ChinaDaily Briefs

China: JD.com (HK), China Treasury, Antengene, Blue Moon Group Holdings, Yatsen Holding, Gome Electrical Appliances, NetEase Inc, MSCI ACWI Index, CIFI Holdings, BEST Inc and more

In today’s briefing:

  • Hong Kong IPOs: Lock-Up Expiries
  • ESG Investment in China
  • Antengene (德琪医药) IPO Trading: Ample Potential for the Management
  • Blue Moon Group Pre-IPO – PHIP Updates – A Mixed Bag
  • Yatsen IPO Trading – A Little More Pricey Now
  • Gome Retail: Easy Prey
  • NetEase (NTES): In 3Q20, Rapid Growth, Weak Earnings Due to Minor Businesses
  • Bullish Inflections Around The World
  • Morning Views Asia: CIFI Holdings
  • Best Inc’s Weak Q3 Results Spur ‘Strategic Refocusing Plan’, Retain BUY

Hong Kong IPOs: Lock-Up Expiries

By David Blennerhassett

The role of lock-ups in IPOs is, as one journal put it, a “commitment device to alleviate moral hazard problems“.

Lock-ups can be entered into and negotiated with underwriters, as is the case for secondary listings for NetEase (9999 HK), JD.com (HK) (9618 HK), amongst others. For primary listings in Hong Kong, there are standard rules as to the lock-up duration.

According to Main Board Rule 10.07(1) (or GEM rule 13.16A(1)), if a person/group of persons is/are listed as the controlling shareholder(s) of the issuer’s listing application, shall not (apart from any offer of shares for sale discussed in the listing document):

  1. dispose of shares (nor enter into agreements) in a period commencing on the date by reference to which disclosure of the shareholding of the controlling shareholder is made in the listing document and ending on the date which is 6 months from the date of listing (the “First Six-month Period”); and
  2. dispose of shares in the period of 6 months commencing on the date on which the First Six-month Period expires, if immediately following such disposal that person or group of persons would cease to be a controlling shareholder (the “Second Six-month Period”).

An example of such wording can be found in Yadong’s Group (1795 HK)’s (the most recent Main Board listing) “Share Offer – Announcement of allotment results“.

For cornerstone investors, the following is often stated in the share offer document:

Each of the Cornerstone Investors has agreed that it will not, whether directly or indirectly, at any time during the period of six months following the Listing Date, dispose of any of the Offer Shares it has purchased pursuant to the relevant Cornerstone Investment Agreement, save for certain limited circumstances …

Every week in my Event SPACE wrap, I flag large moves (~10%) in CCASS holdings over the past week or so, moves that are often outside normal market transactions.  These may be indicative of share pledges.  Or potential takeovers. Or simply help understand volume swings. 

Large movement(s) concerning recently listed companies are likely lock-up related. 

This insight looks at companies that have been listed for nearly six months or 12 months, as a guide to when insiders/controlling shareholders are permitted to sell, potentially depressing prices and creating an overhang.

A summary of Main Board listings in 2020 is attached at the bottom of this insight.


ESG Investment in China

By Zheng Zeng

ESG Report Series Issue 4

ESG investing has become a mainstream phenomenon for capital markets worldwide. Global flows to ESG-themed ETFs hit a record high in 2019, up to 3 times than that of 2018. During the pandemic in 2020, despite the outflow of traditional ETF funds, the market needs for ESG investing remains strong. The opening up of China’s capital markets is also driving more international capital with ESG themes into China, promoting ESG and responsible investment philosophies to gain greater recognition in China. In addition, with stronger regulatory requirements for ESG disclosures and a broader guidance to build a “green financial system,” China has witnessed an increase in the quantity and quality of disclosures, as well as rapid growth of ESG investment in recent years. 

  1. By conducting Natural Language Processing based analysis to detect themes discussed in 103 market wide third-party research reports, we find that there has been an increasing focus on ESG in the Chinese capital market, with a gradual transition from the initial conceptual descriptions to specific investment products and their performance.
  2. The number of ESG indices has doubled in 2020 in China, with increased diversity in investment strategies and notable performance of quality factors.
  3. The issuance of ESG fund products is undergoing a booming period, with “pure ESG” fund products that combine the entire dimension of ESG gaining momentum.
  4. ESG fund products have performed well since the start of 2020, with returns above the market average for funds in China.
  5. Recommendations and look ahead for ESG Investing in China: 
    • ESG ratings and data coverage in the domestic market need to be further enhanced to enhance alignment with the Chinese market to support the enrichment of ESG theme investment products. 
    • Alternative data and technology can help investors distinguish between companies that are truly ESG compliant and well performing vs. those who are not.
    • Establishment of ESG ratings and data for bonds and bond issuers is essential to accelerate integration of ESG in fixed income investment. 
    • Index providers and fund management companies should develop more diversified ESG products such as passive funds, quantitative funds, and investment products for the primary market, providing more investment options for investors. 
    • As China puts more emphasis on climate change, financial markets should proactively innovate and develop financial products to respond to the need of climate risk mitigation and transition into a low-carbon economy. 

ESG investment trends in China in Charts


Antengene (德琪医药) IPO Trading: Ample Potential for the Management

By Ke Yan, CFA, FRM

Antengene raised HKD 2,635.9 million (USD 340m) from its global offering and will list on the Hong Kong Stock Exchange on Friday November 20th.

In our previous note, we discussed that its ATG-010 has a small proven indication for r/r MM and r/r DLBCL (both are lymphoma), though it has the potential of indication expansion. We believe the Indication and demand for ATG-008 is bigger than ATG-010 as it is targeting liver cancer and lung cancer. Readings on efficacy also suggest that ATG-008 is promising. Both drug candidates are first-in-class. The company not only has a strong management team but also has strong investor backing, including NMC pharmaceutical company Celgene, and healthcare investors.

The deal has attracted a strong line-up of cornerstone investors but we note that the institutional subscription is not as strong as previous biotech deals. We think the deal is fairly valued but note unique experience of its management team warrants a premium to its fair value. 

Our previous coverage on Antengene


Blue Moon Group Pre-IPO – PHIP Updates – A Mixed Bag

By Sumeet Singh

Blue Moon Group Holdings (BMG HK) (BMG) plans to raise around US$1bn in its Hong Kong listing. The company is backed by Hillhouse who first invested in the company in 2010. 

BMG is a consumer household care company in China, which sells its products in three main categories: fabric care, personal hygiene and home care. As per Frost & Sullivan, it has been the market leader in liquid laundry detergent, liquid soap and concentrated liquid laundry detergent market over 2017-19. 

In our earlier insights:

In this insight, I’ll talk about updates from the PHIP.


Yatsen IPO Trading – A Little More Pricey Now

By Sumeet Singh

Yatsen Holding raised around US$617m in its US IPO. The company is backed by Hillhouse, Tencent and Tiger Global. 

I have covered various aspects of the deal in my earlier notes, links to which are below:

In this insight, talk about deal dynamics and provide a table with implied valuation at different ADS levels.


Gome Retail: Easy Prey

By Oshadhi Kumarasiri

Earlier this month, struggling Chinese electrical appliance retailer, Gome Electrical Appliances (493 HK) repurchased 5 million shares at a price range of HK$ 0.89-0.90 per share, 44-45% discount to the past five-year high share price attained following JD.com (HK) (9618 HK)’s and Pinduoduo (PDD US)’s capital injection in 2Q20.

Buybacks are not a regular part of shareholder returns of Gome Retail and they have only done share buybacks when the share price has declined 25% or more during a short time frame. Most of the times, Gome Retail’s share buybacks managed to temporarily maintain the share price but have failed to make an impact on the medium-term direction. Moreover, the latest share buyback is immaterial/symbolic, and the company’s current financial difficulties prevent it from conducting a share buyback of a considerable size capable of making a significant impact to the share price.

Gome Retail needs money urgently to finance debt falling due in the next 8 months and banks may be unwilling to lend more money to a struggling business with insufficient cash flows to service debt.

However, Gome Retail is strategically important to both Pinduoduo and JD.com and the two e-commerce giants could be biding time till Gome Retail’s shares hit rock bottom before going to war against each other to acquire the struggling electrical appliance retailer.


NetEase (NTES): In 3Q20, Rapid Growth, Weak Earnings Due to Minor Businesses

By Ming Lu

  • Game revenue, accounting for 74% of total revenue, grew by 20% in 3Q20.
  • The subsidiary, Youdao (DAO), spent more sale and marketing expense than its total revenue.
  • According to the P/S ratios of US game developers in 2021, we believe NTES will have an upside of 35%.
  • Please note that one ADS represents 5 shares now, compared to 25 shares in the last quarter.

Bullish Inflections Around The World

By Joe Jasper

Positive COVID vaccine news has since led to bullish inflections in a staggering number of countries, ACWI-US included. Our current outlook is bullish. Buy dips. In this report we outline key technical levels across markets and highlight actionable ideas within our Financials & Energy Sectors.


Morning Views Asia: CIFI Holdings

By Charles Macgregor

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.


Best Inc’s Weak Q3 Results Spur ‘Strategic Refocusing Plan’, Retain BUY

By Daniel Hellberg

After the US market close on Thursday, BEST Inc (BEST US) reported a weak set of Q3 results, as expected. But the company also announced a bold new strategic initiative that should result in a leaner, more focused company.  

In addition to winding down its Store+ business (disclosed earlier, please see Best Inc. Is Closing Its Money-Losing ‘Store+’ Business, a Small but Positive Step Forward), Best announced it was considering “strategic options” for its Global, UCargo, and Capital divisions. Going forward, the company will focus on Express, Freight, and Supply Chain Management. 

We do not believe this strategic decision will lead to a quick turnaround in profitability, but we do believe it makes Best more attractive to an acquirer. Best’s decision to exit non-core businesses shows financial pressures are intensifying in China’s express sector. This tells us the forces behind consolidation are quickly gaining momentum. We retain our BUY rating on Best, a potential acquisition target. 


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