Daily Hong Kong: Weimob IPO Trading Update – Existing Shareholders to the Rescue and more

In this briefing:

1. Weimob IPO Trading Update – Existing Shareholders to the Rescue
2. 2018 HK-Connect SouthBound In a Nutshell
3. Apple (AAPL): Reduces Prices in Mainland China – Right Action, But Not Enough
4. China Kepei Edu (科培教育) IPO – Regulation Poses Significant Near-Term Risks
5. Ten Years On – Asia’s Time Is Coming, Don’t Miss The Boat

1. Weimob IPO Trading Update – Existing Shareholders to the Rescue

Weimob.com (2013 HK) IPO was priced at the low-end at HKD2.80/share. The retail tranche was 0.79x covered while the institutional tranche was slightly over-subscribed.

I’ve covered most aspects of the deal in my earlier insights: 

• Weimob Pre-IPO – Can Be Steamrolled by Tencent, Anytime
• Weimob IPO Quick Take – Less SaaS, More Ads -> Lower Valuation

In this insight, I’ll provide an update on the deal dynamics, valuations and provide a table with the implied valuations at different share price levels.

2. 2018 HK-Connect SouthBound In a Nutshell

Since autumn of 2014, the HK-Shanghai Connect, and later the HK-Shenzhen Connect mechanisms have provided means for mainland investors to buy Hong Kong-listed stocks. 

We have been tracking the H/A relationships and the Southbound flows per name on a weekly basis and occasionally writing commentary about it since late 2016. 

This report provides a brief synopsis of the SOUTHBOUND flows into Hong Kong-listed stocks over the course of 2018, by sector, by average percentage change in mainland ownership of HK shares outstanding subject to the Connect mechanisms, and the top and bottom five names per sector per quarter.

3. Apple (AAPL): Reduces Prices in Mainland China – Right Action, But Not Enough

• Tim Cook passed the buck to the weak sales in China. However, we believe China’s retailing is running well based on our visits to shopping malls with Apple stores.
• Luxury goods sold better in China than all other major markets in the world in 2018.
• We believe that the price reduction in Mainland China is just taking market share from Apple Stores in Hong Kong, but not from competitors.
• We also believe that the app review process is the fatal shortcoming for AAPL.

4. China Kepei Edu (科培教育) IPO – Regulation Poses Significant Near-Term Risks

China Kepei Education (1890 HK) is looking to raise up to US$122m in its upcoming IPO. 

Overall, the company has continued to show that its undergraduate program is the driver behind its growth. It grew its 8M 2018 revenue and gross profit both by about 24% YoY. However, there are significant near-term risks if the MOJ Draft for Comments gets implemented. It may result in Kepei registering its schools as for-profit private schools which would shrink its net profit margin.

In this insight, we will provide updates on the company’s 8M 2018 financials and operating performance, the potential impact of policy change and compare its valuation to other listed education peers. We will also run the deal through our framework.

5. Ten Years On – Asia’s Time Is Coming, Don’t Miss The Boat

We noted in   Ten Years On – Asia Outperforms Advanced Economies Asia’s economies and companies have outperformed advanced country peers in the ten years to 2017.  Growing by 6.8%, real, through the crisis the region is 188% larger in US dollar terms while US dollar per capita incomes 170% higher compared with 2007. In this note we argue even though Asian stock markets have underperformed since 2010 and the bulk of global capital flows have gone to advanced countries, Asia’s time is coming. Valuations are cheap. Growth fundamentals strong. There are few external or internal imbalances. Macroeconomic management has been better than in advanced economies and the scope to ease policy to ward off headwinds in 2019 is greater. China has already started.