In this briefing:
- The Global Autos Break Down, Though Tesla on Full Charge
- Tencent – Well Timed Transaction
- ByteDance (字节跳动) Pre-IPO: Global Ambition Meets Regulatory Challenges
- ECM Weekly (26 July 2020) – Li Auto, Ant Financial, Tigermed, Mindspace, Blue Moon
- Hamamatsu Photonics (6965 JP): Set Up for Disappointment
- Auto exposures are in decline among Global active investors. Average holding weights are towards the lower end of the 9-year range, at 0.83%. A record low of 49% of the 406 funds in our analysis have exposure to the Autos sector.
- Fund activity over the last 6-months saw Global managers selling down stakes in Daimler AG (DAI GR) , Toyota Motor (7203 JP) and Ford Motor Co (F US) . Tesla Motors (TSLA US) and Volkswagen (Pref) (VOW3 GY) were the main bright spots as ownership levels grew over the period.
- Overall, the auto industry is becoming increasingly unattractive to the average Global fund manager, with increases in Tesla Motors (TSLA US) exposure unable to counteract significant declines in ownership across the more traditional auto manufacturers.
*Another Material Developments At Afterpay: Afterpay Touch (APT.AU) confirmed another material development. The launch of its global rewards system called “Pulse” commenced in the US, and is set to be launched in the United Kingdom, Australia, and New Zealand in the coming months. In short, Afterpay is looking to reward regular users who pay on time (five purchases every six months) which turns the credit card model on its head, as it relies solely on increasing customer spend for points;
*Other Recently Announced Positives: In addition to the update provided on Pulse, Afterpay has provided a solid update on its growth and traction post-deal; expressed its interest in a capital raise; and onboarded Apple Pay (AAPL.US) and Alphabet (GOOG.US) Google Pay; and
*Magic Fairy Dust: While no transaction particulars were disclosed, we calculate an average share purchase price of AUD 22.47 per share for the 5% stake or a hefty 6.8x P/BV for a company which is loss-making and where Tencent hasn’t control. Tencent has already earned 146% on this stake.
ByteDance IPO is one of the major listings by Chinese TMT companies that we are looking forward to. The company was valued at USD 75 billion in a pre-IPO round in October 2018 and was valued at USD 100 billion in the private transactions in May 2020.
In our previous reports, we covered the company’s main products and its recent financials and user data in China. Although ByteDance records most of its revenues from China, one should not underestimate its potential from overseas expansion. ByteDance’s flagship app, TikTok, has become a global phenomenon. Competitors such as Facebook have not been successful in taking market shares from TikTok. In our opinion, ByteDance is the most successful Chinese TMT company in the overseas market.
In this note, we will look at the latest numbers of the company. It set an ambitious target for its overseas operation but is now facing challenges in two of its biggest markets. We will discuss recent events and what to look forward to after the success of TikTok.
Our previous coverage on ByteDance
- ByteDance (字节跳动) Pre-IPO: Why Facebook Should Worry About TikTok
Aequitas Research puts out a weekly update on the deals that have been covered by the team recently along with updates for upcoming IPOs.
The number of deals coming to market have slowed down as compared to the mad rush in June but we are now getting wind of larger IPOs that are looking to come to the market soon. Most notably, Ant Financial (1051260D CH) confirmed its plan to list on STAR and Hong Kong Exchange whereas Hangzhou Tigermed Consulting (300347 CH)‘s dual listing is said to be aiming to raise about US$1bn. Ke Yan, CFA, FRM covered the two IPOs in his notes this week:
- Tigermed (泰格医疗) A+H: PHIP Updates and Thoughts on Valuation
- Ant Financial (蚂蚁金服) IPO Early Thought: What’s New About the Listing News
We also covered other upcoming IPOs that have recently filed their application proof with HKEX such as Blue Moon and Jiayuan Services.
- Blue Moon Group Pre-IPO – The Positives – Dominant Market Share, Strong Online Sales
- Blue Moon Group Pre-IPO – The Negatives – Flagging Offline Sales, Not Really a Primary Raising
- Jiayuan Services (佳源服务) Pre-IPO – Another Small Property Management Company
In India, Mindspace Business Parks REIT (MBP IN) launched its bookbuild and has already counted various reputable institutional investors as strategic (cornerstone) investors. Sumeet Singh shared his thoughts on valuation and deal dynamics.
China ADR listing has also been picking up some momentum despite political tensions between China and the US. KE Holdings, which is backed by Tencent Holdings (700 HK) and Softbank Group (9984 JP) and owns Lianjia and Beike, filed its prospectus with the SEC. We will share our thoughts on the IPO next week. Also, Li Auto Inc. (LI US) launched its IPO and is expecting to raise up to US$950m.
There were only two sell downs by investors this week as global markets looked a little shaky. Asian Development Bank partially sold its investments in Gulf Energy Development Public Company (GULF TB) and B Grimm Power (BGRIM TB) on the same day and, strangely enough, GULF announced that it plans to raise about US$1bn via a rights issue, right after the selldown was completed.
Our overall accuracy rate is 73% for IPOs and 65.8% for Placements
(Performance measurement criteria is explained at the end of the note)
New IPO filings this week
- KE Holdings (the U.S., US$1bn)
- Everest Medicine (Hong Kong, ~US$300m)
- Strawbear Entertainment (Hong Kong, ~US$100m)
- E-Star Commercial Management (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
- Guidance was cut after disappointing 1H results, but management’s new forecast for FY Sep-20 does not include the impact of COVID-19.
- Instead, management notes that the pandemic could reduce 2H sales by another 10% – 15%. In our estimation, this would lead to a 25% – 34% decline in FY Sep-20 net profit.
- Management’s plan for the following two years remains unchanged. It implies a sharp rebound taking operating profit well above its FY Sep-18 peak.
- This plan is based on capacity expansion and demand forecasts made before the outbreak of COVID-19. But capital spending is now being postponed.
- The share price has rebounded by 47% since March. The projected P/E ratios implied by management’s plan are 33x for FY Sep-22 and 28x for FY Sep-23. The 5-year historical P/E range is 22x – 38x.
- As infections continue to rise and lockdowns are reimposed, management’s plan looks over-optimistic, at least for the coming syear.
- 3Q results should be announced in early August.
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