Daily BriefsGrowth Ideas

Brief Growth Ideas: The Global Autos Break Down, Though Tesla on Full Charge and more

In this briefing:

  1. The Global Autos Break Down, Though Tesla on Full Charge
  2. Tencent – Well Timed Transaction
  3. ByteDance (字节跳动) Pre-IPO: Global Ambition Meets Regulatory Challenges
  4. ECM Weekly (26 July 2020) – Li Auto, Ant Financial, Tigermed, Mindspace, Blue Moon
  5. Hamamatsu Photonics (6965 JP): Set Up for Disappointment

1. The Global Autos Break Down, Though Tesla on Full Charge

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  • 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.

2. Tencent – Well Timed Transaction

*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. 

3. ByteDance (字节跳动) Pre-IPO: Global Ambition Meets Regulatory Challenges

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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

4. ECM Weekly (26 July 2020) – Li Auto, Ant Financial, Tigermed, Mindspace, Blue Moon

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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.

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:

We also covered other upcoming IPOs that have recently filed their application proof with HKEX such as Blue Moon and Jiayuan Services.

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. 

Accuracy Rate:

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

NameInsight
Hong Kong
Ant FinancialAnt Financial IPO Early Thought: Understand Fintech Empire, Growth & Risk Factors
Ant Financial Ant Financial (蚂蚁金服) IPO Early Thought: What’s New About the Listing News 
Blue Moon

Blue Moon Group Pre-IPO – The Positives – Dominant Market Share, Strong Online Sales 

Blue Moon

Blue Moon Group Pre-IPO – The Negatives – Flagging Offline Sales, Not Really a Primary Raising 

Blue Moon

Blue Moon: No. 1 But No Exclusive Advantage, Observation on the Ground 

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 

Genor

Genor (嘉和生物) Pre-IPO: Slow R&D Progress in the past but that Might Change 

Jiayuan Svcs

Jiayuan Services (佳源服务) Pre-IPO – Another Small Property Management Company 

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 
Ocumension Ocumension (欧康维视) Pre-IPO: All Ready for a Great Listing Except a Block Buster 
Pop Mart Pop Mart Pre-IPO – The Negatives – Is It a Brand Owner or Just a Retailer? 
Pop Mart Pop Mart Pre-IPO – The Positives – Expanding Portfolio+Wider Distribution= Explosive Earnings Growth 
Radiance Radiance Holdings (金辉控股) Pre-IPO – Property Mgt Svc Sold Out at a Ridiculously Cheap Valuation 
Shimao Svcs Shimao Services (世茂服务) Pre-IPO – Community VAS Segment Is the Star 
Simcere Simcere (先声制药) Pre-IPO: Long History but Products Concentrated 
Tasly Tasly Biopharm (天士力生物) IPO: Visible Growth from Approved Drug but Lacks Blockbusters 
Tigermed Tigermed (泰格医疗) A+H: PHIP Updates and Thoughts on Valuation 
Weihai Bank Weihai City Commercial Bank Pre-IPO – More of an Asset Manager Rather than a Lender 
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 
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 
Mindspace Mindspace Business Parks REIT Pre-IPO – Updates Aren’t so Great 
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 
UTI AMC

UTI Asset Management Company Pre-IPO – Well past Its Remote Glory Days 

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
CDP CDP Holdings Pre-IPO Review – Highly Reliant on Best Inc. 
CloudMindsCloudMinds Inc Early Thoughts – Still Nascent
Li Auto Li Auto (理想汽车) Pre-IPO – Taking the Long Way Around 
Li Auto Li Auto (理想汽车): Visit Li Auto Store and Find Out License Game 
Li Auto Li Auto (理想汽车) Pre-IPO – Peer Comparison – Margins May Look like BYD, but Sells like NIO 

5. Hamamatsu Photonics (6965 JP): Set Up for Disappointment

Hamamatsu%20op

  • 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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