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.

Quantitative Analysis

Hong Kong Exchange publishes share repurchases by listed companies on a daily basis. In our weekly note, we will provide statistics on top repurchases over one week, one month, one quarter and one year periods ended on Nov 5th.In the past 7 days, the top 3 companies that repurchased the most shares from the market were Fosun International Limited (656 HK) (HKD 72.0 million worth of buybacks), China East Education Holdings Limited (667 HK) (HKD 67.4 million worth of buybacks), Weimob Inc. (2013 HK) (HKD 47.0 million worth of buybacks).

Hong Kong Exchange publishes share repurchases by listed companies on a daily basis. In our weekly note, we will provide statistics on top repurchases over one week, one month, one quarter and one year periods ended on Nov 5th.In the past 7 days, the top 3 companies that repurchased the most shares from the market were Fosun International Limited (656 HK) (HKD 72.0 million worth of buybacks), China East Education Holdings Limited (667 HK) (HKD 67.4 million worth of buybacks), Weimob Inc. (2013 HK) (HKD 47.0 million worth of buybacks).

Hong Kong Buybacks: Fosun Intl, China East Education, Weimob

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

Equity Capital Markets

China Education Group / Equity Capital Markets

China Education Group (839 HK) is looking to raise up to US$154m in its top-up placement. This will be the third placement by the group over the past 15 months.We covered the previous placement in Jan 21, China Education Group Placement - Back for More, past Deal Didn’t Do Well.In this note, we will look  at the deal dynamics and run the deal through framework.

China Education Group (839 HK) is looking to raise up to US$154m in its top-up placement. This will be the third placement by the group over the past 15 months.We covered the previous placement in Jan 21, China Education Group Placement - Back for More, past Deal Didn’t Do Well.In this note, we will look  at the deal dynamics and run the deal through framework.

China Education Group Placement - Recent Momentum Is Strong but past Deal Record Isn’t Supportive

HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

We highlight that <a href="https://www.smartkarma.com/entities/china-east-education-holdings" target="_blank" data-smartkarma-citation="entities:27843:1" rel="noopener">China East Education (667 HK)</a>, given its focus on vocational training, is an off-target victim of the government's regulations on the Private Education Sector and the "Double Reduction" policies. We think it will ride on government's latest supportive measures on vocational training; and with its schools providing training in culinary arts, IT &amp; Internet Technology and auto services, China East will benefit from the shortage of skills workers in China. Also, unlike K-12 education, private participation in vocational education is very encouraged by the government. China East's good post-COVID recovery can be demonstrated by the sharp rebound in student number and stable tuition fees in 1H21. With 90% of students enrolling in long-term program, it has good revenue visibility. We like its sound financial position - Rmb3.5bn net cash, and consideration of shareholder value - bought back nearly 14m shares in Jul and Aug. While valuations are high in absolute terms, China East is clearly another interesting name in the sector after our preferred play <a href="https://www.smartkarma.com/entities/china-education-group-holdin" target="_blank" data-smartkarma-citation="entities:18218:1" rel="noopener">China Education Group (839 HK)</a>.

We highlight that China East Education (667 HK), given its focus on vocational training, is an off-target victim of the government's regulations on the Private Education Sector and the "Double Reduction" policies. We think it will ride on government's latest supportive measures on vocational training; and with its schools providing training in culinary arts, IT &amp; Internet Technology and auto services, China East will benefit from the shortage of skills workers in China. Also, unlike K-12 education, private participation in vocational education is very encouraged by the government. China East's good post-COVID recovery can be demonstrated by the sharp rebound in student number and stable tuition fees in 1H21. With 90% of students enrolling in long-term program, it has good revenue visibility. We like its sound financial position - Rmb3.5bn net cash, and consideration of shareholder value - bought back nearly 14m shares in Jul and Aug. While valuations are high in absolute terms, China East is clearly another interesting name in the sector after our preferred play China Education Group (839 HK).

China East Education (667 HK): Riding on Government's Push for Vocational Schools

Thematic (Sector/Industry)

In Sep, various ministries and local governments have announced detailed regulations or opinion-seeking drafts for the implementation of central government's "Double Reduction" Opinions. The areas that covered by these regulations range from the qualifications of tutors to the advance collection of tuition fees. While this should be anticipated, we think there is risk of regulatory overshoot which will put further pressure on the after-school tutoring companies like <a href="https://www.smartkarma.com/entities/new-oriental-education-technology-group" target="_blank" data-smartkarma-citation="entities:32210:1" rel="noopener">New Oriental Education &amp; Technology Group (9901 HK)</a>, <a href="https://www.smartkarma.com/entities/tal-education-group" target="_blank" data-smartkarma-citation="entities:1124:1" rel="noopener">TAL Education (TAL US)</a> and <a href="https://www.smartkarma.com/entities/gaotu-techedu-inc" target="_blank" data-smartkarma-citation="entities:28069:1" rel="noopener">Gaotu Techedu (GOTU US)</a>.We can see that the regulations are all targeted on off-campus after-school tutoring but not on the higher and vocational segment. In this regard, we believe <a href="https://www.smartkarma.com/entities/china-education-group-holdin" target="_blank" data-smartkarma-citation="entities:18218:1" rel="noopener">China Education Group (839 HK)</a>, which focused on higher education, and <a href="https://www.smartkarma.com/entities/china-east-education-holdings" target="_blank" data-smartkarma-citation="entities:27843:1" rel="noopener">China East Education (667 HK)</a>, which focused on vocational training, are better positioned in this wave of regulatory crackdown.

In Sep, various ministries and local governments have announced detailed regulations or opinion-seeking drafts for the implementation of central government's "Double Reduction" Opinions. The areas that covered by these regulations range from the qualifications of tutors to the advance collection of tuition fees. While this should be anticipated, we think there is risk of regulatory overshoot which will put further pressure on the after-school tutoring companies like New Oriental Education &amp; Technology Group (9901 HK), TAL Education (TAL US) and Gaotu Techedu (GOTU US).We can see that the regulations are all targeted on off-campus after-school tutoring but not on the higher and vocational segment. In this regard, we believe China Education Group (839 HK), which focused on higher education, and China East Education (667 HK), which focused on vocational training, are better positioned in this wave of regulatory crackdown.

China Private Education: More Regulations Rolled Out Backing "Double Reduction"

We take the recent newsflow on business development at <a href="https://www.smartkarma.com/entities/china-education-group-holdin" target="_blank" data-smartkarma-citation="entities:18218:1" rel="noopener">China Education Group (839 HK)</a> positively. While the market may still skeptical towards the company due to the sector's regulatory worries, CEG is standing in a better position than many of its peers given its focus on the vocational and higher education segment. In our view, the beaten-down performance of CEG's share price is not justified, and it is an interesting time to look at its long-term promising outlook now.   The 58% increase in approval higher education enrollment quota for 2021/2022 academic year, upside from contribution of the newly added Chengdu Jincheng College, support from banks and IFC through provisions of seven-year loan facilities at low pricing, rapid execution of M&amp;A and further potential pipeline acquisitions all lend support to CEG's business prospects amid a turbulent time. Our belief is that at 13.5x PER for FY22, CEG is inexpensively priced relative to growth.

We take the recent newsflow on business development at China Education Group (839 HK) positively. While the market may still skeptical towards the company due to the sector's regulatory worries, CEG is standing in a better position than many of its peers given its focus on the vocational and higher education segment. In our view, the beaten-down performance of CEG's share price is not justified, and it is an interesting time to look at its long-term promising outlook now.   The 58% increase in approval higher education enrollment quota for 2021/2022 academic year, upside from contribution of the newly added Chengdu Jincheng College, support from banks and IFC through provisions of seven-year loan facilities at low pricing, rapid execution of M&amp;A and further potential pipeline acquisitions all lend support to CEG's business prospects amid a turbulent time. Our belief is that at 13.5x PER for FY22, CEG is inexpensively priced relative to growth.

China Education (839 HK): More Flows of Positive Development

China

China East Education Holdings Limited provides vocational training educational services. The Company offers culinary education, internet technology education, automotive education, and other services. China East Education Holdings provides services in China.

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China East Education (667 HK)

Hong Kong Buybacks: Fosun Intl, China East Education, Weimob

We highlight the top 3 companies that repurchased the most shares from the market in the past week were Fosun Intl (656 HK), China East Education...

Ke Yan, CFA, FRM

China Education Group Placement - Recent Momentum Is Strong but past Deal Record Isn’t Supportive

China Education Group (839 HK) is looking to raise up to US$154m in its top-up placement. This will be the third placement by the group over the...

Sumeet Singh