Brief Growth Ideas: Dongzheng Auto Finance (东正汽车金融) IPO Review – Better off Buying the Parent and more

In this briefing:

1. Dongzheng Auto Finance (东正汽车金融) IPO Review – Better off Buying the Parent
2. CanSino Biologics (康希诺) IPO: Valuation Update (Part 3)
3. TTW: Cut 2019-2023 Earnings on the Rise of Depreciation Expenses
4. CyberAgent (4751 JP): Key Takeaways from Our Discussion with the IR Team

1. Dongzheng Auto Finance (东正汽车金融) IPO Review – Better off Buying the Parent

Dongzheng Automotive Finance (2718 HK) is raising up to US$428m in its upcoming IPO. We have covered the background of the company in Dongzheng Auto Finance (东正汽车金融) Pre-IPO Review – Dependent on Dealership Network for Growth. 

In this insight, we will look into the company’s valuation, compare it to listed auto peers, and run the deal through our framework.

2. CanSino Biologics (康希诺) IPO: Valuation Update (Part 3)

CanSino is a China-based biotechnology company with a focus on vaccine development. In our previous insight (link to Part 1 and Part 2), we have discussed CanSino’s drug pipeline, the competitive landscape, and the valuation. 

As the company is starting pre-marketing, we will provide an updated valuation based on new information obtained from the approved application document. Our base case valuation for CanSino is USD 856 million on a pre-money basis. Majority of the rNPV based SOTP valuation still comes from its meningococcal conjugate vaccine (MCV2 and MCV4). Over the past few months, the company has completed Phase III for MCV4 and submitted NDA (new drug application) for MCV2 candidates.

3. TTW: Cut 2019-2023 Earnings on the Rise of Depreciation Expenses

We maintain our positive view toward its long-term outlook on the backs of potential growth from its location and secured contract with government agency. Maintain a BUY rating with a new target price of Bt16.8 (SOTP).

The story:

• We cut our 2019-2021 earnings forecast by 12-13% to factor in rising depreciation expenses caused by its shortening depreciated years of PTW’s assets.
• Our new target price of Bt16.8 is derived from Some-of-the-parts (SOTP) which comprises (1) Bt13.8 from core business (tap water supply under both TTW and PTW) based on DCF(6.7%WACC, 0%TG) and (2) Bt3.0 from CKP based on IFA report.

4. CyberAgent (4751 JP): Key Takeaways from Our Discussion with the IR Team

Our recent conversation with CyberAgent’s IR team suggests that a significant improvement in the OP margin is unlikely in the next few quarters. The OP margins of both Game business and the Internet Advertisement, while likely to improve gradually, are likely to remain low compared to recent history due to higher advertising and personnel costs.

Upfront investments in AbemaTV are likely to continue until the target of 10m Weekly Average Users (WAU) is met, which could take a year or more. The company expects around 50% of AbemaTV revenue to eventually come from premium users, which seems to be a shift in strategy, from a “free” service towards a more hybrid model.

CyberAgent’s share price closed at ¥4,050 on Tuesday, up 7.1% from its previous close, following the news that the stock was added to the Goldman Sachs’ conviction list with a reiterated buy rating. However, even before this, CyberAgent’s share price had been on a steady increase over the past two weeks (+29.0%), recovering from a one-year low in early February. This increase, despite rather mediocre 1Q results, a downward revision of OP guidance, and lack of any major short term catalysts is an indication that the market deems CyberAgent to be undervalued – mainly on the AbemaTV front.