In this briefing:
- Edelweiss: A Deal Is Likely by 2H of July
- ECM Weekly (27 June 2020) – Smoore, Ocumension, Hepalink, Immunotech, Sri Trang Gloves, Yum China HK
- E&D Co Valuation Analysis
- Korea Small Cap Gem #3: New Tree Co
As per an Economic Times (ET) article on Jun 24, Edelweiss Financial Services (EDEL IN) has already received first stage bidding from various PE investors and Bank of Singapore for acquiring a minority stake in Edelweiss’ advisory business. Second round bidding is likely to happen by mid-July. With SEBI extending the quarterly earnings announcement deadline, we now extend our anticipated timeline for a deal and earnings announcement to 2H of Jul from end of Jun earlier. Edelweiss’ stock has already moved up significantly (about 40% up move over the last 7-8 trading sessions) in anticipation of a deal announcement. We believe that the current valuations remain attractive, despite the up move.
- Earnings Deadline Extended by SEBI
- Favorable Shareholder Voting
- Deal Progress & Outlook
2. ECM Weekly (27 June 2020) – Smoore, Ocumension, Hepalink, Immunotech, Sri Trang Gloves, Yum China HK
Aequitas Research puts out a weekly update on the deals that have been covered by the team recently along with updates for upcoming IPOs.
It has been a hectic week in the ECM space. In Hong Kong, Hygeia Healthcare Group (6078 HK) and Kangji Medical (9997 HK) will list on Monday while Shenzhen HepaLink Pharmaceutical (H) (HEPALINK HK) and Immunotech Biopharm (IMMBIO HK) launched their bookbuild earlier this week and will be listing the week after.
- Hygeia Healthcare (海吉亚) IPO Trading: Upside Might Take Time to Crystalize
- Kangji Medical (康基医疗) IPO Trading: Ample Upsides as Peer Performed Well
- Shenzhen Hepalink (海瑞普) A+H: Hot Deal that Might Not Fly
- Immunotech Biopharm (永泰生物) IPO: Behind the Curve in Cell Therapy
In Thailand, Sri Trang Gloves’ bookbuild closed mid-week and will debut next week.
There are also more than a handful more approvals that have came through with PHIP filed on HKEX. We have covered most of the names in our notes this week:
- GreenTown Management Holdings (绿城管理) Pre-IPO – Peer Comparison and Preliminary Thoughts on Valuation
- Cathay Media (华夏视听) Pre-IPO: Volatile Drama Earnings Smoothened by Private University
- Yum China HK Listing – Early Look – Relatively Bigger Deal Should Have a Relatively Bigger Impact
- Ocumension (欧康维视) Pre-IPO: All Ready for a Great Listing Except a Block Buster
- Smoore Intl (思摩尔国际) Pre-IPO: PHIP Updates, A Slow yet Encouraging Start in 2020
As if those were not enough, four more property and construction management services companies filed their draft prospectus and, out of which, KWG Living Group and A-City Group stand out in terms of size as they are expecting to raise about US$400m each. Hillhouse-backed Genor Biopharma has also filed its draft prospectus (under the name JHBP (CY) Holdings) and was earlier expected to raise about US$200m in its IPO.
Beyond Hong Kong, we may start to see more listings come through in India soon as we are getting more newsflow of listings in the country. This week there was also the re-filing of Mindspace REIT.
For China ADRs, there was only Agora Inc. (API US)‘s listing on Friday, which did well, to say the least. Agora’s shares closed about 150% above its IPO price, which was already priced 11% above the original range. Clearly, I was wrong to focus on valuation and data disclosure and not see Agora for the potential it could achieve.
- Agora Inc. IPO – Same Issues at Unattractive Valuation
- Agora IPO Trading – Hyped Up and Priced Above Top-End
It has also been a busy week for placements and we are seeing deals not just from Australia but across Asia Pacific. Here are our coverage for the week:
- Challenger Placement – Room for New Shareholders But We Remain Lukewarm
- MINT Placement – Known Asset, More Data Centres, Less SME Exposure -> Heading in the Right Direction
- GLP J-REIT Placement – Setting a New Trend for JREITs
- XD Inc. (心动有限公司) Placement – Company Sells First to Lock-In Cash
- Embassy Office Parks REIT Placement – To Big to Swallow if Its Not a Reverse Enquiry
- IDP Education Placement – Last Deal Was a Smash Hit, This One Won’t Be as Lucky
- HDFC Placement – Early Look – Looking to Raise US$1.9bn
- Qantas Placement – Banking on a Trans-Tasman Travel Bubble
- Osotspa Placement – Resilient Business but Founding Family Is Selling
Our overall accuracy rate is 73% for IPOs and 66% for Placements
(Performance measurement criteria is explained at the end of the note)
New IPO filings this week
- KWG Living Group (Hong Kong, ~US$400m)
- A-City Group Limited (Hong Kong, ~US$400m)
- Genor Biopharma (JHBP (CY) Holdings) (Hong Kong, ~US$200m)
- Roiserv Lifestyle Services (Hong Kong, >US$100m)
- Jiayuan Services (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
- Hong Kong IPO hopefuls pile in applications
- GDS Holdings’ Secondary Hong Kong Listing Could Bring in $1 Billion
- China developers seek cash in IPOs and spin-offs
- IPO from India’s largest asset management company UTI AMC is ready to hit the street
- Chinese online property site Beike seeks $2bn in New York IPO
Our base case valuation multiple for E&D Co is 19x P/E. Using this multiple and applying to our estimated net profit of 13.8 billion won, this results in an implied market cap of 263 billion won or 25,309 won per share. This represents a 63% upside from current levels. Given the strong upside, we have a positive view of this stock over a one year view.
The 19x P/E valuation multiple represents a 20% discount to the bankers’ valuation multiple of 23.8x. A key reason why the company continues to trade at a steep discount to its peers is that the market is still not uncertain as to how long the company will be able to maintain its excellent sales and profit growth. As such, as the company continues to post excellent results, our 20% valuation discount to its peers may actually be too conservative.
We forecast the company to generate 96.2 billion won in sales (up 65% YoY) and an operating profit of 21.2 billion won (up 116% YoY) in 2020. We estimate the company’s sales growth to decline to 27% YoY in 2021. One of the key catalysts of the company’s surging growth in sales and profits has been the fact that the fine dust issue has emerged one of the biggest social problems in Korea and other parts of the world. There have been increased regulations on diesel and obsolete vehicles, increasing the mandatory installation of the emission reduction devices.
New Tree Co is the third company we introduce in our “Korea Small Cap Gem” series. New Tree is one of the best up-and-coming companies in the “inner beauty” product segment, especially for eatable collagen products. They also have some outstanding health and diet food supplement products that should continue to thrive in the next few years.
Millions of people in Korea often believe that eating foods that are rich in collagen such as 족발 (pigs’ feet) helps to beautify their skin. Other foods that help the body to produce collagen include bone broth, chicken, fish, egg whites, and citrus fruits. Because of the positive association with beautifying the skin and producing collagen, this is where the company’s Evercollagen has achieved a big success.
Valuation – We believe that the company’s P/E multiples to rise to the 14 to 16x range over the next 12 months which would be closer to the industry average and as investors attach higher valuation multiple to this company, given the company’s superior sales and net profit growth compared to its competitors. If we assume a 15x P/E based on the net profit of 22.6 billion won, this would suggest an implied market cap of 339 billion won (37,375 won per share), which would be a 32% upside from current levels (28,300 won per share).
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