Daily BriefsIPOs and Placements

Equity Capital Markets: Tencent Holdings, Trip.com, Visional Inc, Coinbase, Stella Pharma Corp, Flipkart Online Services, Intco Medical Technology Co., Ltd-A and more

In today’s briefing:

  • Tencent Placement – Another Reluctant but Well-Flagged Sell Down, Lifting the US$14.5bn Overhang
  • ADR/HKEX Analysis: Lower Trading Volumes on HKEX Show Limited Liquidity Compared to the US
  • Visional IPO – VCs Bizreaching for the Exit but We Like This Anyway
  • Trip.com Secondary Listing: HK-ADS Premium/​​(Discount) Views
  • Coinbase: Excellent 1Q 2021 Earnings, But Is It Sustainable?
  • Stella Pharma IPO – The Delicate Cancer Treatment Play
  • Visional Inc IPO – Good Vision Muddled by Dilution and Selling Shareholders
  • Flipkart IPO: A Race Against Time
  • Flipkart’s IPO in the Works – All You Need to Know for Now
  • Intco Medical IPO Initiation: Riding the Cycle

Tencent Placement – Another Reluctant but Well-Flagged Sell Down, Lifting the US$14.5bn Overhang

By Sumeet Singh

Prosus NV (PROSY US) aims to raise around US$14.5bn via selling a 2% stake in Tencent Holdings (700 HK).

The deal comes nearly three years, and right after the lock-up expiry, from the previous placement when on 22nd March 2018, Naspers (NPN SJ) reluctantly sold US$10bn worth of Tencent Holdings (700 HK) shares.  We have covered the previous placement in our earlier note, Tencent Placement – Huge Deal in Size, Small in Relative Terms – Succumbing to the HoldCo Discount.

We have been covering the lock-up expiry since Feb 2021 in:

In this note, we will talk about the deal dynamics.


ADR/HKEX Analysis: Lower Trading Volumes on HKEX Show Limited Liquidity Compared to the US

By Shifara Samsudeen, ACMA, CGMA

Hong Kong Stock Exchange has become the beneficiary of tightening listing requirements and accounting rules for foreign companies by the US regulatory authorities. Chinese companies that are listed in the US are forced to comply with US accounting standards and as a result, a large number of US-listed Chinese companies have sought secondary listings on the Hong Kong Stock Exchange over the last two years.

Autohome, Baidu and Bilibili conducted secondary listings earlier this year and several other companies including Trip.com (TCOM US) , Tencent Music (TME US) and Vipshop Holdings (VIPS US)  are said to be in the process of securing secondary listings in Hong Kong due to the fear of being delisted from the US Exchange.

As these companies rush for secondary listings in Hong Kong, in a series of reports, we analyse 10 of the secondary listings on the Hong Kong Stock Exchange over the last 2-years. These 10 companies include Autohome Inc (Adr) (ATHM US) , GDS Holdings (ADR) (GDS US) , Zai Lab Ltd (ZLAB US) , Baozun Inc. (BZUN US) , ZTO Express (ZTO US) , Huazhu Group (HTHT US) , JD.com Inc (ADR) (JD US) , NetEase Inc (NTES US) , Alibaba Group (BABA US) and BeiGene (BGNE US) .


Visional IPO – VCs Bizreaching for the Exit but We Like This Anyway

By Mio Kato

Visional, parent company of Japan’s high class job seeker database Bizreach is scheduled to IPO on the 22nd of April on the Mothers market. We examine the company’s business model and financials below.


Trip.com Secondary Listing: HK-ADS Premium/​​(Discount) Views

By Arun George

Trip.com (TCOM US) has launched a $1.4 billion secondary listing in Hong Kong by offering 31.6 million ordinary shares. Bookbuilding is scheduled to run until the pricing on 13 April. The net proceeds will be used to fund the expansion of its travel offerings, improve user experience and invest in technology. 

In Trip.com Secondary Listing: No Heads in the Clouds, we outlined our views on Trip.com’s fundamentals and valuation. Trip.com is a play on the expected reopening and recovery of travel in 2021 due to the global rollout of vaccines. In combination with the potential valuation upside to the last close price (based on SoTP), we concluded that the equity story is attractive. 

In this note, we will look at Trip.com’s potential HK-ADS premium/(discount). As per the norm, Trip.com will price its H-shares at a discount to its ADSs to entice investors to participate in the secondary listing. However, market conditions remain volatile and Chinese tech names are losing their shine due to the US delisting threat and the trend of investors rotating out of tech stocks. The NASDAQ Golden Dragon China Index is down -18% since March 2021. Trip.com shares are up 15% YTD but down -2% since March 2021.  

Due to the weakening market sentiment on Chinese tech names, Trip.com will likely price its H-shares at a wider discount than the median of past secondary listings. Trip.com pricing its H-shares at a discount of 3-4% to its ADSs will be reasonable, in our view.


Coinbase: Excellent 1Q 2021 Earnings, But Is It Sustainable?

By Douglas Kim

In the direct listing on 14 April, Coinbase is aiming for about $100 billion in valuation. In 1Q 2021, it had sales of $1.8 billion and high end net profit of $800 million. If we annualize these figures, this would result in annual sales of $7.2 billion and annual net profit of $3.2 billion. These are phenomenal figures. At $100 billion valuation, this would suggest a P/E of 31x. Many investors would be comfortable with these kind of multiples as being reasonable. 

All in all, we stick with our original thesis and valuation on Coinbase over a one year view. Our valuation analysis suggests a range of $31.9 billion to $47.9 billion in market cap for Coinbase. Our base case valuation of Coinbase is $39.9 billion, which is nearly 60% lower than the $100 billion value that Coinbase is trying to aim in this direct listing. 

In terms of short-term trading post IPO, given the excellent 1Q 2021 results, we believe that the company’s valuation could indeed reach $100 billion. However, we believe this kind of valuation to be short lasting. Over a longer view (one year), we believe there is a higher probability that the company’s valuation declines to our base case level (about $40 billion). This will become more evident as numerous other competitors offer extremely low pricing and many customers switch to their services. 


Stella Pharma IPO – The Delicate Cancer Treatment Play

By Mio Kato

Stella Pharma is a global leading biotechnology company that manufactures and sells boron pharmaceuticals. The company is to list on the 22nd of April and we examine its business and cancer treatment technology below.


Visional Inc IPO – Good Vision Muddled by Dilution and Selling Shareholders

By Zhen Zhou, Toh

Visional Inc (4194 JP)  is looking to raise up to US$609m in its Japan IPO.

Visional Inc. is a human resources (HR) technology company based in Japan. The company operates BizReach, an online recruiting platform that helps to connect professional job seekers to direct employers and third-party recruiters. It also offers HRMOS, which is a cloud-based human capital management (HCM) platform.

We like the company’s business but the high proportion of shareholders selling in the IPO coupled with large employee stock acquisition rights to be exercisable after a year will be an overhang on share price.

In this note, we will look at Visional’s financials and operating data.


Flipkart IPO: A Race Against Time

By Oshadhi Kumarasiri

A string of Indian unicorns is expected to go public in the near term to benefit from the post-COVID tech IPO bubble. Late last year, it was reported that Flipkart Online Services (1398508D IN), an Indian e-commerce company controlled by Walmart (WMT US), was pursuing a US IPO of approximately $10.0bn.

According to a recent news article on Bloomberg, it appears that Walmart has made good progress over the last few months and targets to complete the Flipkart IPO during the fourth quarter of 2021. Meanwhile, under growing opposition from offline retailors, the Indian government is proposing to change the e-commerce policy framework. When implemented the new framework will significantly affect India’s foreign controlled e-commerce giants Walmart and Flipkart at a time a well-funded local player (Reliance) is starting to disrupt the peaking order of the Indian e-commerce market.


Flipkart’s IPO in the Works – All You Need to Know for Now

By Devi Subhakesan

In this insight, we discuss (1) the likely catalysts triggering Flipkart Online Services (Flipkart) going public, (2) a quick primer on Flipkart and its multiple business verticals, (3) the listed players/peers that may potentially be impacted by Flipkart’s listing. 

Flipkart Online Services (Flipkart)‘s upcoming IPO will offer investors an opportunity to take direct exposure in India’s fast-growing eCommerce segment. Flipkart is a pureplay India eCommerce and related services (digital payments, logistics) company with a dominant presence across multiple verticals. Flipkart’s listing could be a test of investor appetite and valuation potential for India based eComm players and may pave the way for other players to go public. 


Intco Medical IPO Initiation: Riding the Cycle

By Arun George

Intco Medical Technology Co., Ltd-A (300677 CH) is the largest disposable gloves provider in China and the third-largest in the world as measured by production capacity as of 31 December 2020, according to Frost & Sullivan. Intco which listed its A Share on the Shenzhen Stock Exchange on 21 July 2017, is seeking an H Share listing to raise $1 billion, according to press reports. 

Intco along with its global peers have benefited tremendously from the demand-supply imbalance for gloves due to the COVID-19 pandemic. Most peer share prices have declined since the start of the year in expectation of peak quarterly earnings in the second or third quarter of 2021. The glove industry has gone through two previous cycles but has re-rated at each cycle – sector average P/E of 11x in 2007-11 and P/E of 18x in 2013-17. As the industry continues to be underpinned by structural growth drivers, the sector will likely re-rate as sector earnings normalise. Overall, we think that Intco has attractive fundamentals to benefit from these market dynamics. 


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