Equity Capital Markets: Hangzhou Tigermed Consulting (H), Hangzhou Tigermed Consulting (H), KE Holdings Inc, Toplist China, Ant Financial, Smoore International, Waypoint REIT, Li Auto Inc., Perpetual Ltd, DiDi Chuxing, Medy Tox Inc and more

In today’s briefing:

  • Tigermed (泰格医疗) A+H: Past A+H Listings Suggest Upside Might Be Limited
  • Tigermed IPO: Valuation Insights
  • KE Holdings (Beike) IPO Initiation: Home Truths
  • Toplist China Pre-IPO – Overwhelmingly More Negatives than Positives
  • Ant Group: Early Thoughts on the IPO – Alipay Is NOT the Cash Cow Here
  • Smoore International: Trading Well Over JUUL’s Peak Multiples
  • Waypoint REIT Placement – Charterhall Selling After 5 Months of Ownership
  • Li Auto (理想汽车) IPO – Worth a Ride, at the Low -End
  • Perpetual Placement: Attractive Discount and EPS Accretiveness
  • DiDi Has Merged Its Way Through- Time for an IPO?
  • Medytox Rights Offer: Terms & Situations

Tigermed (泰格医疗) A+H: Past A+H Listings Suggest Upside Might Be Limited

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:

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. 

KE Holdings (Beike) IPO Initiation: Home Truths

By Arun George

KE Holdings Inc (BEKE US) is a combination of Lianjia, China’s leading real estate brokerage brand, and Beike, China’s leading integrated online and offline platform for housing transactions. KE’s GTV (gross transaction value) market share for existing and new home sales and home rentals through brokerage services in China increased from 11.5% in 2018 to 19.2% in 2019, according to CIC. KE is backed by Tencent Holdings (700 HK) (12.3% stake), Softbank Group (9984 JP)’s Vision Fund (10.2%) and Hillhouse (5.3%). It is seeking to raise $2 billion through an IPO on the New York Stock Exchange, according to press reports.

Instead of holding off the IPO process due to a 1Q20 ravaged by the COVID-19 outbreak, KE pressed ahead as it “believes that our fundamental value, rather than external circumstances, is the key factor of a successful IPO.” Our analysis suggests that if you consider the 1Q20 performance as a one-off (supported by the strong recovery in 2Q20), its financial performance is heading in the right direction with strong revenue growth and rising margins. While the cash generation is weak, it is due to industry-specific circumstances. Overall, we believe that the KE IPO is worth a close look.

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.

Ant Group: Early Thoughts on the IPO – Alipay Is NOT the Cash Cow Here

By Supun Walpola

Our early thoughts on Ant Financial (1051260D CH)’s IPO are broadly positive and we believe the risk-reward is attractive at the rumoured $200bn IPO valuation. We have concerns about Ant’s payment business; however, they are offset by the prospects of the more profitable financial services business.

In the online payments space, we believe Ant offers services to Alibaba Group (BABA US) at/below cost, while outside of Alibaba, Alipay is shunned off by both JD.com Inc (ADR) (JD US) and Pinduoduo (PDD US). The offline payments space is dominated by WeChat pay, with a market share of around 80%, this means, Alipay would have to discount heavily to get merchants on board.

That being said, Ant has been monetising its 900m odd users quite successfully through its wealth management products, which, quite surprisingly, accounts for over 50% of its revenue. Moreover, given that Ant is making net profits, while its payment business is struggling, implies that the financial services business is quite lucrative.

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

Waypoint REIT Placement – Charterhall Selling After 5 Months of Ownership

By Ke Yan, CFA, FRM

Charter Hall and Charter Hall Long Wale Reit are selling 77.9 million shares of Waypoint after market close today. In this note, we look at the background of the Charterhall sales and the recent changes to the REIT manager of Waypoint. We note that as VIVA Energy exits its position in Waypoint, the company losses sponsor backing. We also note that the past deals have done OK in one week but the performance was poor in one-month post-deal. 

Li Auto (理想汽车) IPO – Worth a Ride, at the Low -End

By Zhen Zhou, Toh

Li Auto Inc. (LI US) (LAI) is looking to raise up to US$950m in its upcoming U.S. IPO.

LAI is a smart electric SUV manufacturer in China. It designs, develops, manufactures, and sells premium new energy vehicles (NEVs) in China. LAI focuses on extended range electric vehicles (EREV) and claims to be the first to successfully commercialize EREVs in China.

Overall, we like LAI because of its relatively better cost structure compared to NIO. It has already achieved 13% gross margin as of Q2 FY2020 up from 8% in Q1 FY2020 and in line with BYD whereas NIO struggled to turn a profit. LAI was also able to turn operating cash flow positive in Q2 FY2020.

We have earlier covered the company in: 

In this note, we will look at deal dynamics, assumptions, and share our thoughts on valuation.

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.

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.

Medytox Rights Offer: Terms & Situations

By Sanghyun Park

Medytox, which used to be one of the bluechip names on KOSDAQ, announces a ₩130bil rights offering.

It offers a total of 0.97M shares, which represent 16.26% of the SO. Also, the shareholders will get 0.2 bonus shares for each stock they own.

September 1 will be the reference date for preliminary pricing. So, the ex-rights day falls two trading days later on September 3. You can trade the subscription rights for five trading days starting September 25 until October 5.

Then, the final pricing will follow on October 8. The subscription is October 14, followed by the payment on October 22. The new shares will get listed on November 4.

As for the bonus shares, the record date is October 23, followed by the listing on November 12, which is five trading days later.

There is nothing unusual in pricing. It carries a usual 20% discount.

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