Asian Equities Analyst, Logistics & Transport, Tracking Traffic

Daniel Hellberg

Asian Equities Analyst, Logistics & Transport

Tracking Traffic

Focusing on Asian logistics, transportation, and travel companies

Event-Driven

<p>The objectives of this report are to examine what express sector consolidation may look like over the next few years, and to offer investors guidance about how to play this trend when the dominoes begin to fall, most likely in 2021-22. We organize the report into six parts as follows:</p>
<ol>
<li>How things used to work in China's express sector</li>
<li>How the sector has begun changing in ways that may force consolidation</li>
<li>The 'Why?' &amp; 'How?' of Chinese express sector consolidation</li>
<li>Alibaba's critical role in potential M&amp;A activity</li>
<li>Some thoughts about the timing of expected changes</li>
<li>Conclusions</li>
</ol>

The objectives of this report are to examine what express sector consolidation may look like over the next few years, and to offer investors guidance about how to play this trend when the dominoes begin to fall, most likely in 2021-22. We organize the report into six parts as follows:

How things used to work in China's express sector
How the sector has begun changing in ways that may force consolidation
The 'Why?' &amp; 'How?' of Chinese express sector consolidation
Alibaba's critical role in potential M&amp;A activity
Some thoughts about the timing of expected changes
Conclusions


Pressure Building: How Consolidation in China's Express Sector Might Look Over the Next Two Years

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/huazhu-group-ltd" target="_blank" data-smartkarma-citation="entities:17527:1" rel="noopener">Huazhu Group (HTHT US)</a> will commence trading in Hong Kong on Tuesday, 22 September. Huazhu priced its Hong Kong secondary listing at HK$297 per share. Huazhu raised net proceeds of HK$5,924.8 million ($0.8 billion).</p></div><div><div class="content-highlight"><p><a href="https://www.smartkarma.com/profiles/rickin-thakrar" target="_blank" data-smartkarma-citation="accounts:1486" rel="noopener">Rickin Thakrar</a> outlined his views on the fundamentals and valuation in <a href="https://www.smartkarma.com/insights/huazhu-secondary-listing-hotel-motel-hanting-hotel" target="_blank" data-smartkarma-citation="insights:43241" rel="noopener">Huazhu Secondary Listing: Hotel, Motel, Hanting Hotel</a>. At the 18 September close price of $42.02 per ADS, the H-share offer price of HK$297 implies a 8.8% discount. We believe that the H-share will likely trade to a slight premium to the ADS on average, broadly similar to the overall median of previous secondary listings.</p></div></div>

Huazhu Group (HTHT US) will commence trading in Hong Kong on Tuesday, 22 September. Huazhu priced its Hong Kong secondary listing at HK$297 per share. Huazhu raised net proceeds of HK$5,924.8 million ($0.8 billion).Rickin Thakrar outlined his views on the fundamentals and valuation in Huazhu Secondary Listing: Hotel, Motel, Hanting Hotel. At the 18 September close price of $42.02 per ADS, the H-share offer price of HK$297 implies a 8.8% discount. We believe that the H-share will likely trade to a slight premium to the ADS on average, broadly similar to the overall median of previous secondary listings.

Huazhu Group Secondary Listing: Trading Debut

Equity Bottom-Up

<p>The express sector's big news is that <a href="https://www.smartkarma.com/entities/zto-express" target="_blank" data-smartkarma-citation="entities:23628:1" rel="noopener">ZTO Express (ZTO US) </a>is seeking an IPO in Hong Kong, as many large Chinese tech companies have done in recent months. We understand the rationale for this move, but still dislike the company's deteriorating fundamentals and rich valuation. </p>
<p>In August, express sector volume growth remained firm (+36.5% YoY), but revenue growth slowed (+17.9%, slowest since March) as average unit pricing tumbled. We believe the current price war will continue in the medium-term, eating into express companies' margins and cash flow.</p>
<p>Outside of China, <a href="https://www.smartkarma.com/entities/kerry-express-thailand" target="_blank" data-smartkarma-citation="entities:29253:1" rel="noopener">Kerry Express Thailand (KEX TB)</a> has filed IPO documents. We believe this offering is worth watching, as KEX may be the only public 'pure play' on eCommerce logistics in SE Asia. A successful IPO should also boost sentiment toward <a href="https://www.smartkarma.com/entities/kerry-logistics-network-ltd" target="_blank" data-smartkarma-citation="entities:367:1" rel="noopener">Kerry Logistics Network (636 HK)</a>.</p>
<p>Conclusion: Owning independent market leader <a href="https://www.smartkarma.com/entities/maanshan-dingtai-rare-a" target="_blank" data-smartkarma-citation="entities:4128:1" rel="noopener">S.F. Holding (002352 CH)</a> against short positions in any of the listed express companies aligned with <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> has been a winning strategy in 2020, and we see no reason to change course in the near-term. </p>

The express sector's big news is that ZTO Express (ZTO US) is seeking an IPO in Hong Kong, as many large Chinese tech companies have done in recent months. We understand the rationale for this move, but still dislike the company's deteriorating fundamentals and rich valuation. 
In August, express sector volume growth remained firm (+36.5% YoY), but revenue growth slowed (+17.9%, slowest since March) as average unit pricing tumbled. We believe the current price war will continue in the medium-term, eating into express companies' margins and cash flow.
Outside of China, Kerry Express Thailand (KEX TB) has filed IPO documents. We believe this offering is worth watching, as KEX may be the only public 'pure play' on eCommerce logistics in SE Asia. A successful IPO should also boost sentiment toward Kerry Logistics Network (636 HK).
Conclusion: Owning independent market leader S.F. Holding (002352 CH) against short positions in any of the listed express companies aligned with Alibaba Group (BABA US) has been a winning strategy in 2020, and we see no reason to change course in the near-term. 

TRACKING TRAFFIC/Chinese Express: ZTO HK Listing | August Pricing Still Weak | KEX IPO in Bangkok

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.

<div><p><a href="https://www.smartkarma.com/entities/huazhu-group-ltd" target="_blank" data-smartkarma-citation="entities:17527:1" rel="noopener">Huazhu Group (HTHT US)</a> raised around US$900m in its secondary listing in Hong Kong.</p></div><div><p>I have covered the background of the deal in my earlier notes, <a href="https://www.smartkarma.com/insights/huazhu-hk-secondary-listing-early-look-needs-the-cash-more-than-most-secondary-candidates" target="_blank" rel="noopener">Huazhu HK Secondary Listing - Early Look - Needs the Cash More than Most Secondary Candidates</a> and <a href="https://www.smartkarma.com/insights/huazhu-hk-secondary-listing-needs-the-money-but-looks-toppish" target="_blank" rel="noopener">Huazhu HK Secondary Listing - Needs the Money but Looks Toppish.</a></p></div><div><p>In this insight, I'll talk about the deal dynamics and updates over the past week.</p></div>

Huazhu Group (HTHT US) raised around US$900m in its secondary listing in Hong Kong.I have covered the background of the deal in my earlier notes, Huazhu HK Secondary Listing - Early Look - Needs the Cash More than Most Secondary Candidates and Huazhu HK Secondary Listing - Needs the Money but Looks Toppish.In this insight, I'll talk about the deal dynamics and updates over the past week.

Huazhu HK Secondary Listing Trading - Lowest Coverage, Biggest Correction, Highest Concentration

<div>
<p><a href="https://www.smartkarma.com/entities/zai-lab-ltd" target="_blank" data-smartkarma-citation="entities:25877:1" rel="noopener">Zai Lab Ltd (ZLAB US)</a> has launched a $0.9 billion secondary listing in Hong Kong. Zai Lab is a commercial-stage biopharmaceutical company which started to generate revenue from sales of commercialized products from 2018. In 1H20, revenue was primarily derived from the sales of both ZEJULA and Optune in Hong Kong and China.</p>
<div class="content-highlight"><p>The H shares will be priced on 22 September (Tuesday) and are scheduled for listing on 28 September.  Zai Lab will price its H-shares at a discount to its ADSs to entice investors to participate in the secondary listing. Overall, we think that Zai Lab pricing its H-shares around a 2% discount to its ADSs will be reasonable.</p></div>
</div>


Zai Lab Ltd (ZLAB US) has launched a $0.9 billion secondary listing in Hong Kong. Zai Lab is a commercial-stage biopharmaceutical company which started to generate revenue from sales of commercialized products from 2018. In 1H20, revenue was primarily derived from the sales of both ZEJULA and Optune in Hong Kong and China.
The H shares will be priced on 22 September (Tuesday) and are scheduled for listing on 28 September.  Zai Lab will price its H-shares at a discount to its ADSs to entice investors to participate in the secondary listing. Overall, we think that Zai Lab pricing its H-shares around a 2% discount to its ADSs will be reasonable.


Zai Lab Secondary Listing: HK-ADS Premium/​​(Discount) Views

China

ZTO Express (Cayman) Inc. operates as an express delivery company. The Company provides express delivery service through their nationwide network, as well as other value-added logistics services. ZTO Express serves customers globally.

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ZTO Express Cayman (ZTO US)

Pressure Building: How Consolidation in China's Express Sector Might Look Over the Next Two Years

Objective of this note: How things used to work How the sector has begun changing

Tracking Traffic

Huazhu Group Secondary Listing: Trading Debut

Yum China Holdings Inc (9987 HK) will commence trading in Hong Kong on Thursday, 10 September. Yum China Holdings, Inc (YUMC US) priced its Hong...

Arun George

TRACKING TRAFFIC/Chinese Express: ZTO HK Listing | August Pricing Still Weak | KEX IPO in Bangkok

Big news is ZTO Express (ZTO US) launching

Tracking Traffic

Huazhu HK Secondary Listing Trading - Lowest Coverage, Biggest Correction, Highest Concentration

Huazhu Group (HTHT US) raised around US$900m in its secondary listing in Hong Kong. I have covered the background of the deal in my earlier...

Sumeet Singh

Zai Lab Secondary Listing: HK-ADS Premium/(Discount) Views

ZTO Express (ZTO US) has launched a $1.6 billion secondary listing in Hong Kong. We previously outlined our views on ZTO Express’ fundamentals and...

Arun George

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Pressure Building: How Consolidation in China's Express Sector Might Look Over the Next Two Years

Objective of this note: How things used to work How the sector has begun changing

Tracking Traffic

Huazhu Group Secondary Listing: Trading Debut

Yum China Holdings Inc (9987 HK) will commence trading in Hong Kong on Thursday, 10 September. Yum China Holdings, Inc (YUMC US) priced its Hong...

Arun George

TRACKING TRAFFIC/Chinese Express: ZTO HK Listing | August Pricing Still Weak | KEX IPO in Bangkok

Big news is ZTO Express (ZTO US) launching

Tracking Traffic

Huazhu HK Secondary Listing Trading - Lowest Coverage, Biggest Correction, Highest Concentration

Huazhu Group (HTHT US) raised around US$900m in its secondary listing in Hong Kong. I have covered the background of the deal in my earlier...

Sumeet Singh

Zai Lab Secondary Listing: HK-ADS Premium/​​(Discount) Views

ZTO Express (ZTO US) has launched a $1.6 billion secondary listing in Hong Kong. We previously outlined our views on ZTO Express’ fundamentals and...

Arun George

Zai Lab Secondary Listing: HK-ADS Premium/(Discount) Views