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Growth Ideas

Brief Growth Ideas: Telekom Malaysia Placement – Khazanah Back on the Market to Sell and more

By | Daily Briefs, Growth Ideas

In this briefing:

  1. Telekom Malaysia Placement – Khazanah Back on the Market to Sell
  2. Softbank Corp Placement – Smaller Than Expected, but Overhang Weighs
  3. Yeahka IPO: Attractive Business at an Expensive Price Tag
  4. China ADRs Secondary Listing – Holding Foreign Companies Accountable Act – I’m Coming Home
  5. ERW : 2Q20 Will Be the Bottom Quarter

1. Telekom Malaysia Placement – Khazanah Back on the Market to Sell

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Khazanah is looking to sell 123m shares in Telekom Malaysia (T MK) for about US$125m. Post sell down, Khazanah will still hold about 22.9% stake in the company. 

We covered Khazanah’s 2016 sell down in:

In this note, we will look at its Q1 results, performances of previous placements, and run the deal through our framework.

2. Softbank Corp Placement – Smaller Than Expected, but Overhang Weighs

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Softbank Group (9984 JP) (SBG) is looking to raise almost US$3bn by selling some of its shares (5%) in Softbank Corp (9434 JP) (SBC). Post sell down, SBG will still hold about about 2.9bn shares (about 61.5% stake in SBC).

We have previously looked at the potential selldown (post announcement selling assets to fund buyback) and its 2018 IPO in:

In this insight, we will look at the deal dynamics, recent performance of the company, and run the deal through our deal framework.

3. Yeahka IPO: Attractive Business at an Expensive Price Tag

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  • Yeahka is a leading payment-based technology platform in China who provides payment and business services to merchants and customers and is looking to raise US$161-212m through its HK IPO.
  • The company is the second largest non-bank independent QR code payment service provider in China, with approximately 14.0% market share in terms of transaction count in 2019.
  • In our previous insight on the company (read our previous insight: Yeahka IPO: A Secure Payment ), we discussed the company’s business segments, financials and outlook for the company. In this follow-up insight, we will be discussing the company’s valuation and how attractive it is compared to the peers.

4. China ADRs Secondary Listing – Holding Foreign Companies Accountable Act – I’m Coming Home

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Ever since Alibaba successfully completed its secondary listing in Hong Kong in Nov 2019, markets have been abuzz with news of other companies that are planning to follow in Baba’s footsteps. Since then JD.com Inc (ADR) (JD US) and NetEase Inc (NTES US) have both filed for a secondary listing in Hong Kong.

In our previous insights:

In this insight, I’ll talk about the bill (Holding Foreign Companies Accountable Act) that was passed in the Senate overnight and its implications on China ADRs and secondary listings.

5. ERW : 2Q20 Will Be the Bottom Quarter

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We downgrade from BUY to HOLD rating and cut our target price by 39% to Bt2.63 derived from 26.7xPE’21E, which is equal to -1SD of its three-year trading average. We maintain our positive view toward its outlook beyond 2020 given its growth plan and location advantage as its hotels have full coverage with almost every part in Thailand.

• Expect 2Q20E performance to be the worst quarter
• Re-opening Hop Inn segment in Thailand
• 1Q20 result made the record loss of Bt103
• Trimmed 2020-22E forecast to factor in gloomy outlook

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Brief Growth Ideas: Facebook Gaming Mobile App – Cutting Out Google Play Store? and more

By | Daily Briefs, Growth Ideas

In this briefing:

  1. Facebook Gaming Mobile App – Cutting Out Google Play Store?

1. Facebook Gaming Mobile App – Cutting Out Google Play Store?

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Facebook Inc A (FB US) Gaming was released on Android on 20th April 2020 earlier than originally planned to take advantage of the lock down that is still ongoing in most parts of the world.

In this note, I will walk you through the mobile app and share some thoughts along the way.

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Brief Growth Ideas: Semen Indonesia Persero Tbk (SMGR IJ) – Its Not All Bad News After All and more

By | Daily Briefs, Growth Ideas

In this briefing:

  1. Semen Indonesia Persero Tbk (SMGR IJ) – Its Not All Bad News After All
  2. Korea Small Cap Gem #2: Hancom Inc
  3. Buy YY on Overseas Live Stream Land Grabs
  4. BGRIM: Positive 2Q20 Earnings Outlook from Intact SPP Operations
  5. Travelsky (696): A Safe Way to Fly

1. Semen Indonesia Persero Tbk (SMGR IJ) – Its Not All Bad News After All

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Semen Indonesia Persero Tbk (SMGR IJ) hosted a call to run through its 1Q2020 results, which saw a marginal impact from COVID-19. What was more interesting were the company’s views on the outlook for the Indonesian cement market, which is likely to have a choppy few months. 

The achieved positive volume growth in 1Q2020 mainly due to the inclusion of PT Solusi Bangun Indonesia Tbk (SMCB IJ) and strong performance from the company’s Vietnamese operations. 

It saw profitability improve due to synergies and scale benefits on logistics and procurement specifically on PT Solusi Bangun Indonesia Tbk (SMCB IJ).  The company expects to maintain margins in 2020 versus FY19. 

COVID-19 has started to impact volume in April but even more so in May. Smaller operators are concentrating on their home markets and customers with solid credit record. This has opened up some gaps and opportunities which Semen Indonesia Persero Tbk (SMGR IJ) will look to fill. 

The company has improved its debt structure in 2H19, bring the average interest rates down and It is also looking to sell a 15% stake in PT Solusi Bangun Indonesia Tbk (SMCB IJ) to Japanese cement company Teiheiyo Cement Corporation. 

Semen Indonesia Persero Tbk (SMGR IJ) is trading on 7.8x FY21E EV/EBITDA is the 10-year average of 9.8x and a high of 14x forward EV/EBITDA. This a key recovery play once the government starts to reopen the economy.

2. Korea Small Cap Gem #2: Hancom Inc

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Hancom Inc (030520 KS) (“Hancom”) is the second company we introduce in our series Korea Small Cap Gem”. The company is best known for its Korean office software program which has survived more than 30 years against the mighty Microsoft office. In Korea, Hancom has maintained a nearly 30% share in the office software market with Microsoft having 70% market share for nearly 30 years. 

In 1Q 2020, the masks & protection equipment business generated 26.6 billion won in sales. The company has benefited greatly from selling more face masks due to COVID-19. Hancom Lifecare generated 20.2 billion won in sales (up 161% YoY) and 6.3 billion won in operating profit (up 1,498% YoY) in 1Q 2020, driven by the strong sales of KF94 face masks. 

One of the big concerns investors have had on this company in the past few years is why the company decided to enter the personal protection equipment (PPE) sector with a big acquisition in 2017. Now this investment has become a big homerun and it is likely that as the company’s ROE and operating margins improve again, many investors may attach higher valuation multiples on the company. So Hancom is well poised to benefit from a combination of higher multiples and increasing profits. If we assume EBIT of 50 billion won and 9x EV/EBIT multiple, this would suggest EV of 450 billion won, which would imply a market cap of 467 billion won (50%+ upside from current levels; price – 12,300 won as of 22 May 2020).

3. Buy YY on Overseas Live Stream Land Grabs

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JoYY reported a 1Q20 beat for earnings with revenue in-line with upgraded consensus estimates as the Company’s globalization strategy of expanding Bigo and Likee saw significant traction. We believe that the Company’s overseas expansion strategy is a more effective strategy compared to its domestic monetization strategy with YY Live.

We maintain our overweight on JoYY in light of its continued expansion into developed overseas markets with lower live streaming penetration rates,  which provides a more effective channel of growing its userbase especially with the COVID-19 still prevalent in various overseas markets.

4. BGRIM: Positive 2Q20 Earnings Outlook from Intact SPP Operations

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Yesterday analyst meeting came out in a positive tone. Expect 2Q20E earnings to remain healthy backed by intact SPP operations and profit recognition from 633MWe project added in 2019.

  • Solid 2Q20 earnings outlook as higher SPP electricity volume sales to EGAT is expected to compensate the drop in IU sales.
  • Potential upside of 6% to our 2020E earnings forecast from lower gas price(-3% QoQ). we will factor it into our model after reviewing the possible FT adjustment next quarter
  • We maintain the neutral view on stock performance as BGRIM is trading at a 69x trailing PE. We believe the positive outlook of 2020-22E earnings growth from 633 MW projects COD in 2019 and 550 MWe in pipeline has already priced in.
  • Upside risk is expected from 1) Lower gas price extending till 2H20 without FT adjustment and 2) New project acquisitions.

We maintain the HOLD rating based on a target price of Bt47 derived using DCF valuation (6.9% WACC and 1% TG), implying 54x PE’20.

5. Travelsky (696): A Safe Way to Fly

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Tourism activities have started to pick up again in China and airports have started to reopen again, increasing the air traffic volume from a low base. The number of domestic flights processed has rebounded in March 2020 by 98% MoM and another 13% on April MoM. 

The China Tourism day, which falls on May 19th each year, witnessed alternative efforts from operators to deal with the restrictions amidst the pandemic. The Shanghai Disneyland theme park reopened to visitors with reduced capacity on May 11, the first Disneyland theme park in the world that has resumed operations since the outbreak of COVID-19. 

Foreign airlines such as Asiana and Korea Air have stated that they plan to start providing flights to China again by the end of June, hinting that demand for air travel has started to come back.  

There are so many unknowns on how the airlines are going to operate given the measures to cope with the “new normal”.  Given the low share price base for Chinese airlines in general, the risk/reward ratio for going long Travelsky and short some Chinese airlines is not that attractive. 

At 15x earnings, 22% discount to the level right before the COVID-19 outbreak, and 50% lower than in FY 2017 while it is also worth highlighting that currently, the company is trading at the lowest PE multiples in 3 years, Travelsky trades at an undemanding valuation and a continuous share price recovery should be expected. 

source: Capital IQ

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Brief Growth Ideas: CHG: Impeded by Covid-19 in 1H20 but Will Recover in 2H20 and more

By | Daily Briefs, Growth Ideas

In this briefing:

  1. CHG: Impeded by Covid-19 in 1H20 but Will Recover in 2H20
  2. BCPG: Hydro Power Plant to Drive 2Q20 Earnings
  3. Alternative Data: Fast Retailing’s E-Commerce Growth Suggests Limited Downside
  4. Softbank Corp (9434) Block
  5. Tencent to Supercharge HUYA’s Userbase Growth and Monetization; Raise FV to US$28.2 (+47% Upside)

1. CHG: Impeded by Covid-19 in 1H20 but Will Recover in 2H20

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We maintain HOLD rating on CHG with a 2020E target price at Bt2.65, derived from a discounted cash flow valuation (WACC of 6.0% and terminal growth of 2.0%). We attended an analyst meeting yesterday and came up with key information as followed;

•CHG net profit in 1Q20 was Bt186m (+4%YoY, +39%QoQ).
•Covid-19 would affect CHG performance in 1H20E. But it will strongly recover in 2H20E.
•Management targeted double-digit growth in 2020E, and, to breakeven two new hospitals for yearly figures.
•New project in Mae Sot, which is 100 IPD bed hospital, was expected to start operation in early 2022.

We like CHG for its hospital location in some of the country’s strongest economic areas, and, it is on track of net profit expansion, thanks to better utilization of new hospitals. However, with demanding valuation and limited upside to our target price, we maintain our HOLD rating.

Background: Chularat Hospital Public Company Limited (CHG) was founded in 1986. The company provides hospital and healthcare services through nine hospitals and four clinics located in five areas covering Suvarnabhumi Airport, eastern Bangkok along Bangna-Trad Road, and extending to Chachoengsao, Prachin Buri, Chonburi, and Rayong. The company provides services to two main types of customers: general patients and social security customers and patients under the National Health Security Office (NHSO).

2. BCPG: Hydro Power Plant to Drive 2Q20 Earnings

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Yesterday analyst meeting came out in a positive tone. 2Q20 earnings outlooks looks solid from improved contribution from 114MW hydro power plants added in 4Q19-1Q20.

Updates:

  • 2Q20 and 2020E earnings looks bright backed by partial and full year earnings recognition from 114MWe hydro power plants added In Laos (Nam San 3A and 3B).
  • BCPG is our top pick among renewables given 1) the firm’s strong near-term 2020-24E earnings outlook backed by 391 MWe projects in pipeline and 2) solid expansion plans with budget allocation of Bt45bn to support long term growth, and fill the EBITDA gap from solar adder expiration of 3 projects in Thailand during 2022-24.

We maintain the BUY rating with a target price of Bt22.8 derived using discounted cash flow methodology (WACC 5.1% and TG 1%). Our valuation implies 20xPE’20E.

3. Alternative Data: Fast Retailing’s E-Commerce Growth Suggests Limited Downside

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Fast Retailing (9983 JP) (Uniqlo) has faced a number of challenges over the last 10 months:-

  • From October 2019, South Koreans began boycotting Japanese goods – South Korea is the company’s third-largest market, after Japan and China.
  • From January this year, China began its COVID-19 lockdowns severely restricting sales in Uniqlo’s fastest-growing market.
  • Lastly, as COVID-19 has become a global pandemic, almost all of the company’s markets have come under some form of lockdown.

Fast Retailing shares have declined by 43% from the peak of 25Th October 2019, but have recovered by 33% from their 19th March low.

We expect the Uniqlo brand to emerge from COVID-19 in a stronger position relative to peers than before, as the crisis has forced the company to address its previous weakness in E-commerce. We expect the shares to outperform TOPIX as the market’s perception of this weak link changes.

4. Softbank Corp (9434) Block

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As discussed in Softbank Starts on Its ¥4.5trln Capital Plan – A Model for Bullishness, in announcing a sale of $11.5bn of Alibaba Group (BABA US) and assuming that a sale of its shares in T Mobile Us Inc (TMUS US) could be done at the price of 31 March 2020 (which would provide a large discount for a large sale to Deutsche Telekom Ag (DTE GR) and perhaps an additional approved forward sale through a METS structure or collar+forward to the Street), Softbank Group (9984 JP) still needed $3bn or more in sales of other assets. And because they are stuck in Vision Fund 1 and have committed to funding Vision Fund 2, that left a partial sale of Softbank Corp (9434 JP) as the most likely angle. 

The NEW News

Today, Softbank Group (9984) announced a sale of approximately 240 million shares of Softbank Corp (9434) – roughly 5.0% of shares outstanding – at a price of ¥1,306.5-1,320/share (a discount of 4.0-5.0% to the close today of ¥1,375. It would lower the consolidated holding of Softbank Corp from 67.1% to 62.1%. This loses Softbank Group the super-majority but that had to be expected eventually. 

This goes the extra little bit to advance the cause of the ¥4.5 trillion (USD 41 billion) Program to Repurchase Shares and Reduce Debt announced 23 March. 

Details on the Offering and how it may be taken below the fold.

5. Tencent to Supercharge HUYA’s Userbase Growth and Monetization; Raise FV to US$28.2 (+47% Upside)

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We maintain our overweight rating on HUYA given its expanding amount of exclusive broadcast licenses and the announced upcoming collaborations with new parent company Tencent. We believe the Company’s closer partnership will allow it to supercharge user acquisition as it integrates more seamlessly into Tencent’s 1.2 billion strong user ecosystem, while simultaneously improving monetization through additional content features and better AI recommendations.

1Q20 results posted strong revenue momentum as Huya successfully monetized the increased userbase growth during the COVID-19 lockdown in China through product diversification and increased content enhancements.

We revise Huya’s fair value estimate upwards to US$28.2, representing 47% upside from today’s prices.

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Brief Growth Ideas: TRACKING TRAFFIC/Chinese Express: Volume Growth Recovers, but Not Pricing / SF Keeps Share Gains and more

By | Daily Briefs, Growth Ideas

In this briefing:

  1. TRACKING TRAFFIC/Chinese Express: Volume Growth Recovers, but Not Pricing / SF Keeps Share Gains

1. TRACKING TRAFFIC/Chinese Express: Volume Growth Recovers, but Not Pricing / SF Keeps Share Gains

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Chinese express parcel volume growth rebounded in March, with overall parcel volume growing by 23.0% YoY, similar to 2019 growth of 25.3%. Overall parcel volumes in January-February had declined by 10% YoY. 

Although parcel volumes recovered in March, parcel pricing did not: average pricing per parcel fell by 8.8% YoY, the largest YoY percentage decline in over a year. Several major players reported YoY price declines of 20% or more, suggesting intense price competition continues.

S.F. Holding (002352 CH) continued to report impressive share gains in March, with parcel volume increasing 93% YoY. In the first three months of 2020, SF has enjoyed a +8.7 bn RMB YoY increase in express revenue, while its three China-listed peers have seen their combined express revenues decline by over 2.9 bn RMB. 

We believe SF Holding’s impressive YTD gains are sustainable, and we retain our ‘Buy’ rating on SF’s shares as well as or 57.3 RMB target price, implying 18% upside from the closing price on Monday, April 20. 

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Brief Growth Ideas: JWD: Core Business Remains Solid Amid a Slow Down in 2Q20 and more

By | Daily Briefs, Growth Ideas

In this briefing:

  1. JWD: Core Business Remains Solid Amid a Slow Down in 2Q20
  2. CRC: 2Q20 Earnings Will Be the Bottom Quarter
  3. Legend Biotech (传奇生物) Pre-IPO: All-Stars Except for the Small Indication
  4. TSMC Stops Taking New Orders from Huawei to Comply with US Export Control Laws
  5. PTG: Marketing Margin to Improve in 2Q20

1. JWD: Core Business Remains Solid Amid a Slow Down in 2Q20

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Analyst meeting held yesterday came out with a neutral tone. We expect roughly 15% of its revenue to slow down in 2Q20E, dragged mainly by automotive unit. However, solid growth in cold storage and efficient cost management will support the bottom line.

Key takeaway:

• Management revises down revenue target to drop by 10% in 2020 (from a growth of 10-15%), which lower than our estimation at 8% growth.
• We expect 2Q20 earnings to weaken by a slow down in automotive warehouse and improve in 3Q20.
• Meanwhile, its full year performance remains solid, led by growing demand in general goods and cold storage and cost management.

We maintain a BUY rating with a target price of Bt8.0, based on 22.6xPE’20 which is -1SD to its 12-month trading average.

2. CRC: 2Q20 Earnings Will Be the Bottom Quarter

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We expect CRC’s earnings should recover from 3Q20E onwards given reopening all department stores in 18 May. We maintain our BUY rating with the target price of Bt45.0, which is derived from a DCF methodology (12% WACC, 2% TG). Our target price implies 66.5xPE’20E, which represents a 13% discount to the Thai Consumer Discretionary sector.

• Expect full impact from stores’ closure in 2Q20E.
• Expect sales to recover strongly in 3Q20E
• Strong growth potential from omni-channel business
• 1Q20 core earnings was at Bt743m(-61%YoY,-72%QoQ), the worst quarter from available data.
• We cut our 2020-22E earnings forecast by 52%, 14% and 8%, respectively to factor in expected weak earnings in 1H20.

3. Legend Biotech (传奇生物) Pre-IPO: All-Stars Except for the Small Indication

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Legend Biotech, a subsidiary of Hong Kong-listed GenScript, is planning to raise up to USD 300 million via an IPO. The company has a strong focus on CAR-T therapy. Its LCAR-B38M/JNJ-4528 is one of the most advanced CAR-T therapy targeting BCMA for the r/r MM indication. We think its clinical results from Phase II have been very positive. 

The company’s collaboration with Jassen is also a strong selling point that provides evidence of the company’s R&D capability and the prospect of the company’s products, which also complement J&J’s top-selling MM drug Darzalex. In addition to the collaboration with J&J, the company also received Series A investment from reputable global healthcare investors.  

We think the CAR-T could be a good solution for the r/r (second line and above) indications of lymphoma patients that are unable to get cured from existing drugs, but it will unlikely become the first line treatment given its high price tag and the logistical challenges. We are also not hopeful for the CAR-T treatment for the solid tumor given that the microenvironment is very different from the lymph system and hence there’s an issue for CAR-T cells to enter the tumor microenvironment and kill tumor cells. CAR-T therapies targeting solid tumor indications have not been successful. 

4. TSMC Stops Taking New Orders from Huawei to Comply with US Export Control Laws

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  • The Nikkei Asian Review reported on Monday (18th May 2020) that the world’s biggest contract chip maker TSMC has halted accepting new orders from Huawei Technologies in response to tighter US exports controls.
  • The US Department of Commerce announced plans to protect US national security by restricting Huawei’s ability to use US technology and software design and manufacture its semiconductors abroad.
  • In order to comply with tighter US export control rules, all non-US chip makers using American chip making equipment, IP or design software are required to apply for a license before shipping chips to Huawei.
  • Huawei currently relies on TSMC for all of its high-end chips for smartphones, 5G devices, servers and telecom equipment. Any orders taken before the ban or orders which are currently under production will not be affected if those can be shipped before September 14.
  • The new rule on US Export controls was released on the same day TSMC announced its intention to build and operate an advanced semiconductor fab in the US. 

5. PTG: Marketing Margin to Improve in 2Q20

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Analyst meeting held yesterday came out with a positive tone for the remaining quarters. From 2Q20 onwards, we expect marketing margin to improve while sales volume is also expected to come back to normal.

Key takeaway:

• Expects a recovery in 2Q20, led by an improved in marketing margin
• Sales volume to continue growing in 2H20, after lockdown easing

We maintain a BUY rating with a target price of Bt16.0, derived from 17.5xPE’20E, which equal to the World Consumer Discretionary sector.

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Brief Growth Ideas: SK Biopharmaceuticals IPO: Offering Terms & Issues for Consideration and more

By | Daily Briefs, Growth Ideas

In this briefing:

  1. SK Biopharmaceuticals IPO: Offering Terms & Issues for Consideration
  2. Havells India (HAVL IN)
  3. Youdao 1Q20: K-12 Paid Enrollments Soar 360% as Gross Margin Expands; Maintain OW (28% Upside)
  4. Softbank Group: Selling More TMUS than BABA Fits Strategically Plus Tax Bill Should Be Lower
  5. Wuxi Biologics Placement – Biggest Deal Size at Launch, Well Ahead of Lock-Up Expiry

1. SK Biopharmaceuticals IPO: Offering Terms & Issues for Consideration

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This insight has two parts: 1. offering terms and 2. issues for consideration.


Offering terms

This IPO would easily be this year’s biggest from Korea. The offering size is 19.6M shares (primary 68% and secondary 32%), which carry a capital increase rate of 20.48%. SK Holdings wholly owns SK Biopharm. So, all of the secondaries come from SK Holdings, whose stake will go down to 75% after the IPO. The price band is ₩36,000~49,000, which features a target valuation of ₩2.82~3.84tril. The institutional allotment is 60%.

The book opens on June 10 (for overseas participants) and runs until June 18. Then, the subscription will be on June 23. The bankers fixed the payment date on June 26. The listing day is TBD. A total of six bankers (with two, Citi and MS, serving overseas participants) will be working on this deal. They have a firm commitment, so there is no cancellation risk. Lastly, there is no special provision concerning cornerstone, clawback, or greenshoe.

2. Havells India (HAVL IN)

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FY21 is going to be a challenging year for Havells. With the loss of summer season, lower demand, and lack of activity in the industrial business side Havells India (HAVL IN)  will take time to reach normalised growth rates.

We expect Havells India (HAVL IN) to underperform NIFTY Index (NIFTY INDEX) with our Target Price of INR 414, representing downside of  11.6% from the last close price of INR 468.2. Havell EPS CAGR for FY20-FY22E is expected to be negative 3.9% whereas the Nifty Index weighted average EPS CAGR for FY20-FY22E is expected to increase to 0.8% as per current consensus estimates. 

Our Previous Coverage on Havells

Havells India (HAVL IN) | Lost Ground Unlikely to Be Recovered; Underperformance to Continue 

Havells | Is Lloyd Turning Out to Be a Bad Apple? 

Havells India | Takeaways from Distributor and Retailer Visits 

3. Youdao 1Q20: K-12 Paid Enrollments Soar 360% as Gross Margin Expands; Maintain OW (28% Upside)

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We maintain our overweight rating on Youdao as decade-long structural trends are brought forward by years and consumers increasingly shift spend to digital. We believe the Company is well-poised to take advantage of the boom in online learning as consumer behaviors change and learning institutions rush to future-proof themselves.

1Q20 results posted robust revenue momentum as Youdao continued to monetize its COVID userbase gains, while also showing better-than-expected gross margins on improving economies of scale and operating leverage.

We estimate Youdao’s fair value per share at US$33.7 representing 28% upside from today’s prices. 

4. Softbank Group: Selling More TMUS than BABA Fits Strategically Plus Tax Bill Should Be Lower

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Softbank is reportedly looking at monetizing its entire TMUS holding as part of its asset restructuring plan which management prefers from a strategic perspective as it remains bullish on BABA as a core holding whilst the associated tax liability would be lower leaving more cash that can be used for debt reduction. 

We estimate asset sales, debt reduction and tax payments result in 16% accretion to the equity value per share based on the underlying public value of assets which would results in the same upside for the share price if investors kept the holding company discount at the current 54%. 

One could argue there is room for further upside as Softbank is selling assets at near full price to buy shares that value those assets at 50% but concerns on the debt reduction side of the plan have been vague whilst the valuation of private Vision Fund assets remains opaque leaving investors in the dark on whether more write-downs are possible.  We see the near-term potential but need clarity on both those issues to be more confident on narrowing the discount.

5. Wuxi Biologics Placement – Biggest Deal Size at Launch, Well Ahead of Lock-Up Expiry

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Wuxi Biologics Holdings is looking to raise up to US$826m by selling 3.8% of Wuxi Biologics (Cayman) Inc (2269 HK). This will be ninth placement by the company since it listed more than two years ago. Below are links to our coverage of the listing and the earlier placement:

Most of the past deals have done well and, as like before, the placement came before the lock-up expiry of the previous one in March 2020.

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Brief Growth Ideas: Yeahka (移卡) IPO – Expensive Small Payments Player and more

By | Daily Briefs, Growth Ideas

In this briefing:

  1. Yeahka (移卡) IPO – Expensive Small Payments Player
  2. Rohm (6963 JP): No Guidance but History Points to V-Shaped Recovery
  3. Bajaj Finance: Quick Update Post Q4FY20 Results
  4. Kingsoft Cloud: Valuing the Impact of Potential Price Hikes; Expect C.30% Upside in the Medium Term
  5. Bharti Airtel (BHARTI IN)

1. Yeahka (移卡) IPO – Expensive Small Payments Player

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Yeahka Limited (9923 HK) (YK) is looking to raise up to US$212m in its IPO.

Overall, YK demonstrated strong growth and margin expansion in 2019. We expect its 1H 2020E growth to be impacted by the virus outbreak but overall revenue would continue to still grow thereafter in 2H 2020E.

Based on our assumptions, we think that YK is not offered at a price that is attractive enough considering Huifu, a similar peer, trades at just 5x FY2021 P/E ratio. Assuming a range for a premium that YK should trade over Huifu, our valuation still implies downside.

We have covered the company previously in:

In this note, we will share our assumptions and implied valuation of YK at the IPO price range. We will also run the deal through our IPO framework.

2. Rohm (6963 JP): No Guidance but History Points to V-Shaped Recovery

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  • Sales fell short of expectations in FY Mar-20, but operating and net profit were above guidance due to a 16% reduction in R&D expenses. 
  • Red ink was avoided in 4Q, but the company is probably losing money now as the full force of the COVID-19 pandemic undercuts demand for automotive and industrial-use semiconductors. 
  • High gearing to capacity utilization points to a V-shaped recovery when economies reopen and demand for the company’s ICs and discrete semiconductors rebounds.
  • The balance sheet is very strong and management plans to maintain the dividend. We remain positive on Rohm as a long-term investment.

3. Bajaj Finance: Quick Update Post Q4FY20 Results

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Ex of COVID-19 provisioning, Bajaj Finance (BAF IN) reported strong earnings growth of 38% YoY in Q4FY20. However, the critical quarter is going to be the current quarter where lockdown impact is being experienced fully. There were some notable updates in this regards from the management on the conference call. Please read the detailed note below for the updates and other structural headwinds/tailwinds posing the business.

Insight Flow:

  • Asset Quality – Bounce Rate, Moratorium Update & COVID-19 Provisioning
  • Focus Areas in the Current Environment
  • Balance Sheet Strength: Liquidity & Capital Adequacy
  • Structural Headwinds/Tailwinds Emerging from COVID-19 Crisis
  • Conclusion

4. Kingsoft Cloud: Valuing the Impact of Potential Price Hikes; Expect C.30% Upside in the Medium Term

  • In our IPO initiation note, Kingsoft Cloud IPO: A Few Inherent Risks, But We Are Broadly Positive, we suggested that KC’s gross loss could be stemming from undercutting its prices to attract customers.
  • Therefore, we believe KC’s path to profitability would largely depend on its ability to raise prices for its customers over the next few years. 
  • In this post IPO note, we look to value the impact of these potential price hikes. 

5. Bharti Airtel (BHARTI IN)

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A blockbuster Q4 and industry-leading operating parameters further strengthen our stance on Bharti Airtel (BHARTI IN) as a prefered Indian telecom play. 

In this Insight, we provide our view on India Wireless Business. Thanks to COVID-19, we argue that most customers may cut down on their staples but not on the mobile/data consumption and hence further ARPU increases in a two-player market, along with a well-controlled balance sheet and a quality customer base can provide further upside.

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Brief Growth Ideas: Japan Post Bank – Check’s In The Mail and more

By | Daily Briefs, Growth Ideas

In this briefing:

  1. Japan Post Bank – Check’s In The Mail
  2. WHA: Await for Earnings Recovery in 4Q20
  3. NetEase (NTES): Revenue Growth Accelerated to Two-Year High, But Underperformed Tencent and Industry
  4. Hon Hai: 1Q20 Beats Consensus Despite Pandemic Impact; LT Prospects Remain Positive
  5. SK Biopharm IPO Industry Analysis & Contract Details

1. Japan Post Bank – Check’s In The Mail

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Forget about the headline earnings for this government-owned bank. What matters is rather its estimate for the current year, its dividend policy and its unrealized losses.  The risk for this bank has always been how it can handle paying a structurally high yield on deposits, given poor and weakening yields on other securities. This may be the key driver for the bank’s headlong move into US CLO’s where unrealized gains have suddenly turned into unrealized losses.

2. WHA: Await for Earnings Recovery in 4Q20

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Concern over the escalating global trade dispute and pandemic has pressured the company’s land sales and utility dispatch in 1H20. However, we believe solid earnings growth in 2021 still intact, supported by solid FDI inflow from China that concentrated in E-commerce and consumer sectors along with Eastern-Economic–Corridor initiative. The stock price has been performed well in the past two months but still at a deep discount multiple compared to long-term average. We reiterate a BUY rating and await an earnings recovery in 4Q20E.

The story:

•Neutral tone from analyst meeting
•Revise down earnings by 44% in 2020E as we trim down equity income to account in FX loss impact and weak power dispatch amid economic slowdown.

We maintain our BUY rating but reduce our target price after EPS cut to Bt4.20 (Previous target price at Bt4.40) derived from 20.2xPE’21E, World real estate sector.

3. NetEase (NTES): Revenue Growth Accelerated to Two-Year High, But Underperformed Tencent and Industry

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  • Both the growth rates of total revenues and game revenue accelerated in 1Q2020.
  • However, NTES lost market share to both Tencent and smaller game companies.
  • Compared with US game developers’ P/E ratios, we believe NTES will have an upside of 15% by the end of 2020.

4. Hon Hai: 1Q20 Beats Consensus Despite Pandemic Impact; LT Prospects Remain Positive

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  • Hon Hai Precision Industry reported its 1Q2020 financial results on 15th May 2020. During 1Q2020, the company’s revenue and operating profit dropped by 11.9% and 71.9% respectively. Despite revenue and OP declining YoY, the company managed to beat consensus estimates on both revenue and OP during the quarter.
  • The COVID-19 outbreak in China during 1Q2020 caused the decline in revenue and margins of the company. The company previously warned investors that the COVID-19 outbreak will likely have a negative impact on the company’s revenues in 2020 while also cutting its revenue growth outlook for 2020.

5. SK Biopharm IPO Industry Analysis & Contract Details

In this insight, we provide further details on the SK Biopharmaceuticals (BIO SK) IPO, including the industry and competitive analysis. We have included all the major contract details of the company’s major drug products including Cenobamate, Solriamfetol, and Relenopride that were available in the IPO prospectus in this insight.

The bankers have narrowed SK Biopharms’ initial market cap in this IPO to be between 2.8 trillion won to 3.8 trillion won. This is below the 5 trillion won level in market cap that local media have mentioned for the company since 2019. 

Cenobamate, an epilepsy drug that applied for NDA with the FDA in November 2018, was approved by the FDA for the marketing of new drugs in November 2019 and the company started to sell this product (under the name XCOPRI) in the U.S. in May 2020. In the epilepsy category, UCB had the leading market share of nearly 42% for three of its products including Vimpat, Keppra, and Briviact. GlaxoSmithKline PLC (GSK LN)Sanofi (SAN FP), and Pfizer Inc (PFE US) also have sizeable market shares in this epilepsy category. 

The local media have mentioned that Xcopri (Cenobamate tablets) could generate about 1.1 trillion won in sales per year for SK Biopharm if the drug takes about 5% global market share. The market for anti-epileptic treatments is expected to grow by 2.1% on average per year to grow from $4.9 billion in 2019 to $5.9 billion by 2026.

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Brief Growth Ideas: Softbank Corp (9434) Block and more

By | Daily Briefs, Growth Ideas

In this briefing:

  1. Softbank Corp (9434) Block
  2. Tencent to Supercharge HUYA’s Userbase Growth and Monetization; Raise FV to US$28.2 (+47% Upside)
  3. Telekom Malaysia Placement – Khazanah Back on the Market to Sell
  4. Softbank Corp Placement – Smaller Than Expected, but Overhang Weighs
  5. Yeahka IPO: Attractive Business at an Expensive Price Tag

1. Softbank Corp (9434) Block

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As discussed in Softbank Starts on Its ¥4.5trln Capital Plan – A Model for Bullishness, in announcing a sale of $11.5bn of Alibaba Group (BABA US) and assuming that a sale of its shares in T Mobile Us Inc (TMUS US) could be done at the price of 31 March 2020 (which would provide a large discount for a large sale to Deutsche Telekom Ag (DTE GR) and perhaps an additional approved forward sale through a METS structure or collar+forward to the Street), Softbank Group (9984 JP) still needed $3bn or more in sales of other assets. And because they are stuck in Vision Fund 1 and have committed to funding Vision Fund 2, that left a partial sale of Softbank Corp (9434 JP) as the most likely angle. 

The NEW News

Today, Softbank Group (9984) announced a sale of approximately 240 million shares of Softbank Corp (9434) – roughly 5.0% of shares outstanding – at a price of ¥1,306.5-1,320/share (a discount of 4.0-5.0% to the close today of ¥1,375. It would lower the consolidated holding of Softbank Corp from 67.1% to 62.1%. This loses Softbank Group the super-majority but that had to be expected eventually. 

This goes the extra little bit to advance the cause of the ¥4.5 trillion (USD 41 billion) Program to Repurchase Shares and Reduce Debt announced 23 March. 

Details on the Offering and how it may be taken below the fold.

2. Tencent to Supercharge HUYA’s Userbase Growth and Monetization; Raise FV to US$28.2 (+47% Upside)

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We maintain our overweight rating on HUYA given its expanding amount of exclusive broadcast licenses and the announced upcoming collaborations with new parent company Tencent. We believe the Company’s closer partnership will allow it to supercharge user acquisition as it integrates more seamlessly into Tencent’s 1.2 billion strong user ecosystem, while simultaneously improving monetization through additional content features and better AI recommendations.

1Q20 results posted strong revenue momentum as Huya successfully monetized the increased userbase growth during the COVID-19 lockdown in China through product diversification and increased content enhancements.

We revise Huya’s fair value estimate upwards to US$28.2, representing 47% upside from today’s prices.

3. Telekom Malaysia Placement – Khazanah Back on the Market to Sell

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Khazanah is looking to sell 123m shares in Telekom Malaysia (T MK) for about US$125m. Post sell down, Khazanah will still hold about 22.9% stake in the company. 

We covered Khazanah’s 2016 sell down in:

In this note, we will look at its Q1 results, performances of previous placements, and run the deal through our framework.

4. Softbank Corp Placement – Smaller Than Expected, but Overhang Weighs

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Softbank Group (9984 JP) (SBG) is looking to raise almost US$3bn by selling some of its shares (5%) in Softbank Corp (9434 JP) (SBC). Post sell down, SBG will still hold about about 2.9bn shares (about 61.5% stake in SBC).

We have previously looked at the potential selldown (post announcement selling assets to fund buyback) and its 2018 IPO in:

In this insight, we will look at the deal dynamics, recent performance of the company, and run the deal through our deal framework.

5. Yeahka IPO: Attractive Business at an Expensive Price Tag

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  • Yeahka is a leading payment-based technology platform in China who provides payment and business services to merchants and customers and is looking to raise US$161-212m through its HK IPO.
  • The company is the second largest non-bank independent QR code payment service provider in China, with approximately 14.0% market share in terms of transaction count in 2019.
  • In our previous insight on the company (read our previous insight: Yeahka IPO: A Secure Payment ), we discussed the company’s business segments, financials and outlook for the company. In this follow-up insight, we will be discussing the company’s valuation and how attractive it is compared to the peers.

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