Equity Capital Markets: Ant Financial, Li Auto Inc., KE Holdings Inc, Rojukiss and more

In today’s briefing:

  • Ant Group IPO First Look: Swarming to Market
  • Lixiang IPO Valuation: A Short and Risky Drive At The Low Price Range
  • KE Holdings/​Beike Pre-IPO – The Negatives – Questions, Margins, P2P
  • IPO Radar: Rojukiss, a Korean Skincare High-Flyer of the ASEAN Region

Ant Group IPO First Look: Swarming to Market

By Arun George

Ant Financial (1051260D CH)/Ant Group is a technology company that provides digital payment services and digital financial services to consumers and small and micro businesses (SMBs) in China and across the world. Ant said last week it would pursue a simultaneous dual-listing in Hong Kong and on the Shanghai stock exchange’s STAR board. The Hong Kong share sale alone could raise about $10 billion at a $200 billion valuation, according to press reports. 

In this note, we take a first look at Ant and run through its history, industry and operating segments. We then take a closer look at the rumoured $200 billion valuation in the context of Ant’s financial performance. Based on available disclosure, our estimates and peer group multiples, the $200 billion valuation is justifiable, in our view.  


Lixiang IPO Valuation: A Short and Risky Drive At The Low Price Range

By Aqila Ali

In our earlier report, we covered Li Auto Inc. (LI US)’s background, its business model, growth prospects, and the risks it faces in the market. We concluded that the company has a unique product with favourable consumer preference. However, revenue growth did not appear sustainable without a pipeline for new models. Additionally, we noted that Lixiang did not have any reasons to be favoured over Nio or Tesla. According to the latest filings, Lixiang aims to raise around $760m or more, offering 95 million American depositary shares (one ADS represents two ordinary shares), at an IPO price range of$8 -$10 per ADS. This insight covers Lixiang’s valuation based on three possible scenarios.

Our key points:

  • Lixiang looks attractive and cheap (trading at FY2 EV/Sales multiple of around 0.4-0.5x) under the high growth scenario, where the company is expected to achieve its sales target of 100,000 and 389,409 units respectively for FY2020 and FY2021. However, this is an extremely optimistic scenario and appears unlikely to happen against the current economic conditions (even with the extension of the NEV subsidy plan).
  • The IPO price range implies 1.4-1.7x FY2 EV/sales under our moderate growth assumptions, where the company is expected to achieve sales of 40,000 and 100,000 units respectively for FY2020 and FY2021. The multiple looks somewhat reasonable compared to peers. (Tesla 3.7x and Nio 1.8x). This although a challenging sales target, does not seem impossible for Lixiang to achieve.  Thus, at the low end of the price range subscribing to the issue could potentially give investors around 28% upside, though needless to say the investment requires a high tolerance for risk and volatility.
  • There are significant downside risks to Lixiang under our slow-growth scenario. However, such risks are mostly short term, and the company could possibly improve sales numbers by 2021. In this case, the company trades at 5.3-6.6x FY2 EV/Sales, 43% and 194% above Tesla and Nio respectively at the lower end of the IPO price range. Such a premium is difficult to justify given that the company’s relatively weak business model compared to Tesla and Nio.

We label the insight as bullish, as we think the moderate growth scenario is likely for Lixiang. Furthermore, the recent positive sentiment regarding EVs is likely to drive the share price in the short term. Thus, we would recommend subscribing to the IPO at the low-end of the price range for short term gains, though we still believe risk rewards are poor over the long term.


KE Holdings/​Beike Pre-IPO – The Negatives – Questions, Margins, P2P

By Sumeet Singh

KE Holdings Inc (BEKE US) (BEKE), a company backed by Tencent Holdings (700 HK)Softbank Group (9984 JP) and Hillhouse, aims to raise around US$2bn in its US listing.

BEKE combines Lianjia, China’s leading real estate brokerage brand with more than 18 years of history, and Beike, China’s leading integrated online and offline platform for housing transactions and services with two years of history.

In my previous insight, KE Holdings/​Beike Pre-IPO – The Positives – Fast Growth, High Market Share, I spoke about the positive aspects of the deal. In this insight, I’ll talk about the not so flattering aspects of the deal.


IPO Radar: Rojukiss, a Korean Skincare High-Flyer of the ASEAN Region

By Athaporn Arayasantiparb, CFA

Rojukiss (Thailand) distributes its core brand as well as Sis2Sis, PhDerma, and Best Korea, and in our first glance at the company, these are some interesting highlights.

  • Ownership and Management. The largest shareholder Aurora Holdings, which controls almost 40% post-IPO, is controlled by private equity firm Lakeshore. Management includes veterans from L’Oreal, P&G, and Unilever.
  • IPO is managed by SCB Securities and is good for 166m shares or 27.7% of the total. The proceeds will be used for brand development, foreign expansion, and digital R&D.
  • Business Outlook. The company’s revenues have grown impressively at 38% CAGR (much faster than the industry) and also operates in Cambodia, Indonesia, and Philippines. Arguably the fastest growing serum brand, Rojukiss is active on social media and has strong presence across modern trade, especially pharmacies.
  • Key Risks include: 1) concentration risk (supplier and customers); 2) consumer behavior change; 3) risks associated to channels; 4) product liability; 5) exchange rate risk; and 6) foreign operational risks.

Before it’s here, it’s on Smartkarma