In this briefing:
- ECM Weekly (2 March 2019) – Futu, Tiger Brokers, China Risun, China Tobacco, Zhejiang New Century
- Topcon (7732 JP): Weak 3Q, Likely to Fall Short of FY Mar-19 Guidance
- Surya Citra Media (SCMA IJ) – Digital Revolution in the Spring – On the Ground in J-Town
1. ECM Weekly (2 March 2019) – Futu, Tiger Brokers, China Risun, China Tobacco, Zhejiang New Century
Aequitas Research puts out a weekly update on the deals that have been covered by Smartkarma Insight Providers recently, along with updates for upcoming IPOs.
ECM activity seems to be picking up as we get more information on upcoming large IPOs in Hong Kong and the US.
Starting with Hong Kong, there are a handful of small ongoing IPOs such as Yincheng International Holdings (1902 HK), China Risun (1907 HK), and Zhejiang New Century Hotel Management Group (1158 HK). Yincheng, a small and highly levered property developer, will list next week on the 7th of March.
But, the upcoming IPOs are the ones that seem to be more exciting with the HKEX filing of ESR Cayman’s draft prospectus. The company is a logistics real estate developer backed by Warburg Pincus and was said to be seeking US$1.5bn in its IPO. There are also Global Switch and OneConnect which seemed to be one step closer to their IPO.
In the US, we are finally getting approvals after the government shutdown starting with the Tencent-backed Futu Holdings Ltd (FHL US) launching its IPO and it will be listing on the 8th of March.
Jumping on the broker IPO bandwagon, Jim Rogers-backed Up Fintech (TIGR US) has also filed with the SEC. Sumeet Singh had already compared the two companies in his note, Futu Holdings IPO Quick Note – Comparison with Tiger Brokers – Same Market, Different Economics.
There are also news reports that Luckin Coffee, a Starbucks competitor in China, has already tapped three banks for its US IPO.
Accuracy Rate:
Our overall accuracy rate is 72.2% for IPOs and 63.7% for Placements
(Performance measurement criteria is explained at the end of the note)
New IPO filings
- ESR Cayman (Hong Kong, ~US$1.5bn)
- Jinshang Bank (Hong Kong, ~US$500m)
- China Everbright Water (Hong Kong, >US$100m, dual-listing)
- Up Fintech/Tiger Brokers (the US, >US$100m)
Below is a snippet of our IPO tool showing upcoming events for the next week. The IPO tool is designed to provide readers with timely information on all IPO related events (Book open/closing, listing, initiation, lock-up expiry, etc) for all the deals that we have worked on. You can access the tool here or through the tools menu.
News on Upcoming IPOs
- Global Switch Picks Banks for Over $1 Billion IPO
- Warburg Pincus-backed ESR files for Hong Kong IPO of up to $1.5 billion
- Ping An plans IPO of fintech unit in HK at $1.35b
- Starbucks’ China rival Luckin Coffee taps 3 banks for US IPO
Smartkarma Community’s this week Analysis on Upcoming IPO
- Up Fintech (Tiger Brokers) Pre-IPO Quick Note – Much Too Reliant on IBKR
- Futu Holdings IPO Quick Note – Comparison with Tiger Brokers – Same Market, Different Economics
- China Risun (中国旭阳) IPO Quick Note: Past the Peak of Coking Cycle
- Futu Holdings IPO – Given the Team, Execution, and Backers, Might Be Worth a Look at the Low-End
- China Tobacco Intl (HK) IPO: Proxy For the Chinese Cigarette Consumption
- New Century Hotel (浙江開元酒店) IPO Review – Higher ADR and RevPAR than Peers but Margins Fall Short
- Futu Holdings Pre-IPO – FY18 Updates And Quick Thoughts on Valuation
- Yincheng Intl (银城国际) IPO Quick Note: A Highly Levered Nanjing Developer Bet
2. Topcon (7732 JP): Weak 3Q, Likely to Fall Short of FY Mar-19 Guidance
Topcon’s FY Mar-19 guidance looks over-optimistic. Operating profit was up 8.5% year-on-year on a 1.4% increase in sales in the nine months to December, but down 10.1% on a 2.3% decrease in sales in 3Q. To make management’s full-year targets, it would have to increase by 41.0% on a 6.8% increase in sales in 4Q. The sales of all three major product segments – Smart Infrastructure, Positioning and Eye Care – have been slow. Intra-company eliminations have undercut segment profits.
At ¥1,561 (Friday, March 1, close), the shares are selling at 23.6x our EPS estimate for this fiscal year and 9.8x projected EV/EBITDA. These multiples compare with 5-year historical lows of 16.1x and 6.8x. Japan Analytics’ calculation of Annual No-Growth Valuation shows further downside risk (see chart below).
3. Surya Citra Media (SCMA IJ) – Digital Revolution in the Spring – On the Ground in J-Town
A meeting Surya Citra Media Pt Tbk (SCMA IJ) in Jakarta found management in a relatively ebullient mood. The share price performance has been slightly perplexing the fact that its digital strategy is close to coming to fruition, with upcoming acquisitions representing a positive catalyst.
The company will move forward on acquiring controlling stakes in digital streaming player www.vidio.com, internet company www.kapanlagi.com, and out of home media advertising player EYE Indonesia.
Total revenues from the digital and non-TV space will grow from less than 5% of SCMA’s total revenue to nearly 20% of the total, making it the biggest player in both free-to-air and a major player in digital adverting in Indonesia.
Vidio.com is especially interesting given how fragmented that market is currently. Iy=t already has 22m active users viewing its sport and local content but is looking to bring in a major global player to help finance original content and bring in more international content.
Internet companies represent the biggest and fastest growing advertising customers outside FMCG. They are increasingly paying above market rates for up to two-hour exclusive slots on prime time, where they air their own programming which allows them to engage with the audience.
The recent Kraft Heinz Co (KHC US) debacle may signal the end of zero-based budgeting, which may mean global players such as Unilever Indonesia (UNVR IJ) start to spend more on advertising. in the meantime, local FMCG players remain more aggressive on advertising their products on TV.
Surya Citra Media Pt Tbk (SCMA IJ) remains the best quality proxy to the advertising market in Indonesia. The upcoming acquisitions in the digital space represent strong potential catalysts for the stock, which have not yet been factored into valuations. Its core business continues to register stable and rising growth, especially from local FMCG players, with the re-entry of the tobacco companies potentially representing another boon for this year, given there has been no excise tax increase. According to Capital IQ consensus, the company is trading on 15.3x FY19E PER and 13.8x FY20E PER, with forecasts EPS growth of +8.5% and +10.5% for FY19E and FY20E respectively. The company is forecast to achieve an ROE of 33% in 2019, with a dividend yield of 4.2%.
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