Daily BriefsIPOs and Placements

Equity Capital Markets: Paytm, Krafton Inc, Li Auto Inc., Acotec Scientific Holdings, KakaoBank, D&D Platform REIT, Dingdang Health Technology Group and more

In today’s briefing:

  • Paytm IPO Initiation: A Payments-Led Super-App
  • Krafton IPO – A Few Thoughts on Its IP and the Tencent Relationship
  • Major Highlights of Krafton’s Online Press Conference & Focus on Overseas M&As Post IPO
  • Li Auto HK Listing – Needs to Be Done at Discount Given XPeng’s Poor Debut
  • Acotec (先瑞达) Pre-IPO: Thoughts on Valuation
  • Li Auto Secondary Listing: Volts Wagons
  • A Classic Long/Short Approach for an IPO: Kakao Bank Vs. Korea Investment Holdings
  • D&D Platform REIT IPO Preview
  • Pre-IPO Dingdang Health Technology – The Future Looks Challenging

Paytm IPO Initiation: A Payments-Led Super-App

By Arun George

Paytm (PAYTM IN), formally known as One97 Communications, is India’s largest payments platform based on the number of consumers, number of merchants, number of transactions and revenue as of 31 March 2021, according to RedSeer. Paytm has an overall payments transaction volume market share of 40%, and wallet payments transaction market share of 65-70% in India as of FY21, according to RedSeer. Paytm’s shareholders include Ant Financial Services Group (6688 HK) (29.6% of outstanding shares), Softbank Vision Fund (18.3%), Alibaba Group (BABA US) (7.2%) and Berkshire Hathaway Inc Cl B (BRK/B US) (2.8%).  

Paytm plans to raise up to Rs166.0 billion ($2.2 billion) with a primary/secondary split of 50%/50%, according to the DHRP filing. 

The Indian Government is highly supportive of digital payments and in 2016, introduced demonetisation efforts through the launch of Unified Payment Interface (UPI) to reduce the reliance on cash. However, India continues to be a cash-driven economy which underscores the opportunity. Due to government initiatives, improving technology, growing awareness, digital payments by value in India are expected to more than double from $20 trillion in FY21 to $40-50 trillion by FY26, according to RedSeer. 

As India’s largest payments platform, Paytm is well placed to benefit from this structural tailwind. The advent of UPI has increased competition (Google Pay, PhonePe, MobiKwik) but Paytm is also leveraging its dominance in digital payments to build a synergistic ecosystem of complementary services, resulting in a strong claim to the “super-app” tag. While the COVID-19 pandemic was disruptive particularly to the non-payments business, Paytm should return to growth as the impact of the pandemic wanes and vaccination rates rise in India. Overall, we think that Paytm’s fundamentals are attractive. 


Krafton IPO – A Few Thoughts on Its IP and the Tencent Relationship

By Mio Kato

Krafton appears to be doing the PR rounds regarding investor interest in its IPO. The Nikkei and various other news outlets had some positive sounding stories. If Krafton does indeed manage to price at the top end of its range or above we think that would be a fantastic opportunity for investors…


Major Highlights of Krafton’s Online Press Conference & Focus on Overseas M&As Post IPO

By Douglas Kim

Krafton held an online press conference today. The key focus of the online press conference was that Krafton will be aggressive in overseas M&As. The company could receive nearly 2.5 trillion won in cash from the IPO proceeds. Plus, the company had net cash of 390 billion won at the end of 1Q 2021. Consequently, Krafton could have nearly 3.0 trillion won in net cash post the IPO which the company can use to make big overseas acquisitions.

Krafton IPO = PUBG + SPAC? In some ways, the key thesis of the Krafton IPO is the continued success of PUBG + emphasis on M&As to grow the business in overseas markets. In that respect, Krafton is telling the investors to trust the company to make excellent acquisitions that could add long-term value for the company. This is probably a tough sell for many investors and this remains a major reason on the poor investors’ response on the Krafton IPO.

In addition, Chinese government’s huge crackdown on the US listed Internet companies and the for-profit education sector further raise significant concerns that this crackdown could expand to other sectors such as games which would negatively impact Krafton. Overall, continue to maintain an AVOID rating of this IPO. 



Acotec (先瑞达) Pre-IPO: Thoughts on Valuation

By Ke Yan, CFA, FRM

Acotec, a leading China-based peripheral-vascular interventional device company, is looking to raise up to USD 300m via a Hong Kong listing.  

In our previous note, we looked at two core drug coated balloon products of the company, namely the AcoArt Orchid & Dhalia for the above the knee artery stenosis and AcoArt Tulip & Litos for the below the knee stenosis. Both AcoArt Orchid & Dhalia, and AcoArt Tulip & Litos reported efficacy that could be potentially better than its benchmark product. Thanks to its early mover advantage, the AcoArt Orchid & Dhalia had a dominant market share. The main growth driver of the company’s core product will be increasing penetration rate and indication expansion. Besides the DCB products, we think the company’s product pipeline is not exciting. The company has a good management team but the pre-IPO investors are overall mediocre.

In this note, we will provide our thoughts on the company’s valuation.


Li Auto Secondary Listing: Volts Wagons

By Arun George

Li Auto Inc. (LI US) is the first company to successfully commercialise EREVs (extended-range electric vehicles) in China, the Li ONE. Li ONE is a six-seat, large premium electric SUV which began volume production and deliveries in November 2019 and December 2019, respectively. In 2020, Li ONE was the best-selling new energy SUV in China with a sales volume market share of 9.7%, according to CIC. 

Li Auto has received approval for an HKEx secondary listing to raise $1.0-1.5 billion, according to press reports. The secondary listing comes on the back of a listing on Nasdaq in July 2020 ($1.0 billion net raise at $11.50 per ADS) as well as a follow-on offering in December 2020 ($1.4 billion gross raise at $29.00 per ADS). The secondary listing also follows peer, Xpeng (XPEV US), which raised net proceeds of $1.8 billion on 7 July. XPeng (9868 HK) H-shares are trading -9% below the offer price largely due to the recent regulatory onslaught which has engulfed Chinese companies with exposure to the technology and education sector along with listing in the US. 

Despite rising competition from new entrants, Li Auto is delivering on its IPO promise by maintaining a market-leading share in its niche, investing in a roadmap to reduce its single model reliance, a positive gross margin and cash generation trajectory. On balance, for investors willing to brave the current regulatory-driven weak sentiment on Chinese names, Li Auto’s fundamentals and valuation are attractive, in our view. 


A Classic Long/Short Approach for an IPO: Kakao Bank Vs. Korea Investment Holdings

By Sanghyun Park

Of the classic approaches to trading with an IPO stock, the most widespread is to sell the major shareholder stock before or after the listing date.

Among the recent major IPOs, the IPOs in which the majority shareholder is a listed company are as follows.

Recent IPOs in KoreaSK BiopharmaceuticalsSK BioscienceSK IE TechnologyKakao Games
– Ticker326030302440361610293490
– Listing date2020. 7. 22021. 3. 182021. 5. 112020. 9. 10
Major shareholderSK IncSK ChemicalsSK InnovationKakao
– Ticker034730285130096770035720
– Major shareholding %64.02%68.42%61.20%45.19%
Source: KRX

Among these, the most dramatic share price movement (or correction) for a major shareholder before and after the listing date belongs to SK Chemicals, the largest shareholder of SK Bioscience.

The reason for this seems clear. This is because the value of the SK Bioscience stake held by SK Chemicals accounted for 250% of its own market cap, the highest by a huge margin. Therefore, SK Chemicals must have been most affected by the expectation of SK Bioscience IPO and subsequently the well-anticipated cross-trading before and after listing.

Recent IPOs in KoreaSK BiopharmaceuticalsSK BioscienceSK IE TechnologyKakao Games
Market cap on the listing day₩9,945.8B₩12,928.5B₩11,015.5B₩4,657.2B
Major shareholderSK IncSK ChemicalsSK InnovationKakao
– Market cap on the listing day₩19,595.3B₩3,537.2B₩24,873.2B₩34,267.9B
– Subsidiary stake value as a % of the market cap32.49%250.08%27.10%6.14%
Source: KRX

D&D Platform REIT IPO Preview

By Douglas Kim

D&D Platform REIT IPO is expected to be completed in August. The expected IPO price per share is 5,000 won and there are 35 million shares offered in the IPO. The IPO deal size is 175 billion won and the expected market cap after the IPO is 322 billion won. The book building for the institutional investors starts on 26 July and ends on 28 July.

More than 90% of rental income from the D&D Platform REIT will be distributed to investors. The goal of this REIT is to provide an average annual dividend yield of 6.14% for the next six years. The company will focus its efforts on expanding its portfolio of real estate assets in the logistics and office buildings going forward. 


Pre-IPO Dingdang Health Technology – The Future Looks Challenging

By Xinyao (Criss) Wang

On June 22, 2021, Dingdang Health Technology Group (DDH HK) submitted the prospectus to HKEX and officially started its IPO process. If all goes well, Dingdang would become another listed digital healthcare service provider after Alibaba Health Information Technology (241 HK), Ping An Healthcare and Technology Company Limited (1833 HK) and JD Health (6618 HK). However, in the face of fierce competition, Dingdang’s future looks challenging. This insight mainly analyzed the concerns of the Company that worth investors’ attention.


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