Equity Capital Markets: ByteDance, Hangzhou Tigermed Consulting (H), Smoore International, Perpetual Ltd, Toplist China, DiDi Chuxing, Hangzhou Tigermed Consulting (H) and more

In today’s briefing:

  • ByteDance (字节跳动) Pre-IPO: Global Ambition Meets Regulatory Challenges
  • Tigermed IPO: Valuation Insights
  • Smoore International: Trading Well Over JUUL’s Peak Multiples
  • Perpetual Placement: Attractive Discount and EPS Accretiveness
  • Toplist China Pre-IPO – Overwhelmingly More Negatives than Positives
  • DiDi Has Merged Its Way Through- Time for an IPO?
  • Tigermed (泰格医疗) A+H: What Can We Learn from Previous A+H Listings?

ByteDance (字节跳动) Pre-IPO: Global Ambition Meets Regulatory Challenges

By Ke Yan, CFA, FRM

ByteDance IPO is one of the major listings by Chinese TMT companies that we are looking forward to. The company was valued at USD 75 billion in a pre-IPO round in October 2018 and was valued at USD 100 billion in the private transactions in May 2020. 

In our previous reports, we covered the company’s main products and its recent financials and user data in China. Although ByteDance records most of its revenues from China, one should not underestimate its potential from overseas expansion. ByteDance’s flagship app, TikTok, has become a global phenomenon. Competitors such as Facebook have not been successful in taking market shares from TikTok. In our opinion, ByteDance is the most successful Chinese TMT company in the overseas market. 

In this note, we will look at the latest numbers of the company. It set an ambitious target for its overseas operation but is now facing challenges in two of its biggest markets. We will discuss recent events and what to look forward to after the success of TikTok. 

Our previous coverage on ByteDance

Tigermed IPO: Valuation Insights

By Arun George

Hangzhou Tigermed Consulting (H) (3347 HK) is a global contract research organisation (CRO). Tigermed is the largest clinical CRO in China with a market share of 8.4% as measured by revenue in China’s clinical CRO market in 2019, according to Frost & Sullivan. Tigermed has launched its Hong Kong IPO at an indicative price range of HK$88-100 per share to raise gross proceeds of $1.2-1.4 billion.

In our initiation note, we stated that Tigermed’s financial performance is creditable on a standalone basis and in comparison, to peers. However, our enthusiasm was tempered by a seemingly aggressive revenue recognition policy. Our follow-on note which examined the PHIP suggested that the positives outweigh the negatives. Our valuation analysis suggests that the IPO valuation is attractive at the low-end of the proposed IPO price range. 

Smoore International: Trading Well Over JUUL’s Peak Multiples

By Oshadhi Kumarasiri

Smoore International (6969 HK) is the global leader in the manufacturing of vaping devices and components, having a market share of 16.5% in 2019. The company raised HK$918 million in an IPO and started trading on 10th July, and in its first nine trading days, the shares have risen by 206.5% from the IPO offer price. On 22nd July, Smoore warned that, as a result of fair value changes for convertible preferred shares and promissory notes and share-based payments as detailed below, net profit for the six months to 30th June will decline by 94.% year-on-year.

It is surprising that these fair-value adjustments were not revealed or anticipated in the prospectus. With Smoore’s multiples now exceeding those of its infamous peer, JUUL during its peak, in the DETAIL below we give the case for taking some profits.

Company Disclosures

Perpetual Placement: Attractive Discount and EPS Accretiveness

By Ke Yan, CFA, FRM

Perpetual Limited launched an AUD 225 million placement and AUD 40 million share purchase plan (SPP) to fund the acquisition of a 75% stake in Barrow Hanley, Mewhinney & Struss LLC (Barrow Hanley). In this note, we will look at the details of the deal, the impact to the company’s financials, and score the deal in our ECM framework. We think the deal provides substantial upside for short term investors given its attractive discount to last close and its EPS accretiveness but we also remind investors that the fund under management has not really grown for both Perpetual and Barrow Hanley.

Toplist China Pre-IPO – Overwhelmingly More Negatives than Positives

By Sumeet Singh

Toplist China is a loyalty management solution services provider in China. It provides a one-stop loyalty management solution to clients, in particular, financial institutions. 

As per iResearch, it ranked second in the loyalty management SaaS market and fifth in the integrated loyalty management solution services market in China in 2019, in terms of gross sales proceeds.

Earnings growth has been strong over 2016-18, with TC reporting revenue CAGR of 37.47% and adjusted PAT CAGR of 37.32%. Growth has been driven by 6.7x increase in users over 2018-20, a 3.9x increase in orders processed and 7.3x increase in the number of vendors. 

Unfortunately, there isn’t much more to like apart from that, in our view.

DiDi Has Merged Its Way Through- Time for an IPO?

By Aqila Ali

It was reported on last week that DiDi Chuxing (1284375D CH) plans to go public, allowing existing investors want to cash out during a difficult time for the business. DiDi is backed by Softbank and is regarded as the Chinese version of Uber. Even before the pandemic, the company was struggling to generate profits and also had issues regarding the safety of passengers. The pandemic could have only made things worse for the company. At a time where ridesharing is avoided, DiDi wants to go public. If the news is true, the timing of the IPO indicates that DiDi is desperate for money. In this report, we take a look at the company, its background, growth prospects, and an estimated valuation. In our opinion, it is unlikely that the company will have an IPO in the current economic situation.

We go through the details below.

Tigermed (泰格医疗) A+H: What Can We Learn from Previous A+H Listings?

By Ke Yan, CFA, FRM

Tigermed, the largest China-based clinical CRO company, launched book building today to raise up to USD 1.4 bn to list in Hong Kong. 

In our previous note, we discussed that the company was listed on the A-share market in 2012. Once listed in Hong Kong, it will be the best CRO company offering exposure to the clinical CRO business in China and therefore will likely receive strong interest from international investors (particularly those who can’t invest in the A-share market). The company’s A-share already has investments by quality investors, and was widely held by offshore investors via the northbound stock connect. Despite the impact of COVID-19 situation, Tigermed still registered high single-digit revenue growth in 1Q2020.  However, the company also guided that profit in 2020E could be lower than what they have achieved in 2019. Besides the negative impact of COVID-19, the low expectation is also due to the high base of financial gains from financial assets in 2019. 

In this note, we will provide our thoughts on the price range.  We are of the view that the deal offers limited upside for investors though there is hardly any issue for the book to be covered despite no cornerstone investors as the company is well known to the investment community. 

Our previous coverage on Tigermed A+H:

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