Brief Multi-Strategy: OneConnect IPO: Valuation Requires Another Markdown and more

In this briefing:

  1. OneConnect IPO: Valuation Requires Another Markdown
  2. KT&G Corp Placement – Unlike to Make or Lose Much
  3. Toshiba Breakout Hurdles
  4. Lenovo: Cashless Revenue, Rising Risks
  5. Shanghai/​​​Shenzhen Connect Flows: $4.5bn Inflows Led by BOE, Vanke, Ping An

1. OneConnect IPO: Valuation Requires Another Markdown

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OneConnect Financial Technology (OCFT US) is the largest technology-as-a-service platform for financial institutions in China, as measured by the number of customers. At the mid-point of the IPO price range, OneConnect will raise net proceeds of $438 million at a valuation of $4.8 billion. This valuation marked a down round from the $7.5 billion valuation when OneConnect raised $650 million from investors, including Softbank Group (9984 JP)’s Vision Fund and SBI Holdings. 

In our initiation note, we stated that that OneConnect’s fundamentals struggle to establish a clear path to profitability, and we would be inclined to sit out this IPO. Overall, our valuation analysis suggests that despite the down round, we stick to our initial view to sit out this IPO.

2. KT&G Corp Placement – Unlike to Make or Lose Much

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Japan Tobacco (2914 JP) plans to raise around US$230m via selling down its 2.0% stake in KT&G Corporation (033780 KS).

From what I can gather, JT has been a long term shareholder for KT&G but it doesn’t seem to have any strategic say in the company. Thus, the selldown might not carry a lot of negative connotations.

At the same time, the stock price performance of KT&G hasn’t exactly been very exciting and the discount as well isn’t highly appealing either.

3. Toshiba Breakout Hurdles

Toshiba Corp (6502 JP) remains stuck on the historic range with spike resistance at 3,980 and displays a bias to fade back to test 3,750 that will act as the tactical pivot for a fresh upside test on resistance. A break would be negative with risk of slipping back within the old trading cycle range with macro support at 3,450/00 and makes 3,750 the bull/bear divide and nearest inflection level.

Daily RSI and MACD bear divergence warn that this rise will fizzle and re test underlying axis support.

We like shorting strength near recent highs, reversing to long at noted support. Macro upside target and short zone stand out with conviction. 3,980 fade/breakout line in the sand.

4. Lenovo: Cashless Revenue, Rising Risks

Investors seem to be buying into the Lenovo recovery story. Every quarter they manage to produce some growth and talk about a future turnaround. A close look at their accounts reveals that all is not well. Lenovo will be raising capital again next year and the risk of collapse continues to rise.

5. Shanghai/​​​Shenzhen Connect Flows: $4.5bn Inflows Led by BOE, Vanke, Ping An

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In our weekly Shanghai/Shenzhen Connect Ideas series, we aim to help our investors understand the flow of northbound trades via the Shanghai and Shenzhen Connect, as analyzed by our proprietary data engine and highlight interesting trade ideas. 

In this insight, we go through YTD weekly inflows into the A-share market via Shanghai/Shenzhen connect, and top inflows and top three outflows. We will also cover inflows and holdings by sectors, after which we will highlight top five inflows and outflows on a relative basis for large-cap and mid-cap stocks: stocks with a market capitalization above USD 5 billion, and those between USD 1 billion and USD 5 billion. 

In this weekly recap, we highlight inflows into Boe Technology Group (000725 CH), China Vanke (000002 CH)Ping An Insurance Group Co Of China (601318 CH) and outflows from Xian Longi Silicon Materials (601012 CH), Shandong Yshng Lvstck &Pltry Brdg (002458 CH), and Guangzhou Baiyun International Airport (600004 CH).

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