In this briefing:
- The GER Weekly EVENTS Wrap: Pinduoduo, Softbank, Healthscope, M1, and Near-Term M&A Catalysts
- TRACKING TRAFFIC/Containers & Air Cargo: December Box Rates & Volume Firm
- Recession/Trade War/ Consumers/Shares/Perpetual Bonds
- 2019 Energy Market Themes & Stocks with Exposure: Focus on Oil, Refining, LNG, M&A & Renewables
- ECM Weekly (26 January 2019) – Maoyan, CStone Pharma, Polycab India, Hujiang Edu
1. The GER Weekly EVENTS Wrap: Pinduoduo, Softbank, Healthscope, M1, and Near-Term M&A Catalysts
In this version of the GER weekly events wrap, we assess the recent lock-up expiry for Pinduoduo (PDD US) which may have led to a short squeeze. Secondly, we assess the debt tender for Softbank Group (9984 JP) which may be supporting the equity. Finally, we provide updates on bids for M1 Ltd (M1 SP) and Healthscope Ltd (HSO AU) as well as update a list of upcoming M&A and equity bottom-up catalysts.
The rest of our event-driven research can be found below.
Best of luck for the new week – Rickin, Venkat and Arun
2. TRACKING TRAFFIC/Containers & Air Cargo: December Box Rates & Volume Firm
Tracking Traffic/Containers & Air Cargo is the hub for all of our research on container shipping and air cargo, featuring analysis of monthly industry data, notes from our conversations with industry participants, and links to recent company and thematic pieces.
Tracking Traffic/Containers & Air Cargo aims to highlight changes to existing trends, relationships, and views affecting the leading Asian companies in these two sectors. This month’s note includes data from about twenty different sources.
In this issue readers will find:
- An analysis of December container shipping rates: Our proprietary index suggests average container shipping rates firmed again in December. Firmer rates in Q418, combined with a moderation in fuel prices, probably lifted carrier margins in the period, and this improvement is likely to spill over into Q119.
- A look at December air cargo activity, which slumped, again: The five Asia-based airlines we track reported a ~2% Y/Y decline in air cargo handled. After growing by a healthy +6.3% Y/Y in H118, air cargo demand at these five carriers has shown a consistent monthly decline, growing by just 1% in Q418 and shrinking slightly in November and December.
- For container carriers and airlines, fuel price increases have continued to moderate. As of mid-January, the price of bunker fuel was up just 4% Y/Y, and the price of jet fuel had declined by around 7%. Throughout much of 2018, fuel prices had risen 20-40% Y/Y, or more.
- Japanese carriers’ December quarter earnings on the horizon: We will soon find out whether improving conditions in container shipping showed up in the carriers’ P&Ls, as the three major Japanese shipping companies are set to report December quarter results at the break on January 31.
Although slowing demand growth is unlikely to generate impressive top-line improvements, firmer pricing combined with lower fuel costs should support an ongoing improvement in profitability for container carriers in the near-term. Meanwhile, the slump in air cargo demand has not yet hit air cargo yields, but it’s becoming clearer that an economic slowdown is hurting demand for this relatively expensive mode of transport.
3. Recession/Trade War/ Consumers/Shares/Perpetual Bonds
China News That Matters
- China´s weakest growth for 28 years
- Talk to me; Liu He comes to town
- Consumers – still packing the engine room?
- Pork king stirs stocks as Nasdaq nears
- Perps. Billions of ‘em
In my weekly digest China News That Matters, I will give you selected summaries, sourced from a variety of local Chinese-language and international news outlets, and highlight why I think the news is significant. These posts are meant to neither be bullish nor bearish, but help you separate the signal from the noise.
4. 2019 Energy Market Themes & Stocks with Exposure: Focus on Oil, Refining, LNG, M&A & Renewables
We run through our views on the main themes that will impact the oil and gas market in 2019 and the stocks to play these through. We outline the 10 key themes including oil demand, US oil supply growth, OPEC+ policy, base production decline rates, exploration potential and the outlook for new project final investment decisions. We also look at the refining market, LNG supply and demand, the M&A prospects and the impact of the energy transition. We outline 12 stocks (7 bullish and 5 bearish calls) that we think you can play the themes through.
We examine some of the key drivers of the oil price and on the whole we are relatively bullish as although we see some risk to demand growth forecasts in 2019, in the absence of a recession we think that supply has more room to surprise to the downside. Geopolitics and financial markets will play a huge role in prices. We think that US oil supply growth will be lower y/y in 2019, OPEC+ compliance with cuts will be high and maybe helped by unplanned disruptions and base production will decline more rapidly than forecast. Companies will accelerate the sanctioning of new projects in 2019 and also will increase exploration spending, despite a number of years of poor success rates – overall the trend should be positive for the offshore oil service companies. We expect strong LNG supply growth in 2019 to hit spot pricing but still expect a large number of projects to be sanctioned helping the LNG engineering and construction companies. It will be a very interesting year for the refining industry as new regulations limiting shipping sulphur emissions should lead to a spike in diesel and to some extent gasoline margins towards the end of the year, helping complex refiners. Major oil companies will continue to embrace renewables as investors continue to push for companies to plan for the energy transition.
The main stocks that we come out positive on are Hess Corp (HES US), Valero Energy (VLO US), TechnipFMC PLC (FTI FP), Kosmos Energy (KOS US), Transocean Ltd (RIG US), Golar Lng Ltd (GLNG US) and Galp Energia Sgps Sa (GALP PL).
We are more negative on Cenovus Energy Inc (CVE CN) , Royal Dutch Shell (RDSA LN) , Cheniere Energy (LNG US); Eog Resources (EOG US) and Ecopetrol SA (ECOPETL CB) .
5. ECM Weekly (26 January 2019) – Maoyan, CStone Pharma, Polycab India, Hujiang Edu
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.
Starting with placements this week, we had a relatively small Recruit Holdings (6098 JP) block sold by Toppan Printing (7911 JP). The stock traded below its deal price of JPY2,762 for the most part of the first-day post-placement. It bounced back on Friday to close just 0.6% above its deal price. We were bullish about the placement because it was a tiny deal relative to its three-month ADV.
There was also a small Ihh Healthcare (IHH MK) secondary block on Thursday after markets have closed. The deal was about US$80m and got priced at MYR5.56, the bottom-end of the price range.
For deals that have launched, there are Maoyan Entertainment (EPLUS HK) and Chalet Hotels. Maoyan will be pricing on the 28th of January while Chalet Hotels will open its book on the 29th of January and swiftly close on the 31st.
In terms of upcoming IPOs, we are hearing that CStone Pharma (CSTONE HK) is looking to pre-market in Hong Kong next week while Hansoh Pharmaceutical (HANSOH HK) will be looking to launch its US$1bn IPO in next month. Ke Yan, CFA, FRM has written early thoughts on the IPOs in:
- CStone Pharma (基石药业) IPO: Strong Assembly and Backing (Part 1)
- Hansoh Pharma (翰森制药) IPO: A Leading Generic Player with Regulatory Overhang (Part 1)
- Hansoh Pharma (翰森制药) IPO: Takeaways from Recent 4+7 City Centralized Tender Results
Earlier this week, we also heard that Dexin China, a property developer mostly based on Zhejiang Province, was seeking listing approval to list in Hong Kong whereas Global Switch, a UK-based data center operator, will meet banks next week in London to choose arrangers for a Hong Kong IPO of about US$1bn in 2019.
Other than that, another pharma company, Jubilant Pharma, is looking to list on the US market after getting tepid interests from investors for an SGX listing. It was initially looking to raise about US$500m. Fang Holdings Limited (SFUN US), a Chinese real estate internet portal, has also submitted a confidential filing to the SEC for a proposed spin-off of its research unit, China Index Holdings.
Accuracy Rate:
Our overall accuracy rate is 71.9% for IPOs and 63.8% for Placements
(Performance measurement criteria is explained at the end of the note)
No new IPO filings
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
- Asia’s thirst for beer adds fizz to mega-brewer’s plans for IPO
- Chinese cryptocurrency exchanges seek reverse mergers in Hong Kong
- Market, bankers pin hope on Chalet Hotels for breaking lull in IPO launches
- Hong Kong exchange head clarifies listing rules as IPO hopes dim for cryptocurrency giant Bitmain
Smartkarma Community’s this week Analysis on Upcoming IPO
- CStone Pharma (基石药业) IPO: Strong Assembly and Backing (Part 1)
- Maoyan Entertainment IPO Valuation: Press the Skip Button
- Hujiang Education (沪江教育) Pre-IPO – Spending More than It Earns
- Polycab India Limited Pre-IPO – Market Leader with Steady Growth but with a Few Unanswered Question
- Maoyan Entertainment (猫眼娱乐) IPO: Turning Profitable, Thoughts on Valuation
- Ecopro BM IPO Preview: The World’s #2 Player in the NCA High Nickel-Based Cathode Materials
List of pre-IPO Coverage on Smartkarma
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