Daily BriefsGrowth Ideas

Brief Growth Ideas: Midea (Part I): A Deep Dive into Midea’s Air Conditioner Business and more

In this briefing:

  1. Midea (Part I): A Deep Dive into Midea’s Air Conditioner Business
  2. ECM Weekly (9 Feb 2020) – Mr. DIY, Kingsoft Cloud, SBI Cards, CAMS, Equitas SFB, Akeso Bio
  3. NIU Technologies Surges 11% as Market Begins to Appreciate EV Micromobility; Long Runway Ahead
  4. RBI Policy Update: A Boost For Indian Financials
  5. Softbank G: Elliott’s Activist Intervention Is Well-Timed Especially if the Sprint Merger Is Blocked

1. Midea (Part I): A Deep Dive into Midea’s Air Conditioner Business

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This is the FIRST of a series of reports on Midea Corp. where we will be taking a closer look at the company’s core business segments. This insight will mainly focus on the company’s HVAC business which accounts for about 48% of consolidated revenues. Midea has been a dominant player in the Chinese air-conditioner market and is currently the leader in the AC market in China which was previously dominated by Gree Electric Appliances. Compared to Gree, Midea operates with a diversified product mix and has strong positions in the markets in which it operates.

Our analysis of the company’s air conditioner business reveals that the company’s sales have grown more quickly than its peers over the past 2-3 years. The company has been increasingly spending on sales and marketing while it offers heavy discounts and promotions on air conditioners in order to accelerate inventory turnover. When we spoke to Daikin and Renesas Electronics in November last year, they mentioned that market insiders believe Gree has close to 1.5 years of inventory build-up in the channel. Despite the company offering large discounts on its AC model, the HVAC segment’s gross margin has improved over the years and currently stands at about 31%. On the other hand, Gree’s GPM has declined to about 29% in 1HFY03/2019 from about 30% a year ago.

In addition to Midea’s strong position in China, we believe the company has large presence in other emerging Asian economies including India. The US, the second largest AC market in the world is dominated by several local and international players where we believe Midea does not have a very large market share. We view this as positive due to the ongoing trade war between the US and China which could affect the company’s HVAC business.

2. ECM Weekly (9 Feb 2020) – Mr. DIY, Kingsoft Cloud, SBI Cards, CAMS, Equitas SFB, Akeso Bio

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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.

Even though equity capital markets have been fairly quiet in Asia, there had been a few interesting IPOs coming up this year.

Starting off in India,  we get more information on Life Insurance Corp of India (LIC)’s mega IPO. It was reported that estimates is putting LIC’s IPO at India’s next financial year which is from April 2020 to March 2021 and the deal will likely raise about US$11.2bn–$14bn if one assumes that 10% stake is sold in the IPO. Regardless, it will be the largest IPO in India to date. 

Aside for mega deals, we are also hearing that SBI Cards (SBICARDS IN) is looking to get regulatory approval for its IPO in the upcoming week and will likely target to list towards the end of the month or in March. Sumeet Singh has already shared his thoughts on SBI Cards’ valuation. 

Other India IPO early coverage:

In Hong Kong, Ke Yan, CFA, FRM covered Akeso Biopharma Inc (1495016D CH)‘s IPO. The company made headlines for getting rejected by HKEX. It was reported by FT that the rejection was the result of a typo in the draft prospectus which gave a prospective listing date in the second quarter, rather than the first quarter as intended. The company has already re-filed its draft prospectus shortly after the rejection.

We are also hearing that Mr. DIY will be looking to list by Q1. We have covered the deal extensively with peer comparison and thoughts on valuation this week:

Other IPOs we have covered this week include Kingsoft Cloud’s potential IPO which was earlier said to have confidentially filed with the SEC for a US listing:

Accuracy Rate:

Our overall accuracy rate is 73.6% for IPOs and 65.1% for Placements 

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

New IPO filings this week

  • Akeso Biopharma (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

Analysis on Upcoming IPOs

Hong Kong
Akeso Bio Akesobio (康方生物) Pre-IPO: Late in the PD-1 Game but Products Are Promising 
Ant FinancialAnt Financial IPO Early Thought: Understand Fintech Empire, Growth & Risk Factors

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


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


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


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


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


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


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


InnoCare (诺诚健华) Pre-IPO: A Decent Team but Short of Clinical Stage Candidates 


InnoCare (诺诚健华) Pre-IPO: Thoughts on Valuation 


Jiumaojiu (九毛九) Pre-IPO Early Thoughts – New Brand Driving Growth 


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


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 
MicuRxMicuRx Pharma (盟科医药) IPO: Betting on Single Drug in the Not so Attractive Antibiotic Segment

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


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


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


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 
Yeahka Yeahka (移卡) Pre-IPO Review – Growing in an Increasingly Competitive Space 
Yeahka Yeahka (移卡) Pre-IPO – Peer Analysis and Early Thoughts on Valuation 
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
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 
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


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 
SBI Cards SBI Cards and Payments Pre-IPO – The Positives – Ticks a Lot of Boxes 
SBI Cards SBI Cards and Payments Pre-IPO – The Negatives – Banking on a Single Growth Driver 
SBI Cards SBI Cards and Payments Pre-IPO – Valuations – A Tale of Two Revenue Streams 
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
The U.S
CDP CDP Holdings Pre-IPO Review – Highly Reliant on Best Inc. 
CloudMindsCloudMinds Inc Early Thoughts – Still Nascent
Huize Huize (慧择) Pre-IPO – Insurance Agency Masquerading as a Platform Business 
Kingsoft Cloud Kingsoft Cloud (金山云) Pre-IPO: The Leading Cloud Provider in China 

3. NIU Technologies Surges 11% as Market Begins to Appreciate EV Micromobility; Long Runway Ahead


Since we wrote our initial insight on NIU Technologies back in January ( Micromobility Is the EV Megatrend That Consensus Hasn’t Realized and NIU Has the Advantage), NIU has grown strongly – generating over 20% return in less than a month. Most recently, the stock jumped 11% on the 6th of February despite fears surrounding the coronavirus outbreak in China.

We believe the market is finally beginning to appreciate one of our favorite structural megatrends – EV micromobility – given its ease of adoption (EV 2-wheelers don’t need extensive charging infrastructure) and just pure efficiency (EV 2-wheelers are the cheapest mode of motorized travel on a per km basis hands-down).

We reiterate our bullish position on NIU Technologies’ longterm outlook with a target price of US$14.7 – representing 45%+ upside from today’s prices.

4. RBI Policy Update: A Boost For Indian Financials

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RBI announced its monetary policy updates yesterday (Feb 6, 2020). While it left the interest rates unchanged, it signaled accommodative stance with a focus on supporting growth conditional upon inflation remaining within target range.

Alongside the regular monetary policy announcements, RBI announced a few pertinent policy measures to support stressed sectors like real estate, auto and MSME, which in turn is likely to have strong positive cascading effects for Indian financials.

Key Takeaway: All in all, while RBI did not cut rates, it announced several measures to boost liquidity and credit growth in the economy. Also, the signalling from RBI in terms of growth being a key priority and its focus on reviving the economy, was a strong positive. Inflation, while a concern at this point, appears to be under check as most drivers of uptick in inflation have been seasonal and unlikely to persist. Overall, RBI’s policy measures bode well for reviving credit growth and liquidity availability with potential for positive knockdown effects for the overall economy. This should help Indian financials significantly across various metrics such as credit growth, NIM expansion and improvement in asset quality. We remain optimistic on the Indian financials sector, including select NBFCs and HFCs. For more details, please also refer to some of our recent coverage on Indian Financials:

LIC Housing Finance: Asset Quality Weakens But Green Shoots Emerging 

Bajaj Finance: The Stellar Growth Streak Continues! 

Ujjivan Small Finance Bank: Growth Momentum Continues; Ripe for Scaling Up

Edelweiss – A Turnaround Idea: Shifting from Fund-Based to Fee-Based Business Model 

5. Softbank G: Elliott’s Activist Intervention Is Well-Timed Especially if the Sprint Merger Is Blocked


Softbank shares are up 6% on news that Elliott Management has built up a $2.5bn (c. 3%) stake and is talking to management on enhancing value. That would reportedly entail a $20bn share buyback, greater visibility on Vision Fund investments and strengthening independent directors. And as we wrote a few days ago, that is relevant as shares are trading at a historically high discount to fair value. In the past, Softbank has been open to buying back stock at times like this but the WeWork debacle last year and hopes for a Vision Fund 2 had seemingly ruled that out. Elliott thinks Masa can do it by selling some of his Alibaba shares which makes sense to us but has been a red line in the past. All else remaining equal, Softbank could resist this kind of pressure but a failed Sprint/TMUS merger, weakness at WeWork and a need to fund Vision Fund 2 could force Softbank’s hand.  We think chances of a some sort of buyback have risen and a further reduction in the discount to fair value is possible. 

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