In this briefing:
- ECM Weekly (23 March 2019) – ESR, Sun Car, Ruhnn, CanSino, Frontage, Wuxi Bio, WiseTech,
- Gold May Rise on Lower Real Ylds; Canada Leads Fall in Real Ylds; Aust Inflation Expectations Slump
- RRG Weekly – Fed Highlights Headwinds – Greece Greases Growth – Thai Election Sun Too Close to Call
- A List of Major Korean Companies Shutting Down or Restructuring Their Operations in China
- CATL Could Be Tesla’s New Battery Supplier- Panasonic in Trouble?
1. ECM Weekly (23 March 2019) – ESR, Sun Car, Ruhnn, CanSino, Frontage, Wuxi Bio, WiseTech,
Aequitas Research puts out a weekly update on the deals that have been covered by Smartkarma Insight Providers recently, along with updates for upcoming IPOs.
Theme of the week: Block trades/Placements + news flow on upcoming IPOs
Starting with placements, the shareholders of Wuxi Biologics (Cayman) Inc (2269 HK) are back on the market again to sell some shares. They been quite consistent with the selling and our team have covered the company the IPO each of the placements. Wisetech Global (WTC AU) and Platinum Asset Management (PTM AU) also had blocks that were sold earlier this week. The former did excceedingly well post-placement, currently more than 10% above its deal price while the latter had struggled as a result of Kerr and his ex-wife selling a portion of their shares in the company.
As for upcoming IPOs, Hong Kong ECM activity is ramping up. Megvii, the Chinese AI startup is looking to list in Hong Kong or US whereas China Feihe (FEIHE HK) is said to be revisit its US$1bn HK IPO. Ke Yan, CFA, FRM has covered the latter in this insight almost two years ago.
We also heard that Frontage had already met investors and Ke Yan, CFA, FRM has provided preliminary thoughts on valuation in:
Mulsanne Group (previously known as Alpha Smart (GXG)), Xinyi Energy Holdings, CMGE Tech, and 360 ludashi (鲁大师) re-filed their draft prospectuses. We have covered Mulsanne and Xinyi Energy in:
- Alpha Smart Pre-IPO – PE Investors Recovered 56% of Their Cost in Two Years but Left It in Debt
- Xinyi Energy (信义能源) IPO: High Dividend Yield but Depreciating Asset
- CMGE Tech (中手游) Pre-IPO Review – Unfortunate Timing
360 ludashi’s previous filing indicated that its IPO deal size will be small (<US$100m). However, the updated financials shown an almost 50% YoY PATMI growth which could put its IPO at a borderline deal size of US$100m if growth maintains at 50%.
In the U.S, Yunji Inc. (YJ US) filed for a US$200m IPO. The company runs a Chinese e-commerce site that uses a social platform to promote its products. We will be writing an early note on the company next week.
In Singapore, Eagle Hospitality REIT is said to have started investor education for its IPO while Lendlease is planning to raise up to US$500m for its retail REIT according to media reports.
In other ASEAN markets, there are also a handful of IPOs to watch out for.
- In Indonesia, Lion Air is said to be targeting US$1bn listing in the third quarter of this year and it is starting to gauge investor interest. MAP Actif has already started pre-marketing its IPO.
- In Thailand, Kerry Express Thailand is said to have hired banks to prepare for a >US$100m IPO.
- In Malaysia, QSR Brands (QSR MY) has started to pre-market for its US$500m IPO. Sumeet Singh had previously written an early note:
Accuracy Rate:
Our overall accuracy rate is 72.3% for IPOs and 64.3% for Placements
(Performance measurement criteria is explained at the end of the note)
New IPO filings
- Yunji (the U.S, ~US$200m)
- 360 LuDaShi (Hong Kong, potentially >US$100m)
- CMGE Tech (Hong Kong, re-filed)
- Mulsanne Group – FKA Alpha Smart – AKA GXG (Hong Kong, re-filed)
- Xinyi Energy (Hong Kong, re-filed)
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
- Chinese AI start-up Megvii mulls IPO in either Hong Kong or New York to raise US$800m
- Lendlease planning to raise up to US$500m with retail Reit listing on SGX
- Indonesia’s Lion Air Starts Work on $1 Billion IPO
- Chinese Tower Operator Guodong Is Said to Plan Hong Kong IPO
- Feihe International ‘revisits plan for Hong Kong IPO’
- Solar co Xinyi Energy revives Hong Kong IPO plan
This week Analysis on Upcoming IPO
- Ruhnn (如涵) Pre-IPO Review- Significant Concentration Risk
- Frontage Holding (方达控股) IPO: Updates from 2018 Numbers
- Sun Car Insurance Agency (盛世大联) IPO: Over Valued Vs P&C Companies
- ESR Cayman Pre-IPO – Earnings and Segment Analysis
- CanSino Biologics (康希诺) IPO: Valuation Attractive, Lilly Asia Doubling Up (Part 4)
- PagerDuty IPO Preview
2. Gold May Rise on Lower Real Ylds; Canada Leads Fall in Real Ylds; Aust Inflation Expectations Slump
- The broad decline in global bond yields and curve flattening suggest that the market has become more concerned about weak global economic growth.
- The fall in yields is at odds with the rise in equity and commodity prices this year, but the later may have lost upward momentum.
- Safe haven currencies, gold and JPY, have strengthened this week and are likely to perform well if yields remain low.
- US real yields have fallen more than nominal yields this year, with a partial recovery in inflation expectations from their fall in Q4 last year. Lower real yields point to weaker fundamental support for the USD, and further support safe havens like gold.
- Canadian real long term yields have fallen more abruptly than in the USA, into negative territory, suggesting the outlook for the Canadian economy has deteriorated more than most. This may relate to concern over a peaking in the Canadian housing market. The fall in real yields suggests further downside risk for the CAD.
- Long term inflation breakevens have fallen in Australia sharply since September last year to now well below the RBA’s 2.5% inflation target.
- Australian leading indicators of the labour market have turned lower, albeit from solid levels, and may be enough, combined with broader evidence of weaker growth, for the RBA to announce an easing bias as soon as April.
- Asian trade data and flash PMI data for major countries point to ongoing and significant weakness in global trade.
3. RRG Weekly – Fed Highlights Headwinds – Greece Greases Growth – Thai Election Sun Too Close to Call
- US: Fed Sees Tailwinds from Global Growth Shifting to Headwinds from China and Europe.
- Greece: Growth supported by ‘Golden Visa’ (5-year visa for investing 250,000 Euro) and strong tourism arrivals. 2.3% GDP in 2020.
- Thailand: Sunday election between Shinawatra-linked Pheu Thai Party and military backed Palang Pracharat Party. Too close to call.
- Brazil: Former Brazilian President Michel Temer has been arrested in São Paulo as part of the Car Wash corruption investigation. Brazil stocks fell on the news.
4. A List of Major Korean Companies Shutting Down or Restructuring Their Operations in China
In this report, we provide a list of major Korean companies that are either shutting down or restructuring their operations in China. The pace of major Korean companies that are discontinuing part or all of their operations in China in the past year has been UNPRECEDENTED in the past two decades. This trend is very concerning since it suggests deteriorating business conditions and reduced employment in China.
Of the Korean companies that are pulling out of China, we identified 10 companies below, including Hyundai Motor, Lotte Chilsung Beverage, and Clio that have announced their intentions to pull out most or a portion of their operations in China in the past three months. These ten stocks are up on average 13.5% YTD, compared to KOSPI which is up only 7.1% during the same period.
If we had to make a guess, the potential job losses from the Korean companies mentioned in this report that are pulling out part/all of their operations in China could be about 20,000 to 30,000+. If we add all the other suppliers and companies that are involved in these companies’ value chains in China, the total number of job losses in China could stretch several hundred thousand.
5. CATL Could Be Tesla’s New Battery Supplier- Panasonic in Trouble?
The news released on the 11th of March, about Tesla Motors (TSLA US) choosing CATL (A) (300750 CH) as battery supplier has focused much attention on the two companies and other battery suppliers. CATL which grabbed Panasonic Corp (6752 JP)’s leading position in the industry last year now seems to be grabbing the latter’s key customer as well. The news circulating states that, CATL could power Tesla’s Model 3 cars which Tesla is planning to start assembling at Tesla’s new factory near Shanghai. Following the release of this supposed deal, the stocks of the two companies moved positively, with CATL surging by almost 6.7% while Tesla rose by almost 2.4% during the day. However, both parties have not commented on this news yet or made any formal announcement regarding such a potential deal. In our Insight, Tesla Drifting Away Could Leave Panasonic Struggling to Gain Traction in China, we mentioned that Tesla was looking to locally source its batteries in China and that CATL could potentially be one such supplier. However, in January this year, it was reported that Tesla had signed a preliminary agreement with China’s Tianjin Lishen to supply batteries for its new Shanghai car factory, making the current news look less believable. Although it seems like the ongoing news about a Tesla-CATL pair up lacks integrity, with CATL sort of denying its intend to work with Tesla (according to an updated news release), the news does look interesting and its effect upon the related companies seems noteworthy.
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