Daily BriefsIPOs and Placements

Equity Capital Markets: VGI PCL, Beijing Kuaishou Technology Co Ltd, Sappe Pcl, Dida, Electricity Generating, China Resources Mixc Lifestyle Services and more

In today’s briefing:

  • VGI Global Placement – Biggest Block Ever by BTS
  • Kuaishou Technology Pre-IPO – The Negatives – Ample Doubts Remain
  • SAPPE: 3Q20 Earnings Back on Track to YoY Growth
  • Dida IPO (Financial Analysis): Expect Strong Revenue Growth but Not Profits
  • EGCO: 3Q20 Core Profit Grew from Overseas Contribution
  • China Resources Mixc Lifestyle IPO Initiation: The Paradox of Plenty

VGI Global Placement – Biggest Block Ever by BTS

By Zhen Zhou, Toh

BTS Group Holdings (BTS TB) is back on the market to sell 1.3bn shares in VGI PCL (VGI TB) at a fixed price of THB6 per share. 

VGI beat estimates in its latest Q2 results but the massive deal size may impede near-term performance as it accounts for 44 days of three-month ADV.

We covered BTS’ 2019 selldown in:

Kuaishou Technology Pre-IPO – The Negatives – Ample Doubts Remain

By Sumeet Singh

Beijing Kuaishou Technology Co Ltd (1496219D CH) (KT) is a content community and social platform. The company is backed by Tencent Holdings (700 HK), Sequoia China, Baidu (BIDU US), DST Global, Boyu Capital, Temasek and others.

 As of six months ended Jun 2020, it had 302m daily active users (DAUs), who spent 85 mins on average on the app every day. It also had 776m monthly active users (MAUs) and total e-commerce GMV of RMB109.6bn. On an average 1.1bn short videos were uploaded on its app during 1H20.

 As per iResearch, Kuaishou was globally the largest live streaming platform by gross billings from virtual gifting and average live streaming MPUs, the second largest short video platform by average DAUs, and the second largest live streaming e-commerce platform by GMV, over six months ended June 30, 2020.

In my earlier note, Kuaishou Technology Pre-IPO – The Positives – Hot Segment, fast growth, I spoke about the positive aspects of the deal. In this note, I’ll talk about the not so flattering aspects.

SAPPE: 3Q20 Earnings Back on Track to YoY Growth

By Research Group at Country Group Securities

SAPPE reported 3Q20 net profit of Bt133m(+30%YoY, +60%QoQ).  The 9M20 result was 84% of our full-year forecast.

• Sales increased 15%YoY to Bt940m, mainly driven by an increasing in domestic sales (+52%YoY), as a result of the rising health-conscious trend.
• Meanwhile, export sales decreased 8%YoY to Bt465m due to lockdown policies across the globe.
• Revised up earnings forecasts by 16%/3%/3% in 2020-22E, respectively
• We expect 4Q20 earnings to drop QoQ from low season but still grow YoY, resulting the successful in introducing new products.
• We maintain our positive outlook in 2021 onwards supported by; (1) demand recovery after lockdown eased, (2) the company will continue to launch new products, and (3) CLMV market expansion in the next three year.

We maintain BUY rating with new target price of Bt25.4(+11% from previous target) based on 16.9xPE’21E, which is its three-year trading average.

Dida IPO (Financial Analysis): Expect Strong Revenue Growth but Not Profits

By Aqila Ali

In our previous insight Dida Pre-IPO: Carpool-Focused, But Is Main Business in Short-Term Risk? , we looked at Dida’s business model and its growth prospects by comparing the company with its rival DiDi Chuxing (1284375D CH). In this insight, we carry out a financial analysis and outlook on the company. Our key points are:

  • Dida (DIDA HK) has reported strong revenue growth rates during 2017-2019 (CAGR of 244%). Moreover, despite the COVID impact, revenue during 1H 2020, grew by 66% YoY. A majority of the revenue growth came from the carpooling business (CAGR of 339% during 2017-2019). Given the strong industry growth prospects for carpooling and Dida’s dominant position in the market, if we conservatively assume Dida to grow in line with the industry (an outperformance is likely though), we could expect Dida’s revenue to grow at a double-digit CAGR of c. 27% through 2022.
  • Gross profit margins are at 82.2% as of 1H 2020, driven mainly by the carpooling business (GPM: 86.3%). However, based on our MPR analysis, total GPM and the GPM of the carpooling business appears to have reached potential, where significant upside is unlikely.
  • An upside in GPM is likely for the ride-hailing business, which started generating gross profits only in 1H2020 (Dida’s 31.1%), but appears limited given that GPM of peers like Uber (UBER US) and Lyft Inc (LYFT US) range around 34-39%. Moreover, at the overall operating level, this business is unlikely to report profits any time soon as we see with international peers like Uber and Lyft.
  • Selling expenses do not move in line with revenue. Selling expenses usually increase when Dida expects to boost its sales in the upcoming year. This was the case in 2018. Having said that, a majority of selling expenses include user incentive costs, which has levelled out for the carpooling business but is likely to continue for the ride-hailing business which Dida started last year. Overall, given that Dida is yet to grab a share of the ride-hailing market, selling expenses are likely to be a significant expense over the next few years as well.
  • The company is generating losses at the net level and these losses are likely to continue even based on our less conservative assumptions. Though based on adjustments the company makes, profits are reported, we feel that these adjustments do not necessarily justify the company’s loss-making position.

EGCO: 3Q20 Core Profit Grew from Overseas Contribution

By Research Group at Country Group Securities

We maintain the BUY recommendation while revise down the target price to Bt278 (from previous Bt308) to reflect the earnings revision. Our valuation is derived using DCF methodology (WACC 8.1% and TG 1%). implying 13x PE’21.

• EGCO reported 3Q20 net profit of Bt2.27bn (-20.0% YoY, -55.0% QoQ), 
• Excluding the FX and extraordinary items, the core profit was at 2.95bn (+20.0%YoY, +21.0%QoQ). The core earnings improved mainly due to improved contribution from overseas power plants XPCL, Paju ES, and SBPL.
• We expect the 4Q20 earnings to slightly soften QoQ due to seasonal low IPP operation, while improve YoY from XPCL contribution.
• Revise down 2020-22E earnings by 6 to 15 %
The stock is still at an attractive valuation as it is presently trading at below   -2SD PBV (5-year average) and provides a decent dividend yield of 2.7 to 3.4% in 2020-22E.

China Resources Mixc Lifestyle IPO Initiation: The Paradox of Plenty

By Arun George

China Resources Mixc Lifestyle Services (CRML HK)/CR Mixc is a Chinese property management and commercial operational service provider. CR Mixc was the fifth-largest Chinese property management companies as measured by property management service revenue in 2019, according to Frost & Sullivan. The controlling shareholder is China Resources Land (1109 HK). CR Mixc is joining the ever-expanding list of property management IPOs by seeking to raise $1 billion, according to press reports.  

Property developers continue to spin-off their property management arms due to tight credit conditions. However, sentiment on property management IPOs has turned cautious. In such an environment, an IPO hopeful needs to offer a combination of stellar fundamentals and/or attractive valuation to grab attention. Unfortunately, CR Mixc’s fundamentals are mixed, in our view. Consequently, we label this insight bearish pending the IPO price range announcement. 

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