Brief China: Tigermed IPO: Valuation Insights and more

In this briefing:

  1. Tigermed IPO: Valuation Insights
  2. Toplist China Pre-IPO – Overwhelmingly More Negatives than Positives
  3. DiDi Has Merged Its Way Through- Time for an IPO?
  4. Notes from the Silk Road: Xtep Int’l Holdings (1368 HK): Profit Warning Comes as No Surprise
  5. Smoore International: Trading Well Over JUUL’s Peak Multiples

1. Tigermed IPO: Valuation Insights

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Hangzhou Tigermed Consulting (H) (3347 HK) is a global contract research organisation (CRO). Tigermed is the largest clinical CRO in China with a market share of 8.4% as measured by revenue in China’s clinical CRO market in 2019, according to Frost & Sullivan. Tigermed has launched its Hong Kong IPO at an indicative price range of HK$88-100 per share to raise gross proceeds of $1.2-1.4 billion.

In our initiation note, we stated that Tigermed’s financial performance is creditable on a standalone basis and in comparison, to peers. However, our enthusiasm was tempered by a seemingly aggressive revenue recognition policy. Our follow-on note which examined the PHIP suggested that the positives outweigh the negatives. Our valuation analysis suggests that the IPO valuation is attractive at the low-end of the proposed IPO price range. 

2. Toplist China Pre-IPO – Overwhelmingly More Negatives than Positives

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Toplist China is a loyalty management solution services provider in China. It provides a one-stop loyalty management solution to clients, in particular, financial institutions. 

As per iResearch, it ranked second in the loyalty management SaaS market and fifth in the integrated loyalty management solution services market in China in 2019, in terms of gross sales proceeds.

Earnings growth has been strong over 2016-18, with TC reporting revenue CAGR of 37.47% and adjusted PAT CAGR of 37.32%. Growth has been driven by 6.7x increase in users over 2018-20, a 3.9x increase in orders processed and 7.3x increase in the number of vendors. 

Unfortunately, there isn’t much more to like apart from that, in our view.

3. DiDi Has Merged Its Way Through- Time for an IPO?

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It was reported on last week that DiDi Chuxing (1284375D CH) plans to go public, allowing existing investors want to cash out during a difficult time for the business. DiDi is backed by Softbank and is regarded as the Chinese version of Uber. Even before the pandemic, the company was struggling to generate profits and also had issues regarding the safety of passengers. The pandemic could have only made things worse for the company. At a time where ridesharing is avoided, DiDi wants to go public. If the news is true, the timing of the IPO indicates that DiDi is desperate for money. In this report, we take a look at the company, its background, growth prospects, and an estimated valuation. In our opinion, it is unlikely that the company will have an IPO in the current economic situation.

We go through the details below.

4. Notes from the Silk Road: Xtep Int’l Holdings (1368 HK): Profit Warning Comes as No Surprise

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In April 2020, we highlighted that the head winds for XTEP in H1 2020 were likely to be strong; our reasoning was that Chinese sportswear is not a priority item on the consumer’s discretionary spend list of the average consumer given the current climate. However, once conditions improve and confidence returns so should the attractiveness of the product. With the company having released its expected profit warning, as it heads into its black-out period, we ask is it time to revisit the stock?

5. Smoore International: Trading Well Over JUUL’s Peak Multiples

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Smoore International (6969 HK) is the global leader in the manufacturing of vaping devices and components, having a market share of 16.5% in 2019. The company raised HK$918 million in an IPO and started trading on 10th July, and in its first nine trading days, the shares have risen by 206.5% from the IPO offer price. On 22nd July, Smoore warned that, as a result of fair value changes for convertible preferred shares and promissory notes and share-based payments as detailed below, net profit for the six months to 30th June will decline by 94.% year-on-year.

It is surprising that these fair-value adjustments were not revealed or anticipated in the prospectus. With Smoore’s multiples now exceeding those of its infamous peer, JUUL during its peak, in the DETAIL below we give the case for taking some profits.

Company Disclosures

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