Hong Kong

In this briefing:

1. Dongzheng Auto Finance (东正汽车金融) IPO Review – Relaunched at Lower Price
2. Gold May Rise on Lower Real Ylds; Canada Leads Fall in Real Ylds; Aust Inflation Expectations Slump
3. RRG Weekly – Fed Highlights Headwinds – Greece Greases Growth – Thai Election Sun Too Close to Call
4. Is There Still a Bright Future for FutureBright?
5. Up Fintech (Tiger Brokers) IPO Trading Update – First Day Volume Was Higher than Futu, Close to QTT

1. Dongzheng Auto Finance (东正汽车金融) IPO Review – Relaunched at Lower Price

Dongzheng Automotive Finance (2718 HK) (DAF) re-launched its IPO at a lower fixed price of HK$3.06 per share, expecting to raise about US$208m. We have covered the fundamentals and valuation of the company 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

In this insight, we will only look at the company’s updated valuation and re-run the deal through IPO framework.

2. Gold May Rise on Lower Real Ylds; Canada Leads Fall in Real Ylds; Aust Inflation Expectations Slump

• The broad decline in global bond yields and curve flattening suggest that the market has become more concerned about weak global economic growth.
• The fall in yields is at odds with the rise in equity and commodity prices this year, but the later may have lost upward momentum.
• Safe haven currencies, gold and JPY, have strengthened this week and are likely to perform well if yields remain low.
• US real yields have fallen more than nominal yields this year, with a partial recovery in inflation expectations from their fall in Q4 last year. Lower real yields point to weaker fundamental support for the USD, and further support safe havens like gold.
• Canadian real long term yields have fallen more abruptly than in the USA, into negative territory, suggesting the outlook for the Canadian economy has deteriorated more than most. This may relate to concern over a peaking in the Canadian housing market. The fall in real yields suggests further downside risk for the CAD.
• Long term inflation breakevens have fallen in Australia sharply since September last year to now well below the RBA’s 2.5% inflation target.
• Australian leading indicators of the labour market have turned lower, albeit from solid levels, and may be enough, combined with broader evidence of weaker growth, for the RBA to announce an easing bias as soon as April.
• Asian trade data and flash PMI data for major countries point to ongoing and significant weakness in global trade.

3. RRG Weekly – Fed Highlights Headwinds – Greece Greases Growth – Thai Election Sun Too Close to Call

• US: Fed Sees Tailwinds from Global Growth Shifting to Headwinds from China and Europe.
• Greece: Growth supported by ‘Golden Visa’ (5-year visa for investing 250,000 Euro) and strong tourism arrivals. 2.3% GDP in 2020.
• Thailand: Sunday election between Shinawatra-linked Pheu Thai Party and military backed Palang Pracharat Party. Too close to call.
• Brazil: Former Brazilian President Michel Temer has been arrested in São Paulo as part of the Car Wash corruption investigation. Brazil stocks fell on the news.

4. Is There Still a Bright Future for FutureBright?

Almost 12 months after posting our initial thesis on Future Bright Holdings (703 HK)Gambling on a Bright Future, we review FutureBright’s most recent results, raising questions on whether stalling improvement in the core restaurant business performance warrants taking chips off the table while waiting for key catalysts to materialise.

5. Up Fintech (Tiger Brokers) IPO Trading Update – First Day Volume Was Higher than Futu, Close to QTT

Up Fintech (TIGR US)‘s IPO was priced at US$8/share, above its range of US$5-7/ADS raising at total of US$111m, including the proceeds from the private placement with Interactive Brokers Group, Inc (IBKR US). 

In my earlier insights, I looked at the company’s background,  past financial performance, scored the deal on our IPO framework and compared it to Futu Holdings Ltd (FHL US): 

• Futu Holdings IPO Quick Note – Comparison with Tiger Brokers – Same Market, Different Economics
• Up Fintech (Tiger Brokers) Pre-IPO Quick Note – Much Too Reliant on IBKR
• Up Fintech (Tiger Brokers) IPO Quick Take – It’s Not like Futu, Won’t Perform like It Either

In this insight, I will re-visit some of the deal dynamics, comment on share price drivers and provide a table with implied valuations.

In this briefing:

1. Another US LNG Project Goes Ahead: Positive for the Contractors; Negative for Others Looking to FID
2. NextDecade’s Oil-Linked Contract Offering Signals More Hurdles Ahead for US LNG Project Developers
3. ECM Weekly (23 February 2019) – Futu, CStone, Dexin, New Century, AB InBev, MabPharma

1. Another US LNG Project Goes Ahead: Positive for the Contractors; Negative for Others Looking to FID

US private LNG company Venture Global is starting construction on its 10 million ton per annum (mtpa) US LNG export facility in Louisiana after gaining approval from the US Federal Energy Regulatory Commission (FERC). This is positive for the LNG contractor market and we discuss the companies involved in the project. 

This follows final investment decision taken on Golden Pass (Exxon and Qatar Proceed with US$10bn Golden Pass LNG Terminal: Positive for Chiyoda and MDR US) and supports our thesis of a large wave of new projects that will be sanctioned in the coming months (A Huge Wave of New LNG Projects Coming in the Next 18 Months: Positive for The E&C Companies). This was viewed as a relatively speculative project and with aggressively low cost and timing estimates.

2. NextDecade’s Oil-Linked Contract Offering Signals More Hurdles Ahead for US LNG Project Developers

NextDecade Corp (NEXT US) recently announced that it started offering long-term contracts indexed to the crude Brent in order to attract more LNG buyers. This follows the agreement reached by Tellurian Inc (TELL US) with Vitol back in December to index a long term contract with the Asian LNG price benchmark JKM. While typically US LNG projects are indexed to the Henry Hub, declining crude oil and LNG prices seem to have diminished the appeal of the Henry Hub pricing compared to the oil indexation. This insight takes a look at the latest trends in the LNG markets to assess which companies are taking the lead in the race to bring to FID in 2019 their proposed LNG projects.

Exhibit 1: NextDecade adds Brent indexation to its commercial offering

3. ECM Weekly (23 February 2019) – Futu, CStone, Dexin, New Century, AB InBev, MabPharma

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

Accuracy Rate:

Our overall accuracy rate is 72.1% for IPOs and 63.7% for Placements 

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

New IPO filings

• Jinxin Fertility Group (US$600m, Hong Kong)

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

• Fund Companies Ask Hong Kong to Relax IPO Investment Rules
• Chinese Tech Giants Seek Further IPO Rule Changes in Hong Kong
• Sembcorp could delay India energy IPO due to market conditions
• PNB Metlife IPO likely next fiscal

Smartkarma Community’s this week Analysis on Upcoming IPO

• New Century Hotel Mgmt IPO Preview: Two-Speed Businesses
• New Century Hotel (浙江開元酒店) Pre-IPO – Improved Profitability Not Driven by Underlying Operations
• Ab InBev Asia Pre-IPO – Quick Note – More like CR Beer Rather than Tsingtao
• MabPharma (迈博医药) IPO: Assembled for a Trade?
• Hyundai Autoever IPO Preview
• Hyundai Autoever IPO Pricing: Likely to Be a Dull Event Given No Growth Story & Glovis Merger
• HLX02: Innovation Could Overtake

In this briefing:

1. Another US LNG Project Goes Ahead: Positive for the Contractors; Negative for Others Looking to FID
2. NextDecade’s Oil-Linked Contract Offering Signals More Hurdles Ahead for US LNG Project Developers
3. ECM Weekly (23 February 2019) – Futu, CStone, Dexin, New Century, AB InBev, MabPharma
4. UK Trip – Wake up to Deflation Risk

1. Another US LNG Project Goes Ahead: Positive for the Contractors; Negative for Others Looking to FID

US private LNG company Venture Global is starting construction on its 10 million ton per annum (mtpa) US LNG export facility in Louisiana after gaining approval from the US Federal Energy Regulatory Commission (FERC). This is positive for the LNG contractor market and we discuss the companies involved in the project. 

This follows final investment decision taken on Golden Pass (Exxon and Qatar Proceed with US$10bn Golden Pass LNG Terminal: Positive for Chiyoda and MDR US) and supports our thesis of a large wave of new projects that will be sanctioned in the coming months (A Huge Wave of New LNG Projects Coming in the Next 18 Months: Positive for The E&C Companies). This was viewed as a relatively speculative project and with aggressively low cost and timing estimates.

2. NextDecade’s Oil-Linked Contract Offering Signals More Hurdles Ahead for US LNG Project Developers

NextDecade Corp (NEXT US) recently announced that it started offering long-term contracts indexed to the crude Brent in order to attract more LNG buyers. This follows the agreement reached by Tellurian Inc (TELL US) with Vitol back in December to index a long term contract with the Asian LNG price benchmark JKM. While typically US LNG projects are indexed to the Henry Hub, declining crude oil and LNG prices seem to have diminished the appeal of the Henry Hub pricing compared to the oil indexation. This insight takes a look at the latest trends in the LNG markets to assess which companies are taking the lead in the race to bring to FID in 2019 their proposed LNG projects.

Exhibit 1: NextDecade adds Brent indexation to its commercial offering

3. ECM Weekly (23 February 2019) – Futu, CStone, Dexin, New Century, AB InBev, MabPharma

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

Accuracy Rate:

Our overall accuracy rate is 72.1% for IPOs and 63.7% for Placements 

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

New IPO filings

• Jinxin Fertility Group (US$600m, Hong Kong)

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

• Fund Companies Ask Hong Kong to Relax IPO Investment Rules
• Chinese Tech Giants Seek Further IPO Rule Changes in Hong Kong
• Sembcorp could delay India energy IPO due to market conditions
• PNB Metlife IPO likely next fiscal

Smartkarma Community’s this week Analysis on Upcoming IPO

• New Century Hotel Mgmt IPO Preview: Two-Speed Businesses
• New Century Hotel (浙江開元酒店) Pre-IPO – Improved Profitability Not Driven by Underlying Operations
• Ab InBev Asia Pre-IPO – Quick Note – More like CR Beer Rather than Tsingtao
• MabPharma (迈博医药) IPO: Assembled for a Trade?
• Hyundai Autoever IPO Preview
• Hyundai Autoever IPO Pricing: Likely to Be a Dull Event Given No Growth Story & Glovis Merger
• HLX02: Innovation Could Overtake

4. UK Trip – Wake up to Deflation Risk

By Bo Zhuang, Chief China Economist

• London-based investors are turning cautiously optimistic on China’s growth outlook amid the latest easing measures in January
• There is still little awareness about the rising deflation risk
• Interest in the trade war has subsided

In this briefing:

1. Gold May Rise on Lower Real Ylds; Canada Leads Fall in Real Ylds; Aust Inflation Expectations Slump
2. RRG Weekly – Fed Highlights Headwinds – Greece Greases Growth – Thai Election Sun Too Close to Call
3. Is There Still a Bright Future for FutureBright?
4. Up Fintech (Tiger Brokers) IPO Trading Update – First Day Volume Was Higher than Futu, Close to QTT
5. Wuxi Biologics Placement – Past Deals Have Done Well but Progressive Returns Are Getting Lower

1. Gold May Rise on Lower Real Ylds; Canada Leads Fall in Real Ylds; Aust Inflation Expectations Slump

• The broad decline in global bond yields and curve flattening suggest that the market has become more concerned about weak global economic growth.
• The fall in yields is at odds with the rise in equity and commodity prices this year, but the later may have lost upward momentum.
• Safe haven currencies, gold and JPY, have strengthened this week and are likely to perform well if yields remain low.
• US real yields have fallen more than nominal yields this year, with a partial recovery in inflation expectations from their fall in Q4 last year. Lower real yields point to weaker fundamental support for the USD, and further support safe havens like gold.
• Canadian real long term yields have fallen more abruptly than in the USA, into negative territory, suggesting the outlook for the Canadian economy has deteriorated more than most. This may relate to concern over a peaking in the Canadian housing market. The fall in real yields suggests further downside risk for the CAD.
• Long term inflation breakevens have fallen in Australia sharply since September last year to now well below the RBA’s 2.5% inflation target.
• Australian leading indicators of the labour market have turned lower, albeit from solid levels, and may be enough, combined with broader evidence of weaker growth, for the RBA to announce an easing bias as soon as April.
• Asian trade data and flash PMI data for major countries point to ongoing and significant weakness in global trade.

2. RRG Weekly – Fed Highlights Headwinds – Greece Greases Growth – Thai Election Sun Too Close to Call

• US: Fed Sees Tailwinds from Global Growth Shifting to Headwinds from China and Europe.
• Greece: Growth supported by ‘Golden Visa’ (5-year visa for investing 250,000 Euro) and strong tourism arrivals. 2.3% GDP in 2020.
• Thailand: Sunday election between Shinawatra-linked Pheu Thai Party and military backed Palang Pracharat Party. Too close to call.
• Brazil: Former Brazilian President Michel Temer has been arrested in São Paulo as part of the Car Wash corruption investigation. Brazil stocks fell on the news.

3. Is There Still a Bright Future for FutureBright?

Almost 12 months after posting our initial thesis on Future Bright Holdings (703 HK)Gambling on a Bright Future, we review FutureBright’s most recent results, raising questions on whether stalling improvement in the core restaurant business performance warrants taking chips off the table while waiting for key catalysts to materialise.

4. Up Fintech (Tiger Brokers) IPO Trading Update – First Day Volume Was Higher than Futu, Close to QTT

Up Fintech (TIGR US)‘s IPO was priced at US$8/share, above its range of US$5-7/ADS raising at total of US$111m, including the proceeds from the private placement with Interactive Brokers Group, Inc (IBKR US). 

In my earlier insights, I looked at the company’s background,  past financial performance, scored the deal on our IPO framework and compared it to Futu Holdings Ltd (FHL US): 

• Futu Holdings IPO Quick Note – Comparison with Tiger Brokers – Same Market, Different Economics
• Up Fintech (Tiger Brokers) Pre-IPO Quick Note – Much Too Reliant on IBKR
• Up Fintech (Tiger Brokers) IPO Quick Take – It’s Not like Futu, Won’t Perform like It Either

In this insight, I will re-visit some of the deal dynamics, comment on share price drivers and provide a table with implied valuations.

5. Wuxi Biologics Placement – Past Deals Have Done Well but Progressive Returns Are Getting Lower

Biologics holdings is looking to raise upto US$517m by selling a 4.2% stake in Wuxi Biologics (Cayman) Inc (2269 HK). This will be fourth placement by the company since it listed less than two years ago. Below is a link to our coverage of the listing and the earlier placement:

• Jun 2017 – US$500m: WuXi Biologics IPO Review – An Opportunity to Get Exposure to Biologics in China
• Dec 2017- US$550m: Wuxi Biologics Placement – Selldown Right when Lockup Expires Suggests Eagerness to Offload
• Mar 2018 – US$600m: Wuxi Biologics Placement – In Time for the Next Lock-Up, Returns Will Probably Not Match Prior Ones
• Jun 2018 – US$500m: Wuxi Biologics Placement – Probably Not a Surprise to Sell Again when Lock-Up Expires

Each of the past placement has been of a similar size and has generally done well. The company recently reported results which were ahead of street estimates. The deal scores a marginal positive score on our framework but there is still a lot more selling left once the 90-day lock-up expires.

In this briefing:

1. Foldable Smartphones to Debut in 2019; Will It Aid an Industry Turnaround?

1. Foldable Smartphones to Debut in 2019; Will It Aid an Industry Turnaround?

Plans regarding Samsung and Huawei’s foldable smartphones are out. The companies, which happen to be two of the largest contenders in the smartphone landscape are expected to unveil their foldable smartphone prototypes this month. In 4Q2018, Samsung, coming in first place, held a market share of 18.7% while Huawei, in third place, held a market share of 16.1%. Both companies are following different strategies when it comes to their foldable phone models.

The concept of foldable phones revolves around devices that can be folded into the size of a smartphone or opened up in to the size of a tablet. Huawei is said to be planning to introduce their foldable smartphone with 5G compatibility while Samsung is planning to release their foldable model with 4G compatibility. The market leader aims to leverage the expertise it has gained on its display technologies in its foldable smartphones.

In this briefing:

1. RRG Weekly – Fed Highlights Headwinds – Greece Greases Growth – Thai Election Sun Too Close to Call
2. Is There Still a Bright Future for FutureBright?
3. Up Fintech (Tiger Brokers) IPO Trading Update – First Day Volume Was Higher than Futu, Close to QTT
4. Wuxi Biologics Placement – Past Deals Have Done Well but Progressive Returns Are Getting Lower
5. Starboard Value. The Game Changing Activist Investor That Doesn’t Take No For An Answer.

1. RRG Weekly – Fed Highlights Headwinds – Greece Greases Growth – Thai Election Sun Too Close to Call

• US: Fed Sees Tailwinds from Global Growth Shifting to Headwinds from China and Europe.
• Greece: Growth supported by ‘Golden Visa’ (5-year visa for investing 250,000 Euro) and strong tourism arrivals. 2.3% GDP in 2020.
• Thailand: Sunday election between Shinawatra-linked Pheu Thai Party and military backed Palang Pracharat Party. Too close to call.
• Brazil: Former Brazilian President Michel Temer has been arrested in São Paulo as part of the Car Wash corruption investigation. Brazil stocks fell on the news.

2. Is There Still a Bright Future for FutureBright?

Almost 12 months after posting our initial thesis on Future Bright Holdings (703 HK)Gambling on a Bright Future, we review FutureBright’s most recent results, raising questions on whether stalling improvement in the core restaurant business performance warrants taking chips off the table while waiting for key catalysts to materialise.

3. Up Fintech (Tiger Brokers) IPO Trading Update – First Day Volume Was Higher than Futu, Close to QTT

Up Fintech (TIGR US)‘s IPO was priced at US$8/share, above its range of US$5-7/ADS raising at total of US$111m, including the proceeds from the private placement with Interactive Brokers Group, Inc (IBKR US). 

In my earlier insights, I looked at the company’s background,  past financial performance, scored the deal on our IPO framework and compared it to Futu Holdings Ltd (FHL US): 

• Futu Holdings IPO Quick Note – Comparison with Tiger Brokers – Same Market, Different Economics
• Up Fintech (Tiger Brokers) Pre-IPO Quick Note – Much Too Reliant on IBKR
• Up Fintech (Tiger Brokers) IPO Quick Take – It’s Not like Futu, Won’t Perform like It Either

In this insight, I will re-visit some of the deal dynamics, comment on share price drivers and provide a table with implied valuations.

4. Wuxi Biologics Placement – Past Deals Have Done Well but Progressive Returns Are Getting Lower

Biologics holdings is looking to raise upto US$517m by selling a 4.2% stake in Wuxi Biologics (Cayman) Inc (2269 HK). This will be fourth placement by the company since it listed less than two years ago. Below is a link to our coverage of the listing and the earlier placement:

• Jun 2017 – US$500m: WuXi Biologics IPO Review – An Opportunity to Get Exposure to Biologics in China
• Dec 2017- US$550m: Wuxi Biologics Placement – Selldown Right when Lockup Expires Suggests Eagerness to Offload
• Mar 2018 – US$600m: Wuxi Biologics Placement – In Time for the Next Lock-Up, Returns Will Probably Not Match Prior Ones
• Jun 2018 – US$500m: Wuxi Biologics Placement – Probably Not a Surprise to Sell Again when Lock-Up Expires

Each of the past placement has been of a similar size and has generally done well. The company recently reported results which were ahead of street estimates. The deal scores a marginal positive score on our framework but there is still a lot more selling left once the 90-day lock-up expires.

5. Starboard Value. The Game Changing Activist Investor That Doesn’t Take No For An Answer.

New York based activist investor firm Starboard Value has been intricately involved in shaping the  fortunes and futures of two high profile technology companies in recent years, Marvell and Mellanox. The firm first to prominence some five years ago when they were the first among their peers to accomplish the extraordinary feat of replacing the CEO and entire board of Fortune 500 restaurant group Darden, while holding less than 10% of the company’s shares.

In the wake of their Darden coup, the firm has gone from strength to strength. To date the firm has taken positions in a total of 105 publicly listed companies, replacing or adding some 211 directors on over 60 corporate boards.

On March 7’th 2019, Starboard Value announced the acquisition of a 4% stake in US comms infrastructure firm Zayo. In the intervening period, Zayo’s share price has risen by 14% as canny investors scramble to partake in the goodness that will surely be extracted by the activist firm that simply doesn’t take no for an answer. 

In this briefing:

1. ECM Weekly (23 February 2019) – Futu, CStone, Dexin, New Century, AB InBev, MabPharma
2. UK Trip – Wake up to Deflation Risk
3. Confluence of Politics – China Bans Australian Coal Imports (Flash Note)
4. Foldable Smartphones to Debut in 2019; Will It Aid an Industry Turnaround?

1. ECM Weekly (23 February 2019) – Futu, CStone, Dexin, New Century, AB InBev, MabPharma

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

Accuracy Rate:

Our overall accuracy rate is 72.1% for IPOs and 63.7% for Placements 

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

New IPO filings

• Jinxin Fertility Group (US$600m, Hong Kong)

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

• Fund Companies Ask Hong Kong to Relax IPO Investment Rules
• Chinese Tech Giants Seek Further IPO Rule Changes in Hong Kong
• Sembcorp could delay India energy IPO due to market conditions
• PNB Metlife IPO likely next fiscal

Smartkarma Community’s this week Analysis on Upcoming IPO

• New Century Hotel Mgmt IPO Preview: Two-Speed Businesses
• New Century Hotel (浙江開元酒店) Pre-IPO – Improved Profitability Not Driven by Underlying Operations
• Ab InBev Asia Pre-IPO – Quick Note – More like CR Beer Rather than Tsingtao
• MabPharma (迈博医药) IPO: Assembled for a Trade?
• Hyundai Autoever IPO Preview
• Hyundai Autoever IPO Pricing: Likely to Be a Dull Event Given No Growth Story & Glovis Merger
• HLX02: Innovation Could Overtake

2. UK Trip – Wake up to Deflation Risk

By Bo Zhuang, Chief China Economist

• London-based investors are turning cautiously optimistic on China’s growth outlook amid the latest easing measures in January
• There is still little awareness about the rising deflation risk
• Interest in the trade war has subsided

3. Confluence of Politics – China Bans Australian Coal Imports (Flash Note)

• China implements coal import caps specifically targeting Australian producers
• Unclear as to how widespread these restrictions will eventually be
• Thermal and metallurgical coal exports affected
• Impacting ~A$8.4Bn of metallurgical coal exports; or 4.4% of national income
• Thermal coal exports affected worth ~A$3.8Bn; or an additional 2% of national income
• Collectively, thermal and metallurgical exports equate to ~0.9% of Australian annual GDP 
• Actions appear to be a response to blocking Huawei bidding for the 5G network
• Recent Chinese cyber-attacks harden Australian Government’s resolve
• Expect similar Chinese measures (in time) to be applied to other commodities and industries

4. Foldable Smartphones to Debut in 2019; Will It Aid an Industry Turnaround?

Plans regarding Samsung and Huawei’s foldable smartphones are out. The companies, which happen to be two of the largest contenders in the smartphone landscape are expected to unveil their foldable smartphone prototypes this month. In 4Q2018, Samsung, coming in first place, held a market share of 18.7% while Huawei, in third place, held a market share of 16.1%. Both companies are following different strategies when it comes to their foldable phone models.

The concept of foldable phones revolves around devices that can be folded into the size of a smartphone or opened up in to the size of a tablet. Huawei is said to be planning to introduce their foldable smartphone with 5G compatibility while Samsung is planning to release their foldable model with 4G compatibility. The market leader aims to leverage the expertise it has gained on its display technologies in its foldable smartphones.

In this briefing:

1. Is There Still a Bright Future for FutureBright?
2. Up Fintech (Tiger Brokers) IPO Trading Update – First Day Volume Was Higher than Futu, Close to QTT
3. Wuxi Biologics Placement – Past Deals Have Done Well but Progressive Returns Are Getting Lower
4. Starboard Value. The Game Changing Activist Investor That Doesn’t Take No For An Answer.
5. Tencent Music 4Q18 Quick Note – Growth on Track, Margins Could Drag – Stock Price Needs a Breather

1. Is There Still a Bright Future for FutureBright?

Almost 12 months after posting our initial thesis on Future Bright Holdings (703 HK)Gambling on a Bright Future, we review FutureBright’s most recent results, raising questions on whether stalling improvement in the core restaurant business performance warrants taking chips off the table while waiting for key catalysts to materialise.

2. Up Fintech (Tiger Brokers) IPO Trading Update – First Day Volume Was Higher than Futu, Close to QTT

Up Fintech (TIGR US)‘s IPO was priced at US$8/share, above its range of US$5-7/ADS raising at total of US$111m, including the proceeds from the private placement with Interactive Brokers Group, Inc (IBKR US). 

In my earlier insights, I looked at the company’s background,  past financial performance, scored the deal on our IPO framework and compared it to Futu Holdings Ltd (FHL US): 

• Futu Holdings IPO Quick Note – Comparison with Tiger Brokers – Same Market, Different Economics
• Up Fintech (Tiger Brokers) Pre-IPO Quick Note – Much Too Reliant on IBKR
• Up Fintech (Tiger Brokers) IPO Quick Take – It’s Not like Futu, Won’t Perform like It Either

In this insight, I will re-visit some of the deal dynamics, comment on share price drivers and provide a table with implied valuations.

3. Wuxi Biologics Placement – Past Deals Have Done Well but Progressive Returns Are Getting Lower

Biologics holdings is looking to raise upto US$517m by selling a 4.2% stake in Wuxi Biologics (Cayman) Inc (2269 HK). This will be fourth placement by the company since it listed less than two years ago. Below is a link to our coverage of the listing and the earlier placement:

• Jun 2017 – US$500m: WuXi Biologics IPO Review – An Opportunity to Get Exposure to Biologics in China
• Dec 2017- US$550m: Wuxi Biologics Placement – Selldown Right when Lockup Expires Suggests Eagerness to Offload
• Mar 2018 – US$600m: Wuxi Biologics Placement – In Time for the Next Lock-Up, Returns Will Probably Not Match Prior Ones
• Jun 2018 – US$500m: Wuxi Biologics Placement – Probably Not a Surprise to Sell Again when Lock-Up Expires

Each of the past placement has been of a similar size and has generally done well. The company recently reported results which were ahead of street estimates. The deal scores a marginal positive score on our framework but there is still a lot more selling left once the 90-day lock-up expires.

4. Starboard Value. The Game Changing Activist Investor That Doesn’t Take No For An Answer.

New York based activist investor firm Starboard Value has been intricately involved in shaping the  fortunes and futures of two high profile technology companies in recent years, Marvell and Mellanox. The firm first to prominence some five years ago when they were the first among their peers to accomplish the extraordinary feat of replacing the CEO and entire board of Fortune 500 restaurant group Darden, while holding less than 10% of the company’s shares.

In the wake of their Darden coup, the firm has gone from strength to strength. To date the firm has taken positions in a total of 105 publicly listed companies, replacing or adding some 211 directors on over 60 corporate boards.

On March 7’th 2019, Starboard Value announced the acquisition of a 4% stake in US comms infrastructure firm Zayo. In the intervening period, Zayo’s share price has risen by 14% as canny investors scramble to partake in the goodness that will surely be extracted by the activist firm that simply doesn’t take no for an answer. 

5. Tencent Music 4Q18 Quick Note – Growth on Track, Margins Could Drag – Stock Price Needs a Breather

Tencent Music Entertainment (TME US) reported its full year results today, post US market close. Revenue growth was slightly ahead of estimates as paying ratio continue to improve for both online music (subscription revenue) and social entertainment (live streaming). Growth for the latter continued to be driven more by ARPU rather than user growth. 

The concerning bit in the results was the decline in gross margins as the company continues to invest in more content. 

My previous insights on TME’s IPO:

• The company’s performance: Tencent Music Pre-IPO Review – The Final Countdown – Growth Doesn’t Seem to Be Slowing Down,
• The working of the apps: Tencent Music Pre-IPO – This Is How We Do It – A Quick Look at How the Apps Work,
• Industry dynamic: Tencent Music Pre-IPO – Industry – Don’t Cry – In 2010 a Little Red Dot Almost Overtook the Dragon, and
• Peer analysis: Tencent Music Pre-IPO – Quick Peer Analysis – If I Was You, I’d Wanna Be Me Too – Bigger and Faster,
• Valuations overview: Tencent Music Pre-IPO – Valuations Estimates – Leaving on a Jet Plane – $30bn Was Quite Stretched.
• First take on the IPO pricing: Tencent Music Pre-IPO Updates – Welcome to the Jungle – Rumoured Asking Valuations More Reasonable
• IPO valuation update: Tencent Music IPO – Don’t Stop Me Now – 9M18 Updates, Outlook and Price Limits
• Some more information on Ultimate Music acquisition: Tencent Music IPO – A Little Less Conversation – A Little More Information on Ultimate Music
• Trading strategies: Tencent Music IPO – Firework – Trading Strategies

In this briefing:

1. UK Trip – Wake up to Deflation Risk
2. Confluence of Politics – China Bans Australian Coal Imports (Flash Note)
3. Foldable Smartphones to Debut in 2019; Will It Aid an Industry Turnaround?

1. UK Trip – Wake up to Deflation Risk

By Bo Zhuang, Chief China Economist

• London-based investors are turning cautiously optimistic on China’s growth outlook amid the latest easing measures in January
• There is still little awareness about the rising deflation risk
• Interest in the trade war has subsided

2. Confluence of Politics – China Bans Australian Coal Imports (Flash Note)

• China implements coal import caps specifically targeting Australian producers
• Unclear as to how widespread these restrictions will eventually be
• Thermal and metallurgical coal exports affected
• Impacting ~A$8.4Bn of metallurgical coal exports; or 4.4% of national income
• Thermal coal exports affected worth ~A$3.8Bn; or an additional 2% of national income
• Collectively, thermal and metallurgical exports equate to ~0.9% of Australian annual GDP 
• Actions appear to be a response to blocking Huawei bidding for the 5G network
• Recent Chinese cyber-attacks harden Australian Government’s resolve
• Expect similar Chinese measures (in time) to be applied to other commodities and industries

3. Foldable Smartphones to Debut in 2019; Will It Aid an Industry Turnaround?

Plans regarding Samsung and Huawei’s foldable smartphones are out. The companies, which happen to be two of the largest contenders in the smartphone landscape are expected to unveil their foldable smartphone prototypes this month. In 4Q2018, Samsung, coming in first place, held a market share of 18.7% while Huawei, in third place, held a market share of 16.1%. Both companies are following different strategies when it comes to their foldable phone models.

The concept of foldable phones revolves around devices that can be folded into the size of a smartphone or opened up in to the size of a tablet. Huawei is said to be planning to introduce their foldable smartphone with 5G compatibility while Samsung is planning to release their foldable model with 4G compatibility. The market leader aims to leverage the expertise it has gained on its display technologies in its foldable smartphones.

In this briefing:

1. UK Trip – Wake up to Deflation Risk
2. Confluence of Politics – China Bans Australian Coal Imports (Flash Note)
3. Foldable Smartphones to Debut in 2019; Will It Aid an Industry Turnaround?
4. Repsol, Petronas & Mitsui Make Massive Gas Find in Indonesia

1. UK Trip – Wake up to Deflation Risk

By Bo Zhuang, Chief China Economist

• London-based investors are turning cautiously optimistic on China’s growth outlook amid the latest easing measures in January
• There is still little awareness about the rising deflation risk
• Interest in the trade war has subsided

2. Confluence of Politics – China Bans Australian Coal Imports (Flash Note)

• China implements coal import caps specifically targeting Australian producers
• Unclear as to how widespread these restrictions will eventually be
• Thermal and metallurgical coal exports affected
• Impacting ~A$8.4Bn of metallurgical coal exports; or 4.4% of national income
• Thermal coal exports affected worth ~A$3.8Bn; or an additional 2% of national income
• Collectively, thermal and metallurgical exports equate to ~0.9% of Australian annual GDP 
• Actions appear to be a response to blocking Huawei bidding for the 5G network
• Recent Chinese cyber-attacks harden Australian Government’s resolve
• Expect similar Chinese measures (in time) to be applied to other commodities and industries

3. Foldable Smartphones to Debut in 2019; Will It Aid an Industry Turnaround?

Plans regarding Samsung and Huawei’s foldable smartphones are out. The companies, which happen to be two of the largest contenders in the smartphone landscape are expected to unveil their foldable smartphone prototypes this month. In 4Q2018, Samsung, coming in first place, held a market share of 18.7% while Huawei, in third place, held a market share of 16.1%. Both companies are following different strategies when it comes to their foldable phone models.

The concept of foldable phones revolves around devices that can be folded into the size of a smartphone or opened up in to the size of a tablet. Huawei is said to be planning to introduce their foldable smartphone with 5G compatibility while Samsung is planning to release their foldable model with 4G compatibility. The market leader aims to leverage the expertise it has gained on its display technologies in its foldable smartphones.

4. Repsol, Petronas & Mitsui Make Massive Gas Find in Indonesia

Repsol SA (REP SM)‘s discovery is very significant for the companies involved and others around the area, which we discuss in detail below. It is also important for Indonesia, which requires more gas to supply domestic and export demand. It is also positive for exploration sentiment globally, to see a material discovery (Oil Exploration: We Expect a Resurgence in 2019 Pointing to Strong Performance for E&Ps) and this may encourage further M&A in Indonesia such as this deal: (Indonesia Upstream Gas Asset Sale: Positive Read-Through to Other SE Asia Gas Companies).