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Growth Ideas

Brief Growth Ideas: Goldwin Climbs Further in Japan Health and Wellness Boom and more

By | Daily Briefs, Growth Ideas

In this briefing:

  1. Goldwin Climbs Further in Japan Health and Wellness Boom
  2. ACE: Great Growth Opportunities, but the Stock Is Overpriced
  3. ILM: Leader in Home Furnishing Has More to Give
  4. Osotspa Placement – Resilient Business but Founding Family Is Selling

1. Goldwin Climbs Further in Japan Health and Wellness Boom

Goldwinsf

While lifestyle outdoor brands look like one of the more vulnerable categories in the current crisis, Goldwin Inc (8111 JP)’s renaissance continues.

The sports/outdoor firm remains overly dependent on The North Face for the bulk of sales and profits but the potential to grow other brands, including its own, and a healthy balance sheet, suggest Goldwin has enough to ride out this crisis and continue to build.

2. ACE: Great Growth Opportunities, but the Stock Is Overpriced

Slide6

We initiate coverage on ACE with a SELL recommendation based on a target price of Bt2.64, implying a downside of 36% from the current price. We derive the target price from a de-rating to a 25% premium to the sector PE ratio, meaning a 2020E 29.4x PE.

Investment thesis:

  • Power producer with high growth potential, but already priced in
  • Long-term contracts and supply control drive high profitability
  • Government driven demand can pose a risk

Risks: Adverse regulatory changes, reliance on a few customers, volatility in fuel prices, unexpected disruptions in production, delays in project execution, change in political leadership can sometimes impact companies.

3. ILM: Leader in Home Furnishing Has More to Give

Ilm%20wcb1

We initiate coverage on ILM with a BUY recommendation based on a target price of Bt15.20, implying an upside of 13% from the current price. We derive our target price from a DCF-based valuation using a WACC of 6.8% and a terminal growth rate of 2%.

Investment thesis:

  • Customized furniture brand Younique captures modern customer demand
  • Improved inventory management leads to significant cost cut
  • Overseas expansion provide future growth opportunities

Risks: Slowdown in Thai consumer spending, increased competition puts pressure on margins, worsening inventory management, and disruptions in supply chain.

4. Osotspa Placement – Resilient Business but Founding Family Is Selling

Image 58406325431593168787447

The Osathanugrah family, specifically Petch Osathanugrah, Puree Osathanugrah, Purat Osathanugrah and Orizon Limited, are looking to sell their shares in Osotspa Co Ltd (OSP TB) worth about US$108m. Post-selldown, the family’s core holdings through The Orizon Group still has a 27.9% stake in Osotspa.

We have earlier covered the IPO in:

In this note, we will look take a look at the company’s fundamentals, deal dynamics, and run the deal through our framework.

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Brief Growth Ideas: GULF: Short Term Negative Sentiments from Capital Increase and more

By | Daily Briefs, Growth Ideas

In this briefing:

  1. GULF: Short Term Negative Sentiments from Capital Increase
  2. Bilibili: Early Thoughts on Bilibili’s Secondary Listing
  3. Intel Earnings Call – Solid Revenues Partly Thanks to COVID-19
  4. Is SEMCO Entering Apple Supply Chain for Cameras?
  5. Number of Companies Conducting Share Buybacks in Korea in 2020 YTD – A Big Jump of 4.2x YoY

1. GULF: Short Term Negative Sentiments from Capital Increase

P6

We see the fall in GULF’s share price by 9% due to the news on capital increase and ADB’s divestment of stake in GULF as an opportunity for accumulative buying given there is minimal impact to our valuation. Thus, we maintain our positive outlook and recommend BUY with a target price of Bt45.4 derived using sum-of-the-parts (SOTP) methodology, implying a 78x PE’21.

Story:

  • GULF announced increase of paid-up capital from Bt10.66bn to Bt11.73bn by issuing new 1.07bn common shares through rights offering.
  • Limited impact on GULFS valuation from ADB’s divestment of 1.7% stake in the company.

2. Bilibili: Early Thoughts on Bilibili’s Secondary Listing

Image 34041890371595560338785

  • Over the past couple of weeks, several news media outlets have reported that Bilibili, a Chinese video site, is considering a secondary listing on Hong Kong Stock Exchange and join the list of companies who have successfully completed new homecoming secondary offerings.
  • It is believed that the company will sell 5-10% of its shares. Since Hong Kong’s listing rules require a track record of at least two financial years of good regulatory compliance on another qualifying exchange, Bilibili will only be able to carry out the secondary listing next year.
  • NetEase and JD.com carried out their secondary listing on the Hong Kong Stock Exchange in June 2020 following China’s most valuable company, Alibaba which secured a secondary listing on the Hong Kong Stock Exchange in November 2019, amid growing pressure from the US lawmakers for greater financial scrutiny of Chinese companies listed in the US.
  • The impact of lockdowns due to the spread of COVID-19 has been positive for Chinese streaming companies as can be witnessed from the high growth in premium paid subscribers and monthly active users during 1Q20. Furthermore, Bilibili had a reduced impact compared to other streaming companies as the company mostly relies on external content creators for its content.

3. Intel Earnings Call – Solid Revenues Partly Thanks to COVID-19

X

In Intel’s earnings call today the company showed Y/Y revenue growth of 20% that was due in part to the data center build-out caused by COVID-19 and the work-from-home wave.  Management indicated that future quarters may not be as good.

4. Is SEMCO Entering Apple Supply Chain for Cameras?

Image?1595513930

Looking into the following news that Samsung Electro Mechanics Co, Ltd. (009150 KS)  will be supplying iPhone 12 from 2H2020.  They key is the actuator which is needed for the folder zoom to work as best as possible with the lens.  I would think that SEMCO gets this business in 2022 and Samsung Electronics (005930 KS) also wins. Here’s how.

5. Number of Companies Conducting Share Buybacks in Korea in 2020 YTD – A Big Jump of 4.2x YoY

Buy 4

Two big drivers of the Korean stock market this year (especially since the lows in March 2020) have been the huge participation by local retail investors and the other major factor has been a big jump in the number of companies conducting share buybacks. In this insight, we discuss in detail the latter factor. 

As of 17 July 2020, there were 552 listed companies that have repurchased their shares or have announced that they will buy back shares since the beginning of the year. This represents a big jump of 4.2x as compared to the same period on a YoY basis.

In this insight, we have identified 179 companies that have reported share buybacks from 1 June to 23 July 2020. 

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Brief Growth Ideas: ByteDance (字节跳动) Pre-IPO: Global Ambition Meets Regulatory Challenges and more

By | Daily Briefs, Growth Ideas

In this briefing:

  1. ByteDance (字节跳动) Pre-IPO: Global Ambition Meets Regulatory Challenges
  2. ECM Weekly (26 July 2020) – Li Auto, Ant Financial, Tigermed, Mindspace, Blue Moon
  3. Hamamatsu Photonics (6965 JP): Set Up for Disappointment
  4. Nidec (6594): Key Man Risk
  5. Li Auto (理想汽车) Pre-IPO – Peer Comparison – Margins May Look like BYD, but Sells like NIO

1. ByteDance (字节跳动) Pre-IPO: Global Ambition Meets Regulatory Challenges

Image?1595752031

ByteDance IPO is one of the major listings by Chinese TMT companies that we are looking forward to. The company was valued at USD 75 billion in a pre-IPO round in October 2018 and was valued at USD 100 billion in the private transactions in May 2020. 

In our previous reports, we covered the company’s main products and its recent financials and user data in China. Although ByteDance records most of its revenues from China, one should not underestimate its potential from overseas expansion. ByteDance’s flagship app, TikTok, has become a global phenomenon. Competitors such as Facebook have not been successful in taking market shares from TikTok. In our opinion, ByteDance is the most successful Chinese TMT company in the overseas market. 

In this note, we will look at the latest numbers of the company. It set an ambitious target for its overseas operation but is now facing challenges in two of its biggest markets. We will discuss recent events and what to look forward to after the success of TikTok. 

Our previous coverage on ByteDance

2. ECM Weekly (26 July 2020) – Li Auto, Ant Financial, Tigermed, Mindspace, Blue Moon

Image 62328104621595742174568

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

The number of deals coming to market have slowed down as compared to the mad rush in June but we are now getting wind of larger IPOs that are looking to come to the market soon. Most notably, Ant Financial (1051260D CH) confirmed its plan to list on STAR and Hong Kong Exchange whereas Hangzhou Tigermed Consulting (300347 CH)‘s dual listing is said to be aiming to raise about US$1bn. Ke Yan, CFA, FRM covered the two IPOs in his notes this week:

We also covered other upcoming IPOs that have recently filed their application proof with HKEX such as Blue Moon and Jiayuan Services.

In India, Mindspace Business Parks REIT (MBP IN) launched its bookbuild and has already counted various reputable institutional investors as strategic (cornerstone) investors. Sumeet Singh shared his thoughts on valuation and deal dynamics.

China ADR listing has also been picking up some momentum despite political tensions between China and the US. KE Holdings, which is backed by Tencent Holdings (700 HK) and Softbank Group (9984 JP) and owns Lianjia and Beike, filed its prospectus with the SEC. We will share our thoughts on the IPO next week. Also, Li Auto Inc. (LI US) launched its IPO  and is expecting to raise up to US$950m. 

There were only two sell downs by investors this week as global markets looked a little shaky. Asian Development Bank partially sold its investments in Gulf Energy Development Public Company (GULF TB) and B Grimm Power (BGRIM TB) on the same day and, strangely enough, GULF announced that it plans to raise about US$1bn via a rights issue, right after the selldown was completed. 

Accuracy Rate:

Our overall accuracy rate is 73% for IPOs and 65.8% for Placements 

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

New IPO filings this week

  • KE Holdings (the U.S., US$1bn)
  • Everest Medicine (Hong Kong, ~US$300m)
  • Strawbear Entertainment (Hong Kong, ~US$100m)
  • E-Star Commercial Management (Hong Kong, ~US$100m)

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.

News on Upcoming IPOs

NameInsight
Hong Kong
Ant FinancialAnt Financial IPO Early Thought: Understand Fintech Empire, Growth & Risk Factors
Ant Financial Ant Financial (蚂蚁金服) IPO Early Thought: What’s New About the Listing News 
Blue Moon

Blue Moon Group Pre-IPO – The Positives – Dominant Market Share, Strong Online Sales 

Blue Moon

Blue Moon Group Pre-IPO – The Negatives – Flagging Offline Sales, Not Really a Primary Raising 

Blue Moon

Blue Moon: No. 1 But No Exclusive Advantage, Observation on the Ground 

ByteDance

ByteDance (字节跳动) IPO: How Jinri Toutiao Paves The Way for a Bigger Empire (Part 1)

ByteDance

ByteDance (字节跳动) Pre-IPO: Why Facebook Should Worry About TikTok 

ByteDance

ByteDance (字节跳动) IPO: Tiktok the No.1 Short Video App for a Good Reason (Part 2)

ByteDance

ByteDance (字节跳动) Pre-IPO: How Has It Done in 1H? 

ByteDance

ByteDance: The Unlisted Company’s Video Apps Leading the Market and Threatening Internet Giants 

ByteDance

ByteDance (字节跳动) Pre-IPO: Why Facebook Should Worry About TikTok 

ByteDance

ByteDance (字节跳动) Pre-IPO – Globally the Most Downloaded App for Jan 2020 Driven by India 

Genor

Genor (嘉和生物) Pre-IPO: Slow R&D Progress in the past but that Might Change 

Jiayuan Svcs

Jiayuan Services (佳源服务) Pre-IPO – Another Small Property Management Company 

Kilcoy

Kilcoy Global Foods Pre-IPO – Rapid Earnings Growth on the Back of Margin Improvement 

Kilcoy

Kilcoy Global Foods Pre-IPO – A Lot of Things Still Remain Unexplained 

Megvii Megvii (旷视) Pre-IPO – Remarkable Growth (Part 1) 
Megvii Megvii (旷视) Pre-IPO – A Bet on the Future – Segments, Revenue Drivers and Growth Potential 
Megvii Megvii (旷视) Pre-IPO – The Real Race Is in Research – Founders’ Profile and Talent 
Megvii Megvii (旷视) Pre-IPO – Competitive Landscape and Peer Analysis 
Megvii Megvii (旷视) Pre-IPO –  Initial Thoughts on Valuation 
Nongfu Nongfu Spring Pre-IPO – The Positives – Leaves One Thirsty for More 
Nongfu Nongfu Spring Pre-IPO – The Negatives – Doesn’t Need to List or Expand Production Facilities 
Nongfu Nongfu Spring Pre-IPO – Peer Comparison – Superior Margins and Growth 
Nongfu Nongfu Spring (农夫山泉) IPO: Beverage for the Young, In-Store Photos 
Ocumension Ocumension (欧康维视) Pre-IPO: All Ready for a Great Listing Except a Block Buster 
Pop Mart Pop Mart Pre-IPO – The Negatives – Is It a Brand Owner or Just a Retailer? 
Pop Mart Pop Mart Pre-IPO – The Positives – Expanding Portfolio+Wider Distribution= Explosive Earnings Growth 
Radiance Radiance Holdings (金辉控股) Pre-IPO – Property Mgt Svc Sold Out at a Ridiculously Cheap Valuation 
Shimao Svcs Shimao Services (世茂服务) Pre-IPO – Community VAS Segment Is the Star 
Simcere Simcere (先声制药) Pre-IPO: Long History but Products Concentrated 
Tasly Tasly Biopharm (天士力生物) IPO: Visible Growth from Approved Drug but Lacks Blockbusters 
Tigermed Tigermed (泰格医疗) A+H: PHIP Updates and Thoughts on Valuation 
Weihai Bank Weihai City Commercial Bank Pre-IPO – More of an Asset Manager Rather than a Lender 
WeDoctor WeDoctor (微医) Pre-IPO -App Walk Through – The Online Medical Directory and More 
WeDoctor WeDoctor (微医) Pre-IPO – A More Focused Online Medical Svc Provider than Ping An Good Doctor 
India
ASK ASK Investment Managers Pre-IPO – Riding on a Wave of Wealth 
Anmol IndAnmol Industries Pre-IPO Quick Take – No Growth, Generous Payments to Founders
Bharat Hotel

Bharat Hotels Pre-IPO – Catching up with Peers 

Burger King

Burger King India Pre-IPO – Has Been Growing Fast and Plans to Grow Even Faster 

Burger King

Burger King India Pre-IPO – Peer Comparison Yields Interesting Nuggets on Profitability and Capex 

Bajaj En

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

CAMS CAMS Pre-IPO – Quasi Monopoly Status Muddled by Inconsistent Performance 
CMS InfoCMS Info Systems Pre-IPO – When a PE Sells to Another PE… Only One Gets the Timing Right
Crystal CropCrystal Crop Protection Pre-IPO – DRHP Raises More Questions than in Answers
ESAF SFB ESAF Small Finance Bank Pre-IPO – Growing Fast but Remains Highly Dependant on a Related Party 
Equitas SFB Equitas Small Finance Bank Pre-IPO – Another Forced Small Finance Bank Listing 
Equitas SFB Equitas Small Finance Bank Pre-IPO – Another Forced Small Finance Bank Listing 
Flemingo Flemingo Travel Retail Pre-IPO – Its a Different Business in Every Country
Emami Cem Emami Cement Pre-IPO – Still in Ramp Up Phase but Shares Pledge Might Lead to an Early IPO 
IRFC Indian Railway Finance Pre-IPO – Low Risk, Low Margin Business 
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
Mindspace Mindspace Business Parks REIT Pre-IPO – Decent Growth but Not All Assets Are Equal 
Mindspace Mindspace Business Parks REIT Pre-IPO – Updates Aren’t so Great 
Mrs. BectorMrs. Bectors Food Specialities Pre-IPO Quick Take – Sales for Its Main Segment Have Been Sta

LIC

Life Insurance Corporation of India Pre-IPO – Early Take on India’s Largest IPO 

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
Penna Cem Penna Cement – Aggressive Expansion Plans Even Though Past Performance Has Been Tepid 
PNB MetPNB Metlife Pre-IPO Quick Take – Doesn’t Stack up Well Versus Its Larger Peers
Samhi Hotels Samhi Hotels Pre-IPO – Assets and Borrowings Are Growing, but Earnings Haven’t Kept Pace 
UTI AMC

UTI Asset Management Company Pre-IPO – Well past Its Remote Glory Days 

Malaysia
Mr DIY Mr D.I.Y. Pre-IPO – Largest Home Improvement Retailer in Malaysia 
Mr DIY Mr D.I.Y. Pre-IPO – Store Walk-Through and Thoughts on Value Proposition 
Mr DIY Mr D.I.Y. Pre-IPO – Peer Comparison – Small Stores with Dominant Market Share  
Mr DIY Mr D.I.Y. Pre-IPO – Assumptions and Thoughts on Valuation 
QSRQSR Brands Pre-IPO – As Healthy as Fast Food
Thailand
PTTOR PTT Oil and Retail IPO – F&B Business Is the Profit Driver 
SCGP SCGP Pre-IPO – Shift to Packaging Has Been Aiding Margins but Acquisition Drove up Leverage 
The U.S
CDP CDP Holdings Pre-IPO Review – Highly Reliant on Best Inc. 
CloudMindsCloudMinds Inc Early Thoughts – Still Nascent
Li Auto Li Auto (理想汽车) Pre-IPO – Taking the Long Way Around 
Li Auto Li Auto (理想汽车): Visit Li Auto Store and Find Out License Game 
Li Auto Li Auto (理想汽车) Pre-IPO – Peer Comparison – Margins May Look like BYD, but Sells like NIO 

3. Hamamatsu Photonics (6965 JP): Set Up for Disappointment

Hamamatsu%20op

  • Guidance was cut after disappointing 1H results, but management’s new forecast for FY Sep-20 does not include the impact of COVID-19.
  • Instead, management notes that the pandemic could reduce 2H sales by another 10% – 15%. In our estimation, this would lead to a 25% – 34% decline in FY Sep-20 net profit.
  • Management’s plan for the following two years remains unchanged. It implies a sharp rebound taking operating profit well above its FY Sep-18 peak.
  • This plan is based on capacity expansion and demand forecasts made before the outbreak of COVID-19. But capital spending is now being postponed.
  • The share price has rebounded by 47% since March. The projected P/E ratios implied by management’s plan are 33x for FY Sep-22 and 28x for FY Sep-23. The 5-year historical P/E range is 22x – 38x. 
  • As infections continue to rise and lockdowns are reimposed, management’s plan looks over-optimistic, at least for the coming syear.
  • 3Q results should be announced in early August.

4. Nidec (6594): Key Man Risk

Nidec%20origin

  • Nidec founder, Chairman and CEO NAGAMORI Shigenobu has created the world’s leading producer of small precision electric motors and related products through a combination of organic growth and M&A. Since founding the company in 1973, he has made 67 acquisitions in Asia, the Americas and Europe, almost all of them successful. In FY Mar-20, Nidec’s consolidated sales exceeded ¥1.5 trillion ($14.4 billion).
  • In Japan, Mr. Nagamori is regarded as a corporate hero. Last Friday night, he was featured in a one-hour special on NHK, the national TV broadcaster. He is mentally sharp and extremely energetic, working long hours and taking almost no days off. But his age is starting to show. On August 28, Mr. Nagamori will turn 76. This concerns some investors.
  • Also, as Campbell Gunn wrote in 🇯🇵 JAPAN • Results & Revisions 21st July – Disco Dances & The Nagamori Premium:

Nidec’s Relative Price Score is a new post-listing high following the 45% share price increase since April, although the shares are not yet Overbought. Shareholders’ Equity is the same ¥0.95 trillion as in FY18-Q3. Trailing Return on Equity, Residual Core Return and the CITC margin are all below 1%, and the market-implied perpetual growth rate is an unrealistic 5.9%. The ‘Nagamori premium’ has never been higher. We would not add to it.  

  • Nidec’s share price has rebounded from the COVID-19 sell-off and is nearly back to its January 2018 high, which discounted a future untroubled by the U.S. – China trade war, the pandemic and the possibility of a change in top management at Nidec. 
  • On April 1, that change was made when Nagamori formally appointed SEKI Jun, previously the third ranking executive at Nissan, President of Nidec. Mr. Seki brings knowledge of the auto industry and electric vehicles to the job. Since these are likely to be the company’s growth drivers for the foreseeable future, the choice seems appropriate. 
  • Seki replaced Yoshimoto Hiroyuki, who was demoted to Executive Vice President. Mr. Yoshimoto had introduced a management-by-committee system, which Nagamori now says “…was the biggest mistake since the company was founded.” Mr. Seki reports only to Mr. Nagamori.
  • Nidec is unlikely to make that mistake again, greatly reducing the risk of succession, in our estimation. 
  • Over the years, through numerous meetings with management at Nidec and its subsidiaries, we have come to believe that the Nagamori management style – fast, efficient, flexible, profitable – has been thoroughly adopted by the entire Nidec Group. 
  • For this reason, and because a successor has apparently been found, we expect no major disruption to Nidec’s business when Nagamori passes from the scene. Steve Jobs was also irreplaceable, but Tim Cook has done a good job.
  • Rather, we are concerned that valuations are at the top of their historical ranges at a time of great uncertainty. With earnings bouncing back, we would not short the stock, but after a 70% run-up since March, we would be inclined to take some profit. 

5. Li Auto (理想汽车) Pre-IPO – Peer Comparison – Margins May Look like BYD, but Sells like NIO

Image?1595565955

Li Auto Inc. (LI US) (LAI) is looking to raise up to US$1bn in its upcoming U.S. IPO.

LAI is a smart electric SUV manufacturer in China. It designs, develops, manufactures, and sells premium new energy vehicles (NEVs) in China. LAI focuses on extended range electric vehicles (EREV) and claims to be the first to successfully commercialize EREVs in China.

We have earlier covered the company in: 

In this note, we look at vehicle comparison in terms of specifications, margin comparison between companies, and share our thoughts on how Li One is positioned in the Chinese market.

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Brief Growth Ideas: ACE: Great Growth Opportunities, but the Stock Is Overpriced and more

By | Daily Briefs, Growth Ideas

In this briefing:

  1. ACE: Great Growth Opportunities, but the Stock Is Overpriced
  2. ILM: Leader in Home Furnishing Has More to Give
  3. Osotspa Placement – Resilient Business but Founding Family Is Selling

1. ACE: Great Growth Opportunities, but the Stock Is Overpriced

Slide6

We initiate coverage on ACE with a SELL recommendation based on a target price of Bt2.64, implying a downside of 36% from the current price. We derive the target price from a de-rating to a 25% premium to the sector PE ratio, meaning a 2020E 29.4x PE.

Investment thesis:

  • Power producer with high growth potential, but already priced in
  • Long-term contracts and supply control drive high profitability
  • Government driven demand can pose a risk

Risks: Adverse regulatory changes, reliance on a few customers, volatility in fuel prices, unexpected disruptions in production, delays in project execution, change in political leadership can sometimes impact companies.

2. ILM: Leader in Home Furnishing Has More to Give

Ilm%20wcb1

We initiate coverage on ILM with a BUY recommendation based on a target price of Bt15.20, implying an upside of 13% from the current price. We derive our target price from a DCF-based valuation using a WACC of 6.8% and a terminal growth rate of 2%.

Investment thesis:

  • Customized furniture brand Younique captures modern customer demand
  • Improved inventory management leads to significant cost cut
  • Overseas expansion provide future growth opportunities

Risks: Slowdown in Thai consumer spending, increased competition puts pressure on margins, worsening inventory management, and disruptions in supply chain.

3. Osotspa Placement – Resilient Business but Founding Family Is Selling

Image 58406325431593168787447

The Osathanugrah family, specifically Petch Osathanugrah, Puree Osathanugrah, Purat Osathanugrah and Orizon Limited, are looking to sell their shares in Osotspa Co Ltd (OSP TB) worth about US$108m. Post-selldown, the family’s core holdings through The Orizon Group still has a 27.9% stake in Osotspa.

We have earlier covered the IPO in:

In this note, we will look take a look at the company’s fundamentals, deal dynamics, and run the deal through our framework.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Growth Ideas: ECM Weekly (26 July 2020) – Li Auto, Ant Financial, Tigermed, Mindspace, Blue Moon and more

By | Daily Briefs, Growth Ideas

In this briefing:

  1. ECM Weekly (26 July 2020) – Li Auto, Ant Financial, Tigermed, Mindspace, Blue Moon
  2. Hamamatsu Photonics (6965 JP): Set Up for Disappointment
  3. Nidec (6594): Key Man Risk
  4. Li Auto (理想汽车) Pre-IPO – Peer Comparison – Margins May Look like BYD, but Sells like NIO
  5. GULF: Short Term Negative Sentiments from Capital Increase

1. ECM Weekly (26 July 2020) – Li Auto, Ant Financial, Tigermed, Mindspace, Blue Moon

Image 62328104621595742174568

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

The number of deals coming to market have slowed down as compared to the mad rush in June but we are now getting wind of larger IPOs that are looking to come to the market soon. Most notably, Ant Financial (1051260D CH) confirmed its plan to list on STAR and Hong Kong Exchange whereas Hangzhou Tigermed Consulting (300347 CH)‘s dual listing is said to be aiming to raise about US$1bn. Ke Yan, CFA, FRM covered the two IPOs in his notes this week:

We also covered other upcoming IPOs that have recently filed their application proof with HKEX such as Blue Moon and Jiayuan Services.

In India, Mindspace Business Parks REIT (MBP IN) launched its bookbuild and has already counted various reputable institutional investors as strategic (cornerstone) investors. Sumeet Singh shared his thoughts on valuation and deal dynamics.

China ADR listing has also been picking up some momentum despite political tensions between China and the US. KE Holdings, which is backed by Tencent Holdings (700 HK) and Softbank Group (9984 JP) and owns Lianjia and Beike, filed its prospectus with the SEC. We will share our thoughts on the IPO next week. Also, Li Auto Inc. (LI US) launched its IPO  and is expecting to raise up to US$950m. 

There were only two sell downs by investors this week as global markets looked a little shaky. Asian Development Bank partially sold its investments in Gulf Energy Development Public Company (GULF TB) and B Grimm Power (BGRIM TB) on the same day and, strangely enough, GULF announced that it plans to raise about US$1bn via a rights issue, right after the selldown was completed. 

Accuracy Rate:

Our overall accuracy rate is 73% for IPOs and 65.8% for Placements 

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

New IPO filings this week

  • KE Holdings (the U.S., US$1bn)
  • Everest Medicine (Hong Kong, ~US$300m)
  • Strawbear Entertainment (Hong Kong, ~US$100m)
  • E-Star Commercial Management (Hong Kong, ~US$100m)

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.

News on Upcoming IPOs

NameInsight
Hong Kong
Ant FinancialAnt Financial IPO Early Thought: Understand Fintech Empire, Growth & Risk Factors
Ant Financial Ant Financial (蚂蚁金服) IPO Early Thought: What’s New About the Listing News 
Blue Moon

Blue Moon Group Pre-IPO – The Positives – Dominant Market Share, Strong Online Sales 

Blue Moon

Blue Moon Group Pre-IPO – The Negatives – Flagging Offline Sales, Not Really a Primary Raising 

Blue Moon

Blue Moon: No. 1 But No Exclusive Advantage, Observation on the Ground 

ByteDance

ByteDance (字节跳动) IPO: How Jinri Toutiao Paves The Way for a Bigger Empire (Part 1)

ByteDance

ByteDance (字节跳动) Pre-IPO: Why Facebook Should Worry About TikTok 

ByteDance

ByteDance (字节跳动) IPO: Tiktok the No.1 Short Video App for a Good Reason (Part 2)

ByteDance

ByteDance (字节跳动) Pre-IPO: How Has It Done in 1H? 

ByteDance

ByteDance: The Unlisted Company’s Video Apps Leading the Market and Threatening Internet Giants 

ByteDance

ByteDance (字节跳动) Pre-IPO: Why Facebook Should Worry About TikTok 

ByteDance

ByteDance (字节跳动) Pre-IPO – Globally the Most Downloaded App for Jan 2020 Driven by India 

Genor

Genor (嘉和生物) Pre-IPO: Slow R&D Progress in the past but that Might Change 

Jiayuan Svcs

Jiayuan Services (佳源服务) Pre-IPO – Another Small Property Management Company 

Kilcoy

Kilcoy Global Foods Pre-IPO – Rapid Earnings Growth on the Back of Margin Improvement 

Kilcoy

Kilcoy Global Foods Pre-IPO – A Lot of Things Still Remain Unexplained 

Megvii Megvii (旷视) Pre-IPO – Remarkable Growth (Part 1) 
Megvii Megvii (旷视) Pre-IPO – A Bet on the Future – Segments, Revenue Drivers and Growth Potential 
Megvii Megvii (旷视) Pre-IPO – The Real Race Is in Research – Founders’ Profile and Talent 
Megvii Megvii (旷视) Pre-IPO – Competitive Landscape and Peer Analysis 
Megvii Megvii (旷视) Pre-IPO –  Initial Thoughts on Valuation 
Nongfu Nongfu Spring Pre-IPO – The Positives – Leaves One Thirsty for More 
Nongfu Nongfu Spring Pre-IPO – The Negatives – Doesn’t Need to List or Expand Production Facilities 
Nongfu Nongfu Spring Pre-IPO – Peer Comparison – Superior Margins and Growth 
Nongfu Nongfu Spring (农夫山泉) IPO: Beverage for the Young, In-Store Photos 
Ocumension Ocumension (欧康维视) Pre-IPO: All Ready for a Great Listing Except a Block Buster 
Pop Mart Pop Mart Pre-IPO – The Negatives – Is It a Brand Owner or Just a Retailer? 
Pop Mart Pop Mart Pre-IPO – The Positives – Expanding Portfolio+Wider Distribution= Explosive Earnings Growth 
Radiance Radiance Holdings (金辉控股) Pre-IPO – Property Mgt Svc Sold Out at a Ridiculously Cheap Valuation 
Shimao Svcs Shimao Services (世茂服务) Pre-IPO – Community VAS Segment Is the Star 
Simcere Simcere (先声制药) Pre-IPO: Long History but Products Concentrated 
Tasly Tasly Biopharm (天士力生物) IPO: Visible Growth from Approved Drug but Lacks Blockbusters 
Tigermed Tigermed (泰格医疗) A+H: PHIP Updates and Thoughts on Valuation 
Weihai Bank Weihai City Commercial Bank Pre-IPO – More of an Asset Manager Rather than a Lender 
WeDoctor WeDoctor (微医) Pre-IPO -App Walk Through – The Online Medical Directory and More 
WeDoctor WeDoctor (微医) Pre-IPO – A More Focused Online Medical Svc Provider than Ping An Good Doctor 
India
ASK ASK Investment Managers Pre-IPO – Riding on a Wave of Wealth 
Anmol IndAnmol Industries Pre-IPO Quick Take – No Growth, Generous Payments to Founders
Bharat Hotel

Bharat Hotels Pre-IPO – Catching up with Peers 

Burger King

Burger King India Pre-IPO – Has Been Growing Fast and Plans to Grow Even Faster 

Burger King

Burger King India Pre-IPO – Peer Comparison Yields Interesting Nuggets on Profitability and Capex 

Bajaj En

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

CAMS CAMS Pre-IPO – Quasi Monopoly Status Muddled by Inconsistent Performance 
CMS InfoCMS Info Systems Pre-IPO – When a PE Sells to Another PE… Only One Gets the Timing Right
Crystal CropCrystal Crop Protection Pre-IPO – DRHP Raises More Questions than in Answers
ESAF SFB ESAF Small Finance Bank Pre-IPO – Growing Fast but Remains Highly Dependant on a Related Party 
Equitas SFB Equitas Small Finance Bank Pre-IPO – Another Forced Small Finance Bank Listing 
Equitas SFB Equitas Small Finance Bank Pre-IPO – Another Forced Small Finance Bank Listing 
Flemingo Flemingo Travel Retail Pre-IPO – Its a Different Business in Every Country
Emami Cem Emami Cement Pre-IPO – Still in Ramp Up Phase but Shares Pledge Might Lead to an Early IPO 
IRFC Indian Railway Finance Pre-IPO – Low Risk, Low Margin Business 
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
Mindspace Mindspace Business Parks REIT Pre-IPO – Decent Growth but Not All Assets Are Equal 
Mindspace Mindspace Business Parks REIT Pre-IPO – Updates Aren’t so Great 
Mrs. BectorMrs. Bectors Food Specialities Pre-IPO Quick Take – Sales for Its Main Segment Have Been Sta

LIC

Life Insurance Corporation of India Pre-IPO – Early Take on India’s Largest IPO 

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
Penna Cem Penna Cement – Aggressive Expansion Plans Even Though Past Performance Has Been Tepid 
PNB MetPNB Metlife Pre-IPO Quick Take – Doesn’t Stack up Well Versus Its Larger Peers
Samhi Hotels Samhi Hotels Pre-IPO – Assets and Borrowings Are Growing, but Earnings Haven’t Kept Pace 
UTI AMC

UTI Asset Management Company Pre-IPO – Well past Its Remote Glory Days 

Malaysia
Mr DIY Mr D.I.Y. Pre-IPO – Largest Home Improvement Retailer in Malaysia 
Mr DIY Mr D.I.Y. Pre-IPO – Store Walk-Through and Thoughts on Value Proposition 
Mr DIY Mr D.I.Y. Pre-IPO – Peer Comparison – Small Stores with Dominant Market Share  
Mr DIY Mr D.I.Y. Pre-IPO – Assumptions and Thoughts on Valuation 
QSRQSR Brands Pre-IPO – As Healthy as Fast Food
Thailand
PTTOR PTT Oil and Retail IPO – F&B Business Is the Profit Driver 
SCGP SCGP Pre-IPO – Shift to Packaging Has Been Aiding Margins but Acquisition Drove up Leverage 
The U.S
CDP CDP Holdings Pre-IPO Review – Highly Reliant on Best Inc. 
CloudMindsCloudMinds Inc Early Thoughts – Still Nascent
Li Auto Li Auto (理想汽车) Pre-IPO – Taking the Long Way Around 
Li Auto Li Auto (理想汽车): Visit Li Auto Store and Find Out License Game 
Li Auto Li Auto (理想汽车) Pre-IPO – Peer Comparison – Margins May Look like BYD, but Sells like NIO 

2. Hamamatsu Photonics (6965 JP): Set Up for Disappointment

Hamamatsu%20op

  • Guidance was cut after disappointing 1H results, but management’s new forecast for FY Sep-20 does not include the impact of COVID-19.
  • Instead, management notes that the pandemic could reduce 2H sales by another 10% – 15%. In our estimation, this would lead to a 25% – 34% decline in FY Sep-20 net profit.
  • Management’s plan for the following two years remains unchanged. It implies a sharp rebound taking operating profit well above its FY Sep-18 peak.
  • This plan is based on capacity expansion and demand forecasts made before the outbreak of COVID-19. But capital spending is now being postponed.
  • The share price has rebounded by 47% since March. The projected P/E ratios implied by management’s plan are 33x for FY Sep-22 and 28x for FY Sep-23. The 5-year historical P/E range is 22x – 38x. 
  • As infections continue to rise and lockdowns are reimposed, management’s plan looks over-optimistic, at least for the coming syear.
  • 3Q results should be announced in early August.

3. Nidec (6594): Key Man Risk

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  • Nidec founder, Chairman and CEO NAGAMORI Shigenobu has created the world’s leading producer of small precision electric motors and related products through a combination of organic growth and M&A. Since founding the company in 1973, he has made 67 acquisitions in Asia, the Americas and Europe, almost all of them successful. In FY Mar-20, Nidec’s consolidated sales exceeded ¥1.5 trillion ($14.4 billion).
  • In Japan, Mr. Nagamori is regarded as a corporate hero. Last Friday night, he was featured in a one-hour special on NHK, the national TV broadcaster. He is mentally sharp and extremely energetic, working long hours and taking almost no days off. But his age is starting to show. On August 28, Mr. Nagamori will turn 76. This concerns some investors.
  • Also, as Campbell Gunn wrote in 🇯🇵 JAPAN • Results & Revisions 21st July – Disco Dances & The Nagamori Premium:

Nidec’s Relative Price Score is a new post-listing high following the 45% share price increase since April, although the shares are not yet Overbought. Shareholders’ Equity is the same ¥0.95 trillion as in FY18-Q3. Trailing Return on Equity, Residual Core Return and the CITC margin are all below 1%, and the market-implied perpetual growth rate is an unrealistic 5.9%. The ‘Nagamori premium’ has never been higher. We would not add to it.  

  • Nidec’s share price has rebounded from the COVID-19 sell-off and is nearly back to its January 2018 high, which discounted a future untroubled by the U.S. – China trade war, the pandemic and the possibility of a change in top management at Nidec. 
  • On April 1, that change was made when Nagamori formally appointed SEKI Jun, previously the third ranking executive at Nissan, President of Nidec. Mr. Seki brings knowledge of the auto industry and electric vehicles to the job. Since these are likely to be the company’s growth drivers for the foreseeable future, the choice seems appropriate. 
  • Seki replaced Yoshimoto Hiroyuki, who was demoted to Executive Vice President. Mr. Yoshimoto had introduced a management-by-committee system, which Nagamori now says “…was the biggest mistake since the company was founded.” Mr. Seki reports only to Mr. Nagamori.
  • Nidec is unlikely to make that mistake again, greatly reducing the risk of succession, in our estimation. 
  • Over the years, through numerous meetings with management at Nidec and its subsidiaries, we have come to believe that the Nagamori management style – fast, efficient, flexible, profitable – has been thoroughly adopted by the entire Nidec Group. 
  • For this reason, and because a successor has apparently been found, we expect no major disruption to Nidec’s business when Nagamori passes from the scene. Steve Jobs was also irreplaceable, but Tim Cook has done a good job.
  • Rather, we are concerned that valuations are at the top of their historical ranges at a time of great uncertainty. With earnings bouncing back, we would not short the stock, but after a 70% run-up since March, we would be inclined to take some profit. 

4. Li Auto (理想汽车) Pre-IPO – Peer Comparison – Margins May Look like BYD, but Sells like NIO

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Li Auto Inc. (LI US) (LAI) is looking to raise up to US$1bn in its upcoming U.S. IPO.

LAI is a smart electric SUV manufacturer in China. It designs, develops, manufactures, and sells premium new energy vehicles (NEVs) in China. LAI focuses on extended range electric vehicles (EREV) and claims to be the first to successfully commercialize EREVs in China.

We have earlier covered the company in: 

In this note, we look at vehicle comparison in terms of specifications, margin comparison between companies, and share our thoughts on how Li One is positioned in the Chinese market.

5. GULF: Short Term Negative Sentiments from Capital Increase

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We see the fall in GULF’s share price by 9% due to the news on capital increase and ADB’s divestment of stake in GULF as an opportunity for accumulative buying given there is minimal impact to our valuation. Thus, we maintain our positive outlook and recommend BUY with a target price of Bt45.4 derived using sum-of-the-parts (SOTP) methodology, implying a 78x PE’21.

Story:

  • GULF announced increase of paid-up capital from Bt10.66bn to Bt11.73bn by issuing new 1.07bn common shares through rights offering.
  • Limited impact on GULFS valuation from ADB’s divestment of 1.7% stake in the company.

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Brief Growth Ideas: ACE: Great Growth Opportunities, but the Stock Is Overpriced and more

By | Daily Briefs, Growth Ideas

In this briefing:

  1. ACE: Great Growth Opportunities, but the Stock Is Overpriced
  2. ILM: Leader in Home Furnishing Has More to Give
  3. Osotspa Placement – Resilient Business but Founding Family Is Selling
  4. Berli Jucker (BJC TB) – Calm After the Storm

1. ACE: Great Growth Opportunities, but the Stock Is Overpriced

Slide6

We initiate coverage on ACE with a SELL recommendation based on a target price of Bt2.64, implying a downside of 36% from the current price. We derive the target price from a de-rating to a 25% premium to the sector PE ratio, meaning a 2020E 29.4x PE.

Investment thesis:

  • Power producer with high growth potential, but already priced in
  • Long-term contracts and supply control drive high profitability
  • Government driven demand can pose a risk

Risks: Adverse regulatory changes, reliance on a few customers, volatility in fuel prices, unexpected disruptions in production, delays in project execution, change in political leadership can sometimes impact companies.

2. ILM: Leader in Home Furnishing Has More to Give

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We initiate coverage on ILM with a BUY recommendation based on a target price of Bt15.20, implying an upside of 13% from the current price. We derive our target price from a DCF-based valuation using a WACC of 6.8% and a terminal growth rate of 2%.

Investment thesis:

  • Customized furniture brand Younique captures modern customer demand
  • Improved inventory management leads to significant cost cut
  • Overseas expansion provide future growth opportunities

Risks: Slowdown in Thai consumer spending, increased competition puts pressure on margins, worsening inventory management, and disruptions in supply chain.

3. Osotspa Placement – Resilient Business but Founding Family Is Selling

Image 58406325431593168787447

The Osathanugrah family, specifically Petch Osathanugrah, Puree Osathanugrah, Purat Osathanugrah and Orizon Limited, are looking to sell their shares in Osotspa Co Ltd (OSP TB) worth about US$108m. Post-selldown, the family’s core holdings through The Orizon Group still has a 27.9% stake in Osotspa.

We have earlier covered the IPO in:

In this note, we will look take a look at the company’s fundamentals, deal dynamics, and run the deal through our framework.

4. Berli Jucker (BJC TB) – Calm After the Storm

Screenshot%202020 06 25%20at%203.27.48%20pm

Leading Thai consumer company Berli Jucker (BJC TB) had a reasonable start to the year but COVID-19 has taken its toll in 2Q2020, with lockdown measures and curfews forcing the closure of large swathes of its retail business. The alcohol ban also impacted its Mini BIGC business but its packaging business in Thailand and Vietnam has held up well. A conversation with management revealed an improving outlook from May onwards.

April was a tough month but May was better, with a gradual opening-up of malls and hard line and a relaxation of the alcohol ban. It was offset to some extent by increased online sales. 

The company has modified its store expansion and renovation plans slightly this year but remains positive over the longer term. 

Berli Jucker (BJC TB)‘s bottling business had a good start to the year with some benefit from stocking up ahead of curfew and the temporary alcohol ban in Thailand but Malaysia saw a temporary shutdown given extended lockdowns, which was a drag.

The aluminium can business still adjusting for the gradual departure of Carabao Group (CBG TB) but margins are improving as it strategically shifts to new 500ml cans.

The company’s consumer supply chain food business snacks business has seen some negative impact given these products are not necessities but other consumer products in non-food such as hand sanitiser, tissues, and wet wipes have more than offset this segment. 

Berli Jucker (BJC TB) looks attractive from a historical perspective trading on 20.8x FY21E PER versus its 5-year avg forward PER of 29x. It also looks attractive versus its retail peers in Thailand, trading at a discount to both CP ALL PCL (CPALL TB) and Central Retail (CRC TB), despite having a more defensive profile. 

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Brief Growth Ideas: Hygeia Healthcare (海吉亚) IPO Trading: Upside Might Take Time to Crystalize and more

By | Daily Briefs, Growth Ideas

In this briefing:

  1. Hygeia Healthcare (海吉亚) IPO Trading: Upside Might Take Time to Crystalize

1. Hygeia Healthcare (海吉亚) IPO Trading: Upside Might Take Time to Crystalize

Image 2578454031593143779176

Hygeia Healthcare raised HKD 2,072 million (USD 267 m) from its global offering and will list on the Hong Kong Stock Exchange next Monday. In our previous insights, we had discussed that Hygeia Healthcare operates oncology specialist hospitals that meet the spill-over demand from top public hospitals. It has demonstrated its capability of rapidly ramping up operation in a matter of just more than a year in many of its hospitals. 

In this note, we will look at the allocation and implications. We believe there will be at least a 26% upside from the IPO pricing. While we estimate there is a 26% upside from a valuation perspective, we note that historically post-IPO performance of hospital listings haven’t been as good as the hot biotech deals.

Our previous coverage on Hygeia

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Brief Growth Ideas: Hygeia Healthcare (海吉亚) IPO Trading: Upside Might Take Time to Crystalize and more

By | Daily Briefs, Growth Ideas

In this briefing:

  1. Hygeia Healthcare (海吉亚) IPO Trading: Upside Might Take Time to Crystalize
  2. Taiwan – Limited Impact
  3. Kangji Medical (康基医疗) IPO Trading: Ample Upsides as Peer Performed Well

1. Hygeia Healthcare (海吉亚) IPO Trading: Upside Might Take Time to Crystalize

Image 2578454031593143779176

Hygeia Healthcare raised HKD 2,072 million (USD 267 m) from its global offering and will list on the Hong Kong Stock Exchange next Monday. In our previous insights, we had discussed that Hygeia Healthcare operates oncology specialist hospitals that meet the spill-over demand from top public hospitals. It has demonstrated its capability of rapidly ramping up operation in a matter of just more than a year in many of its hospitals. 

In this note, we will look at the allocation and implications. We believe there will be at least a 26% upside from the IPO pricing. While we estimate there is a 26% upside from a valuation perspective, we note that historically post-IPO performance of hospital listings haven’t been as good as the hot biotech deals.

Our previous coverage on Hygeia

2. Taiwan – Limited Impact

Image 94402128831593139839548

Anybody looking at monthly credit costs for Taishin Financial Holding (2887 TT) may wonder about the sharp decline since March. The reality is that Taiwan has seen very little of what most all other countries in the world are showing. This is because Taiwan did not shut down its economy. There is an argument also that the country benefitted as a place for order substitution from Japan and China for some time, or perhaps still, supporting GDP growth. While banks globally will have to fare with major government stimulus, employment support and forbearance on loans, Taiwan may be one of the only countries where credit conditions remain fairly normal. Perhaps the decline in Taishin’s credit costs can continue and without any distortions from loan forbearance?

3. Kangji Medical (康基医疗) IPO Trading: Ample Upsides as Peer Performed Well

Image 35990367481593138536523

Kangji Medical raised HKD 2.9 billion (USD 381 m) from its global offering and will list on the stock exchange next Monday. In our previous insights, we had discussed that Kangji has strong financials and its future growth will be driven by the growing minimally invasive surgery market and the replacement of international products by their domestic peers.

In this note, we will look at the allocation and implications. We think as the peers performed well, there is clearly upside post-listing.

Our previous coverage on Kangji Medical

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Brief Growth Ideas: Hygeia Healthcare (海吉亚) IPO Trading: Upside Might Take Time to Crystalize and more

By | Daily Briefs, Growth Ideas

In this briefing:

  1. Hygeia Healthcare (海吉亚) IPO Trading: Upside Might Take Time to Crystalize
  2. Taiwan – Limited Impact
  3. Kangji Medical (康基医疗) IPO Trading: Ample Upsides as Peer Performed Well
  4. Smoore Intl (思摩尔国际) Pre-IPO: PHIP Updates, A Slow yet Encouraging Start in 2020

1. Hygeia Healthcare (海吉亚) IPO Trading: Upside Might Take Time to Crystalize

Image 2578454031593143779176

Hygeia Healthcare raised HKD 2,072 million (USD 267 m) from its global offering and will list on the Hong Kong Stock Exchange next Monday. In our previous insights, we had discussed that Hygeia Healthcare operates oncology specialist hospitals that meet the spill-over demand from top public hospitals. It has demonstrated its capability of rapidly ramping up operation in a matter of just more than a year in many of its hospitals. 

In this note, we will look at the allocation and implications. We believe there will be at least a 26% upside from the IPO pricing. While we estimate there is a 26% upside from a valuation perspective, we note that historically post-IPO performance of hospital listings haven’t been as good as the hot biotech deals.

Our previous coverage on Hygeia

2. Taiwan – Limited Impact

Image 94402128831593139839548

Anybody looking at monthly credit costs for Taishin Financial Holding (2887 TT) may wonder about the sharp decline since March. The reality is that Taiwan has seen very little of what most all other countries in the world are showing. This is because Taiwan did not shut down its economy. There is an argument also that the country benefitted as a place for order substitution from Japan and China for some time, or perhaps still, supporting GDP growth. While banks globally will have to fare with major government stimulus, employment support and forbearance on loans, Taiwan may be one of the only countries where credit conditions remain fairly normal. Perhaps the decline in Taishin’s credit costs can continue and without any distortions from loan forbearance?

3. Kangji Medical (康基医疗) IPO Trading: Ample Upsides as Peer Performed Well

Image 35990367481593138536523

Kangji Medical raised HKD 2.9 billion (USD 381 m) from its global offering and will list on the stock exchange next Monday. In our previous insights, we had discussed that Kangji has strong financials and its future growth will be driven by the growing minimally invasive surgery market and the replacement of international products by their domestic peers.

In this note, we will look at the allocation and implications. We think as the peers performed well, there is clearly upside post-listing.

Our previous coverage on Kangji Medical

4. Smoore Intl (思摩尔国际) Pre-IPO: PHIP Updates, A Slow yet Encouraging Start in 2020

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Smoore Tech is a leading e-cigarette and component manufacturer in China. The company was delisted from the venture board in China, the NEEQ, and is seeking a listing in Hong Kong to raise up to USD 400 million. 

In our previous notes, we have looked at the company’s background, its brief financials, and its shareholders. We were impressed by the company’s stellar growth in the past and its technology-driven business. The company is the number one e-cigarette OEM player in the world with the US being its largest source of revenue. The company has a capacity expansion plan in the next three years to replace its old production base with a new large scale plant in Jiangmen Industrial Park. We also looked at the latest regulatory landscape on e-cigarettes in the company’s main market, the US and China. We think the FDA’s deadline for pre-marketing approval in 2020, even if pushed forward, will not present a major problem to the company’s blue-chip clients. Looking at the development in China, we also believe that the e-cigarette will be regulated in a similar manner as it is in the US. There might be short term hiccups but a regulatory framework that benefits the general public is long term positive for the e-cigarette industry. We noted that there was a lack of presence of institutional investors in its pre-IPO round of investment. 

In this note, we look at the Smoore International’s latest prospectus as well as financials disclosed by its parent company, EVE Energy. While the revenue growth was strong in 2H2019, we see weakness in the US and Japan. Sales in China were affected in 2H2019 by the online sales ban of e-cig and in 1H2020 by the COVID-19. Having said that, we believe that COVID-19 is a one-off event for the company and the growth in China will return. We remain positive on the company and think the heavy capex and the R&D spending will impose a high barrier to entry for the business.

Our previous coverage on Smoore International

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Brief Growth Ideas: GreenTown Management Holdings (绿城管理) Pre-IPO – Peer Comparison and Preliminary Thoughts on Valuation and more

By | Daily Briefs, Growth Ideas

In this briefing:

  1. GreenTown Management Holdings (绿城管理) Pre-IPO – Peer Comparison and Preliminary Thoughts on Valuation

1. GreenTown Management Holdings (绿城管理) Pre-IPO – Peer Comparison and Preliminary Thoughts on Valuation

Image?1593132963

GreenTown Management Holdings (GTMH HK) is looking to raise US$250m in its upcoming Hong Kong IPO.

GTMH is a project management company in China with presence in 84 cities across 25 provinces, municipalities, and autonomous regions. It was the largest project management company in China in terms of accumulated contracted GFA between 2016 to 2018.

While growth has been strong, we think that the relatively poorer earnings visibility stemming from the contract duration coupled with the odd strategy of expanding via business partners means that GTMH should trade at a discount to listed property management peers.

In this note, we will look at the FY2019 updates from PHIP, share our thoughts on peers and preliminary valuation.

We have previously covered the company in:

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