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China

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

By | China, Daily Briefs

In this briefing:

  1. E-Star Commercial Management Pre-IPO – Still Largely Reliant on Galaxy, Poor Disclosure Doesn’t Help
  2. Health & Happiness (1112): No Soy Please and Still Cheap
  3. Gouxuan Hi Tech: Valuation Decoupled From Fundamentals
  4. London Shanghai Stock Connect – The Dampest of Squibs. Inteqres Viewpoint

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

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E-Star Commercial Management (ESCM HK) is looking to raise US$150m in its upcoming Hong Kong IPO.

ESCM is a commercial operational service provider focused on the Greater Bay Area (mostly in Shenzhen) although it does have a national presence. The company is ranked first and third in terms of the number of shopping centers and GFA in operation in Shenzhen, respectively.

The company has good long-term commercial properties under management (average of about 15 years). About half of the contracted GFA that has yet to commence operation and fully contribute to revenue. It will start between 2020 to 2023 which will drive revenue growth

2. Health & Happiness (1112): No Soy Please and Still Cheap

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Health And Happiness (H&H) (1112 HK) subsidiary has agreed to purchase a stake in Else Nutrition, a plant-based alternative IMF made of almond, buckwheat, and tapioca. 

Else Nutrtion complements the existing product line in the company i.e. Biostime (children probiotics and infant milk formula), Swisse (adult nutrition and supplements), Healthy Times (organic food and formula for toddlers), Dodie (baby glass bottles and accessories), Good Gout (organic food for children), and Aurelia Probiotic Skincare.

In this difficult times in China, HH is better than most of its peers in China and Asia. It has 38% higher ROIC, 82% higher in gross margin, 84% higher in net margin yet it is trading at 25% lower than its peers. Yet its share price has underperformed compared to Ausnutria Dairy Corp (1717 HK) whose exposure to adult nutrition is very small. 

3. Gouxuan Hi Tech: Valuation Decoupled From Fundamentals

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Guoxuan High-Tech Co Ltd (002074 CH) is lithium battery producers for electric commercial and passenger vehicles. The company has a market cap of US$4B and is listed in Shenzhen stock exchange. The stock has rallied in the last month on the news that Volkswagen is in discussion to invest 20% stake in the company.

The company has been burning cash and leveraging its balance sheet. The recent rally does not appear to be grounded in fundamentals but appears to have been primarily driven in anticipation of funding to deleverage the balance sheet. We believe that in the absence of a turnaround strategy the company will face headwinds if the negotiations with Volkswagen fail. In such situation we expect the stocks to revert back to its long-term mean valuations, a drop of 50% from current levels.

4. London Shanghai Stock Connect – The Dampest of Squibs. Inteqres Viewpoint

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Despite the fanfare only one Chinese company listed (and raised money) in London after the announcement of the London Shanghai Connect.  There have been no listing of Chinese Depository Receipts by companies listed in London.  This is starting to look like a white elephant.  We have reviewed the successful Depository Receipt programmes around the world and conclude that the pull to issue Chinese Depository Receipts is only weak at present.  We do think that companies are reviewing the option of issuing CDRs but there is no intense pressure to do so.  By following the factors we have identified, authorities and exchanges could build a more successful programme.

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Brief China: NetEase Earnings: Is NetEase Monetizing Mobile Gaming Traffic from the Virus Effectively? and more

By | China, Daily Briefs

In this briefing:

  1. NetEase Earnings: Is NetEase Monetizing Mobile Gaming Traffic from the Virus Effectively?

1. NetEase Earnings: Is NetEase Monetizing Mobile Gaming Traffic from the Virus Effectively?

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NetEase misses FY19 revenue consensus estimates. Revenue was 7.1% lower than estimates at RMB59.2 billion while adjusted earnings beat by 6.5% at RMB120.48.

NetEase games had higher traffic during 1Q20 with users spending more time gaming. Users were also spending 40.7% more time gaming daily for a total of 159 minutes a day.

NetEase has a strong pipeline of games for 2020. Strong international titles such as Diablo Immortal, Harry Potter: Magic Awakened, Pokemon Quest could continue to drive traffic and revenue as well through in-game monetization for the period of the virus.

NetEase games could be effectively monetizing the increased traffic from the virus. According to Sensor Tower, NetEase’s mobile game Fantasy Westward Journey was the 6th highest-grossing iOS game yesterday and made US$27 million for the month of January. Along with two other mobile games within the Top 20 iOS highest-grossing list. With Youdao being one of NetEase growth drivers on top of gaming, the Company could be an appealing play during virus situation.

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Brief China: NetEase Earnings: Is NetEase Monetizing Mobile Gaming Traffic from the Virus Effectively? and more

By | China, Daily Briefs

In this briefing:

  1. NetEase Earnings: Is NetEase Monetizing Mobile Gaming Traffic from the Virus Effectively?
  2. Youdao Gains 10 Million New Enrollments During the Virus; Q4 Results Boast Robust Momentum

1. NetEase Earnings: Is NetEase Monetizing Mobile Gaming Traffic from the Virus Effectively?

Image 67074513551582803296714

NetEase misses FY19 revenue consensus estimates. Revenue was 7.1% lower than estimates at RMB59.2 billion while adjusted earnings beat by 6.5% at RMB120.48.

NetEase games had higher traffic during 1Q20 with users spending more time gaming. Users were also spending 40.7% more time gaming daily for a total of 159 minutes a day.

NetEase has a strong pipeline of games for 2020. Strong international titles such as Diablo Immortal, Harry Potter: Magic Awakened, Pokemon Quest could continue to drive traffic and revenue as well through in-game monetization for the period of the virus.

NetEase games could be effectively monetizing the increased traffic from the virus. According to Sensor Tower, NetEase’s mobile game Fantasy Westward Journey was the 6th highest-grossing iOS game yesterday and made US$27 million for the month of January. Along with two other mobile games within the Top 20 iOS highest-grossing list. With Youdao being one of NetEase growth drivers on top of gaming, the Company could be an appealing play during virus situation.

2. Youdao Gains 10 Million New Enrollments During the Virus; Q4 Results Boast Robust Momentum

Image 44956541821582806253660

Youdao is capitalizing on the current virus outbreak to raise awareness of its services and build brand value. The Company gained 10 million new enrollments after it offered free online courses to its users, and continues to convert users by cross-selling and upselling via low-cost trials.

The Company’s Q4 results indicate continued momentum in the business’ growth and we expect the Company to reap strong returns in the future from its current investments during the crisis.

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Brief China: How Long Does It Take To Change One’s Behavior? Why Does This Matter in the Post COVID-19 World? and more

By | China, Daily Briefs

In this briefing:

  1. How Long Does It Take To Change One’s Behavior? Why Does This Matter in the Post COVID-19 World?
  2. Governments and Policies Adapting to Critical Known Unknown
  3. Costs of and Response to COVID-19
  4. China Auto Parts A Shares: Parts Of The Future
  5. Sunac – Earnings Flash – FY 2019 Results – Lucror Analytics

1. How Long Does It Take To Change One’s Behavior? Why Does This Matter in the Post COVID-19 World?

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The main subject of this report is as follows: “How Long Does It Take To Change One’s Behavior? Why Does This Matter in the Post COVID-19 World?” Certainly, COVID-19 will change the way people behave. The longer that COVID-19 lasts and the longer that millions of people are under lockdown, their behaviors will change further, potentially making them into a habit and this would have a tremendous impact on the global economy. 

We are specifically interested in this topic because as millions of people around the world undergo “lockdown” for a period of one to three months, this could have an enormous behavior change once this lockdown period ends.

The change in behavior patterns (especially related to consumer spending) in the post COVID-19 world would also have a big impact on whether the global economy/stock market can turn around quickly (such as after the Great Financial Recession in 2008/2009) or whether the turnaround lasts longer (such as after the Internet tech/crash lasting for nearly 3 years from 2000 to 2002). 

2. Governments and Policies Adapting to Critical Known Unknown

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We argued in Lack of US market & macro volatility both reassuring and troubling that “the market’s willingness to look through domestic political and geopolitical events suggests that only a significant exogenous or endogenous shock currently beyond markets’ radar screens (an “unknown unknown”) is likely to really move the needle”.

That unknown unknown, a “black swan” event, has turned out to be a global viral pandemic on a scale not seen since the Spanish influenza pandemic of 1918-1919.

The coronavirus outbreak is now three months old but governments, central banks, corporates and households still face a critical known unknown, in our view, namely the total number people who had the coronavirus, acquired immunity and are no longer contagious and who currently carry the coronavirus and are thus potentially infectious.

This includes people who have not been clinically tested – more than 99.9% of the world’s population. We estimate that only 3.3 million people (4 out of every 10,000) have been tested for coronavirus, although testing data are patchy and often released with a lag. The main reason so few people have been tested is the still limited capacity to rapidly and reliably test a very large number of people.

In econometric terms that is a very small sample from which to extrapolate country-wide trends. One implication is that the actual mortality rate may be far smaller than reported.

The high number of tests-per-capita conducted in countries such as South Korea has been posited as an explanation for their relatively low number of coronavirus-related deaths. However, other factors have likely been at play, including the timing of clinical tests, demographics, national health systems’ capacity to treat infected patients and the timing and efficacy of self-isolation and self-distancing policies, including country “lockdowns”.

For now what policy-makers know they don’t know will likely continue to influence country-specific containment plans, as well as domestic measures to support economic growth while ensuring the functioning of financial markets.

3. Costs of and Response to COVID-19

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As the epicentre of the coronavirus pandemic shifts from Europe to the US and the number of deaths and infection cases reach new highs, the costs of the crisis are beginning to be revealed. In Singapore economic activity contracted in 1Q20 at a faster pace than at the worst point during the GFC while Chinese industrial profits were down 38% in the first two months of the year. Despite this we are cautiously optimistic that Asian economic activity led by China will pick-up in the second half of the year. We are much more worried about advanced economies where policy mis-management threatens to tip the world economy into recession.

4. China Auto Parts A Shares: Parts Of The Future

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China has been the fastest growing auto market in the world. Over the last 2-3 years China’s auto component industry is going through a tumultuous period – not only due to the volatility in demand (due to the auto downturn last year and corona-related lockdowns this year), but also due to two mega-trends that are providing risks and opportunities to the industry – NEVs and autonomous driving. In addition, there are 3 other less-discussed drivers of change in the industry   (emerging localization requirements, junior JV partners becoming leaders in their own right, international expansion). We look at the key A-share (MSCI A-share) listed players in the industry through the lens of these five trends/drivers of change. 

We prefer Passenger vehicle(PV) part suppliers over commercial vehicle (CV)part suppliers.  Among PV parts suppliers, our top buy is Changzhou Xingyu (601799.CH), followed by Ningbo Joyson Electronic(600699.CH),Fuyao Glass (600660.CH/3606.HK) and Huayu Auto (600741.CH). Our main underweight Wanfeng Auto Wheel (002085.CH). In Commercial vehicle (CV) part segment, we prefer Wanxiang Qianchao (000559.CH) and Linglong Tyre (601966.CH). We suggest investors to avoid  Weifu High-Tech (000581.CH).

What’s Original?

The recent tumult in the auto sector creates significant opportunities and risks for the companies involved – however companies/equities that are driving these trends are largely listed in the A-share market.  Lack of market communication, limited financial and operational disclosure and low breadth of analyst coverage in these markets has meant that there are quite a few underappreciated companies in these markets which have been overlooked by international investors.

While companies like Ningbo Joyson and Fuyao Glass enjoy some international investor recognition, we believe under-appreciated stocks like Wanxiang Qianchao and Linglong tyres are not well-covered by the market and this report provides a rationale for investors to look further into those names. We also highlight the risks to (relatively) popular names like Weifu Hi-tech (due to structural issues in the industry) and Wanfeng Auto wheel (due to management pursuing non-core acquisitions).

Note that in this report, we do not include the possible impact from Coronavirus on the industry and companies. This is because 1) it’s difficult to quantify the impact at current moment; 2) even if coronavirus impact might last for months, it’s still a relative short period compared to the 5-year time horizon we focus on. In addition, once coronavirus is gone, market demand on autos and auto parts would rebound quickly. 

5. Sunac – Earnings Flash – FY 2019 Results – Lucror Analytics

Sunac’s FY 2019 results were in line with our expectations. The business profile continues to be sound, with strong top-line growth and stable margins. There has been limited cash burn in non-core businesses. However, the financial risk profile displays worrying trends, with elevated debt and tight liquidity. This is partially mitigated by the company’s expanded equity base.

The impacts from the COVID-19 pandemic on Sunac are: [1] slowing contracted sales; [2] delay in construction works; [3] possible further surge in leverage in H2/20; and [4] weak liquidity.

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Brief China: Youdao Gains 10 Million New Enrollments During the Virus; Q4 Results Boast Robust Momentum and more

By | China, Daily Briefs

In this briefing:

  1. Youdao Gains 10 Million New Enrollments During the Virus; Q4 Results Boast Robust Momentum
  2. China Bright Culture (煜盛文化) IPO: A Hard Sell

1. Youdao Gains 10 Million New Enrollments During the Virus; Q4 Results Boast Robust Momentum

Image 44956541821582806253660

Youdao is capitalizing on the current virus outbreak to raise awareness of its services and build brand value. The Company gained 10 million new enrollments after it offered free online courses to its users, and continues to convert users by cross-selling and upselling via low-cost trials.

The Company’s Q4 results indicate continued momentum in the business’ growth and we expect the Company to reap strong returns in the future from its current investments during the crisis.

2. China Bright Culture (煜盛文化) IPO: A Hard Sell

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China Bright Culture launched the book building to raise up to USD 173 million via a listing on HKSE. 

In our previous notes, we covered the company’s fundamentals. We note that the company’s revenues largely depend on the success of its TV program. It had success in its early productions but the viewership varies accross its productions. It has also built up a strong production pipeline ahead of its listing.

We also discussed that despite its effort of building a pipeline, the regulatory environment is not favorable for TV program production companies recently. The company’s shares are mainly held by individual shareholders.

In this insight, we will look at the terms of the offering and provide our final thoughts on the deal. We think the deal is a hard sell with expensive valuation built on aggressive forecasts.

Our previous coverage on China Bright Culture

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Brief China: Youdao Gains 10 Million New Enrollments During the Virus; Q4 Results Boast Robust Momentum and more

By | China, Daily Briefs

In this briefing:

  1. Youdao Gains 10 Million New Enrollments During the Virus; Q4 Results Boast Robust Momentum
  2. China Bright Culture (煜盛文化) IPO: A Hard Sell
  3. NetEase (NTES): Again, Our 4Q2019 Estimate Closer to Result Than Consensus

1. Youdao Gains 10 Million New Enrollments During the Virus; Q4 Results Boast Robust Momentum

Image 44956541821582806253660

Youdao is capitalizing on the current virus outbreak to raise awareness of its services and build brand value. The Company gained 10 million new enrollments after it offered free online courses to its users, and continues to convert users by cross-selling and upselling via low-cost trials.

The Company’s Q4 results indicate continued momentum in the business’ growth and we expect the Company to reap strong returns in the future from its current investments during the crisis.

2. China Bright Culture (煜盛文化) IPO: A Hard Sell

Image?1582790563

China Bright Culture launched the book building to raise up to USD 173 million via a listing on HKSE. 

In our previous notes, we covered the company’s fundamentals. We note that the company’s revenues largely depend on the success of its TV program. It had success in its early productions but the viewership varies accross its productions. It has also built up a strong production pipeline ahead of its listing.

We also discussed that despite its effort of building a pipeline, the regulatory environment is not favorable for TV program production companies recently. The company’s shares are mainly held by individual shareholders.

In this insight, we will look at the terms of the offering and provide our final thoughts on the deal. We think the deal is a hard sell with expensive valuation built on aggressive forecasts.

Our previous coverage on China Bright Culture

3. NetEase (NTES): Again, Our 4Q2019 Estimate Closer to Result Than Consensus

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  • The game revenue growth slowed down in 4Q2019. However, we believe it will jump up in 1Q2020 due to the boring life caused by the epidemic.
  • Margin was stable in 4Q2019 due to a one-time increase of marketing expenses. We believe the operating margin will improve significantly in 1Q2020.
  • Based on peer companies’ P/E ratios, we believe the stock will rise 13% in one year.

Our previous coverage on NetEase:

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Brief China: Youdao Gains 10 Million New Enrollments During the Virus; Q4 Results Boast Robust Momentum and more

By | China, Daily Briefs

In this briefing:

  1. Youdao Gains 10 Million New Enrollments During the Virus; Q4 Results Boast Robust Momentum
  2. China Bright Culture (煜盛文化) IPO: A Hard Sell
  3. NetEase (NTES): Again, Our 4Q2019 Estimate Closer to Result Than Consensus
  4. Warning Sign for Microlenders Globally? SINA Faces Difficulty Collecting Debt Due to Coronavirus

1. Youdao Gains 10 Million New Enrollments During the Virus; Q4 Results Boast Robust Momentum

Image 44956541821582806253660

Youdao is capitalizing on the current virus outbreak to raise awareness of its services and build brand value. The Company gained 10 million new enrollments after it offered free online courses to its users, and continues to convert users by cross-selling and upselling via low-cost trials.

The Company’s Q4 results indicate continued momentum in the business’ growth and we expect the Company to reap strong returns in the future from its current investments during the crisis.

2. China Bright Culture (煜盛文化) IPO: A Hard Sell

Image?1582790563

China Bright Culture launched the book building to raise up to USD 173 million via a listing on HKSE. 

In our previous notes, we covered the company’s fundamentals. We note that the company’s revenues largely depend on the success of its TV program. It had success in its early productions but the viewership varies accross its productions. It has also built up a strong production pipeline ahead of its listing.

We also discussed that despite its effort of building a pipeline, the regulatory environment is not favorable for TV program production companies recently. The company’s shares are mainly held by individual shareholders.

In this insight, we will look at the terms of the offering and provide our final thoughts on the deal. We think the deal is a hard sell with expensive valuation built on aggressive forecasts.

Our previous coverage on China Bright Culture

3. NetEase (NTES): Again, Our 4Q2019 Estimate Closer to Result Than Consensus

Image 78034613951582785368188

  • The game revenue growth slowed down in 4Q2019. However, we believe it will jump up in 1Q2020 due to the boring life caused by the epidemic.
  • Margin was stable in 4Q2019 due to a one-time increase of marketing expenses. We believe the operating margin will improve significantly in 1Q2020.
  • Based on peer companies’ P/E ratios, we believe the stock will rise 13% in one year.

Our previous coverage on NetEase:

4. Warning Sign for Microlenders Globally? SINA Faces Difficulty Collecting Debt Due to Coronavirus

  • SINA reported results –  Says microloans platform emerging as a new growth driver. Non-advertising revenue increased 31% YoY US$419.3m for the full year with the fintech vertical as the main driver.
  • But… debt becoming increasingly difficult to collect due to coronavirus. Management expects revenue to suffer due to difficulty collecting debt causing SINA to limit loan applications to mainly Weibo users.
  • SINA is a warning for micro-lenders globally as the virus continues to spread. Should the virus continue its spread, micro-lenders across China and around the globe could find themselves in a similar situation as SINA.
  • Virus accelerating shift to a digital economy, there are better ways to play it over SINA. Digital services like virtual classrooms and online delivery continue to grow while SINA faces difficulty collecting debt and selecting higher-quality borrowers.
  • Decreased interest rates due to regulatory tightening in China. The government has also imposed a maximum cap on interest rates, once again impacting the growth and profitability of SINA’s platform. Interest rates could be lowered further as the government tries to restart the economy amidst the virus situation.

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Brief China: Hygeia Healthcare (海吉亚) Pre-IPO: The Making of Jinxin in the Oncology Segment and more

By | China, Daily Briefs

In this briefing:

  1. Hygeia Healthcare (海吉亚) Pre-IPO: The Making of Jinxin in the Oncology Segment

1. Hygeia Healthcare (海吉亚) Pre-IPO: The Making of Jinxin in the Oncology Segment

Image?1582772714

Hygeia Healthcare Group, a leading oncology specialized healthcare group, is planning to raise to USD 500 million via a Hong Kong listing. 

The company operates its own hospitals, provides third-party radiotherapy service and manages partner hospitals. The company’s recent growth has been driven by ramping up of its self-owned hospitals that were opened during the track record period. Its track record of ramping up newly established hospitals has been amazing. 

The company also has an ambitious expansion plan for the next three years, including the expansion of existing facilities and establishing greenfield hospitals. We estimate that the expansion of 3 existing hospitals will add 51% GFA and 95-123% bed capacity. Greenfield hospitals will increase GFA and bed capacity by 126% and 214-280% respectively.

The company is backed by reputable healthcare investors. Our preliminary valuation of USD 1.1 billion implies that there is an upside from its pre-IPO valuation. 


If you have not read our 2019 IPO Analytic Series, please have a look:

Aequitas Research 2019 IPO Analytics

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Brief China: Hygeia Healthcare (海吉亚) Pre-IPO: The Making of Jinxin in the Oncology Segment and more

By | China, Daily Briefs

In this briefing:

  1. Hygeia Healthcare (海吉亚) Pre-IPO: The Making of Jinxin in the Oncology Segment
  2. SELL Ascletis Pharma: Why the COVID-19 Update Does Not Make Sense
  3. Alibaba’s Logistics Arm CaiNiao Expands Its Role, Sidelining Express Companies in the Process

1. Hygeia Healthcare (海吉亚) Pre-IPO: The Making of Jinxin in the Oncology Segment

Image?1582772714

Hygeia Healthcare Group, a leading oncology specialized healthcare group, is planning to raise to USD 500 million via a Hong Kong listing. 

The company operates its own hospitals, provides third-party radiotherapy service and manages partner hospitals. The company’s recent growth has been driven by ramping up of its self-owned hospitals that were opened during the track record period. Its track record of ramping up newly established hospitals has been amazing. 

The company also has an ambitious expansion plan for the next three years, including the expansion of existing facilities and establishing greenfield hospitals. We estimate that the expansion of 3 existing hospitals will add 51% GFA and 95-123% bed capacity. Greenfield hospitals will increase GFA and bed capacity by 126% and 214-280% respectively.

The company is backed by reputable healthcare investors. Our preliminary valuation of USD 1.1 billion implies that there is an upside from its pre-IPO valuation. 


If you have not read our 2019 IPO Analytic Series, please have a look:

Aequitas Research 2019 IPO Analytics

2. SELL Ascletis Pharma: Why the COVID-19 Update Does Not Make Sense

We have previously discussed the short idea of Ascletis Pharma. After a few days of retreat, the stock reacted positively today to the news related to the clinical trial on COVID-19. In this insight, we will analyze the news and re-iterate our sell call. Our target is HKD 2.99 (26% downside).

Our previous coverage on Ascletis Pharma

3. Alibaba’s Logistics Arm CaiNiao Expands Its Role, Sidelining Express Companies in the Process

Cainiao change

After closely tracking the growth of Alibaba’s domestic retail platform and Chinese express deliveries, CaiNiao Network’s revenue growth in the December quarter suddenly accelerated, increasing by 67% YoY — far faster than either Alibaba or the Chinese express industry. 

We believe the acceleration of CaiNiao’s revenue growth is driven by expansion of its end-to-end fulfillment business line, under which CaiNiao handles warehousing, picking and packing, parcel delivery, and returns on behalf of merchants. 

In our opinion, the growth of CaiNiao’s fulfillment business marginalizes the express companies. Under its end-to-end fulfillment model, CaiNiao takes on a more prominent role, acting as merchants’ main logistics contact, and muscling in on the express companies’ existing relationships. 

The acceleration of CaiNiao’s growth and its expanding role puts additional pressure on mainstream express companies in China, in our view. As the growth of retail e-commerce gradually slows and low-end, highly price-sensitive merchants increase their share of the express market, we believe mainstream express margins will continue to decline.

S.F. Holding (002352 CH) is our lone ‘Buy’-rated stock in the Chinese express segment; we retain our ‘Hold’ rating on BEST Inc (BEST US) and our out-of-consensus ‘Sell’ rating on ZTO Express (ZTO US)

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Brief China: Hygeia Healthcare (海吉亚) Pre-IPO: The Making of Jinxin in the Oncology Segment and more

By | China, Daily Briefs

In this briefing:

  1. Hygeia Healthcare (海吉亚) Pre-IPO: The Making of Jinxin in the Oncology Segment
  2. SELL Ascletis Pharma: Why the COVID-19 Update Does Not Make Sense
  3. Alibaba’s Logistics Arm CaiNiao Expands Its Role, Sidelining Express Companies in the Process
  4. TRACKING TRAFFIC/Chinese Express: January Mostly Weaker YoY, but SF Holding Posts Stellar Results

1. Hygeia Healthcare (海吉亚) Pre-IPO: The Making of Jinxin in the Oncology Segment

Image?1582772714

Hygeia Healthcare Group, a leading oncology specialized healthcare group, is planning to raise to USD 500 million via a Hong Kong listing. 

The company operates its own hospitals, provides third-party radiotherapy service and manages partner hospitals. The company’s recent growth has been driven by ramping up of its self-owned hospitals that were opened during the track record period. Its track record of ramping up newly established hospitals has been amazing. 

The company also has an ambitious expansion plan for the next three years, including the expansion of existing facilities and establishing greenfield hospitals. We estimate that the expansion of 3 existing hospitals will add 51% GFA and 95-123% bed capacity. Greenfield hospitals will increase GFA and bed capacity by 126% and 214-280% respectively.

The company is backed by reputable healthcare investors. Our preliminary valuation of USD 1.1 billion implies that there is an upside from its pre-IPO valuation. 


If you have not read our 2019 IPO Analytic Series, please have a look:

Aequitas Research 2019 IPO Analytics

2. SELL Ascletis Pharma: Why the COVID-19 Update Does Not Make Sense

We have previously discussed the short idea of Ascletis Pharma. After a few days of retreat, the stock reacted positively today to the news related to the clinical trial on COVID-19. In this insight, we will analyze the news and re-iterate our sell call. Our target is HKD 2.99 (26% downside).

Our previous coverage on Ascletis Pharma

3. Alibaba’s Logistics Arm CaiNiao Expands Its Role, Sidelining Express Companies in the Process

Cainiao change

After closely tracking the growth of Alibaba’s domestic retail platform and Chinese express deliveries, CaiNiao Network’s revenue growth in the December quarter suddenly accelerated, increasing by 67% YoY — far faster than either Alibaba or the Chinese express industry. 

We believe the acceleration of CaiNiao’s revenue growth is driven by expansion of its end-to-end fulfillment business line, under which CaiNiao handles warehousing, picking and packing, parcel delivery, and returns on behalf of merchants. 

In our opinion, the growth of CaiNiao’s fulfillment business marginalizes the express companies. Under its end-to-end fulfillment model, CaiNiao takes on a more prominent role, acting as merchants’ main logistics contact, and muscling in on the express companies’ existing relationships. 

The acceleration of CaiNiao’s growth and its expanding role puts additional pressure on mainstream express companies in China, in our view. As the growth of retail e-commerce gradually slows and low-end, highly price-sensitive merchants increase their share of the express market, we believe mainstream express margins will continue to decline.

S.F. Holding (002352 CH) is our lone ‘Buy’-rated stock in the Chinese express segment; we retain our ‘Hold’ rating on BEST Inc (BEST US) and our out-of-consensus ‘Sell’ rating on ZTO Express (ZTO US)

4. TRACKING TRAFFIC/Chinese Express: January Mostly Weaker YoY, but SF Holding Posts Stellar Results

Jan2020 expasp

Chinese express parcel volume declined by 16.4% YoY in January, mainly due to the timing of the long Lunar New Year (LNY) holiday, which began on January 24th (LNY began on February 5th last year). We do not believe the measures put in place to slow the spread of COVID-19 had much impact on January’s numbers; instead, their impact will likely be seen in February numbers. 

Headline unit pricing actually improved slightly (+0.3% YoY) last month, but this increase is misleading, as it is mainly the result of strong volume growth of high-priced international shipments. Inter-city express pricing declined by 5.4% YoY in January, but at the individual company level unit pricing declined by as much as 21% YoY. We believe domestic inter-city express pricing remains under intense pressure, and that margins at most carriers will continue to decline as a result.

S.F. Holding (002352 CH) continues to separate itself from its competitors in China’s express sector. In January, SF reported a remarkable 40% YoY increase in parcel volume, evidence of continued strong market share gains. More importantly, SF is gaining share profitably: the company recently reported preliminary 2019 earnings results that exceeded consensus expectations on the back of rising margins. 

We continue to rate SF Holding ‘Buy’, with a target price of 57.30 RMB per share, which is based on 15 times our 2021E EBITDA estimate. With 18% upside from its closing price on February 26th, SF Holding is our only recommended exposure in the Chinese express sector. 

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