In this briefing:
- Kangji Medical (康基医疗) IPO: Hot Deal with Some Room for Non-Cornerstone
- Healthcare Global: An Attractive Spread Trade
Kangji Medical is a domestic leader in minimally invasive surgery devices. It has three main product types, trocars, polymer ligation clips, and forceps. The company started book building to raise up to USD 403m to list in Hong Kong.
In our previous note, we discussed that the company experienced strong growth in the past six years during which the company’s revenue tripled. We believe that its future growth will be driven by the growing minimally invasive surgery market and the replacement of international products by their domestic peers. Unlike other medical devices listings in Hong Kong, the company’s management team does not have impressive working experience prior to founding the company. We also note that the company has a strong cash flow plus a flexible setting for production capacities. Thus, it does not really have a strong need for capital raising to fund expansion. Kangji Medical’s sales were adversely affected by the COVID-19 but the sales rebounded sharply in April and we are not too concerned about the short term impact as non-urgent minimally invasive surgeries should come back after the pandemic. We forecast that the company would take up market share from peers in the next two years and value the company at USD 3.4 billion.
In this note, we will provide our thoughts on the price range. We think while the valuation range provides a decent upside, the cornerstone stake is also smaller than previous hot deals therefore leaving some room for non-cornerstone investors.
Our previous coverage on Kangji Medical
Contrary to our expectations, CVC’s offer to acquire a substantial stake in Healthcare Global Enterprises (HCG IN) has been approved by the shareholders with a thumping majority. Nonetheless, as highlighted in our earlier note, even in this scenario, the opportunity is attractive with a gross spread of 7.8% (potential IRR of ~50%) as per the last closing price of INR 120.55. We continue to maintain that HCG remains an attractive opportunity for both event-driven and fundamental investors.
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