Daily BriefsIPOs and Placements

Equity Capital Markets: Snowflake Inc, Yum China Holdings Inc, Nongfu Spring, Huazhu Group, Palantir Technologies Inc, Boqii Holding, Joy Spreader Interactive Technology, Converge ICT Solutions Inc, Softbank Corp and more

By September 11, 2020 No Comments

In today’s briefing:

  • Snowflake IPO – Approved by the Oracle of Omaha
  • Yum China Secondary Listing – Is There More Downside?
  • Nongfu Spring’s Sparkling Debut: Opened 85% Up- Is It Time to Short?
  • Huazhu HK Secondary Listing – Needs the Money but Looks Toppish
  • Palantir – The Anti-WeWork and Updates From Its Presentation
  • Boqii IPO: Another Pet Humanization Stock in a Booming Market Led by Large E-Commerce Platforms
  • Joy Spreader (乐享互动) IPO – Fairly Valued at Best
  • Converge ICT Pre-IPO – Peer Comparison – Not a Clear Cut Winner
  • Softbank Corp Placement – Quick Update – Wide Discount from Undisturbed but Don’t Expect Much
  • Joy Spreader IPO Initiation: For the Joy of It

Snowflake IPO – Approved by the Oracle of Omaha

By Douglas Kim

In this insight, we provide a valuation analysis of Snowflake which has set its IPO price range of $75 to $85 per share. At these prices, Snowflake’s market cap would range between $20.9 billion and $23.7 billion. Snowflake could raise more than $2.7 billion in this IPO and this would be one of the biggest IPOs in the U.S. stock market this year. The valuation range is a big jump from the valuation the company received earlier this year when it was valued at about $12.5 billion (raising $479 million in its Series G funding round).

It was also announced that Berkshire Hathaway will invest $573 million in the Snowflake IPO, which is likely to have a big positive impact on this IPO, especially among the value-oriented investors globally. Salesforce.Com Inc (CRM US)also plans to invest $250 million in the Snowflake IPO. The private placement investments by Berkshire Hathaway and Salesforce.com will be equal to the IPO price. For Berkshire Hathaway, it plans to purchase 3.125 million new shares of the company’s Class A common stock (assuming $80 per share, this would represent $250 million) and an additional 4.042 million shares of the company’s Class A common stock from one of the existing shareholders (assuming $80 per share, this would represent $323 million).

Our valuation analysis suggests an EV of $37.1 billion, a market cap of $40.4 billion, and a target price of $145 per share for Snowflake. The IPO price range is from $75 to $85 per share and assuming the IPO is completed at the high end of the IPO price range, our target price would represent a 70% upside to this price level. We used fully diluted shares outstanding of 278.8 million post IPO and this resulted in a target price of $145 per share. Given the strong upside, we would take this IPO deal. In fact, we are including Snowflake in our model portfolio.


Yum China Secondary Listing – Is There More Downside?

By Rickin Thakrar

Yum China (9987 HK) had a tough debut for its secondary listing, with the shares closing down c5%. We have been cautious on the secondary listing (note here) and the HK shares currently trade at a c5% discount to the ADR last close price and flat vs the ADR pre-market price. We give our updated thoughts on the secondary listing below.


Nongfu Spring’s Sparkling Debut: Opened 85% Up- Is It Time to Short?

By Aqila Ali

As expected Nongfu Spring (9633 HK) had a successful IPO. Nongfu’s stock opened at HKD 39.8 per share up 85% from its issue price. The stock ended the day at HKD 33.1 per share, 54% above the IPO price. The IPO was oversubscribed 1,148 times. The share price performance shows investor demand for defensive stocks amidst the ongoing COVID-19 crisis. 
During the second day of trading, the share price increased another 2.3%, closing at HKD 34.1 per share. At the current share price (HKD 35.9), Nongfu is trading at FY+2 EV/EBIT and PE of 43.6x and 47.6x respectively. 
The company’s valuation looks expensive – the question is, should you take profits, keep it in the radar to short, or hold on?
We go through the details below.


Huazhu HK Secondary Listing – Needs the Money but Looks Toppish

By Sumeet Singh

Huazhu Group (HTHT US) plans to raise around US$900m in its secondary listing in Hong Kong.

I have covered the background of the deal in my earlier note, Huazhu HK Secondary Listing – Early Look – Needs the Cash More than Most Secondary Candidates.

In this insight, I’ll talk about the deal dynamics and what to do with the ADR while waiting for the completion of the Hong Kong listing.


Palantir – The Anti-WeWork and Updates From Its Presentation

By Mio Kato

According to Palantir CEO Alex Karp talking about security and data integration

“If you think that we are going to reduce the complexity of these issues to some weird soundbite that makes sense to somebody in marketing hired by a consultancy you should not invest in Palantir.”

Alex, don’t you believe in the POWER OF WE???!!!

Also

“If you think that we will doggedly build the best software in the world years before anyone else and that we will supply the software at the world’s perfect macro timing we want your support because that’s what we’ve done in the past and that’s what we’re going to do in the future.”

It’s almost as if Alex Karp believes that long-term thinking and actual innovation are more important than enormous losses, slick marketing and Masayoshi Son sensing the force in you… lunatic.


Boqii IPO: Another Pet Humanization Stock in a Booming Market Led by Large E-Commerce Platforms

By Shifara Samsudeen, ACMA, CGMA

  • Boqii is one of the largest pet-focused platforms in China who offers a one-stop destination for pet parents to get everything they need for their pets including pet food, toys, vitamins and toiletries. The company operates an online platform as well as an offline retail network.
  • The company has filed for an IPO in the US and has a placeholder indication to raise US$115m and plans to use part of the IPO proceeds on further enhancing content, R&D, big data technology and develop private label brands.
  • China’s pet economy is still in its infant stages as the market is significantly underpenetrated and this presents a huge potential for industry participants. The young millennials are driving the growth in the market and the pet goods retail market is shifting largely towards online channels in the country.
  • Boqii earns a majority of its revenue through online platforms (self-operated Boqii Mall and other third-party platforms) and at the same time, the third-party platforms bring in almost two-third of the company’s revenues.
  • The online pet good retail market in China is highly competitive and are dominated by large and established online retail platforms, including generic e-commerce platforms.
  • In this insight, we examine the company’s business model, the industry and the revenue channels. Boqii is the largest pet-focused online retail platform in China and the company has taken several initiatives including M&A deals to expand its presence in the market. The company is operating in a growing market and it seems that the company has a strong business model.
  • In a follow-up insight, we will be discussing the company’s financials (revenue, margins and balance sheet) in detail.

Joy Spreader (乐享互动) IPO – Fairly Valued at Best

By Zhen Zhou, Toh

Joy Spreader Interactive Technology (6988 HK) (JST) is looking to raise up to US$225m in its upcoming Hong Kong IPO.

JST is a performance-based we-media marketing service provider in China. JST connects marketers and we-media publishers via its technology and platforms. The services provided to marketers include analyzing and distributing their products on the we-media network which will help marketers acquire users.

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

Our previous coverage of the IPO:


Converge ICT Pre-IPO – Peer Comparison – Not a Clear Cut Winner

By Sumeet Singh

Converge ICT aims to raise around US$500m in its Philippines listing later this year.

Converge ICT (CICT) is the largest high-speed fixed broadband operator in the Philippines, by high-speed residential fixed broadband subscriptions. It has a 54% market share as of Mar 2020, according to MPA. It also claims to be the fastest growing fixed broadband operator in both the residential and enterprise market.

CICT owns and operates an end-to-end fiber network in the Philippines, with over 30,000 kilometers of fiber as of Mar 2020. Its network covers 200 cities and municipalities across Luzon. As of Mar 2020, it reached approximately 4.1m homes.

CICT’s revenue has grown at 69% CAGR over FY16-19, with growth being led by its residential business whose revenue has increased at 95% CAGR over the same time frame. Gross profit grew at 56% CAGR, EBITDA at 91% CAGR and Net profit at 60% CAGR. In other words, most of the revenue growth has flowed down to the bottom line.

In my previous note, Converge ICT Pre-IPO – Fast growth, low penetration, COVID resistant, I covered the company’s background and performance. In this note, I’ll compare it to some of its listed peers.


Softbank Corp Placement – Quick Update – Wide Discount from Undisturbed but Don’t Expect Much

By Zhen Zhou, Toh

Softbank Group (9984 JP) (SBG) is looking to raise about US$11bn by selling some of its shares (10%) in Softbank Corp (9434 JP) (SBC). Post sell down, SBG will still hold about 2bn shares (about 42% stake) in SBC.

In this insight, we will look at the deal dynamics, recent performance of the company, and run the deal through our deal framework.

We have previously looked at the May placement, the potential selldown (post announcement selling assets to fund buyback) and its 2018 IPO in:


Joy Spreader IPO Initiation: For the Joy of It

By Arun George

Joy Spreader Interactive Technology (6988 HK) is an ad tech company which connect marketers (namely, product providers and merchants) with we-media publishers. Joy Spreader has launched a Hong Kong IPO to raise around net proceeds of $140-210 million. 

The post-IPO performance of Chinese ad tech companies has been mixed. Consequently, backing the winners is crucial to generate investment returns in the Chinese ad tech sector. For investors seeking Chinese ad tech exposure, we think Joy Spreader’s fundamentals are attractive. We will discuss the IPO valuation in our next piece. 


Before it’s here, it’s on Smartkarma