Daily BriefsMost Read

Most Read: Vedanta Ltd, Zomato, Luk Fook Holdings Intl, Shanghai MicroPort MedBot Group, Nippo Corp and more

In today’s briefing:

  • Vedanta To Eliminate Its ADRs – Creates VERY Interesting Possibilities
  • MSCI India Nov SAIR Preview: Mouth-Watering Impact, Eye-Watering Valuations
  • HK Jewellers Pair Trade – All That Glitters Not Crypto, But Gold?
  • ECM Weekly (26th September 2021) – Hanyu Med, Abbisko, SenseTime, ANE, Nykaa, Prudential HK
  • NIPPO (1881 JP) Gets Some Cowbell – It Probably Needs More

Vedanta To Eliminate Its ADRs – Creates VERY Interesting Possibilities

By Travis Lundy

Yesterday after the close, Vedanta Ltd (VEDL IN) made an announcement of Intention to delist American Depositary Shares from the New York Stock Exchange and terminate its American Depositary Share Program.

This has been a big mover. 

The elimination of the ADS sets up a group of Very Interesting Possibilities and it is worthwhile working through what those possibilities are, and what the timing could be.


MSCI India Nov SAIR Preview: Mouth-Watering Impact, Eye-Watering Valuations

By Brian Freitas

MSCI is scheduled to announce the results of the November 2021 Semi Annual Index Review (SAIR) on 12 November (Asia time) with the changes implemented after the close of trading on 30 November.

The review period for price cut-off will run from 18-29 October.

Based on the closing prices from 24 September, there are 6 potential inclusions to the MSCI India Index: Mindtree Ltd (MTCL IN), Srf Ltd (SRF IN), Mphasis Ltd (MPHL IN), Godrej Properties (GPL IN), Indian Railway Catering and Tourism (IRCTC IN) and Zomato (ZOMATO IN).

Passive MSCI trackers will need to buy between 1 to 6 days of ADV on the stocks. The impact is much larger in terms of days of delivery volume to buy – that ranges from 6 to 22 days to buy.

There is pre-positioning on the stock as seen from the cumulative excess volume that has built up over the last few weeks and months. That said, the stocks could continue to move higher as they flash on investors radars.

We look at the stocks in detail and recommend trades based on the excess volume, valuations and estimated impact of passive fund buying.


HK Jewellers Pair Trade – All That Glitters Not Crypto, But Gold?

By Jason Yap, CFA

In this insight, we discuss a long-short pair trade idea (long Luk Fook Holdings Intl (590 HK) and short Chow Tai Fook Jewellery (1929 HK)) amongst HK listed jewelers.  As China and HK based bitcoin holders scramble to protect their crypto assets in light of latest regulations, we build on a hypothetical premise that these investors would shift their crypto assets into an asset class that is both tactile and familiar to the Chinese – that is, physical gold / jewelry. 

There are two major reasons why we believe this is an attractive long-short pair trade: 

1) Relative Valuations – CTF has outperformed LF in the past year.  Year to date, CTF is up 56.3% while LF is up only 9.2%.  As a result, LF has become more attractive than CTF on a relative valuation basis: 

  • LF trades at a forward P/E of 9.8x, which is 56% discount to CTF’s  forward P/E of 22.2x. LF is also trading at EV/EBITDA of 5.3x, which is 63% discount to CTF’s EV/EBITDA of 14.3x. We believe this valuation discount is too excessive for LF as compared to CTF.
  • LF trades at a discount of 3% to past 3 year historical average P/E (10.1x) whereas CTF trades at a premium of 41% to past 3 year historical average P/E (15.8x).
  • Similarly,  LF trades at a discount of 17% to past 3 year historical average P/B (1.2x) whereas CTF trades at a premium of 72% to past 3 year historical average P/B (2.9x). Hence, CTF appears overvalued relative to its historical average P/E and P/B multiples. 
  • LF generates higher operating margins than CTF. LF generated operating margin of 11.5% versus 8.8% for CTF for last 12 months ended 31 March 2021.  Although, on an ROE basis, CTF beats LF (21.1% versus 9.4%) due to higher asset turnover (1.1x versus 0.6x) and higher debt leverage (43.2% versus 13.3%).  

2) Gradual improvement in HK and Macau, which benefits Luk Fook more

  • Mainland China sales account for 85% of CTF’s sales and 60% of LF’s sales. with the balance generated mainly from HK and Macau. CTF’s larger exposure to Mainland China likely explains its share price outperformance relative to LF given stable pandemic conditions in China, albeit these factors now appear fully discounted into CTF’s price.
  • Since 23 September 2020, China reinstated tourist visas, through which majority of visitors enter Macau, for all provinces and which is for quarantine free travel.  Visitors from greater China make up over 90% of tourists to the former Portuguese colony of Macau.
  • On 23 September 2021, HK announced quarantine free exemptions for non-HK residents travelling from Guangdong and Macao.  Returning visitors to China and Macau after HK visits remain subject to quarantine.  Nevertheless, this signals potential further easing of travel measures among China and the 2 Chinese territories. 
  • The upcoming October 2021 Golden Week would be a good barometer of visitor traffic to HK under current travel measures. If the pandemic situation remains stable after the massive passenger flows expected during this period, this could boost optimism of earlier and fuller relaxation of intra Greater China travel measures. 
  • In short, as visitor traffic to HK and Macau ramps up, LF stands to benefit more due to its larger exposure to these markets, with potential upside from further easing of travel measures.

ECM Weekly (26th September 2021) – Hanyu Med, Abbisko, SenseTime, ANE, Nykaa, Prudential HK

By Zhen Zhou, Toh

Aequitas Research puts out a weekly update on the deals that have been covered by the team recently along with updates for upcoming IPOs.

Events next week:

Hong Kong IPO is getting busier with a few IPOs looking to launch soon after getting approval from HKEX. They include Shanghai MicroPort MedBot Group (MMG HK), Shanghai Hanyu Medical Technology (SHM HK), Abbisko Cayman (ABB HK), ANE Logistics (1292621D CH), and Beijing Airdoc Technology (BAT HK), which we have covered this week:

This week, Tam Jai, a restaurant chain operator, launched its US$179m IPO on Thursday. The company will price on 28th and trading debut will be on 7th October.

Asymchem Laboratories (002821 CH) and Lingyi-iTech received CSRC approval for their potential US$1.5bn and US$2bn H-shares listing, respectively. We also covered SenseTime Group (1475539D HK) which is likely to try to list by the end of this year.

And the U.S. finally gets breath of life with FWD Group Holdings (FWD US),  the insurance business of Pacific Century Group, filing its prospectus with the SEC for a US$3bn IPO. 

In India, we initiated on FSN E-Commerce Ventures (Nykaa) (1003622D IN) which is looking to raise around US$550m. The company is the leader in Beauty and Personal Care Platform in India in terms of value of products sold in FY21.

In Korea, we compared Simone to peers and shared our final thoughts on IPO valuation. The IPO’s bookbuild was delayed till mid October.

For IPO debuts, Simplex Holdings (4373 JP) traded well closing 27% higher on the first day whereas Broncus (2216 HK), owing to its expensive valuation and relatively poor IPO demand, closed almost 20% below IPO price based on Friday’s close price.

Tearsheets for newly filed IPOs this week:

It’s another busy week in the placement space. Transurban raised about US$2bn for the acquisition of the remaining 49% stake in WestConnex with a shortfall bookbuild that was priced close (2% discount) to its undisturbed price. Prudential also launched its US$2.9bn international and public offering in Hong Kong which had been well flagged. The deal was reportedly priced at HK$143.80, about 2.8% discount to Friday’s close price. 

Accuracy Rate:

Our overall accuracy rate is 73.9% for IPOs and 67.9% for Placements 

(Performance measurement criteria is explained at the end of the note)

New IPO filings this week

  • Shukun Technologies (Hong Kong, >US$100m)
  • GFT International (Hong Kong, US$100m)
  • Puranik Builders (India, re-filed, US$150m)

News on Upcoming IPOs

Hong Kong/China

US/China ADRs

India

Japan/Korea

Others

Analysis on Upcoming IPOs

NameInsight
Hong Kong
APM Monaco

APM Monaco Pre-IPO – China’s Resilience Shines 

Airdoc

Beijing Airdoc (北京鹰瞳科技) Pre-IPO – A Niche Field with Merits but Can It Sell? 

Anjuke

Anjuke Pre-IPO – Mixed (Positive and Negative) Developments 

Ambio

AmbioPharm (昂博制药) Pre-IPO: Peptide CDMO Leader Turning Licensor 

Biel Crystal

Biel Crystal (伯恩光学) Pre-IPO – Cash Flow Generative Business but Underlying Trend Is Worrying 

Biel Crystal

Biel Crystal (伯恩光学) Pre-IPO – Industry Landscape & Peer Comparison –  Auto Is the Wildcard 

ByteDance

ByteDance (字节跳动) IPO: How Jinri Toutiao Paves The Way for a Bigger Empire (Part 1)

ByteDance

ByteDance (字节跳动) Pre-IPO: Why Facebook Should Worry About TikTok 

ByteDance

ByteDance (字节跳动) IPO: Tiktok the No.1 Short Video App for a Good Reason (Part 2)

ByteDance

ByteDance (字节跳动) Pre-IPO: How Has It Done in 1H? 

ByteDance

ByteDance: The Unlisted Company’s Video Apps Leading the Market and Threatening Internet Giants 

ByteDance

ByteDance (字节跳动) Pre-IPO: Why Facebook Should Worry About TikTok 

ByteDance

ByteDance (字节跳动) Pre-IPO – Globally the Most Downloaded App for Jan 2020 Driven by India 

ByteDance

ByteDance (字节跳动) Pre-IPO: Global Ambition Meets Regulatory Challenges 

Cloud Village

Cloud Village (NetEase Music) Pre-IPO – Mixed PHIP Update, Updated Thoughts on Valuation 

Cloud Village

Cloud Village (NetEase Music) Pre-IPO – Initial Thoughts on Valuation 

Cloud Village

Cloud Village (NetEase Music) Pre-IPO – Tencent Music Peer Comp, Regulatory Impact 

Cloud Village

Cloud Village (NetEase Music) Pre-IPO – Was in the Slow Stream, Playing Catch-Up 

Edda 

EDDA Healthcare Pre-IPO – RoboDoc – Has Been Around for a While but Is Just Getting the Robo Going 

Dingdang

Dingdang Health Tech (叮当健康) Pre-IPO – Impressive Growth but Not Without Concerns 

Intco Med

Intco Medical (英科医疗) A+H: From China No.1 to Global No. 1 

Imeik

Imeik Tech (爱美客) A/H Pre-IPO – Dermal Filler Leader Capitalizing on Its Valuation 

Jenscare

Jenscare (宁波健世科技) Pre-IPO: Differentiated Heart Valve Portfolio 

MicroPort Medbot

MicroPort MedBot Pre-IPO – RoboDoc – Pre-Revenue, Has a Large Competitor but a Large Market as Well 

NewMed

NewMed (纽脉医疗) Pre-IPO: Uphill Battle for TAVR but Leads the TMVR 

Neusoft Xikang

Neusoft Xikang (东软熙康) Pre-IPO: A Long Way to Profit 

Neusoft Med

Neusoft Medical Systems (东软医疗系统) Pre-IPO: Unattractive Fundamentals 

WeDoctor WeDoctor (微医) Pre-IPO -App Walk Through – The Online Medical Directory and More 
WeDoctor WeDoctor (微医) Pre-IPO – A More Focused Online Medical Svc Provider than Ping An Good Doctor 
WeDoctor We Doctor (微医) Pre-IPO – Peer Comparison – Picking Its Battles Wisely 
WeDoctor We Doctor (微医) Pre-IPO – Forecasts, Early Thoughts on Valuation, and Acquisition Gripes 
Weilong Weilong Delicious Global Pre-IPO – The Positives – Fast Growth, Strong Backers 
Weilong Weilong Delicious Global Pre-IPO – The Negatives – Spicy Valuation 
WM Tech WM Tech Pre-IPO – Peer Comparison and Pre-IPO Valuation – Some Signs of Advantage 
WM Tech WM Tech Pre-IPO – Digitalization Efforts Coming Through but Not Well Substantiated 
India
Aadhar Housing Aadhar Housing Finance Pre-IPO – Decent past Growth but Comes with Weird Disclosures 
Aditya AMC Aditya Birla Sun Life AMC Pre-IPO – Strong Profit Growth but It’s Losing Market Share 
Anmol IndAnmol Industries Pre-IPO Quick Take – No Growth, Generous Payments to Founders
Bharat Hotel

Bharat Hotels Pre-IPO – Catching up with Peers 

Bajaj En

Bajaj Energy Pre-IPO – Supposed to Deliver Steady Performance if Only Its Sole Client Would Let It 

Crystal CropCrystal Crop Protection Pre-IPO – DRHP Raises More Questions than in Answers
ESAF SFB ESAF Small Finance Bank Pre-IPO – Growing Fast but Remains Highly Dependant on a Related Party 
Flemingo Flemingo Travel Retail Pre-IPO – Its a Different Business in Every Country
Emami Cem Emami Cement Pre-IPO – Still in Ramp Up Phase but Shares Pledge Might Lead to an Early IPO 
NSENSE IPO Preview- Not Only Fast..its Risky and Expensive
NSENational Stock Exchange Pre-IPO Review – Bigger, Better, Stronger but a Little Too Fast for Some

LIC

Life Insurance Corporation of India Pre-IPO – Early Take on India’s Largest IPO 
Penna Cem Penna Cement – Aggressive Expansion Plans Even Though Past Performance Has Been Tepid 
PNB MetPNB Metlife Pre-IPO Quick Take – Doesn’t Stack up Well Versus Its Larger Peers
Malaysia
QSRQSR Brands Pre-IPO – As Healthy as Fast Food

NIPPO (1881 JP) Gets Some Cowbell – It Probably Needs More

By Travis Lundy

Just under three weeks ago, Nippo Corp (1881 JP) parent company ENEOS Holdings (5020 JP) announced a slightly convoluted takeover of Nippo which was announced at a decidedly low price of ¥4,000/share. 

I wrote about this in ENEOS To Steamroll Nippo (1881 JP) Minorities, calling the bid “egregiously low.” I thought the “right price” was ¥1,500-2,000/share higher. 

I also thought that because of ENEOS’ starting point, anyone who wanted to block it needed to go big and public with their opposition. I have long thought the issue of parent-sub takeovers and MBOs required more active (and passive) investor stewardship, and have published Japan Needs More Cowbell about active investors and a kind of open letter to the former GPIF CIO Hiro Mizuno in the Financial Times, about The GPIF and the Complexity of Stewardship.

On Friday we got a little noise as a small fund called the Monex Activist Mother Fund, managed by a fund management firm called Japan Catalyst, where the CIO is Oki Matsumoto, the current CEO of Monex Group Inc (8698 JP), put out a press release.  

More discussion of the opportunity and its parameters to date below.


Before it’s here, it’s on Smartkarma