
<td>4246.T</td>
<td>DaikyoNishikawa Corp</td>
</tr>
<tr>
<td>3563.T</td>
<td>Sushiro Global Holdings Ltd</td>
<td>4587.T</td>
<td>PeptiDream Inc</td>
</tr>
<tr>
<td>3635.T</td>
<td>Koei Tecmo Holdings Co Ltd</td>
<td>4681.T</td>
<td>Resorttrust Inc</td>
</tr>
<tr>
<td>4189.T</td>
<td>KH Neochem Co Ltd</td>
<td>4751.T</td>
<td>CyberAgent Inc</td>
</tr>
<tr>
<td>4348.T</td>
<td>Infocom Corp</td>
<td>4902.T</td>
<td>Konica Minolta Inc</td>
</tr>
<tr>
<td>4527.T</td>
<td>Rohto Pharmaceutical Co Ltd</td>
<td>5486.T</td>
<td>Hitachi Metals Ltd</td>
</tr>
<tr>
<td>4686.T</td>
<td>Justsystems Corp</td>
<td>5703.T</td>
<td>Nippon Light Metal Holdings Co Ltd</td>
</tr>
<tr>
<td>4816.T</td>
<td>Toei Animation Co Ltd</td>
<td>5714.T</td>
<td>DOWA Holdings Co Ltd</td>
</tr>
<tr>
<td>4921.T</td>
<td>Fancl Corp</td>
<td>5975.T</td>
<td>Topre Corp</td>
</tr>
<tr>
<td>5105.T</td>
<td>Toyo Tire Corp</td>
<td>6269.T</td>
<td>Modec Inc</td>
</tr>
<tr>
<td>5631.T</td>
<td>Japan Steel Works Ltd</td>
<td>6324.T</td>
<td>Harmonic Drive Systems Inc</td>
</tr>
<tr>
<td>5857.T</td>
<td>Asahi Holdings Inc</td>
<td>6463.T</td>
<td>TPR Co Ltd</td>
</tr>
<tr>
<td>6005.T</td>
<td>Miura Co Ltd</td>
<td>6473.T</td>
<td>Jtekt Corp</td>
</tr>
<tr>
<td>6035.T</td>
<td>IR Japan Holdings Ltd</td>
<td>6641.T</td>
<td>Nissin Electric Co Ltd</td>
</tr>
<tr>
<td>6134.T</td>
<td>Fuji Corp (Aichi)</td>
<td>6755.T</td>
<td>Fujitsu General Ltd</td>
</tr>
<tr>
<td>6465.T</td>
<td>Hoshizaki Corp</td>
<td>6806.T</td>
<td>Hirose Electric Co Ltd</td>
</tr>
<tr>
<td>6532.T</td>
<td>BayCurrent Consulting Inc</td>
<td>7012.T</td>
<td>Kawasaki Heavy Industries Ltd</td>
</tr>
<tr>
<td>6670.T</td>
<td>MCJ Co Ltd</td>
<td>7606.T</td>
<td>United Arrows Ltd</td>
</tr>
<tr>
<td>6753.T</td>
<td>Sharp Corp</td>
<td>7867.T</td>
<td>Tomy Co Ltd</td>
</tr>
<tr>
<td>6754.T</td>
<td>Anritsu Corp</td>
<td>8227.T</td>
<td>Shimamura Co Ltd</td>
</tr>
<tr>
<td>8354.T</td>
<td>Fukuoka Financial Group Inc</td>
<td>8628.T</td>
<td>Matsui Securities Co Ltd</td>
</tr>
<tr>
<td>8572.T</td>
<td>Acom Co Ltd</td>
<td>9404.T</td>
<td>Nippon Television Holdings Inc</td>
</tr>
<tr>
<td>9044.T</td>
<td>Nankai Electric Railway Co Ltd</td>
<td></td>
<td></td>
</tr>
<tr>
<td>9142.T</td>
<td>Kyushu Railway Co</td>
<td></td>
<td></td>
</tr>
<tr>
<td>9504.T</td>
<td>Chugoku Electric Power Co Inc</td>
<td></td>
<td></td>
</tr>
<tr>
<td>9509.T</td>
<td>Hokkaido Electric Power Co Inc</td>
<td></td>
<td></td>
</tr>
<tr>
<td>9603.T</td>
<td>H.I.S. Co Ltd</td>
<td></td>
<td></td>
</tr>
</tbody>
</table>

The results of the JPX Nikkei 400 review have been announced. There are 32 inclusions and 27 deletions to bring the number of constituents back to 400 and the changes will be effective after the close of trading on 27 November.The index review is normally effective after the close of trading on  the second last trading day in August, but was postponed by 3 months this year because of the extension given to companies to file their annual reports and quarterly reports to 30 September owing to COVID-19.These are the stocks that have been included and excluded from the index.








Inclusions
Exclusions


Name
Code
Name
Code


1766.T
Token Corp
2124.T
Jac Recruitment Co Ltd


2222.T
Kotobuki Spirits Co Ltd
2206.T
Ezaki Glico Co Ltd


2264.T
Morinaga Milk Industry Co Ltd
2432.T
DeNA Co Ltd


2317.T
Systena Corp
3254.T
Pressance Corp


2593.T
Ito En Ltd
3668.T
Colopl Inc


2811.T
Kagome Co Ltd
4246.T
DaikyoNishikawa Corp


3563.T
Sushiro Global Holdings Ltd
4587.T
PeptiDream Inc


3635.T
Koei Tecmo Holdings Co Ltd
4681.T
Resorttrust Inc


4189.T
KH Neochem Co Ltd
4751.T
CyberAgent Inc


4348.T
Infocom Corp
4902.T
Konica Minolta Inc


4527.T
Rohto Pharmaceutical Co Ltd
5486.T
Hitachi Metals Ltd


4686.T
Justsystems Corp
5703.T
Nippon Light Metal Holdings Co Ltd


4816.T
Toei Animation Co Ltd
5714.T
DOWA Holdings Co Ltd


4921.T
Fancl Corp
5975.T
Topre Corp


5105.T
Toyo Tire Corp
6269.T
Modec Inc


5631.T
Japan Steel Works Ltd
6324.T
Harmonic Drive Systems Inc


5857.T
Asahi Holdings Inc
6463.T
TPR Co Ltd


6005.T
Miura Co Ltd
6473.T
Jtekt Corp


6035.T
IR Japan Holdings Ltd
6641.T
Nissin Electric Co Ltd


6134.T
Fuji Corp (Aichi)
6755.T
Fujitsu General Ltd


6465.T
Hoshizaki Corp
6806.T
Hirose Electric Co Ltd


6532.T
BayCurrent Consulting Inc
7012.T
Kawasaki Heavy Industries Ltd


6670.T
MCJ Co Ltd
7606.T
United Arrows Ltd


6753.T
Sharp Corp
7867.T
Tomy Co Ltd


6754.T
Anritsu Corp
8227.T
Shimamura Co Ltd


8354.T
Fukuoka Financial Group Inc
8628.T
Matsui Securities Co Ltd


8572.T
Acom Co Ltd
9404.T
Nippon Television Holdings Inc


9044.T
Nankai Electric Railway Co Ltd




9142.T
Kyushu Railway Co




9504.T
Chugoku Electric Power Co Inc




9509.T
Hokkaido Electric Power Co Inc




9603.T
H.I.S. Co Ltd






JPX Nikkei 400 Index Rebalance: Better Late Than Never (32 Adds; 27 Deletes)

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.

Equity Bottom-Up

<p><a href="https://www.smartkarma.com/entities/meiji-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:15996:1" rel="noopener">Meiji Holdings (2269 JP)</a> generates over 83% of revenues from the Food segment while the rest comes from the Pharmaceuticals segment. Irrespective of the economic situation, the company’s revenue has grown at low single digits YoY throughout its trading history, apart from two instances where it declined marginally compared to the prior year. Furthermore, the OCF grew at a CAGR of 12% over the last five years while OP and DPS grew at 22% and 28% CAGRs respectively. Therefore, on the surface, Meiji looks like a perfect defensive stock.</p>

Meiji Holdings (2269 JP) generates over 83% of revenues from the Food segment while the rest comes from the Pharmaceuticals segment. Irrespective of the economic situation, the company’s revenue has grown at low single digits YoY throughout its trading history, apart from two instances where it declined marginally compared to the prior year. Furthermore, the OCF grew at a CAGR of 12% over the last five years while OP and DPS grew at 22% and 28% CAGRs respectively. Therefore, on the surface, Meiji looks like a perfect defensive stock.

Quantamental Analysis Shows Meiji’s Perception as a Defensive Stock Could Be a Delusion

Global Automotive Stocks/EV Focus/Event Driven, SC Capital

SC Capital

Global Automotive Stocks/EV Focus/Event Driven

Over 22 years covering Japanese equities on both the sell side and the buy side. 

Bottom-up Japan Equities Research

<ul><li>Meiji Holdings will get slammed by government price cuts on pharmaceuticals in Japan from this April and then begin to see a massive decline in profitability of its anti-psychosis drug once its patent expires in December.</li><li>Combined, this should be at least a 10% drag on FY3/19 OP, raising the risks that the company guides for substantially lower numbers than consensus. Our estimates are for FY3/19 OP of Y94bn (-4% YoY), while consensus is at Y102bn (+4% YoY).</li><li>While this gap is not large and we expect management to guide for roughly flat profits YoY in FY3/19 (but miss in the end), the difference between OP growth and OP decline should be a big psychological swing factor for the share price. Meiji's share price has gone up by 3.9x over the past five years, as earnings have grown by a CAGR of +34% over that time.</li><li>Meiji's core earnings come from probiotic yogurt drinks and chocolates, which are performing well, but slowing as OP in this division has already doubled over the past 3 years. Nearly 90% of the +5% YoY OP growth seen in the Food division's 1H of FY3/18 came from cost-cutting efforts, which management says has largely run its course. Underlying sales were actually down a bit from last year's 1H.</li><li>The company announced last month that it aims to acquire a 49% stake in a blood plasma products/vaccine producer Kaketsuken, which it plans to consolidate onto its books from the 2H of FY3/19. While this could boost pharma sales by roughly 8% (based on 6 months of Kaketsuken's FY3/17 sales), the OP contribution may not be that significant as Kaketsuken had a recall of problematic plasma products in 2016. On its Japanese website (but not in the English version), Kaketsuken has a huge banner saying "Aiming to Restore Trust". </li><li>Furthermore, in recent talks with the company, they stressed that they've picked all the low-hanging fruit in terms of cost cuts and would now have to begin a multi-year phase of "investments for higher efficiencies". This sounded like a caveat that capex burdens could weigh on earnings over the next several years. Consensus estimates call for Meiji's capex falling by -4% to Y62bn in FY3/19.   </li><li>Valuations--based on our estimates, which are 7% lower than the Street but imply negative growth in FY3/19--are not demanding for a food company, with an FY3/19 PER of 22x and an EV/EBITDA of 9.8x.  But with a declining RoE (from 13.7% this fiscal year to 12.5% in FY3/19), the prospective PBR of 2.5x doesn't provide much support for the share price.</li><li>Our analysis of what Meiji could be worth if it were to sell its pharmaceutical division implies a value of at least Y12,000 per share, or 30% upside from current levels. It makes one wonder why activists haven't targeted Meiji yet but does explain why value investors like Capital have recently begun building positions.</li></ul>

Meiji Holdings will get slammed by government price cuts on pharmaceuticals in Japan from this April and then begin to see a massive decline in profitability of its anti-psychosis drug once its patent expires in December.Combined, this should be at least a 10% drag on FY3/19 OP, raising the risks that the company guides for substantially lower numbers than consensus. Our estimates are for FY3/19 OP of Y94bn (-4% YoY), while consensus is at Y102bn (+4% YoY).While this gap is not large and we expect management to guide for roughly flat profits YoY in FY3/19 (but miss in the end), the difference between OP growth and OP decline should be a big psychological swing factor for the share price. Meiji's share price has gone up by 3.9x over the past five years, as earnings have grown by a CAGR of +34% over that time.Meiji's core earnings come from probiotic yogurt drinks and chocolates, which are performing well, but slowing as OP in this division has already doubled over the past 3 years. Nearly 90% of the +5% YoY OP growth seen in the Food division's 1H of FY3/18 came from cost-cutting efforts, which management says has largely run its course. Underlying sales were actually down a bit from last year's 1H.The company announced last month that it aims to acquire a 49% stake in a blood plasma products/vaccine producer Kaketsuken, which it plans to consolidate onto its books from the 2H of FY3/19. While this could boost pharma sales by roughly 8% (based on 6 months of Kaketsuken's FY3/17 sales), the OP contribution may not be that significant as Kaketsuken had a recall of problematic plasma products in 2016. On its Japanese website (but not in the English version), Kaketsuken has a huge banner saying "Aiming to Restore Trust". Furthermore, in recent talks with the company, they stressed that they've picked all the low-hanging fruit in terms of cost cuts and would now have to begin a multi-year phase of "investments for higher efficiencies". This sounded like a caveat that capex burdens could weigh on earnings over the next several years. Consensus estimates call for Meiji's capex falling by -4% to Y62bn in FY3/19.   Valuations--based on our estimates, which are 7% lower than the Street but imply negative growth in FY3/19--are not demanding for a food company, with an FY3/19 PER of 22x and an EV/EBITDA of 9.8x.  But with a declining RoE (from 13.7% this fiscal year to 12.5% in FY3/19), the prospective PBR of 2.5x doesn't provide much support for the share price.Our analysis of what Meiji could be worth if it were to sell its pharmaceutical division implies a value of at least Y12,000 per share, or 30% upside from current levels. It makes one wonder why activists haven't targeted Meiji yet but does explain why value investors like Capital have recently begun building positions.

Meiji Holdings--Healthy Food Ops Have Heavy Drug Problems

Japan

Morinaga Milk Industry Co., Ltd. produces and sells milk and related dairy products such as ice cream and yogurt.  The Company also develops biochemical product and pharmaceutical.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
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Morinaga Milk Industry Co (2264 JP)

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

JPX Nikkei 400 Index Rebalance: Better Late Than Never (32 Adds; 27 Deletes)

There are 32 inclusions and 27 exclusions from the JPX Nikkei 400. The changes will be effective after the close of trading on 27 November and the...

Brian Freitas

Quantamental Analysis Shows Meiji’s Perception as a Defensive Stock Could Be a Delusion

Meiji Holdings (2269 JP) generates over 83% of revenues from the Food segment while the rest comes from the Pharmaceuticals segment. Irrespective...

Oshadhi Kumarasiri

Meiji Holdings--Healthy Food Ops Have Heavy Drug Problems

Meiji Holdings will get slammed by government price cuts on pharmaceuticals in Japan from this April and then begin to see a massive decline in...

SC Capital

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52-week Range

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