Brief Growth Ideas: Litian Pictures Holdings IPO Valuation: Overvalued at 4.3-6.1x Price To Tangible Book Value and more

In this briefing:

  1. Litian Pictures Holdings IPO Valuation: Overvalued at 4.3-6.1x Price To Tangible Book Value
  2. Short YTO Express: Sharp Recovery in Volume Masks Effects of Intensifying Price War
  3. ECM Weekly (14 June 2020) – JD, Burning Rock, Kangji Med, Hygeia Healthcare, Pop Mart, Bohai Bank
  4. XD Inc. (心动有限公司) Trade Idea – Lock-Up Expiry – Existing Shareholders May Look to Sell

1. Litian Pictures Holdings IPO Valuation: Overvalued at 4.3-6.1x Price To Tangible Book Value

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Chinese drama series distribution company, Litian Pictures Holdings Ltd (9958 HK) is planning to raise HK$ 192-288m via a Hong Kong IPO. The company will issue 75m (27.71% of post-IPO shares outstanding) new shares (excluding an overallotment option of 11.25m shares) at an offer price range of HK$ 2.56-3.84 per share to raise funds primarily for content production and purchase. Book building ends on 15th June 2020 at 12.00 noon. The IPO price will be announced on 19th June, and the shares are expected to start trading from 22nd June 2020.

Litian Pictures Holdings Limited

Low

High

IPO Price Range – HK$

2.56

3.84

Post-IPO Shares Outstanding (in millions)

300

300

Market Capitalisation – Post Money (HK$m)

768

1,152

Net Debt/Cash – Post Money (HK$m)

-6

-15

EV – Post Money (HK$m)

762

1,137

EV/Revenue – FY2019

1.8

2.7

EV/EBITDA – FY2019

6.1

9.1

P/Tangible BV

4.3

6.1

Source: Company Disclosures, *EV/EBITDA excludes IPO related consultancy fees

Use of Proceeds

  • Approximately 50.0% (or HK$94m) will be used to produce 7 drama series and 4 web series across several major genres.
  • 37.5% (or HK$71m) will be used to purchase copyrights (or broadcasting rights) of drama series produced by third parties.
  • 7.5% (or HK$14m) will be used to expand the headcount of experienced professionals.
  • 5.0% (or HK$9m) will be used to fund working capital and general corporate needs.

2. Short YTO Express: Sharp Recovery in Volume Masks Effects of Intensifying Price War

Yto gm

After getting hit by Covid-19 in February and early March, Chinese express company YTO Express (600233 CH) has roared back to life, hitting a two-year high of 15.96 CNY on Friday, June 12. 

YTO’s apparent recovery from the depths of the pandemic (April parcel volume up 41% YoY) masks a ferocious price war in China’s express market. A newly-aggressive S.F. Holding (002352 CH) and a shift to low-priced shipments tied to discount eCommerce platform Pinduoduo (PDD US) have combined to put strong downward pressure on pricing. We see no near-term recovery for YTO.

YTO’s +51% move since March 22 puts the shares on approximately 33x 2020 diluted EPS and over three times book value. We see little room for strong growth in 2021 due to ongoing margin compression. Weaker than expected Q220 results (out in August) will dent shares over the next six months and recommend investors Short YTO against an equivalent Long position in SF Holding. 

3. ECM Weekly (14 June 2020) – JD, Burning Rock, Kangji Med, Hygeia Healthcare, Pop Mart, Bohai Bank

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

Markets were a little shaky this week after the big one-day drop in the U.S. on Thursday. A handful of placements broke their respective deal prices but overall, IPO pipeline and bookbuilds are still moving along well as far as we hearing.

Burning Rock Biotech (BNR US) launched its bookbuild on earlier this week and will list this coming Monday. Ke Yan, CFA, FRM covered it in:

In Hong Kong, NetEase (9999 HK)‘s secondary listing held up well above its pricing of HK$123 per share on the back of strong ADR trading of late which should bode well for JD.com Inc (ADR) (JD US)‘s listing next week.

We are also preparing for a handful of upcoming Hong Kong IPOs, starting with Hygeia Healthcare Group (1702613D CH) and Kangji Medical (1498779D CH) which was said to be premarketing its IPO. We also shared more on-the-ground research and early thoughts on recently filed, Nongfu Spring (NON HK), POP MART (POP HK), and China Bohai Bank (BOHAIBZ HK) . 

Hong Kong IPO pipeline still looks promising. Simcere Pharma filed its draft prospectus with the Hong Kong Exchange this week while WeDoctor and Jiangxiaobai (a competitor to Moutai but targeting the younger crowd) are preparing for their respective IPO on the Hong Kong Exchange. Zhenro Services (ZS HK) and Smoore International (0959165D CH) were also reported to have sought for approval. We covered this IPOs in:

Other research on upcoming IPOs, placements and lock-up expiry:

 Accuracy Rate:

Our overall accuracy rate is 73.3% for IPOs and 65.5% for Placements 

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

New IPO filings this week

  • Simscere (Hong Kong, ~US$1bn)
  • Happiest Minds (India, 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

NameInsight
Hong Kong
Archosaur Archosaur (祖龙娱乐) Pre-IPO – Short Life Cycle, Volatile Revenue, but It May Look Different Soon 
Ant FinancialAnt Financial IPO Early Thought: Understand Fintech Empire, Growth & Risk Factors
ByteDance

ByteDance (字节跳动) IPO: How Jinri Toutiao Paves The Way for a Bigger Empire (Part 1)

ByteDance

ByteDance (字节跳动) Pre-IPO: Why Facebook Should Worry About TikTok 

ByteDance

ByteDance (字节跳动) IPO: Tiktok the No.1 Short Video App for a Good Reason (Part 2)

ByteDance

ByteDance (字节跳动) Pre-IPO: How Has It Done in 1H? 

ByteDance

ByteDance: The Unlisted Company’s Video Apps Leading the Market and Threatening Internet Giants 

ByteDance

ByteDance (字节跳动) Pre-IPO: Why Facebook Should Worry About TikTok 

ByteDance

ByteDance (字节跳动) Pre-IPO – Globally the Most Downloaded App for Jan 2020 Driven by India 

GTMH

GreenTown Mgt (绿城管理) Pre-IPO – Sacrificed Margins in Pursuit of Growth, Muddled by JVs 

Helenbergh

Helenbergh (海伦堡) Early Thoughts – The Usual Red Flag – Related Party Transactions

Hepalink

Shenzhen Hepalink (海瑞普) A+H: A Heparin-API King but Nothing Too Exciting 

Hepalink

Shenzhen Hepalink (海瑞普) A+H: FY2019 Results Snippet and Valuation Update 

Kangji

Kangji Medical (康基医疗) Pre-IPO: Track Record of Growth but Products Too Concentrated 

Kangji

Kangji Medical (康基医疗) Pre-IPO: Superior Financial Metrics, Warrants a Premium 

Kilcoy

Kilcoy Global Foods Pre-IPO – Rapid Earnings Growth on the Back of Margin Improvement 

Kilcoy

Kilcoy Global Foods Pre-IPO – A Lot of Things Still Remain Unexplained 

Megvii Megvii (旷视) Pre-IPO – Remarkable Growth (Part 1) 
Megvii Megvii (旷视) Pre-IPO – A Bet on the Future – Segments, Revenue Drivers and Growth Potential 
Megvii Megvii (旷视) Pre-IPO – The Real Race Is in Research – Founders’ Profile and Talent 
Megvii Megvii (旷视) Pre-IPO – Competitive Landscape and Peer Analysis 
Megvii Megvii (旷视) Pre-IPO –  Initial Thoughts on Valuation 
Nongfu Nongfu Spring Pre-IPO – The Positives – Leaves One Thirsty for More 
Nongfu Nongfu Spring Pre-IPO – The Negatives – Doesn’t Need to List or Expand Production Facilities 
Nongfu Nongfu Spring Pre-IPO – Peer Comparison – Superior Margins and Growth 
Nongfu Nongfu Spring (农夫山泉) IPO: Beverage for the Young, In-Store Photos 
Smoore

Smoore Tech (麦克韦尔) IPO: Hidden E-Cigarette Player Behind the FEELM Technology 

Smoore

Smoore Tech (麦克韦尔) Pre-IPO: 6Y and 1H2019 Financials Show Technology Driven Growth 

Smoore

Smoore Intl (思摩尔国际) Pre-IPO: Tripling Capacity in Three Years 

Smoore

Smoore Intl (思摩尔国际) Pre-IPO: Thoughts on E-Cig Regulation 

Tasly Tasly Biopharm (天士力生物) IPO: Visible Growth from Approved Drug but Lacks Blockbusters 
Zhenro Svc Zhenro Services (正荣服务) Pre-IPO – Diversifying Away from Zhenro Property Group 
Zhenro Svc Zhenro Services (正荣服务) Pre-IPO – Peer Comparison and Thoughts on Valuation 
WeDoctor WeDoctor (微医) Pre-IPO -App Walk Through – The Online Medical Directory and More 
WeDoctor WeDoctor (微医) Pre-IPO – A More Focused Online Medical Svc Provider than Ping An Good Doctor 
India
ASK ASK Investment Managers Pre-IPO – Riding on a Wave of Wealth 
Aakash EduAakash Education Pre-IPO – Fast Growth in an Attractive Sector
Anmol IndAnmol Industries Pre-IPO Quick Take – No Growth, Generous Payments to Founders
Bharat Hotel

Bharat Hotels Pre-IPO – Catching up with Peers 

Burger King

Burger King India Pre-IPO – Has Been Growing Fast and Plans to Grow Even Faster 

Burger King

Burger King India Pre-IPO – Peer Comparison Yields Interesting Nuggets on Profitability and Capex 

Bajaj En

Bajaj Energy Pre-IPO – Supposed to Deliver Steady Performance if Only Its Sole Client Would Let It 

CAMS CAMS Pre-IPO – Quasi Monopoly Status Muddled by Inconsistent Performance 
CMS InfoCMS Info Systems Pre-IPO – When a PE Sells to Another PE… Only One Gets the Timing Right
Crystal CropCrystal Crop Protection Pre-IPO – DRHP Raises More Questions than in Answers
ESAF SFB ESAF Small Finance Bank Pre-IPO – Growing Fast but Remains Highly Dependant on a Related Party 
Equitas SFB Equitas Small Finance Bank Pre-IPO – Another Forced Small Finance Bank Listing 
Equitas SFB Equitas Small Finance Bank Pre-IPO – Another Forced Small Finance Bank Listing 
Flemingo Flemingo Travel Retail Pre-IPO – Its a Different Business in Every Country
Emami Cem Emami Cement Pre-IPO – Still in Ramp Up Phase but Shares Pledge Might Lead to an Early IPO 
IRFC Indian Railway Finance Pre-IPO – Low Risk, Low Margin Business 
NSENSE IPO Preview- Not Only Fast..its Risky and Expensive
NSENational Stock Exchange Pre-IPO Review – Bigger, Better, Stronger but a Little Too Fast for Some
MazagonMazagon Dock IPO Preview: A Monopoly Submarine Yard in India with Captive Navy Spending
Mindspace Mindspace Business Parks REIT Pre-IPO – Decent Growth but Not All Assets Are Equal 
Mrs. BectorMrs. Bectors Food Specialities Pre-IPO Quick Take – Sales for Its Main Segment Have Been Sta

LIC

Life Insurance Corporation of India Pre-IPO – Early Take on India’s Largest IPO 

Lodha

Lodha Developers Pre-IPO – Second Time Lucky but Not Really that Much Affordable
LodhaLodha Developers IPO: Presence in Affordable Segment Saves Lodha the Blushes in a Sluggish Mkt
Penna Cem Penna Cement – Aggressive Expansion Plans Even Though Past Performance Has Been Tepid 
PNB MetPNB Metlife Pre-IPO Quick Take – Doesn’t Stack up Well Versus Its Larger Peers
Samhi Hotels Samhi Hotels Pre-IPO – Assets and Borrowings Are Growing, but Earnings Haven’t Kept Pace 
Malaysia
Mr DIY Mr D.I.Y. Pre-IPO – Largest Home Improvement Retailer in Malaysia 
Mr DIY Mr D.I.Y. Pre-IPO – Store Walk-Through and Thoughts on Value Proposition 
Mr DIY Mr D.I.Y. Pre-IPO – Peer Comparison – Small Stores with Dominant Market Share  
Mr DIY Mr D.I.Y. Pre-IPO – Assumptions and Thoughts on Valuation 
QSRQSR Brands Pre-IPO – As Healthy as Fast Food
Thailand
PTTOR PTT Oil and Retail IPO – F&B Business Is the Profit Driver 
SCGP SCGP Pre-IPO – Shift to Packaging Has Been Aiding Margins but Acquisition Drove up Leverage 
The U.S
Agora Agora Pre-IPO – Voicing Out Concerns on Data Disclosure 
CDP CDP Holdings Pre-IPO Review – Highly Reliant on Best Inc. 
CloudMindsCloudMinds Inc Early Thoughts – Still Nascent

4. XD Inc. (心动有限公司) Trade Idea – Lock-Up Expiry – Existing Shareholders May Look to Sell

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XD Inc. (2400 HK)‘s IPO lock-up expired on Friday. We have earlier covered the IPO in:

In this insight, we will look at the potential sellers upon lock-up expiry and updates of how the company has performed since listing.

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