Growth Ideas

In this briefing:

1. Dongzheng Auto Finance (东正汽车金融) Trading Update – Could Be Worth Setting up a Trade
2. BabyTree(1761.HK) FY18 Results: E-Com Further Hit by ‘integration’ with Alibaba; India Foray Timely
3. Japan Display: Deal to Raise JPY110bn from China-Taiwan Consortium and Japanese Investment Fund
4. Haitian: Trade War Fears Fade, Full Stream Ahead
5. Bilibili Placement: Momentum Bodes Well

1. Dongzheng Auto Finance (东正汽车金融) Trading Update – Could Be Worth Setting up a Trade

Dongzheng Automotive Finance (2718 HK) raised US$208m at a fixed price of HK$3.06 per share. We have covered the IPO extensively in:

• Dongzheng Auto Finance (东正汽车金融) Pre-IPO Review – Dependent on Dealership Network for Growth
• Dongzheng Auto Finance (东正汽车金融) IPO Review – Better off Buying the Parent
• Dongzheng Auto Finance (东正汽车金融) IPO Review – Relaunched at Lower Price

In this insight, we will update on the deal dynamics, implied valuation, and include a valuation sensitivity table.

2. BabyTree(1761.HK) FY18 Results: E-Com Further Hit by ‘integration’ with Alibaba; India Foray Timely

BabyTree (1761.HK)’s reported results for FY2018 continues to be impacted by the ‘shift in e-commerce strategy’ post collaboration with Alibaba Group Holding (BABA US) (also a key investor).  China’s leading parenting community platform that went public in November 2018 has announced a revenue decline of 4% during 2H2018; its e-commerce revenues were down 70% as its being ‘integrated’ with Alibaba. This is expected to be completed by 2Q2019. While the details of the collaboration (and revenue share, if any) are not given, Management has stated that Alibaba will manage the back-end e-commerce at a reduced cost and better efficiency while it will ‘manage’ users. Despite the fall in revenues, gross profits were up 18% helped by growth in advertisement revenues which now account for 85% of the total. Advertising as a revenue source has limited long term growth and valuation potential compared to e-commerce. The stock is up 25% since results announcement on March 27th, likely enthused by Net profit for FY2018 at Rmb526.2 mn and EPS of Rmb0.29 (implied current Year P/E of 23x). Key risk will be failure to revive e-commerce revenues post ‘integration’.

BabyTree also announced its first global foray – it has invested USD8mn in Healofy, amongst the top 3 leading parenting apps in India currently. India’s online Parenting app segment has numerous players and revenue generation/growth may not be easy in the near term for Healofy. However,  our analysis suggests that India’s overcrowded parenting app segment is now witnessing consolidation and this funding could probably help Healofy solidify its ranking amongst top 3 parenting platforms in India. In this context, BabyTree’s foray into India seems well timed. Healofy could potentially follow BabyTree’s operating model and fit into Alibaba Group Holding (BABA US) ‘s India e-commerce strategy (Refer our earlier report Alibaba’s India Game Plan – More than Meets the Eye; Investor Day Analysis (Part II) ).  

In the detailed report that follows, we briefly comment on BabyTree’s reported 2018 results and also present a quick overview of India Parenting App segment – key players, investors and why we think it may be on a consolidation mode. 

3. Japan Display: Deal to Raise JPY110bn from China-Taiwan Consortium and Japanese Investment Fund

• It was reported over the weekend that the troubled display supplier to iPhone maker Apple, Japan Display (JDI) has almost finalized a deal to raise more than JPY110bn (US$990m) from a China-Taiwan consortium and Japanese public-private fund INCJ Ltd.
• The China-Taiwan consortium is expected to secure some 50% stake in Japan Display while the top shareholder INCJ’s current stake of 25.3% is expected to be halved.
• The consortium is aiming to restructure JDI’s remaining debt payments of about JPY100bn from Apple for the construction of its plant while it also aims to procure parts for the latest iPhone. In addition, the consortium is also trying to modify a contract stipulating that Apple can seize plants if JDI’s cash and deposits fall below a certain amount.
• The consortium along with JDI is planning to build an OLED panel plant in China with JDI providing the technological know-how while the consortium partners invest in capital expenditures and equity.
• Japan Display has been struggling to navigate its display business due to the slowdown in iPhone sales, falling behind competition on OLED technology and facing stiff price competition from Chinese panel makers.
• We expect the proposed OLED plant in China could help the company stabilize its panel business with Chinese smartphone makers Huawei and Xiaomi who prefer to source panels locally from domestic panel makers such as BOE Technology and Tianma.

4. Haitian: Trade War Fears Fade, Full Stream Ahead

We expect Haitian’s margins go up in 2019, because 1) steel price in China is expected to decrease by 10% yoy with the re-balance of sector demand-supply, 2) Haitian’s newly launched third generation PIMM, and increasing sales propotion of high margin products, would improve the company’s overall margin.

Market demand is warming up in March, according to the management. The third generation PIMM is expected to trigger clients’ demand on upgrading their existing machines. High margin products, all-electric PIMM and large two-plate PIMM, would further increasing their sales and profit contribution. Overseas revenue growth would continue going faster than domestic revenue growth, with its new plants in Germany and Turkey coming on stream. We estimate Haitian’s net profit growth to reach 15% yoy in 2019E, vs. a 4% yoy decline in 2018.

Market concern on potential risk from Trade War, which had triggered Haitian’s valuation de-rating, should fade. As we expected, Haitian’s business wasn’t hurt by the Trade War in 2018, as the company has only 3% of overall revenue from US market. And the negotiations between US and China are on the right way to terminate the Trade War. Valuation re-rating might come with earnings improvement.

5. Bilibili Placement: Momentum Bodes Well

Bilibili announced a USD 300 million share placement and a USD 300 million convertible note placement after market close on Monday. This is the first major placement since Bilibili’s IPO in March 2018. In this insight, we will provide our thoughts on the deal and score the deal in our ECM Framework. 

In this briefing:

1. 58.com (WUBA): Weak Membership Growth Suggests More Volatile Performance, 17% Downside
2. JKN: 4Q18 Earnings Grew Both YoY and QoQ

1. 58.com (WUBA): Weak Membership Growth Suggests More Volatile Performance, 17% Downside

* We believe that the stagnancy in membership was due to the new competitor Ke.com and will make total revenues more volatile in the future.

* We assume total revenues will slow down, but the operating margin will be stable in 2019.

* We compare WUBA’s expected P/E for 2019 with other vertical platforms in China and conclude 17% downside.

2. JKN: 4Q18 Earnings Grew Both YoY and QoQ

The company’s 4Q18 net profit was at Bt46m (+298%YoY and +8%QoQ). The result was in line with our 2018 forecast and accounted for 97% of our full-year forecast.

• A YoY surge in earnings was due to a 30% increase in revenue to Bt360m, mainly from export revenue (50% revenue contribution in 3Q18 from 0% in 4Q17). A QoQ gain was caused a reduction in extra expenses for holding an annual event ‘JKN mega showcase’ in early August.
• 2019 earnings outlook is still decent on the back of 1.) higher revenue contribution from export market especially South East Asia (26% of revenue in 2018), 2.) CNBC studio commencement in 2Q19, and, 3.) revenue recognition from new channel subscribers (No.5, Thairath, Spring news, True4U, Nation and MONO)

We maintain our forecast and BUY rating for JKN with a target price of Bt8.80 based on 14.8xPE’19E mean of the Asia ex-Japan Consumer Discretionary Sector.

In this briefing:

1. 58.com (WUBA): Weak Membership Growth Suggests More Volatile Performance, 17% Downside
2. JKN: 4Q18 Earnings Grew Both YoY and QoQ
3. Sea Ltd: Follow-On Public Offering an Opportunistic Fundraising?

1. 58.com (WUBA): Weak Membership Growth Suggests More Volatile Performance, 17% Downside

* We believe that the stagnancy in membership was due to the new competitor Ke.com and will make total revenues more volatile in the future.

* We assume total revenues will slow down, but the operating margin will be stable in 2019.

* We compare WUBA’s expected P/E for 2019 with other vertical platforms in China and conclude 17% downside.

2. JKN: 4Q18 Earnings Grew Both YoY and QoQ

The company’s 4Q18 net profit was at Bt46m (+298%YoY and +8%QoQ). The result was in line with our 2018 forecast and accounted for 97% of our full-year forecast.

• A YoY surge in earnings was due to a 30% increase in revenue to Bt360m, mainly from export revenue (50% revenue contribution in 3Q18 from 0% in 4Q17). A QoQ gain was caused a reduction in extra expenses for holding an annual event ‘JKN mega showcase’ in early August.
• 2019 earnings outlook is still decent on the back of 1.) higher revenue contribution from export market especially South East Asia (26% of revenue in 2018), 2.) CNBC studio commencement in 2Q19, and, 3.) revenue recognition from new channel subscribers (No.5, Thairath, Spring news, True4U, Nation and MONO)

We maintain our forecast and BUY rating for JKN with a target price of Bt8.80 based on 14.8xPE’19E mean of the Asia ex-Japan Consumer Discretionary Sector.

3. Sea Ltd: Follow-On Public Offering an Opportunistic Fundraising?

• We evaluate the attractiveness of Sea Ltd’s (SE US) US$1 bn follow-on public offering announced last Fri.
• This offering is a typical opportunistic fundraising as its ADR price has recently surged.
• At assumed deal price of US$21, SE post deal would trade at 4.6x 2019E P/adjusted sales (excl. 1P e-commerce sales), vs. peers average of 5.2x.
• We would recommend investors to go for the deal if it is priced at US$20 or lower.

In this briefing:

1. 58.com (WUBA): Weak Membership Growth Suggests More Volatile Performance, 17% Downside
2. JKN: 4Q18 Earnings Grew Both YoY and QoQ
3. Sea Ltd: Follow-On Public Offering an Opportunistic Fundraising?
4. 7-Eleven in India: Standard Franchise Model Would Require Minor Tweaks in India

1. 58.com (WUBA): Weak Membership Growth Suggests More Volatile Performance, 17% Downside

* We believe that the stagnancy in membership was due to the new competitor Ke.com and will make total revenues more volatile in the future.

* We assume total revenues will slow down, but the operating margin will be stable in 2019.

* We compare WUBA’s expected P/E for 2019 with other vertical platforms in China and conclude 17% downside.

2. JKN: 4Q18 Earnings Grew Both YoY and QoQ

The company’s 4Q18 net profit was at Bt46m (+298%YoY and +8%QoQ). The result was in line with our 2018 forecast and accounted for 97% of our full-year forecast.

• A YoY surge in earnings was due to a 30% increase in revenue to Bt360m, mainly from export revenue (50% revenue contribution in 3Q18 from 0% in 4Q17). A QoQ gain was caused a reduction in extra expenses for holding an annual event ‘JKN mega showcase’ in early August.
• 2019 earnings outlook is still decent on the back of 1.) higher revenue contribution from export market especially South East Asia (26% of revenue in 2018), 2.) CNBC studio commencement in 2Q19, and, 3.) revenue recognition from new channel subscribers (No.5, Thairath, Spring news, True4U, Nation and MONO)

We maintain our forecast and BUY rating for JKN with a target price of Bt8.80 based on 14.8xPE’19E mean of the Asia ex-Japan Consumer Discretionary Sector.

3. Sea Ltd: Follow-On Public Offering an Opportunistic Fundraising?

• We evaluate the attractiveness of Sea Ltd’s (SE US) US$1 bn follow-on public offering announced last Fri.
• This offering is a typical opportunistic fundraising as its ADR price has recently surged.
• At assumed deal price of US$21, SE post deal would trade at 4.6x 2019E P/adjusted sales (excl. 1P e-commerce sales), vs. peers average of 5.2x.
• We would recommend investors to go for the deal if it is priced at US$20 or lower.

4. 7-Eleven in India: Standard Franchise Model Would Require Minor Tweaks in India

• 7-Eleven partners up with Future Retail in an effort to enter the growing Indian Market
• Indian E-Commerce giants pose a significant threat to 7-Eleven’s plans
• 7-Eleven’s recent shift focuses more on developing markets.
• Lack of profitability in India could require changes to the standard franchise agreement in order to attract franchisees

On 28th February 2019, Seven & I Holdings (3382 JP), the operator of the world’s largest convenience store chain 7-Eleven, announced that the company has signed a master franchise agreement with Kishore Biyani’s Future Retail, the operator of the Indian large format store chain Big Bazaar, to expand the 7-Eleven convenience stores into India. Future Retail and Seven & I Holdings expect the first 7-Eleven convenience store in India to be opened in Mumbai in 2019.

In this briefing:

1. BabyTree(1761.HK) FY18 Results: E-Com Further Hit by ‘integration’ with Alibaba; India Foray Timely
2. Japan Display: Deal to Raise JPY110bn from China-Taiwan Consortium and Japanese Investment Fund
3. Haitian: Trade War Fears Fade, Full Stream Ahead
4. Bilibili Placement: Momentum Bodes Well
5. Map Aktif Follow-On Offering – Lace up for a Potential Long Run

1. BabyTree(1761.HK) FY18 Results: E-Com Further Hit by ‘integration’ with Alibaba; India Foray Timely

BabyTree (1761.HK)’s reported results for FY2018 continues to be impacted by the ‘shift in e-commerce strategy’ post collaboration with Alibaba Group Holding (BABA US) (also a key investor).  China’s leading parenting community platform that went public in November 2018 has announced a revenue decline of 4% during 2H2018; its e-commerce revenues were down 70% as its being ‘integrated’ with Alibaba. This is expected to be completed by 2Q2019. While the details of the collaboration (and revenue share, if any) are not given, Management has stated that Alibaba will manage the back-end e-commerce at a reduced cost and better efficiency while it will ‘manage’ users. Despite the fall in revenues, gross profits were up 18% helped by growth in advertisement revenues which now account for 85% of the total. Advertising as a revenue source has limited long term growth and valuation potential compared to e-commerce. The stock is up 25% since results announcement on March 27th, likely enthused by Net profit for FY2018 at Rmb526.2 mn and EPS of Rmb0.29 (implied current Year P/E of 23x). Key risk will be failure to revive e-commerce revenues post ‘integration’.

BabyTree also announced its first global foray – it has invested USD8mn in Healofy, amongst the top 3 leading parenting apps in India currently. India’s online Parenting app segment has numerous players and revenue generation/growth may not be easy in the near term for Healofy. However,  our analysis suggests that India’s overcrowded parenting app segment is now witnessing consolidation and this funding could probably help Healofy solidify its ranking amongst top 3 parenting platforms in India. In this context, BabyTree’s foray into India seems well timed. Healofy could potentially follow BabyTree’s operating model and fit into Alibaba Group Holding (BABA US) ‘s India e-commerce strategy (Refer our earlier report Alibaba’s India Game Plan – More than Meets the Eye; Investor Day Analysis (Part II) ).  

In the detailed report that follows, we briefly comment on BabyTree’s reported 2018 results and also present a quick overview of India Parenting App segment – key players, investors and why we think it may be on a consolidation mode. 

2. Japan Display: Deal to Raise JPY110bn from China-Taiwan Consortium and Japanese Investment Fund

• It was reported over the weekend that the troubled display supplier to iPhone maker Apple, Japan Display (JDI) has almost finalized a deal to raise more than JPY110bn (US$990m) from a China-Taiwan consortium and Japanese public-private fund INCJ Ltd.
• The China-Taiwan consortium is expected to secure some 50% stake in Japan Display while the top shareholder INCJ’s current stake of 25.3% is expected to be halved.
• The consortium is aiming to restructure JDI’s remaining debt payments of about JPY100bn from Apple for the construction of its plant while it also aims to procure parts for the latest iPhone. In addition, the consortium is also trying to modify a contract stipulating that Apple can seize plants if JDI’s cash and deposits fall below a certain amount.
• The consortium along with JDI is planning to build an OLED panel plant in China with JDI providing the technological know-how while the consortium partners invest in capital expenditures and equity.
• Japan Display has been struggling to navigate its display business due to the slowdown in iPhone sales, falling behind competition on OLED technology and facing stiff price competition from Chinese panel makers.
• We expect the proposed OLED plant in China could help the company stabilize its panel business with Chinese smartphone makers Huawei and Xiaomi who prefer to source panels locally from domestic panel makers such as BOE Technology and Tianma.

3. Haitian: Trade War Fears Fade, Full Stream Ahead

We expect Haitian’s margins go up in 2019, because 1) steel price in China is expected to decrease by 10% yoy with the re-balance of sector demand-supply, 2) Haitian’s newly launched third generation PIMM, and increasing sales propotion of high margin products, would improve the company’s overall margin.

Market demand is warming up in March, according to the management. The third generation PIMM is expected to trigger clients’ demand on upgrading their existing machines. High margin products, all-electric PIMM and large two-plate PIMM, would further increasing their sales and profit contribution. Overseas revenue growth would continue going faster than domestic revenue growth, with its new plants in Germany and Turkey coming on stream. We estimate Haitian’s net profit growth to reach 15% yoy in 2019E, vs. a 4% yoy decline in 2018.

Market concern on potential risk from Trade War, which had triggered Haitian’s valuation de-rating, should fade. As we expected, Haitian’s business wasn’t hurt by the Trade War in 2018, as the company has only 3% of overall revenue from US market. And the negotiations between US and China are on the right way to terminate the Trade War. Valuation re-rating might come with earnings improvement.

4. Bilibili Placement: Momentum Bodes Well

Bilibili announced a USD 300 million share placement and a USD 300 million convertible note placement after market close on Monday. This is the first major placement since Bilibili’s IPO in March 2018. In this insight, we will provide our thoughts on the deal and score the deal in our ECM Framework. 

5. Map Aktif Follow-On Offering – Lace up for a Potential Long Run

CVC is looking to raise about US$353m through the sale of about 648m Map Aktif Adiperkasa PT (MAPA IJ) shares in the follow-on offering.

Map Aktif (MAPA) is a sports, leisure, and kids retailer in Indonesia. It is a subsidiary of Mitra Adiperkasa (MAPI IJ).  The selldown might not be totally unexpected as CVC planned to exit its investment by 2020. However, post this selldown it will still have 192m share left.

In this briefing:

1. JKN: 4Q18 Earnings Grew Both YoY and QoQ
2. Sea Ltd: Follow-On Public Offering an Opportunistic Fundraising?
3. 7-Eleven in India: Standard Franchise Model Would Require Minor Tweaks in India

1. JKN: 4Q18 Earnings Grew Both YoY and QoQ

The company’s 4Q18 net profit was at Bt46m (+298%YoY and +8%QoQ). The result was in line with our 2018 forecast and accounted for 97% of our full-year forecast.

• A YoY surge in earnings was due to a 30% increase in revenue to Bt360m, mainly from export revenue (50% revenue contribution in 3Q18 from 0% in 4Q17). A QoQ gain was caused a reduction in extra expenses for holding an annual event ‘JKN mega showcase’ in early August.
• 2019 earnings outlook is still decent on the back of 1.) higher revenue contribution from export market especially South East Asia (26% of revenue in 2018), 2.) CNBC studio commencement in 2Q19, and, 3.) revenue recognition from new channel subscribers (No.5, Thairath, Spring news, True4U, Nation and MONO)

We maintain our forecast and BUY rating for JKN with a target price of Bt8.80 based on 14.8xPE’19E mean of the Asia ex-Japan Consumer Discretionary Sector.

2. Sea Ltd: Follow-On Public Offering an Opportunistic Fundraising?

• We evaluate the attractiveness of Sea Ltd’s (SE US) US$1 bn follow-on public offering announced last Fri.
• This offering is a typical opportunistic fundraising as its ADR price has recently surged.
• At assumed deal price of US$21, SE post deal would trade at 4.6x 2019E P/adjusted sales (excl. 1P e-commerce sales), vs. peers average of 5.2x.
• We would recommend investors to go for the deal if it is priced at US$20 or lower.

3. 7-Eleven in India: Standard Franchise Model Would Require Minor Tweaks in India

• 7-Eleven partners up with Future Retail in an effort to enter the growing Indian Market
• Indian E-Commerce giants pose a significant threat to 7-Eleven’s plans
• 7-Eleven’s recent shift focuses more on developing markets.
• Lack of profitability in India could require changes to the standard franchise agreement in order to attract franchisees

On 28th February 2019, Seven & I Holdings (3382 JP), the operator of the world’s largest convenience store chain 7-Eleven, announced that the company has signed a master franchise agreement with Kishore Biyani’s Future Retail, the operator of the Indian large format store chain Big Bazaar, to expand the 7-Eleven convenience stores into India. Future Retail and Seven & I Holdings expect the first 7-Eleven convenience store in India to be opened in Mumbai in 2019.

In this briefing:

1. Japan Display: Deal to Raise JPY110bn from China-Taiwan Consortium and Japanese Investment Fund
2. Haitian: Trade War Fears Fade, Full Stream Ahead
3. Bilibili Placement: Momentum Bodes Well
4. Map Aktif Follow-On Offering – Lace up for a Potential Long Run
5. Pan Pacific/Don Quijote: Bringing Joy into Shopping

1. Japan Display: Deal to Raise JPY110bn from China-Taiwan Consortium and Japanese Investment Fund

• It was reported over the weekend that the troubled display supplier to iPhone maker Apple, Japan Display (JDI) has almost finalized a deal to raise more than JPY110bn (US$990m) from a China-Taiwan consortium and Japanese public-private fund INCJ Ltd.
• The China-Taiwan consortium is expected to secure some 50% stake in Japan Display while the top shareholder INCJ’s current stake of 25.3% is expected to be halved.
• The consortium is aiming to restructure JDI’s remaining debt payments of about JPY100bn from Apple for the construction of its plant while it also aims to procure parts for the latest iPhone. In addition, the consortium is also trying to modify a contract stipulating that Apple can seize plants if JDI’s cash and deposits fall below a certain amount.
• The consortium along with JDI is planning to build an OLED panel plant in China with JDI providing the technological know-how while the consortium partners invest in capital expenditures and equity.
• Japan Display has been struggling to navigate its display business due to the slowdown in iPhone sales, falling behind competition on OLED technology and facing stiff price competition from Chinese panel makers.
• We expect the proposed OLED plant in China could help the company stabilize its panel business with Chinese smartphone makers Huawei and Xiaomi who prefer to source panels locally from domestic panel makers such as BOE Technology and Tianma.

2. Haitian: Trade War Fears Fade, Full Stream Ahead

We expect Haitian’s margins go up in 2019, because 1) steel price in China is expected to decrease by 10% yoy with the re-balance of sector demand-supply, 2) Haitian’s newly launched third generation PIMM, and increasing sales propotion of high margin products, would improve the company’s overall margin.

Market demand is warming up in March, according to the management. The third generation PIMM is expected to trigger clients’ demand on upgrading their existing machines. High margin products, all-electric PIMM and large two-plate PIMM, would further increasing their sales and profit contribution. Overseas revenue growth would continue going faster than domestic revenue growth, with its new plants in Germany and Turkey coming on stream. We estimate Haitian’s net profit growth to reach 15% yoy in 2019E, vs. a 4% yoy decline in 2018.

Market concern on potential risk from Trade War, which had triggered Haitian’s valuation de-rating, should fade. As we expected, Haitian’s business wasn’t hurt by the Trade War in 2018, as the company has only 3% of overall revenue from US market. And the negotiations between US and China are on the right way to terminate the Trade War. Valuation re-rating might come with earnings improvement.

3. Bilibili Placement: Momentum Bodes Well

Bilibili announced a USD 300 million share placement and a USD 300 million convertible note placement after market close on Monday. This is the first major placement since Bilibili’s IPO in March 2018. In this insight, we will provide our thoughts on the deal and score the deal in our ECM Framework. 

4. Map Aktif Follow-On Offering – Lace up for a Potential Long Run

CVC is looking to raise about US$353m through the sale of about 648m Map Aktif Adiperkasa PT (MAPA IJ) shares in the follow-on offering.

Map Aktif (MAPA) is a sports, leisure, and kids retailer in Indonesia. It is a subsidiary of Mitra Adiperkasa (MAPI IJ).  The selldown might not be totally unexpected as CVC planned to exit its investment by 2020. However, post this selldown it will still have 192m share left.

5. Pan Pacific/Don Quijote: Bringing Joy into Shopping

• Japanese Retail is in a secular decline: There are areas in retail that are worse affected than the rest
• Falling foot traffic: The biggest problem for Japanese retail
• Don Quijote’s recent history and growth potential
• Attracting shoppers from multiple store formats helps Don Quijote to expand its target market
• Don Quijote is least affected from slowdown in Chinese tourist spending
• FamilyMart UNY store conversions to contribute to revenue and EBIT growth over the next five years
• New store openings to cap at 25 per year because of UNY store conversions
• Valuation: Market unjustly penalized Don Quijote for the UNY acquisition
• Change in retail landscape to help make Don Quijote the “DON” in Japanese retail

In this briefing:

1. Haitian: Trade War Fears Fade, Full Stream Ahead
2. Bilibili Placement: Momentum Bodes Well
3. Map Aktif Follow-On Offering – Lace up for a Potential Long Run
4. Pan Pacific/Don Quijote: Bringing Joy into Shopping
5. Mercari: Why Mercari Is Likely to Be a Winner in the Cashless Wars

1. Haitian: Trade War Fears Fade, Full Stream Ahead

We expect Haitian’s margins go up in 2019, because 1) steel price in China is expected to decrease by 10% yoy with the re-balance of sector demand-supply, 2) Haitian’s newly launched third generation PIMM, and increasing sales propotion of high margin products, would improve the company’s overall margin.

Market demand is warming up in March, according to the management. The third generation PIMM is expected to trigger clients’ demand on upgrading their existing machines. High margin products, all-electric PIMM and large two-plate PIMM, would further increasing their sales and profit contribution. Overseas revenue growth would continue going faster than domestic revenue growth, with its new plants in Germany and Turkey coming on stream. We estimate Haitian’s net profit growth to reach 15% yoy in 2019E, vs. a 4% yoy decline in 2018.

Market concern on potential risk from Trade War, which had triggered Haitian’s valuation de-rating, should fade. As we expected, Haitian’s business wasn’t hurt by the Trade War in 2018, as the company has only 3% of overall revenue from US market. And the negotiations between US and China are on the right way to terminate the Trade War. Valuation re-rating might come with earnings improvement.

2. Bilibili Placement: Momentum Bodes Well

Bilibili announced a USD 300 million share placement and a USD 300 million convertible note placement after market close on Monday. This is the first major placement since Bilibili’s IPO in March 2018. In this insight, we will provide our thoughts on the deal and score the deal in our ECM Framework. 

3. Map Aktif Follow-On Offering – Lace up for a Potential Long Run

CVC is looking to raise about US$353m through the sale of about 648m Map Aktif Adiperkasa PT (MAPA IJ) shares in the follow-on offering.

Map Aktif (MAPA) is a sports, leisure, and kids retailer in Indonesia. It is a subsidiary of Mitra Adiperkasa (MAPI IJ).  The selldown might not be totally unexpected as CVC planned to exit its investment by 2020. However, post this selldown it will still have 192m share left.

4. Pan Pacific/Don Quijote: Bringing Joy into Shopping

• Japanese Retail is in a secular decline: There are areas in retail that are worse affected than the rest
• Falling foot traffic: The biggest problem for Japanese retail
• Don Quijote’s recent history and growth potential
• Attracting shoppers from multiple store formats helps Don Quijote to expand its target market
• Don Quijote is least affected from slowdown in Chinese tourist spending
• FamilyMart UNY store conversions to contribute to revenue and EBIT growth over the next five years
• New store openings to cap at 25 per year because of UNY store conversions
• Valuation: Market unjustly penalized Don Quijote for the UNY acquisition
• Change in retail landscape to help make Don Quijote the “DON” in Japanese retail

5. Mercari: Why Mercari Is Likely to Be a Winner in the Cashless Wars

While we have been sceptical about Mercari Inc (4385 JP)‘s efforts in the US, we have always appreciated the domestic business and have only been put off by the rather demanding multiples. After speaking to the company, we continue to like the domestic business and feel that recent initiatives to broaden the user base are likely to be successful. In addition, while we still feel that there are numerous question marks about whether the business model can work in the US, we have come around to a more positive view on the company’s execution there. Lastly, we believe Merpay’s edge in the cashless wars is underappreciated and the fall in the share price is starting to make the stock attractive.

We discuss the details below.

In this briefing:

1. Sea Ltd: Follow-On Public Offering an Opportunistic Fundraising?
2. 7-Eleven in India: Standard Franchise Model Would Require Minor Tweaks in India
3. Lyft IPO Preview: Maybe We’ll Just Walk?

1. Sea Ltd: Follow-On Public Offering an Opportunistic Fundraising?

• We evaluate the attractiveness of Sea Ltd’s (SE US) US$1 bn follow-on public offering announced last Fri.
• This offering is a typical opportunistic fundraising as its ADR price has recently surged.
• At assumed deal price of US$21, SE post deal would trade at 4.6x 2019E P/adjusted sales (excl. 1P e-commerce sales), vs. peers average of 5.2x.
• We would recommend investors to go for the deal if it is priced at US$20 or lower.

2. 7-Eleven in India: Standard Franchise Model Would Require Minor Tweaks in India

• 7-Eleven partners up with Future Retail in an effort to enter the growing Indian Market
• Indian E-Commerce giants pose a significant threat to 7-Eleven’s plans
• 7-Eleven’s recent shift focuses more on developing markets.
• Lack of profitability in India could require changes to the standard franchise agreement in order to attract franchisees

On 28th February 2019, Seven & I Holdings (3382 JP), the operator of the world’s largest convenience store chain 7-Eleven, announced that the company has signed a master franchise agreement with Kishore Biyani’s Future Retail, the operator of the Indian large format store chain Big Bazaar, to expand the 7-Eleven convenience stores into India. Future Retail and Seven & I Holdings expect the first 7-Eleven convenience store in India to be opened in Mumbai in 2019.

3. Lyft IPO Preview: Maybe We’ll Just Walk?

Lyft Inc (0812823D US) , a leading ride-sharing company, released its IPO prospectus in order to raise 3bn USD. Our key points are below 

Intro to Lyft

Lyft – a comparison vs. peers

Strengths and Weaknesses

Financials

In this briefing:

1. 7-Eleven in India: Standard Franchise Model Would Require Minor Tweaks in India
2. Lyft IPO Preview: Maybe We’ll Just Walk?

1. 7-Eleven in India: Standard Franchise Model Would Require Minor Tweaks in India

• 7-Eleven partners up with Future Retail in an effort to enter the growing Indian Market
• Indian E-Commerce giants pose a significant threat to 7-Eleven’s plans
• 7-Eleven’s recent shift focuses more on developing markets.
• Lack of profitability in India could require changes to the standard franchise agreement in order to attract franchisees

On 28th February 2019, Seven & I Holdings (3382 JP), the operator of the world’s largest convenience store chain 7-Eleven, announced that the company has signed a master franchise agreement with Kishore Biyani’s Future Retail, the operator of the Indian large format store chain Big Bazaar, to expand the 7-Eleven convenience stores into India. Future Retail and Seven & I Holdings expect the first 7-Eleven convenience store in India to be opened in Mumbai in 2019.

2. Lyft IPO Preview: Maybe We’ll Just Walk?

Lyft Inc (0812823D US) , a leading ride-sharing company, released its IPO prospectus in order to raise 3bn USD. Our key points are below 

Intro to Lyft

Lyft – a comparison vs. peers

Strengths and Weaknesses

Financials