Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

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

<div><p><a href="https://www.smartkarma.com/entities/baozun-inc" target="_blank" data-smartkarma-citation="entities:24184:1" rel="noopener">Baozun Inc. (BZUN US)</a> plans to raise around US$490m in its secondary listing in Hong Kong.</p></div><div>
<p>The company was said to have won approval for listing last week along with <a href="https://www.smartkarma.com/entities/zto-express" target="_blank" data-smartkarma-citation="entities:23628:1" rel="noopener">ZTO Express (ZTO US)</a> and <a href="https://www.smartkarma.com/entities/zai-lab-ltd" target="_blank" data-smartkarma-citation="entities:25877:1" rel="noopener">Zai Lab Ltd (ZLAB US)</a> however, it filed its PHIP only yesterday and launched its deal today.</p>
<p>In this insight, I'll talk about the deal dynamics and what to do with the ADR during the book build.</p>
<p></p>
</div><div><h2>Links to my previous notes on the topic on Secondary listings:</h2></div><ul>
<li><a href="https://www.smartkarma.com/insights/zai-lab-hk-secondary-listing-large-deal-to-digest-but-past-deals-have-done-well" target="_blank" rel="noopener">Zai Lab HK Secondary Listing - Large Deal to Digest but past Deals Have Done Well</a></li>
<li><a href="https://www.smartkarma.com/insights/zto-express-secondary-listing-fast-growth-but-it-hasn-t-been-flowing-down-to-earnings" target="_blank" rel="noopener">ZTO Express Secondary Listing - Fast Growth but It Hasn’t Been Flowing Down to Earnings</a></li>
<li><a href="https://www.smartkarma.com/insights/huazhu-hk-secondary-listing-early-look-needs-the-cash-more-than-most-secondary-candidates" target="_blank" rel="noopener">Huazhu HK Secondary Listing - Early Look - Needs the Cash More than Most Secondary Candidates</a></li>
</ul><div><ul style="list-style-type: disc;">
<li><a href="https://www.smartkarma.com/insights/huazhu-hk-secondary-listing-early-look-needs-the-cash-more-than-most-secondary-candidates" target="_blank" rel="noopener">Huazhu HK Secondary Listing - Early Look - Needs the Cash More than Most Secondary Candidates</a></li>
<li><a href="https://www.smartkarma.com/insights/yum-china-hk-ipo-trading-index-flows-to-the-rescue" target="_blank" rel="noopener">Yum China HK IPO Trading - Index Flows to the Rescue</a></li>
</ul></div><div><ul style="list-style-type: disc;">
<li>
<a href="https://www.smartkarma.com/insights/yum-china-hk-listing-relatively-bigger-should-offer-a-bigger-discount" target="_blank" rel="noopener">Yum China HK Listing - Relatively Bigger, Should Offer a Bigger Discount</a>.</li>
<li><a href="https://www.smartkarma.com/insights/yum-china-hk-listing-early-look-relatively-bigger-deal-should-have-a-relatively-bigger-impact" target="_blank" rel="noopener">Yum China HK Listing - Early Look - Relatively Bigger Deal Should Have a Relatively Bigger Impact</a></li>
</ul></div><div><ul style="list-style-type: disc;"><li><a href="https://www.smartkarma.com/insights/jd-netease-secondary-listings-what-to-do-with-the-adr-lessons-from-baba" target="_blank" rel="noopener">JD &amp; NetEase Secondary Listings - What to Do with the ADR? Lessons from Baba</a></li></ul></div><div><ul style="list-style-type: disc;">
<li><a href="https://www.smartkarma.com/insights/jd-netease-and-other-secondary-listing-index-ftse-msci-hsi-and-hscei-impact" target="_blank" rel="noopener">JD, NetEase and Other Secondary Listing - Index (FTSE, MSCI, HSI And HSCEI) Impact</a></li>
<li><a href="https://www.smartkarma.com/insights/jd-com-hk-listing-early-look-getting-the-ball-rolling" target="_blank" rel="noopener">JD.com HK Listing - Early Look - Getting the Ball Rolling</a></li>
</ul></div><div><ul style="list-style-type: disc;">
<li><a href="https://www.smartkarma.com/insights/jd-secondary-listing-early-to-file-but-late-to-launch-puts-it-in-a-peculiar-position" target="_blank" rel="noopener">JD Secondary Listing - Early to File but Late to Launch Puts It in a Peculiar Position</a></li>
<li><a href="https://www.smartkarma.com/insights/jd-secondary-listing-behaving-better-than-netease-so-far" target="_blank" rel="noopener">JD Secondary Listing - Behaving Better than NetEase, so Far</a></li>
</ul></div><div><ul style="list-style-type: disc;"><li><a href="https://www.smartkarma.com/insights/jd-secondary-trading-update-strong-demand-but-won-t-have-any-index-flows" target="_blank" rel="noopener">JD Secondary Trading Update - Strong Demand but Won’t Have Any Index Flows</a></li></ul></div><div><ul style="list-style-type: disc;">
<li><a href="https://www.smartkarma.com/insights/netease-hk-listing-early-look-follow-the-leader" target="_blank" rel="noopener">NetEase HK Listing - Early Look - Follow the Leader</a></li>
<li><a href="https://www.smartkarma.com/insights/netease-secondary-listing-relatively-bigger-than-baba-should-offer-relatively-bigger-discount" target="_blank" rel="noopener">NetEase Secondary Listing - Relatively Bigger than Baba, Should Offer Relatively Bigger Discount</a></li>
<li><a href="https://www.smartkarma.com/insights/netease-secondary-listing-doing-a-beigene-rather-than-a-baba-risk-reward-shifting" target="_blank" rel="noopener">NetEase Secondary Listing - Doing a BeiGene Rather than a Baba, Risk Reward Shifting</a></li>
</ul></div><div><ul style="list-style-type: disc;"><li><a href="https://www.smartkarma.com/insights/netease-secondary-trading-update-index-flows-to-provide-near-term-support" target="_blank" rel="noopener">NetEase Secondary Trading Update - Index Flows to Provide near Term Support</a></li></ul></div><div><ul style="list-style-type: disc;"><li><a href="https://www.smartkarma.com/insights/alibaba-ipo-secondary-listing-the-real-ipo-only-begins-on-the-11th-day-post-listing" target="_blank" rel="noopener">Alibaba IPO/​Secondary Listing - The Real IPO Only Begins on the 11th Day Post Listing</a></li></ul></div><div><ul style="list-style-type: disc;">
<li dir="ltr"><p><a href="https://www.smartkarma.com/insights/alibaba-ipo-secondary-listing-proposed-stock-connect-changes-might-throw-a-spanner-in-the-works" target="_blank" rel="noopener">Alibaba IPO/​Secondary Listing - Proposed Stock Connect Changes Might Throw a Spanner in the Works</a></p></li>
<li dir="ltr"><a href="https://www.smartkarma.com/insights/alibaba-ipo-secondary-listing-what-to-do-with-the-us-adr-while-waiting-for-the-hk-listing" target="_blank" rel="noopener">Alibaba IPO/​​Secondary Listing - What to Do with the US ADR While Waiting for the HK Listing?</a></li>
<li dir="ltr"><a href="https://www.smartkarma.com/insights/alibaba-ipo-secondary-listing-not-good-for-the-adr-should-have-put-a-price-range-to-it" target="_blank" rel="noopener">Alibaba IPO/​​​Secondary Listing -  Not Good for the ADR, Should Have Put a Price Range to It</a></li>
<li dir="ltr"><a href="https://www.smartkarma.com/insights/alibaba-ipo-secondary-neither-here-not-there-index-announcements-comparison-to-other-deals" target="_blank" rel="noopener">Alibaba IPO/​​​​Secondary -  Neither Here Nor There - Index Announcements, Comparison to Other Deals</a></li>
</ul></div><div><ul style="list-style-type: disc;">
<li><a href="https://www.smartkarma.com/insights/alibaba-ipo-secondary-listing-trading-time-to-converge-that-s-it" target="_blank" rel="noopener">Alibaba IPO/​​​​​Secondary Listing Trading - Time to Converge, That’s It</a></li>
<li><a href="https://www.smartkarma.com/insights/china-adrs-secondary-listing-deep-dive-yin-and-yang" target="_blank" rel="noopener">China ADRs Secondary Listing Deep-Dive: Yin and Yang</a></li>
<li><a href="https://www.smartkarma.com/insights/china-adrs-secondary-listing-holding-foreign-companies-accountable-act-i-m-coming-home" target="_blank" rel="noopener">China ADRs Secondary Listing - Holding Foreign Companies Accountable Act - I’m Coming Home</a></li>
<li><a href="https://www.smartkarma.com/insights/china-adrs-secondary-listing-covid-19-has-increased-the-tension-but-narrowed-the-short-list" target="_blank" rel="noopener">China ADRs Secondary Listing: COVID-19 Has Increased the Tension but Narrowed the Short List</a></li>
</ul></div>

Baozun Inc. (BZUN US) plans to raise around US$490m in its secondary listing in Hong Kong.
The company was said to have won approval for listing last week along with ZTO Express (ZTO US) and Zai Lab Ltd (ZLAB US) however, it filed its PHIP only yesterday and launched its deal today.
In this insight, I'll talk about the deal dynamics and what to do with the ADR during the book build.

Links to my previous notes on the topic on Secondary listings:
Zai Lab HK Secondary Listing - Large Deal to Digest but past Deals Have Done Well
ZTO Express Secondary Listing - Fast Growth but It Hasn’t Been Flowing Down to Earnings
Huazhu HK Secondary Listing - Early Look - Needs the Cash More than Most Secondary Candidates

Huazhu HK Secondary Listing - Early Look - Needs the Cash More than Most Secondary Candidates
Yum China HK IPO Trading - Index Flows to the Rescue


Yum China HK Listing - Relatively Bigger, Should Offer a Bigger Discount.
Yum China HK Listing - Early Look - Relatively Bigger Deal Should Have a Relatively Bigger Impact
JD &amp; NetEase Secondary Listings - What to Do with the ADR? Lessons from Baba
JD, NetEase and Other Secondary Listing - Index (FTSE, MSCI, HSI And HSCEI) Impact
JD.com HK Listing - Early Look - Getting the Ball Rolling

JD Secondary Listing - Early to File but Late to Launch Puts It in a Peculiar Position
JD Secondary Listing - Behaving Better than NetEase, so Far
JD Secondary Trading Update - Strong Demand but Won’t Have Any Index Flows
NetEase HK Listing - Early Look - Follow the Leader
NetEase Secondary Listing - Relatively Bigger than Baba, Should Offer Relatively Bigger Discount
NetEase Secondary Listing - Doing a BeiGene Rather than a Baba, Risk Reward Shifting
NetEase Secondary Trading Update - Index Flows to Provide near Term SupportAlibaba IPO/​Secondary Listing - The Real IPO Only Begins on the 11th Day Post Listing
Alibaba IPO/​Secondary Listing - Proposed Stock Connect Changes Might Throw a Spanner in the Works
Alibaba IPO/​​Secondary Listing - What to Do with the US ADR While Waiting for the HK Listing?
Alibaba IPO/​​​Secondary Listing -  Not Good for the ADR, Should Have Put a Price Range to It
Alibaba IPO/​​​​Secondary -  Neither Here Nor There - Index Announcements, Comparison to Other Deals

Alibaba IPO/​​​​​Secondary Listing Trading - Time to Converge, That’s It
China ADRs Secondary Listing Deep-Dive: Yin and Yang
China ADRs Secondary Listing - Holding Foreign Companies Accountable Act - I’m Coming Home
China ADRs Secondary Listing: COVID-19 Has Increased the Tension but Narrowed the Short List


Baozun HK Secondary Listing - Large Dilution Needs a Large Correction

Asian Equities Analyst, Logistics & Transport, Tracking Traffic

Daniel Hellberg

Asian Equities Analyst, Logistics & Transport

Tracking Traffic

Focusing on Asian logistics, transportation, and travel companies

ZTO Express Cayman  / Equity Capital Markets

<p>We've been bearish on <a href="https://www.smartkarma.com/entities/zto-express" target="_blank" data-smartkarma-citation="entities:23628:1" rel="noopener">ZTO Express (ZTO US)</a> for some time now. In addition to accounting issues the company has been unable to explain, we have long expected heavy downward pressure on profit margins and Operating Cash flow, as seen clearly in the company's weak Q220 results. </p><p>We appreciate the rationale for seeking a second listing in Hong Kong, though we admit we are surprised by the relatively large scale of the issue, rumored to be around US$2 bn (implying about 8% dilution). Given the continued deterioration of conditions in China's express sector, ZTO may be opportunistically raising a large sum on the expectation that doing so later will prove difficult.</p><p>In Q220, ZTO posted parcel volume growth of 48% -- well ahead of market growth -- yet EPS grew by only 6%. We believe such poor "conversion" will remain the norm for ZTO in the medium term, and we do not believe such a performance warrants a PER multiple of over 34 times. Retain SELL.</p>

We've been bearish on ZTO Express (ZTO US) for some time now. In addition to accounting issues the company has been unable to explain, we have long expected heavy downward pressure on profit margins and Operating Cash flow, as seen clearly in the company's weak Q220 results. We appreciate the rationale for seeking a second listing in Hong Kong, though we admit we are surprised by the relatively large scale of the issue, rumored to be around US$2 bn (implying about 8% dilution). Given the continued deterioration of conditions in China's express sector, ZTO may be opportunistically raising a large sum on the expectation that doing so later will prove difficult.In Q220, ZTO posted parcel volume growth of 48% -- well ahead of market growth -- yet EPS grew by only 6%. We believe such poor "conversion" will remain the norm for ZTO in the medium term, and we do not believe such a performance warrants a PER multiple of over 34 times. Retain SELL.

Thoughts on ZTO Express' HK Listing: Expensive & Struggling to Maintain Margins & Cash Flow

Equity Bottom-Up

<p>Q2 results for China's six listed express companies are finally in, and while most companies continued to report depressed profitability, outcomes varied significantly. Several firms pursued volume growth aggressively in the period, sacrificing pricing in order to maximize the number of parcels flowing through their networks; others appeared to do just the opposite. In the Q2 numbers, there is little evidence either approach actually worked consistently well. </p>
<p>Looking at the volume versus pricing 'tradeoff' over the last two years, there is also little evidence that using pricing to boost volumes actually increases profitability. Indeed, most of the six express companies we track reported Q220 gross profits at or <em>below</em> Q218 levels, despite the companies more than doubling parcel volumes during the period. </p>
<p>In our view, most Chinese express companies are 'price takers' that offer commodity-like services which are hard to differentiate from what their peers offer. In the long-run, we believe attempts to control pricing by pursuing only select cargoes are unlikely to succeed, and that companies should focus almost purely on securing greater volume and beating down unit costs. Alas, even this approach is likely to result in significantly lower margins over time, in our view.</p>
<p>In this note we review Q220 results, then look back farther to see individual company performance in terms of volume growth, pricing change, and change in gross profit. We also note growing CapEx demands and show how each company's shares have performed so far in 2020. In the medium-term, we expect profitability and cash flow at most express companies to continue to suffer. </p>
<p>Under the scenario we describe in this note, <a href="https://www.smartkarma.com/entities/maanshan-dingtai-rare-a" target="_blank" data-smartkarma-citation="entities:4128:1" rel="noopener">S.F. Holding (002352 CH)</a> continues to stand out. SF's time-definite products and its offerings in cold-chain, international, and local on-demand express truly differentiate it from the other five listed express companies. We believe SF can continue to increase its share of express sector profits and retain our BUY rating. </p>

Q2 results for China's six listed express companies are finally in, and while most companies continued to report depressed profitability, outcomes varied significantly. Several firms pursued volume growth aggressively in the period, sacrificing pricing in order to maximize the number of parcels flowing through their networks; others appeared to do just the opposite. In the Q2 numbers, there is little evidence either approach actually worked consistently well. 
Looking at the volume versus pricing 'tradeoff' over the last two years, there is also little evidence that using pricing to boost volumes actually increases profitability. Indeed, most of the six express companies we track reported Q220 gross profits at or below Q218 levels, despite the companies more than doubling parcel volumes during the period. 
In our view, most Chinese express companies are 'price takers' that offer commodity-like services which are hard to differentiate from what their peers offer. In the long-run, we believe attempts to control pricing by pursuing only select cargoes are unlikely to succeed, and that companies should focus almost purely on securing greater volume and beating down unit costs. Alas, even this approach is likely to result in significantly lower margins over time, in our view.
In this note we review Q220 results, then look back farther to see individual company performance in terms of volume growth, pricing change, and change in gross profit. We also note growing CapEx demands and show how each company's shares have performed so far in 2020. In the medium-term, we expect profitability and cash flow at most express companies to continue to suffer. 
Under the scenario we describe in this note, S.F. Holding (002352 CH) continues to stand out. SF's time-definite products and its offerings in cold-chain, international, and local on-demand express truly differentiate it from the other five listed express companies. We believe SF can continue to increase its share of express sector profits and retain our BUY rating. 

A Price Vs. Volume Tradeoff? Not For Firms Offering Commodity-Like Chinese Express Services

Event-Driven

<p><a href="https://www.smartkarma.com/entities/alibaba-group-holding-ltd" target="_blank" data-smartkarma-citation="entities:787:1" rel="noopener">Alibaba Group (BABA US)</a> and <a href="https://www.smartkarma.com/entities/yto-express" target="_blank" data-smartkarma-citation="entities:20319:1" rel="noopener">YTO Express (600233 CH)</a> announced the former will increase its stake in the latter, from around 10.5% to 22.5%. BABA will purchase shares from YTO's co-founders, who will retain a controlling stake in the express company.</p>
<p>Although YTO's Q2 earnings results were slightly better than we expected, core margins remain depressed, and we do not believe the company's current level of profitability can sustain its medium-term investment plans. </p>
<p>YTO has performed well over the past week or so on surprisingly firm Q2 results and it rose another 10% on the latest news regarding investment from BABA. However, given ongoing pressure on profitability, and the performance of rival <a href="https://www.smartkarma.com/entities/zhejiang-idc-fluid-control-co-ltd" target="_blank" data-smartkarma-citation="entities:18695:1" rel="noopener">Sto Express (002468 CH)</a> after it announced increased investment by BABA in early 2019, we would take advantage of recent strength to SHORT YTO. Within China's express segment, we continue to favor the fundamentals of <a href="https://www.smartkarma.com/entities/maanshan-dingtai-rare-a" target="_blank" data-smartkarma-citation="entities:4128:1" rel="noopener">S.F. Holding (002352 CH)</a>; a LONG SF Holding / SHORT YTO pair makes sense to us here.</p>

Alibaba Group (BABA US) and YTO Express (600233 CH) announced the former will increase its stake in the latter, from around 10.5% to 22.5%. BABA will purchase shares from YTO's co-founders, who will retain a controlling stake in the express company.
Although YTO's Q2 earnings results were slightly better than we expected, core margins remain depressed, and we do not believe the company's current level of profitability can sustain its medium-term investment plans. 
YTO has performed well over the past week or so on surprisingly firm Q2 results and it rose another 10% on the latest news regarding investment from BABA. However, given ongoing pressure on profitability, and the performance of rival Sto Express (002468 CH) after it announced increased investment by BABA in early 2019, we would take advantage of recent strength to SHORT YTO. Within China's express segment, we continue to favor the fundamentals of S.F. Holding (002352 CH); a LONG SF Holding / SHORT YTO pair makes sense to us here.

Increased Investment from Alibaba a Blessing for YTO Express? Revisit STO Express & Think Again...

Overseas Chinese Equities, Aequitas Research

Ming Lu

Overseas Chinese Equities

<ul class="">
<li>PDD’s stock price plunged as the growth rate of its operating data slowed down in 2Q20.</li>
<li>However, the financial performance improved for both top line and bottom line.</li>
<li>We believe PDD’s expansion strategy does not work in the weak economy.</li>
<li>The recent trials of strategy changes are not successful.</li>
</ul>


PDD’s stock price plunged as the growth rate of its operating data slowed down in 2Q20.
However, the financial performance improved for both top line and bottom line.
We believe PDD’s expansion strategy does not work in the weak economy.
The recent trials of strategy changes are not successful.


Pinduoduo (PDD): Least Loss Since IPO, But Market Just Needs an Excuse to Leave the Strategy

China

PDD Holdings Inc. is a multinational commerce group that owns and operates a portfolio of businesses. The Company focuses on digital economy so that local communities and small businesses can benefit from the increased productivity and new opportunities. PDD Holdings has built a network of sourcing, logistics, and fulfillment capabilities for its underlying businesses.

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PDD Holdings (PDD US)

Baozun HK Secondary Listing - Large Dilution Needs a Large Correction

Zai Lab Ltd (ZLAB US) plans to raise around US$1bn in its secondary listing in Hong Kong. We have covered the company's listing and some of its...

Sumeet Singh

Thoughts on ZTO Express' HK Listing: Expensive & Struggling to Maintain Margins & Cash Flow

We've been bearish on ZTO Express (ZTO US) for some time now. Beyond some accout

Tracking Traffic

A Price Vs. Volume Tradeoff? Not For Firms Offering Commodity-Like Chinese Express Services

Results varied Which approach worked? Market is rewa

Tracking Traffic

Increased Investment from Alibaba a Blessing for YTO Express? Revisit STO Express & Think Again...

Alibaba Group (BABA US) and YTO Express (600233 CH) announced the former will increase its stake in the latter, from around 10.5% to 22.5%. BABA...

Tracking Traffic

Pinduoduo (PDD): Least Loss Since IPO, But Market Just Needs an Excuse to Leave the Strategy

PDD’s stock price plunged as the growth rate of its operating data slowed down in 2Q20. However, the financial performance improved for both top...

Ming Lu

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