Asia Pac IPO & Placement Research, China biotech, Aequitas Research

Ke Yan, CFA, FRM

Asia Pac IPO & Placement Research, China biotech

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Equity Capital Markets

Chaoju Eye Care Holdings / Equity Capital Markets

Chaoju Eye Care Holdings Limited is a leading ophthalmic medical service provider based in Northern China. The company launched book building to raise up to USD 233m via a Hong Kong listing.In previous notes, we discussed that Chaoju is an eye specialist hospital with a geographical focus in the Northern region in China. The company started in 1988 as an ophthalmic clinic and currently operates 17 hospitals with a total GFA of 87,146 sqm as of January 2021. The company recorded revenue growth of 13% p.a. between FY18 and FY19. Having said that, around 60% of the total revenue came from three hospitals, namely Baotou Hospital, Hohhot Hospital, and Chifeng Hospital. The company plans to open 11 new hospitals in Inner Mongolia, Zhejiang, and Jiangsu in the next three years, representing a 9% GFA CAGR. Another notable driver for the company is a higher mix of consumer ophthalmic services, which have a higher gross margin than other segments. We are of the view that the company doesn't have strong backing from investors. Its growth prospects in terms of hospital expansion are only moderate despite a strong momentum in the ophthalmic sector in China. In this note, we provide an update for the book building. We will run the deal through our ECM framework and provide an update on the deal.

Chaoju Eye Care Holdings Limited is a leading ophthalmic medical service provider based in Northern China. The company launched book building to raise up to USD 233m via a Hong Kong listing.In previous notes, we discussed that Chaoju is an eye specialist hospital with a geographical focus in the Northern region in China. The company started in 1988 as an ophthalmic clinic and currently operates 17 hospitals with a total GFA of 87,146 sqm as of January 2021. The company recorded revenue growth of 13% p.a. between FY18 and FY19. Having said that, around 60% of the total revenue came from three hospitals, namely Baotou Hospital, Hohhot Hospital, and Chifeng Hospital. The company plans to open 11 new hospitals in Inner Mongolia, Zhejiang, and Jiangsu in the next three years, representing a 9% GFA CAGR. Another notable driver for the company is a higher mix of consumer ophthalmic services, which have a higher gross margin than other segments. We are of the view that the company doesn't have strong backing from investors. Its growth prospects in terms of hospital expansion are only moderate despite a strong momentum in the ophthalmic sector in China. In this note, we provide an update for the book building. We will run the deal through our ECM framework and provide an update on the deal.

Chaoju Eye Care (朝聚眼科) Pre-IPO: Beware of Value Trap

HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

We view the FY21 (Year end Mar) result of <a href="https://www.smartkarma.com/entities/china-dongxiang-group-co" target="_blank" data-smartkarma-citation="entities:1068:1" rel="noopener">China Dongxiang Group Co (3818 HK)</a> positively, despite a dividend payout ratio which is lower than expected. As we wrote in <a href="https://www.smartkarma.com/insights/china-dongxiang-3818-hk-what-can-we-expect-from-the-final-result" target="_blank" data-smartkarma-citation="insights:53174" rel="noopener">China Dongxiang (3818 HK): What Can We Expect from the Final Result?</a>, its sportswear business in China has recorded good turnaround, with gross profit soared 46.3% YoY and 27.9% HoH. Meanwhile, its investment business also registered an income of Rmb2.1bn for full-year, or Rmb759.7m for 2H21, up 88.7% YoY.Going forward, we expect CNDX's strategy to bring about further improvement in its sportswear business in China. It has also disclosed more names of listed equity that it hold both directly and indirectly and they are all of good quality, in our view. The stock is trading on 47% discount to book value which made up of 14% of net cash, 73% of investment portfolio and 13% of other net assets. Frankly, we think such valuation is too depressed and believe there is more upside room even after a 52% rally in share price YTD.

We view the FY21 (Year end Mar) result of China Dongxiang Group Co (3818 HK) positively, despite a dividend payout ratio which is lower than expected. As we wrote in China Dongxiang (3818 HK): What Can We Expect from the Final Result?, its sportswear business in China has recorded good turnaround, with gross profit soared 46.3% YoY and 27.9% HoH. Meanwhile, its investment business also registered an income of Rmb2.1bn for full-year, or Rmb759.7m for 2H21, up 88.7% YoY.Going forward, we expect CNDX's strategy to bring about further improvement in its sportswear business in China. It has also disclosed more names of listed equity that it hold both directly and indirectly and they are all of good quality, in our view. The stock is trading on 47% discount to book value which made up of 14% of net cash, 73% of investment portfolio and 13% of other net assets. Frankly, we think such valuation is too depressed and believe there is more upside room even after a 52% rally in share price YTD.

China Dongxiang (3818 HK): Lower-Than-Expected Dividends but Still A Marvelous FY21

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

Hygeia Healthcare Group / Equity Capital Markets

Warburg Pincus aims to raise around US$216m via selling 3.2% of Hygeia Healthcare. This won’t be the first selldown by Warburg. Despite having been listed just around a year ago, the stock has already seen two placements, both in Jan 2021, just after the lock-up expiry. Both the past deals did well. However, the stock was trading a whole lot lower at that time.In this note, we will run the deal through our ECM framework and talk about the deal dynamics.<div><h2>Our previous coverage on Hygeia</h2></div><div><ul style="list-style-type: disc;">
<li dir="ltr"><a href="https://www.smartkarma.com/insights/hygeia-healthcare-pre-ipo-the-making-of-jinxin-in-the-oncology-segment" target="_blank" rel="noopener">Hygeia Healthcare (海吉亚) Pre-IPO: The making of Jinxin in the oncology segment</a></li>
<li dir="ltr"><a href="https://www.smartkarma.com/insights/hygeia-healthcare-pre-ipo-phip-updates-and-thoughts-on-valuation" target="_blank" rel="noopener">Hygeia Healthcare (海吉亚) Pre-IPO: PHIP Updates and Thoughts on Valuation</a></li>
<li dir="ltr"><a href="https://www.smartkarma.com/insights/hygeia-healthcare-ipo-hot-deal-but-expect-tiny-allocation" target="_blank" rel="noopener">Hygeia Healthcare (海吉亚) IPO: Hot Deal but Expect Tiny Allocation</a></li>
<li dir="ltr"><a href="https://www.smartkarma.com/insights/hygeia-healthcare-ipo-trading-upside-might-take-time-to-crystalize" target="_blank" rel="noopener">Hygeia Healthcare (海吉亚) IPO Trading: Upside Might Take Time to Crystalize</a></li>
</ul></div>

Warburg Pincus aims to raise around US$216m via selling 3.2% of Hygeia Healthcare. This won’t be the first selldown by Warburg. Despite having been listed just around a year ago, the stock has already seen two placements, both in Jan 2021, just after the lock-up expiry. Both the past deals did well. However, the stock was trading a whole lot lower at that time.In this note, we will run the deal through our ECM framework and talk about the deal dynamics.Our previous coverage on Hygeia
Hygeia Healthcare (海吉亚) Pre-IPO: The making of Jinxin in the oncology segment
Hygeia Healthcare (海吉亚) Pre-IPO: PHIP Updates and Thoughts on Valuation
Hygeia Healthcare (海吉亚) IPO: Hot Deal but Expect Tiny Allocation
Hygeia Healthcare (海吉亚) IPO Trading: Upside Might Take Time to Crystalize


Hygeia Healthcare Placement - Past Deals Have Done Well but the Shares Are Now Very Expensive

HK/China Healthcare Analyst (ex-Fosun Pharma)

Xinyao (Criss) Wang

Thematic (Sector/Industry)

Executive SummaryWith the natural growth of the population and the inevitable trend of population aging, the demand in the healthcare industry will continue to rise. In addition, the improvement of people’s health consciousness, the upgrade of medical consumption and related favorable policies are the core factors driving the demand of China's medical device industry. Over the past five years, the global medical device market has maintained an annual growth rate of about 5%, while the growth rate of China's medical device market was more than 15%. It is expected that the gap between China and the global medical device market size would be gradually narrowed and China’s medical device market would play a more important role in the future. Therefore, the investment opportunities in China medical device market are very attractive and unmissable. On the other hand, with the promotion of the centralized procurement of high-value medical consumables nationwide, related medical device companies are facing pressure. So, how to find valuable investment targets that can avoid the influence of government's centralized procurement policy is important to investors. This Original mainly analyzed good investment opportunities, the industry characteristics, the investment rationale and the potential risks.What’s Original?We have identified the following investment opportunities in the Health Care Equipment and Services category in MSCI China:<ul>
<li>
<a href="https://www.smartkarma.com/entities/shenzhen-mindray-bio-medic-a" target="_blank" data-smartkarma-citation="entities:28017:1" rel="noopener">Shenzhen Mindray Bio-Medical Electronics (300760 CH)</a>: Mindray is the largest medical device and solution supplier in China. Its three core businesses are all in the forefront in China, and is also one of the few domestic companies that is truly capable of achieving import substitution and internationalization and could compete with overseas giants. Meanwhile, because of the Company's business layout, Mindray is not greatly affected by the centralized procurement policy in the short term. Together with the strategy of “innovation + M&amp;A + internationalization”, Mindray has formed the high moat and become the industry benchmark.</li>
<li>
<a href="https://www.smartkarma.com/entities/ovctek-china-inc" target="_blank" data-smartkarma-citation="entities:29638:1" rel="noopener">Ovctek China Inc (300595 CH)</a>: OVCTEK is the leading company in China orthokeratology lens market, with broad market prospect. Considering the high prosperity of the industry in which the Company is located, the good competition pattern, and the low penetration rate of orthokeratology lens, OVCTEK is expected to continue to maintain rapid growth in the future. Meanwhile, because the products have strong consumption attributes, OVCTEK’s business will not be affected by the centralized procurement policy. The obvious product performance advantage, the strong sales channel and the large market potential are the drivers for revenue and margins.</li>
<li>
<a href="https://www.smartkarma.com/entities/jafron-biomedical-co-ltd" target="_blank" data-smartkarma-citation="entities:29575:1" rel="noopener">Jafron Biomedical Co Ltd (300529 CH)</a>: JAFRON is the leading company in the field of hemoperfusion in China. As there are very limited competing products in the market, the Company is currently in a monopoly position of hemoperfusion cartridge, with strong pricing power and over 80% gross margin for more than five years. In addition, there is still a lot of room for growth in the hemoperfusion cartridge market, together with the strong product competitiveness, and the technical, raw material and channel advantages, JAFRON has established a high moat in this market.</li>
</ul>The pecking order is: Mindray, OVCTEK and JAFRON.

Executive SummaryWith the natural growth of the population and the inevitable trend of population aging, the demand in the healthcare industry will continue to rise. In addition, the improvement of people’s health consciousness, the upgrade of medical consumption and related favorable policies are the core factors driving the demand of China's medical device industry. Over the past five years, the global medical device market has maintained an annual growth rate of about 5%, while the growth rate of China's medical device market was more than 15%. It is expected that the gap between China and the global medical device market size would be gradually narrowed and China’s medical device market would play a more important role in the future. Therefore, the investment opportunities in China medical device market are very attractive and unmissable. On the other hand, with the promotion of the centralized procurement of high-value medical consumables nationwide, related medical device companies are facing pressure. So, how to find valuable investment targets that can avoid the influence of government's centralized procurement policy is important to investors. This Original mainly analyzed good investment opportunities, the industry characteristics, the investment rationale and the potential risks.What’s Original?We have identified the following investment opportunities in the Health Care Equipment and Services category in MSCI China:

Shenzhen Mindray Bio-Medical Electronics (300760 CH): Mindray is the largest medical device and solution supplier in China. Its three core businesses are all in the forefront in China, and is also one of the few domestic companies that is truly capable of achieving import substitution and internationalization and could compete with overseas giants. Meanwhile, because of the Company's business layout, Mindray is not greatly affected by the centralized procurement policy in the short term. Together with the strategy of “innovation + M&amp;A + internationalization”, Mindray has formed the high moat and become the industry benchmark.

Ovctek China Inc (300595 CH): OVCTEK is the leading company in China orthokeratology lens market, with broad market prospect. Considering the high prosperity of the industry in which the Company is located, the good competition pattern, and the low penetration rate of orthokeratology lens, OVCTEK is expected to continue to maintain rapid growth in the future. Meanwhile, because the products have strong consumption attributes, OVCTEK’s business will not be affected by the centralized procurement policy. The obvious product performance advantage, the strong sales channel and the large market potential are the drivers for revenue and margins.

Jafron Biomedical Co Ltd (300529 CH): JAFRON is the leading company in the field of hemoperfusion in China. As there are very limited competing products in the market, the Company is currently in a monopoly position of hemoperfusion cartridge, with strong pricing power and over 80% gross margin for more than five years. In addition, there is still a lot of room for growth in the hemoperfusion cartridge market, together with the strong product competitiveness, and the technical, raw material and channel advantages, JAFRON has established a high moat in this market.
The pecking order is: Mindray, OVCTEK and JAFRON.

Investment Opportunities in China Medical Device Industry

The presentation today would mainly include the following parts:
<ul>
<li>2020 and 2021Q1 financial results</li>
<li>Market potential </li>
<li>Business analysis </li>
<li>Financial Analysis (<a href="https://www.smartkarma.com/entities/topchoice-medical-corporation" target="_blank" data-smartkarma-citation="entities:1102:1" rel="noopener">Topchoice Medical (600763 CH)</a> vs <a href="https://www.smartkarma.com/entities/aier-eye-hospital-group-co-ltd" target="_blank" data-smartkarma-citation="entities:1103:1" rel="noopener">Aier Eye Hospital Group (300015 CH)</a>)</li>
<li>Summary</li>
<li>Risk disclosure</li>
</ul>

The presentation today would mainly include the following parts:

2020 and 2021Q1 financial results
Market potential 
Business analysis 
Financial Analysis (Topchoice Medical (600763 CH) vs Aier Eye Hospital Group (300015 CH))
Summary
Risk disclosure


Presentation on Apr.12: 2021 High Conviction Ideas - Topchoice Medical (600763.CH)

China

Aier Eye Hospital Group Co., Ltd provides ophthalmological services.  The Company's services include ophthalmological diagnosis and treatments.

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Aier Eye Hospital Group (300015 CH)

Chaoju Eye Care (朝聚眼科) Pre-IPO: Beware of Value Trap

With a geographical focus on the North China and a much smaller scale of operation, we think the company is fairly valued. Its secondary selling is...

Ke Yan, CFA, FRM

China Dongxiang (3818 HK): Lower-Than-Expected Dividends but Still A Marvelous FY21

China Dongxiang has delivered impressive FY21 result with good recovery in sportswear and surge in investment income. At 47% discount to book...

Osbert Tang, CFA

Hygeia Healthcare Placement - Past Deals Have Done Well but the Shares Are Now Very Expensive

Warburg Pincus aims to raise around US$216m via selling 3.2% of Hygeia Healthcare. This won’t be the first selldown by Warburg.

Sumeet Singh

Investment Opportunities in China Medical Device Industry

This Original mainly analyzed good investment opportunities, the industry characteristics, the investment rationale and the potential risks in...

Xinyao (Criss) Wang

Presentation on Apr.12: 2021 High Conviction Ideas - Topchoice Medical (600763.CH)

This article analyzed Top Choice in terms of the 2020 and 2021Q1 financial results, market potential, business model, financial position compared...

Xinyao (Criss) Wang

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