In this briefing:
- AsiaInfo Tech (亚信科技) IPO: What You Need to Know Before the Trading Debut
- Harbin Electric Expected To Be Privatised
- Discover HK Connect: Mainlanders Are Buying Shandong Gold, and Pharmaceuticals (2018-12-17)
- Last Week’s GER IPO Research: Tencent Music, IPO Trading Strategy Deep Dive, WuXi, Junshi & Xinyi
- ECM Weekly (15 December 2018) – Wanka, Alpha Smart, CMGE Tech, Junshi Science, Xinyi Energy.
1. AsiaInfo Tech (亚信科技) IPO: What You Need to Know Before the Trading Debut
AsiaInfo Tech priced its IPO at HKD 10.50/share and will start trading today. Prior to the trading debut, in this short note, we summarize the latest information with updates on our valuation.
Our Previous Insight on AsiaInfo Tech:
- AsiaInfo Tech (亚信科技) IPO: Cost Control Is the Key (Part 1)
- AsiaInfo Tech (亚信科技) IPO: Lessons from Privatization and Three Bearish Trends (Part 2)
- AsiaInfo Tech (亚信科技) IPO: Latest Numbers Showcase the Company’s Questionable Expansion Plan
- AsiaInfo Tech (亚信科技) IPO: Valuation Rich Vs Delisting and Peers
2. Harbin Electric Expected To Be Privatised
Power generation equipment manufacturer Harbin Electric Co Ltd H (1133 HK) is currently suspended pursuant to Hong Kong’s Codes on Takeovers and Mergers and Share Buy-backs, suggesting a privatisation offer from parent Harbin Electric Corporation (“HEC”) is pending.
HE is PRC incorporated, therefore a privatisation by way of a merger by absorption may be proposed, similar to Advanced Semiconductor Mfg Corp Ltd. (3355 HK) as discussed in ASMC’s Merger By Absorption.
HE has perennially traded at discount to net cash. As at its last traded price, the discount to net cash (using the 2018 interim figure of HK$12.4bn or HK$7.27/share) was 65%.
HE issued 329mn domestic shares (~47.16% of the existing issued domestic shares and ~24.02% of the existing total issued shares) to its parent in January this year, at HK$4.56/share or a 60.9% discount to the June 2017 book value. A similar discount to the June 2018 book value backs out HK$4.15/share, or ~67% upside from the undisturbed price, in line with the premium to ASMC’s Offer.
A privatisation would require a scheme-like vote for the H-shares. HEC holds no H shares. There are 675mn H shares and no single shareholder controls a 10% (or more) blocking stake.
Dissension rights are available according to HE’s articles of association, although what constitutes a “fair price” under those rights, and the timing of the settlement under such rights, are not evident.
There are likely to be the customary PRC regulatory approvals required, however as HEC is already the controlling shareholder and an SOE, these conditions are not in doubt.
Should an offer emerge, expect completion in ~6 months from the initial announcement.
3. Discover HK Connect: Mainlanders Are Buying Shandong Gold, and Pharmaceuticals (2018-12-17)
In our Discover HK Connect series, we aim to help our investors understand the flow of southbound trades via the Hong Kong Connect, as analyzed by our proprietary data engine. We will discuss the stocks that experienced the most inflow and outflow by mainlanders in the past seven days.
We split the stocks eligible for the Hong Kong Connect trade into three groups: those with a market capitalization of above USD 5 billion, those with a market capitalization between USD 1 billion and USD 5 billion, and those with a market capitalization between USD 500 million and USD 1 billion.
4. Last Week’s GER IPO Research: Tencent Music, IPO Trading Strategy Deep Dive, WuXi, Junshi & Xinyi
Another busy week for IPO research from the GER team. This week, we recap the Tencent Music Entertainment (TME US) IPO which we noted is more fairly valued post its day one rally. Secondly, we dig into Chinese domiciled IPOs that are listed in the States and find some interesting trends on maximizing the ‘pop’, knowing when to get out and an assessment of longer-term performance. Arun nails his DCF valuation on WuXi AppTec Co. Ltd. (2359 HK) which closed at his base-case valuation while he recommends getting involved at the low-end for Shanghai Junshi Bioscience Co. Ltd. (1387344D CH) . Finally, Xinyi Energy Holdings Ltd (1671746D HK) spares further wrath as it postpones its IPO – Venkat digs into the reasons why he is cautious on the company.
Quote of the week:
Please note the post-apocalyptical fiction section has been moved to current affairs
– Sign in front of a UK bookstore
Video of the week: Santas hit the slopes in Maine
This is our last wrap of 2018 – we wish you a safe and happy festive period – and we will back in 2019!
Best wishes – Rickin, Venkat and Arun
5. ECM Weekly (15 December 2018) – Wanka, Alpha Smart, CMGE Tech, Junshi Science, Xinyi Energy.
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.
IPO listings this week have mostly been within our expectation. Mobvista (1860 HK), Natural Food International H (1837 HK), and Fosun Tourism (1992 HK) have all struggled to hold on to their IPO price on the first day of trading. Unfortunately, WuXi AppTec Co (2359 HK) has also struggled on this first day despite our expectation that the company should be trading at a relatively smaller 19% A-H premium which would imply about 11% upside based on Ke Yan, CFA, FRM‘s sensitivity analysis and Wuxi Apptec’s A share Friday close price.
In the US, Tencent Music Entertainment (TME US) performed well within our expectation. The company’s share price opened about 9% above IPO price. As Sumeet Singh has mentioned in his insight, Tencent Music IPO – Firework – Trading Strategies, this is unlikely going to be a bumper IPO and short-term investors could take profit at high single-digit to low double-digit returns on debut. Indeed, after a decent debut, TME has collapsed below its IPO price, probably due to investors taking profit as the broad market traded poorly on Friday.
Next week, all eyes will be on Softbank Corp (9434 JP)‘s debut and Mio Kato, CFA summarised in his note some of the reasons why Softbank Corp could perform poorly in the near term. Bookbuild results have been mixed. Bloomberg report suggested that Softbank’s international bookbuild was 2-3x oversubscribed while retail offering was at almost 2x. However, Nikkei Asian Review’s article reported that it has been a struggle to sell the IPO shares to retail investors. In any case, we will put out a note next week on our thoughts on bookbuild, updated valuation of peers, and how we think the IPO will likely trade after the recent series of events.
Other debuts next week include Luzhou Commercial Bank Co Ltd (1983 HK), Wanka Online (1669726D HK), and Asiainfo Technologies (1675 HK).
Accuracy Rate:
Our overall accuracy rate is 72% for IPOs and 64% for Placements
(Performance measurement criteria is explained at the end of the note)
New IPO filings this week
- Shanghai Henlius Biotech (Hong Kong, ~US$500m)
- Ingrid Millet (Hong Kong, re-filed)
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
- Chat-service firm Slack taps Goldman Sachs to lead IPO: sources
- Kyobo Life Insurance to seek IPO next year
- Uber has confidentially filed to go public
- London billionaire Michael Spencer boosts stake in Singapore Life, considers IPO
- Brokerages scramble on tepid investor response over SoftBank IPO
- After delivering 24 electric cars, this Chinese startup has IPO dreams
- Solar energy firm Xinyi said to postpone up to $582m Hong Kong IPO
Smartkarma Community’s this week Analysis on Upcoming IPO
- Alpha Smart – Pre-IPO – PE Investors Recovered 56% of Their Cost in Two Years but Left It in Debt
- Xinyi Energy IPO Valuation: Asking More Than What It Is Paying to Acquire Target Portfolio
- CMGE Tech (中手游) Pre-IPO Review – Unfortunate Timing
- Junshi Bioscience (君实医药) IPO: Rich Is Valuation, but Catalyst Ahead
- Junshi Biosciences IPO Valuation: Sensibly Priced with Upside at the Low-End
- Wanka Online IPO – Quick Note – Even After the Downsize Its Still Too Expensive
- Xinyi Energy (信义能源) IPO: High Dividend Yield but Depreciating Asset
- Softbank IPO: Signs Point to Risk of Early IPO Price Break
- WuXi AppTec IPO Valuation: Bull/Bear Case DCF Scenarios
- Wuxi Apptec (药明康德) IPO: What You Need to Know Before the Trading Debut
