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China

China: China Huarong Asset Management, Tencent Holdings, ByteDance, Jiangsu Hengrui Medicine, Shenzhen Expressway Co H, Link REIT, Zhaoke Ophthalmology Pharmaceutical, Kwg Property Holding and more

By | China, Daily Briefs

In today’s briefing:

  • China Huarong Asset Management  – Ratings Agencies Fail Us Again
  • Tencent Holdings – FHC Restructure On Its Way
  • ECM Weekly (18th April 2021) – ByteDance Zhaoke, We Doctor, Medlive, Bio-Thera, Grab, Ngern Tid Lor
  • Jiangsu Hengrui Medicine (600276.CH) – Insights on Recent Pullback and Future Business Prospects
  • Shenzhen Expressway (548 HK): 1Q21 Positive Profit Alert Highly Welcome to Shenzhen Int (152 HK)
  • Link REIT – Cash Burning Holes
  • Zhaoke Opthalmology IPO Valuation: Overpriced
  • Morning Views Asia: KWG Living Group, Sunac China Holdings

China Huarong Asset Management  – Ratings Agencies Fail Us Again

By Thomas J. Monaco

*Another Potential Default:  Again in mainland China, there have been rumblings of another credit default over the past several days. The CBIRC disclosed that China Huarong Asset Management (2799.HK) [Huarong] is actively working with its auditor to complete its annual report. The issue appears to be Huarong’s legacy exposure associated with the misdeeds of its former Chairman, which still need to be addressed post-removal in 2018; and 

*Ratings Agencies Are More Than Culpable: Wouldn’t you know it, the sleepy, fee hungry ratings agencies (Standard & Poors, Moody’s, and Fitch Ratings) finally put Huarong on review for a potential downgrade. C’mon guys, where have you been?


Tencent Holdings – FHC Restructure On Its Way

By Thomas J. Monaco

*One Reorganization Down, One More To Go: Tencent Holdings (700.HK) [Tencent] announced a new round of organizational and employee adjustments in its Platform and Content Group (PCG) – the largest reshuffle since it began in 2018. With Alibaba Holdings (BABA] agreeing to form a financial holding company. Tencent cannot be far behind; and  

*Earnings To Decline, Capital Requirements To Increase: For Tencent, WeChat Pay and the broader lending/deposit taking business are likely to be reined-in. At CNY 38.5 bn, FinTech represents a growing 28.8% of revenue – and are key component of Tencent’s current and future results.  No matter what spin that Tencent wants to place on its other businesses, an FHC represents significant downside risks. Earnings will compress, as capital requirements increase.


ECM Weekly (18th April 2021) – ByteDance Zhaoke, We Doctor, Medlive, Bio-Thera, Grab, Ngern Tid Lor

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.

Asia ECM pipeline continued to build up this week. Grab announced the details of its SPAC listing with a target market value of about US$40bn. The company will raise more than US$4bn proceeds from a fully committed PIPE which include BlackRock, MSIM, T. Rowe Price, Fidelity, Janus Henderson, Mubadala, Nuveen, Permodalan Nasional Berhad and Temasek. We shared our initial thoughts in:

In Hong Kong, it was reported that ByteDance has kicked off IPO preparations for some of its main businesses, which includes Douyin. The company was still deliberating on the listing venue but it is likely that it will conduct a separate listing of its overseas assets.

Dida re-filed with HKEX after its initial application from October last year lapsed last week. The company is probably trying to get ahead of Didi Chuxing’s listing as the latter filed confidentially for a US listing last week. There were also news reports of SF REIT looking to pre-market this month and JD Logistics will be seeing listing approval at the end of this month.

Trip.com’s secondary listing in Hong Kong will debut on Monday and the company’s ADR corrected in line with our earlier expectation but the spread out allocation might weigh on near-term performance.

Our upcoming IPO coverage this week centered around Healthcare names. Zhaoke Ophthalmology Pharma (6622 HK) launched its bookbuild on Friday and it is expected to price this coming Wednesday. 

We also looked at We Doctor, Bio-Thera, Medlive, and Edding Group. :

In the US, Waterdrop Inc prospectus is publicly filed with the SEC. The online insurance technology company is looking to raise about US$500m but there had been news reports that the company was facing pushback from local regulators. 

Aside from Didi Chuxing, Ximalaya FM also filed confidentially for up to US$1bn IPO. Soulgate, a Chinese social networking app operator, and Keep, a Chinese fitness app are looking to file their prospectuses this month. 

This week we took a brief look at TuSimple, a pre-commercialization autonomous technology vendor for truck freights, before it debuted on Thursday.  

In Thailand, Ngern Tid Lor (NTL TB), launched its US$1bn bookbuild. Books will close on 27th April.

In the Philippines, we followed-up with a peer comparison of Monde Nissin against competitors. 

Singapore ECM suffered a setback this week.  ThaiBev announced on Friday that they have decided to defer the Proposed Spin-off listing of BeerCo citing uncertain market conditions and volatile outlook. We had discussed management’s valuation expectation of BeerCo vs. the likely valuation it can command in our earlier note. Core REIT has also shelved its IPO citing weak demand and volatile market conditions.

Placements were spread out over the past week, with Regis Resources (RRL AU) in Australia and Lasalle Logiport Reit (3466 JP) in Japan. Kakao Corp (035720 KS)’s founder  sold about US$450m worth of shares.

Credits to Clarence Chu for helping out with the Weekly Update.

Accuracy Rate:

Our overall accuracy rate is 73.9% for IPOs and 67.2% for Placements 

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

New IPO filings this week

  • Dida (HK, US$500m, refiled)
  • Shanghai Hanyu Medical Technology Co., Ltd (HK, US$500m)
  • Waterdrop Inc (The U.S, US$500m)
  • Shriram Properties (India, US$100m)
  • G R Infraprojects (India, US$100m)

News on Upcoming IPOs

Hong Kong/China

U.S.

India

Others

Analysis on Upcoming IPOs

NameInsight
Hong Kong
Betta Pharma

Betta Pharma (贝达医药) A+H: Tier 2 Player Struggled to Break Out 

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 

Chaoju

Chaoju Eye Care (朝聚眼科) Pre-IPO: Growth Prospect Far from Being Impressive 

Dida

Dida Pre-IPO – Making Hay While Big Brother Retreats 

Dida

Dida Pre-IPO – Earnings Forecast and First Stab at Valuation 

Dida

Dida Pre-IPO – Peer Comparison – Lagging in Scale, Leading in Profitability 

Intco Med

Intco Medical (英科医疗) A+H: From China No.1 to Global No. 1 

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 

Kindstar

Kindstar (康圣环球) Pre-IPO: Issues with Scalability 

Kindstar

Kindstar (康圣环球) Pre-IPO: Is It Worth the Premium? 

RemeGen RemeGen (荣昌生物) Pre-IPO: Thoughts on Valuation of RC18 and RC48 
Bio-heart Shanghai Bio-Heart (上海百心安) Pre-IPO: Needs a Long Runway 
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 
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 
Youran Dairy China Youran Dairy(悠然牧业) Pre-IPO – A Leader Pulling Ahead in a Fragmented Market 
India
Aadhar Housing Aadhar Housing Finance Pre-IPO – Decent past Growth but Comes with Weird Disclosures 
ASK ASK Investment Managers Pre-IPO – Riding on a Wave of Wealth 
Anmol IndAnmol Industries Pre-IPO Quick Take – No Growth, Generous Payments to Founders
Bharat Hotel

Bharat Hotels Pre-IPO – Catching up with Peers 

Bajaj En

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

CMS InfoCMS Info Systems Pre-IPO – When a PE Sells to Another PE… Only One Gets the Timing Right
Crystal CropCrystal 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 
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 
NSENSE IPO Preview- Not Only Fast..its Risky and Expensive
NSENational Stock Exchange Pre-IPO Review – Bigger, Better, Stronger but a Little Too Fast for Some

LIC

Life Insurance Corporation of India Pre-IPO – Early Take on India’s Largest IPO 
Penna Cem Penna Cement – Aggressive Expansion Plans Even Though Past Performance Has Been Tepid 
PNB MetPNB 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 
Malaysia
QSRQSR Brands Pre-IPO – As Healthy as Fast Food

Jiangsu Hengrui Medicine (600276.CH) – Insights on Recent Pullback and Future Business Prospects

By Xinyao (Criss) Wang

Recently, Jiangsu Hengrui Medicine (600276 CH)‘s share price has seen a significant pullback. Since April 9th, 2021, the Company’s stock price had fallen for six consecutive trading days, with a cumulative decline of more than 10%, and its market value dropped by about RMB63 billion. So what happened to Hengrui? And what is the future business prospects of this Company? The following mainly included some important insights that deserve to pay attention to.


Shenzhen Expressway (548 HK): 1Q21 Positive Profit Alert Highly Welcome to Shenzhen Int (152 HK)

By Osbert Tang, CFA

Shenzhen Expressway Co H (548 HK) announced a positive profit alert for 1Q21, indicating that its recurring profit will reach about Rmb533m, versus losses of Rmb160m a year ago as the impact of COVID-19 subsided. More importantly, such profit indication is even 10.2% higher than 1Q19, suggesting a full-recovery in traffic and toll revenue momentum.

SZ Exp contributed 44.3% of Shenzhen Intl (152 HK)‘s recurring profit (ex-Shenzhen Airlines) in the last two years. The potential acquisition of Shenzhen Investment Holdings Bay Area Development (737 HK) has received waiver from the SFC for a mandatory general offer and a successful conclusion should beef up SZ Exp’s assets. Lastly, with SZ Exp’s target of an estimated 35% increase in its EBITDA, we believe these factors will support SZ Exp’s contribution to SZ Int’s profit outlook in this year.


Link REIT – Cash Burning Holes

By Thomas J. Monaco

*Update Confirms Weak Outlook: Negative rental reversion rates persist in Hong Kong, as do negative tenant sales. We continue to await another round of negative revaluation of property due to lower rents and/or higher cap rates; and  

*No Serious Capital Management Strategy Exists: Management of Link appears hellbent on destroying shareholder value.As gearing was 19.2% at September 2020, management continues to believe that it has abundant headroom to add debt for acquisition. Instead of weighing a buyback’s return versus new investment ROI, management views share buybacks as a mechanism to defend its shares against short-selling. Maybe a re-re-review of its acquisition strategy will occur by earnings when Link’s new mainland China acquisition strategy truly flops.


Zhaoke Opthalmology IPO Valuation: Overpriced

By Shifara Samsudeen, ACMA, CGMA

The Chinese ophthalmic pharmaceutical company, Zhaoke Ophthalmology Pharmaceutical (6622 HK)  has set the terms for its HK IPO. The company plans to issue 123.6m shares at an indicative IPO price range of HK$15.38-16.8 per share and at the midpoint of the IPO price range of HK$16.09 per share, the company will receive net proceeds of HK$1,858m (US$239m).

Zhaoke Opthalmology IPO Details

No. of Shares Issued

                      123,567,500

IPO Price per Share (HK$)

15.38-16.80

Offer as a % of Outstanding Shares

23.09%

Total Shares Outstanding

535,155,500

Net Proceeds (HK$m)

1,857.80

Market Capitalisation (HK$m)

8,610.65

Enterprise Value (HK$m)

6,687.24

Source: Company disclosures, LSR (Net proceeds, market cap and EV are at the midpoint of the IPO price range, EV is after adjusting for net cash and net IPO proceeds)

The company also has entered into cornerstone investment agreements with CaaS Capital Master Fund, GIC Private Limited, Golden Valley Global and several other investors who have agreed to buy approx. 21.51% (at the midpoint) of the offer shares or approx. HK$427.8m of the offering.

Zhaoke plans to use approx. 32% of the net IPO proceeds for clinical development and commercialisation of its core products. Another 46% of the net proceeds will be used to fund the ongoing R&D activities and 7% of the IPO proceeds will be invested on expanding the production line of its Nansha Manufacturing facility in anticipation of upcoming product launches.


Morning Views Asia: KWG Living Group, Sunac China 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: Trip.com and more

By | China, Daily Briefs

In today’s briefing:

  • Trip.com Secondary Trading Note – Delivered a Good Correction but Seems to Be Widely Distributed

Trip.com Secondary Trading Note – Delivered a Good Correction but Seems to Be Widely Distributed

By Sumeet Singh

Trip.com raised around US$1.2bn in its secondary listing in Hong Kong.

We have covered the background of the deal in our earlier notes:

In this note, we’ll talk about the updates since then.


Before it’s here, it’s on Smartkarma

China: China Mengniu Dairy Co, Shanghai Stock Exchange Composite Index, Zhaoke Ophthalmology Pharmaceutical, Geely Auto and more

By | China, Daily Briefs

In today’s briefing:

  • China May Scrap The Restriction of Childbirths – Impact on Baby Formula Related Stocks in China
  • Bull in a China Shop?
  • Zhaoke Ophthalmology IPO: Valuation Insights
  • Zhaoke Ophthalmic (兆科眼科) IPO: Rationalize the Valuation
  • Geely (175.HK): New EV Model Starts New Era

China May Scrap The Restriction of Childbirths – Impact on Baby Formula Related Stocks in China

By Douglas Kim

One of the biggest trends that COVID-19 has resulted has been the impact on the global population as millions of people delay having babies due to so many uncertainties associated with virus. China has been no exception. As such, the People’s Bank of China released a working paper on 14 April that suggested that China faces severe population problems and that China allow three or more children per household. 

All in all, despite this urgent message from the People’s Bank of China regarding the need to scrap the restriction in childbirth policy, this is not yet official. Nonetheless, given the fact that this document is coming from the People’s Bank of China combined with the need to combat the big negative impact of COVID-19 on people having children, there could be an increasing probability that the Chinese government could indeed announce a change its policy to allow three or more children in 2021.

Some of the key infant formula related stocks that could benefit from the Chinese government allowing three or more children include A2 Milk Co Ltd (A2M AU), Beingmate Baby & Child Food (002570 CH), and China Mengniu Dairy Co (2319 HK).


Bull in a China Shop?

By Shyam Devani

The chart of XU1 shows we are now approaching decent levels with price action dynamics that warrant a closer look.

Given the similarities in decline over the past several weeks compared to last year, there seems to be an opportunity for a measured long position.


Zhaoke Ophthalmology IPO: Valuation Insights

By Arun George

Zhaoke Ophthalmology Pharmaceutical (6622 HK) is an ophthalmic pharma company that has an ophthalmic drug pipeline of 13 innovative drugs and 12 generic drugs. Zhaoke was founded by Lee’s Pharmaceutical (950 HK) which is the largest shareholder. 

Zhaoke has launched an HKEx IPO to raise net proceeds of HK$1,857.8 million ($239 million) at the mid-point of the IPO price range of HK$15.38-16.80 per share.

Eight cornerstone investors have agreed to invest about $55 million in the IPO (21.51% of the offer shares at the mid-point of the IPO price range). The cornerstone investors are CaaS Capital, GIC, Golden Valley, Jennison Associates, Mass Ave, Matthews Asia, OrbiMed Funds and VMS Investment.

In Zhaoke Ophthalmology IPO Initiation: The Eyes Have It, we stated that the prospects of Zhaoke’s drug assets are favourable. Overall, our valuation analysis suggests that the IPO price range is attractive. 


Zhaoke Ophthalmic (兆科眼科) IPO: Rationalize the Valuation

By Ke Yan, CFA, FRM

Founded by Lee’s Pharma, Zhaoke offers a comprehensive ophthalmic product pipeline. The company launched book building to raise up to USD 267m via a Hong Kong listing.

In our previous note, we looked at the company’s two products, namely CsA gel and ZKY001. We are of the view that CsA gel does provide advantage over Restasis, the top selling eye gel for the DED, but the forecast of market growth is too aggressive for the DED market. For another core product ZKY001, while there is no data on the efficacy from Phase I clinical trial, we do note that the licensing parnter’s product which uses the same technology but on a different indication, did not meet the primary end point in Phase III clinical trial according to a recent announcement, which raises our concern on the potential of the product candidate. In addition, the company also had a long list of generic referencing top selling glaucoma drugs. The company has an OK management team but strong backing of institutional investors.  

We think the valuation is rich at the high end and the cornerstone investors’ commitment left a large portion of the deal to be sold on debut. We also note that the market sentiment is not very positive on the ophthalmic deals.

Our previous coverage on Zhaoke Ophthalmic


Geely (175.HK): New EV Model Starts New Era

By Victoria Li

Launched on April 15th, Geely’s highly anticipated EV model, Zeekr 001, beat market expectations by offering reasonable prices and attractive features.

Market feedback shows that it’s gaining interest from potential buyers who initially target to NIO, Xpeng, BYD Han and Tesla. Please see the details in the note. As a result, it’s very likely that Zeekr 001 would become one of the most popular local brand EV models in China market.

We believe Geely’s valuation re-rating would be triggered. Compared to BYD which trades at 75.8x P/E 2021E due to market’s preference on BYD’s EV future, Geely trades at 18.7x P/E 2021E based on Bloomberg consensus.

Furthermore, Geely and its parent company are seeking for IPO opportunities for Lotus and Zeekr (owned by Geely), and Polestar and Volvo Car (owned by Geely’s parent company). These could become Geely’s valuation re-rating triggers as well.


Before it’s here, it’s on Smartkarma

China: Henderson Land Development, JD.com Inc., Zhaoke Ophthalmology Pharmaceutical, Dida, 361 Degrees International, Air China Ltd (H), Guangzhou R&F Properties and more

By | China, Daily Briefs

In today’s briefing:

  • Hong Kong Property Developers: Eminent Domain
  • JD.com: A Detailed Look at Long-Term Margins and Valuation
  • Zhaoke Ophthalmic (兆科眼科) Pre-IPO: Beware of Aggressive “Guidance”
  • Dida Pre-IPO: Shared Mobility
  • Asia HY Trade Book – April 2021 – Lucror Analytics
  • Air China (753 HK): Further Evidences of Improving Against China Southern (1055 HK)
  • Morning Views Asia: China South City, Guangzhou R&F Properties

Hong Kong Property Developers: Eminent Domain

By David Blennerhassett

Expropriation.

Not the word Hong Kong property developers, sitting on millions of square feet of farmland, wish to hear. And the newish Bauhinia Party (just) stops short of suggesting such an approach.

But a recent internal discussion paper, authored by an executive committee member of the Bauhinia Party, refers to the housing issue in Hong Kong, wherein the gap between the rich and poor is widening, causing social unrest to the point of “threatening the security of one country“. The paper indicates the Central government has the right to coordinate the supply of land in Hong Kong.

The Bauhinia party, established by mainland Chinese executives, is a pro-Beijing political party with close links to Beijing’s authorities. I would not be so quick to dismiss such commentary and the potential knock-on effect to local property developers.

More below the fold.


JD.com: A Detailed Look at Long-Term Margins and Valuation

By Wium Malan, CFA

JD.com Inc. (9618 HK) has been a shining example of what can be achieved through both Operating- and Financial leverage as a business scales up. This has been a commendable performance by its management team over the past nearly a decade, balancing gains from operating and financial leverage, whilst prudently, yet aggressively, investing in growth. Over the past 8 years it has delivered expansion at the Gross margin level (through mix change to advertising revenue and scale in 1P), the Operating margin level (lower losses in 3P), and the net margin level (cash generation and lower losses from associates). 

With lingering concerns around short-term margin expansion, as the group invests more aggressively in group purchasing aimed at the fresh food segment, in this insight, I analyse the potential for long-term margin expansion and what that implies for current valuation levels for China’s largest direct retailer.


Zhaoke Ophthalmic (兆科眼科) Pre-IPO: Beware of Aggressive “Guidance”

By Ke Yan, CFA, FRM

Founded by Lee’s Pharma, Zhaoke offers a comprehensive ophthalmic product pipeline. The company is looking to raise up to USD 200m via a Hong Kong listing.

In our previous note, we looked at the company’s two products, namely CsA gel and ZKY001. We are of the view that CsA gel does provide advantage over Restasis, the top selling eye gel for the DED, but the forecast of market growth is too aggressive for the DED market. For another core product ZKY001, while there is no data on the efficacy from Phase I clinical trial, we do note that the licensing parnter’s product which uses the same technology but on a different indication, did not meet the primary end point in Phase III clinical trial according to a recent announcement, which raises our concern on the potential of the product candidate. In addition, the company also had a long list of generic referencing top selling glaucoma drugs. The company has an OK management team but strong backing of institutional investors.  We have also provided a preliminary valuation for its core products. 

We did research on its key competitor in the CsA segment, namely Sinqi, which is listed on the A-share market with a ticker 300573 CH. Sinqi has recently planned to place shares to fund the expansion of the manufacturing facility for the CsA product which was approved by the NMPA in June 2020. From its disclosure, we can see that the CsA market could be aggressively overstated by the third-party consultant Frost & Sullivan who provided the market forecast for the company’s prospectus.

Our previous coverage on Zhaoke Ophthalmic


Dida Pre-IPO: Shared Mobility

By Shifara Samsudeen, ACMA, CGMA

Dida (DIDA HK)  operates the largest carpooling marketplace in China and according to Frost & Sullivan, the company had a market share of 66.5% in terms of the number of carpooling rides in 2019. The company has filed for an IPO to list its shares on the Hong Kong Stock Exchange.

The company generates a majority of its revenues from carpooling and has reported strong growth in revenue during 2017-2020. Despite decline in the number of carpooling rides in 2020 compared to 2019 due to safety concerns related to the Covid-19 outbreak, Dida’s carpooling marketplace revenues have continued to increase as a result of growth in service fee rates charged by the company. We expect Dida’s carpooling marketplace revenues to continue to expand though pandemic related safety concerns remain a short-term risk.

Dida launched online ride-hailing services in 2017 and began monetising the business in 2019. The company’s online taxi-hailing services currently accounts for only 5% of revenues and given the fierce competition in the ride-hailing market in China, we do not expect the segment to be a key driver of growth for Dida over the next few years.

The company’s gross profit margin has continued to expand driven by improvement in service fee rates, higher scale and drop in incentives and subsidies to the company’s users. Our adjusted operating profit calculation reveals that the company has been profitable at the operating profit line over the last two years.

It seems that the company’s strategy of focusing on carpooling is paying off and we remain positive on the company’s future growth prospects.


Asia HY Trade Book – April 2021 – Lucror Analytics

By Charles Macgregor

The Asia HY Trade Book for the month of April includes a summary of our recommendations, as well as our high-conviction ideas. The report also features relative-value charts and lists of the bonds in the Lucror Asia HY index.


Air China (753 HK): Further Evidences of Improving Against China Southern (1055 HK)

By Osbert Tang, CFA

While the Mar traffic figures continued to show that Air China Ltd (H) (753 HK) is still lagging behind China Southern Airlines (1055 HK) in many areas, there is no doubt that such underperformance is reducing sequentially. The latest figures show that Air China is narrowing its gap on passenger load factor, seeing rebound in international passenger traffic, registering better cargo and mail strengths and catching up on freight and overall load factors.

We believe many of these attributes fit well into our arguments for a reversal of CSA’s outperformance against Air China in this year as we written in 2021 High Conviction: Pair Trade – Long Air China (753 HK), Short China Southern (1055 HK). The relative valuation also suggests CSA is richly valued against Air China. For details, please refer to our attached update presentation file on the trade. 


Morning Views Asia: China South City, 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: China Huarong Asset Management, Alibaba Group, Ant Financial Services Group, Edding Group, Shanghai HeartCare Medical Technology, YishengBio, Pakuwon Jati, China Petroleum & Chemical and more

By | China, Daily Briefs

In today’s briefing:

  • China Huarong Asset Management (2799 HK): This Is Manageable
  • PBOC Summon Ant Group On Restructuring Once More
  • China Huarong: Contagion Creates Opportunity
  • Ant Group: Nearing Regulatory Closure
  • Edding Group (亿腾医药) Pre-IPO: Notes from Latest Financials and Its Related Party
  • Shanghai HeartCare Medical IPO Initiation: Surviving Strokes
  • Pre-IPO YishengBio Co., Ltd  – Here Are the Concerns Despite Solid Market Potential
  • Morning Views Asia: Pakuwon Jati, Ronshine China Holdings, Yestar Healthcare Holdings
  • Commodities Bullishly Inflecting; Buy Energy, Materials

China Huarong Asset Management (2799 HK): This Is Manageable

By David Blennerhassett

The irony.

China Huarong Asset Management (2799 HK) was originally set up in 1999 by Beijing, in response to the Asian financial crisis,  to bail out a State-owned bank – ICBC – before listing. Rumours abound the State may resort to bailing out Huarong or risk a domino effect of losses at other (state-owned) entities which have lent to Huarong.

The bailer becomes the bailee?

Huarong’s woes are not new. Its chairman, Lai Xiaomin was placed under investigation for graft in April 2018, following which he resigned for “personal reasons“. 

Shortly after, Hong Kong’s SFC froze HK$10.17bn of assets in three brokers – this amount is the loss incurred by Huarong. In the SFC’s words, a certain person “orchestrated fraudulent schemes by colluding with certain personnel of the management of a listed company [Huarong] or its subsidiaries in 2 suspicious transactions stemming from a loan facility indirectly granted to the Person by the listed company”.

Fast forward to the 29 January this year wherein Lai Xiaomin was executed in what Bloomberg (perhaps) sardonically concluded was an unusually harsh sentence for a bribery conviction. 

Huarong has been suspended since the 1 April 2021 after failing to despatch its 2020 annual report. In Hong Kong, companies are afforded three months from year-end to do so.

Huarong is not alone – at least 50 Hong Kong-listed companies have failed to report earnings on the March 31 deadline. Last year, 384 Hong Kong companies did not publish annual results by March 31, but were able to continue trading after the exchange and markets regulator relaxed the rules due to the pandemic. This year there was no such arrangement.

But Huarong has come under pressure following a commentary from Caixin Media of a possible bankruptcy. In a commentary dated on Monday, Ling Huawei, managing editor of Caixin Media and Caixin Weekly, discussed the possibility of a China Huarong bankruptcy. “As of mid-2020, Huarong had 160 billion yuan [$20 billion] in net assets, and more than 30 billion yuan in loan-loss provisions,” she wrote “Huarong needs to be thoroughly recapitalised and have the value of its nonperforming assets correctly recalculated. It needs to take a big bath.”

The yield on Huarong’s US$300mn 3.375% bond due May 2022 has blown out to 23%. 

This has all the hallmarks of the Evergrande Real Estate Group (3333 HK) situation in September last year covered by Travis Lundy in Evergrande May Be Facing a Funding Squeeze.

The equity here, as might be expected, is the riskier option if the company goes bust. Yet a systematic restructuring process is a more likely outcome here.

Creditors are also often protected but this situation will test both state support of an SOE and how keepwell agreements are treated. The offshore bonds at ~70c look interesting.


PBOC Summon Ant Group On Restructuring Once More

By Li Tang

The PBOC, CBIRC, CSRC, and SAFE summoned Ant Group for a second joint meeting, ordering the fintech giant to rectify its business operations so that it is compliant with regulations and law. This also includes serving the real economy and supporting national development strategies.


China Huarong: Contagion Creates Opportunity

By Hank Calenti, CFA

Uncertainty at China Huarong Asset Management (HUAZ CH), China’s largest distressed debt manager is causing ripples throughout Asia’s credit markets. More broadly, China’s Tencent Holdings (700 HK) cancelled a US$4 billion bond sale due to market conditions. Specifically, Huarong contagion steepened the credit curve of China’s other asset management companies (AMCs).

At issue here are the Keepwell provisions which enable China’s banks, and non-bank finance companies to access foreign currency financing in the global bond markets. Essentially, a Keepwell provision is a pledge, not a guaranty, to keep an offshore subsidiary which issues the bonds solvent in the event of distress.

The immediate risk is that Huarong’s offshore issuance vehicles are not supported in any restructuring. Orphaning the Keepwell provisions would destroy an important component of AMC funding. The damage here would extend beyond AMCs to other non-bank finance companies, including leasing companies and other entities owned by China’s banks. Not supporting these securities could all but eliminate China Inc.’s access to the global bond markets.

Concurrently, price action in the bond market suggests concern with the long-term viability of the AMC model rather than jump to default risk. We are not convinced this is appropriate and recommend Overweighting other AMC bonds.

Although the former top executive was put to death, Huarong bondholders need not be. Nonetheless, the walk to the gallows can be harrowing and uncertainty is high. There is likely more than meets the eye in this story. It is conceivable that we never see a 2020 year-end report for this state-owned enterprise. Therefore, having a strong conviction on Huarong means undertaking a leap of faith. As such, we suggest a way to trade Huarong  such that downside is limited; however, our preference is to trade the contagion.


Ant Group: Nearing Regulatory Closure

By Victor Galliano

  • Ant Financial Services Group (6688 HK) is restructuring its business holdings, with at its core the setting up of a financial holding company
  • In addition, Ant will return to its roots in the payments division, it will set up a personal credit reporting company as well as establishing a consumer finance company
  • The official press release does not mention the investmentech arm that includes Ant’s in-house asset manager, but there is financial press speculation that it may be required to shrink its asset base
  • In essence, the new structure and more intrusive regulation will limit Ant’s ability to extract synergies from its – previously – tight knit financial eco-system, which can only hurt its potential develop further economies of scale and deliver premium revenue and earnings growth
  • It is also likely that in its consumer credit business it will need to retain a higher proportion of loans originated, thereby necessitating higher capital levels; the personal credit reporting company will also provide PBoC with access to Ant’s “big data” on payments, credit and other financial products
  • Despite the need for further clarity on the regulatory structure going forward, as well as the lack of any updated Ant financials to December 2020, we have arrived at a revised valuation range for Ant, based on our pre-money SOTP, of USD122-144bn
  • The regulator’s focus on big FinTech in China and especially Ant is constructive for the prospects of other less dominant non-bank financial companies (NBFCs) in China, such as Lexinfintech Holdings (LX US) and Lufax Holdings (LU US), as well as retail focused banks like Postal Savings Bank of China (1658 HK) 
  • Risks to our cautious view on Ant include an ability for management to navigate the climate of tighter regulatory constraints and to deliver better than expected premium growth and returns from its digital financial platform

Edding Group (亿腾医药) Pre-IPO: Notes from Latest Financials and Its Related Party

By Ke Yan, CFA, FRM

Edding Group, a leading integrated pharmaceutical company in China, plans to raise up to USD 200m via a Hong Kong listing.

In our previous note, we discussed that the company is turning from a distributor of NMC drugs to a pharmaceutical company by acquiring product rights in the past two years. We are of the view that the Vancocin and Ceclor are the selling point of the company as they both have a dominant position in the respective segment and are in growing markets. The company’s Vascepa is an interesting CVD product but the competition is intense given that the statin is the main therapy to reduce CV risks and it has many varieties with a competitive market. However, we do not see Mulpleta and EPD 125 attractive. Sales of Mulpleta are very small in Japan and the EDP125 was suspended by Eli Lilly previously given that it failed to demonstrate superiority in Phase II/III clinical trials. We think the management does not possess impressive working experience, though investor backing is strong.

The strong line-up of pre-IPO investors prompted us to do further research in the company. In this note, we will be looking at the company’s financials. We highlight key points from its financials and the contractual arrangement. We also note issues with its related party.


Shanghai HeartCare Medical IPO Initiation: Surviving Strokes

By Arun George

Shanghai HeartCare Medical Technology (HMT HK) is a China-based neuro-interventional medical device manufacturer with a product portfolio that spans the treatment and prevention of ischemic stroke to the treatment of haemorrhagic stroke. HeartCare’s product portfolio consists of a total of 23 commercialised products and product candidates, including four ischemic stroke treatment devices with NMPA approval.

HearCare’s shareholders include Shanghai Fosun Pharmaceutical (Group) (2196 HK), Temasek, Lake Bleu Capital, China International Capital Corporation (3908 HK) and Canada Pension Plan Investment Board (through a special purpose vehicle). HeartCare is set to pre-market an HKEx IPO to raise $300 million this quarter, according to press reports. 

HeartCare only started to generate revenue in 1Q20 through the commercialisation of two products (SupSelek and ExtraFlex). Captor thrombectomy device, a core product, was commercialised in December 2020 and Fullblock balloon guiding catheter received NMPA approval in December 2020. HeartCare aims to commercialise nine currently late-stage product candidates in 2021 and ten currently earlier-stage product candidates between 2022 and 2025. With a strong near-term commercialisation pipeline, HeartCare has shifted from a concept to a revenue-generating stock. Overall, we believe that HeartCare’s product portfolio is attractive. 


Pre-IPO YishengBio Co., Ltd  – Here Are the Concerns Despite Solid Market Potential

By Xinyao (Criss) Wang

On February 24th, 2021, YishengBio (1872307D HK) announced the completion of a Series B financing of over $130 million, led by Oceanpine and OrbiMed. Soon after, on March 8th, Yisheng filed its IPO prospectus with the HKEX. Since the Changchun Changsheng vaccine scandal in 2018, rabies vaccines have been in short supply in China. Therefore, vaccine companies hope to seize this opportunity and develop vigorously with the help of the capital market. For example, last year, Chengdu Kanghua Biological-A (300841 CH) was listed on the A-share market successfully. This year, Yisheng also plans to raise funds, expand the business and fund the future operation in the public capital market. 


Morning Views Asia: Pakuwon Jati, Ronshine China Holdings, Yestar Healthcare 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.


Commodities Bullishly Inflecting; Buy Energy, Materials

By Joe Jasper

A weight-of-the-evidence approach continues to support our constructive intermediate-term outlook. Below we highlight recent positive developments and areas of the market that are actionable at current levels.

Before it’s here, it’s on Smartkarma

China: Beijing Kingsoft Office Software-A, Television Broadcasts, WeDoctor Holdings, Zhejiang Cangnan Instrument, Alibaba Group, Trip.com, Bio-Thera Solutions Ltd, Tencent Holdings, China Tourism Group Duty Free Corp Ltd and more

By | China, Daily Briefs

In today’s briefing:

  • CSI300 Index Rebalance Preview: Recovering from the Growth Sell-Off
  • TVB (511 HK): Small Screen Saver
  • We Doctor Pre-IPO: Front-Runner in Digital Medical Services in China
  • Zhejiang Cangnan (1743 HK): H-Share Buyback
  • Ant Group Overhaul: Difficult to Rule Out Further Government Interventions
  • Trip.com Bounce Support Then a Deeper Dig
  • Bio-Thera Solutions (百奥泰) A+H: Recent Termination of Drug Candidates
  • Tencent (700 HK): Raises Subscription Fees for Online TV
  • We Doctor (微医) Pre-IPO – Peer Comparison – Picking Its Battles Wisely
  • CTG Duty Free (601888 CH): 1Q21 Profit Is Still Quite Decent

CSI300 Index Rebalance Preview: Recovering from the Growth Sell-Off

By Brian Freitas

We are nearly 95% through the review period for the June review of the Shanghai Shenzhen CSI 300 Index (SHSZ300 INDEX). With a large AUM in ETFs tracking the index, large open interest on the CFFEX listed futures, and volatile stocks, it could pay to look at the potential changes to the index.

China Securities Index Co (CSI) will announce the changes end May/beginning June and the changes will be effective after the close of trading on 11 June.

We expect 30 changes at the upcoming June 2021 index review – this is the maximum number of changes that are permitted at a single review. Estimated one-way turnover is 4.08% and will result in a one-way trade of CNY 10.8bn.

The expected inclusions have outperformed the Shanghai Shenzhen CSI 300 Index (SHSZ300 INDEX) on a year to date basis even post the momentum selloff that started in February. Buying the inclusion basket vs selling the CSI300 futures as a hedge could provide good market neutral returns over the next few weeks.


TVB (511 HK): Small Screen Saver

By David Blennerhassett

In two SCMP articles on the 7 April, PRC media tycoon Li Ruigang, Television Broadcasts (511 HK)‘s largest shareholder (via Young Lion Holdings), discussed his dissatisfaction with TVB’s performance, saying:

As a free broadcaster, TVB should be a public open platform welcoming other players in the media and entertainment industry to participate.

Under the broadcasting ordinance in Hong Kong, non-permanent residents – such as Li – cannot apply for a free TV or pay TV licence, and are branded “disqualified persons”. Li added:

We respect the ordinance. In the past five years, CMC was a passive investor. [But] if TVB does not reform now, it will shrink, then perish. I am now trying to bring it out from drowning.

Yesterday, TVB announced Mark Lee Po On, Vice Chairman (since April last year) and Group CEO (since January 2015), had resigned. 

This follows the resignation Charles Chan (then Chairman and NED) in January last year, culminating in the re-oganisation of Young Lion Holding in last August.

One but can’t help but speculate there are more changes afoot, one that may ultimately lead to changes in the ordinance.

More below the fold.


We Doctor Pre-IPO: Front-Runner in Digital Medical Services in China

By Shifara Samsudeen, ACMA, CGMA

WeDoctor Holdings (1737089D HK) , the Chinese digital medical services platform has filed to list its shares on the Hong Kong Stock Exchange and plans to raise proceeds of approx. US$2bn through the IPO.

The company offers online medical appointment, diagnosis and treatment, consultation, medical bill settlement and prescription fulfilment. According to Frost & Sullivan, We Doctor was ranked the largest digital medical service platform in China in terms of both the number of internet hospitals (as of December 2020) and volume of digital medical consultations provided in 2019.

This is the First of a series of reports on We Doctor where we will be discussing the company’s business model, revenues, margins and peer comparison in detail. This insight will focus on the company’s business model and an analysis of its revenues.


Zhejiang Cangnan (1743 HK): H-Share Buyback

By David Blennerhassett

Back on the 5 February, gas meter manufacturer Zhejiang Cangnan Instrument (1743 HK)  announced the board of directors had resolved to repurchase all the issued H shares in the company at a minimum price of HK$22.00/share, a 15.18% premium to last close. The buyback was subject to approval from the local bureau of the State Administration of Foreign Exchange.

This was followed by a conditional cash offer on the 12 March. The Offer is a “Merger by Absorption”, incorporating a Scheme-like vote (≥ 75% for, ≤10% against); and a tendering condition of 90%. All H-shares are subject to the buy-back and the effective tendering % is 90%.

The Offer Document has been despatched with the IFA concluding the Offer price to be fair and reasonable.

The EGM will take place on the 17 May and the first closing date is the 31 May.

Trading at a gross/annualised spread of 7.3%/57.2%. But the thorny issue is the 90% tendering condition.

More below the fold.


Ant Group Overhaul: Difficult to Rule Out Further Government Interventions

By Oshadhi Kumarasiri

Just days after Alibaba Group (9988 HK) was hit with a record US$2.8bn fine for breaching China’s antitrust regulations, The People’s Bank of China announced yesterday that Alibaba affiliate, Ant Financial Services Group (6688 HK) has agreed to restructure its business lines and become a financial holding company with regulatory oversight from PBOC and minimum capital requirements.

The settlement of these two issues signals an end to most of Alibaba’s regulatory overhang that resulted in Alibaba’s underperformance compared to its peers since November 2020. Having said that, we feel Jack Ma Vs Xi saga is nowhere near the end (Last month the government asked Alibaba to dispose its media assets) and Xi and the Communist Party will continue to curtail the power of Chinese tech companies at every chance they get.


Trip.com Bounce Support Then a Deeper Dig

By Thomas Schroeder

Trip.com (TCOM US) is coming under pressure and expected to see near term selling exhaustion near the 33/31 area to stage a reaction bounce but then shows risk of digging a bit deeper toward better base support at 30.

RSI bear divergence will weigh on a bounce sequence. Trendline support is a sensitive pivot point. Hard down day on volume spike is tactically bearish.

Regional cycle weakness will also play a role in weakness for TCOM in May/June.


Bio-Thera Solutions (百奥泰) A+H: Recent Termination of Drug Candidates

By Ke Yan, CFA, FRM

Bio-Thera is a China-based biopharmaceutical company. The company plans to raise at least USD 500m to list in Hong Kong. 

In our past note, we discussed that although the company has already commercialized one product and has two under NDA reviews by the NMPA, we think its product line-up is not impressive with a lack of truly innovative products. We were of the view that the company’s HER2-ADC drug BAT8001 is interesting given it’s likely one of the first two domestically HER2-ADC to hit the market. 

In this note, we would like to bring to investors’ attention that the company has recently terminated three drug candidates, of which two were related to the ADC technology. As such we re-iterate that the quality of management and its R&D is not the top tier among Chinese biotech companies.


Tencent (700 HK): Raises Subscription Fees for Online TV

By Ming Lu

  • Tencent raised its online TV subscription fees by 17%~50%.
  • The fundamental cause is the loss in online TV, but the direct cause is competitor iQiyi raised the fees last November.
  • We believe Tencent’s operating margin will improve slightly in 2021.
  • We also believe the stock price will have an upside of 19% by the end of 2021.

Our previous coverage on Tencent:


We Doctor (微医) Pre-IPO – Peer Comparison – Picking Its Battles Wisely

By Zhen Zhou, Toh

WeDoctor Holdings (1737089D HK) is looking to raise US$2bn in its upcoming Hong Kong IPO. 

We Doctor Holdings (WDH) is a digital medical service platform. As per Frost & Sullivan (F&S), WDH is the largest platform in China in terms of the number of Internet hospitals, as of December 31, 2020, and the volume of digital medical consultations provided in 2019. 

Prior to the filing, we had looked at the background of the company, did an app walkthrough, and brief comparison with other online medical providers like JD Health and Ping An Good Doctor

In this note, we will compare WDH to other listed China online healthcare tech companies.


CTG Duty Free (601888 CH): 1Q21 Profit Is Still Quite Decent

By Osbert Tang, CFA

China Tourism Group Duty Free Corp Ltd (601888 CH) expects recurring net profit of Rmb2.834bn for 1Q21, compared with a loss of Rmb120m in 1Q20. On a QoQ basis, this is down by a marginal 3.8% with a retreat in operating margin. Despite so, we still see this set of result as decent, and it represents about 25% of the full-year consensus forecasts.

Share price of CTG Duty Free was off 10% yesterday before the earnings announcement, with various concerns including border-opening in Hong Kong, anti-trust risk and clamp down of duty free grey-market, among others. We, however, think that fundamentals stay solid and these concerns are overplayed. With share price already fallen by 34% from the peak, value starts to emerge for this duty free leader in China, in our view.  


Before it’s here, it’s on Smartkarma

China: Shanghai Henlius Biotech, Trip.com, Zhaoke Ophthalmology Pharmaceutical, Alibaba Group, KE Holdings Inc, Topchoice Medical, Medlive Technology, Times Neighborhood, Bank Of Ningbo Co Ltd A, Logan Property Holdings and more

By | China, Daily Briefs

In today’s briefing:

  • Norway’s GPFG Could Sell Its Smallest Holdings: Potential Impact on Asian Stocks
  • Trip.com Secondary: Further Upside to SOTP Possible with Recovery in Travel and Hospitality Sector
  • Zhaoke Ophthalmology IPO Initiation: The Eyes Have It
  • Alibaba (BABA US): Ant Group – Pay, Get Out, Move Forward
  • KE (BEKE): Pre-IPO Anjuke Asks Authorities to Fine KE Following Alibaba Case
  • Presentation on Apr.12: 2021 High Conviction Ideas – Topchoice Medical (600763.CH)
  • Medlive (医脉通) Pre-IPO: Internet Hospital a Different Ball Game
  • Times Neighborhood – Value+Growth, Could It Be an Acquisition Target?
  • Bank of Ningbo – A Good Result
  • Morning Views Asia: Evergrande Real Estate Group, Ronshine China Holdings

Norway’s GPFG Could Sell Its Smallest Holdings: Potential Impact on Asian Stocks

By Brian Freitas

Norway’s Government Pension Fund Global (GPFG) is the largest sovereign wealth fund with assets of US$1.3 trillion and holds, on average, 1.4% of all the worlds listed companies. The fund is managed by Norges Bank Investment Management (NBIM) on behalf of Norges Bank.

The benchmark for the equities portfolio is the FTSE Global All Cap index, though the fund also holds positions in companies that are not a part of the benchmark index.

As of 31 December 2020, the fund had equity holdings in 9,123 companies. The Norwegian Government has proposed that no new emerging markets are added to the GPFG equity benchmark and has also proposed a 25-30% reduction in the number of equity holdings in the fund targeting the smallest companies in the benchmark. These proposals have to be approved by the Stortinget (the Norwegian legislature).

In this Insight, we look at the behemoth that is the GPFG, the holdings of the Fund, stocks that could be deleted from the portfolio to meet the new proposals and the impact on the stocks.


Trip.com Secondary: Further Upside to SOTP Possible with Recovery in Travel and Hospitality Sector

By Shifara Samsudeen, ACMA, CGMA

The leading Chinese travel platform Trip.com (TCOM US)  has set the terms for its IPO where it plans to issue 31.6m shares at a maximum indicative price of HK$333.00 per share. At the above price, Trip.com will raise net proceeds of HK$10.4bn (approx. US$1.4bn).

Each ADS represents one ordinary share of the company, and the maximum HK offer price implies approx. US$42.8 per ADS, about 10.3% premium to Trip.com’s last close price of US$38.81 per ADS prior to setting the terms. The Hong Kong offering of 31.6m shares will constitute approx. 5.0% of the extended share capital of the company.

Trip.com plans to use about 45% of the net proceeds on funding the expansion of the company’s one-stop travel offerings and improve user experiences while it plans to use another 45% of the net proceeds on investing in technology to bolster the company’s leading market position in products and services while also improving operating efficiency.

In this insight, we examine the company’s current valuation and our view on HKEX/ADR discount/premium.


Zhaoke Ophthalmology IPO Initiation: The Eyes Have It

By Arun George

Zhaoke Ophthalmology Pharmaceutical (ZKO HK) is an ophthalmic pharma company that has an ophthalmic drug pipeline of 13 innovative drugs and 12 generic drugs. Zhaoke has one of the most comprehensive ophthalmic drug pipelines in China, according to CIC. Zhaoke was founded by Lee’s Pharmaceutical (950 HK) which is the largest shareholder. Zhaoke’s other shareholders include GIC, Hillhouse, TPG, Loyal Valley Capital, Orbimed and Aier Eye Hospital. 

Zhaoke is pre-marketing an HKEx IPO to raise $200 million, according to press reports. The pipeline includes 8 drug candidates which have the potential to be market-leading products in China. The generic pipeline includes 6 potential first-to-market generics in China. Overall, we believe that Zhaoke’s drug assets are attractive. 


Alibaba (BABA US): Ant Group – Pay, Get Out, Move Forward

By Mitchell Kim

PBoC (People’s Bank of China) said on Monday that a “comprehensive, viable rectification plan” for Ant Group had been agreed to and Ant Group will overhaul its business in compliance with higher regulations for Internet finance platform companies.  As a result, Ant Group will apply to become a financial holding company. 

Similar to the AML fine on Alibaba, we believe this directive will now allow Ant Group to move forward possibly with a slightly lower valuation but share overhang lifted.  At the same time, I believe the market will be relieved to hear the regulator’s carefully crafted supportive tone towards the Internet platforms.   

Impact: 

  • The impact on Alibaba Group (BABA US) is nominal, in my view.  Alibaba owns 33% of Ant Group.  With the market already having priced-in a bear case scenario, we believe this news has minimal impact on Alibaba’s valuation.  
  • I believe the market already valued Ant Group at USD170-180 billion after the failed IPO.  This news does not change the valuation significantly.  

Implications: 

  • As a holding company, Ant will be subject to higher capital requirements.  But the market is well aware of this already.  (Please see our report, Alibaba (BABA US): Ant Group Woes Overly Priced-In, dated 27 February 2021)
  •  Ant will have to reduce the liquidity risks of its investment products including the InsureTech products and specifically rein-in the AUM of Yue’bao, its money-market mutual fund.  This was broader than expected.  It is difficult to imagine how to stop consumers from selecting an investment product.  
  • Set up a consumer credit reporting company and strengthen the protection of personal information.  

KE (BEKE): Pre-IPO Anjuke Asks Authorities to Fine KE Following Alibaba Case

By Ming Lu

  • The CEO of pre-IPO Anjuke (ANJ HK) said, authorities should fine KE RMB4 billion for its exclusive contracts.
  • Anjuke’s user base is larger than KE, but its revenue is lower than KE.
  • We believe KE’s database of real apartments for sale angers Mr. Yao.
  • We also believe there is no evidence that KE abuses market power.

Our previous coverage on KE (BEKE):

KE (BEKE): The Estate Agency Grew 53% and Housing Market Continues to Boom

KE (BEKE): Outperform Competitors in Booming Property Market 


Presentation on Apr.12: 2021 High Conviction Ideas – Topchoice Medical (600763.CH)

By Xinyao (Criss) Wang

The presentation today would mainly include the following parts:


Medlive (医脉通) Pre-IPO: Internet Hospital a Different Ball Game

By Ke Yan, CFA, FRM

Medlive, the largest medical content platform for physicians in China, plans to raise up to USD 500m via a Hong Kong listing.

We think the company has built a great user base of licensed physicians in China, which is rare among internet healthcare companies. Having said that, the monetization from its user base is low. 

While the near-term revenue growth will still come from healthcare marketing services, the company is expanding into the digital chronic disease management segment which is still an underpenetrated market but it is in an infant stage of development without much of a track record. 

The company has robust financials but the size is small compared to other internet healthcare players. The company’s management team is just OK. Given that it is profitable, there weren’t many rounds of capital raising and hence it lacks a long list of pre-IPO investors.


Times Neighborhood – Value+Growth, Could It Be an Acquisition Target?

By Sameer Taneja

Times Neighborhood (9928 HK) has corrected sharply over the last 6 months despite showing stellar results. We believe that the correction in the stock is due to: 

  • A small probability of the parent ( Times China (1233 HK) ) breaching the three red lines.
  • Tightening by the Chinese government in the property sector.
  • IPO fatigue in the sector. 2020 featured the listing of several property management companies that raised lots of cash, casting doubt on the companies ability to make acquisitions at good prices to fuel its future growth.
  • Pivot by the company from a more acquisitive to a third party strategy + expansion of community VAS services.

Source: Bloomberg

Why do we like Times Neighborhood (9928 HK)?

We believe that Times Neighborhood (9928 HK) could double from here, trading up to 25x FY21 with a target PEG of 0.6x.


Bank of Ningbo – A Good Result

By Thomas J. Monaco

*Despite Cost Growth, Bank of Ningbo Pulls One Out: Bank of Ningbo (002142.CH) [Ningbo] reported 4Q20 bottom-line results of CNY 3.8 bn, increasing CNY 304 mn or 8.8% linked quarter. The linked quarter results improvement at Ningbo was driven by several factors: a) revenue improvement of CNY 571 mn (5.6%) and likely driven by loan growth of CNY 32.4 bn (5.0%); b) a CNY 752 mn (31.5%) reduction in loss provisioning; and c) a 6.3% reduction in Ningbo’s tax rate to 7.3%; and

*Credit On Solid Footing: Despite the continued accelerated level of net new NPL growth at 83.4% on an annualized, Ninbo has a low base of NPLs.  It’s a good thing that Ningbo remains well-reserved and that credit risk appears quite manageable because capital levels remain somewhat challenged with a CET1 of just 9.5%.  


Morning Views Asia: Evergrande Real Estate Group, Ronshine China 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: Ping An Insurance (H), Alibaba Group, Tencent Holdings, Anjuke, BYD and more

By | China, Daily Briefs

In today’s briefing:

  • Ping An A/H Premium: Nearing a Discount; Set Up for Expansion
  • Alibaba (BABA US): Record Fine – Grin and Bear It as Better Days Are Ahead
  • Alibaba Fined RMB 18.2bn: May Not Be The Season Finale of Ma Vs Xi
  • Alibaba Receives a Substantial Fine – Is the Worst Behind It?
  • Alibaba (BABA) Fine – Close, but No Cigar
  • Alibaba (BABA): Fined $2.78 Billion for “Either Or”, But Impact Is Neither Big Nor Long Term
  • Tencent Holdings – What Wasn’t Said
  • ECM Weekly (11th April 2021) – Tencent Block, WeDoctor, YiShengBio, Trip HK, Visional, Macrotech Dev
  • Anjuke IPO Initiation: Home Truths
  • BYD (1211): In-Vehicle Batteries to Power Growth

Ping An A/H Premium: Nearing a Discount; Set Up for Expansion

By Brian Freitas

The Ping An A-shares Ping An Insurance Group Co Of China (601318 CH) are trading at parity versus the H-shares Ping An Insurance (H) (2318 HK). This continues the cycle of premiums and discounts going back to 2015.

The last time the A-shares traded at parity to the H-shares was in July last year. Since then, the premium of A-shares to H-shares touched a high of over 16% before moving lower to trade at parity again.

With the Ping An A-shares trading at parity versus the H-shares, the risk/reward is attractive to setting up a premium expansion trade.

In this Insight, we look at the historical premium for Ping An and compare it to the premium on the AH index and other large caps, and look at some catalysts that could lead to an expansion of the premium.


Alibaba (BABA US): Record Fine – Grin and Bear It as Better Days Are Ahead

By Mitchell Kim

Chinese regulators announced a record fine for Alibaba Group (BABA US) amounting to USD2.75 billion for violations related to antitrust regulations.  While the final amount for the fine was previously unknown, the fine itself is not a surprise.  

We believe this is a positive outcome for Alibaba: 

  1. We did not see any hint of additional rectifications related to AML (Anti-monopoly law) other than the penalty amount. (Alibaba has already pledged to modify its “exclusivity” practice to allow for merchants to have greater freedom to list their products on multiple platforms. Share overhang related to this issue should dissipate. 
  2. Alibaba could have been penalized more severely (as much as 10% of its revenues for antitrust violations).  The penalty amount represents only about 3.5% of Alibaba’s FY20 revenues (4% of CY2019 revenues).
  3. The lower-than-expected fine amount appears to signal that the regulators are not trying to excessively debilitate the industry.  

We have highlighted the AML and the consumer lending regulation risks to be key share overhang on the BABA shares in our February report, Alibaba (BABA US): Ant Group Woes Overly Priced-In.   We believe BABA shares are undervalued due to the overhang.  The latest regulatory announcement signals the lifting of share overhang related to AML, in our view.  


Alibaba Fined RMB 18.2bn: May Not Be The Season Finale of Ma Vs Xi

By Oshadhi Kumarasiri

Alibaba Group (9988 HK) has come under intense scrutiny from Chinese regulators since Jack Ma’s public criticism of China’s regulatory systems. The latest episode of Jack Ma Vs Xi & The Communist Party ended yesterday with The State Administration for Market Regulation (SAMR) imposing a fine of RMB 18.2bn for violating anti-monopoly rules.


Alibaba Receives a Substantial Fine – Is the Worst Behind It?

By Rickin Thakrar

Alibaba Group (9988 HK) received an 18 billion yuan (2.75bn USD) fine over the weekend after a 4-month anti-monopoly probe into the company. The fine represents 4% of Alibaba’s 2020 sales and 20% of its 2020 consolidated operating profit. We note that Alibaba has a net cash position of 195bn RMB excluding investments on its balance sheet as of FY20 suggesting that Alibaba does have the resources to pay this fine. We dig into the implications of this fine below as well as give our updated thoughts on the stock and current consensus.

Our previous research highlighting potential flaws in consensus forecasts which we believe remains a medium-term risk can be found here: 

Alibaba – Potential Flaws in Consensus Forecasts? 

Alibaba – Is There a Problem in Core-Commerce? 


Alibaba (BABA) Fine – Close, but No Cigar

By Victor Galliano

  • SAMR’s RMB18.2bn fine for abuse of market dominance could potentially be seen as a watershed marking that the worst of regulatory risk is past
  • In terms of Alibaba’s relative share performance, since the start of November 2020, it has clearly underperformed Tencent as well as Meituan and Pinduoduo
  • Relative to these peers, Alibaba Group (BABA US) trades at a discount on the core valuation metrics; versus its closest competitor Tencent Holdings (700 HK) , Alibaba trades at a 28% discount to 2022E PE multiple and at a 21% discount to 2022E EV/EBITDA ratio
  • Nonetheless, in terms of long term growth potential, Alibaba’s PEG ratio discount of 5% to Tencent is low
  • In our view, Alibaba’s outlook, especially relating to regulatory risks, remain unclear, especially with regard to the future of Ant Financial Services Group (6688 HK), its value and its potential IPO
  • Risks to our bearish view on Alibaba include a better than expected performance versus its core competitors and a fast resolution to regulatory risks with SAMR

Alibaba (BABA): Fined $2.78 Billion for “Either Or”, But Impact Is Neither Big Nor Long Term

By Ming Lu

  • State Administration for Market Regulation (SAMR) fined Alibaba RMB18 billion.
  • Alibaba had forced retailers to leave competitors via an “either-or” choice since 2015.
  • The penalty amount is not significant to Alibaba.
  • We believe that the penalty is just part of SAMR’s action after the new law, but not especially against Alibaba.
  • We do not believe the penalty will impact Alibaba’s long-term value.
  • We set an upside of 37% and a price target of USD$306 according to the 3-year P/E average.

Our previous coverage on Alibaba:

Alibaba (BABA): Many Positive Signals in December Quarter, 27% Upside

Alibaba (BABA): This Online Antitrust Wave, A Risk, But Not A Massacre 


Tencent Holdings – What Wasn’t Said

By Thomas J. Monaco

*Focus On Positives: Given the scrutiny that Tencent Holdings (700.HK) [Tencent] has come under, it comes as no surprise that Tencent wanted to highlight its positive developments such as international expansion and tailwinds in gaming, potential ad load expansion in Video Accounts, and Mini Programs enrichment; and

*Elephant In The Room: Over time, it is our belief that Tencent likely will be required to create a financial holding company for all of its banking, insurance, and payment services businesses – and be regulated along the lines of the banking sector. For Tencent, WeChat Pay and the broader lending/deposit taking business are likely to be reined-in. No matter what spin that Tencent wants to place on its other businesses, an FHC represents significant downside risks.


ECM Weekly (11th April 2021) – Tencent Block, WeDoctor, YiShengBio, Trip HK, Visional, Macrotech Dev

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.

Despite a short week in Hong Kong, there were three new filings, Anjuke Group, Brii Biosciences, and Keymed Biosciences. Other notable filings include Harp Holdings in Malaysia, Onion Global in the US, and NHAI InvIT in India. 

But the talk of the town was the second biggest block globally to ever trade. Prosus NV (PROSY US) finally sold a 2% stake (US$14bn) in Tencent (700 HK). Despite the large deal size, it was done with relative ease and was said to be 4x covered, as per media reports. We have been covering the potential sell down leading up to lock-up expiry since February.

In Hong Kong, Linklogis (9959 HK) raised US$1bn at the mid-point of its price range. Linklogis struggled in the grey market but managed to close 9.9% higher on its Friday debut.

We continued our coverage of WeDoctor and shared our thoughts on the business. We had also covered the company’s background and app walkthrough earlier in:

We initiated coverage on YishengBio (1872307D HK). In our note, we covered their main product, the PIKA based rabies vaccine, and shared our thoughts on the management team. We also published a follow-up on Zhaoke Ophthalmic (ZKO HK) and discussed its valuation:

Trip.com’s Hong Kong secondary listing was approved and launched last week. We looked at the deal terms and shared our thoughts on deal dynamics.

In Japan, we looked at Visional Inc’s (4194 JP) IPO, which closed its books on Friday. We shared our thoughts on the business, our forecast and thoughts on valuation in:

In India, Macrotech developers (LODHA IN) closed its bookbuild on Friday with a 1.37x subscription rate. We shared our thoughts on valuation earlier this week.

In other parts of ASEAN, we covered Ngern Tid Lor and ThaiBev BeerCo’s upcoming IPO which are likely to come to market soon.

Credits to Clarence Chu for helping out with the Weekly Update.

Accuracy Rate:

Our overall accuracy rate is 73.9% for IPOs and 67.2% for Placements 

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

New IPO filings this week

  • Anjuke Group Inc. (HK, US$1bn)
  • Brii Biosciences Limited (HK, US$400m)
  • Keymed Biosciences Inc. (HK, US$100m)
  • NHAI InvIt (India, US$600m)
  • Harp Holdings (Malaysia, US$300-500m)
  • Onion Global Ltd. (US, US$100m)

News on Upcoming IPOs

U.S. China ADRs

India

Others

Analysis on Upcoming IPOs

NameInsight
Hong Kong
Betta Pharma

Betta Pharma (贝达医药) A+H: Tier 2 Player Struggled to Break Out 

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 

Chaoju

Chaoju Eye Care (朝聚眼科) Pre-IPO: Growth Prospect Far from Being Impressive 

Dida

Dida Pre-IPO – Making Hay While Big Brother Retreats 

Dida

Dida Pre-IPO – Earnings Forecast and First Stab at Valuation 

Dida

Dida Pre-IPO – Peer Comparison – Lagging in Scale, Leading in Profitability 

Intco Med

Intco Medical (英科医疗) A+H: From China No.1 to Global No. 1 

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 

Kindstar

Kindstar (康圣环球) Pre-IPO: Issues with Scalability 

Kindstar

Kindstar (康圣环球) Pre-IPO: Is It Worth the Premium? 

RemeGen RemeGen (荣昌生物) Pre-IPO: Thoughts on Valuation of RC18 and RC48 
Bio-heart Shanghai Bio-Heart (上海百心安) Pre-IPO: Needs a Long Runway 
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 
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 
Youran Dairy China Youran Dairy(悠然牧业) Pre-IPO – A Leader Pulling Ahead in a Fragmented Market 
India
Aadhar Housing Aadhar Housing Finance Pre-IPO – Decent past Growth but Comes with Weird Disclosures 
ASK ASK Investment Managers Pre-IPO – Riding on a Wave of Wealth 
Anmol IndAnmol Industries Pre-IPO Quick Take – No Growth, Generous Payments to Founders
Bharat Hotel

Bharat Hotels Pre-IPO – Catching up with Peers 

Bajaj En

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

CMS InfoCMS Info Systems Pre-IPO – When a PE Sells to Another PE… Only One Gets the Timing Right
Crystal CropCrystal 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 
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 
NSENSE IPO Preview- Not Only Fast..its Risky and Expensive
NSENational Stock Exchange Pre-IPO Review – Bigger, Better, Stronger but a Little Too Fast for Some

LIC

Life Insurance Corporation of India Pre-IPO – Early Take on India’s Largest IPO 
Penna Cem Penna Cement – Aggressive Expansion Plans Even Though Past Performance Has Been Tepid 
PNB MetPNB 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 
Malaysia
QSRQSR Brands Pre-IPO – As Healthy as Fast Food
Singapore
ThaiBev Beer ThaiBev BeerCo Pre-IPO – Declining Rev and Mkt Share Concerns but Good Cost Control 
ThaiBev Beer ThaiBev BeerCo Pre-IPO – Thoughts on BeerCo and ThaiBev HoldCo Valuation 

Anjuke IPO Initiation: Home Truths

By Arun George

Anjuke (ANJ HK) is the largest online marketing platform for new and existing properties by revenue in 2020, according to iResearch. Anjuke is a subsidiary of 58.com. Anjuke’s shareholders include Tencent Holdings (700 HK) (14.3% stake), General Atlantic (7.7%), Warburg Pincus (7.9%), Country Garden Holdings Co (2007 HK) and Agile Property Holdings (3383 HK). It is seeking to raise $1 billion through an HKEx IPO, according to press reports.

Anjuke is using its core online marketing services business, which is cash generative, to fund its foray into transaction services, a market where KE Holdings Inc (BEKE US) dominates. However, this growth is margin dilutive as transaction services is structurally a lower margin business. We think that the compromise is acceptable as investors continue to be willing to pay up for high-growth tech companies. 

The key negative is that Anjuke is saddled with debt related to the privatisation of 58.com in September 2020 – 58.com’s Privatisation Enters into Definitive Agreement. While the healthy cash generation should comfortably service the debt, potential IPO investors could be turned off by the view that the IPO is a way of the privatisation consortium (which arguably privatised 58.com to the detriment of minorities) to make a quick buck. Notwithstanding the optics of the privatisation and relisting trade which tend to enrich insiders at the expense of minorities, we believe that the Anjuke IPO is worth a close look.


BYD (1211): In-Vehicle Batteries to Power Growth

By Henry Soediarko

BYD’s battery business has always been less meaningful compared to the automobile and mobile handset business (which investors can access through BYD Electronics (285 HK)), but the long-term prospect has always been exciting. The recent BYD’s Blade battery perks a positive rumor that the company will be able to sell in-vehicle batteries to other EV makers, increasing the group’s EBITDA by almost 40% depending on the various scenarios. Investors should be even more excited at the prospect that BYD’s battery business can finally contribute to the group’s more meaningfully. 

Compared to other EV players such as Tesla Motors (TSLA US) , NIO Inc (NIO US) and Xpeng (XPEV US) , BYD is trading at 22% PER discount, 32% EV/EBITDA discount, and 22% PBR discount whilst against CATL (A) (300750 CH) and Samsung SDI (006400 KS) , BYD is trading at 154% PER premium, 61% EV/EBITDA discount and 6% PBR discount. From cash flow multiples (EV/EBITDA), BYD is undervalued compared to the other EV players and battery suppliers. 

source: Reuters


Before it’s here, it’s on Smartkarma

China: Zoomlion Heavy Industry H, Tencent Holdings and more

By | China, Daily Briefs

In today’s briefing:

  • Zoomlion (1157.HK): Buy on Flow Through of Construction Strength into Late Cycle Products
  • Last Week in Event SPACE: Naspers/Tencent, Toshiba, Coca-Cola Amatil, Invesco J-REIT, Tabcorp

Zoomlion (1157.HK): Buy on Flow Through of Construction Strength into Late Cycle Products

By Victoria Li

We expect sales growths of late cycle products in construction machinery remain robust this year. 2021E sales growth of excavator (the main early cycle product) might beat market expectation and be as strong as 2020 levels, vs. market expected 10% yoy. In March, China’s excavator sales grew by 60% yoy to 79,035 units, much stronger than market expected.

Zoomlion, as the leading manufacturer with dominant market shares of late cycle products, would benefit from strong market demand on concrete machines and cranes in domestic market and further market expanding in One Belt One Road regions. In excavator segment, Zoomlion is gaining market share quickly. All the above would secure the company’s earnings grow solid in 2021-2022E.

Zoomlion’s valuation remains attractive. Currently local brokers’ average expected EPS of 2021E stands at Rmb1.1, indicating 8.9x P/E 20201E, lower than its historical average. Also, better than expected excavator market demand and Zoomlion’s market share gain bring earnings upside potential. 


Last Week in Event SPACE: Naspers/Tencent, Toshiba, Coca-Cola Amatil, Invesco J-REIT, Tabcorp

By David Blennerhassett

Last Week in Event SPACE …

  • We can assume that if the 3-year promise on locking up shares in Tencent Holdings (700 HK) is important to Naspers (NPN SJ), twice, it may be important again.
  • The headline number of ¥5,000/share for Toshiba Corp (6502 JP) is too low, by a fair bit, and there are a lot of hurdles (which are NOT shareholders wanting more) before this could go forward (allowing shareholders to want more).
  • On the 16 April, Coca Cola Amatil (CCL AU)‘s independent shareholders will vote on what should be a pretty straightforward Scheme.
  • Invesco Office J Reit (3298 JP) is a difficult situation to assess.  There is not much information. It was hostile for full takeout. There hasn’t been a similar precedent. 
  • Entain (ENT LN) pushes its case for an outright sale of Tabcorp Ltd (TAH AU)‘s wagering ops, but this would attract a regulatory minefield, plus CGT rollover relief would likely be lost.
  • Plus, other events, CCASS movements and Mood Spins.

(This insight covers specific insights & comments involving Stubs, Pairs, Arbitrage, share Classifications, and Events – or SPACE – in the past week)

STUBS

Naspers (NPN SJ) / Prosus (PRX NA) / Tencent Holdings (700 HK) 

Four years ago – a year before the last block – the Naspers discount to NAV was about 25%. A few years before that and it had been closer to zero. It briefly widened to almost 40% in Q1 2018 prior to the block sale before narrowing to the mid-30s through the block sale. In the past year, the look-through discount narrowed briefly to about 45% after the covid-crash, but then steadily widened to 55% by most of August-September and closing wider than 55% at the end of October.  At that time, Prosus announced a US$5bn buyback. Prosus has now launched another Tencent Offer. This was as expected, but delayed. It is the same 2.0% as before and the price is nearly 50% higher than it was last time, so now it is nearly 50% more money. 

However, the SINGLE MOST IMPORTANT factor to this announcement is that Prosus has committed to not selling more Tencent shares for another three years. That is not positive for Prosus and Naspers investors.  

  • Originally, the selldown was noted as a way to provide more balance and invest more in the other e-commerce businesses to create a group of verticals of best-in-class internet assets.  Since three years ago, there has been some effort to grow them by bolting on some acquisitions, but not a huge amount. And last year Prosus decided that buying its own shares was a better deal than buying external assets to grow inorganically.

  • At this point, it would seem that the most important capital allocation decision would be to see Prosus distribute a large amount of its Tencent shares to its shareholders. That would narrow the dollar discount. Perhaps the shareholders would keep the Tencent and perhaps they would not, but the dollar value of the discount would narrow dramatically.

  • But Travis’ bet is that the existing control group will not decide to give up their control of a US$250bn asset for the sake of good capital management of all its investors. I expect they will simply decide to hold the assets. Even if Tencent were split up into many parts by Chinese regulators I am not sure that Prosus would look to liquidate them for cash.

  • If they liquidated them for cash and ended up with $200bn of cash and $20bn of e-Commerce portfolio, they would almost be obliged to distribute most of the cash. And Travis is not sure they want to give up their hold over the portfolio that size. Simply doing nothing makes them a Very Big Global Investor. Doing something good renders them a lot smaller. 

Links to:
Travis’ insight: Be Careful What You Wish For REDUX – Prosus Selling US$15bn in Tencent
my insight: StubWorld: Naspers/Tencent – And Another Three Years
Brian’s insight: Tencent Placement – Limited Passive Flow; HSI, HSCEI Trackers to Sell in June

Thai Beverage (THBEV SP) 

I currently see ThaiBev’s discount to NAV at ~25% – around its narrowest inside a year. Following the no-objection notice from the SGX on the 4 February concerning its BeerCo IPO, ThaiBev announced that the SGX has issued its conditional eligibility-to-list letter for the potential listing.  

  • ThaiBev’s shares have declined 7% since my last insight. I see perhaps 12% upside from here if assuming a 25% discount to NAV. Given its growth potential, investors may switch out of ThaiBev into BeerCo. That, and comparative liquidity, could push the NAV discount wider. 
  • Using forward EBITDA, my current value for BeerCo of S$10.6bn is 18% below the indicative figure at the time of my last report StubWorld: Double Stub Via ThaiBev’s BeerCo IPO. If extrapolating out the attributable profit in the 1Q21 for the full year and apply a peer multiple of ~26x, you get ~S$8bn. Both this calculation and the material decline in the EBITDA-based value serve to highlight the risks attached to valuing the spin-off. 
  • ThaiBev is trading at 14x trailing EV/EBITDA, compared to its five-year average of 16.5x. The peer average is 12.5x over the same period. But ThaiBev’s forward EV/EBITDA is closer to 20x if you mark the minority interest in Saigon Beer to market.
  • ThaiBev still appears fully priced here. I’d still sell it.

M&A – ASIA

Toshiba Corp (6502 JP) (Mkt Cap: $18.7bn; Liquidity: $120mn)

Exactly one year ago today, Travis Lundy wrote An MBO for Toshiba? Not As Silly As It Sounds after an article in an “investigative” magazine called FACTA (most famous for pre-commenting on the fraud on Olympus nearly a decade ago) put out an article “Toshiba: Kurumatani’s Astonishing MBO Scheme: Will He Be Able to Expel Noisy Shareholders?” Nikkei Asia has now reported that CVC Capital Partners would propose a privatisation of Toshiba valuing the company at $20.8bn or something near ¥5,000/share. CVC will discuss the terms of the deal with management and will also need to win approval from the Finance Ministry. This is not as easy a deal as another deal might be. Toshiba is a FEFTA category 3 stock. It is sensitive enough that there would be global anti-trust concerns

  • ¥5,000/share would be the wrong price. At recently rumored offer valuations and IPO valuations touted in the media, Kioxia shares are worth well upwards of ¥2,000/share to Toshiba. The rest of the business should earn ¥300-350bn in EBITDA according to consensus estimates for 2023-2024. 6x EBITDA would add another ¥3,600-4,400/share. 8x EBITDA for the business would add ¥5,000-5,900/share to the value of Kioxia. ¥6,000/share would probably invite competition. ¥8,000/share would be more appropriate. 
  • Kioxia Timing is Important: The stock price last summer just before a Kioxia IPO was not too dissimilar from the price this past week. But Kioxia is worth more now than it was then given geopolitical concerns, tightness in the chip market, proposed subsidies to capacity buildout, etc. Average FY2022-2023 EBIT and EBITDA forecasts are up slightly since then. And TOPIX investors have bought about 45 million shares and are track to buy another 15mm shares at the end of April. 
  • There is another TOPIX upweight likely at the end of April. This should be known. But it is now more important. It will be another 15mm shares or 3.3% of shares out. It would be more like 5.2% of Real World Float assuming one counts all the Activist Holders now looking at this situation as float. 
  • Travis liked this at ¥3000 in January because of the squeeze to come and the possibility for lack of overhang because of activist action on the EGM and AGM. We have that lack of overhang, and now we have another story. He likes it now at ¥4530 (at the time of his insight). He would not sell or short this at ¥4500-5000/share yet.

Links to 
Travis’ insight: Toshiba – The CEO Gets His MBO Bidder and Toshiba Will Get Interesting
Mio Kato‘s insights: Toshiba – CVC Capital Partners Bid Highlights ValueToshiba – Tsunakawa’s Reappointment as EO Is Probably the End for Kurumatani

Coca Cola Amatil (CCL AU) (Mkt Cap: $7.5bn; Liquidity: $35mn)

Back on the 26 October, Australia’s largest non-alcoholic beverage bottler CCL announced an indicative proposal of A$12.75/share from Coca-Cola European Partners plc (CCEP). A firm Offer was announced on the 4 November. Reports immediately surfaced that some major shareholders considered the proposal inadequate.  Responding to shareholder pushback, CCEP and CCL entered into a Scheme Implementation Deed at A$13.50/share on the 15 February, a 5.9% bump to the firm Offer on the 4 November, and a  25.6% premium to the undisturbed price. The Offer was declared best and final.  Independent CCL shareholders will vote on the proposal at the Scheme Meeting to be held on the 16 April. Coca-Cola Co (KO US) (TCCC) with 30.808% of shares out, will abstain from voting. 

  • The board declared a full-franked dividend of A$0.18/share.  The ex-date/record date is the 16 April/19 April, with payment on the 30 April. The Scheme consideration will be adjusted for this dividend.
  • CCEP has now advised CCL that it has elected to purchase all the remaining shares held by TCCC at the implementation of the Scheme, for cash. TCCC will subsequently cease to be a shareholder of CCL.
  • Trading tight at a gross/annualised spread of ~0.5%/4%. That’s not particularly attractive, although the franking credits attached to the final dividend will represent additional value to those shareholders who are able to realise a tax benefit from those franking credits. Buy on any dips.

(link to my insight: Coca Cola Amatil (CCL AU): This Is It)

Invesco Office J Reit (3298 JP)  (Mkt Cap: $1.6bn; Liquidity: $9mn)

Together with affiliated investors, on Friday Starwood Capital Group filed that it owned just over 5% of Invesco Office and announced its intention to conduct a Tender Offer to buy out minorities. Invesco Office J-REIT, for its part, this morning announced that this was made “unilaterally and with no prior notification.” This classifies the action as hostile. The Tender Offer Price is to be set at JPY 20,000/unit, which is s 13.3% premium to Friday’s close, and a premium of 14.68% and 23.71% to the 1mo and 3mo closing price averages. 

  • The trade is to be long Invesco Office J-REIT at terms or slightly higher. Travis expects that unitholders may tender, but active unitholders may want to sell in the market at a higher price. He expects the Bidder has some flexibility. One’s best and final price is rarely exactly the nearest large rounded number (JPY 20,000/share). 
  • If it comes down to a white knight defense, It may be a tough-run thing. This is a run-off book rather than a growth book. Its assets likely suits a private sale to a re-developer or real estate trader. Starwood fits that bill. Other major office or diversified REITs might not fit that bill. And other non-REIT real estate buyers might balk too.
  • But Ichigo Office Reit Investmen (8975 JP) might fit the bill for a partner pretty well. 
  • The likelihood of Tender Offer success and potential upside from here against the likelihood of failure of this Tender Offer and possible downside to represent an uncomfortable reward/risk situation. 

Think Childcare (TNK AU) (Mkt Cap: $0.1bn; Liquidity: <$1mn)

Although Alceon initially let their matching right lapse, on 24th December 2020, they launched a revised non-binding and indicative proposal for TNK matching that of Busy Bees’ non-binding bid (A$1.75/share) and also announced they had acquired a relevant interest of 19.23% in TNK. Roughly a month later, Busy Bees revised their competitive bid to A$2.10/share –  a 20% bump from the previous bid level. I discussed this situation again in Think Childcare (TNK AU): Bigger Bid by Busy Bees reiterating my bullish stance on the stock. However on 4th March 2021, as the Shares were trading through Terms at A$2.23, considering the deal break risk, Janaghan suggested in Think Childcare (TNK AU): Trading Through Terms. Should You Fold Now? that it might be time to exit.  Turns out he was wrong this time. Busy Bees launched a revised bid at A$3.20.

  • This is still a non-binding proposal and comes with the following key conditions: Completion of satisfactory due diligence; and receipt of any necessary regulatory approvals (eg: FIRB).
  • Alceon, who currently holds 19.21% (11,739,083 shares), has agreed to vote in favour of the transaction in the absence of a superior proposal.  If Alceon, who acquired their stake at ~A$1.75/share roughly 3.5 months ago with a hostile/competitive motive, is willing to accept this Deal, Janaghan expects most of the remaining shareholders will accept this Deal too. 
  • With such a long time til the Scheme meeting (expected Q1 FY2022 which is CQ1 in 2022) and such a large potential gap to the downside, Janaghan expects it to trade wide over time.From a trading perspective however, it is a better reward/risk ratio lower down. 

(link to Janaghan’s insight: Think Childcare (TNK AU): Busy Bees Delivers a Knock-Out Bid)

Jih Sun Financial (5820 TT) (Mkt Cap: $1.7bn; Liquidity: $3mn)

On 23 March, Fubon Financial Holding Co (2881 TT) reported that its Tender Offer for control of Jih Sun was successful.  This was, apparently, possibly a surprise, as local media suggested last week that Shinsei Bank (8303 JP) had received an approach to buy their stake in Jih Sun for NT$15/share – well above the NT$13/share that Fubon had bid.  A day before the close of the Tender Offer, internal directors at Jih Sun were apparently of the opinion Shinsei would not tender, however it appears the NT$13/share in hand was better than the $15/share which was still only indicative, so they sold.  That leaves the squeezeout. 

  • As a risk arb trade, buy NT$12.60 or lower this week.
  • If you can get good leverage, this is a good, quite safe, somewhat high-yielding deal. 
  • If you are a long-only investor and you want a place to “hide out” in Taiwanese financials for whatever reason, this is a good place to do so. It is not likely to be lower (including dividends) in September than here).

(link to Travis’ insight: The Squeezeout of the Remaining 46% of Jih Sun Financial)

The promoter’s Open Offer to buy up to 651mm shares (17.51%) of Vedanta Ltd (VEDL IN) at Rs 235/share is coming to a close.  With two days to go, the shares today closed at Rs. 231.75/share as Hindustan Zinc (HZ IN) closed up 6.07%, briefly touching Rs 300/share intraday. Travis sees no reason why a 100% pro-ration is not possible.  Going forward, float should be substantially smaller. And expect higher volatility. This includes higher outright volatility and higher HZ-relative volatility. Travis sees no particular need to carry a position at the Tender Offer Price. In Vedanta (VEDL) Offer Coming To A Close: Watch For Antics, he would be inclined to buy any large dip in the share price of VEDL.

The Nikkei reported that Bain Capital’s bidding consortium has received preferential negotiating rights from Hitachi Metals (5486 JP). The rumoured valuation is above ¥800bn which would put the premium at just 3.2% above the last close. As Mio said previously, the potential for a large hike to those terms seems limited and better returns may be on offer in trying to identify other potential buyout targets. Link to Mio’s insight: Hitachi Metals – Limited Upside Despite Bain Capital News But Let’s Find the Offshoot Ideas.

The Niit Ltd (NIIT IN) buyback is a decently large Tender Offer Buyback. If everyone tenders to the full extent, pro-ration will be 7.1% for most shareholders. Record Date was 24 February. Those who held then can tender. Those who did not, cannot. Shares have spent most of the last ten years WELL above the Tender Offer Buyback Price. There is a chance that a large number of shareholders do not tender. If one believes only 50% of shareholders are likely to tender, then shareholders should buy 14% of their existing position and tender the shares they held as of 24 February. If the shares go higher than Rs 240 by the end of the Tender Offer, that is a high quality problem and one may sell the 107-114% of the position one had. Link to Travis’ insight: NIIT Limited Buyback – If You Own (Active Or Passive), You Should Read.

EVENTS

Tabcorp Ltd (TAH AU) (Mkt Cap: $8.3bn; Liquidity: $19mn)

TAH merged with Tatts Group Ltd (TTS AU) in November 2017 in an A$11bn transaction. Less than two years later, with the wagering division – which includes the retail betting shops and online betting brands – facing stiff competition on all fronts, and synergistic benefits from the merger not being extracted at expected levels, a demerger was floated. Fast forward another three-plus years: after rejecting a A$3bn offer from Entain (ENT LN) (owner of Ladbrokes) to buy its wagering and media division, Tabcorp said last week it will undertake a strategic review to assess and evaluate all structural and ownership options to maximise value. The strategic review is expected to take between 12 weeks and 13 weeks, the conclusion of which may tie in with the release of the FY21 financials. 

  • A demerger, in Entain’s view, does not address the challenges facing the wagering ops, which needs to recast its agreements with state racing authorities, increase its investment in technology, and introduce innovative products, as it still lags online rivals. TAH’s chairman was less enthusiastic with a sale, as he would prefer shareholders keep as much as they can. Complications involved in separating the lotteries and wagering businesses would also arise, such as certain tax advantages around potential capital gains tax rollover and dividend relief. A demerger would likely enjoy CGT rollover relief that a trade sale would not.
  • It has been argued a demerger – which typically takes 6 to 12 months – is just too long for Tabcorp to get its house in order, and that a sale is a better-fast tacked option. Yet a sale would require approvals from racing regulatory bodies, hotels, pubs and clubs, state governments, the ACCC, and (potentially) FIRB. Changes of control provisions would also be triggered. In addition, probity and regulatory issue may have been ratcheted up in the wake of the Crown Resorts (CWN AU) saga –  Crown Resorts (CWN AU): Blackstone Rolls the Dice.
  • The announcement of a strategic review just three months into Gregg’s tenure as chairman, suggests a sale or demerger may have legs. Especially noting recently departed CEO David Attenborough dismissed the idea of a demerger in August 2019 as “total nonsense“. I’d be picking up shares around here – with 30% upside to my fair value. Currently trading at a 6% premium to its COVID-cliff.

(link to my insight: Tabcorp (TAH AU) – Conscious Uncoupling)

Wakita & Co Ltd (8125 JP)  (Mkt Cap: $0.5bn; Liquidity: $1mn)

Waikita has been a deep value stock for years. It has had deep value investors owning stakes before. However, the company has pretty low ROE based on truly awful capital allocation policy. A very large portion of the long-term assets in the firm are effectively managed by people with little to no experience in the space, in a sub-optimal capital structure. The company has large amounts of net cash, and securities, and more securities and crossholdings. And the entire company is effectively a leasing business with some add-ons, and it finances itself with almost zero debt. While it is dangerous to call a paradigm change on companies where there is a significant corporate cross-holding and significant family holding and control, there are times when the confluence of events make stocks like Wakita worth a deeper look.

  • There is an activist who will push an agenda at the AGM, but who will most likely lose almost all the agenda items. A better bet would have been to push out directors based on bad governance because that would only require 50% support, which even then would have been difficult. 67% for a change in the Articles of Incorporation would be nigh impossible in my opinion. 
  • And the advent of a new version of the Corporate Governance Code would mean pressure on the substantial cross-holding position to unwind itself. There is a non-negligible chance the situation could end up as a possible MBO situation. And if it did, I would expect a fight. And MORE activism than what we have now. IF there is an attempted MBO soonish, Travis would expect it at ¥1500-1600/share. 
  • Big dips should be bought. The company is entirely under-levered which means that owning it using leverage and being “long gamma” market moves is appropriate. 

(link to Travis’ insight: Japan Activism: A Look into Wakita (8125 JP) Potential Pre-Event)

TOPIX Upweights: Big April Basket 2021 Pre-Event Was a WIN

The Tokyo Stock Exchange (TSE) calculates Free-Float Weight (FFW) for each listed company and uses this value as a key component of TOPIX Index Calculation. For companies with “low liquidity” the FFW will be multiplied by a fixed liquidity factor (“LF”) of 0.75 to derive the final FFW used for index calculation. In TOPIX Index Upweights: The Big April Basket 2021, Janaghan Jeyakumar  discussed how the Tokyo Stock Exchange reviews this Liquidity Factor every April and highlighted 50 names (the “Big April Basket 2021”) that could potentially have their liquidity factors removed in this April’s review.

  • Earlier this week, the official review results were announced and 48 out of 50 names in our Big April Basket 2021 were correct translating to a hit ratio of 96%. There were 11 other names added, and two of the names we expected to see the LF lifted did not.
  • As at the close ahead of the announcement, our Big April Basket (equally-weighted) was up +3.61% against the TOPIX Index in 7 trading days (since the close of the day after the insight) and there could be more to come. 
  • Travis chimes in with OTHER names in the TOPIX rebalance for April 2020, including a total of 43 up-weights and 16 down-weights with ~ US$500mm to buy and US$260mm to sell.

Links to:
Janaghan’s insight: TOPIX Upweights: Big April Basket 2021 Pre-Event Is a WIN! Now the Event-Leg!
Travis’ insight: TOPIX April-End Rebalance – The OTHER Trades

M&A – EUROPE

In his previous Insight Creval – Crédit Agricole: Playing Hard to Get, Jesus Rodriguez Aguilar  mentioned that a sweetened bid could come around €12 per share. Whilst that has not yet happened, the Board of Credito Valtellinese Sc (CVAL IM) (CreVal) issued on 29 March a statement that followed the usual script to back the assertion that the offer is “inadequate” on both stand-alone and M&A (developed in the Insight). In CreVal – Crédit Agricole: Grounds for an Improved Offer Jesus reckons Crédit Agricole should be able to increase the offer price to €12.4, for a total cost of c. €117 mn.

PAIRS

Investors unloaded Chinese e-vapor stocks following the announcement of draft amendments to the Tobacco Monopoly Law, if approved could extend the law’s jurisdiction to e-cigarettes. As a result, RLX Technology Inc (RLX US)’s share price fell 48% whileSmoore International (6969 HK)’s (less dependent on China) fell by 23%. Meanwhile, the lock-up period for RLX’s pre-IPO holders’ expiries on 21st July 2021 possibly leading to additional selling pressure in the short term. In Long Smoore/Short RLX: RLX’s Lock-Up Expiry Could Aggravate the Sell-Off, Oshadhi Kumarasiri recommends a Long Smoore/Short RLX pair trade.

ASIAN SPACS

The Singapore Exchange announced a regulatory framework for SPACs to list on the SGX and asked the market for feedback. Subsequent to the feedback phase ending on the 28 April, the framework may be finalised in the middle of this year.  The SGX makes it clear SPACs are susceptible to execution risks where the SPAC is unable to identify a suitable target company or successfully consummate the business combination within the pre-determined period. But given the clear demand for such instruments, the SGX evidently sees the benefits outweigh the risks.

TAKEOVER RULES – THAILAND

This revised guide – Quiddity M&A Guide 2021: Thailand– is part of a series of M&A guides that our Quiddity team are publishing to aid investors in understanding the rules, parameters, possibilities, and processes when companies conduct mergers and acquisitions. 

The initial guide – Quiddity Thailand M&A Guide 2019 – was published in May 2019. Since that time, there have been some new developments/clarifications, many of which relate to voluntary de-listings. This is an update.

M&A – US

The abandonment of its merger transaction with China Oceanwide has freed a financially healthier Genworth Financial Inc Cl A (GNW US) to pursue its revised strategic plan without restrictions and without uncertainty regarding its ultimate ownership. With what had seemingly been a never ending saga now finally over, Robert Sassoon asserts in SpinTalk: How Genworth Financial Holdings (GNW US)Creates More Value Without The Oceanwide Merger that Plan B will likely yield a more beneficial outcome to GNW shareholders than had the Oceanwide transaction moved to completion in the current circumstances.

INDEX REBALS

FTSE GEIS June Index Rebalance Preview. Stocks that could be included in the FTSE All-World index are Evergrande Property Services (6666 HK)China Resources Mixc Lifestyle Services (1209 HK)Pop Mart International Group Limited (9992 HK)Blue Moon Group Holdings (6993 HK)Remegen Co Ltd (9995 HK)Jinke Smart Services (9666 HK)Shimao Services Holdings Limited (873 HK)PTT Oil and Retail (OR TB)Big Hit Entertainment (352820 KS)SCG Packaging Public Company Limited (SCGP TB)MR D.I.Y. Group (MRDIY MK)Gland Pharma Ltd (GLAND IN) and Indian Railway Finance Corporation (IRFC IN). Stocks that could be included in the FTSE All-Country index are Yidu Tech Inc (2158 HK)Everest Medicines (1952 HK)Kerry Express Thailand (KEX TB)Converge ICT Solutions (CNVRG PM)Nanofilm Technologies International (NANO SP), and Roland Corp (7944 JP). Link to Brian’s insight: FTSE GEIS June Index Rebalance Preview: IPOs, J-REITs, India FOL. Read more: FTSE GEIS June Index Rebalance Preview: IPOs, J-REITs, India FOL.

Global Clean Energy Index. The changes to the S&P Global Clean Energy Index have been announced. There are 52 additions to the index to take the number of index constituents up to 82. The changes are effective after the close of trading on 16 April. The 52 additions and capping changes will result in a one-way turnover of close to 55% and will require the ETFs tracking the index to trade US$12bn to rebalance their portfolios. Link to Brian’s insight: Global Clean Energy Index: 52 Adds, 55% Index Turnover, US$12bn to Trade.

Straits Times Index Rebalance Preview. Jardine Strategic Holdings (JS SP) will be deleted from the MSCI and FTSE indices at the close of trading on 12 April. Strategic will also be deleted from the FTSE Straits Times Index (STI) (STI INDEX) at the close of trading on 12 April. The replacement for Strategic in the STI will be determined based on the closing prices on 8 April. Frasers Logistics & Industrial Trust (FLT SP) has a full market cap that is 10.1% higher than Suntec REIT (SUN SP) and is the most likely inclusion in the index with 2 trading days to go before the replacement is chosen. Link to Brian’s insight: Straits Times Index Rebalance Preview: FLT Poised to Replace Jardine Strategic.

OTHER M&A & EVENT UPDATES

CCASS

My ongoing series flags large moves (~10%) in CCASS holdings over the past week or so, moves which are often outside normal market transactions.  These may be indicative of share pledges.  Or potential takeovers. Or simply help understand volume swings. 

Often these moves can easily be explained – the placement of new shares, rights issue, movements subsequent to a takeover, lock-up expiry, amongst others. For those mentioned below, I could not find an obvious reason for the CCASS move.   

Name

% chg

Into

Out of

CTEH (1620 HK)75.00%LegoOutside CCASS
Yunfeng Financial Group (376 HK) 16.13%MSHSBC
Guru (8121 HK)14.40%CelestialOutside CCASS
China International Capital Corporation (3908 HK) 10.90%Std ChartOutside CCASS
Netdragon Websoft (777 HK) 14.51%CitiSt Chart
Pps International Holdings (8201 HK) 64.91%St ChartCTW
Source: HKEx

The following large movement(s) concern recently listed companies, and therefore are (likely) lock-up related.

Name

% chg

Into

Out of

Pangaea (1473 HK)44.98HSBCOutside CCASS
Source: HKEx

Before it’s here, it’s on Smartkarma

China: Bilibili Inc, 361 Degrees International, Postal Savings Bank of China and more

By | China, Daily Briefs

In today’s briefing:

  • Bilibili in Talks to Buy 24% Stake in Yoozoo Games to Enhance and Strengthen Content Offerings
  • Asia HY Monthly – Chinese Property Update (2021) – Lucror Analytics
  • GEM Bank Screens; 4Q20, The Final Cut

Bilibili in Talks to Buy 24% Stake in Yoozoo Games to Enhance and Strengthen Content Offerings

By Shifara Samsudeen, ACMA, CGMA

Several news media outlets reported on Thursday (08th April 2021) that the Chinese mobile games and Video streaming platform Bilibili Inc (BILI US) is in talks to buy a 24% stake in Yoozoo Games.

Yoozoo Games based in China is engaged in the development, distribution, publishing and operation of mobile games and internet games.

In addition to acquiring a 24% stake in Yoozoo Games, Bilibili is said to be in talks to acquire Yoozoo’s headquarters building in Shanghai and also take over nearly RMB700m in debt that is left by the company’s late founder.

A majority of Bilibili’s users are aged below 35 years and the company aims to make use of these young users to tap into the video games market. Bilibili itself offers mobile games that accounted for about 29% of total revenues in 4Q2020. Mobile games used to account for a majority of the company’s revenues, however, with strong growth in revenue from value-added services, the segment’s revenue contribution has declined to about 30%.


Asia HY Monthly – Chinese Property Update (2021) – Lucror Analytics

By Charles Macgregor

In this month’s “In-Focus” section, we provide an update on the Chinese property sector, including operational trends and regulatory developments, as well as an overview of the FY 2020 results of most developers under our full coverage.

The Asia Monthly focuses on providing updates on recent events, information on new issues and spread movements, as well as summarising our top picks, and discussing specific areas of interest in the “In-Focus” section. The Asia Monthly is intended to broaden investors’ understanding of the Asian USD high-yield market.


GEM Bank Screens; 4Q20, The Final Cut

By Victor Galliano

  • We screen the 4Q20 results for credit quality and value of thirty five GEM banks
  • We add a new screen showing tangible book value per share growth from 2016 to 2020, and compare this to 2020 PTBV ratio
  • Specifically we identify six banks that screen well on these combined factors; Grupo Financiero Banorte-O (GFNORTEO MF), Credicorp Ltd (BAP US), Banco Do Brasil Sa (BBAS3 BZ), Hana Financial (086790 KS), Postal Savings Bank of China (1658 HK) and – in the higher risk category – Commercial International Bank (COMI EY) of Egypt
  • A name to watch, albeit a higher risk GEM bank on attractive valuations, is Turkiye Garanti Bankasi As (GARAN TI) in Turkey; nevertheless, the unpredictable Erdogan factor still calls for near term caution
  • Private sector Indian banks trade on demanding valuations, in our view; public sector bank SBI is the deep value, but relatively high risk, name in India with its relatively low NPL coverage levels
  • Risks to our positive view on these six GEM banks generally include increased political and geo-political tensions, as well as a weaker than expected GDP growth recovery leading to worsen than expected credit quality  and weak loan growth

Before it’s here, it’s on Smartkarma