In this briefing:
- 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
1. 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.
2. 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.
3. 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
