In this briefing:
- ECM Weekly (19 January 2019) – China Kepei, Mrs. Bectors Food, Xiaomi, Ayala Corp
- Uzbekistan Initiation: Value Hidden in Plain Sight
1. ECM Weekly (19 January 2019) – China Kepei, Mrs. Bectors Food, Xiaomi, Ayala Corp
Corrigenda: There is an error in this insight. Please note the correction.
Correction: Please ignore the incomplete sentence at the end of the second paragraph in the blue box below (“On the valuation end,…”).
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.
It has been a fairly busy week. Activity in the ECM space seems to be picking up with block trades taking the lead this week. We had Xiaomi Corp (1810 HK), Ayala Corporation (AC PM), Puregold Price Club (PGOLD PM), and Longfor Properties (960 HK) placements this week and most of them secondary sell-downs except for Puregold which was a top-up placement. Most placements performed well, trading above their IPO price, except for Longfor which only managed to claw back to its deal price on Friday.
Starting with Xiaomi, we think that there would likely be more selling considering that there is a massive overhang after the lock-up expired on 9th of January. Our calculation indicated that major shareholders may have about 6bn shares to be sold. Even if we exclude the founders’ shares, there will still be about 4bn shares left to be sold. The share price has managed to claw back above HK$10 level on Friday and we also heard that the books were several times covered with allocation being concentrated among a handful of investors. The tighter discount of this placement compared to the one earlier that crossed at 14% discount probably indicated demand is relatively better for this placement. On the valuation end, we
Ayala Corp’s placement was upsized and has also done well contrary to our view. We thought that the sell-down may perhaps indicate that there is an overhang from Mitsubishi’s remaining stake. But, we heard that books were well covered.
For IPOs this week, Weimob.com (2013 HK) traded well on the first day but took a spectacular dive on the second day of trading. It was down 30% intraday before bouncing back up and finally closing at IPO price on Friday. On the other hand, Chengdu Expressway Company Limited (1785 HK) hovered around its IPO price with little liquidity.
In terms of upcoming deals, PH Resorts Group (PHR PM) is looking to launch a US$350m share sale in about two months time. Maoyan Entertainment (EPLUS HK) has already launched its IPO on Friday while there will be more IPOs heading to the US. Jubilant Pharma is said to have turned to the US for its US$500m IPO after trying to list in Singapore last year. Home Credit Group and Sinopec’s retail unit might be seeking to this in Hong Kong this year. Luckin Coffee is also said to be seeking an IPO in Hong Kong.
Accuracy Rate:
Our overall accuracy rate is 71.9% for IPOs and 64.1% for Placements
(Performance measurement criteria is explained at the end of the note)
New IPO filings
- Shenwan Hongyuang Group (Hong Kong, >US$1bn)
- Tai Hing Holdings (Hong Kong, ~US$200m)
- Changsha Broad Homes Industrial Group (Hong Kong, >US$100m)
- Shanghai Gench Education (Hong Kong, >US$100m)
- China Yunfang Holdings (Hong Kong, ~US$100m)
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
- IPO drought to end as Polycab, Chalet Hotels, others gear up for share sales
- EaseMyTrip plans to raise Rs 1,500 crore through IPO
- World’s most valuable startup, Bytedance, takes a hit from China’s slowdown
- China’s largest online ticketing site lowers IPO ambition
- Luckin Coffee Reportedly Seeks IPO in Hong Kong
- Chinese-backed Data Centre Giant Aims for Hong Kong IPO
Smartkarma Community’s this week Analysis on Upcoming IPO
- China Kepei Edu (科培教育) IPO – Regulation Poses Significant Near-Term Risks
- Leong Hup IPO Preview: A Game of Chicken
- Mrs. Bectors Food Specialities Pre-IPO Quick Take – Sales for Its Main Segment Have Been Stagnant
- Chunbo Co. IPO Preview: Valuation Analysis
List of pre-IPO Coverage on Smartkarma
2. Uzbekistan Initiation: Value Hidden in Plain Sight
Uzbekistan’s economy is a frontier market stand out and has a large number of attractive characteristics:
- Uzbekistan’s stock market trades at a substantial discount to other frontier markets, though the extremely illiquid nature of the market makes it hard to trade. However, there still is foreign interest in the market.
- The IMF projects that the economy will grow by 5% during 2018 and 2019, and eventually reach 6% by 2022, though this is still below its historical high.
- Market reforms were spearheaded in December 2016 when the newly elected president, Shavkat Mirziyoyev decided to transition towards a market- oriented economy led by private sector growth, as the public sector was unable to create enough jobs. This represents a significant shift given that Uzbekistan had been a closed, centrally planned economy until 2016.
- Tourist arrivals grew by 91.6% during H1 2018, and this is poised to improve greater in the future due to the impact of the visa liberalization measures.
- Twin deficits have remained under control and Uzbekistan is one of few current account surplus frontier markets.
- Uzbekistan is also very attractive compared to other markets in the frontier space given that its minimum wage is only US$24/month, compared to around $70-75/month in Kyrgyzstan and Kazakhstan.
The market reforms that the country recently implemented will be a major catalyst for future economic growth and makes investment in this market appealing. Apart from strong growth, the market is also appealing due to its high foreign exchange reserves ( nearly 2 years of import cover), consistent CA surplus, and stable currency. My latest frontier and emerging market recap highlights the appeals of markets such as Bangladesh, Vietnam, and Egypt, while expressing concerns for markets such as Sri Lanka and Pakistan. Uzbekistan is a suitable addition given its stable macro/political picture, and the main negative factor of this market is the highly inaccessible nature of the equity market. The ADTV is less than $100,000, which is a far cry from other frontier markets like Romania, Sri Lanka and Kenya.
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