Category

China

China: Haidilao, Baozun Inc., Yangzijiang Shipbuilding, BYD Electronics, Genor Biopharma, ZTO Express, Greenland Hong Kong Holdings, Health And Happiness (H&H) and more

By | China, Daily Briefs

In today’s briefing:

  • HSCEI Index Rebalance Preview – December 2020: HUGE Number of Changes and Turnover Expected
  • Baozun HK Secondary Listing – Large Dilution Needs a Large Correction
  • The “Softbank LNG Whale” – Big Game Changer For Yangzijiang Shipbuilding
  • BYD Electronics (285): Time to Take Profit?
  • Genor Biopharma IPO: Strong Clinical Pipeline with Some Potential Blockbusters
  • ZTO Express Secondary Listing: HK-ADS Premium/​(Discount) Views
  • Greenland HK – Tear Sheet – Lucror Analytics
  • H&H International – Tear Sheet – Lucror Analytics

HSCEI Index Rebalance Preview – December 2020: HUGE Number of Changes and Turnover Expected

By Brian Freitas

The Hang Seng Indexes Company Limited (HSIL) should announce the results of the 2020 Q3 review of the Hang Seng Family of Indexes on 6 November. The constituent changes will be effective after the close of trading on 4 December.

With only 3 changes permitted in the September Hang Seng China Enterprises Index (HSCEI INDEX) review post the methodology change that included WVR securities and Secondary Listings in the eligible Universe, there could be as many as 9 changes in the December review.

We see a high probability of China Overseas Land & Investment Ltd (688 HK), JD.com (HK) (9618 HK), Alibaba Health Information Technology (241 HK), Haidilao (6862 HK), China Feihe (6186 HK), Semiconductor Manufacturing (981 HK) and Evergrande Real Estate Group (3333 HK) being included in the Hang Seng China Enterprises Index (HSCEI INDEX), and of China Taiping Insurance Hldgs (966 HK), China Telecom Corp Ltd (H) (728 HK), China Minsheng Banking H (1988 HK), China Vanke Co Ltd (H) (2202 HK), Fosun International (656 HK), China Citic Bank Corp Ltd H (998 HK) and China Shenhua Energy Co H (1088 HK) being deleted from the index.

Depending on price movements between now and 30 September, NetEase (9999 HK) and Hansoh Pharmaceutical (3692 HK) could be included in the index, which would see Want Want (151 HK) and PICC Property & Casualty H (2328 HK) being deleted.

Estimated one-way turnover for the rebalance is 9.63% which is lower than the turnover at the September rebalance, but significant nonetheless.

The expected review changes will alter the sectoral composition of the index with an increase in the weight of the Consumer Discretionary, Information Technology and Health Care sectors at the expense of Financials and Energy. There will also be an impact on the HSCEI 2021 dividend futures, a large part of which has already been discounted by the market.


Baozun HK Secondary Listing – Large Dilution Needs a Large Correction

By Sumeet Singh

Baozun Inc. (BZUN US) plans to raise around US$490m in its secondary listing in Hong Kong.

The company was said to have won approval for listing last week along with ZTO Express (ZTO US) and Zai Lab Ltd (ZLAB US) however, it filed its PHIP only yesterday and launched its deal today.

In this insight, I’ll talk about the deal dynamics and what to do with the ADR during the book build.

Links to my previous notes on the topic on Secondary listings:


The “Softbank LNG Whale” – Big Game Changer For Yangzijiang Shipbuilding

By Patrick Eng

What happens when major events or actions are either overlooked or misunderstood? In today’s enlightening geo-political news coverage, one may not have time to contemplate or meditate on big transactions that can alter an industry which may lead to a transformation or secular change.  

For example, what happened when Softbank announced their $100Billion Vision Fund? They became the Whale in the venture capital world. The domino effect for many investors and valuations for many companies in their universe skyrocketed. But how many investors realized and profited from this unprecedented event. This phenomenon was quite unreal.  What if this phenomenon occurred in another industry?

Due to the COVID pandemic and various projections from experts, we believe many misunderstood a “Whale”  phenomenon that recently occurred in LNG vessels.

Furthermore, is it crazy to think that the future of infrastructure and industrial policies pulls forward?


BYD Electronics (285): Time to Take Profit?

By Henry Soediarko

Apple has come out with an announcement yesterday that they will launch a new iPad and no iPhone.  The good news is that BYD Electronics (285 HK)is included in Apple’s supplier list to manufacture around 20-30% of iPad, and investors have been expecting this – causing the ultra optimism reflected in the share price YTD performance, beating the peers and even Apple Inc (AAPL US)

Unless the new iPad is selling like hotcakes and the domestic wearables and 5G migration really helps to increase demand, it is hard to see why BYD Electronics’ share price run-up is justifiable. 

For long-only investors – it is time to book profit. 

For long-short investors – it is time to start shorting the stock. 


Genor Biopharma IPO: Strong Clinical Pipeline with Some Potential Blockbusters

By Shifara Samsudeen, ACMA, CGMA

  • JHBP (CY) Holdings Ltd also known as Genor Biopharma has filed for an IPO on the Hong Kong Stock Exchange to raise about HK$2.48bn (US$320m). The biopharmaceutical company focuses on developing and commercialising oncology and autoimmune drugs.
  • Genor plans to utilise a majority of its IPO proceeds on clinical trials, prepare registration filings, fund planned clinical trials and potential commercialisation of its core products. The company also plans to use part of its IPO proceeds on funding other drug candidates in its pipeline and on expanding its drug pipeline respectively.
  • The company currently does not have any products approved for commercial sale; hence the company does not generate any revenues from product sales. However, the company owns four late stage drug assets and of which the company expects to launch 2-3 drug assets in the second half of 2021, subject to NMPA approval.
  • Two of the company’s key drug candidates, GB491 (potentially best-in-class oral CDK4/6 for HR+/HER2-breast cancer) and GB242 (a biosimilar candidate to infliximab (developed by J&J) for autoimmune diseases) are most likely to have competitive advantage over its competitors and these drugs cater to growing markets with significant growth potential.

ZTO Express Secondary Listing: HK-ADS Premium/​(Discount) Views

By Arun George

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 valuation. The H shares will be priced on 22 September (Tuesday) and are scheduled for listing on 29 September.  

In this note, we will look at ZTO Express’ potential HK-ADS premium/(discount). ZTO Express will price its H-shares at a discount to its ADSs to entice investors to participate in the secondary listing. Overall, we think that ZTO Express pricing its H-shares around a 3% discount to its ADSs will be reasonable.


Greenland HK – Tear Sheet – Lucror Analytics

By Leonard Law, CFA

We view Greenland HK as “Medium Risk” on the LARA scale. The company is 59% owned by SOE Greenland Holdings, which is in turn 46% held by the Shanghai SASAC. Greenland Holdings is a top-ten Chinese property developer by sales. Compared to its parent, Greenland HK has a slightly stronger standalone financial profile. Its credit profile has improved over the years, supported by sound contracted sales growth. The company has a good brand reputation and land bank in high-tier cities within the Yangtze River and Pearl River delta regions. Despite a tighter domestic funding environment, we believe Greenland HK’s access to financing will be supported by its indirect SOE status. Furthermore, the USD Notes contain Change of Control clauses that require redemption if the Shanghai government ceases to control Greenland Holdings, or if Greenland Holdings ceases to hold at least 50% of Greenland HK.

Our Credit Bias on Greenland HK is “Stable”, supported by its sound leverage and liquidity profiles. In addition, it has very little JV exposure compared to peers, resulting in better transparency. Although the company has a small scale relative to its peers, we continue to like its good operating track record.


H&H International – Tear Sheet – Lucror Analytics

By Chuanyi Zhou

We view H&H International as “Medium Risk” on the LARA scale. The company has a sound business profile, with stable branded products in the Baby Nutrition & Care and Adult Nutrition & Care markets. H&H’s strong distribution channels support cross-border and e-commerce sales strategies. Balancing these positive factors are risks associated with the penetration of new markets and products, along with the fragmented and competitive Chinese market.

USD bondholders suffer material structural subordination. The issuing entity is a Cayman Islands company with no operating assets. The PRC operating subsidiaries do not guarantee the USD Notes. The level of priority creditors is high at the Australian subsidiary, including providers of the USD 450 mn senior credit facility. Bondholders would have very limited access to assets in a liquidation scenario.

Our fundamental Credit Bias on H&H is “Stable”, as the company has weathered the challenges of H1/20 well, despite the soft revenue growth and weaker margins. During the period, H&H developed its online sales channels following the disruption of offline channels, and built up a safety stock of inventory. Positively, there appears to have been no major disruptions to the supply chain and production. The company could see a market recovery and stronger demand in China in H2, but we are not optimistic on the Australia & New Zealand market. We like H&H’s solid business fundamentals, strong market positions and healthy financial profile. In particular, we view positively the sound liquidity profile and steady cash flow from operations.

We view H&H as “Moderate” on the LAGA scale. We note positively the structure of the Board of Directors, especially after the separation of the chairman and CEO roles in March 2019. The NEDs and INEDs have a decent mix of company and industry experience. The INEDs include Ngai Wai Fung, a professional consultant in corporate governance. We also note the solid spread of shareholders, with no two individuals’ holdings adding up to more than a 50% interest.


Before it’s here, it’s on Smartkarma

China: Sina Corp (Class A), ESR Cayman , Ant Financial, ZTO Express, Ming Yuan Cloud Group, Shanghai International Airport, HKEX, Genor Biopharma and more

By | China, Daily Briefs

In today’s briefing:

  • Homecoming For Chinese Companies: Appraisal Rights & Fair Value
  • ESR Cayman Placement – Even More to Come Soon
  • Ant Group (蚂蚁集团) Running Neck and Neck with Tencent in Direct Financial Services
  • ZTO Express Secondary Listing – Smaller than Expected
  • Ming Yuan Cloud IPO – In the Right Place at the Right Time
  • Ant Group (蚂蚁集团) Pre-IPO: Impact Assessment of the New Rule for Financial Holding Companies
  • Shanghai International Airport (600009 CH): Best in Domestic and Cargo Traffic in Aug
  • HKEx (388.HK): August Trading Volume Remains Elevated, Tech IPO Boosts Trading Activities
  • ZTO Secondary: Entire Industry Expanding Capacity While Facing Pricing Pressure Is Not a Good Thing
  • JHBP Holdings (Genor Biopharma) IPO Initiation: Hunting for a Cure

Homecoming For Chinese Companies: Appraisal Rights & Fair Value

By David Blennerhassett

On 20 May 2020, the US Senate passed the  S. 945 the Holding Foreign Companies Accountable Act, an act which could force the delisting of US-listed Chinese companies should they be in noncompliance with US accounting standards. Shortly after, the U.S. House of Representatives introduced its version of the Bill which has yet to pass.

This bill requires certain issuers of securities to establish that they are not owned or controlled by a foreign government. Specifically, an issuer must make this certification if the Public Company Accounting Oversight Board (PCAOB) is unable to audit specified reports because the issuer has retained a foreign public accounting firm not subject to inspection by the board. Furthermore, if the board is unable to inspect the issuer’s public accounting firm for three consecutive years, the issuer’s securities are banned from trade on a national exchange or through other methods. 

This creates a conundrum, if not an impossibility, as Chinese regulators forbid foreign regulatory bodies, such as the PCAOB, from inspecting accounting firms based in China. 

The Act, which is still to be ratified by the House, reconciled with the Senate bill, and approved by President Trump, provides even greater impetus for “take private” transactions (often expecting to re-list elsewhere at higher valuations) and secondary listings in markets outside of the United States, such as Hong Kong and Shanghai.

Hong Kong is laying out the welcome mat. First the HKEx amended its listing rules in April 2018 to allow companies with multiple classes of shares with individual-controlled voting rights to sell shares in Hong Kong. This new listing regime enabled secondary listings for the likes of JD.com Inc (ADR) (JD US) / JD.com (HK) (9618 HK) and Alibaba Group (BABA US) / Alibaba Group (9988 HK). Further changes to the Listing Rules are anticipated to accommodate companies with corporate shareholders with weighted voting rights – such as Tencent Music (TME US).

But on occasion, the consideration paid under these take-private “homecoming” transactions are not always considered fair by the investment community.

The recently completed 58.Com Inc Adr (WUBA US) (58.com: Foregone Conclusion Amidst Proxy Advisor Pushback) faced considerable proxy advisor backlash. Similarly, Sina Corp (Class A) (SINA US)‘s preliminary non-binding “going private” proposal from its chairman/CEO,  is widely viewed as a low-balled, opportunistic Offer (Sina Corp: Management Buyout Offer). 

For Cayman Islands incorporated companies, such as SINA and 58.com, Section 238 of the Companies Law (2020 Revision) may provide scope for dissenting shareholders to a merger/take-private transaction to have the Grand Court determine the fair value of their shares.

That right to dissent also hinges off how these take-private transactions are undertaken,

As of today, four cases have resulted in final judgments handed down by the Grand Court of Cayman – Integra Group, Shanda Games Ltd Spons Adr (GAME US), Qunar Cayman Islands (QUNR US), and most recently, Nord Anglia Education (NORD US).

What’s Original?

This insight explores the mechanics of Section 238 of the Cayman Companies Law, the case history of four appraisal rights judgments, and what dissenting shareholders may expect when taking their merger objections to Court.


ESR Cayman Placement – Even More to Come Soon

By Zhen Zhou, Toh

SK Holdings (034730 KS) is looking to raise around US$326m via selling 3.6% of ESR Cayman (1821 HK). Post-selldown, SK Holdings will still have about 7.4% stake in the company.

We covered the company’s first and second listing attempt extensively, you can find links to our coverage below. 

In this insight, we will briefly look at the 1H 2020 results, discuss deal dynamics and run the deal through our ECM framework.

June placement:

Links to our earlier insights:


Ant Group (蚂蚁集团) Running Neck and Neck with Tencent in Direct Financial Services

By Ming Lu

  • We believe Ant Group and Tencent have different advantages in direct financial products.
  • AliPay has a digital credit card, but Tencent does not.
  • Tencent provides higher return for cash accounts than AliPay.
  • On cash loan, AliPay’s interest rate is lower, but Tencent’s maturity is longer.

ZTO Express Secondary Listing – Smaller than Expected

By Sumeet Singh

ZTO Express (ZTO US) plans to raise around US$1.4bn in its secondary listing in Hong Kong.

While the company filed its PHIP on Friday, 11th Sep 2020, it has only launched its deal today. The deal size was smaller than what has been rumoured earlier. 

I’ve covered most aspects of the deal in my previous insight, ZTO Express Secondary Listing – Fast Growth but It Hasn’t Been Flowing Down to Earnings.

In this insight, I’ll provide a quick overview of the deal. 


Ming Yuan Cloud IPO – In the Right Place at the Right Time

By Mio Kato

Examining Ming Yuan Cloud by including its results from when it traded on the Shenzhen stock exchange as Shenzhen MingYuan Software paints a picture of a company that has enjoyed transformative growth after focusing on cloud and SaaS. We have some governance concerns and our in-depth look at the numbers suggests the company’s exposures may not be quite as attractive as they look on the surface, but nevertheless prospects look relatively good and with Snowflake leading the way with extremely slick marketing of its IPO we feel Ming Yuan Cloud could also reap some of the benefit of the excitement that is being generated.


Ant Group (蚂蚁集团) Pre-IPO: Impact Assessment of the New Rule for Financial Holding Companies

By Ke Yan, CFA, FRM

Ant Group plans to raise up to USD 30bn via a dual listing in both Hong Kong Exchange and Shanghai STAR board. 

We have provided our early thoughts of Ant Group as early as 2018.  Ant Group the largest third-party payment player in China, it is also the No.1 independent player in each of the three non-payment segments by key operating metrics. Given that Ant has superior growth and margin vs global fintech peer, we would put it at a premium to global fintech players.

PBOC and State Council announced official rules on financial holding companies which will put Ant Group under marginally tighter regulations. We believe the short term impact on the company is minimal as the cost for setting up the financial holding company is manageable based on Ant’s balance sheet. However, there are on-going uncertainties of whether the regulator will continue to place more restrictions on Ant Group which remains to be seen.

Our previous coverage on Ant Group

  • Ant Financial IPO Early Thought: Understand the Fintech Empire, Growth and Risk Factors

  • Ant Financial (蚂蚁金服) IPO Early Thought: What’s New About the Listing News

  • Ant Group (蚂蚁集团) IPO First-take: No. 1 fintech from all angles

  • Ant Group (蚂蚁集团) IPO: Numbers suggest it’s more tech than financials

  • Ant Group (蚂蚁集团) Pre-IPO: Dual listing makes early index inclusion tricky

  • Ant Group (蚂蚁集团) Pre-IPO: Things to clarify/questions to ask

  • Ant Group (蚂蚁集团) Running Neck and Neck with Tencent in Direct Financial Services

  • AliPay’s Advantage over WeChat Pay in Physical Stores


Shanghai International Airport (600009 CH): Best in Domestic and Cargo Traffic in Aug

By Osbert Tang, CFA

The domestic traffic of Shanghai International Airport (600009 CH) has seen the best pick-up momentum when compared with the other two key Chinese airports. Its domestic aircraft movement rose an impressive 16.2% YoY and domestic passenger traffic increased 0.4% YoY in Aug. Moreover, it sustained the leadership in freight throughput with Aug marked the fifth consecutive month that freight volume achieved a YoY growth.

We expect the outperformance of SIAC’s share price against Beijing Capital International Airport (BCIA) (694 HK) and Guangzhou Baiyun International Airport (600004 CH) to sustain in 2H20. This is to be driven by faster resumption of international flights, the release of pent-up passenger demand during the National Day holidays and continued improvement in freight traffic.


HKEx (388.HK): August Trading Volume Remains Elevated, Tech IPO Boosts Trading Activities

By Roger Xie

  • HKEX (388 HK) August ADT remain robust, though slowdown from record high July ADT. Year-to-date, HKEx ADT has jumped 36.5% year-over-year
  • Mega IPO and Chinese ADR homecoming have reshaped the landscape of Hong Kong capital market. We believe the structural change of listing offerings and investor profile could lift trading volume for long term.
  • We expect that MSCI China A-share future will be approved by regulator near term. MSCI China A-share future could contribute additional 6% revenue for HKEX (388 HK) after its launch. We remain bullish on HKEX (388 HK) and reiterate TP of HKD 400. 

ZTO Secondary: Entire Industry Expanding Capacity While Facing Pricing Pressure Is Not a Good Thing

By Shifara Samsudeen, ACMA, CGMA

The leading Chinese express delivery company, ZTO Express is looking to raise US$1.56bn (45m shares at a maximum offer price of US$34.58 per share) in its Hong Kong Secondary listing, following in the footsteps of a growing number of US-listed Chinese companies seeking for secondary listings.

The company utilises a “network partner model” (referred as “Tongda operators”) where the mission-critical line-haul transportation and sorting within the express value chain is handled by the company itself, while the network partners operate the outlets that provide first-mile pickup and last-mile delivery services.

We discuss the details below.


JHBP Holdings (Genor Biopharma) IPO Initiation: Hunting for a Cure

By Arun George

Genor Biopharma (0883276D CH) aka JHBP Holdings is a biopharmaceutical company focusing on developing and commercializing oncology and autoimmune drugs. Its drug candidates encompass the top three oncology targets and five out of the ten bestselling drugs globally. Genor is backed by Hillhouse Capital, Temasek and Hangzhou Tigermed Consulting (H) (3347 HK). It is seeking a Hong Kong IPO to raise around $300 million, according to press reports. 

Genor has a broad drug pipeline with significant near-term revenue potential from as early as 2021. Overall, we believe that the prospectus for Genor’s late-stage drug assets is favourable. 


Before it’s here, it’s on Smartkarma

China: Ming Yuan Cloud Group, Ganfeng Lithium, Ant Financial, iHuman Inc., Alibaba Pictures, Neusoft Education, Huazhu Group, Central China Real Estate, Guangzhou R&F Properties and more

By | China, Daily Briefs

In today’s briefing:

  • Ming Yuan Cloud IPO – SaaSy, but Regional Channel Partners Are SaaSier Still
  • Ganfeng Lithium Placement – Momentum Play
  • Ant Group IPO: Ant Vs CreditTech Peers
  • IHuman Inc (洪恩) Pre-IPO – Overly Reliant on One App to Generate the Majority of Revenue
  • Ming Yuan Cloud IPO: Valuation Insights
  • Alibaba Pictures (1060): Big Screen to Small Screen
  • Neuedu (东软教育) Pre-IPO: COVID-19 Updates, Financial Comp, Valuation
  • Huazhu Group Secondary Listing: Consensus Ignores COVID Even as The Business Goes Asset-Heavy
  • Morning Views Asia: Central China New Life, Future Retail, Hopson Development
  • Morning Views Asia: Future Retail, Guangzhou R&F Properties

Ming Yuan Cloud IPO – SaaSy, but Regional Channel Partners Are SaaSier Still

By Mio Kato

Ming Yuan Cloud offers software dedicated to the real estate industry and is the market leader in China. The company has already secured a bevy of high-class investors as cornerstones with Sequoia, GIC, Fidelity and Blackrock on board. We examine the company’s business model and market exposure below.


Ganfeng Lithium Placement – Momentum Play

By Sumeet Singh

Ganfeng Lithium (1772 HK) aims to raise around US$191m to fund its capacity expansion plans. 

We have covered the H-shares listing in 2018, Ganfeng Lithium IPO (赣锋锂业): Falling Lithium Prices Weigh on the Leading Producer.

The shares have more than doubled on YTD basis, even though earnings have far from kept pace. However, analyst continue to be positive on the stock and are building in much faster growth ahead.


Ant Group IPO: Ant Vs CreditTech Peers

By Supun Walpola

In our previous notes, we suggested that Ant’s medium-term revenue and margins are likely to be driven by its CreditTech business (refer our notes Ant Group: Early Thoughts on the IPO – Alipay Is NOT the Cash Cow Here and Ant Group IPO: CreditTech to Drive Medium-Term Growth and Margins).

However, Ant had left out several key pieces of information about its CreditTech business from the IPO prospectus, including its revenue and cost structures, margins, and even the number of customers. In this insight, we compare Ant’s CreditTech business with its listed peers, Lexinfintech Holdings (LX US) and 360 Finance, Inc. (QFIN US), in an attempt to get an insight into some of these missing pieces of information.    


IHuman Inc (洪恩) Pre-IPO – Overly Reliant on One App to Generate the Majority of Revenue

By Zhen Zhou, Toh

iHuman Inc. (IH US) is looking to raise US$100m in its upcoming IPO in the U.S.

iHuman is a childhood edutainment company in China. The company develops products and services that caters to the education demands of children aged between three and eight. The company has developed and now operates the widely popular app, iHuman Chinese. It also operates other apps such as iHuman English World, iHuman Pinyin, and etc. On top of its app business, the company sells offline products that include learning materials, smart reading pens, building blocks, and learning consoles.

In this note, we will look at the company’s background, analyze its financials and operating metrics, and share our thoughts.


Ming Yuan Cloud IPO: Valuation Insights

By Arun George

Ming Yuan Cloud Group (MYCG HK) is the leading software solution provider for property developers in China with a market share of 18.5% as measured by revenue in 2019, according to Frost & Sullivan. Ming Yuan has launched its IPO at a price range of $15.00-16.50 per share. At the mid-point of the IPO price range, Ming Yuan will raise net proceeds of HK$5,635.9 million ($727 million). Six cornerstone investors will subscribe for 36.3% of the shares under the global offering, at the mid-point of the IPO price range. The cornerstone investors are Hillhouse Capital, GIC, China Structural Reform Fund, Sequoia Capital, BlackRock and Fidelity International. 

In our initiation note, we stated that Ming Yuan’s fundamentals are attractive due to several factors. Overall, we think that a reasonable PEG valuation, a market-leading business and solid cornerstone support makes Ming Yuan tempting at the proposed pricing range. 


Alibaba Pictures (1060): Big Screen to Small Screen

By Henry Soediarko

Alibaba Pictures (1060 HK) ticketing service revenues’ growth will be capped due to the COVID-19 safety precaution for longer than this year given there is not yet a vaccine let alone curing the world out of COVID-19.

Thanks to its standing as part of the Alibaba Group (9988 HK) , the management has decided to co-invest in Reality Shows productions alongside Youku that will shift its distribution channel from cinemas to home (Television) and personal (smartphone and tablet) entertainment. 

Alibaba Pictures is trading at 1.27x PBR, a 90% discount to iQIYI Inc (IQ US) , even before it books future revenues from the Reality Shows. Buy


Neuedu (东软教育) Pre-IPO: COVID-19 Updates, Financial Comp, Valuation

By Ke Yan, CFA, FRM

Neuedu, a leading IT higher education service provider in China, is looking to raise up to USD 300m in its Hong Kong listing.

In our previous note, we discussed that Neuedu operated three private universities (Dalian, Chengdu, Foshan) in China with capacity utilization of over 90% in the past three years. Its three universities all have nearly 20 years of operation. We like Neuedu’s long-established reputation of private higher education in IT-related fields. Of the three, Dalian University stands out in terms of ranking among private universities. Having said that, the average graduate salary was marginally better than the respective provincial average by low double-digit. The company is undertaking RMB 2.4 bn expansion plans to increase the campus capacity by 44% by 2023. The company is held by founders, Neusoft, Alps Alpine, PICC, and individual investors.

In this note, we will provide updates with respect to the impact of COVID-19 in the first six months of the year. We compare the company’s financials with other listed peers and provide our thoughts on valuation.

Our previous coverage on Neuedu


Huazhu Group Secondary Listing: Consensus Ignores COVID Even as The Business Goes Asset-Heavy

By Oshadhi Kumarasiri

Founded by Mr. Ji Qi, a co-founder of Trip.com (TCOM US), Huazhu Group (HTHT US) is the second-largest hotel chain in China and the ninth-largest in the world. Huazhu has 17 hotel chain brands covering the entire spectrum from budget to upscale hotels.

Source: Company Disclosures

The company started operations in 2005 as a budget hotel chain and was listed on the NASDAQ stock exchange on 26th March 2010.

Following other US-listed Chinese companies, Huazhu has filed for a secondary listing on the Hong Kong stock exchange to issue 20.4m shares at a maximum offer price of HK$ 368.0 per share.

The offer commenced on 11th September and remains open till 12:00 noon on 16th September 2020.


Morning Views Asia: Central China New Life, Future Retail, Hopson Development

By Charles Macgregor

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.


Morning Views Asia: Future Retail, Guangzhou R&F Properties

By Charles Macgregor

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.


Before it’s here, it’s on Smartkarma

China: Xiaomi Corp, Oriental Watch, PC Partner, Nam Tai Property Inc, Ming Yuan Cloud Group, Ant Financial, ZTO Express, Zai Lab Ltd, Meituan Dianping and more

By | China, Daily Briefs

In today’s briefing:

  • Xiaomi Placement – Run-Up in Share Price, Co-Founder Selling
  • Oriental Watch: Forget the Tender, Management Is Bullish and Dividends to Accelerate
  • Oriental Watch (398 HK): Conditional Partial Offer
  • PC Partner: Poor-Man’s Play on Nvidia  (Part 2); Trades at 2x FY20 P/E and 14% Dividend Yield
  • Nam Tai Property – An Interesting Activist Situation
  • Ming Yuan Cloud (明源云) IPO – Better Disclosure and a Leader in the Industry
  • AliPay’s Advantage over WeChat Pay in Physical Stores
  • ZTO Express Secondary Listing: Home Delivery
  • Zai Lab HK Secondary Listing – Large Deal to Digest but past Deals Have Done Well
  • China Internet Weekly (14Sep2020): Meituan & Ele.me Criticized as Sweatshop

Xiaomi Placement – Run-Up in Share Price, Co-Founder Selling

By Sumeet Singh

Xiaomi Corp (1810 HK)‘s co-founder Lin Bin aims to raise around US$1bn via selling some of his stake in the firm.

While he has provided a long lock-up to allay any concerns of an overhang, the shares have run-up a lot going into the index inclusion. 


Oriental Watch: Forget the Tender, Management Is Bullish and Dividends to Accelerate

By Nicolas Van Broekhoven

Oriental Watch (398 HK)announced it is proposing to buy back a maximum of 83 million shares at 3 HKD (249M HKD). This represents a premium over 57% vs the average 30-day closing price on HKex. Once the shares are bought back they will be canceled which will reduce total shares outstanding from 570 million to 478 million. A Special General Meeting (SGM) will be needed to approve the transaction, details of which are pending an official Offer Document. The full transaction has been covered by David Blennerhassett Oriental Watch (398 HK): Conditional Partial Offer 

As long-time Oriental Watch followers let’s step back and assess what this means:

  • The controlling family’s stake will rise over 30% (depending on uptake 30.85-36.10%) but they won’t have to make a mandatory general offer as they have requested an exemption from HKex. Minority investors need to approve the transaction: we would advise minorities to vote IN FAVOR.
  • The founding family upping its stake at a significant premium to the latest stock price is bullish. 
  • Even at 3 HKD, the shares trade far below their latest book value of 4.04 HKD.
  • With increased ownership management is now more incentivized to keep on paying large dividends going forward. 
  • Mr. Market has been perenially mispricing Oriental Watch at negative enterprise value or barely above net cash over the last 5 years. As discussed at length in various previous insights we think this is wrong and the latest transaction again highlights the underlying value.
  • The company has returned 0.885 HKD/share in dividends over the past four years. When judging Oriental Watch’s share price performance please make sure you look up the total return on your Bloomberg.
  • Mainland China Rolex sales have been seeing YoY SSS increases of 40-80% since April (depending month to month). Once HK opens up SSS comps become very easy after 2019 (riots) and 2020 (Covid-19). Please re-read our insight on Oriental Watch being a way to play Rolex in China Oriental Watch: Bet on Rolex Demand in China/HK and Collect 12% Dividends While Waiting 

Oriental Watch (398 HK): Conditional Partial Offer

By David Blennerhassett

After Oriental Watch (398 HK) (“OWH”) was suspended “pursuant to the Codes on Takeovers and Mergers and Share Buy-backs“, the immediate takeaway was to conclude the company would be subject to a Privatization Offer. But in what is becoming increasingly more common, OWH has announced a partial buyback from the company – 14.55% of shares out or 83mn shares, at HK$3.00/share, a 53.85% premium to last close.

This will cost the company HK$0.25bn (US$32mn). OWH had net cash on hand of ~HK$0.65bn as at Mar 2020.

Yeung Ming Biu & concert parties hold 30.85% of shares out and will not tender. That leaves 69.15% of the register subject to the buyback, implying a minimum pro-ration of 21.04%.

Should the partial buyback complete (i.e. fully exercised) Yeung & concert parties will hold 36.10% of shares out, before the exercise of any outstanding share options. That step-up in %-held oversteps Hong Kong’s “creeper rule”, and therefore Independent Shareholders are required, by way of a special resolution (75% vote), to approve a whitewash waiver such that Wong is not obligated to make a general offer for shares not held. 

As always, more below the fold. Plus Ye Olde Arb Grids.  


PC Partner: Poor-Man’s Play on Nvidia  (Part 2); Trades at 2x FY20 P/E and 14% Dividend Yield

By Nicolas Van Broekhoven

Several years ago we wrote about PC Partners (1263 HK): A Poor Man’s Way into Nvidia New GPU Cycle; Trades at 3x PE and 11% Div Yield.

We see a similar trade coming up in 4Q20 and into 1Q21.

As demonstrated over the years covering PC Partners the stock is rarely a buy & hold. With Nvidia’s new RTX30 GPU launch (GTX3060/GTX3070/GTX3080 and GTX 3090) being spread out from October to December there is likely to be excitement around its performance and uptake.

Much different than in FY18 there is no large oversupply from a deflating crypto bubble. This means there is no old inventory to clear which should result in much better GPM and NPM for Pc Partners. Please also note that gearing for Pc Partner in 2018 was over 100% while the company will have a net cash position by the end of FY20.

Pc Partner remains a poor man’s way to play Nvidia and key themes such as e-sports, AI, data centers, and overall gaming. We expect dividends to be reinstated for FY20. On our estimates, the company will achieve 8 billion HKD in FY20 sales and generate 272 million HKD in net profit (3.4% NPM). If we assume a 30% payout on that we get a 0.22 HKD/share full-year dividend or a 14% dividend yield. We expect the stock to reach 3 HKD in the coming 6 months. Upside could come from a bullish breakout in cryptocurrencies as crypto mining (which consumes massive GPU) comes back in vogue. The downside is capped by a very cheap valuation.


Nam Tai Property – An Interesting Activist Situation

By Travis Lundy

Nam Tai Property Inc (NTP US) has been the stomping ground for a small US-based activist and a few other shareholders since last year with one shareholder IsZo Capital LP there as the top independent shareholder since 2017, and “public” since filing a 13G in February 2019. 

Nam Tai Property – founded in 1975 – was originally an electronics company based in Shenzhen. It changed its name to Nam Tai Property in 2014. It is listed, somewhat oddly, on the NYSE.

In May, IsZo Capital – which at the time owned 9.8% of shares out vs 6.68% at end-December – sent the company a letter which it also released to the public. IsZo was upset that Nam Tai was trading at only about US$4.05 at the time, which was a 70% decline since the share price in January 2018, 28 months earlier, when Kaisa Group Holdings (1638 HK) replaced the CEO with Ying Chi Kwok who was the younger brother of the CEO of Kaisa (and himself owns 13.8% of Kaisa). Kaisa had themselves bought in at just under US$17/share, paying CNY 750mm for 6.5mm shares held by then-lead shareholders Koo Ming Kown and Cho Sui Sin. They bought another 1.1mm shares in the quarter and then another 1.583mm in Q4 2017 to get to the current position of 9.191mm shares. That was 25.01% when they got there but ESOP plans have dropped that to 23.61% now.

Before the letter in May, IsZo had been rallying shareholders to its cause, and the register saw significant turnover, presumably towards shareholders friendly to the activist cause. The letter WAS on a website (https://fixntp.com) that IsZo put up but it is no longer there. 

The letter itself explained issues with Kaisa’s history and conflicted ownership and called on shareholders to reconstitute the Board and remove Kaisa insiders from leadership roles, proposing a slate. Another fund, Railroad Ranch Capital, wrote a letter in June 2020 supporting IsZo’s proposals. They said they owned 4.5% in shares and derivatives.

While this situation has been on my radar I haven’t done much with it. I take a brief look below the fold. 


Ming Yuan Cloud (明源云) IPO – Better Disclosure and a Leader in the Industry

By Zhen Zhou, Toh

Ming Yuan Cloud Group (MYCG HK) (MYCG) is looking to raise up to US$796m in its upcoming Hong Kong IPO.

MYCG is a software solution provider in China with a focus on real estate. The company provides enterprise resource planning (ERP) solutions and SaaS products to property developers and other industry participants in the real estate value chain in China. As per Frost & Sullivan (F&S), the company is ranked first among software providers for property developers in China and has a dominant 24.6% market share in terms of contract value in 2019.

In this note, we will look at updates in the new PHIP filing, do a brief peer comparison, and share our assumptions, and thoughts on valuation.

Our previous coverage of the IPO:


AliPay’s Advantage over WeChat Pay in Physical Stores

By Ming Lu

  • We believe customers prefer AliPay to Tencent (700 HK)’s WeChat Pay when both are available in physical stores.
  • Customers need only 2 steps to pay with AliPay compared to 3~4 steps with WeChat Pay.
  • We believe AliPay has advantage in physical stores before WeChat provides WeChat Pay an access in its homepage.

ZTO Express Secondary Listing: Home Delivery

By Arun George

ZTO Express (ZTO US) is the leading express delivery company in China with a 19.1% market share of China’s express delivery service market as measured by total parcel volume, according to iResearch. ZTO Express passed its Hong Kong listing committee hearing last week and could raise up to $2 billion through a secondary listing, according to press reports. 

ZTO joins the wave of Hong Kong secondary listings set to hit the screens in the coming months. We think that ZTO is an attractive equity story as it is a best-in-class logistics player which can capitalize on the opportunities presented by China’s relatively fragmented logistics industry, in our view. 


Zai Lab HK Secondary Listing – Large Deal to Digest but past Deals Have Done Well

By Sumeet Singh

Zai Lab Ltd (ZLAB US) plans to raise around US$1bn in its secondary listing in Hong Kong.

The company filed its PHIP on Friday, 11th Sep 2020, although it has yet to officially launch the deal. While waiting for the deal to be launched, in this insight, I’ll talk about the deal dynamics.

Links to my previous notes on the topic on Secondary listings:


China Internet Weekly (14Sep2020): Meituan & Ele.me Criticized as Sweatshop

By Ming Lu

  • Meituan (3690 HK) and Alibaba (BABA)’s Ele.me were criticized for exploiting food delivery riders.
  • A Court determined that Ping An Healthcare (1833 HK)’s app, “Ping An Good Doctor”, infringed the trademark of Good Doctor Pharmaceutical Group.
  • Tencent (700 HK) decided to close down its micro-blog.
  • State Post expected that parcels will increase 37.4% YoY in China in August.

Before it’s here, it’s on Smartkarma

China: Haier Electronics Group Co, Chindata, Sinotrans, Zoomlion Heavy Industry H and more

By | China, Daily Briefs

In today’s briefing:

  • Haier (1169 HK): Back To Entry Levels
  • Chindata Group IPO Initiation: Where the Cloud Meets the Ground
  • Sinotrans (598 HK): A REIT Perspective
  • Zoomlion (1157.HK): Time to Switch from Sany into Zoomlion

Haier (1169 HK): Back To Entry Levels

By David Blennerhassett

On the 31 July, Haier Electronics Group Co (1169 HK) (HEG) announced a pre-conditional Scheme such that HEG shareholder will receive 1.6 new Haier Smart Home (600690 CH) (HSH) H shares plus HK$1.95 in cash. 

The pre-condition concerned approval from HSH’s shareholders and CSRC approval. The pre-conditions were fulfilled on the 1 September. The next step in this process is for HEG shareholders to vote on the Scheme. The despatch of the Scheme Doc has now been extended to the 30 November, from 4 September previously.

 A 632-page Application Proof for the listing of HSH H-shares has now been lodged. This will be a listing by introduction.

The question at the time of the Scheme announcement, as it is now – is where will the HSH (as yet unlisted) H-shares trade with respect to the HSH A-shares? 

An independent valuer backed out an indicative value under the Scheme of HK$31.11-HK$31.90 – or $31.51 at the mid-point. However, this was just a valuer’s opinion. There is no guarantee this is where the Hs will trade. 

The market is assigning around a 37% discount (HSH Hs vs. HSH As). Relative to a basket of liquid A/Hs and listed A/H peers, this is a level to get involved.

More below the fold.


Chindata Group IPO Initiation: Where the Cloud Meets the Ground

By Arun George

Chindata (CD US) is a data centre operator. It is the largest carrier-neutral hyperscale data centre operator in Asia-Pacific emerging markets as measured by capacity in service, with 21.5% market share out of a total market size of 829 MW, according to Frost & Sullivan. Chindata is backed by Bain Capital (57.17% shareholder), APG Strategic Real Estate Pool/Dutch pension funds (10.43%) and SK Holdings (034730 KS) (8.94%). It is seeking to raise up to $800 million (primary and secondary sale) through a Nasdaq IPO, according to press reports. 

The Asia-Pacific hyperscale data centre market is a structural growth market in part due to the increasing prevalence of outsourcing data centre services, rising client demand for higher power density and scalability, and increasing compliance and regulatory requirements on data security. Overall, we think that Chindata is an attractive play on these favourable market dynamics. 


Sinotrans (598 HK): A REIT Perspective

By Osbert Tang, CFA

We look at Sinotrans (598 HK) from the infrastructure REIT perspective given its numerous storage and logistics assets spreading all over China. At end-1H20, it owns over 10m sq.m. of land and over 4m sq.m. of warehouses/logistics centres with a total book cost of Rmb19.6bn. We believe these are significant assets for repackaging into a REIT to allow it to realise their underlying values.

Based on our assumptions, we estimate that a REIT issuance backed by its logistics assets will be able to boost its market cap by at least 16.5%. Moreover, this is only a conservative estimate as we think that the H-share will benefit more than the A-share. Moreover, Sinotrans can take this opportunity to cash in on these assets partially for funding its future investment in logistics infrastructure.  


Zoomlion (1157.HK): Time to Switch from Sany into Zoomlion

By Victoria Li

YTD, Zoomlion’s share price is up 18%, but has lagged  Sany Heavy’s (600031.CH) 35% and its own A-share’s 19.8%.  We believe this has happened mainly due to Zoomlion’s relatively lagging earrings recovery since 2018. 

However, as we expected, Zoomlion’s earnings recovery accelerated in 2Q2020 with market demand moving onwards to late cycle products. In 2Q2020, Zoomlion reported a 90% yoy growth of net profit, vs. 78% yoy growth of Sany’s.

Moreover, Zoomlion plans to use most of the proceeds from A-share private placement on excavator and related components. It plans to gain market share in excavators and targets to be one of Top 5 suppliers in 5 years. As we’ve seen, local excavator brands successfully gained market shares from global leaders in the past few years and improved sector concentration. This strengthens our conviction that Zoomlion’s excavators would take some market share from smaller players and this will be an earnings driver in the next few years.

We believe Zoomlion would outperform Sany Heavy in 2H2020, especially after A-share placement adjustment.


Before it’s here, it’s on Smartkarma

China: Ant Financial, Chindata and more

By | China, Daily Briefs

In today’s briefing:

  • ECM Weekly (13 September 2020) – Ant Group, Joy Spreader, Chindata, Huazhu Secondary, Converge ICT
  • Chindata Group Holdings Pre-IPO – Patchy Data but Is Growing Fast in a Hot Sector

ECM Weekly (13 September 2020) – Ant Group, Joy Spreader, Chindata, Huazhu Secondary, Converge ICT

By Zhen Zhou, Toh

Aequitas Research puts out a weekly update on the deals that have been covered by the team recently along with updates for upcoming IPOs.

Hong Kong IPO activity is still looking busy. Joy Spreader Interactive Technology (6988 HK) and Huazhu Group (HTHT US) launched their respective US$225m and US$900m bookbuilds this week. 

On top of that, there were news reports that ZTO Express, Zai Lab and Baozun, Ming Yuan Cloud Group, and, Genor Biopharma, have gotten approval from HKEx. The first three names are secondary listings and, out of them, two have already filed their PHIP with HKEx as of Friday. We are also hearing that Genor Biopharma (0883276D CH) is looking to kickstart pre-marketing next week for its US$300m IPO.

We continued our coverage of Ant Group. This week, Sumeet Singh looked into implications of dual listing on index inclusion. There were also news reporting that Temasek and GIC are looking to participate in Ant Group’s IPO. 

In other parts of Asia, there seemed to be a wave of IPOs coming. We continue to look at Converge ICT Solutions Inc (ITC PM), this time, comparing the company with established peers in the Philippines. 

We are also hearing that, in India, UTI Asset Management (UTIAMC IN) and Computer Age Management Services (CAMS IN) are looking to launch their IPO next week. We have earlier covered the companies in:

Last, but not least, there were a handful of China ADR filings with the SEC. We took a look at Bain Capital-backed Chindata (CD US)‘s potential US$400m IPO.

Also, as mentioned last week, MR D.I.Y. Group (1706769D MK) is returning to market and it was pre-marketing during the week, likely to seek up to US$400m and, in Thailand, there were reports that SCG Packaging (SCGP TB) is targeting to launch its US$1.5bn IPO next month.

For placements, we share updates on Softbank Corp (9434 JP)‘s mega selldown by Softbank Group (9984 JP) which is looking to price on Monday.

Accuracy Rate:

Our overall accuracy rate is 73.0% for IPOs and 66.1% for Placements 

(Performance measurement criteria is explained at the end of the note)

New IPO filings this week

  • SciClone Pharma (Hong Kong, ~US$500m)
  • Sino-Ocean Services (Hong Kong, >US$100m)
  • Chindata Group (the U.S., US$400m)
  • Boqii (the U.S., US$115m)
  • iHuman (the U.S., US$100m)

Below is a snippet of our IPO tool showing upcoming events for the next week. The IPO tool is designed to provide readers with timely information on all IPO related events (Book open/closing, listing, initiation, lock-up expiry, etc) for all the deals that we have worked on. You can access the tool here or through the tools menu.

News on Upcoming IPOs

Analysis on Upcoming IPOs

Name Insight
Hong Kong
Ant Group Ant Group (蚂蚁集团) IPO First-Take: No. 1 Fintech from All Angles 
Ant Group Ant Group (蚂蚁集团) IPO: Numbers Suggest It’s More Tech than Financials 
Ant Group Ant Group (蚂蚁集团) Pre-IPO: Things to Clarify/Questions to Ask – Falling Fees, Margins, Cash Flow 
Ant Group Ant Financial IPO Early Thought: Understand Fintech Empire, Growth & Risk Factors
Ant Group Ant Financial (蚂蚁金服) IPO Early Thought: What’s New About the Listing News 
Ant Group Ant Group – Index Inclusion Possibilities & Timeline 
Blue Moon

Blue Moon Group Pre-IPO – The Positives – Dominant Market Share, Strong Online Sales 

Blue Moon

Blue Moon Group Pre-IPO – The Negatives – Flagging Offline Sales, Not Really a Primary Raising 

Blue Moon

Blue Moon: No. 1 But No Exclusive Advantage, Observation on the Ground 

Blue Moon

Blue Moon Group Pre-IPO – Online Reviews and Peer Comparison 

ByteDance

ByteDance (字节跳动) IPO: How Jinri Toutiao Paves The Way for a Bigger Empire (Part 1)

ByteDance

ByteDance (字节跳动) Pre-IPO: Why Facebook Should Worry About TikTok 

ByteDance

ByteDance (字节跳动) IPO: Tiktok the No.1 Short Video App for a Good Reason (Part 2)

ByteDance

ByteDance (字节跳动) Pre-IPO: How Has It Done in 1H? 

ByteDance

ByteDance: The Unlisted Company’s Video Apps Leading the Market and Threatening Internet Giants 

ByteDance

ByteDance (字节跳动) Pre-IPO: Why Facebook Should Worry About TikTok 

ByteDance

ByteDance (字节跳动) Pre-IPO – Globally the Most Downloaded App for Jan 2020 Driven by India 

ByteDance

ByteDance (字节跳动) Pre-IPO: Global Ambition Meets Regulatory Challenges 

E-Star Comm

E-Star Commercial Management Pre-IPO – Better Disclosure in New Prospectus 

E-Star Comm

E-Star Commercial Management Pre-IPO – Still Largely Reliant on Galaxy, Poor Disclosure Doesn’t Help 

Excellence Comm

Excellence Commercial Property (卓越商企服务) Pre-IPO – Diversifying Away from Excellence Group 

Everest Med

Everest Medicines (云顶新耀) Pre-IPO: License-In Specialist Led by Biotech Investors 

Genor

Genor (嘉和生物) Pre-IPO: Slow R&D Progress in the past but that Might Change 

Huazhu

Huazhu HK Secondary Listing – Early Look – Needs the Cash More than Most Secondary Candidates 

Jiayuan Svcs

Jiayuan Services (佳源服务) Pre-IPO – Another Small Property Management Company 

Jinke Svcs

Jinke Smart Services (金科智慧服务) Pre-IPO – GFA Growth at the Expense of Fees 

Kilcoy

Kilcoy Global Foods Pre-IPO – Rapid Earnings Growth on the Back of Margin Improvement 

Kilcoy

Kilcoy Global Foods Pre-IPO – A Lot of Things Still Remain Unexplained 

KWG Living

KWG Living (合景悠活) Pre-IPO – Strong Growth and Margin Expansion but Overly Reliant on KWG Group 

Megvii Megvii (旷视) Pre-IPO – Remarkable Growth (Part 1) 
Megvii Megvii (旷视) Pre-IPO – A Bet on the Future – Segments, Revenue Drivers and Growth Potential 
Megvii Megvii (旷视) Pre-IPO – The Real Race Is in Research – Founders’ Profile and Talent 
Megvii Megvii (旷视) Pre-IPO – Competitive Landscape and Peer Analysis 
Megvii Megvii (旷视) Pre-IPO –  Initial Thoughts on Valuation 
MIngyuan Cloud Ming Yuan Cloud (明源云) Pre-IPO – Leaning on Regional Partners for Growth but Hefty Commissions Paid 
Neusoft Neusoft Edu (东软教育) Pre-IPO: Long Established Name on IT Education 
Ocumension Ocumension (欧康维视) Pre-IPO: All Ready for a Great Listing Except a Block Buster 
Pop Mart Pop Mart Pre-IPO – The Negatives – Is It a Brand Owner or Just a Retailer? 
Pop Mart Pop Mart Pre-IPO – The Positives – Expanding Portfolio+Wider Distribution= Explosive Earnings Growth 
Pop Mart Pop Mart Pre-IPO – Peer Set and Valuation 
Pop Mart Pop Mart Pre-IPO Quick Note – On the Ground – Pop-Up Stores Are Effective 
Radiance Radiance Holdings (金辉控股) Pre-IPO – Property Mgt Svc Sold Out at a Ridiculously Cheap Valuation 
Shimao Svcs Shimao Services (世茂服务) Pre-IPO – Community VAS Segment Is the Star 
Sunac Svcs Sunac Services (融创服务) Pre-IPO – Promising Growth & Diversifying Away from Sunac Via Acquisitions 
RemeGen RemeGen (荣昌生物) Pre-IPO: Thoughts on Valuation of RC18 and RC48 
Simcere Simcere (先声制药) Pre-IPO: Long History but Products Concentrated 
Toplist Toplist China Pre-IPO – Overwhelmingly More Negatives than Positives 
Tasly Tasly Biopharm (天士力生物) IPO: Visible Growth from Approved Drug but Lacks Blockbusters 
Weihai Bank Weihai City Commercial Bank Pre-IPO – More of an Asset Manager Rather than a Lender 
WeDoctor WeDoctor (微医) Pre-IPO -App Walk Through – The Online Medical Directory and More 
WeDoctor WeDoctor (微医) Pre-IPO – A More Focused Online Medical Svc Provider than Ping An Good Doctor 
India
ASK ASK Investment Managers Pre-IPO – Riding on a Wave of Wealth 
Anmol Ind Anmol Industries Pre-IPO Quick Take – No Growth, Generous Payments to Founders
Bharat Hotel

Bharat Hotels Pre-IPO – Catching up with Peers 

Burger King

Burger King India Pre-IPO – Has Been Growing Fast and Plans to Grow Even Faster 

Burger King

Burger King India Pre-IPO – Peer Comparison Yields Interesting Nuggets on Profitability and Capex 

Bajaj En

Bajaj Energy Pre-IPO – Supposed to Deliver Steady Performance if Only Its Sole Client Would Let It 

CAMS CAMS Pre-IPO – Quasi Monopoly Status Muddled by Inconsistent Performance 
CMS Info CMS Info Systems Pre-IPO – When a PE Sells to Another PE… Only One Gets the Timing Right
Crystal Crop Crystal Crop Protection Pre-IPO – DRHP Raises More Questions than in Answers
ESAF SFB ESAF Small Finance Bank Pre-IPO – Growing Fast but Remains Highly Dependant on a Related Party 
Equitas SFB Equitas Small Finance Bank Pre-IPO – Another Forced Small Finance Bank Listing 
Equitas SFB Equitas Small Finance Bank Pre-IPO – Another Forced Small Finance Bank Listing 
Flemingo  Flemingo Travel Retail Pre-IPO – Its a Different Business in Every Country
Emami Cem Emami Cement Pre-IPO – Still in Ramp Up Phase but Shares Pledge Might Lead to an Early IPO 
IRFC Indian Railway Finance Pre-IPO – Low Risk, Low Margin Business 
NSE NSE IPO Preview- Not Only Fast..its Risky and Expensive
NSE National Stock Exchange Pre-IPO Review – Bigger, Better, Stronger but a Little Too Fast for Some
Mazagon Mazagon Dock IPO Preview: A Monopoly Submarine Yard in India with Captive Navy Spending
Mrs. Bector Mrs. Bectors Food Specialities Pre-IPO Quick Take – Sales for Its Main Segment Have Been Sta

LIC

Life Insurance Corporation of India Pre-IPO – Early Take on India’s Largest IPO 

Lodha

Lodha Developers Pre-IPO – Second Time Lucky but Not Really that Much Affordable
Lodha Lodha Developers IPO: Presence in Affordable Segment Saves Lodha the Blushes in a Sluggish Mkt
Penna Cem Penna Cement – Aggressive Expansion Plans Even Though Past Performance Has Been Tepid 
PNB Met PNB Metlife Pre-IPO Quick Take – Doesn’t Stack up Well Versus Its Larger Peers
Samhi Hotels Samhi Hotels Pre-IPO – Assets and Borrowings Are Growing, but Earnings Haven’t Kept Pace 
UTI AMC

UTI Asset Management Company Pre-IPO – Well past Its Remote Glory Days 

Malaysia
Mr DIY Mr D.I.Y. Pre-IPO – Largest Home Improvement Retailer in Malaysia 
Mr DIY Mr D.I.Y. Pre-IPO – Store Walk-Through and Thoughts on Value Proposition 
Mr DIY Mr D.I.Y. Pre-IPO – Peer Comparison – Small Stores with Dominant Market Share  
Mr DIY Mr D.I.Y. Pre-IPO – Assumptions and Thoughts on Valuation 
QSR QSR Brands Pre-IPO – As Healthy as Fast Food
Thailand
PTTOR PTT Oil and Retail IPO – F&B Business Is the Profit Driver 
SCGP SCGP Pre-IPO – Shift to Packaging Has Been Aiding Margins but Acquisition Drove up Leverage 
The U.S
CDP CDP Holdings Pre-IPO Review – Highly Reliant on Best Inc. 
CloudMinds CloudMinds Inc Early Thoughts – Still Nascent
Japan
Kioxia Kioxia IPO Early Thought: Inventor of the NAND Flash 

Chindata Group Holdings Pre-IPO – Patchy Data but Is Growing Fast in a Hot Sector

By Sumeet Singh

Chindata Group Holdings aims to raise around US$400m in its US listing. Chindata is a data centre solution provider in Asia-Pacific with a focus on China. It currently operates six data centers in China and one in Malaysia and has numerous more data centers under construction.

The company is backed by Bain Capital and is almost like a startup, in the sense that it was recently formed via the merger of a China and Asia-Pac entity. Given the relative freshness of the firm, the company has taken the liberty of providing financials just for the past 18 months, which of course show rapid growth. Also, it doesn’t provide a whole lot of details about its individual assets. Furthermore, its two large clients account for a huge chunk of its revenue, one of which is Bytedance, the other being Wangsu.

On the positive side, Chindata has plans to more than double its capacity by the end of 2021, which will ensure that growth remains strong. Moreover, its Chairman and founder appear to have ample experience in the sector. It operates in a sector which has only seen investor demand increase during COVID-19 and hence, despite its lack of financials will probably still be hot. 

In this note, I’ll talk about the company’s background, its past performance and the above issues.


Before it’s here, it’s on Smartkarma

China: Ant Financial, Yum China Holdings Inc, Huazhu Group, Nongfu Spring, Allied Properties (H.K.), Boqii Holding, Joy Spreader Interactive Technology, Dada Nexus Ltd, China Yongda Automobile Services Hldg and more

By | China, Daily Briefs

In today’s briefing:

  • Ant Group – Index Inclusion Possibilities & Timeline
  • Yum China Secondary Listing – Is There More Downside?
  • Huazhu HK Secondary Listing – Needs the Money but Looks Toppish
  • Nongfu Spring’s Sparkling Debut: Opened 85% Up- Is It Time to Short?
  • Allied Props (56 HK). Stalled At The Finish
  • Boqii IPO: Another Pet Humanization Stock in a Booming Market Led by Large E-Commerce Platforms
  • Joy Spreader (乐享互动) IPO – Fairly Valued at Best
  • Dada-Nexus: More — And Less — Than Meets the Eye
  • China Yongda Automobile Services – Accelerating into 2H20
  • Joy Spreader IPO Initiation: For the Joy of It

Ant Group – Index Inclusion Possibilities & Timeline

By Brian Freitas

Ant Financial (1051260D CH) is looking to complete a dual listing on the Shanghai Stock Exchange’s STAR Market and the HKEX (388 HK). Media reports have indicated that the company is looking to raise US$30bn, with US$20bn being raised in China on the STAR Market and US$10bn in Hong Kong. In a filing, Ant said that it plans to sell no less than 10% of its enlarged share capital.

FTSE has started a market consultation to include the STAR Market to the list of eligible market segments within the non Stock Connect indices, and to introduce Fast Entry rules for China A-shares listed on the STAR Market where there are no pricing limits for the first 5 trading days.

In this Insight, we take a look at the timeline for inclusion of the A-shares and the H-shares in various indices and what it would take for the HK listed line to be included in the Hong Kong Hang Seng Index (HSI INDEX) and Hang Seng China Enterprises Index (HSCEI INDEX)


Yum China Secondary Listing – Is There More Downside?

By Rickin Thakrar

Yum China (9987 HK) had a tough debut for its secondary listing, with the shares closing down c5%. We have been cautious on the secondary listing (note here) and the HK shares currently trade at a c5% discount to the ADR last close price and flat vs the ADR pre-market price. We give our updated thoughts on the secondary listing below.


Huazhu HK Secondary Listing – Needs the Money but Looks Toppish

By Sumeet Singh

Huazhu Group (HTHT US) plans to raise around US$900m in its secondary listing in Hong Kong.

I have covered the background of the deal in my earlier note, Huazhu HK Secondary Listing – Early Look – Needs the Cash More than Most Secondary Candidates.

In this insight, I’ll talk about the deal dynamics and what to do with the ADR while waiting for the completion of the Hong Kong listing.


Nongfu Spring’s Sparkling Debut: Opened 85% Up- Is It Time to Short?

By Aqila Ali

As expected Nongfu Spring (9633 HK) had a successful IPO. Nongfu’s stock opened at HKD 39.8 per share up 85% from its issue price. The stock ended the day at HKD 33.1 per share, 54% above the IPO price. The IPO was oversubscribed 1,148 times. The share price performance shows investor demand for defensive stocks amidst the ongoing COVID-19 crisis. 
During the second day of trading, the share price increased another 2.3%, closing at HKD 34.1 per share. At the current share price (HKD 35.9), Nongfu is trading at FY+2 EV/EBIT and PE of 43.6x and 47.6x respectively. 
The company’s valuation looks expensive – the question is, should you take profits, keep it in the radar to short, or hold on?
We go through the details below.


Allied Props (56 HK). Stalled At The Finish

By David Blennerhassett

Back on the 20 April, Allied Group Limited (373 HK) (AGL) made an Offer for 75%-held Allied Properties Hk (56 HK) (APH), by way of a Scheme, at $1.92/share (cash), a 34.2% premium to last close. The Offer consideration was Final, and would be split between a $0.42/share Scheme Consideration and a $1.50 Scheme Dividend.  The Scheme Doc was despatched on the 19 June. The Court Meeting was held on the 15 July and the resolutions to approve the Scheme was approved. Shares continue to trade until the 14 August (inclusive). Cheques were supposed to be despatched on or before the 8 Sept.

Then something went awry. 

The sanctioning of the Scheme has now thrice been delayed by the High Court. At the last session on the 7 September, submissions from APL were made to the Court “whether the Scheme was approved by a majority in a number of APL Shareholders present and voting in person or by proxy at the Court Meeting“.

Huh? The headcount test doesn’t apply to Hong Kong-incorporated companies like APH.

As always, more below the fold.

(Shares are currently suspended, so there is no trade here. Look away now if this is not your thing – it will save you time).


Boqii IPO: Another Pet Humanization Stock in a Booming Market Led by Large E-Commerce Platforms

By Shifara Samsudeen, ACMA, CGMA

  • Boqii is one of the largest pet-focused platforms in China who offers a one-stop destination for pet parents to get everything they need for their pets including pet food, toys, vitamins and toiletries. The company operates an online platform as well as an offline retail network.
  • The company has filed for an IPO in the US and has a placeholder indication to raise US$115m and plans to use part of the IPO proceeds on further enhancing content, R&D, big data technology and develop private label brands.
  • China’s pet economy is still in its infant stages as the market is significantly underpenetrated and this presents a huge potential for industry participants. The young millennials are driving the growth in the market and the pet goods retail market is shifting largely towards online channels in the country.
  • Boqii earns a majority of its revenue through online platforms (self-operated Boqii Mall and other third-party platforms) and at the same time, the third-party platforms bring in almost two-third of the company’s revenues.
  • The online pet good retail market in China is highly competitive and are dominated by large and established online retail platforms, including generic e-commerce platforms.
  • In this insight, we examine the company’s business model, the industry and the revenue channels. Boqii is the largest pet-focused online retail platform in China and the company has taken several initiatives including M&A deals to expand its presence in the market. The company is operating in a growing market and it seems that the company has a strong business model.
  • In a follow-up insight, we will be discussing the company’s financials (revenue, margins and balance sheet) in detail.

Joy Spreader (乐享互动) IPO – Fairly Valued at Best

By Zhen Zhou, Toh

Joy Spreader Interactive Technology (6988 HK) (JST) is looking to raise up to US$225m in its upcoming Hong Kong IPO.

JST is a performance-based we-media marketing service provider in China. JST connects marketers and we-media publishers via its technology and platforms. The services provided to marketers include analyzing and distributing their products on the we-media network which will help marketers acquire users.

In this note, we will look at assumptions and share our thoughts on valuation.

Our previous coverage of the IPO:


Dada-Nexus: More — And Less — Than Meets the Eye

By Daniel Hellberg

Dada Nexus Ltd (DADA US) recently reported Q2 results that showed strong YoY revenue growth at its two main business units and solid progress on raising margins. Still, Dada posted a net loss of 457 mn RMB on revenue of 1.32 bn RMB, and its shares in the US have fallen since it reported. 

An examination of average revenue per order in its Dada Now business line suggests the company actually handles little ‘real’ on-demand traffic. Instead, by volume it appears Dada Now mostly handles last-mile delivery duties for JD Logistics and traditional (2-4 day) express delivery firms. 

In this note we remind readers there is more to Dada than its hyped on-demand retail and on-demand delivery — and less, too. We say this because Dada still appears to have substantial exposure to traditional eCommerce fulfillment, which features slower growth, entrenched rivals, and thin margins. 


China Yongda Automobile Services – Accelerating into 2H20

By Michael Ting

We met with the management of China Yongda Automobile Services Hldg (3669 HK) and came away with a bullish view. Luxury auto strength from 1H20 is carrying over into 2H20 driven by favorable government policy for auto consumption, ASP growth leading to potential gross margin expansion along with a solid model pipeline for the company’s key brands.


Joy Spreader IPO Initiation: For the Joy of It

By Arun George

Joy Spreader Interactive Technology (6988 HK) is an ad tech company which connect marketers (namely, product providers and merchants) with we-media publishers. Joy Spreader has launched a Hong Kong IPO to raise around net proceeds of $140-210 million. 

The post-IPO performance of Chinese ad tech companies has been mixed. Consequently, backing the winners is crucial to generate investment returns in the Chinese ad tech sector. For investors seeking Chinese ad tech exposure, we think Joy Spreader’s fundamentals are attractive. We will discuss the IPO valuation in our next piece. 


Before it’s here, it’s on Smartkarma

China: Yum China Holdings, Inc, Ant Financial, Yum China Holdings Inc, China Feihe, Binjiang Service Group, MSCI Emerging Markets Index, Sino Ocean Land and more

By | China, Daily Briefs

In today’s briefing:

  • Yum China HK IPO Trading – Index Flows to the Rescue
  • Smartkarma Flash Webinar | Ant Group IPO: The World’s Greatest?
  • Ant Group IPO: Key Takeaways from the Response to SSE’s Queries
  • Yum China Secondary Listing: Trading Debut
  • YST (1431) VS China Feihe (6186): Time to Close
  • Binjiang Service Group Update: Solid H1 2020, Accumulate on Sectoral Weakness
  • Remain Overweight EM Relative To EAFE
  • Morning Views Asia: Sino Ocean Land

Yum China HK IPO Trading – Index Flows to the Rescue

By Sumeet Singh

In this insight, I’ll talk about the deal dynamics and updates over the past week.

Links to my previous notes on China ADRs secondary listing:


Smartkarma Flash Webinar | Ant Group IPO: The World’s Greatest?

By Smartkarma Research

In this flash Webinar, we are joined by Insight Providers Arun George and Victor Galliano to discuss the upcoming IPO of Ant Financial (1051260D CH). The Chinese fintech giant is slated for a dual listing in Shanghai and Hong Kong to raise US$30 billion, making it potentially the largest IPO ever.

The flash webinar will be hosted on Thursday, 10/September/2020, 5.00 pm SGT/HKT.

Arun George has over 13 years’ experience covering the Technology sector. During this time, he has worked with technology startups and as an equity analyst in investment banks and independent research firms. He was formerly a Technology Analyst for Canaccord Genuity, Altium Securities, Espirito Santo Investment Bank, Noble Group, and Clear Capital. 

Victor Galliano is an experienced equity banks analyst, having covered Latin America banks and non-bank financials for over 12 years, as well as more recently covering Italian banks and Fintech. He has worked in sell-side equity research for 30 years in a career spanning Barclays, HSBC, BBVA LatInvest, Barings, and NatWest.


Ant Group IPO: Key Takeaways from the Response to SSE’s Queries

By Arun George

On 30 August, the Shanghai Stock Exchange (SSE) posed 21 questions to Ant Financial (1051260D CH) in relation to its IPO filing. Ant responded to the questions in a Chinese regulatory filing on 3 September. As a reminder, Ant has submitted its IPO applications for simultaneous dual-listing in Hong Kong and on the Shanghai stock exchange’s STAR board. Ant is floating no less than 10% of its total share capital to raise around $30 billion, at a valuation of $200-300 billion, according to various press reports.

In this note, we highlight the key questions posed by the SSE and Ant’s response. Notably, several of the questions result in new disclosures by Ant. We examine the new disclosures and provide our take on the responses.


Yum China Secondary Listing: Trading Debut

By Arun George

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 Kong secondary listing at HK$412 per share. Yum China raised net proceeds of HK$17,002 million ($2.2 billion).

Yum China priced its H-shares at a 4.9% discount to its ADS. In comparison, Alibaba, NetEase and JD.com priced their H-shares at a 2.9%, 2.0% and 3.9% discount to its ADSs, respectively. At the last close price of $52.32 per ADS, the H-share offer price of HK$412 implies a 1.6% premium. We believe that JD.com’s H-share will likely trade to a slight premium to the ADS on average, broadly similar to the last three secondary listings.


YST (1431) VS China Feihe (6186): Time to Close

By Henry Soediarko

China Feihe (6186 HK) may have outperformed Health And Happiness (H&H) (1112 HK) but the pair trade of long Yuanshengtai Dairy Farm (1431 HK) and short China Feihe (6186 HK) have made 42% since the initiation in China Feihe (6186): Flying No More? .

The recent news that China Feihe is buying out YST has effectively collapsed the previously available valuation gap therefore it is time to also close the trade by selling YST and buy-to-cover China Feihe. 


Binjiang Service Group Update: Solid H1 2020, Accumulate on Sectoral Weakness

By Sameer Taneja

Binjiang Service Group (3316 HK) posted a solid H1 2020 with a 31% YoY revenue growth and a  112% YoY net profit growth. In addition to the 31% YoY revenue growth, the company increased its operating margins by 860 bps (including a 400 bps gross profit margin expansion and reduction in SG&A by 460 bps). The share price performance of the stock and the sector though has been lackluster owing to regulatory overhang as elaborated in insight provider Li Tang‘s piece China Tightens Domestic Bond Issuance Threshold for Property Developers. Despite this, we think that over the long term, execution will lead to the share price increasing. The stock trades at a PE of 17.4x FY20 and 14.4x FY21 and has 28% of its market capitalization in cash. The company has also committed to paying at least 50% of its earnings (70% in 2019). If the company adheres to a 70% payout ratio on the basis that there are no significant acquisitions, it implies a dividend yield of close to 4%. We think that any policy-related weakness would be an excellent time to accumulate the stock.


Remain Overweight EM Relative To EAFE

By Joe Jasper

The MSCI EM index (local currency) remains in an uptrend and is testing all-time highs set in January 2018 near 65,800; as long as the index is above 60,000 we are constructive from a price perspective.  China (CSI 300, MSCI China) continues to offer many attractive setups and accounts for the vast majority of today’s recommendations. Taiwan (TAIEX) continues to be worthy of an overweight within the EM universe, while South Korea (KOSPI) and India (SENSEX) display improving price and RS trends — add exposure.


Morning Views Asia: Sino Ocean Land

By Charles Macgregor

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.


Before it’s here, it’s on Smartkarma

China: Changshouhua Food, China Gold International Resources Corp Ltd., Gome Electrical Appliances, Melco Resorts & Entertainment, Fourace Industries, Ant Financial, Joy Spreader Interactive Technology, Agung Podomoro Land and more

By | China, Daily Briefs

In today’s briefing:

  • Changshouhua (1006 HK): What’s Cooking?
  • China Gold International – >330% Return, 52 Week High – Let It Ride? Or Not?
  • Gome’s Gamble on Social Commerce Is Unlikely to Generate Sufficient Margins
  • Changshouhua Food’s Privatisation Bid
  • A Bull Case for Melco Amidst a Lingering Bear Outlook on Asia Gaming
  • Fourace IPO (Valuation): Attractive Earnings Profile and Valuation Relative to Peers
  • Ant Group IPO: Jack Ma Is Still “Very Much” in Control
  • Joy Spreader (乐享互动) Pre-IPO – Found a Niche in Games but Still Just a Middleman
  • Morning Views Asia: Agung Podomoro Land, China SCE, Powerlong Commercial Management Holdings

Changshouhua (1006 HK): What’s Cooking?

By David Blennerhassett

After entering a trading halt on the 3 September “pursuant to the Hong Kong Code on Takeovers and Mergers“, Changshouhua Food (1006 HK) (“CFC”) announced late last night a privatisation by way of a Scheme.

The Cancellation price of HK$4.19/share is a 16.4% premium to last close, but a 43.2% and 64.1% premium over the average closing price on a 30-day and 60-day basis. The price is Final. No dividends are expected to be paid.

The Offeror, holding 52.14% of shares out, is a wholly-owned subsidiary of Sanxing Group. Independent Shareholders hold 46.82% of shares out. 

Typical Scheme conditions apply: at least 75% of Independent Shares FOR & not more than 10% of ALL Independent Shares against. Therefore the blocking stake is 4.682% of shares out, or 26.85mn shares.

Two shareholders have sufficient shares to block the vote – one has been a passive investor for almost five years; the other, FIL, was selling earlier this month at $3.50.

The headcount test applies as CFC is Cayman incorporated. 

The Offer price appears enough to get this over the line. 

As always, more below the fold


China Gold International – >330% Return, 52 Week High – Let It Ride? Or Not?

By Patrick Eng

How Much “Gas Is Left In The Tank?”

At the beginning of summer, we suggested many follow our lead by investing in CGG. We shared our idea China Gold International – China’s Love of Gold – 3-5X Return on Capital on June 9. If you did follow my suggestion, your price was ~C$.55cents. Currently, CGG’s stock is trading at ~C$1.85 or greater than 3x return.

What do we do now? & What are we thinking?


Gome’s Gamble on Social Commerce Is Unlikely to Generate Sufficient Margins

By Oshadhi Kumarasiri

Embattled by the entry of e-commerce to retail consumer electronics, Gome Electrical Appliances (493 HK), China’s largest electronic retailers with a Gross Merchandise Value (GMV) of CNY 136.1 billion is completely reliant on China’s social commerce growth to turnaround its struggling consumer electronics (brick and mortar) business.

We discuss China’s social commerce growth prospects and its impact on Gome Retail below.


Changshouhua Food’s Privatisation Bid

By Arun George

Changshouhua Food (1006 HK) is principally engaged in the corn oil business, the production and sales of refined edible sunflower seed oil, olive oil, peanut oil and rice germ oil, and the production and sales of cornmeal. Last night, Changshouhua received a privatisation offer from SanXing Trade, the controlling shareholder with a 52.14% stake. SanXing Trade is an investment holding company which is a wholly-owned subsidiary of Sanxing Grease. SanXing Trade is taking private Changshouhua by offering HK$4.19 cash per scheme share. The bid price is a 16.4% premium over the closing price of HK$3.60 per share on the last trading day (2 September).  

The key conditions precedent is the headcount test and the scheme approved by at least 75% disinterested shareholders (<10% disinterested shareholders rejection). Overall, we believe that the privatisation proposal has a good chance of success. At the last close, the gross spread to the privatisation bid is 7.2%. 


A Bull Case for Melco Amidst a Lingering Bear Outlook on Asia Gaming

By Howard J Klein

  • Slower revenue recovery in Macau thus far post IVS resumption spotlights value of Melco Resorts & Entertainment Ltd. footprint in Manila.
  • Manila properties now permitted to open to 30% capacity which should begin to improve VIP arrivals going forward from Golden Week.
  • Melco shares have shown price resilience during pandemic headwinds that have, and continue to batter the sector.

Fourace IPO (Valuation): Attractive Earnings Profile and Valuation Relative to Peers

By Aqila Ali

In our earlier reports, we covered Fourace Industries (FOUR HK)’s background, its business model, growth prospects, the risks it faces in the market, and its financial performance. We concluded that the company’s 30 years of expertise in the business, along with its attractive margins and strategic business plans, make it an attractive business. Customer concentration risk is still our main concern, but as we mentioned, the company’s move to OBM business should negate such concerns.  

Fourace revealed that it aims to raise around HKD91.7m or more, offering 312.5 million shares at a price range of HKD 0.4- HKD0.6 per share. This insight covers Fourace’s valuation in relation to its peers. Our views are:

  • Most of the peers are still private companies.
  • We selected a range of companies (OEM/ODMs as well as OBM) that cater to similar products to Fourace and serve similar markets (Japan, US, Europe, China).
  • Based on double-digit revenue growth (27%) and OPM (17%), the company is likely to trade at an FY2 EV/EBIT and a PE of 8.4x and 16.2x respectively at the high end of the IPO price range. At these multiples, Fourace appears fairly valued in comparison to selected peers.
  • Fourace also has better fundamentals than its peers and thus, we feel it deserves a slight premium to certain peers.
  • Moreover, as earnings improve, which is likely as the OBM model is adopted, the company could trade at a higher multiple similar to OBM peers.

Deal Specifics of Fourace’s Offering

Details:

Price Determination Date

September 4th, 2020

Announcement of Final Offer Price

September 14th 2020

Expected IPO price per share:  

Between HKD0.4 and HKD0.6

Number of Shares for IPO:

312,500,000 Shares

No. of International Placing Shares

 

281,250,000 Shares

No. of HK Offer Shares

31,250,000 Shares

IPO base deal size: 

Approx. HKD 91.7m

Expected market cap after IPO:

Between HKD 500m – HKD 750 m

Use of Proceeds

* HKD49.9m (54.5%) – Expanding and upgrading facilities;

* HKD 22.7m (24.8%) – Research and development;

* HKD 11.9m (11.9%) – Introduction of new products under its own “IHA” brand;

* HKD 3.2m (3.5%) – Sales and marketing;

* HKD 4m (4.3%) – Upgrading IT systems and Design-aided software

Source: Company Disclosures


Ant Group IPO: Jack Ma Is Still “Very Much” in Control

By Supun Walpola

There was some speculation that Ant Financial (1051260D CH)’s IPO would have been partly motivated by Jack Ma’s plans to further distance himself from Alibaba Group (9988 HK). However, Ant’s preliminary prospectus suggests that Jack Ma, through the Concert Party Agreement signed between the shareholders of Yunbo immediately prior to the release of the prospectus, would continue to have control of Ant even after the IPO.

Meanwhile, the rushed inclusion of ant-dilutive rights into its Share and Asset Purchase Agreement (SAPA) with Ant suggests that it would be unlikely for Alibaba to increase its stake in Ant during the IPO. Nevertheless, we believe Alibaba has significant influence over Ant’s affairs, with a majority of Ant’s BOD also holding positions as Alibaba’s senior management.


Joy Spreader (乐享互动) Pre-IPO – Found a Niche in Games but Still Just a Middleman

By Zhen Zhou, Toh

Joy Spreader Interactive Technology (JST HK) is looking to raise US$200m in its upcoming Hong Kong IPO.

JST is a performance-based we-media marketing service provider in China. JST connects marketers and we-media publishers via its technology and platforms. The services provided to marketers include analyzing and distributing their products on the we-media network which will help marketers acquire users.

In this note, we will share our thoughts on the company’s business model, financials and operating data.


Morning Views Asia: Agung Podomoro Land, China SCE, Powerlong Commercial Management Holdings

By Charles Macgregor

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.


Before it’s here, it’s on Smartkarma

China: Nongfu Spring, Burning Rock Biotech, Ant Financial, Yuanshengtai Dairy Farm, Semiconductor Manufacturing, CNY, Alibaba Group and more

By | China, Daily Briefs

In today’s briefing:

  • Nongfu Spring IPO: Trading Debut
  • Burning Rock Biotech (BNR.US): Best NGS-Based Cancer Diagnostics Player
  • Ant Group IPO: CreditTech to Drive Medium-Term Growth and Margins
  • Nongfu Spring IPO Trading Update – Strong Subscription Levels, in a League of Its Own
  • YST Dairy (1431 HK): VGO From China Feihe
  • China STAR Board: Potential Inclusion in FTSE EM and China A50 Indices; GEIS Inclusion Needs Connect
  • Sword of Trump Hanging Over SMIC
  • TMI Snapshot: Text Mining Sees USD/CNY & DXY Sentiment Shift To Neutral After Extremes
  • China Internet Weekly (7Sep2020): BABA Re-Opened Freshippo Stores, India Banned Tencent’s Top Game
  • Ant Group (蚂蚁集团) Pre-IPO: Dual Listing Makes Early Index Inclusion Tricky

Nongfu Spring IPO: Trading Debut

By Arun George

Nongfu Spring (9633 HK) is a leader in the packaged drinking water and beverage business in China. Nongfu had the leading market share in the packaged drinking water market in China for eight consecutive years from 2012 to 2019, according to Frost & Sullivan. Nongfu will commence trading on Tuesday, 8 September. Nongfu priced its IPO at HK$21.50 per share, at the top end of the indicative price range of $19.50-21.50 per H share. Nongfu raised net proceeds of HK$8,149 million ($1.1 billion).

In our initiation note, we stated that Nongfu is a play on the attractive growth of the Chinese soft beverage markets, which is underpinned by the increasing urbanisation rate, the growing health awareness and consumption upgrade. In our PHIP update note, we opined that the key negative remains the large pre-IPO dividends with RMB7,800 million ($1.1 billion) cash dividend declared on 14 August. Overall, we continue to believe that Nongfu remains attractive at the IPO price due to a reasonable PEG valuation.


Burning Rock Biotech (BNR.US): Best NGS-Based Cancer Diagnostics Player

By Isabella Zhao

In this insight, we provide the fundamental analysis of Burning Rock Biotech (BNR US) include business background, business model, major products and technology platforms, investment thesis, risk and valuation as well as the China precision oncology diagnostics market overview. 

In summary, as the leading player with No.1 market share (27% by volume),  Burning Rock is the key long term beneficiary to ride on the the large and fast growing NGS (next-generation sequencing) based cancer genotyping market (30% CAGR to reach US$4.5bn in 2030) in China, with its top market position in both central lab (17.5% share) and in hospital (80% share) segments,  robust portfolio of NGS-based cancer tests, advanced proprietary technologies, and tremendous potential in early cancer detection segment.

We expect Burning Rock to deliver 42% CAGR revenue growth from 2020-2025, break-even by 2024. Our DCF valuation suggests an intrinsic value of US$34.00 with potential upside of 37%. We suggest investors to build/accumulate position upon market pullback. 


Ant Group IPO: CreditTech to Drive Medium-Term Growth and Margins

By Supun Walpola

Our first look at Ant Financial (1051260D CH)’s financials reaffirms the thoughts that we had in our previous report, Ant Group: Early Thoughts on the IPO – Alipay Is NOT the Cash Cow Here. We believe the reported Total Payments Volume (TPV) does not show an accurate picture of the scale of Ant’s payments business and there is evidence that Ant could be offering services not only to Alibaba but also to other merchants at steep discounts.

Meanwhile, the digital financial services segment, especially the CreditTech business, is growing strongly and should offset the impact of the struggling payments business. Ant’s business model also permits the company to transfer a significant portion of its credit risk to third-parties through underwriting agreements and ABS. We believe there are further opportunities for the CreditTech business to grow if Ant could successfully tap into the underserved financial markets in lower-tier cities.

We also believe there is room for further margin improvement with the shift in the sales mix towards the more profitable digital financial services business.

We remain bullish on Ant’s IPO.


Nongfu Spring IPO Trading Update – Strong Subscription Levels, in a League of Its Own

By Sumeet Singh

Nongfu Spring (NON HK) raised around US$1bn in its Hong Kong listing. The company is the market leader in packaged drinking water in China.

In my earlier notes, I spoke about the company, its past performance and undertook a peer comparison and valuation analysis:

In this note, I’ll look at the deal dynamics and provide a table with implied valuation at different share price levels.

YST Dairy (1431 HK): VGO From China Feihe

By David Blennerhassett

After entering into a trading halt on the 4 September “pursuant to The Codes on Takeovers and Mergers and Share Buy-backs“, Yuanshengtai Dairy Farm (1431 HK)announced over the weekend a conditional voluntary general offer (VGO) from China Feihe (6186 HK).

The Offer Consideration is HK$0.63/share, a 1.6% premium to last close, and a 39.4% premium to the 90-day average close. The Offer price is final.

The Offer has a low 50% acceptance condition. All other conditions can be waived. Feihe currently holds no shares in YST. No irrevocable commitments have been tabled.

The Composite Document is expected to be dispatched by the 27 September, at which time the Offer will open to acceptances. 

Despite the headline Offer premium to last close, the YST shares are up 110% YTD, one of the best performers in its peer group which has an average of 16% YTD.

As always, more below the fold.


China STAR Board: Potential Inclusion in FTSE EM and China A50 Indices; GEIS Inclusion Needs Connect

By Brian Freitas

On 27 August, FTSE Russell commenced a market consultation on the potential inclusion of stocks listed on the Shanghai STAR Market  to the eligible Universe of non Stock Connect based indices with effect from the December 2020 quarterly review. The consultation was due to close on 18 September with confirmation of the results to be announced by 30 September.

Last evening, FTSE Russell extended the deadline for responding to 25 September and the results of the consultation will be announced by 2 October. A couple of additional points have also been added to the questionnaire.

If the market participants and FTSE  Russell choose to include the STAR market stocks into the indices, we see around 76 of the 170 STAR Board listed stocks being included in the FTSE Emerging Market All Cap China A Inclusion Index. We do not see any stocks making the cut to be included in the FTSE China A50 Index (XIN9I INDEX) in the December review, but Ant Financial (1051260D CH) could be included in the index in the March 2021 review if it lists prior to 20 November this year.

The main hurdle to overcome is to get the STAR Board listed stocks onto Stock Connect. This would ensure inclusion into the MSCI Standard Indices and the FTSE GEIS which would bring in substantial passive inflows. With China liberalising its markets and looking to attract foreign investment, this is one way to get that done.


Sword of Trump Hanging Over SMIC

By Scott Foster

The Trump administration is considering whether or not to add Semiconductor Manufacturing International Corp. (SMIC, 981 HK) to the Commerce Department’s “Entity List” – the same mechanism that was used to restrict the export of American technology to Huawei. 

This would cause SMIC a great deal of inconvenience and further undercut American semiconductor production equipment (SPE) sales to China. A sword is hanging over the share prices of SMIC itself and leading American SPE makers including Applied Materials (AMAT), Lam Research (LRCX) and KLA (KLAC). 

Another act of economic war intended to cripple China’s high-tech industries, it would also convince the Chinese government – if any further convincing is necessary – that eliminating dependence on American technology is an absolute necessity.

Some form of retaliation also seems likely. Has anyone calculated the valuations of American listed companies assuming no further growth in sales in China, declining sales in China, or no sales in China at all? Not only high-tech is at risk.

Potential beneficiaries include Japanese and European SPE makers including Tokyo Electron (8035 JP), Lasertec (6920 JP), Screen Holdings (7735 JP) and ASM International (ASM). American commentators have claimed that semiconductors cannot be produced without American technology, but that is not true.

Nevertheless, the immediate concern is the impact of the U.S-China trade war on semiconductor capital spending, which in the short to medium term at least is negative for all concerned.


TMI Snapshot: Text Mining Sees USD/CNY & DXY Sentiment Shift To Neutral After Extremes

By Elan Gore

In the past few weeks, leading strategists have been pointing to underlying shifts in FX positioning going into the US elections, with anomalous USD/CNH positioning for November and increasingly selective USD/Asia shorts, all in the context of record short net USD positioning at -2.5x STDEVs.  TMI similarly identified an underlying shift to neutral from extreme sentiment readings in CNY & DXY across our indicators, which we quantify and chart below.


China Internet Weekly (7Sep2020): BABA Re-Opened Freshippo Stores, India Banned Tencent’s Top Game

By Ming Lu

  • Alibaba (BABA) reopened the Freshippo store where an employee tested positive of coronavirus.
  • Alibaba (BABA) will raise its stake in YTO (600233 CN) from 10.5% to 22.5%.
  • India banned Tencent (700 HK)’s game, PUBG Mobile Lite.
  • GSX Edutech (GSX)’s revenue increased by 367% YoY in 2Q20.

Ant Group (蚂蚁集团) Pre-IPO: Dual Listing Makes Early Index Inclusion Tricky

By Sumeet Singh

Ant Financial (1051260D CH) plans to raise up to USD 30bn via a dual listing in both Hong Kong Exchange and Shanghai STAR board. 

In our previous notes, links to which are below, we have covered the company’s background and its performance.

In this note, we will focus on taking an early look on the index inclusion and the impact of the dual listing on the same.

Our previous coverage on Ant Group


Before it’s here, it’s on Smartkarma