ECM

In this briefing:

1. Bilibili Offering: Unnecessary and Opportunistic
2. Bilibili Placement: Momentum Bodes Well
3. Map Aktif Follow-On Offering – Lace up for a Potential Long Run
4. Embassy Office Parks REIT Trading Update – Lowest Volume Traded for Any Indian Listing Since 2018
5. Last Week in GER Research: Lyft, Rakuten, Lynas, Yunji IPO, Xinyi IPO and Ruhnn IPO

1. Bilibili Offering: Unnecessary and Opportunistic

On Monday, Bilibili Inc (BILI US) unveiled plans to raise around $192 million (based on the closing price of $18.95 per ADS) through a public offering of 10.6 million ADS and a concurrent offering of $300 million convertible senior notes. Also, certain selling shareholders will offer 6.5 ADS in the offering.

2. Bilibili Placement: Momentum Bodes Well

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

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

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

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

4. Embassy Office Parks REIT Trading Update – Lowest Volume Traded for Any Indian Listing Since 2018

Embassy Office Parks REIT (EOP IN) raised US$665m in its IPO, making it the first REIT listing for India.

In my previous insights I’ve covered the company background, its projected growth, compared it to its main listed peer and other yield assets in India: 

• Embassy Office Parks REIT – Good Assets but Projections Might Be a Tad Too Bullish
• Embassy Office Parks REIT – Comparison with AIT and a Look at the Required Yield, and
• Embassy Office Parks REIT IPO – FY19 Revised Down, Yield Propped up by Zero Coupon Bond

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. Last Week in GER Research: Lyft, Rakuten, Lynas, Yunji IPO, Xinyi IPO and Ruhnn IPO

Below is a recap of the key analysis produced by the Global Equity Research team. This week, we update on Lyft Inc (LYFT US) now that it is below its IPO price and remind of the potentially muted impact for strategic holder Rakuten Inc (4755 JP). On the M&A front, Arun digs into the conditional deal for Lynas Corp Ltd (LYC AU) from Wesfarmers Ltd (WES AU). With regards to IPO research, we initiate on e-commerce player Yunji Inc. (YJ US) and solar company Xinyi Energy Holdings Ltd (1671746D HK) while we update on the IPO valuation of Ruhnn Holding Ltd (RUHN US). 

In addition, we have provided an updated calendar of upcoming catalysts for EVENT driven names below. 

Best of luck for the new week – Arun, Venkat and Rickin

In this briefing:

1. Ruhnn (如涵) Trading Update – Worst First-Day Performance Out of Recent US ADR Listings
2. Naspers: Addressing the Discount (Again). New Moves to Realize Value Are Having an Impact
3. Ronshine (融信集团) Placement – Back for a Equity Raise
4. Polycab India Limited IPO – Probably Near Peak Margins, Improvements Unexplained
5. Dongzheng Auto Finance (东正汽车金融) Trading Update – Could Be Worth Setting up a Trade

1. Ruhnn (如涵) Trading Update – Worst First-Day Performance Out of Recent US ADR Listings

Ruhnn Holding Ltd (RUHN US) raised US$125m at US$12.50 per share, the mid-point of the price range. We have previously analyzed the IPO in:

• Ruhnn (如涵) IPO Review – Expensive Influence
• Ruhnn (如涵) Pre-IPO Review- Significant Concentration Risk

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

2. Naspers: Addressing the Discount (Again). New Moves to Realize Value Are Having an Impact

Naspers (NPN SJ) recently announced another attempt to reduce the holdco discount which has remained stubbornly high despite previous attempts by management to reduce it. Since the announcement there has been movement, so perhaps this time it really is different!

So what is being done? Naspers will spin off its international internet assets, which account for >99% of its value, into a newco. They will then list 25% of newco on the Euronext in Amsterdam by issuing these shares to Naspers’ shareholders. The intention is to create a vehicle which can attract increased foreign and tech investors without the complication of a South African listing. The company believes this has been a key factor behind the wide holdco discount. The move also reduces Naspers weighting in South African indices which is another contributing factor.

Alastair Jones sees the announcement as a positive, although there are still issues with the main listing being in South Africa. He still believes a buyback would be the most effective way to reduce the discount, but Naspers is also keen to keep investing. 

3. Ronshine (融信集团) Placement – Back for a Equity Raise

Ronshine China Holdings (3301 HK) is looking to raise about US$122m in a top-up placement.

The deal scores marginally positive on our framework owing to its decent track record, and price and earnings momentum.

Its past deals have done well in the long run. Even though it did not perform well over the one-month period, its first week returns have tend to hold up above the deal price.

4. Polycab India Limited IPO – Probably Near Peak Margins, Improvements Unexplained

Polycab India (POLY IN) plans to raise around US$190m in its IPO through a mix of selling primary and secondary shares. It is the largest manufacturer of wires and cables in India with a 12% market share, as per CRISIL research. The company also recently entered the consumer electrical segments. 

I covered the company background and past financial performance in my previous insight, Polycab India Limited Pre-IPO – Market Leader with Steady Growth but with a Few Unanswered Question.

In this insight, I’ll run the deal through our IPO framework, and comment on valuation and updates since the previous filing.

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

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

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

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

In this briefing:

1. Homeplus REIT IPO: A Key Landmark Deal in the History of the Korean REIT Market

1. Homeplus REIT IPO: A Key Landmark Deal in the History of the Korean REIT Market

The Homeplus REIT IPO is surely a key landmark deal in the 20 year history of the Korean REIT market. We have a positive view on the Homeplus REIT IPO and believe it has a good chance of generating 6-9% return per year (including dividends and capital appreciation) in the next three years. The Homeplus REIT is geared towards the investors who are happy with 6-9% annual returns with relatively low downside risk. For the investors that are seeking 10%+ annual returns, this deal is probably not suitable for them. 

The following are the five major factors why we believe the Homeplus REIT market will be a success: 

• Stable dividend yield of 6-7%.
• Opportunity to get included in a global REIT index (such as EPRA Developed Asia Index).
• Supermarkets related REITs are viewed safer than residential and commercial office building related REITs globally.
• Global investors have wanted to invest in a big, liquid, safe retail REIT with stable dividends in Korea for a long time. The Homeplus REIT possesses many of these characteristics. 

In this briefing:

1. Dongzheng Auto Finance (东正汽车金融) Pre-IPO Review – Dependent on Dealership Network for Growth
2. Up Fintech (Tiger Brokers) IPO Quick Take – It’s Not like Futu, Won’t Perform like It Either
3. Short Haidilao (海底捞) Before Earning & Lock-Up Expiry
4. Futu Holdings IPO Trading Update – Might Be Trading a Little Too High
5. New Century Hotel (浙江開元酒店) Trading Update – Low Free Float, Poor Liquidity

1. Dongzheng Auto Finance (东正汽车金融) Pre-IPO Review – Dependent on Dealership Network for Growth

Dongzheng Automotive Finance (2718 HK) is looking to raise approximately US$300 – 500m in its upcoming IPO. 

DAF is a fast growing auto finance company which acquires customers through a network of dealership around China. Its net interest income grew by 66% CAGR from FY2016 to FY2018 while net fees/comms income and profit grew by 39.6% and 61% CAGR over the same period.

However, most of its growth originated from ZhengTong dealers and joint promotion arrangement. Excluding loans from joint promotion arrangement, gross outstanding loan had only grown by 12% CAGR.

In this insight, we will look at the company’s business, analyze the competitive landscape, provide thoughts on valuation, and some questions for management.

2. Up Fintech (Tiger Brokers) IPO Quick Take – It’s Not like Futu, Won’t Perform like It Either

Up Fintech (TIGR US) plans to raise up to US$91m in its US listing. The company counts Xiaomi Corp (1810 HK) and Interactive Brokers Group, Inc (IBKR US) as its main investors.

In my earlier insights, I commented about Tiger’s reliance on IBKR and compared its operations with Futu Holdings Ltd (FHL US):

• Up Fintech (Tiger Brokers) Pre-IPO Quick Note – Much Too Reliant on IBKR
• Futu Holdings IPO Quick Note – Comparison with Tiger Brokers – Same Market, Different Economics

In this insight, I’ll run the deal through our framework and comment on valuations.

3. Short Haidilao (海底捞) Before Earning & Lock-Up Expiry

Haidilao International, the largest Chinese cuisine player by valuation, was listed on September 26th last year and lock-up expiry will be on March 26th. The stock has returned 24% since listing. 

• As it heads into lock-up expiry, we will examine Haidilao’s shareholder structure and potential shares up for sale.
• Haidilao was included in the Hong Kong Connect Scheme on December 10th, 2018 and shares held by mainland investors have been consistently increasing.
• But we think Haidilao’s valuation has built in a perfect growth scenario.
• Risk of de-rating for Haidilao warrants a short position.

Our previous coverage on Meituan Dianping

• Haidilao IPO First Glance: Legendary Hot Pot Restaurant that Will Be Hot (Part 1)
• Haidilao (海底捞) IPO: Superior Metrics in a Scalable Segment (Part 2)
• Haidilao (海底捞) IPO: Near Term Rapid Growth but Deceleration Ahead (Part 3)
• Haidilao (海底捞) IPO: Appealing Valuation at the Low End for a Branded National Champion (Part 4) 
• Haidilao (海底捞) Post-IPO Trading Update: Not Much Upside from High End, Lessons from Meituan

4. Futu Holdings IPO Trading Update – Might Be Trading a Little Too High

Futu Holdings Ltd (FHL US)‘s IPO was priced at the top-end at US$12/ADS raising a total of US$160m, including the US$70m raised from General Atlantic via a concurrent private placement.

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 Tiger Brokers: 

• Futu Holdings Pre-IPO – Great Metrics but in a Commoditised Industry, 
• Futu Holdings Pre-IPO – FY18 Updates And Quick Thoughts on Valuation,
• Futu Holdings IPO – Given the Team, Execution, and Backers, Might Be Worth a Look at the Low-End, and
• Futu Holdings IPO Quick Note – Comparison with Tiger Brokers – Same Market, Different Economics

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. New Century Hotel (浙江開元酒店) Trading Update – Low Free Float, Poor Liquidity

Zhejiang New Century Hotel Management Group (1158 HK) (NCH) raised about US$136m at HK$16.50 per share, just slightly below the mid point of its IPO price range. We have previously covered the IPO in:

• New Century Hotel (浙江開元酒店) Pre-IPO – Improved Profitability Not Driven by Underlying Operations
• New Century Hotel (浙江開元酒店) IPO Review – Higher ADR and RevPAR than Peers but Margins Fall Short

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

In this briefing:

1. Keppel Infrastructure Trust Placement – Scaled Down but Large Deal; Very Well Flagged Deal
2. Dongzheng Auto Finance (东正汽车金融) IPO Review – Better off Buying the Parent
3. CanSino Biologics (康希诺) IPO: Valuation Update (Part 3)
4. Embassy Office Parks REIT IPO – FY19 Revised Down, Yield Propped up by Zero Coupon Bond
5. Ruhnn IPO Preview: Hard to Stay Red-Hot for Long

1. Keppel Infrastructure Trust Placement – Scaled Down but Large Deal; Very Well Flagged Deal

Keppel Infrastructure Trust (KIT SP) plans to raise US$450m via an equity placement and non-renounacable preferential offering. Its sponsor, Keppel Corp Ltd (KEP SP) will subscribe in the placement and the preferential offering to maintain its 18.2% stake.

KIT announced the acquisition of IXOM in Nov 2018 and has been talking about the need to issue equity ever since. Its earlier presentations seem to indicate a preference for raising a large sum via an equity issuance. Furthermore, despite the smaller raise the accretion to DPU is probably only marginal. 

2. Dongzheng Auto Finance (东正汽车金融) IPO Review – Better off Buying the Parent

Dongzheng Automotive Finance (2718 HK) is raising up to US$428m in its upcoming IPO. We have covered the background of the company in Dongzheng Auto Finance (东正汽车金融) Pre-IPO Review – Dependent on Dealership Network for Growth. 

In this insight, we will look into the company’s valuation, compare it to listed auto peers, and run the deal through our framework.

3. CanSino Biologics (康希诺) IPO: Valuation Update (Part 3)

CanSino is a China-based biotechnology company with a focus on vaccine development. In our previous insight (link to Part 1 and Part 2), we have discussed CanSino’s drug pipeline, the competitive landscape, and the valuation. 

As the company is starting pre-marketing, we will provide an updated valuation based on new information obtained from the approved application document. Our base case valuation for CanSino is USD 856 million on a pre-money basis. Majority of the rNPV based SOTP valuation still comes from its meningococcal conjugate vaccine (MCV2 and MCV4). Over the past few months, the company has completed Phase III for MCV4 and submitted NDA (new drug application) for MCV2 candidates.

4. Embassy Office Parks REIT IPO – FY19 Revised Down, Yield Propped up by Zero Coupon Bond

Embassy Office Parks REIT (EOP IN) plans to raise around US$680m in its India IPO. Of this, it has already raised around US$125m from Capital Group, who came in as a strategic investor. EOP will primarily hold office assets in Bengaluru, Pune and Noida with a total portfolio size of around US$4.5bn. 

In my previous insights I’ve covered the company background, its projected growth and compared it to its main listed peer and other yield assets in India: 

• Embassy Office Parks REIT – Good Assets but Projections Might Be a Tad Too Bullish, and
• Embassy Office Parks REIT – Comparison with AIT and a Look at the Required Yield

In this insight, I’ll cover the deal dynamics, compare the revised forecast in the RHP with the earlier one from the DRHP, comment on the yield boost from the zero coupon debt and run the deal through our framework.

5. Ruhnn IPO Preview: Hard to Stay Red-Hot for Long

Ruhnn Holding Ltd (RUHN US) is an e-commerce platform which drives sales through KOLs (key opinion leaders). Ruhnn is the largest internet KOL facilitator in China as measured by revenue, the number of online stores and GMV in 2018 according to Frost & Sullivan. Ruhnn is backed by Alibaba Group Holding (BABA US), an 8.6% shareholder, and is seeking to raise $200 million through a Nasdaq IPO.

In this briefing:

1. GDS Holdings (GDS US): Placing a Good Opportunity to Gain Exposure to a High Growth Story
2. ECM Weekly (16 March 2019) – Embassy Office REIT, Tiger Brokers, Dongzheng Auto, Koolearn, CanSino
3. Embassy Office Parks REIT: Why You Should Avoid It
4. Koolearn (新东方在线) IPO Review – Yet to See Results from Increased Spending
5. NASDAQ:GDS Placement – Visible Growth, Additional Ping An Investment

1. GDS Holdings (GDS US): Placing a Good Opportunity to Gain Exposure to a High Growth Story

Last Friday, Gds Holdings (Adr) (GDS US), the largest third-party data centre operator in China, announced the placing price of its public offering of 11.9 million ADS. At the placing price of $33.50 per share, GDS will raise net proceeds of $385.5 million which will be used for the development and acquisition of new data centres.

2. ECM Weekly (16 March 2019) – Embassy Office REIT, Tiger Brokers, Dongzheng Auto, Koolearn, CanSino

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 72.4% for IPOs and 63.7% for Placements 

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

New IPO filings

• FriendTimes Inc. (Hong Kong, >US$100m)
• Frontage (Hong Kong, re-filed)

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

• UBS and Rivals to Pay $100 Million to Settle Hong Kong IPO Cases
• Chinese Luxury Car Finance Firm Seeks $428 Million in Hong Kong IPO
• Online Educator Koolearn to Raise up to $233 Million in Hong Kong IPO
• Resurgence in Indian IPO market likely only after general elections
• Homeplus K-REIT Withdraws $1.5 Billion Korean IPO on Weak Demand
• Prospa may revive listing plan after beating prospectus forecasts
• Luckin Coffee chairman said to tap banks for $200m loan in exchange for IPO role

This week Analysis on Upcoming IPO

• Homeplus REIT IPO: A Key Landmark Deal in the History of the Korean REIT Market
• Up Fintech (Tiger Brokers) IPO Quick Take – It’s Not like Futu, Won’t Perform like It Either
• Embassy Office Parks REIT IPO – FY19 Revised Down, Yield Propped up by Zero Coupon Bond
• CanSino Biologics (康希诺) IPO: Valuation Update (Part 3)
• Dongzheng Auto Finance (东正汽车金融) IPO Review – Better off Buying the Parent
• Koolearn (新东方在线) IPO Review – Yet to See Results from Increased Spending

3. Embassy Office Parks REIT: Why You Should Avoid It

• Embassy Office Parks REIT (EOP IN) boasts an impressive portfolio of office assets with adequate geographic diversification, strong client relationships and sound reputation.
• Constructing/acquiring new office area is an integral part of Embassy’s growth strategy.
• This requires massive capex (e.g. Embassy’s last 3 year’s capex is Rs32bn). Since it pledges to distribute 100% of its EBITDA to unit holders, it will have no cash left for capex or making interest payments.
• Hence, post the IPO borrowings will increase to fund the capex. The interest expenses will lower the NDCF and in turn Dividend per unit.
• Embassy may choose to issue fresh units to fund part of the capex in the future. This will also result in lower Dividend per unit.
• Ascendas India Trust (AIT SP) shows us why you should be conservative while building in capital appreciation of REIT units. Despite revenues growing 3.18x over FY08-18, Ascendas’ Dividend per unit is flat over the period as its borrowings growth (29% Cagr) far outdid its revenue growth (12.3% Cagr). It also diluted equity to the tune of 37% over the period. Its units have seen no capital appreciation over the last decade.
• Embassy’s effective yield (adjusted for interest outgo notwithstanding its proposed workaround) works out to 6.4%- unattractive in our view.

4. Koolearn (新东方在线) IPO Review – Yet to See Results from Increased Spending

Koolearn (1797 HK) is looking to raise up to US$S234m in its upcoming IPO.  We have previously covered the company in:

• Koolearn (新东方在线) Pre-IPO – Profitable Online Edu Company but Poor Sentiment Weighs
• New Regulatory Tightening on Online Education Reads Badly on Koolearn IPO

In this insight, we will look at the updates on financials and operating metrics, compare it to other listed online education companies, and run the deal through our framework.

The increase in spending on marketing has not yielded the intended results as the growth rates of student enrollment and gross billings slowing down. Furthermore, aggressive spending behavior is similar to that of STG and LAIX and both companies did not perform well post listing.

5. NASDAQ:GDS Placement – Visible Growth, Additional Ping An Investment

GDS Holding, the largest carrier-neutral, cloud-neutral data centre operator in China, is raising USD 400 million from a private placement. The deal was launched last night (US time) post the company’s results announcement. In this insight, we will cover: 

• Details of the deal
• Key takeaways from its 4Q2018 results
• USD 150 million investment by Ping An
• Its shareholders
• The score in our Placement Framework

In this briefing:

1. Platinum Asset Management Placement –  Co-Founder Selling + Weak Earnings Momentum
2. Sun Car Insurance Agency (盛世大联) IPO: Over Valued Vs P&C Companies
3. Lyft IPO: Key Takeaways from In-Depth Interviews with Drivers
4. Wisetech Global Placement – Past Deal Did Well but Valuations Looks Stretched
5. Hyundai Autoever IPO Bookbuilding: Surprising Results, Local Street Bets on Autoever/Glovis Merger

1. Platinum Asset Management Placement –  Co-Founder Selling + Weak Earnings Momentum

The co-founder of  Platinum Asset Management (PTM AU), Kerr Neilson, and Judith Neilson are looking to sell 30m shares of the company at a fixed price of A$5.00. 

The deal scores poorly on our framework due to its poor track record, large deal size, weak earnings momentum and relatively expensive valuation. The selldown comes after the company weak 1H FY19 results last month which could put pressure on share price in the near term.

2. Sun Car Insurance Agency (盛世大联) IPO: Over Valued Vs P&C Companies

Sun Car Insurance Agency is a leading automobile insurance agency and B2B2C automobile after-sales service provider in China. The company is listed in the NEEQ board since 2014 and is raising up to USD 167 million to list in Hong Kong. In this insight we cover:

• The company’s two major business lines, the automobile insurance agency and automobile butler services
• The industry backdrop
• The company’s shareholder
• Our thought on valuation

3. Lyft IPO: Key Takeaways from In-Depth Interviews with Drivers

• In-depth interviews with two full-time drivers reveal that Lyft Inc (0812823D US) has disrupted the incumbent Yellow Cab in NY City due to better take-home income economics for drivers.
• Bargaining and pricing power favor LYFT (vs. drivers) as LYFT could provide the volume (sufficient number of rides per day) for drivers.
• LYFT’s path to profitability depends on 1) the further scale-up of network effect 2) diversification of transportation-related business and 3) progress in autonomous cars’ unit cost economics.
• Given its track record as a disruptive force, investors could be willing to pay up (over 5.0x P/S multiple) for LYFT, making the IPO a hot deal.

4. Wisetech Global Placement – Past Deal Did Well but Valuations Looks Stretched

Wisetech Global (WTC AU) plans to raise US$177m/AUD250m in order to shore-up its balancesheet for future acquistiions. 

The company has done exceedingly well since listing and even its past fund raising delivered good returns. However, the deal scores a mixed score on our framework as valuations appear strecthed with the stock trading above analysts target price. Thus, the deal might warrant a large discount.

5. Hyundai Autoever IPO Bookbuilding: Surprising Results, Local Street Bets on Autoever/Glovis Merger

• Subscription rate is 797 to 1. Offer price was fixed at ₩48,000, substantially higher than the upper end. Deal size is now ₩168.5bil. Company value is put at slightly higher than ₩1tril. Demands are spread out pretty well between long-term funds and hot money and local and foreign investors as well. All of the orders are universally placed at 75% of upper end or higher.
• Local street is betting on Autoever/Glovis merger not long after this IPO. That is, HMG is still wanting the initial Glovis/Mobis merger plan. To better manage to win shareholder support, they must be thinking that bigger Glovis can be an answer. This means HMG should do whatever it takes to make Autoever bigger in the immediate future.
• This is what local street is betting on and why they went really aggressive on this IPO. As witnessed in the bookbuilding results, this street mentalitywon’t be changed any time soon. We should expect even stronger prices after new shares are listed on Mar 28.

In this briefing:

1. Wuxi Biologics Placement – Past Deals Have Done Well but Progressive Returns Are Getting Lower
2. Ruhnn (如涵) Pre-IPO Review- Significant Concentration Risk
3. Frontage Holding (方达控股) IPO: Updates from 2018 Numbers
4. Tencent Music 4Q18 Quick Note – Growth on Track, Margins Could Drag – Stock Price Needs a Breather
5. Lyft IPO: Valuation Analysis (Prudent Investment or Quasi-Gambling?)

1. 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.

2. Ruhnn (如涵) Pre-IPO Review- Significant Concentration Risk

Ruhnn Holding Ltd (RUHN US) is looking to raise about US$200m in its upcoming IPO.

The company is an internet key opinion leader (KOL) incubator in China. Revenue and GMV grew at impressive rates of 63% and 57% YoY in FY2018, respectively.

The idea of being able to leverage on KOLs influence over consumers to understand demand and retain consumers is interesting but Ruhnn has yet to demonstrate that it has a sustainable business model. 

Gross margin has deteriorated and losses widened as a percentage of revenue. Service fee paid to KOLs as a percentage of revenue has increased and showed little improvement in 9M FY2019.  The company depends heavily on the top KOL, Zhang Dayi, to generate revenue, almost half of the company’s GMV and revenue is generated from her.

3. Frontage Holding (方达控股) IPO: Updates from 2018 Numbers

Frontage Holding, a contract research organization subsidiary of A-share listed Hangzhou Tigermed Consulting (300347 CH), re-filed to list on the Hong Kong Stock Exchange recently. We have covered the company’s fundamentals in our previous insight here. In this insight, we will provide an updated analysis based on new data available from the new prospectus, as well as our thoughts on valuation.

4. 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

5. Lyft IPO: Valuation Analysis (Prudent Investment or Quasi-Gambling?)

Our base case forecast is Case 2 (among three scenarios analysis), which suggests an implied market cap of $21 billion or $75 per share. Given that our intrinsic value of the company does not provide enough upside versus the likely IPO price, we would AVOID this deal. 

Even if the company is able to complete this IPO, raising nearly $2.0-2.5 billion, it is very possible that the company may need to come back to the market in two or three years in a secondary share offering, which would dilute the existing shareholders. This is probably the biggest risk I see with the Lyft IPO right now. 

Our base case financial forecast for Lyft assumes the following:

• Sales growth rate (CAGR from 2018 to 2030) – 26.6%
• Year in which Lyft turns operating profit positive – 2025
• Operating margin in 2030 – 15.0%

In this briefing:

1. A Trading Strategy for Hyundai Autoever Post IPO
2. CanSino Biologics (康希诺) IPO: Valuation Attractive, Lilly Asia Doubling Up (Part 4)
3. ESR Cayman Pre-IPO – Earnings and Segment Analysis
4. PagerDuty IPO Preview
5. China Risun (中国旭阳) – Quick Post-IPO Trading Update

1. A Trading Strategy for Hyundai Autoever Post IPO

In this report, we provide a trading strategy for Hyundai Autoever Corp (0978519D KS) IPO, which is expected to start trading on March 28th. The IPO price has been finalized at 48,000 won, which is 9% higher than the high-end of the original IPO price of 44,000 won. The institutional investors’ demand for the Hyundai Autoever IPO was very strong at 797 to 1.

Given the very strong institutional demand for this IPO, it appears that our base case valuation (59,454 won), which is 24% higher than the IPO price, may be too conservative. A more likely scenario now is that the stock reaches about 60,000 won to 65,000 won in the first few hours of trading on the first day, overshooting its intrinsic value and sells off a bit for a few days/weeks, enters a consolidation phase and then resumes its higher share price again. 

Of the 913 institutional investors that participated in the Hyundai Autoever IPO survey, 89% of them thought that the intrinsic value of the company should be more than the high end of the IPO price range (44,400 won), which provides a strong vote of confidence that this IPO should do well once it starts trading. 

2. CanSino Biologics (康希诺) IPO: Valuation Attractive, Lilly Asia Doubling Up (Part 4)

CanSino Biologics started its book building today to raise up to USD 160 million to list in Hong Kong. In our previous insights (links provided below), we provided a detailed analysis of the company’s core drug candidates, its shareholders and our thoughts on valuation. In this insight, we will cover the following topics:

• Recap of our valuation
• Highlight of cornerstone investors
• Our thoughts on the deal

Our coverage on Cansino IPO

• CanSino Biologics (康希诺) IPO: Promising Pre-Clinical Results but Vaccine Scandal Weighs (Part 1)
• CanSino Biologics (康希诺) IPO: Thoughts on Valuation (Part 2)
• CanSino Biologics (康希诺) IPO: Valuation Update (Part 3)

3. ESR Cayman Pre-IPO – Earnings and Segment Analysis

ESR Cayman (ESR HK) aims to raise up to US$1.5bn in its planned Hong Kong listing, as per media reports. The company is backed by Warburg Pincus and counts APG, the Netherlands’ largest pension provider, as one of its main investors.

In my earlier insight, I touched upon the company’s business model and provided an overview of its operations, ESR Cayman Pre-IPO – A Giant in the Making. 

In this insight, I’ll talk more about the financials and the drivers for each of the three segments.

4. PagerDuty IPO Preview

PagerDuty Inc (PD US) is a US based software company which is ready to complete its IPO in the next several weeks. Founded in 2009, PagerDuty helps companies to respond quickly when their websites go down. PagerDuty’s software helps companies to respond to items such as customer complaints and helps companies to spot problems. The company is known for capitalizing on its AI (Artificial Intelligence) models to quickly solve problems of why websites go down. 

The company has an excellent, diversified base of more than 10,000 customers in 90 countries including IBM, The World Bank, Airbnb, Netflix, GE, and Gap. One of the strong points of PagerDuty is the fact that it has gathered massive amounts of data from its more than 10,000 customers. The company also boasts a very high customer retention rate (139% net retention rate). A combination of the company’s strong AI capability coupled with the increasing amounts of Big Data provide a strong competitive advantage for the company since its AI capability may improve and get smarter with additional Big Data and continuous problem solving of why websites go down.

PagerDuty was most recently valued at $1.3 billion in September 2018 in a private market valuation (led by T.Rowe Price Group investing $90 million in the company), representing 16x the company’s annual revenue of $79.6 million as of 12 months ending January 2018. 

5. China Risun (中国旭阳) – Quick Post-IPO Trading Update

China Risun (1907 HK) raised USD 202 million at HKD 2.80 per share, near the low end of its IPO price range. We have previously covered the IPO in:

• China Risun (中国旭阳) IPO Quick Note: Past the Peak of Coking Cycle

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

In this briefing:

1. ESR Cayman Pre-IPO- First Stab at Valuation
2. Yunji IPO Preview: Balance Sheet Points to Waning Engagement
3. Xinyi Energy IPO Preview: Second Time Lucky?
4. Leong Hup Pre-IPO – Hard to Pinpoint What’s Going to Be the Revenue Driver Going Forward
5. Dongzheng Auto Finance (东正汽车金融) IPO Review – Relaunched at Lower Price

1. ESR Cayman Pre-IPO- First Stab at Valuation

ESR Cayman (ESR HK) aims to raise up to US$1.5bn in its planned Hong Kong listing, as per media reports. The company is backed by Warburg Pincus and counts APG, the Netherlands’ largest pension provider, as one of its main investors.

In my earlier insights: I touched upon the company’s business model and provided an overview of its operations, ESR Cayman Pre-IPO – A Giant in the Making and talk about the financials and the drivers for each of the three segments, ESR Cayman Pre-IPO – Earnings and Segment Analysis.

In this insight, I’ll look at valuing each of the segments.

2. Yunji IPO Preview: Balance Sheet Points to Waning Engagement

Yunji Inc. (YJ US) is a leading membership-based social e-commerce platform in China which primarily sells merchandise through its Yunji app. Yunji is also referred to as a multi-level revenue sharing platform as the business model is based on providing incentives to members to promote products and invite new members through their social networks. Yunji is seeking to raise $200 million through a Nasdaq IPO.

3. Xinyi Energy IPO Preview: Second Time Lucky?

Xinyi Energy Holdings Ltd (1671746D HK) has filed IPO prospectus once again to list its solar generation business that was spun-off from its parent company Xinyi Solar Holding Ltd. Xinyi Energy has 9 operational solar farms with a total capacity of ~950MW.

The company is set to acquire additional solar farms of 540MW capacity from its parent company in a separate transaction post IPO.

Xinyi Energy has not indicated the size and pricing of its offer, however, according to various media reports the company is expected to raise nearly HK$570M (around 12% of the previous offering of HK$4.5B). A significant portion of IPO proceeds is expected to be utilised towards upfront payment of 50% for acquiring solar farms from its parent company and the remainder for working capital and debt repayment. Although we have a positive view of the solar energy sector, the IPO pricing will determine our overall view of the company.

4. Leong Hup Pre-IPO – Hard to Pinpoint What’s Going to Be the Revenue Driver Going Forward

Leong Hup International (LEHUP MK) (LHI) plans to raise up to US$400m in its Malaysian IPO. LHI is one of the largest integrated poultry producer in Southeast Asia. 

LHI was listed on Bursa Malaysia from 1990 to 2012.  Since delisting, it has consolidated  its Southeast Asia operations under a single entity and is now looking to relist the larger entity.

While revenue has been growing steadily, margins have been volatile. In addition, its difficult to pinpoint which products are performing well in which geographies. The feedmills business seems to be a more consistent performer as compared to the livestock business. It’s also a larger revenue contributor in the faster growing regions.

5. 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.