Daily BriefsIPOs and Placements

Equity Capital Markets: Allstate Corp, Simcere Pharmaceutical Group, UTI Asset Management, Weihai City Commercial Bank and more

In today’s briefing:

  • Root Inc IPO Preview – The Next Snowflake?
  • Simcere Pharmaceutical IPO Initiation: A Rough Patch?
  • UTI Asset Management IPO Trading – Tepid Response, as Expected
  • A Different Angle – Simcere Pharmaceutical VS Everest Medicines (01952.HK)
  • Weihai City Commercial Bank IPO Trading – Lacks Demand but Tightly Allocated

Root Inc IPO Preview – The Next Snowflake?

By Douglas Kim

Root Inc is getting ready to complete its IPO in the NASDAQ exchange in the next few weeks. Root Inc is an insurtech company that operates through a mobile app that uses smartphone technology, telematics, and data science to provide auto and home insurance. Since the founding of the company, Root has raised a total of $523 million in funding. It was last valued at $3.65 billion in September 2019 in a round led by ST Global and Coatue. Root is targeting about $6 billion valuation in this IPO. You can read Root Inc’s S-1 here. 

Surging revenue & rapid improvement in net margins – The company’s revenues have exploded higher in the past three years. In 2019, the company generated revenue of $290.2 million (up 570% YoY) while its total operating expenses increased by 393% YoY. A combination of a much higher revenue growth rate than operating expenses has resulted in a rapid improvement in net margins, which improved from -159.6% in 2018, -97.3% in 2019, and -58.9% in 1H 2020.

Root Inc’s exploding revenue growth and improvement in the reduction of net losses is very impressive, in the ranks of Snowflake Inc (SNOW US)

Although Snowflake and Root compete in different industry segments, both are SaaS companies with exceptional sales growth and significant operating leverage going forward. Similar to Snowflake, the word “WOW” came to my mind in reading through Root’s IPO prospectus. Root Inc could be one of those exceptional, highly disruptive SaaS companies that even the great value investors such as Warren Buffett could inject significant amounts of capital (similar to Snowflake).


Simcere Pharmaceutical IPO Initiation: A Rough Patch?

By Arun George

Simcere Pharmaceutical Group (SIMCERE HK) is engaged in the R&D, production and commercialisation of pharmaceuticals and is primarily focused on generic pharmaceuticals. The products are focused on three main therapeutic areas which are oncology (including cell therapy), central nervous system diseases and autoimmune diseases. Simcere will shortly launch a Hong Kong IPO to raise $500 million, according to press reports.  

The timing of the IPO is not ideal as Simcere is coming off a weak 1H20. However, for investors willing to look past the 2020 results, Simcere is putting in place the right measures to ensure that the 1H20 was an exception rather than the rule. 


UTI Asset Management IPO Trading – Tepid Response, as Expected

By Sumeet Singh

UTI Asset Management (UTIAMC IN)’s (UTIAMC) shareholders raised around US$300m by reducing their stake via the company’s Indian IPO. 

UTIAMC is the second largest asset management company (AMC) in India by total AUM and the eight largest by mutual fund quarterly average AUM (QAAUM), as of Jun 2020. 

Unit Trust of India (UTI) started as a joint initiative of the Government of India and the RBI in 1964. It launched its first scheme in 1964. In Feb 2003, following the repeal of the UTI Act, 1963, UTI was split into two separate entities. One was the Specified Undertaking of the UTI and the other was the UTI AMC. UTI AMC was sponsored by a clutch of public sector entities namely, SBI, PNB, BoB and LIC. In 2010, T Rowe Price acquired a 26% stake in the company. 

Despite its long history and strong shareholding, its financial performance has been lacklustre with earnings lagging AUM growth. AUM growth in turn has consistently lagged the industry growth resulting in UTI AMC losing market share. 

I’ve talked about the deal background in my previous notes. In this note, I’ll talk about subscription levels and provide a table with implied valuation at different share price levels.

Our previous coverage of the IPO:


A Different Angle – Simcere Pharmaceutical VS Everest Medicines (01952.HK)

By Xinyao (Criss) Wang

Everest Medicines was listed in Hong Kong stock market on October 9, 2020 and closed at HK$72.75 (up 32.27% on the first day) . From the establishment of the Company to IPO, Everest Medicines only took 39 months. To some extent, the listing of Everest Medicines means that the license-in business model once again came to the center of the capital world (one precedent was Zai Lab). Another traditional generic pharmaceutical company, Simcere Pharmaceutical, also plans to IPO in Hong Kong in the near future. Simcere is famous for its sales capacity and is actively seeking transformation in recent years. It is also the epitome of a large number of traditional generic pharmaceutical enterprises in China. At this moment, it is still too early to tell whether the old brand traditional pharmaceutical enterprises can revive or which kind of business model can win the future market. 


Weihai City Commercial Bank IPO Trading – Lacks Demand but Tightly Allocated

By Sumeet Singh

Weihai City Commercial Bank (WECCBZ CH) (WCCB) raised around US$370 via its Hong Kong listing. 

WCCB is the third largest city commercial bank headquartered in Shandong Province, in terms of total assets, deposits and loans, as of Jun 2019. It is headquartered in Weihai City in Shandong Province. Its principal business includes corporate banking, retail banking and financial markets.

Over FY17-19, WCCB’s loans grew at 17.9% CAGR, while total income growth, at 12.5% CAGR, and pre-provision operating profit expanded at 18.8% CAGR. While WCCB has registered decent asset and earnings growth, the bank seems to be in the middle of a makeover, with investment book falling and loan book growing, deposit mix shifting etc. 

I looked at some of the above points in my previous note, links to which are below. In this note, I’ll talk about the subscription levels and provide a table with implied valuation at different share price levels.

Our previous coverage of the IPO:


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