Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

HK Type 4 license through Ballingal Investment Advisors Ltd. 

I'm a highly experienced sell-side analyst with in excess of 22 years of covering Asia Pacific equities, the past 19 years immersed in event strategies encompassing M&A risk arbitrage, directional long/short, stub trades and restructuring.  

My background also includes accountancy (liquidation/bankruptcy/receivership) earlier in my career and as a chief financial officer of a global commodity company based in the US and Mexico.

Pan-Asia Catalysts/Events

Lansen Pharma (503 HK): The Chairman Makes An Offer

Lansen Pharma (503 HK): 27th November Scheme Vote

Lansen Pharma (503 HK): This Is Still A Buy

Quiddity Advisors

Event-Driven

Lansen Pharmaceutical Holdings Co, Ltd. / Event-Driven

Lansen Pharmaceutical Holdings Co, Ltd. (503 HK)

<div>
<p>Specialty prescription drug manufacturer <a href="https://www.smartkarma.com/entities/lansen-pharmaceutical-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:10835:1" rel="noopener">Lansen Pharmaceutical Holdings Co, Ltd. (503 HK)</a> has been a terrific little earner since December last year.</p>
<ul>
<li>But first, some background information to bring us up to date:</li>
</ul>
<div>
<table class="table table-striped">
<tbody>
<tr>
<td style="width: 139.871px;">
<h3>Date</h3>
</td>
<td style="width: 606.141px;">
<h3>Data in the Date</h3>
</td>
</tr>
<tr>
<td style="width: 139.871px;">9-Mar-16</td>
<td style="width: 606.141px;">
<p><a href="https://www.smartkarma.com/entities/zhejiang-starry-pharmaceut-a" target="_blank" data-smartkarma-citation="entities:25327:1" rel="noopener">Zhejiang Starry Pharmaceut-A (603520 CH)</a> (Starry) specialises in the research and development, manufacture, marketing, and sales of bulk pharmaceuticals and intermediates. <br>One of the core products of Starry is iohexol for X-CT non-ionic contrast agents. Starry is the largest generic drug manufacturer of iohexol's active pharmaceutical ingredients in China. <br>Starry IPO-ed on the Shanghai Stock Exchange on 9 March 2016. <br>Lansens's equity interest in Starry was diluted from 21.5% to 16.1%, which constituted a disposal of an associate. </p>
</td>
</tr>
<tr>
<td style="width: 139.871px;">FY17</td>
<td style="width: 606.141px;">Lansen sold down its stake in Starry to 12.6% as at Dec-17</td>
</tr>
<tr>
<td style="width: 139.871px;">FY18</td>
<td style="width: 606.141px;">Lansen sold down its stake in Starry to 10.8% as at Dec-18</td>
</tr>
<tr>
<td style="width: 139.871px;">FY19</td>
<td style="width: 606.141px;">Lansen sold down its stake in Starry to 4% as at Dec-19</td>
</tr>
<tr>
<td style="width: 139.871px;">FY20</td>
<td style="width: 606.141px;">
<p>Lansen sold down its stake in Starry to 1.3% as at Dec-20</p>
</td>
</tr>
<tr>
<td style="width: 139.871px;">29-Sep-21</td>
<td style="width: 606.141px;">Lansen's chairman Wu Zhen Tao made a <a href="http://www.cathay-intl.com.hk/upload/announcement%20-%20notice%20of%20sgm%20and%20tender%20offer.pdf" target="_blank" rel="noopener">Tender Offer</a> for Cathay International.<br>We, via his holding in common shares and A Shares, controlled 73.54% of the vote in Cathay.<br>Cathay, in turn, held 52.83% of Lansen</td>
</tr>
<tr>
<td style="width: 139.871px;">3-Nov-21</td>
<td style="width: 606.141px;">Cathay's Tender Offer was approved by <a href="http://www.cathay-intl.com.hk/upload/result%20of%20sgm%20and%20notification%20of%20change%20to%20shares.pdf" target="_blank" rel="noopener">shareholders</a>. </td>
</tr>
<tr>
<td style="width: 139.871px;">11-Nov-21</td>
<td style="width: 606.141px;">Cathay's Tender Offer <a href="http://www.cathay-intl.com.hk/upload/results%20of%20the%20tender%20offer.pdf" target="_blank" rel="noopener">closed</a> on the 11 November with 94.3% of the common shares and A shares held</td>
</tr>
<tr>
<td style="width: 139.871px;">1-Dec-21</td>
<td style="width: 606.141px;">A compulsory acquisition notice was issued by Cathay and was done and dusted by the <a href="http://www.cathay-intl.com.hk/upload/update%20re%20compulsory%20acquisition.pdf" target="_blank" rel="noopener">11 January</a> this year.</td>
</tr>
<tr>
<td style="width: 139.871px;">11-Dec-21</td>
<td style="width: 606.141px;">Wu started buying shares in Lansen - aggressively. 41 separate incidences of buying, up to and including the 27 April, lifting his stake to 69.56%, from 52.83% initially.</td>
</tr>
<tr>
<td style="width: 139.871px;">23-Feb-21</td>
<td style="width: 606.141px;">Lansen <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0223/2021022300694.pdf" target="_blank" rel="noopener">sells</a> more Starry shares and then held ~1.3%.</td>
</tr>
<tr>
<td style="width: 139.871px;">15-Apr-21</td>
<td style="width: 606.141px;">Lansen <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0415/2021041500841.pdf" target="_blank" rel="noopener">sells</a> more Starry shares and then held ~0.9%</td>
</tr>
<tr>
<td style="width: 139.871px;">24-May-21</td>
<td style="width: 606.141px;">Lansen <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0524/2021052400543.pdf" target="_blank" rel="noopener">sells</a> more Starry shares and then held ~0.3%.</td>
</tr>
<tr>
<td style="width: 139.871px;">2-Jun-21</td>
<td style="width: 606.141px;">Two days after the AGM, Lansen starting <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0602/2021060201230.pdf" target="_blank" rel="noopener">buying back shares</a>, and proceeded to do so over a 10 separate trading days, stopping on the 26 July, prior to the earnings blackout. <br>Once canceled these buybacks lifted Wu's stake to 71.54%</td>
</tr>
<tr>
<td style="width: 139.871px;">31-Aug-21</td>
<td style="width: 606.141px;">Interim results <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0831/2021083102206.pdf" target="_blank" rel="noopener">released</a>
</td>
</tr>
<tr>
<td colspan="2" style="width: 746.012px;"><em>Source: HKEx announcements</em></td>
</tr>
</tbody>
</table>
</div>
<div>
<h3>The Takeaway from the Above</h3>
<ul style="list-style-type: disc;">
<li>Lansen has made significant gains from the sale of Starry. Cash on hand was US$103mn (~HK$800mn) as at 1H21, with a net cash position of US$73.88mn (~HK$575mn). Lansens held 0.3% of Starry as at 30 June. </li>
<li>Wu acquired 66.44mn shares (16.873%) at an average price of HK$1.84/share, outlaying HK$122.5mn. The highest price paid was ~HK$2.197/share. </li>
<li>Buybacks were 11.01mn shares (2.772% of shares out) at an average price of HK$2.71/share, outlaying ~HK$30mn. The highest price paid was probably ~HK$2.85/share. Buybacks accounted for ~40% of daily volume, on average.</li>
<li> Lansen is not a large, nor liquid company. But it was a potential privatisation play.</li>
<li>After gaining another 35% in the preceding week, on 15th July when shares were changing hands at HK$3.75,  I said (in the discussions section at the bottom of <em><a href="https://skr.ma/fNHVa" target="_blank" rel="noopener">Lansen Pharma (503 HK): This Is Still A Buy</a></em>) that "<em>my pound-the-table recommendation is wavering, given the 260+% gain since Wu started buying last December.  I think the risk/reward has shifted at current levels</em>".</li>
<li>Shares closed yesterday at HK$2.23.</li>
</ul>
<hr>
<h3>The New News</h3>
<ul>
<li>Concurrent with its interim results, Lansen <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0831/2021083102226.pdf" target="_blank" rel="noopener">announced</a> a special dividend of HK$1.55/share. </li>
<li>That's equivalent to ~HK$599mn assuming shares recently bought back are canceled. </li>
<li>The record date is the 16 September, with payment on the 28 September.</li>
</ul>
<p>The idea of a small-cap company returning excess cash to shareholders is a welcome change; however, my initial reaction was that there could may be some degree of disappointment the preceding events didn't (so far) lead to a takeover. And the back-end will now focus on the lackluster underlying business ops.</p>
</div>
<p>Not to be. Not even close. Shares gained 33% today to close at HK$2.97.</p>
<p>This is your cue to exit.</p>
</div>


Specialty prescription drug manufacturer Lansen Pharmaceutical Holdings Co, Ltd. (503 HK) has been a terrific little earner since December last year.

But first, some background information to bring us up to date:






Date


Data in the Date



9-Mar-16

Zhejiang Starry Pharmaceut-A (603520 CH) (Starry) specialises in the research and development, manufacture, marketing, and sales of bulk pharmaceuticals and intermediates.  One of the core products of Starry is iohexol for X-CT non-ionic contrast agents. Starry is the largest generic drug manufacturer of iohexol's active pharmaceutical ingredients in China.  Starry IPO-ed on the Shanghai Stock Exchange on 9 March 2016.  Lansens's equity interest in Starry was diluted from 21.5% to 16.1%, which constituted a disposal of an associate. 



FY17
Lansen sold down its stake in Starry to 12.6% as at Dec-17


FY18
Lansen sold down its stake in Starry to 10.8% as at Dec-18


FY19
Lansen sold down its stake in Starry to 4% as at Dec-19


FY20

Lansen sold down its stake in Starry to 1.3% as at Dec-20



29-Sep-21
Lansen's chairman Wu Zhen Tao made a Tender Offer for Cathay International. We, via his holding in common shares and A Shares, controlled 73.54% of the vote in Cathay. Cathay, in turn, held 52.83% of Lansen


3-Nov-21
Cathay's Tender Offer was approved by shareholders. 


11-Nov-21
Cathay's Tender Offer closed on the 11 November with 94.3% of the common shares and A shares held


1-Dec-21
A compulsory acquisition notice was issued by Cathay and was done and dusted by the 11 January this year.


11-Dec-21
Wu started buying shares in Lansen - aggressively. 41 separate incidences of buying, up to and including the 27 April, lifting his stake to 69.56%, from 52.83% initially.


23-Feb-21
Lansen sells more Starry shares and then held ~1.3%.


15-Apr-21
Lansen sells more Starry shares and then held ~0.9%


24-May-21
Lansen sells more Starry shares and then held ~0.3%.


2-Jun-21
Two days after the AGM, Lansen starting buying back shares, and proceeded to do so over a 10 separate trading days, stopping on the 26 July, prior to the earnings blackout.  Once canceled these buybacks lifted Wu's stake to 71.54%


31-Aug-21
Interim results released



Source: HKEx announcements





The Takeaway from the Above

Lansen has made significant gains from the sale of Starry. Cash on hand was US$103mn (~HK$800mn) as at 1H21, with a net cash position of US$73.88mn (~HK$575mn). Lansens held 0.3% of Starry as at 30 June. 
Wu acquired 66.44mn shares (16.873%) at an average price of HK$1.84/share, outlaying HK$122.5mn. The highest price paid was ~HK$2.197/share. 
Buybacks were 11.01mn shares (2.772% of shares out) at an average price of HK$2.71/share, outlaying ~HK$30mn. The highest price paid was probably ~HK$2.85/share. Buybacks accounted for ~40% of daily volume, on average.
 Lansen is not a large, nor liquid company. But it was a potential privatisation play.
After gaining another 35% in the preceding week, on 15th July when shares were changing hands at HK$3.75,  I said (in the discussions section at the bottom of Lansen Pharma (503 HK): This Is Still A Buy) that "my pound-the-table recommendation is wavering, given the 260+% gain since Wu started buying last December.  I think the risk/reward has shifted at current levels".
Shares closed yesterday at HK$2.23.


The New News

Concurrent with its interim results, Lansen announced a special dividend of HK$1.55/share. 
That's equivalent to ~HK$599mn assuming shares recently bought back are canceled. 
The record date is the 16 September, with payment on the 28 September.

The idea of a small-cap company returning excess cash to shareholders is a welcome change; however, my initial reaction was that there could may be some degree of disappointment the preceding events didn't (so far) lead to a takeover. And the back-end will now focus on the lackluster underlying business ops.

Not to be. Not even close. Shares gained 33% today to close at HK$2.97.
This is your cue to exit.


Zhejiang Starry Pharmaceutical (603520 CH)

Lansen Pharmaceutical Holdings Co, Ltd.

Lansen Pharm (503 HK): Here Is Your Exit