ChinaDaily Briefs

China: Xiaomi Corp, Oriental Watch, PC Partner, Nam Tai Property Inc, Ming Yuan Cloud Group, Ant Financial, ZTO Express, Zai Lab Ltd, Meituan Dianping and more

By September 15, 2020 No Comments

In today’s briefing:

  • Xiaomi Placement – Run-Up in Share Price, Co-Founder Selling
  • Oriental Watch: Forget the Tender, Management Is Bullish and Dividends to Accelerate
  • Oriental Watch (398 HK): Conditional Partial Offer
  • PC Partner: Poor-Man’s Play on Nvidia  (Part 2); Trades at 2x FY20 P/E and 14% Dividend Yield
  • Nam Tai Property – An Interesting Activist Situation
  • Ming Yuan Cloud (明源云) IPO – Better Disclosure and a Leader in the Industry
  • AliPay’s Advantage over WeChat Pay in Physical Stores
  • ZTO Express Secondary Listing: Home Delivery
  • Zai Lab HK Secondary Listing – Large Deal to Digest but past Deals Have Done Well
  • China Internet Weekly (14Sep2020): Meituan & Ele.me Criticized as Sweatshop

Xiaomi Placement – Run-Up in Share Price, Co-Founder Selling

By Sumeet Singh

Xiaomi Corp (1810 HK)‘s co-founder Lin Bin aims to raise around US$1bn via selling some of his stake in the firm.

While he has provided a long lock-up to allay any concerns of an overhang, the shares have run-up a lot going into the index inclusion. 


Oriental Watch: Forget the Tender, Management Is Bullish and Dividends to Accelerate

By Nicolas Van Broekhoven

Oriental Watch (398 HK)announced it is proposing to buy back a maximum of 83 million shares at 3 HKD (249M HKD). This represents a premium over 57% vs the average 30-day closing price on HKex. Once the shares are bought back they will be canceled which will reduce total shares outstanding from 570 million to 478 million. A Special General Meeting (SGM) will be needed to approve the transaction, details of which are pending an official Offer Document. The full transaction has been covered by David Blennerhassett Oriental Watch (398 HK): Conditional Partial Offer 

As long-time Oriental Watch followers let’s step back and assess what this means:

  • The controlling family’s stake will rise over 30% (depending on uptake 30.85-36.10%) but they won’t have to make a mandatory general offer as they have requested an exemption from HKex. Minority investors need to approve the transaction: we would advise minorities to vote IN FAVOR.
  • The founding family upping its stake at a significant premium to the latest stock price is bullish. 
  • Even at 3 HKD, the shares trade far below their latest book value of 4.04 HKD.
  • With increased ownership management is now more incentivized to keep on paying large dividends going forward. 
  • Mr. Market has been perenially mispricing Oriental Watch at negative enterprise value or barely above net cash over the last 5 years. As discussed at length in various previous insights we think this is wrong and the latest transaction again highlights the underlying value.
  • The company has returned 0.885 HKD/share in dividends over the past four years. When judging Oriental Watch’s share price performance please make sure you look up the total return on your Bloomberg.
  • Mainland China Rolex sales have been seeing YoY SSS increases of 40-80% since April (depending month to month). Once HK opens up SSS comps become very easy after 2019 (riots) and 2020 (Covid-19). Please re-read our insight on Oriental Watch being a way to play Rolex in China Oriental Watch: Bet on Rolex Demand in China/HK and Collect 12% Dividends While Waiting 

Oriental Watch (398 HK): Conditional Partial Offer

By David Blennerhassett

After Oriental Watch (398 HK) (“OWH”) was suspended “pursuant to the Codes on Takeovers and Mergers and Share Buy-backs“, the immediate takeaway was to conclude the company would be subject to a Privatization Offer. But in what is becoming increasingly more common, OWH has announced a partial buyback from the company – 14.55% of shares out or 83mn shares, at HK$3.00/share, a 53.85% premium to last close.

This will cost the company HK$0.25bn (US$32mn). OWH had net cash on hand of ~HK$0.65bn as at Mar 2020.

Yeung Ming Biu & concert parties hold 30.85% of shares out and will not tender. That leaves 69.15% of the register subject to the buyback, implying a minimum pro-ration of 21.04%.

Should the partial buyback complete (i.e. fully exercised) Yeung & concert parties will hold 36.10% of shares out, before the exercise of any outstanding share options. That step-up in %-held oversteps Hong Kong’s “creeper rule”, and therefore Independent Shareholders are required, by way of a special resolution (75% vote), to approve a whitewash waiver such that Wong is not obligated to make a general offer for shares not held. 

As always, more below the fold. Plus Ye Olde Arb Grids.  


PC Partner: Poor-Man’s Play on Nvidia  (Part 2); Trades at 2x FY20 P/E and 14% Dividend Yield

By Nicolas Van Broekhoven

Several years ago we wrote about PC Partners (1263 HK): A Poor Man’s Way into Nvidia New GPU Cycle; Trades at 3x PE and 11% Div Yield.

We see a similar trade coming up in 4Q20 and into 1Q21.

As demonstrated over the years covering PC Partners the stock is rarely a buy & hold. With Nvidia’s new RTX30 GPU launch (GTX3060/GTX3070/GTX3080 and GTX 3090) being spread out from October to December there is likely to be excitement around its performance and uptake.

Much different than in FY18 there is no large oversupply from a deflating crypto bubble. This means there is no old inventory to clear which should result in much better GPM and NPM for Pc Partners. Please also note that gearing for Pc Partner in 2018 was over 100% while the company will have a net cash position by the end of FY20.

Pc Partner remains a poor man’s way to play Nvidia and key themes such as e-sports, AI, data centers, and overall gaming. We expect dividends to be reinstated for FY20. On our estimates, the company will achieve 8 billion HKD in FY20 sales and generate 272 million HKD in net profit (3.4% NPM). If we assume a 30% payout on that we get a 0.22 HKD/share full-year dividend or a 14% dividend yield. We expect the stock to reach 3 HKD in the coming 6 months. Upside could come from a bullish breakout in cryptocurrencies as crypto mining (which consumes massive GPU) comes back in vogue. The downside is capped by a very cheap valuation.


Nam Tai Property – An Interesting Activist Situation

By Travis Lundy

Nam Tai Property Inc (NTP US) has been the stomping ground for a small US-based activist and a few other shareholders since last year with one shareholder IsZo Capital LP there as the top independent shareholder since 2017, and “public” since filing a 13G in February 2019. 

Nam Tai Property – founded in 1975 – was originally an electronics company based in Shenzhen. It changed its name to Nam Tai Property in 2014. It is listed, somewhat oddly, on the NYSE.

In May, IsZo Capital – which at the time owned 9.8% of shares out vs 6.68% at end-December – sent the company a letter which it also released to the public. IsZo was upset that Nam Tai was trading at only about US$4.05 at the time, which was a 70% decline since the share price in January 2018, 28 months earlier, when Kaisa Group Holdings (1638 HK) replaced the CEO with Ying Chi Kwok who was the younger brother of the CEO of Kaisa (and himself owns 13.8% of Kaisa). Kaisa had themselves bought in at just under US$17/share, paying CNY 750mm for 6.5mm shares held by then-lead shareholders Koo Ming Kown and Cho Sui Sin. They bought another 1.1mm shares in the quarter and then another 1.583mm in Q4 2017 to get to the current position of 9.191mm shares. That was 25.01% when they got there but ESOP plans have dropped that to 23.61% now.

Before the letter in May, IsZo had been rallying shareholders to its cause, and the register saw significant turnover, presumably towards shareholders friendly to the activist cause. The letter WAS on a website (https://fixntp.com) that IsZo put up but it is no longer there. 

The letter itself explained issues with Kaisa’s history and conflicted ownership and called on shareholders to reconstitute the Board and remove Kaisa insiders from leadership roles, proposing a slate. Another fund, Railroad Ranch Capital, wrote a letter in June 2020 supporting IsZo’s proposals. They said they owned 4.5% in shares and derivatives.

While this situation has been on my radar I haven’t done much with it. I take a brief look below the fold. 


Ming Yuan Cloud (明源云) IPO – Better Disclosure and a Leader in the Industry

By Zhen Zhou, Toh

Ming Yuan Cloud Group (MYCG HK) (MYCG) is looking to raise up to US$796m in its upcoming Hong Kong IPO.

MYCG is a software solution provider in China with a focus on real estate. The company provides enterprise resource planning (ERP) solutions and SaaS products to property developers and other industry participants in the real estate value chain in China. As per Frost & Sullivan (F&S), the company is ranked first among software providers for property developers in China and has a dominant 24.6% market share in terms of contract value in 2019.

In this note, we will look at updates in the new PHIP filing, do a brief peer comparison, and share our assumptions, and thoughts on valuation.

Our previous coverage of the IPO:


AliPay’s Advantage over WeChat Pay in Physical Stores

By Ming Lu

  • We believe customers prefer AliPay to Tencent (700 HK)’s WeChat Pay when both are available in physical stores.
  • Customers need only 2 steps to pay with AliPay compared to 3~4 steps with WeChat Pay.
  • We believe AliPay has advantage in physical stores before WeChat provides WeChat Pay an access in its homepage.

ZTO Express Secondary Listing: Home Delivery

By Arun George

ZTO Express (ZTO US) is the leading express delivery company in China with a 19.1% market share of China’s express delivery service market as measured by total parcel volume, according to iResearch. ZTO Express passed its Hong Kong listing committee hearing last week and could raise up to $2 billion through a secondary listing, according to press reports. 

ZTO joins the wave of Hong Kong secondary listings set to hit the screens in the coming months. We think that ZTO is an attractive equity story as it is a best-in-class logistics player which can capitalize on the opportunities presented by China’s relatively fragmented logistics industry, in our view. 


Zai Lab HK Secondary Listing – Large Deal to Digest but past Deals Have Done Well

By Sumeet Singh

Zai Lab Ltd (ZLAB US) plans to raise around US$1bn in its secondary listing in Hong Kong.

The company filed its PHIP on Friday, 11th Sep 2020, although it has yet to officially launch the deal. While waiting for the deal to be launched, in this insight, I’ll talk about the deal dynamics.

Links to my previous notes on the topic on Secondary listings:


China Internet Weekly (14Sep2020): Meituan & Ele.me Criticized as Sweatshop

By Ming Lu

  • Meituan (3690 HK) and Alibaba (BABA)’s Ele.me were criticized for exploiting food delivery riders.
  • A Court determined that Ping An Healthcare (1833 HK)’s app, “Ping An Good Doctor”, infringed the trademark of Good Doctor Pharmaceutical Group.
  • Tencent (700 HK) decided to close down its micro-blog.
  • State Post expected that parcels will increase 37.4% YoY in China in August.

Before it’s here, it’s on Smartkarma