In this briefing:
- CanSino Biologics (康希诺) IPO: Valuation Attractive, Lilly Asia Doubling Up (Part 4)
- NVIDIA’s $6.9 Billion Mellanox Band-Aid Is A Strategic Misstep
- HK Connect Discovery Weekly: Eligibility Adjustment (2019-03-15)
- China Risun (中国旭阳) – Quick Post-IPO Trading Update
- Re-Launching Coverage of ZTO Express with Sell Rating and US$13.31 Target Price
1. CanSino Biologics (康希诺) IPO: Valuation Attractive, Lilly Asia Doubling Up (Part 4)
CanSino Biologics started its book building today to raise up to USD 160 million to list in Hong Kong. In our previous insights (links provided below), we provided a detailed analysis of the company’s core drug candidates, its shareholders and our thoughts on valuation. In this insight, we will cover the following topics:
- Recap of our valuation
- Highlight of cornerstone investors
- Our thoughts on the deal
Our coverage on Cansino IPO
- CanSino Biologics (康希诺) IPO: Promising Pre-Clinical Results but Vaccine Scandal Weighs (Part 1)
- CanSino Biologics (康希诺) IPO: Thoughts on Valuation (Part 2)
- CanSino Biologics (康希诺) IPO: Valuation Update (Part 3)
2. NVIDIA’s $6.9 Billion Mellanox Band-Aid Is A Strategic Misstep
On March 11’th 2019, Nvidia announced the acquisition of market leading high-speed interconnect company Mellanox for $6.9 billion in an all-cash deal. At first blush, the benefits touted by both companies and accepted by most commentators make sense and the deal will be immediately accretive to both EPS and revenues upon closing according to NVIDIA.
However, the clear and present threat to NVIDIA’s future success has little to do with interconnect technologies. Rather, it is the competitive challenge to their GPU solutions for data center acceleration from a broad spectrum of alternatives from the likes of Alphabet, Baidu, Intel, Xilinx, Advanced Micro Devices etc, not to mention the host of custom-ASIC accelerator startups poised to launch their products this year. The acquisition of Mellanox will do nothing to address this situation and we see it as being a distraction from where the company really needs to be focusing.
It will serve one purpose though, as a BandAid to mask the otherwise inevitable decline in its data center revenue growth in the face of ever-increasing competition.
3. HK Connect Discovery Weekly: Eligibility Adjustment (2019-03-15)
In our Discover HK Connect series, we aim to help our investors understand the flow of southbound trades via the Hong Kong Connect, as analyzed by our proprietary data engine. We will discuss the stocks that experienced the most inflow and outflow by mainland investors in the past seven days.
We split the stocks eligible for the Hong Kong Connect trade into three groups: component stocks in the HSCEI index, stocks with a market capitalization between USD 1 billion and USD 5 billion, and stocks with a market capitalization between USD 500 million and USD 1 billion.
In this insight, we will provide an analysis of the performance of selected stocks that just joined the Stock Connect last week.
4. China Risun (中国旭阳) – Quick Post-IPO Trading Update
China Risun (1907 HK) raised USD 202 million at HKD 2.80 per share, near the low end of its IPO price range. We have previously covered the IPO in:
In this insight, we will update on the deal dynamics, implied valuation, and include a valuation sensitivity table.
5. Re-Launching Coverage of ZTO Express with Sell Rating and US$13.31 Target Price
ZTO Express (ZTO US)‘s earnings will fail to meet the high expectations of sell-side analysts and investors who seeit as a cheap proxy for Chinese e-commerce activity.
China’s express sector revenue grew 43.5% YoY in 2016, the year ZTO went public. Last year, revenue growth was just half that (21.8%), and we expect the sector’s growth to continue to moderate over the next few years.
The express sector is also evolving in ways that will put downward pressure on profitability and require greater investment from the express companies.
We expect the profitability of ZTO’s express business to decline in the medium-term as the company adjusts to slowing demand and emerging sector trends. Our earnings estimates, which are far below consensus figures, reflect these challenges.
ZTO suffers from declining earnings quality and two accounting issues that we feel make it a risky, unattractive investment. Our 12-month target price for ZTO is US$13.31, based on 16 times our blended 2019-20 EPS estimates. We rate the stock Sell.
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