Brief Growth Ideas: Company Visits: The Best of March 2019 and more

In this briefing:

1. Company Visits: The Best of March 2019
2. Ronshine (融信集团) Placement – Back for a Equity Raise
3. HK Connect Discovery – March Snapshot (WH Group, Air China)
4. Dongzheng Auto Finance (东正汽车金融) Trading Update – Could Be Worth Setting up a Trade
5. BabyTree(1761.HK) FY18 Results: E-Com Further Hit by ‘integration’ with Alibaba; India Foray Timely

1. Company Visits: The Best of March 2019

We selectively visited a dozen companies in March and were most impressed with three of them (two of which we happily own):

• SISB, Thailand’s only listed education stock, whose market cap has increased more than 30% since its IPO. The future potential growth they are currently working on in Cambodia and China  will show up here and spruce the company’s already strong growth. Working in a favorable environment (Thailand’s affluent class is growing) also helps.
• MINT, the country’s hotel chain giant and 20th largest chain in the world, sees great growth potential in Europe, where things are slowly turning around after they made two big acquisitions (NH Hotels and Tivoli). Synergies are also materializing with co-marketing and re-branding efforts.
• After You, arguably the dessert chain with the highest margin in Thailand. No longer a newbie IPO stock, these guys boast collaboration with global giant Starbucks and branching out into new channels such as After You Durian. 

2. Ronshine (融信集团) Placement – Back for a Equity Raise

Ronshine China Holdings (3301 HK) is looking to raise about US$122m in a top-up placement.

The deal scores marginally positive on our framework owing to its decent track record, and price and earnings momentum.

Its past deals have done well in the long run. Even though it did not perform well over the one-month period, its first week returns have tend to hold up above the deal price.

3. HK Connect Discovery – March Snapshot (WH Group, Air China)

This is a monthly version of our HK Connect Weekly note, in which I highlight Hong Kong-listed companies leading the southbound flow weekly. Over the past month, we have seen the flow turned from outflow in February to inflow in March. Chinese investors were also buying Consumer Staples and Consumer Discretionary stocks.

Our March Coverage of Hong Kong Connect southbound flow

• HK Connect Discovery Weekly: PICC, Xinyi Solar (2019-03-08)
• HK Connect Discovery Weekly: Eligibility Adjustment (2019-03-15)
• HK Connect Discovery Weekly: Mainland Investors Buying WH Group (2019-03-22)

4. Dongzheng Auto Finance (东正汽车金融) Trading Update – Could Be Worth Setting up a Trade

Dongzheng Automotive Finance (2718 HK) raised US$208m at a fixed price of HK$3.06 per share. We have covered the IPO extensively in:

• Dongzheng Auto Finance (东正汽车金融) Pre-IPO Review – Dependent on Dealership Network for Growth
• Dongzheng Auto Finance (东正汽车金融) IPO Review – Better off Buying the Parent
• Dongzheng Auto Finance (东正汽车金融) IPO Review – Relaunched at Lower Price

In this insight, we will update on the deal dynamics, implied valuation, and include a valuation sensitivity table.

5. BabyTree(1761.HK) FY18 Results: E-Com Further Hit by ‘integration’ with Alibaba; India Foray Timely

BabyTree (1761.HK)’s reported results for FY2018 continues to be impacted by the ‘shift in e-commerce strategy’ post collaboration with Alibaba Group Holding (BABA US) (also a key investor).  China’s leading parenting community platform that went public in November 2018 has announced a revenue decline of 4% during 2H2018; its e-commerce revenues were down 70% as its being ‘integrated’ with Alibaba. This is expected to be completed by 2Q2019. While the details of the collaboration (and revenue share, if any) are not given, Management has stated that Alibaba will manage the back-end e-commerce at a reduced cost and better efficiency while it will ‘manage’ users. Despite the fall in revenues, gross profits were up 18% helped by growth in advertisement revenues which now account for 85% of the total. Advertising as a revenue source has limited long term growth and valuation potential compared to e-commerce. The stock is up 25% since results announcement on March 27th, likely enthused by Net profit for FY2018 at Rmb526.2 mn and EPS of Rmb0.29 (implied current Year P/E of 23x). Key risk will be failure to revive e-commerce revenues post ‘integration’.

BabyTree also announced its first global foray – it has invested USD8mn in Healofy, amongst the top 3 leading parenting apps in India currently. India’s online Parenting app segment has numerous players and revenue generation/growth may not be easy in the near term for Healofy. However,  our analysis suggests that India’s overcrowded parenting app segment is now witnessing consolidation and this funding could probably help Healofy solidify its ranking amongst top 3 parenting platforms in India. In this context, BabyTree’s foray into India seems well timed. Healofy could potentially follow BabyTree’s operating model and fit into Alibaba Group Holding (BABA US) ‘s India e-commerce strategy (Refer our earlier report Alibaba’s India Game Plan – More than Meets the Eye; Investor Day Analysis (Part II) ).  

In the detailed report that follows, we briefly comment on BabyTree’s reported 2018 results and also present a quick overview of India Parenting App segment – key players, investors and why we think it may be on a consolidation mode.