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Financials Sector

Brief Finance: Last Week in Event SPACE: Nissan/Renault, NTT/Doco, Ayala, Yungtay, AHG, Kosaido, SK Hynix, Anadarko and more

By | Daily Briefs, Financials Sector

In this briefing:

  1. Last Week in Event SPACE: Nissan/Renault, NTT/Doco, Ayala, Yungtay, AHG, Kosaido, SK Hynix, Anadarko
  2. ECM Weekly (27 April 2019) – Luckin, Duiba, Leong Hup, ARA US Hosp, Douyu, So-Young, Yunji

1. Last Week in Event SPACE: Nissan/Renault, NTT/Doco, Ayala, Yungtay, AHG, Kosaido, SK Hynix, Anadarko

Spin2

Last Week in Event SPACE …

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

EVENTS

Renault SA (RNO FP) / Nissan Motor (7201 JP)

Despite his initial conciliatory stance prior to his appointment to the board and as the new chairman of Renault, Jean-Dominique Senard said the Alliance needed to be re-balanced “in spirit” to counter fears among its Japanese partners that Renault wants to dominate the partnership. Subsequent to his ascension to the board, Renault has made a new proposal for integration. Indications are that proposal was rebuffed by Nissan. This was followed by Nissan’s CEO Hiroto Saikawa saying “What’s most important is Nissan’s future. The question is how we should use the alliance for our future, not how we should be used by the alliance.

A Yomiuri article said that Renault told Saikawa that if he did not toe the Renault line and agree to support Renault’s plan for management integration, then Renault intended to block his reappointment as CEO at the June AGM. This is a serious escalation in tensions.

  • Renault is pushing at a time when they should not, and lobbing threats like flaming barrels of oil over the castle ramparts. For all intents and purposes, it appears Renault is trying to bully its way forward using dominance in the capital alliance, as if treating one’s partner right is not enough to guarantee they would want to continue to enjoy the cost-savings of scale. Renault is acting now while Nissan is weak from the governance scandal and after Nissan has lowered its forecast for a second time this year. Yet Renault clearly needs to shoulder some of the blame of Nissan’s Ghosn scandal-induced governance crises.
  • Nissan could sell new shares in itself to dilute Renault below 40%. Or buy more shares in Renault to own more than 25%. Or commence constructive disengagement. Renault could go hostile on Nissan, which would break the Alliance Agreement and start a war. All told, the possibilities for the Alliance look bleaker.
  • If Nissan engages in defense, the “attack to defend” trade is to own more Renault. If Nissan defends itself with good governance, the trade is to own more Nissan. It’s not an easy trade, but Travis Lundy tilts to Renault, for now. That could change quickly.

(link to Travis’ insight: Renault/Nissan: Mangalore Alert!)

STUBS & HOLDCOS

NTT (Nippon Telegraph & Telephone) (9432 JP) / NTT Docomo Inc (9437 JP)

Travis recommended a NTT/Docmo set up last October NTT Stub Vs MktCap Near 10yr Lows, Stub Earnings Vs Total Near 10yr High around the time of the “Docomo Shock” of lower pricing come April 2019. The stub – if you measure it that way – doubled from less than ¥600/share to ¥1200/share as of the close earlier this week. Since the initial recommendation, NTT Docomo has executed a large buyback and NTT has executed a smaller buyback and the market expectation is for another NTT buyback from the government sometime after earnings.

  • NTT Docomo has now released its new lower-priced and simpler pricing plans which start in June this year. The Nikkei released an article over the past weekend saying that OP would fall 20% this year. This was a full 11.5% below the consensus forecast. Shares ended up on both sets of news, but once again the stock ended up. That left NTT at a higher price vs Docomo than before but the ratio is almost 5% below recent highs despite worse than-expected forecasts for NTT Docomo’s OP and a promised four-year soft spot.
  • NTT Docomo trades at 12x its highest EPS for the next several years. NTT trades at sub 10x on a consolidated basis and well less than that on a parent-implied basis (leverage helps).
  • Travis was a buyer of the NTT/Docomo “dip”. He expected a 20% drop in OP at NTT Docomo would be absorbed in stride, but not really. However, ongoing cost-cutting, lower depreciation and writedowns of fixed line assets, and better profitability on a mature cash-cow business means NTT parent-only (i.e. NTT less Docomo and Data) earnings should continue to progress higher, and NTT should continue to distribute that capital to shareholders. 
  • A priori, there has been shorting of Docomo vs NTT for the past several months and that has now reached a point of “sell the news” where those short are buying back their Docomo. And near-term may favour Docomo vs NTT in regards to buyback flows as Travis expected a Docomo market buyback of ¥300-400bn.
  • After the close on Friday, Docomo released earnings forecasts – OP down 18% and NP down a little less. Docomo also announced a buyback of ¥300bn to be conducted in the market over the next year.

(link to Travis’ insight: NTT Vs Docomo: Where To From Here?)


Ayala Corporation (AC PM) / Ayala Land Inc (ALI PM)

AC’s 8% decline (at the time of my note) since the beginning of the month, compared to ALI’s 5% gain, has resulted in the discount to NAV widening to ~13% against a one-year average of 4%. Although ALI’s exchangeable bond was cited as a possible cause for the recent bifurcation – the last day for conversion was the 22 April and was fully converted – the chief suspect is the unlocking of a recent placement by Mitsubishi Corp (8058 JP) and the possibility of a new placement.

  • On 20 March 2018, Mitsubishi placed 8.5mn shares of AC at ₱934/shares (~7.5% discount to last close). The placement reduced Mitsubishi’s stake to 8.75% from a little over 10% and was the first time it has sold since securing its stake in early 2007 when AC traded around ₱55.
  • On 15 January 2019, Mitsubishi placed 13mn Ayala shares at ₱900 per share (~7.3% discount). Allegedly Mitsubishi initially offered 9mn shares.  As with the shares sold in March, this shares placement had a 90-day lock-up on further sales, which expired last week.
  • Mitsubishi is a seller of AC – that is evident – and still holds 41.57mn or 6.58% of shares out. However, the urgency to sell more is not apparent – the most recent placements occurred ahead of their year-end. Stub earnings are tonking along, propped up by the energy division. All things considered, AC looks interesting here.

(link to my insight: StubWorld: Ai Ya! – Ayala Corp Tanking On Possible “Portfolio Rebalancing”)


First Pacific Co (142 HK)

Curtis Lehnert revisits this holdco, having first propositioned a set-up trade back in early December. The trade is moving in the right direction and recent developments indicate there is room for a further narrowing in the discount.

  • In March, First Pac  announced it is exiting its 50% stake in the Goodman Fielder JV (GF) for US$300mn. First Pac will incur a US$280mn non-cash loss on the sale. Not an ideal return on a five-year investment. But this is a significant step towards narrowing the discount to NAV as GF was the second largest component of the stub (~18% of NAV). 
  • Proceeds from the sale would be used to pay down debt and for share repurchases. The company also mentioned they have identified further assets for sale outside of emerging Asia. Curtis’ take on this statement is that the Pacific Light project that operates a LNG-fired power plant in Singapore may be the next to be sold as it is the only other significant asset that is not in “emerging” Asia.
  • There is also Indofood Sukses Makmur Tbk P (INDF IJ)‘s voluntary offer for Indofood Agri Resources (IFAR SP), which I discussed in PT Indofoods’ Voluntary Offer for 74% Held Sub IFAR.
    The impact on First Pac is minor, but it is a wider sign that the group is in the midst of restructuring and streamlining its shareholdings.

(link to Curtis’ insight: TRADE IDEA – First Pacific (142 HK) Stub: Assets Sales Pave the Way to a Narrower Discount to NAV)

M&A – ASIA-PAC

Kosaido Co Ltd (7868 JP) (Mkt Cap: $172mn; Liquidity: $2mn)

Kosaido came out with lower “forecasts” for the year to this past 31 March, which consisted of (possibly kitchen-sinking) writedowns in relations to the funeral parlor business and writedowns and weakness in the info business. The OTHER news is that Kosaido’s independent directors came out “neutral” on the Murakami Tender Offer at ¥750/share. 

So… Kosaido directors WERE able to recommend minorities sell their shares into a ¥610/share Offer (against a ¥1100/share book value and positive earnings) a few months ago, but now cannot recommend to shareholders that they take ¥750/share against a lower book value per share, when the company is making a loss – part of which is almost certainly due to bad management.

  • The Murakami bid is ¥750. It is not supported by Kosaido, is still well below BVPS (which is now lower than at the start of the Tender) and the Murakami bid is not designed to squeeze out minorities. If you do not tender, even if it DOES succeed, there is zero guarantee that the backend will trade higher than the current price or the Tender Offer Price. 
  • The Bull Case here is that Minami Aoyama Real Estate gets 51%, then replaces all the directors at both Kosaido and Tokyo Hakuzen, and then embarks on an asset-lightening exercise to fund rehabilitation, then sells off the parts to deliver book value to investors. 
  • The Bear Case is that there is no successful tender, and the shares fall back to some level lower than here as punters bail and then the Murakami group scoops up more stock lower. The Worse Bear Case is that the company simply cannot rescue itself. It has had years to fix an obviously weak “info” business and it has not done so. 
  • The Base Case could be seen that the tender goes through, Murakami gets 51%, then it takes a while for anything to happen, things come out less than optimal, and because Murakami-san gets to consolidate, he doesn’t care about his mark-to-market. But you will.

(link to Travis’ insight: Kosaido: The Bull Case, The Bear Case, and the Base Case)


Automotive Holdings (AHG AU) (Mkt Cap: $560mn; Liquidity: $2mn)

Ap Eagers Ltd (APE AU) has now dispatched the Bidder’s Statement for its all-scrip (1 APE share for every 3.8 AHG shares) offer for AHG. The Offer is conditional on ACCC approval and no MACs. There is no minimum acceptance (shares tendered are irrevocable, which hasn’t stopped what appears to be Perpetual tendering in its 9.2% stake to the IAF) threshold nor finance condition or due diligence. AHG recommends shareholders take no action as it considers the proposal to be highly conditional and that AHG trades through terms.

  • The merged AHG/APE is expected to exact pre-tax cost synergies (according to APE) of $13.5mn annually.  Although he agrees the merger rationale to have merit, AHG’s CEO John McConnell argues synergies “may be a bit light by the way we’re looking at it”. APE’s CEO Martin Ward countered estimates may potentially increase with the benefit of a full operational review.
  • With AHG’s share price languishing, there is a hint of opportunism to APE’s Offer. But not a lot – the scrip ratio is not unreasonable when viewed from a 1M, 3M and 6M viewpoint. Only when the timeframe extends further out to one-year (3.52x) and beyond does the ratio appear to take advantage.
  • With car dealerships under the hammer amidst declining new vehicle sales, the benefits from a merger are apparent. This Offer may just require a small kiss to terms to get all parties on board. The premium to terms has come in since Perpetual tendered.

(link to my insight: AHG & AP Eagers – Smart Carma)


Yungtay Engineering (1507 TT) (Mkt Cap: $800mn; Liquidity: $1mn)

The tender results gets Hitachi ~39.7% of shares out. Hitachi got about 28% of the non-Hitachi and non-Hsu Cho-Li shares in the tender. 70+% of what was possible did not tender. This cannot be seen as a big victory for Hitachi and they know it. They do not have the “control” to consolidate as evidenced by the EGM spat. Travis expects this has now turned into a waiting game for them. 

  • At the EGM on the 18th April, the Hitachi/Yungtay side got three directors, the “Market Faction” led by the The Baojia Group and dissident cousin to the former chairman (Hsu Tso-Li) Hsu Tso-Ming (who is now General Manager of Yungtay China) and including the representative entities of Schindler Holding Ag (SCHN SW) and United Technologies (UTX US)‘s Otis Elevators business – which combined have 11+% between them – obtained three seats, and then three independent director slots were filled with one coming from the management slate, and two coming from the Market Faction. The “opposition” had in some way “won” management rights.
  • Baojia Group and Hsu Tso-Ming plus Otis and Schindler will find it difficult to win enough to oust Hitachi. They can’t force capital decisions because Hitachi has negative control. They can only hope to greenmail Hitachi, or grow the company out from under them. A second tender offer by Hitachi was rumoured apparently, but Hitachi stomped on that rumour immediately.
  • Minority shareholders are left with a much less liquid instrument than before, which is expensive and has a kind of takeover premium built in when Travis expects there are few chances of a near-term takeover.

(link to Travis’ insight: Hitachi Deal for Yungtay Completes But Control Is Elusive)


SK Hynix Inc (000660 KS) (Mkt Cap: $47bn; Liquidity: $221mn)

On April 22nd, it was reported that SK Hynix is interested in acquiring MagnaChip Semiconductor Corp (MX US)‘s foundry business. Magnachip (market cap of US$316mn) employs about 2,500 people in the Cheongju and Gumi fab facilities and R&D centers in Korea. The foundry business currently represents about 45% of Magnachip’s sales.

  • In 2017, SK Hynix launched the SK Hynix System IC which focuses on the foundry business.  There have been numerous speculations about a potential M&A of various foundry businesses by either Samsung Electronics and SK Hynix in the past year. Recently, Global Foundries, the world’s third largest foundry player, has been looking for a buyer of its 300 mm fab (Fab 7) in Woodland, Singapore. Neither Samsung or SK Hynix have expressed interest.
  • It has been noted that the final bidders for the Magnachip foundry business may also include China’s Jian Guang Asset Management, and SMIC (China). Although this is a small scale deal, Douglas Kim believes SK Hynix would be the best fit as it would accelerate the company’s ambitions in the foundry business, which would be negative for the industry leaders Taiwan Semiconductor Manufacturing Company (TSMC) (2330 TT) and Samsung. 

(link to Douglas’ insight: Korea M&A Spotlight: SK Hynix to Acquire Magnachip’s Foundry Business?)


Ki Holdings (6747 JP) (Mkt Cap: $169mn; Liquidity: $0.3mn)

Koito Manufacturing (7276 JP)  announced a Tender Offer to take out the minority shareholders in Ki Holdings. This has been long-awaited and long-needed. However, the modalities of how this is getting done are symptomatic of a shocking lack of good governance process. This deal effectively requires zero independent-thinking, economically-motivated investors to tender to make it a success and force minority squeezeout and delisting. This deal can almost certainly be accomplished with every single one of them refusing to participate.

  • The company needs 66.7% to get this over the hump and the combination of the parent and existing financial and corporate cross-holders would put this over 67% quite easily. This tender offer effectively requires zero non-crossholder shareholders to tender to make it a success.
  • Is the Tender Offer Price at least in the middle of the DCF range? No. Did either the Target or the Buyer obtain Fairness Opinions? No. Does the forward forecast for this year look like it is low-balled? Yes.

  • This is a done deal, and there is not much you can do about it unless you take the appraisal rights route.

(link to Travis’ insight: Koito Mfg (7276) Finally Announces TOB for KI Holdings (6747) Subsidiary)


Hanergy Thin Film Power (566 HK) (Mkt Cap: N/A; Liquidity: N/A)

The Scheme Document has been dispatched with a court meeting tabled for the 18 May 2018. The terms remain unchanged from the initial announcement on the 26 February – the proposal is one SPV share for each Scheme share. The ultimate objective of the proposal is to list the company on a stock exchange in the PRC; however, it is not certain whether the A-share listing can be achieved.

  • We now know the SPV is incorporated in the BVI. Interestingly, “independent” shareholders now comprise 40.51% of shares out, up from 32.49% in the February announcement, after the Offeror’s stake (in concert with subsidiaries) has fallen to 40.14% (16.9bn shares) from 20.3bn, apparently after the enforcement of a share mortgage.  As a result of this adjustment, the 10% blocking stake at the court meeting has increased to 4.05% from 3.25%.
  • Questions remain as to the ease in which independent shareholders can sell unlisted shares, should the Scheme fail, under Bermuda Company Law and the Articles (a delisting procedure will commence if Hanergy does not resume trading before the end of July) or sell SPV shares should the Scheme pass, under BVI rules and the SPV constitution.
  • For shareholders angling for the A-share exposure, the SPV route appears preferable, or at least fast-tracks proceedings – there is no guarantee – as it silos independent shareholders into a separate entity which, according to PRC law, facilitates the A-share application. On account of this perceived accelerated A-share application submission under the SPV, I recommend shareholders vote for the Scheme.

(link to my insight: The Hanergy Dilemma: Vote For The Scheme)

M&A – US

Anadarko Petroleum (APC US) (Mkt Cap: $32bn; Liquidity: $400mn)

Occidental Petroleum (OXY US) announced a proposal to acquire Anadarko, potentially upsetting the Chevron Corp (CVX US) definitive merger agreement to acquire Anadarko. OXY proposed a 50/50 cash/stock deal comprised of $38 cash plus 0.6094 OXY shares per APC share, or a headline value of $76 per share, a nearly 20% premium to the implied $63.46 value of Chevron’s deal based on Chevron’s closing price of $122.02 on April 23rd.

  • OXY would need to issue about 309mn shares to fund the stock portion of its proposal, which is about 41% of its current share count, and would leave the combined company owned 71% by current OXY shareholders and 29% by current APC shareholders. Such a large share issuance will require the approval of OXY shareholders, which might present a challenge.
  • OXY’s CEO Vicki Hollub justified the pursuit of APC by claiming OXY is best equipped to exploit APC’s Permian Basin and DJ basin assets, stating that Oxy is “the right acquirer for Anadarko Petroleum because we can get the most out of shale.”
  • If the Board of APC determines that the OXY proposal is a Superior Proposal, CVX will have four business days to revise (improve) terms. If OXY then improves its proposal so it is a Superior Proposal, CVX will have a further three business days to further improve its terms.
  • CVX must now decide how badly it wants this deal. John DeMasi thinks there’s a decent chance they step up. With some upside to the OXY proposal and the possibility of CVX topping OXY’s terms by enough of a margin to put it firmly ahead, he thought APC was an attractive speculative merger arbitrage situation here.

(link to John’s insight: Oxy Pete Tops Chevron Offer for Anadarko – David Takes On Goliath)


Briefly …

On May 31, 2018,  Spirit Realty Capital (SRC US) spun-off its lower quality and debt encumbered assets into a vehicle Spirit MTA REIT (SMTA US), leaving SRC as a triple net lease REIT that is primarily focused on single tenant retail real estate in the US. Investors have yet to buy into the transformed SRC as the value gap between it and its closest peers has actually widened. Robert Sassoon delves into why this should reverse. (link to Robert’s insight: SpinTalk:Spirit Realty Capital (SRC US)- A Rising Spirit)

OTHER M&A UPDATES

  • First Steamship (286.05mn) and Kuo Jen Hao (83.9mn) – collectively holding 24.66% in Summit Ascent Holdings (102 HK) – have sold their stakes to Suncity Group (1383 HK) @$1.94/share. After the transaction, Suncity holds 27.94% in Summit. This is still below the 30% MGO threshold. But outgoing ED John Wang also has 5% of shares out.

  • “‘Big bully’ Lynas Corp Ltd (LYC AU) must send waste home” is the headline in the AFR article (paywalled). This is quoting Malaysian government deputy minister and Kuantan MP Fuziah Salleh, who has been Lynas’ most outspoken critic.  She acknowledged Malaysia’s Cabinet is divided on the issue.

  • Indofood Agri Resources (IFAR SP)‘s Offer doc has been dispatched. The offer is now open and the first closing date is the 24 May. The Offer is conditional on PT Indofood holding 90% of shares out at the close of the offer. There is no other condition.

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, amongst others. For those mentioned below, I could not find an obvious reason for the CCASS move.   

Name

% chg

Into

Out of

19.90%
Yue Xiu
Outside CCASS
22.00%
Prime
Outside CCASS
23.09%
Hang Seng
Outside CCASS
Dragon Mining (1712 HK)
15.15%
SHK
Outside CCASS
12.01%
HSBC
Outside CCASS
14.04%
Founder Sec
ABCI
DLC Asia (8210 HK)
11.00%
BEA
Outside CCASS
Source: HKEx

2. ECM Weekly (27 April 2019) – Luckin, Duiba, Leong Hup, ARA US Hosp, Douyu, So-Young, Yunji

2019 total deals 2019 accuracy rate  chartbuilder

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

Placements took a back seat this week and IPO activity came roaring back to life.

Starting in the US, the two highly anticipated IPOs, Luckin Coffee (LK US) and Douyu (DOYU US), filed their prospectus with the SEC. We have already shared our early thoughts on the companies. Look out for more insights as we crunch through the numbers in the following weeks leading up to its IPO launch.

Yunji Inc. (YJ US) and So-Young (SY US) opened their IPOs for bookbuild. We covered their valuation in:

Back in Hong Kong, Shenwan Hongyuan Group (H) (6806 HK) plunged 12% on its debut on Friday. As per Ke Yan, CFA, FRM‘s insight, risk-reward after the plunge implies that Shenwan is trading at a deeper discount to its A-share than it deserves. Considering that there had already been a big potion of adjusted free-float traded, stabilization can easily support the share price from here back to its IPO price.

Duiba Group (1753 HK) also opened its IPO for bookbuild this week. We heard that books are covered as of Friday. Valuation leaned on the expensive side as bankers probably took advantage of the strong rally in advertising peers to offer it at a higher valuation. We think that the IPO will only offer upside from the bottom end of the price range.

Activity is also picking up for Singapore and Malaysia after a long lull. ARA US Hospitality Trust (HOTEL SP) and Eagle Hospitality REIT filed their prospectus with MAS while ARA US Hospitality’s IPO is already taking orders for bookbuild. Sumeet Singh penned his thoughts on the REIT and its valuation in:

Malaysia’s Leong Hup International (LEHUP MK) finally launched its IPO after initial delays. 

Accuracy Rate:

Our overall accuracy rate is 72.1% for IPOs and 64% for Placements 

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

New IPO filings

  • Ascentage Pharma (Hong Kong, re-filed)

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

Source: Aequitas Research, Smartkarma

News on Upcoming IPOs

Analysis on Upcoming IPO

NameInsight
Hong Kong
AB InbevAb InBev Asia Pre-IPO – A Brief History of the Asia Pacific Operations – Eeking Out Growth in China
AscentageAscentage Pharma (亚盛医药) IPO: Too Early for an IPO
Ant FinancialAnt Financial IPO Early Thought: Understand Fintech Empire, Growth & Risk Factors
CIMC VehCIMC Vehicle (中集车辆): Market Leader of Semi-Trailers but Little Growth Ahead
ClarityClarity Medical (清晰医疗) IPO: Proxy to HK SMILE Surgery Demand
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) IPO: Tiktok the No.1 Short Video App for a Good Reason (Part 2)

East EduChina East Education (中国东方教育) Pre-IPO – The Company Known for Its Culinary School
China TobacChina Tobacco International (IPO): The Monopolist Will Not Recover
China TobacChina Tobacco Intl (HK) IPO: Proxy For the Chinese Cigarette Consumption
ESRESR Cayman Pre-IPO – A Giant in the Making
ESR

ESR Cayman Pre-IPO – Earnings and Segment Analysis 

ESR

ESR Cayman Pre-IPO- First Stab at Valuation

Frontage

Frontage (方达控股) IPO: More Disclosure Needed to Understand Moat and Growth Prospect

Frontage

Frontage (方达控股) IPO: Updates from 2018 Numbers

Haitong

Haitong UniTrust Intl Leasing Pre-IPO – Shape Shifting

Hujiang Edu

Hujiang Education (沪江教育) Pre-IPO – Spending More than It Earns

Hut Chi-Med

Hutchison-China Meditech (和黄医药) H-Share Listing: MNC Partnerships Endorsed Its R&D Capabilities

Jinxin

Jinxin Fertility (锦欣生殖) Pre-IPO: Strong Foothold in Sichuan but Weak Sentiment for Sector

MicuRxMicuRx Pharma (盟科医药) IPO: Betting on Single Drug in the Not so Attractive Antibiotic Segment
MabPharmMabPharma (迈博医药) IPO: Assembled for a Trade?
MabPharmMabPharm (迈博医药) IPO: Thoughts on Valuation (Part 2)
SH Henlius

Shanghai Henlius (复宏汉霖) IPO: Not an Impressive Biosimilar Portfolio 

TubatuTubatu Group Pre-IPO – Performing Better than Qeeka but Growing Much Slower, US$1bn a Stretch
TubatuTubatu Group Pre-IPO – Online -> Online + Offline -> Online -> ?
South Korea
KMH ShillaKMH Shilla Leisure IPO Preview (Part 1) – Highly Profitable Operator of Public Golf Courses in Korea
KMH ShillaKMH Shilla Leisure IPO Preview (Part 2) – Valuation Analysis
Plakor

Plakor IPO Preview (Part 1)

ZinusZinus IPO Preview (Part 1) – An Amazing Comeback Story (#1 Mattress Brand on Amazon)
India
Anmol IndAnmol Industries Pre-IPO Quick Take – No Growth, Generous Payments to Founders
Bharat Hotels

Bharat Hotels Pre-IPO – Catching up with Peers 

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
Flemingo Flemingo Travel Retail Pre-IPO – Its a Different Business in Every Country
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
MazagonMazagon Dock IPO Preview: A Monopoly Submarine Yard in India with Captive Navy Spending
Mrs. BectorMrs. Bectors Food Specialities Pre-IPO Quick Take – Sales for Its Main Segment Have Been Sta

Lodha

Lodha Developers Pre-IPO – Second Time Lucky but Not Really that Much Affordable
LodhaLodha Developers IPO: Presence in Affordable Segment Saves Lodha the Blushes in a Sluggish Mkt
IndiaMartIndiaMART Pre-IPO – Getting and Retaining Subscribers Seems to Be Difficult
PNB MetPNB Metlife Pre-IPO Quick Take – Doesn’t Stack up Well Versus Its Larger Peers
Malaysia
QSRQSR Brands Pre-IPO – As Healthy as Fast Food
The U.S
DouyuDouyu (斗鱼直播) IPO: Leader At a Cost
LuckinLuckin Coffee (瑞幸咖啡) Early Thoughts – Caffeine Rush
LuckinLuckin Coffee (瑞幸咖啡) App Walk-Through and Channel Checks

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Brief Finance: Last Week in Event SPACE: Nissan/Renault, NTT/Doco, Ayala, Yungtay, AHG, Kosaido, SK Hynix, Anadarko and more

By | Daily Briefs, Financials Sector

In this briefing:

  1. Last Week in Event SPACE: Nissan/Renault, NTT/Doco, Ayala, Yungtay, AHG, Kosaido, SK Hynix, Anadarko
  2. ECM Weekly (27 April 2019) – Luckin, Duiba, Leong Hup, ARA US Hosp, Douyu, So-Young, Yunji
  3. Shenwan Hongyuan (申万宏源) A+H: A/H Premium and Liquidity Suggest a Quick Trade

1. Last Week in Event SPACE: Nissan/Renault, NTT/Doco, Ayala, Yungtay, AHG, Kosaido, SK Hynix, Anadarko

Spin2

Last Week in Event SPACE …

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

EVENTS

Renault SA (RNO FP) / Nissan Motor (7201 JP)

Despite his initial conciliatory stance prior to his appointment to the board and as the new chairman of Renault, Jean-Dominique Senard said the Alliance needed to be re-balanced “in spirit” to counter fears among its Japanese partners that Renault wants to dominate the partnership. Subsequent to his ascension to the board, Renault has made a new proposal for integration. Indications are that proposal was rebuffed by Nissan. This was followed by Nissan’s CEO Hiroto Saikawa saying “What’s most important is Nissan’s future. The question is how we should use the alliance for our future, not how we should be used by the alliance.

A Yomiuri article said that Renault told Saikawa that if he did not toe the Renault line and agree to support Renault’s plan for management integration, then Renault intended to block his reappointment as CEO at the June AGM. This is a serious escalation in tensions.

  • Renault is pushing at a time when they should not, and lobbing threats like flaming barrels of oil over the castle ramparts. For all intents and purposes, it appears Renault is trying to bully its way forward using dominance in the capital alliance, as if treating one’s partner right is not enough to guarantee they would want to continue to enjoy the cost-savings of scale. Renault is acting now while Nissan is weak from the governance scandal and after Nissan has lowered its forecast for a second time this year. Yet Renault clearly needs to shoulder some of the blame of Nissan’s Ghosn scandal-induced governance crises.
  • Nissan could sell new shares in itself to dilute Renault below 40%. Or buy more shares in Renault to own more than 25%. Or commence constructive disengagement. Renault could go hostile on Nissan, which would break the Alliance Agreement and start a war. All told, the possibilities for the Alliance look bleaker.
  • If Nissan engages in defense, the “attack to defend” trade is to own more Renault. If Nissan defends itself with good governance, the trade is to own more Nissan. It’s not an easy trade, but Travis Lundy tilts to Renault, for now. That could change quickly.

(link to Travis’ insight: Renault/Nissan: Mangalore Alert!)

STUBS & HOLDCOS

NTT (Nippon Telegraph & Telephone) (9432 JP) / NTT Docomo Inc (9437 JP)

Travis recommended a NTT/Docmo set up last October NTT Stub Vs MktCap Near 10yr Lows, Stub Earnings Vs Total Near 10yr High around the time of the “Docomo Shock” of lower pricing come April 2019. The stub – if you measure it that way – doubled from less than ¥600/share to ¥1200/share as of the close earlier this week. Since the initial recommendation, NTT Docomo has executed a large buyback and NTT has executed a smaller buyback and the market expectation is for another NTT buyback from the government sometime after earnings.

  • NTT Docomo has now released its new lower-priced and simpler pricing plans which start in June this year. The Nikkei released an article over the past weekend saying that OP would fall 20% this year. This was a full 11.5% below the consensus forecast. Shares ended up on both sets of news, but once again the stock ended up. That left NTT at a higher price vs Docomo than before but the ratio is almost 5% below recent highs despite worse than-expected forecasts for NTT Docomo’s OP and a promised four-year soft spot.
  • NTT Docomo trades at 12x its highest EPS for the next several years. NTT trades at sub 10x on a consolidated basis and well less than that on a parent-implied basis (leverage helps).
  • Travis was a buyer of the NTT/Docomo “dip”. He expected a 20% drop in OP at NTT Docomo would be absorbed in stride, but not really. However, ongoing cost-cutting, lower depreciation and writedowns of fixed line assets, and better profitability on a mature cash-cow business means NTT parent-only (i.e. NTT less Docomo and Data) earnings should continue to progress higher, and NTT should continue to distribute that capital to shareholders. 
  • A priori, there has been shorting of Docomo vs NTT for the past several months and that has now reached a point of “sell the news” where those short are buying back their Docomo. And near-term may favour Docomo vs NTT in regards to buyback flows as Travis expected a Docomo market buyback of ¥300-400bn.
  • After the close on Friday, Docomo released earnings forecasts – OP down 18% and NP down a little less. Docomo also announced a buyback of ¥300bn to be conducted in the market over the next year.

(link to Travis’ insight: NTT Vs Docomo: Where To From Here?)


Ayala Corporation (AC PM) / Ayala Land Inc (ALI PM)

AC’s 8% decline (at the time of my note) since the beginning of the month, compared to ALI’s 5% gain, has resulted in the discount to NAV widening to ~13% against a one-year average of 4%. Although ALI’s exchangeable bond was cited as a possible cause for the recent bifurcation – the last day for conversion was the 22 April and was fully converted – the chief suspect is the unlocking of a recent placement by Mitsubishi Corp (8058 JP) and the possibility of a new placement.

  • On 20 March 2018, Mitsubishi placed 8.5mn shares of AC at ₱934/shares (~7.5% discount to last close). The placement reduced Mitsubishi’s stake to 8.75% from a little over 10% and was the first time it has sold since securing its stake in early 2007 when AC traded around ₱55.
  • On 15 January 2019, Mitsubishi placed 13mn Ayala shares at ₱900 per share (~7.3% discount). Allegedly Mitsubishi initially offered 9mn shares.  As with the shares sold in March, this shares placement had a 90-day lock-up on further sales, which expired last week.
  • Mitsubishi is a seller of AC – that is evident – and still holds 41.57mn or 6.58% of shares out. However, the urgency to sell more is not apparent – the most recent placements occurred ahead of their year-end. Stub earnings are tonking along, propped up by the energy division. All things considered, AC looks interesting here.

(link to my insight: StubWorld: Ai Ya! – Ayala Corp Tanking On Possible “Portfolio Rebalancing”)


First Pacific Co (142 HK)

Curtis Lehnert revisits this holdco, having first propositioned a set-up trade back in early December. The trade is moving in the right direction and recent developments indicate there is room for a further narrowing in the discount.

  • In March, First Pac  announced it is exiting its 50% stake in the Goodman Fielder JV (GF) for US$300mn. First Pac will incur a US$280mn non-cash loss on the sale. Not an ideal return on a five-year investment. But this is a significant step towards narrowing the discount to NAV as GF was the second largest component of the stub (~18% of NAV). 
  • Proceeds from the sale would be used to pay down debt and for share repurchases. The company also mentioned they have identified further assets for sale outside of emerging Asia. Curtis’ take on this statement is that the Pacific Light project that operates a LNG-fired power plant in Singapore may be the next to be sold as it is the only other significant asset that is not in “emerging” Asia.
  • There is also Indofood Sukses Makmur Tbk P (INDF IJ)‘s voluntary offer for Indofood Agri Resources (IFAR SP), which I discussed in PT Indofoods’ Voluntary Offer for 74% Held Sub IFAR.
    The impact on First Pac is minor, but it is a wider sign that the group is in the midst of restructuring and streamlining its shareholdings.

(link to Curtis’ insight: TRADE IDEA – First Pacific (142 HK) Stub: Assets Sales Pave the Way to a Narrower Discount to NAV)

M&A – ASIA-PAC

Kosaido Co Ltd (7868 JP) (Mkt Cap: $172mn; Liquidity: $2mn)

Kosaido came out with lower “forecasts” for the year to this past 31 March, which consisted of (possibly kitchen-sinking) writedowns in relations to the funeral parlor business and writedowns and weakness in the info business. The OTHER news is that Kosaido’s independent directors came out “neutral” on the Murakami Tender Offer at ¥750/share. 

So… Kosaido directors WERE able to recommend minorities sell their shares into a ¥610/share Offer (against a ¥1100/share book value and positive earnings) a few months ago, but now cannot recommend to shareholders that they take ¥750/share against a lower book value per share, when the company is making a loss – part of which is almost certainly due to bad management.

  • The Murakami bid is ¥750. It is not supported by Kosaido, is still well below BVPS (which is now lower than at the start of the Tender) and the Murakami bid is not designed to squeeze out minorities. If you do not tender, even if it DOES succeed, there is zero guarantee that the backend will trade higher than the current price or the Tender Offer Price. 
  • The Bull Case here is that Minami Aoyama Real Estate gets 51%, then replaces all the directors at both Kosaido and Tokyo Hakuzen, and then embarks on an asset-lightening exercise to fund rehabilitation, then sells off the parts to deliver book value to investors. 
  • The Bear Case is that there is no successful tender, and the shares fall back to some level lower than here as punters bail and then the Murakami group scoops up more stock lower. The Worse Bear Case is that the company simply cannot rescue itself. It has had years to fix an obviously weak “info” business and it has not done so. 
  • The Base Case could be seen that the tender goes through, Murakami gets 51%, then it takes a while for anything to happen, things come out less than optimal, and because Murakami-san gets to consolidate, he doesn’t care about his mark-to-market. But you will.

(link to Travis’ insight: Kosaido: The Bull Case, The Bear Case, and the Base Case)


Automotive Holdings (AHG AU) (Mkt Cap: $560mn; Liquidity: $2mn)

Ap Eagers Ltd (APE AU) has now dispatched the Bidder’s Statement for its all-scrip (1 APE share for every 3.8 AHG shares) offer for AHG. The Offer is conditional on ACCC approval and no MACs. There is no minimum acceptance (shares tendered are irrevocable, which hasn’t stopped what appears to be Perpetual tendering in its 9.2% stake to the IAF) threshold nor finance condition or due diligence. AHG recommends shareholders take no action as it considers the proposal to be highly conditional and that AHG trades through terms.

  • The merged AHG/APE is expected to exact pre-tax cost synergies (according to APE) of $13.5mn annually.  Although he agrees the merger rationale to have merit, AHG’s CEO John McConnell argues synergies “may be a bit light by the way we’re looking at it”. APE’s CEO Martin Ward countered estimates may potentially increase with the benefit of a full operational review.
  • With AHG’s share price languishing, there is a hint of opportunism to APE’s Offer. But not a lot – the scrip ratio is not unreasonable when viewed from a 1M, 3M and 6M viewpoint. Only when the timeframe extends further out to one-year (3.52x) and beyond does the ratio appear to take advantage.
  • With car dealerships under the hammer amidst declining new vehicle sales, the benefits from a merger are apparent. This Offer may just require a small kiss to terms to get all parties on board. The premium to terms has come in since Perpetual tendered.

(link to my insight: AHG & AP Eagers – Smart Carma)


Yungtay Engineering (1507 TT) (Mkt Cap: $800mn; Liquidity: $1mn)

The tender results gets Hitachi ~39.7% of shares out. Hitachi got about 28% of the non-Hitachi and non-Hsu Cho-Li shares in the tender. 70+% of what was possible did not tender. This cannot be seen as a big victory for Hitachi and they know it. They do not have the “control” to consolidate as evidenced by the EGM spat. Travis expects this has now turned into a waiting game for them. 

  • At the EGM on the 18th April, the Hitachi/Yungtay side got three directors, the “Market Faction” led by the The Baojia Group and dissident cousin to the former chairman (Hsu Tso-Li) Hsu Tso-Ming (who is now General Manager of Yungtay China) and including the representative entities of Schindler Holding Ag (SCHN SW) and United Technologies (UTX US)‘s Otis Elevators business – which combined have 11+% between them – obtained three seats, and then three independent director slots were filled with one coming from the management slate, and two coming from the Market Faction. The “opposition” had in some way “won” management rights.
  • Baojia Group and Hsu Tso-Ming plus Otis and Schindler will find it difficult to win enough to oust Hitachi. They can’t force capital decisions because Hitachi has negative control. They can only hope to greenmail Hitachi, or grow the company out from under them. A second tender offer by Hitachi was rumoured apparently, but Hitachi stomped on that rumour immediately.
  • Minority shareholders are left with a much less liquid instrument than before, which is expensive and has a kind of takeover premium built in when Travis expects there are few chances of a near-term takeover.

(link to Travis’ insight: Hitachi Deal for Yungtay Completes But Control Is Elusive)


SK Hynix Inc (000660 KS) (Mkt Cap: $47bn; Liquidity: $221mn)

On April 22nd, it was reported that SK Hynix is interested in acquiring MagnaChip Semiconductor Corp (MX US)‘s foundry business. Magnachip (market cap of US$316mn) employs about 2,500 people in the Cheongju and Gumi fab facilities and R&D centers in Korea. The foundry business currently represents about 45% of Magnachip’s sales.

  • In 2017, SK Hynix launched the SK Hynix System IC which focuses on the foundry business.  There have been numerous speculations about a potential M&A of various foundry businesses by either Samsung Electronics and SK Hynix in the past year. Recently, Global Foundries, the world’s third largest foundry player, has been looking for a buyer of its 300 mm fab (Fab 7) in Woodland, Singapore. Neither Samsung or SK Hynix have expressed interest.
  • It has been noted that the final bidders for the Magnachip foundry business may also include China’s Jian Guang Asset Management, and SMIC (China). Although this is a small scale deal, Douglas Kim believes SK Hynix would be the best fit as it would accelerate the company’s ambitions in the foundry business, which would be negative for the industry leaders Taiwan Semiconductor Manufacturing Company (TSMC) (2330 TT) and Samsung. 

(link to Douglas’ insight: Korea M&A Spotlight: SK Hynix to Acquire Magnachip’s Foundry Business?)


Ki Holdings (6747 JP) (Mkt Cap: $169mn; Liquidity: $0.3mn)

Koito Manufacturing (7276 JP)  announced a Tender Offer to take out the minority shareholders in Ki Holdings. This has been long-awaited and long-needed. However, the modalities of how this is getting done are symptomatic of a shocking lack of good governance process. This deal effectively requires zero independent-thinking, economically-motivated investors to tender to make it a success and force minority squeezeout and delisting. This deal can almost certainly be accomplished with every single one of them refusing to participate.

  • The company needs 66.7% to get this over the hump and the combination of the parent and existing financial and corporate cross-holders would put this over 67% quite easily. This tender offer effectively requires zero non-crossholder shareholders to tender to make it a success.
  • Is the Tender Offer Price at least in the middle of the DCF range? No. Did either the Target or the Buyer obtain Fairness Opinions? No. Does the forward forecast for this year look like it is low-balled? Yes.

  • This is a done deal, and there is not much you can do about it unless you take the appraisal rights route.

(link to Travis’ insight: Koito Mfg (7276) Finally Announces TOB for KI Holdings (6747) Subsidiary)


Hanergy Thin Film Power (566 HK) (Mkt Cap: N/A; Liquidity: N/A)

The Scheme Document has been dispatched with a court meeting tabled for the 18 May 2018. The terms remain unchanged from the initial announcement on the 26 February – the proposal is one SPV share for each Scheme share. The ultimate objective of the proposal is to list the company on a stock exchange in the PRC; however, it is not certain whether the A-share listing can be achieved.

  • We now know the SPV is incorporated in the BVI. Interestingly, “independent” shareholders now comprise 40.51% of shares out, up from 32.49% in the February announcement, after the Offeror’s stake (in concert with subsidiaries) has fallen to 40.14% (16.9bn shares) from 20.3bn, apparently after the enforcement of a share mortgage.  As a result of this adjustment, the 10% blocking stake at the court meeting has increased to 4.05% from 3.25%.
  • Questions remain as to the ease in which independent shareholders can sell unlisted shares, should the Scheme fail, under Bermuda Company Law and the Articles (a delisting procedure will commence if Hanergy does not resume trading before the end of July) or sell SPV shares should the Scheme pass, under BVI rules and the SPV constitution.
  • For shareholders angling for the A-share exposure, the SPV route appears preferable, or at least fast-tracks proceedings – there is no guarantee – as it silos independent shareholders into a separate entity which, according to PRC law, facilitates the A-share application. On account of this perceived accelerated A-share application submission under the SPV, I recommend shareholders vote for the Scheme.

(link to my insight: The Hanergy Dilemma: Vote For The Scheme)

M&A – US

Anadarko Petroleum (APC US) (Mkt Cap: $32bn; Liquidity: $400mn)

Occidental Petroleum (OXY US) announced a proposal to acquire Anadarko, potentially upsetting the Chevron Corp (CVX US) definitive merger agreement to acquire Anadarko. OXY proposed a 50/50 cash/stock deal comprised of $38 cash plus 0.6094 OXY shares per APC share, or a headline value of $76 per share, a nearly 20% premium to the implied $63.46 value of Chevron’s deal based on Chevron’s closing price of $122.02 on April 23rd.

  • OXY would need to issue about 309mn shares to fund the stock portion of its proposal, which is about 41% of its current share count, and would leave the combined company owned 71% by current OXY shareholders and 29% by current APC shareholders. Such a large share issuance will require the approval of OXY shareholders, which might present a challenge.
  • OXY’s CEO Vicki Hollub justified the pursuit of APC by claiming OXY is best equipped to exploit APC’s Permian Basin and DJ basin assets, stating that Oxy is “the right acquirer for Anadarko Petroleum because we can get the most out of shale.”
  • If the Board of APC determines that the OXY proposal is a Superior Proposal, CVX will have four business days to revise (improve) terms. If OXY then improves its proposal so it is a Superior Proposal, CVX will have a further three business days to further improve its terms.
  • CVX must now decide how badly it wants this deal. John DeMasi thinks there’s a decent chance they step up. With some upside to the OXY proposal and the possibility of CVX topping OXY’s terms by enough of a margin to put it firmly ahead, he thought APC was an attractive speculative merger arbitrage situation here.

(link to John’s insight: Oxy Pete Tops Chevron Offer for Anadarko – David Takes On Goliath)


Briefly …

On May 31, 2018,  Spirit Realty Capital (SRC US) spun-off its lower quality and debt encumbered assets into a vehicle Spirit MTA REIT (SMTA US), leaving SRC as a triple net lease REIT that is primarily focused on single tenant retail real estate in the US. Investors have yet to buy into the transformed SRC as the value gap between it and its closest peers has actually widened. Robert Sassoon delves into why this should reverse. (link to Robert’s insight: SpinTalk:Spirit Realty Capital (SRC US)- A Rising Spirit)

OTHER M&A UPDATES

  • First Steamship (286.05mn) and Kuo Jen Hao (83.9mn) – collectively holding 24.66% in Summit Ascent Holdings (102 HK) – have sold their stakes to Suncity Group (1383 HK) @$1.94/share. After the transaction, Suncity holds 27.94% in Summit. This is still below the 30% MGO threshold. But outgoing ED John Wang also has 5% of shares out.

  • “‘Big bully’ Lynas Corp Ltd (LYC AU) must send waste home” is the headline in the AFR article (paywalled). This is quoting Malaysian government deputy minister and Kuantan MP Fuziah Salleh, who has been Lynas’ most outspoken critic.  She acknowledged Malaysia’s Cabinet is divided on the issue.

  • Indofood Agri Resources (IFAR SP)‘s Offer doc has been dispatched. The offer is now open and the first closing date is the 24 May. The Offer is conditional on PT Indofood holding 90% of shares out at the close of the offer. There is no other condition.

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, amongst others. For those mentioned below, I could not find an obvious reason for the CCASS move.   

Name

% chg

Into

Out of

19.90%
Yue Xiu
Outside CCASS
22.00%
Prime
Outside CCASS
23.09%
Hang Seng
Outside CCASS
Dragon Mining (1712 HK)
15.15%
SHK
Outside CCASS
12.01%
HSBC
Outside CCASS
14.04%
Founder Sec
ABCI
DLC Asia (8210 HK)
11.00%
BEA
Outside CCASS
Source: HKEx

2. ECM Weekly (27 April 2019) – Luckin, Duiba, Leong Hup, ARA US Hosp, Douyu, So-Young, Yunji

2019 total deals 2019 accuracy rate  chartbuilder

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

Placements took a back seat this week and IPO activity came roaring back to life.

Starting in the US, the two highly anticipated IPOs, Luckin Coffee (LK US) and Douyu (DOYU US), filed their prospectus with the SEC. We have already shared our early thoughts on the companies. Look out for more insights as we crunch through the numbers in the following weeks leading up to its IPO launch.

Yunji Inc. (YJ US) and So-Young (SY US) opened their IPOs for bookbuild. We covered their valuation in:

Back in Hong Kong, Shenwan Hongyuan Group (H) (6806 HK) plunged 12% on its debut on Friday. As per Ke Yan, CFA, FRM‘s insight, risk-reward after the plunge implies that Shenwan is trading at a deeper discount to its A-share than it deserves. Considering that there had already been a big potion of adjusted free-float traded, stabilization can easily support the share price from here back to its IPO price.

Duiba Group (1753 HK) also opened its IPO for bookbuild this week. We heard that books are covered as of Friday. Valuation leaned on the expensive side as bankers probably took advantage of the strong rally in advertising peers to offer it at a higher valuation. We think that the IPO will only offer upside from the bottom end of the price range.

Activity is also picking up for Singapore and Malaysia after a long lull. ARA US Hospitality Trust (HOTEL SP) and Eagle Hospitality REIT filed their prospectus with MAS while ARA US Hospitality’s IPO is already taking orders for bookbuild. Sumeet Singh penned his thoughts on the REIT and its valuation in:

Malaysia’s Leong Hup International (LEHUP MK) finally launched its IPO after initial delays. 

Accuracy Rate:

Our overall accuracy rate is 72.1% for IPOs and 64% for Placements 

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

New IPO filings

  • Ascentage Pharma (Hong Kong, re-filed)

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

Source: Aequitas Research, Smartkarma

News on Upcoming IPOs

Analysis on Upcoming IPO

NameInsight
Hong Kong
AB InbevAb InBev Asia Pre-IPO – A Brief History of the Asia Pacific Operations – Eeking Out Growth in China
AscentageAscentage Pharma (亚盛医药) IPO: Too Early for an IPO
Ant FinancialAnt Financial IPO Early Thought: Understand Fintech Empire, Growth & Risk Factors
CIMC VehCIMC Vehicle (中集车辆): Market Leader of Semi-Trailers but Little Growth Ahead
ClarityClarity Medical (清晰医疗) IPO: Proxy to HK SMILE Surgery Demand
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) IPO: Tiktok the No.1 Short Video App for a Good Reason (Part 2)

East EduChina East Education (中国东方教育) Pre-IPO – The Company Known for Its Culinary School
China TobacChina Tobacco International (IPO): The Monopolist Will Not Recover
China TobacChina Tobacco Intl (HK) IPO: Proxy For the Chinese Cigarette Consumption
ESRESR Cayman Pre-IPO – A Giant in the Making
ESR

ESR Cayman Pre-IPO – Earnings and Segment Analysis 

ESR

ESR Cayman Pre-IPO- First Stab at Valuation

Frontage

Frontage (方达控股) IPO: More Disclosure Needed to Understand Moat and Growth Prospect

Frontage

Frontage (方达控股) IPO: Updates from 2018 Numbers

Haitong

Haitong UniTrust Intl Leasing Pre-IPO – Shape Shifting

Hujiang Edu

Hujiang Education (沪江教育) Pre-IPO – Spending More than It Earns

Hut Chi-Med

Hutchison-China Meditech (和黄医药) H-Share Listing: MNC Partnerships Endorsed Its R&D Capabilities

Jinxin

Jinxin Fertility (锦欣生殖) Pre-IPO: Strong Foothold in Sichuan but Weak Sentiment for Sector

MicuRxMicuRx Pharma (盟科医药) IPO: Betting on Single Drug in the Not so Attractive Antibiotic Segment
MabPharmMabPharma (迈博医药) IPO: Assembled for a Trade?
MabPharmMabPharm (迈博医药) IPO: Thoughts on Valuation (Part 2)
SH Henlius

Shanghai Henlius (复宏汉霖) IPO: Not an Impressive Biosimilar Portfolio 

TubatuTubatu Group Pre-IPO – Performing Better than Qeeka but Growing Much Slower, US$1bn a Stretch
TubatuTubatu Group Pre-IPO – Online -> Online + Offline -> Online -> ?
South Korea
KMH ShillaKMH Shilla Leisure IPO Preview (Part 1) – Highly Profitable Operator of Public Golf Courses in Korea
KMH ShillaKMH Shilla Leisure IPO Preview (Part 2) – Valuation Analysis
Plakor

Plakor IPO Preview (Part 1)

ZinusZinus IPO Preview (Part 1) – An Amazing Comeback Story (#1 Mattress Brand on Amazon)
India
Anmol IndAnmol Industries Pre-IPO Quick Take – No Growth, Generous Payments to Founders
Bharat Hotels

Bharat Hotels Pre-IPO – Catching up with Peers 

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
Flemingo Flemingo Travel Retail Pre-IPO – Its a Different Business in Every Country
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
MazagonMazagon Dock IPO Preview: A Monopoly Submarine Yard in India with Captive Navy Spending
Mrs. BectorMrs. Bectors Food Specialities Pre-IPO Quick Take – Sales for Its Main Segment Have Been Sta

Lodha

Lodha Developers Pre-IPO – Second Time Lucky but Not Really that Much Affordable
LodhaLodha Developers IPO: Presence in Affordable Segment Saves Lodha the Blushes in a Sluggish Mkt
IndiaMartIndiaMART Pre-IPO – Getting and Retaining Subscribers Seems to Be Difficult
PNB MetPNB Metlife Pre-IPO Quick Take – Doesn’t Stack up Well Versus Its Larger Peers
Malaysia
QSRQSR Brands Pre-IPO – As Healthy as Fast Food
The U.S
DouyuDouyu (斗鱼直播) IPO: Leader At a Cost
LuckinLuckin Coffee (瑞幸咖啡) Early Thoughts – Caffeine Rush
LuckinLuckin Coffee (瑞幸咖啡) App Walk-Through and Channel Checks

3. Shenwan Hongyuan (申万宏源) A+H: A/H Premium and Liquidity Suggest a Quick Trade

First%20day%20trading

Shenwan Hongyuan Group (H) (218 HK) raised USD 1.1 billion at HKD 3.63/share at the low end of price guidance. We have previously covered the IPO in:

In this insight, we will update on the deal dynamics, valuation and provide our thoughts on a post-IPO trade.

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Brief Finance: Bank Central Asia (BBCA IJ) – Underlying Optimist – On the Ground in J-Town and more

By | Daily Briefs, Financials Sector

In this briefing:

  1. Bank Central Asia (BBCA IJ) – Underlying Optimist – On the Ground in J-Town
  2. Global Indexes Are Consolidating, EM Is Breaking Down
  3. Shanghai/Shenzhen Connect Ideas: Technologies, Porks and Hard Liquors (2019-05-17)
  4. SPINOFF: Haitong Securities Spinoff of Haitong UniTrust Int’l Leasing
  5. HK Connect Ideas: ICBC and Tencent (2019-05-17)

1. Bank Central Asia (BBCA IJ) – Underlying Optimist – On the Ground in J-Town

Screenshot%202019 05 25%20at%2010.46.51%20am

A conversation with Bank Central Asia (BBCA IJ) management revealed a relatively positive outlook after a strong start to the year, with politics and security being its red flag to this view.

The bank achieved +13% YoY loan growth in 1Q19 mainly driven by corporate lending, which grew by 15.8% and out of this investment-driven loans grew more quickly. 

Consumer lending was altogether more sluggish with +7.9% over the quarter, with mortgage loans outperforming with +11% growth, with some very attractive promotional rates beings offered, and motorcycle loans seeing a notable slowdown. 

Funding wise, the bank continues to shine with a CASA ratio of 76.8% and continues to grow in its CASA of over +7% in 1Q19, despite an overall tighter liquidity environment. This was reflected in an improvement in the banks NIM, which increased to 6.19% in 1Q18. 

Bank Central Asia (BBCA IJ) continues to innovate on its online offering, with a number of new initiatives. This helps the bank maintain its dominance in transactional banking in Indonesia.

BCA remains the best quality bank in Indonesia, in terms of service and management, which is conservative yet dynamic, with a keen focus on returns but always with the appropriate level of risk exposure in mind. It has the lowest cost of funds amongst the major banks, given its dominance in transactional banking, which means it has a high CASA ratio.  The bank has one of the lowest NPL ratios in the sector at 1.5% and with a provision/NPL coverage of 171%. According to Capital IQ Consensus, it trades on 21.0x FY20E PER and 18.5x FY21E PER, with forecast EPS growth of +12.4% and +13.4% for FY20E and FY21E respectively. It trades on a PBV of 3.5x FY20E with forecast ROE of 18% and ROA of 3.4%. Bank Central Asia (BBCA IJ) is a core holding in Indonesia and should be bought on any major correction in the overall market. 

2. Global Indexes Are Consolidating, EM Is Breaking Down

Untitled

We remain constructive on global equities as the MSCI ACWI, ACWI ex-U.S., and EAFE indexes consolidate above their respective 200-day moving averages. On the other hand, the MSCI EM index is breaking below its 200-day moving average and is flirting with a breakdown below 56,000 support (local currency).  We see attractive Opportunities in Manufacturing & Materials in Europe, Japan and China, India, and Taiwan. 

3. Shanghai/Shenzhen Connect Ideas: Technologies, Porks and Hard Liquors (2019-05-17)

Mid%20cap%20inflow%2005 17

In our weekly Shanghai/Shenzhen Connect Ideas series, we aim to help our investors understand the flow of northbound trades via the Shanghai and Shenzhen Connect, as analyzed by our proprietary data engine and highlight interesting trade ideas. 

We split the stocks eligible for the Shanghai/Shenzhen Connect trade into two groups: stocks with a market capitalization above USD 5 billion, as well between USD 1 billion and USD 5 billion.

In this insight, we will highlight the consecutive two weeks of net outflow from the A-share market. We will also briefly discuss Hikvision, Muyuan, Moutai, and Wuliangye. 

4. SPINOFF: Haitong Securities Spinoff of Haitong UniTrust Int’l Leasing

Haitongspinoff

A number of Hong Kong spin-offs, including  Haitong UniTrust International Leasing Co Ltd (1905 HK) and Xinyi Energy Holdings Ltd (3868 HK), have been announced recently. Clicking on the company names will take you to a home page providing a list of recent insights by various Smartkarma contributors.

There are other situations where they have been announced but conditions (approvals, market conditions) are unmet and they may never arrive.

My interest is whether these spin-offs create new parent/subsidiary relationships leading to relative value trade ideas going forward, which will be dependent on the spin-off’s liquidity and the % market cap held by the parent.

Using available information from the prospectus/red herrings and various HKEx announcements, it is also possible to back out a rudimentary implied stub value of the unlisted parent’s operations ahead of these spin-offs.

The first to be addressed is Haitong Securities’ spin-off of Haitong UniTrust International Leasing.

5. HK Connect Ideas: ICBC and Tencent (2019-05-17)

Southbound sector inflow %28weekly, usd m%292019 05 23 10 59 48

In our weekly HK Connect Ideas series, we aim to help our investors understand the flow of southbound trades via the Hong Kong Connect, as analyzed by our proprietary data engine, and highlight interesting trade ideas. 

We split the stocks eligible for the Hong Kong Connect trade into three groups: component stocks in the HSCEI index, stocks with a market capitalization between USD 1 billion and USD 5 billion, and stocks with a market capitalization between USD 500 million and USD 1 billion.

In this insight, we will highlight that inflows into ICBC (H) (1398 HK) were particularly strong last week, and inflow into Tencent still sustained from the prior week, thanks to newsflows pertaining to the strong sales of its newly approved mobile game. 

Get Straight to the Source on Smartkarma

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Brief Finance: ECM Weekly (27 April 2019) – Luckin, Duiba, Leong Hup, ARA US Hosp, Douyu, So-Young, Yunji and more

By | Daily Briefs, Financials Sector

In this briefing:

  1. ECM Weekly (27 April 2019) – Luckin, Duiba, Leong Hup, ARA US Hosp, Douyu, So-Young, Yunji
  2. Shenwan Hongyuan (申万宏源) A+H: A/H Premium and Liquidity Suggest a Quick Trade

1. ECM Weekly (27 April 2019) – Luckin, Duiba, Leong Hup, ARA US Hosp, Douyu, So-Young, Yunji

2019 total deals 2019 accuracy rate  chartbuilder

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

Placements took a back seat this week and IPO activity came roaring back to life.

Starting in the US, the two highly anticipated IPOs, Luckin Coffee (LK US) and Douyu (DOYU US), filed their prospectus with the SEC. We have already shared our early thoughts on the companies. Look out for more insights as we crunch through the numbers in the following weeks leading up to its IPO launch.

Yunji Inc. (YJ US) and So-Young (SY US) opened their IPOs for bookbuild. We covered their valuation in:

Back in Hong Kong, Shenwan Hongyuan Group (H) (6806 HK) plunged 12% on its debut on Friday. As per Ke Yan, CFA, FRM‘s insight, risk-reward after the plunge implies that Shenwan is trading at a deeper discount to its A-share than it deserves. Considering that there had already been a big potion of adjusted free-float traded, stabilization can easily support the share price from here back to its IPO price.

Duiba Group (1753 HK) also opened its IPO for bookbuild this week. We heard that books are covered as of Friday. Valuation leaned on the expensive side as bankers probably took advantage of the strong rally in advertising peers to offer it at a higher valuation. We think that the IPO will only offer upside from the bottom end of the price range.

Activity is also picking up for Singapore and Malaysia after a long lull. ARA US Hospitality Trust (HOTEL SP) and Eagle Hospitality REIT filed their prospectus with MAS while ARA US Hospitality’s IPO is already taking orders for bookbuild. Sumeet Singh penned his thoughts on the REIT and its valuation in:

Malaysia’s Leong Hup International (LEHUP MK) finally launched its IPO after initial delays. 

Accuracy Rate:

Our overall accuracy rate is 72.1% for IPOs and 64% for Placements 

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

New IPO filings

  • Ascentage Pharma (Hong Kong, re-filed)

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

Source: Aequitas Research, Smartkarma

News on Upcoming IPOs

Analysis on Upcoming IPO

NameInsight
Hong Kong
AB InbevAb InBev Asia Pre-IPO – A Brief History of the Asia Pacific Operations – Eeking Out Growth in China
AscentageAscentage Pharma (亚盛医药) IPO: Too Early for an IPO
Ant FinancialAnt Financial IPO Early Thought: Understand Fintech Empire, Growth & Risk Factors
CIMC VehCIMC Vehicle (中集车辆): Market Leader of Semi-Trailers but Little Growth Ahead
ClarityClarity Medical (清晰医疗) IPO: Proxy to HK SMILE Surgery Demand
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) IPO: Tiktok the No.1 Short Video App for a Good Reason (Part 2)

East EduChina East Education (中国东方教育) Pre-IPO – The Company Known for Its Culinary School
China TobacChina Tobacco International (IPO): The Monopolist Will Not Recover
China TobacChina Tobacco Intl (HK) IPO: Proxy For the Chinese Cigarette Consumption
ESRESR Cayman Pre-IPO – A Giant in the Making
ESR

ESR Cayman Pre-IPO – Earnings and Segment Analysis 

ESR

ESR Cayman Pre-IPO- First Stab at Valuation

Frontage

Frontage (方达控股) IPO: More Disclosure Needed to Understand Moat and Growth Prospect

Frontage

Frontage (方达控股) IPO: Updates from 2018 Numbers

Haitong

Haitong UniTrust Intl Leasing Pre-IPO – Shape Shifting

Hujiang Edu

Hujiang Education (沪江教育) Pre-IPO – Spending More than It Earns

Hut Chi-Med

Hutchison-China Meditech (和黄医药) H-Share Listing: MNC Partnerships Endorsed Its R&D Capabilities

Jinxin

Jinxin Fertility (锦欣生殖) Pre-IPO: Strong Foothold in Sichuan but Weak Sentiment for Sector

MicuRxMicuRx Pharma (盟科医药) IPO: Betting on Single Drug in the Not so Attractive Antibiotic Segment
MabPharmMabPharma (迈博医药) IPO: Assembled for a Trade?
MabPharmMabPharm (迈博医药) IPO: Thoughts on Valuation (Part 2)
SH Henlius

Shanghai Henlius (复宏汉霖) IPO: Not an Impressive Biosimilar Portfolio 

TubatuTubatu Group Pre-IPO – Performing Better than Qeeka but Growing Much Slower, US$1bn a Stretch
TubatuTubatu Group Pre-IPO – Online -> Online + Offline -> Online -> ?
South Korea
KMH ShillaKMH Shilla Leisure IPO Preview (Part 1) – Highly Profitable Operator of Public Golf Courses in Korea
KMH ShillaKMH Shilla Leisure IPO Preview (Part 2) – Valuation Analysis
Plakor

Plakor IPO Preview (Part 1)

ZinusZinus IPO Preview (Part 1) – An Amazing Comeback Story (#1 Mattress Brand on Amazon)
India
Anmol IndAnmol Industries Pre-IPO Quick Take – No Growth, Generous Payments to Founders
Bharat Hotels

Bharat Hotels Pre-IPO – Catching up with Peers 

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
Flemingo Flemingo Travel Retail Pre-IPO – Its a Different Business in Every Country
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
MazagonMazagon Dock IPO Preview: A Monopoly Submarine Yard in India with Captive Navy Spending
Mrs. BectorMrs. Bectors Food Specialities Pre-IPO Quick Take – Sales for Its Main Segment Have Been Sta

Lodha

Lodha Developers Pre-IPO – Second Time Lucky but Not Really that Much Affordable
LodhaLodha Developers IPO: Presence in Affordable Segment Saves Lodha the Blushes in a Sluggish Mkt
IndiaMartIndiaMART Pre-IPO – Getting and Retaining Subscribers Seems to Be Difficult
PNB MetPNB Metlife Pre-IPO Quick Take – Doesn’t Stack up Well Versus Its Larger Peers
Malaysia
QSRQSR Brands Pre-IPO – As Healthy as Fast Food
The U.S
DouyuDouyu (斗鱼直播) IPO: Leader At a Cost
LuckinLuckin Coffee (瑞幸咖啡) Early Thoughts – Caffeine Rush
LuckinLuckin Coffee (瑞幸咖啡) App Walk-Through and Channel Checks

2. Shenwan Hongyuan (申万宏源) A+H: A/H Premium and Liquidity Suggest a Quick Trade

First%20day%20trading

Shenwan Hongyuan Group (H) (218 HK) raised USD 1.1 billion at HKD 3.63/share at the low end of price guidance. We have previously covered the IPO in:

In this insight, we will update on the deal dynamics, valuation and provide our thoughts on a post-IPO trade.

Get Straight to the Source on Smartkarma

Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.



Brief Finance: ECM Weekly (27 April 2019) – Luckin, Duiba, Leong Hup, ARA US Hosp, Douyu, So-Young, Yunji and more

By | Daily Briefs, Financials Sector

In this briefing:

  1. ECM Weekly (27 April 2019) – Luckin, Duiba, Leong Hup, ARA US Hosp, Douyu, So-Young, Yunji
  2. Shenwan Hongyuan (申万宏源) A+H: A/H Premium and Liquidity Suggest a Quick Trade
  3. Michinoku Bank  (8350 JP):  Clipped by a Synthetic Hedge

1. ECM Weekly (27 April 2019) – Luckin, Duiba, Leong Hup, ARA US Hosp, Douyu, So-Young, Yunji

2019 total deals 2019 accuracy rate  chartbuilder

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

Placements took a back seat this week and IPO activity came roaring back to life.

Starting in the US, the two highly anticipated IPOs, Luckin Coffee (LK US) and Douyu (DOYU US), filed their prospectus with the SEC. We have already shared our early thoughts on the companies. Look out for more insights as we crunch through the numbers in the following weeks leading up to its IPO launch.

Yunji Inc. (YJ US) and So-Young (SY US) opened their IPOs for bookbuild. We covered their valuation in:

Back in Hong Kong, Shenwan Hongyuan Group (H) (6806 HK) plunged 12% on its debut on Friday. As per Ke Yan, CFA, FRM‘s insight, risk-reward after the plunge implies that Shenwan is trading at a deeper discount to its A-share than it deserves. Considering that there had already been a big potion of adjusted free-float traded, stabilization can easily support the share price from here back to its IPO price.

Duiba Group (1753 HK) also opened its IPO for bookbuild this week. We heard that books are covered as of Friday. Valuation leaned on the expensive side as bankers probably took advantage of the strong rally in advertising peers to offer it at a higher valuation. We think that the IPO will only offer upside from the bottom end of the price range.

Activity is also picking up for Singapore and Malaysia after a long lull. ARA US Hospitality Trust (HOTEL SP) and Eagle Hospitality REIT filed their prospectus with MAS while ARA US Hospitality’s IPO is already taking orders for bookbuild. Sumeet Singh penned his thoughts on the REIT and its valuation in:

Malaysia’s Leong Hup International (LEHUP MK) finally launched its IPO after initial delays. 

Accuracy Rate:

Our overall accuracy rate is 72.1% for IPOs and 64% for Placements 

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

New IPO filings

  • Ascentage Pharma (Hong Kong, re-filed)

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

Source: Aequitas Research, Smartkarma

News on Upcoming IPOs

Analysis on Upcoming IPO

NameInsight
Hong Kong
AB InbevAb InBev Asia Pre-IPO – A Brief History of the Asia Pacific Operations – Eeking Out Growth in China
AscentageAscentage Pharma (亚盛医药) IPO: Too Early for an IPO
Ant FinancialAnt Financial IPO Early Thought: Understand Fintech Empire, Growth & Risk Factors
CIMC VehCIMC Vehicle (中集车辆): Market Leader of Semi-Trailers but Little Growth Ahead
ClarityClarity Medical (清晰医疗) IPO: Proxy to HK SMILE Surgery Demand
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) IPO: Tiktok the No.1 Short Video App for a Good Reason (Part 2)

East EduChina East Education (中国东方教育) Pre-IPO – The Company Known for Its Culinary School
China TobacChina Tobacco International (IPO): The Monopolist Will Not Recover
China TobacChina Tobacco Intl (HK) IPO: Proxy For the Chinese Cigarette Consumption
ESRESR Cayman Pre-IPO – A Giant in the Making
ESR

ESR Cayman Pre-IPO – Earnings and Segment Analysis 

ESR

ESR Cayman Pre-IPO- First Stab at Valuation

Frontage

Frontage (方达控股) IPO: More Disclosure Needed to Understand Moat and Growth Prospect

Frontage

Frontage (方达控股) IPO: Updates from 2018 Numbers

Haitong

Haitong UniTrust Intl Leasing Pre-IPO – Shape Shifting

Hujiang Edu

Hujiang Education (沪江教育) Pre-IPO – Spending More than It Earns

Hut Chi-Med

Hutchison-China Meditech (和黄医药) H-Share Listing: MNC Partnerships Endorsed Its R&D Capabilities

Jinxin

Jinxin Fertility (锦欣生殖) Pre-IPO: Strong Foothold in Sichuan but Weak Sentiment for Sector

MicuRxMicuRx Pharma (盟科医药) IPO: Betting on Single Drug in the Not so Attractive Antibiotic Segment
MabPharmMabPharma (迈博医药) IPO: Assembled for a Trade?
MabPharmMabPharm (迈博医药) IPO: Thoughts on Valuation (Part 2)
SH Henlius

Shanghai Henlius (复宏汉霖) IPO: Not an Impressive Biosimilar Portfolio 

TubatuTubatu Group Pre-IPO – Performing Better than Qeeka but Growing Much Slower, US$1bn a Stretch
TubatuTubatu Group Pre-IPO – Online -> Online + Offline -> Online -> ?
South Korea
KMH ShillaKMH Shilla Leisure IPO Preview (Part 1) – Highly Profitable Operator of Public Golf Courses in Korea
KMH ShillaKMH Shilla Leisure IPO Preview (Part 2) – Valuation Analysis
Plakor

Plakor IPO Preview (Part 1)

ZinusZinus IPO Preview (Part 1) – An Amazing Comeback Story (#1 Mattress Brand on Amazon)
India
Anmol IndAnmol Industries Pre-IPO Quick Take – No Growth, Generous Payments to Founders
Bharat Hotels

Bharat Hotels Pre-IPO – Catching up with Peers 

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
Flemingo Flemingo Travel Retail Pre-IPO – Its a Different Business in Every Country
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
MazagonMazagon Dock IPO Preview: A Monopoly Submarine Yard in India with Captive Navy Spending
Mrs. BectorMrs. Bectors Food Specialities Pre-IPO Quick Take – Sales for Its Main Segment Have Been Sta

Lodha

Lodha Developers Pre-IPO – Second Time Lucky but Not Really that Much Affordable
LodhaLodha Developers IPO: Presence in Affordable Segment Saves Lodha the Blushes in a Sluggish Mkt
IndiaMartIndiaMART Pre-IPO – Getting and Retaining Subscribers Seems to Be Difficult
PNB MetPNB Metlife Pre-IPO Quick Take – Doesn’t Stack up Well Versus Its Larger Peers
Malaysia
QSRQSR Brands Pre-IPO – As Healthy as Fast Food
The U.S
DouyuDouyu (斗鱼直播) IPO: Leader At a Cost
LuckinLuckin Coffee (瑞幸咖啡) Early Thoughts – Caffeine Rush
LuckinLuckin Coffee (瑞幸咖啡) App Walk-Through and Channel Checks

2. Shenwan Hongyuan (申万宏源) A+H: A/H Premium and Liquidity Suggest a Quick Trade

First%20day%20trading

Shenwan Hongyuan Group (H) (218 HK) raised USD 1.1 billion at HKD 3.63/share at the low end of price guidance. We have previously covered the IPO in:

In this insight, we will update on the deal dynamics, valuation and provide our thoughts on a post-IPO trade.

3. Michinoku Bank  (8350 JP):  Clipped by a Synthetic Hedge

8350 michinoku 2019 0424%20peer%20valuations

With just three weeks to go before the formal announcement of their FY3/2019 results, it is high time that some of the smaller Japanese regional banks started owning up to the fact that they have no hope of making their full-year earnings guidance.  First in the line for confession is Michinoku Bank (8350 JP) which on Wednesday of this week slashed its full-year earnings guidance after losing some ¥1.25 billion (US$11.2 million) on the burgeoning costs of maintaining a synthetic hedge against its Japanese government portfolio.  These hedging losses come on top of rapidly rising credit costs.  Luckily, few foreign investors own the stock of this small, struggling bank, although there are some.  We expect further announcements of full-year earnings downgrades from other Japanese regional banks over the next fortnight or so; market reaction to such announcements may be severe.  Caveat emptor!  (May the buyer beware!)

Get Straight to the Source on Smartkarma

Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.



Brief Finance: ECM Weekly (27 April 2019) – Luckin, Duiba, Leong Hup, ARA US Hosp, Douyu, So-Young, Yunji and more

By | Daily Briefs, Financials Sector

In this briefing:

  1. ECM Weekly (27 April 2019) – Luckin, Duiba, Leong Hup, ARA US Hosp, Douyu, So-Young, Yunji
  2. Shenwan Hongyuan (申万宏源) A+H: A/H Premium and Liquidity Suggest a Quick Trade
  3. Michinoku Bank  (8350 JP):  Clipped by a Synthetic Hedge
  4. Indusind Bank: One More Disturbing Lapse of Judgment by the “Banker of the Year”

1. ECM Weekly (27 April 2019) – Luckin, Duiba, Leong Hup, ARA US Hosp, Douyu, So-Young, Yunji

2019 total deals 2019 accuracy rate  chartbuilder

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

Placements took a back seat this week and IPO activity came roaring back to life.

Starting in the US, the two highly anticipated IPOs, Luckin Coffee (LK US) and Douyu (DOYU US), filed their prospectus with the SEC. We have already shared our early thoughts on the companies. Look out for more insights as we crunch through the numbers in the following weeks leading up to its IPO launch.

Yunji Inc. (YJ US) and So-Young (SY US) opened their IPOs for bookbuild. We covered their valuation in:

Back in Hong Kong, Shenwan Hongyuan Group (H) (6806 HK) plunged 12% on its debut on Friday. As per Ke Yan, CFA, FRM‘s insight, risk-reward after the plunge implies that Shenwan is trading at a deeper discount to its A-share than it deserves. Considering that there had already been a big potion of adjusted free-float traded, stabilization can easily support the share price from here back to its IPO price.

Duiba Group (1753 HK) also opened its IPO for bookbuild this week. We heard that books are covered as of Friday. Valuation leaned on the expensive side as bankers probably took advantage of the strong rally in advertising peers to offer it at a higher valuation. We think that the IPO will only offer upside from the bottom end of the price range.

Activity is also picking up for Singapore and Malaysia after a long lull. ARA US Hospitality Trust (HOTEL SP) and Eagle Hospitality REIT filed their prospectus with MAS while ARA US Hospitality’s IPO is already taking orders for bookbuild. Sumeet Singh penned his thoughts on the REIT and its valuation in:

Malaysia’s Leong Hup International (LEHUP MK) finally launched its IPO after initial delays. 

Accuracy Rate:

Our overall accuracy rate is 72.1% for IPOs and 64% for Placements 

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

New IPO filings

  • Ascentage Pharma (Hong Kong, re-filed)

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

Source: Aequitas Research, Smartkarma

News on Upcoming IPOs

Analysis on Upcoming IPO

NameInsight
Hong Kong
AB InbevAb InBev Asia Pre-IPO – A Brief History of the Asia Pacific Operations – Eeking Out Growth in China
AscentageAscentage Pharma (亚盛医药) IPO: Too Early for an IPO
Ant FinancialAnt Financial IPO Early Thought: Understand Fintech Empire, Growth & Risk Factors
CIMC VehCIMC Vehicle (中集车辆): Market Leader of Semi-Trailers but Little Growth Ahead
ClarityClarity Medical (清晰医疗) IPO: Proxy to HK SMILE Surgery Demand
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) IPO: Tiktok the No.1 Short Video App for a Good Reason (Part 2)

East EduChina East Education (中国东方教育) Pre-IPO – The Company Known for Its Culinary School
China TobacChina Tobacco International (IPO): The Monopolist Will Not Recover
China TobacChina Tobacco Intl (HK) IPO: Proxy For the Chinese Cigarette Consumption
ESRESR Cayman Pre-IPO – A Giant in the Making
ESR

ESR Cayman Pre-IPO – Earnings and Segment Analysis 

ESR

ESR Cayman Pre-IPO- First Stab at Valuation

Frontage

Frontage (方达控股) IPO: More Disclosure Needed to Understand Moat and Growth Prospect

Frontage

Frontage (方达控股) IPO: Updates from 2018 Numbers

Haitong

Haitong UniTrust Intl Leasing Pre-IPO – Shape Shifting

Hujiang Edu

Hujiang Education (沪江教育) Pre-IPO – Spending More than It Earns

Hut Chi-Med

Hutchison-China Meditech (和黄医药) H-Share Listing: MNC Partnerships Endorsed Its R&D Capabilities

Jinxin

Jinxin Fertility (锦欣生殖) Pre-IPO: Strong Foothold in Sichuan but Weak Sentiment for Sector

MicuRxMicuRx Pharma (盟科医药) IPO: Betting on Single Drug in the Not so Attractive Antibiotic Segment
MabPharmMabPharma (迈博医药) IPO: Assembled for a Trade?
MabPharmMabPharm (迈博医药) IPO: Thoughts on Valuation (Part 2)
SH Henlius

Shanghai Henlius (复宏汉霖) IPO: Not an Impressive Biosimilar Portfolio 

TubatuTubatu Group Pre-IPO – Performing Better than Qeeka but Growing Much Slower, US$1bn a Stretch
TubatuTubatu Group Pre-IPO – Online -> Online + Offline -> Online -> ?
South Korea
KMH ShillaKMH Shilla Leisure IPO Preview (Part 1) – Highly Profitable Operator of Public Golf Courses in Korea
KMH ShillaKMH Shilla Leisure IPO Preview (Part 2) – Valuation Analysis
Plakor

Plakor IPO Preview (Part 1)

ZinusZinus IPO Preview (Part 1) – An Amazing Comeback Story (#1 Mattress Brand on Amazon)
India
Anmol IndAnmol Industries Pre-IPO Quick Take – No Growth, Generous Payments to Founders
Bharat Hotels

Bharat Hotels Pre-IPO – Catching up with Peers 

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
Flemingo Flemingo Travel Retail Pre-IPO – Its a Different Business in Every Country
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
MazagonMazagon Dock IPO Preview: A Monopoly Submarine Yard in India with Captive Navy Spending
Mrs. BectorMrs. Bectors Food Specialities Pre-IPO Quick Take – Sales for Its Main Segment Have Been Sta

Lodha

Lodha Developers Pre-IPO – Second Time Lucky but Not Really that Much Affordable
LodhaLodha Developers IPO: Presence in Affordable Segment Saves Lodha the Blushes in a Sluggish Mkt
IndiaMartIndiaMART Pre-IPO – Getting and Retaining Subscribers Seems to Be Difficult
PNB MetPNB Metlife Pre-IPO Quick Take – Doesn’t Stack up Well Versus Its Larger Peers
Malaysia
QSRQSR Brands Pre-IPO – As Healthy as Fast Food
The U.S
DouyuDouyu (斗鱼直播) IPO: Leader At a Cost
LuckinLuckin Coffee (瑞幸咖啡) Early Thoughts – Caffeine Rush
LuckinLuckin Coffee (瑞幸咖啡) App Walk-Through and Channel Checks

2. Shenwan Hongyuan (申万宏源) A+H: A/H Premium and Liquidity Suggest a Quick Trade

First%20day%20trading

Shenwan Hongyuan Group (H) (218 HK) raised USD 1.1 billion at HKD 3.63/share at the low end of price guidance. We have previously covered the IPO in:

In this insight, we will update on the deal dynamics, valuation and provide our thoughts on a post-IPO trade.

3. Michinoku Bank  (8350 JP):  Clipped by a Synthetic Hedge

8350 michinoku 2019 0424%20peer%20valuations

With just three weeks to go before the formal announcement of their FY3/2019 results, it is high time that some of the smaller Japanese regional banks started owning up to the fact that they have no hope of making their full-year earnings guidance.  First in the line for confession is Michinoku Bank (8350 JP) which on Wednesday of this week slashed its full-year earnings guidance after losing some ¥1.25 billion (US$11.2 million) on the burgeoning costs of maintaining a synthetic hedge against its Japanese government portfolio.  These hedging losses come on top of rapidly rising credit costs.  Luckily, few foreign investors own the stock of this small, struggling bank, although there are some.  We expect further announcements of full-year earnings downgrades from other Japanese regional banks over the next fortnight or so; market reaction to such announcements may be severe.  Caveat emptor!  (May the buyer beware!)

4. Indusind Bank: One More Disturbing Lapse of Judgment by the “Banker of the Year”

Indusind%20sprit%20charges

Romesh Sobti, the CEO of Indusind Bank, was recently crowned ‘banker of the year’ by a fawning business media, despite reporting two consecutive years of fudged accounts (FY2016 and FY2017) and putting nearly 8% of the bank’s capital at risk in an ill-advised, unsecured loan to the insolvent IL&FS. We find that the lauded banker is also grappling with a Rs 5 bn loan to the liquidity-constrained investment company of the founder of the Essel media group (flagship, Zee Entertainment Enterprises). It remains a mystery why Indusind Bank gave such a high-risk loan in end-April 2018 and secured it against an illiquid, optionally convertible security of an unlisted associate company. To date the loan appears to barely retain its ‘standard’ classification, but the investment companies of the Zee founders have brought considerable grief to the mutual fund industry, exposing their poor credit appraisal and risk management policies. If the Zee founders are unable to divest assets and sell part of their holding in the flagship listed company, Indusind Bank shareholders will share the grief of the investors in debt mutual funds who had subscribed to the ill-fated paper issued by companies of the Zee founders. It is time the banking regulator also closely monitored the credit and risk systems at Indusind Bank. The coveted laurel gracing the head of Indusind Bank’s CEO may turn out to be a crown of thorns for stakeholders of the bank, exposing once again the credit appraisal and risk mitigation policies in this bank.

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Brief Finance: ARA US Hospitality Trust IPO – Matured Portfolio with Few Signs of Growth and more

By | Daily Briefs, Financials Sector

In this briefing:

  1. ARA US Hospitality Trust IPO – Matured Portfolio with Few Signs of Growth

1. ARA US Hospitality Trust IPO – Matured Portfolio with Few Signs of Growth

Ceo

ARA US Hospitality Trust (HOTEL SP) (ARAHT) plans to raise upto US$450m via its IPO on SGX. The initial portfolio comprises of 38 hotels in the US and was recently purchased by ARA from Lone Star. Lone Star in turn had bought the assets from Hyatt Hotels Corp Cl A (H US) in 2014.

ARAHT is being offered at 7.8% FY19 and 8.0% FY20 yield. Over the past few years, the portfolio hasn’t really recorded much growth. The Hyatt House brand has been doing better than the Hyatt Place Hotels. ARAHT expects this trend to reverse going forward, for reasons that haven’t been mentioned. Even then, the forecast growth rate is only of 3.2%.

Moreover as most of the assets were recently refurbished there don’t seem to be any asset enhancement opportunities. To add to that, the sponsor doesn’t have a ready pipeline of assets either for future injections.

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Brief Finance: ARA US Hospitality Trust IPO – Matured Portfolio with Few Signs of Growth and more

By | Daily Briefs, Financials Sector

In this briefing:

  1. ARA US Hospitality Trust IPO – Matured Portfolio with Few Signs of Growth
  2. Low Inflation May Force the RBA’s Hand in May

1. ARA US Hospitality Trust IPO – Matured Portfolio with Few Signs of Growth

Ceo

ARA US Hospitality Trust (HOTEL SP) (ARAHT) plans to raise upto US$450m via its IPO on SGX. The initial portfolio comprises of 38 hotels in the US and was recently purchased by ARA from Lone Star. Lone Star in turn had bought the assets from Hyatt Hotels Corp Cl A (H US) in 2014.

ARAHT is being offered at 7.8% FY19 and 8.0% FY20 yield. Over the past few years, the portfolio hasn’t really recorded much growth. The Hyatt House brand has been doing better than the Hyatt Place Hotels. ARAHT expects this trend to reverse going forward, for reasons that haven’t been mentioned. Even then, the forecast growth rate is only of 3.2%.

Moreover as most of the assets were recently refurbished there don’t seem to be any asset enhancement opportunities. To add to that, the sponsor doesn’t have a ready pipeline of assets either for future injections.

2. Low Inflation May Force the RBA’s Hand in May

The downside miss on inflation in Australia probably forces the RBA’s hand to cut rates.  The RBA generally doesn’t fuss too much with appearances once it changes its mind, so a cut at its next policy meeting as soon as 7 May is likely, even though it would come only weeks before the Federal election on 18 May.

One cut is unlikely to be viewed as significant enough to make a material difference on the inflation outlook, so a second cut is likely before the dust has had time to settle on the first, so within the next Month (4 June) or two (2 July).

The risk is high that a rate cut watch in Australia dominates near term AUD price action and triggers a further significant fall in the currency.

Get Straight to the Source on Smartkarma

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Brief Finance: ARA US Hospitality Trust IPO – Matured Portfolio with Few Signs of Growth and more

By | Daily Briefs, Financials Sector

In this briefing:

  1. ARA US Hospitality Trust IPO – Matured Portfolio with Few Signs of Growth
  2. Low Inflation May Force the RBA’s Hand in May
  3. StubWorld: Ai Ya! – Ayala Corp Tanking On Possible “Portfolio Rebalancing”

1. ARA US Hospitality Trust IPO – Matured Portfolio with Few Signs of Growth

Ceo

ARA US Hospitality Trust (HOTEL SP) (ARAHT) plans to raise upto US$450m via its IPO on SGX. The initial portfolio comprises of 38 hotels in the US and was recently purchased by ARA from Lone Star. Lone Star in turn had bought the assets from Hyatt Hotels Corp Cl A (H US) in 2014.

ARAHT is being offered at 7.8% FY19 and 8.0% FY20 yield. Over the past few years, the portfolio hasn’t really recorded much growth. The Hyatt House brand has been doing better than the Hyatt Place Hotels. ARAHT expects this trend to reverse going forward, for reasons that haven’t been mentioned. Even then, the forecast growth rate is only of 3.2%.

Moreover as most of the assets were recently refurbished there don’t seem to be any asset enhancement opportunities. To add to that, the sponsor doesn’t have a ready pipeline of assets either for future injections.

2. Low Inflation May Force the RBA’s Hand in May

The downside miss on inflation in Australia probably forces the RBA’s hand to cut rates.  The RBA generally doesn’t fuss too much with appearances once it changes its mind, so a cut at its next policy meeting as soon as 7 May is likely, even though it would come only weeks before the Federal election on 18 May.

One cut is unlikely to be viewed as significant enough to make a material difference on the inflation outlook, so a second cut is likely before the dust has had time to settle on the first, so within the next Month (4 June) or two (2 July).

The risk is high that a rate cut watch in Australia dominates near term AUD price action and triggers a further significant fall in the currency.

3. StubWorld: Ai Ya! – Ayala Corp Tanking On Possible “Portfolio Rebalancing”

24%20jan%202019%20su

This week in StubWorld …

  • A potential placement from a key shareholder is just one of the rumours behind Ayala Corporation (AC PM)‘s recent underperformance.

Preceding my comments on Ayala, are the weekly setup/unwind tables for Asia-Pacific Holdcos.

These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold – the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent – of at least 20%.

Get Straight to the Source on Smartkarma

Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.



Brief Finance: ARA US Hospitality Trust IPO – Matured Portfolio with Few Signs of Growth and more

By | Daily Briefs, Financials Sector

In this briefing:

  1. ARA US Hospitality Trust IPO – Matured Portfolio with Few Signs of Growth
  2. Low Inflation May Force the RBA’s Hand in May
  3. StubWorld: Ai Ya! – Ayala Corp Tanking On Possible “Portfolio Rebalancing”
  4. Dollar Tests Highs as Global Risk Aversion Remains Elevated

1. ARA US Hospitality Trust IPO – Matured Portfolio with Few Signs of Growth

Ceo

ARA US Hospitality Trust (HOTEL SP) (ARAHT) plans to raise upto US$450m via its IPO on SGX. The initial portfolio comprises of 38 hotels in the US and was recently purchased by ARA from Lone Star. Lone Star in turn had bought the assets from Hyatt Hotels Corp Cl A (H US) in 2014.

ARAHT is being offered at 7.8% FY19 and 8.0% FY20 yield. Over the past few years, the portfolio hasn’t really recorded much growth. The Hyatt House brand has been doing better than the Hyatt Place Hotels. ARAHT expects this trend to reverse going forward, for reasons that haven’t been mentioned. Even then, the forecast growth rate is only of 3.2%.

Moreover as most of the assets were recently refurbished there don’t seem to be any asset enhancement opportunities. To add to that, the sponsor doesn’t have a ready pipeline of assets either for future injections.

2. Low Inflation May Force the RBA’s Hand in May

The downside miss on inflation in Australia probably forces the RBA’s hand to cut rates.  The RBA generally doesn’t fuss too much with appearances once it changes its mind, so a cut at its next policy meeting as soon as 7 May is likely, even though it would come only weeks before the Federal election on 18 May.

One cut is unlikely to be viewed as significant enough to make a material difference on the inflation outlook, so a second cut is likely before the dust has had time to settle on the first, so within the next Month (4 June) or two (2 July).

The risk is high that a rate cut watch in Australia dominates near term AUD price action and triggers a further significant fall in the currency.

3. StubWorld: Ai Ya! – Ayala Corp Tanking On Possible “Portfolio Rebalancing”

24%20jan%202019%20su

This week in StubWorld …

  • A potential placement from a key shareholder is just one of the rumours behind Ayala Corporation (AC PM)‘s recent underperformance.

Preceding my comments on Ayala, are the weekly setup/unwind tables for Asia-Pacific Holdcos.

These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold – the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent – of at least 20%.

4. Dollar Tests Highs as Global Risk Aversion Remains Elevated

The USD is testing the top of its range for over a year against the DXY major currency index, and its highs for the year-to-date against the broader Bloomberg dollar index against ten leading currencies.  The rebound in the USD is surprising in light of the stronger than expected Chinese economic data.  However, other economic reports suggest that global manufacturing and export growth remains weak; including flash April PMIs and export data in Korea and Singapore.  Strength in the dollar reflects some risk aversion related to higher oil prices on USA’s Iran policy, Brexit risks, Italian government risks, and USA trade policy risks.  US bond yields stalled, consistent with some risk aversion.  However, US equities powered to new closing highs.  

Get Straight to the Source on Smartkarma

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