Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Thematic (Sector/Industry)

While not unexpected, the train chugs on....China brokers continue to issue equity, and launch IPOs.After GF Securities (1776 HK) launched a US$4bn H-share IPO in April which was up 30+% on Day1, China Galaxy Securities did a HK$24bn (US$3.1bn) top-up on its H-shares in early May (now up 10% since then), and Huatai/HTSC launched a HK$40bn (US$5.15bn) offering (including greenshoe) as its As climbed even higher, CITIC Securities received approval Friday from the CSRC to issue up to 1.5bn new H-shares (going along with the announcement dated 28 Dec 2014, the Circular dated 14 Jan 2015, and the A-share EGM 16 February 2015). That's $6.25bn if placed at a 5% discount to Friday's close. This announcement does not necessarily mean an offering is imminent - CITIC would still need permission from the HKEx - but it clears the way for a mega offering. CONCLUSIONS<ul><li>This would be a BIG offering at US$6bn.</li><li>This adds to the overhang of China broker issuance. There has been a fair bit year-to-date, and there is a fair bit more to come.</li><li>As described in the <a href="http://www.smartkarma.com/insights/huatai-securities-equity-raise-if-you-are-bullish-volumes-it-s-cheaper-than-it-looks" target="_blank">piece on Huatai Offering math</a>, broker issuance at a discount to As when ROEs are lofty means forward PERs are low. And those at the "front of the queue" in terms of issuance will have pro-forma issuance PBRs lower than peers.</li><li>Brokers are still subject to the model of Comms x Market Valuation x Market Turnover x Total Leverage x The Dream. If you think those components are sustainable over the medium-term (especially expectations ("the Dream")), this deal would put CITIC H-shares at 2.1-2.3x book (vs 2.9x now) and something like 13x 2016 forecast earnings (assuming 10% ROE on the incremental capital raised) vs China Galaxy at 2.9x and 15.6x FY2016 PER and Haitong H-shares at 2.7x 2014 PBR and 13.5x consensus 2016 PER.</li><li>Math is presented for a possible Offering.</li><li>THERE IS NO PROMISE OF AN OFFERING TO MADE ISSUED BY THE COMPANY, BY MYSELF, NOR ANYONE ELSE TO MY KNOWLEDGE. I am simply extrapolating from current market expectations, announcements, and other brokers' behavior in recent issuance.</li></ul>

While not unexpected, the train chugs on....China brokers continue to issue equity, and launch IPOs.After GF Securities (1776 HK) launched a US$4bn H-share IPO in April which was up 30+% on Day1, China Galaxy Securities did a HK$24bn (US$3.1bn) top-up on its H-shares in early May (now up 10% since then), and Huatai/HTSC launched a HK$40bn (US$5.15bn) offering (including greenshoe) as its As climbed even higher, CITIC Securities received approval Friday from the CSRC to issue up to 1.5bn new H-shares (going along with the announcement dated 28 Dec 2014, the Circular dated 14 Jan 2015, and the A-share EGM 16 February 2015). That's $6.25bn if placed at a 5% discount to Friday's close. This announcement does not necessarily mean an offering is imminent - CITIC would still need permission from the HKEx - but it clears the way for a mega offering. CONCLUSIONSThis would be a BIG offering at US$6bn.This adds to the overhang of China broker issuance. There has been a fair bit year-to-date, and there is a fair bit more to come.As described in the piece on Huatai Offering math, broker issuance at a discount to As when ROEs are lofty means forward PERs are low. And those at the "front of the queue" in terms of issuance will have pro-forma issuance PBRs lower than peers.Brokers are still subject to the model of Comms x Market Valuation x Market Turnover x Total Leverage x The Dream. If you think those components are sustainable over the medium-term (especially expectations ("the Dream")), this deal would put CITIC H-shares at 2.1-2.3x book (vs 2.9x now) and something like 13x 2016 forecast earnings (assuming 10% ROE on the incremental capital raised) vs China Galaxy at 2.9x and 15.6x FY2016 PER and Haitong H-shares at 2.7x 2014 PBR and 13.5x consensus 2016 PER.Math is presented for a possible Offering.THERE IS NO PROMISE OF AN OFFERING TO MADE ISSUED BY THE COMPANY, BY MYSELF, NOR ANYONE ELSE TO MY KNOWLEDGE. I am simply extrapolating from current market expectations, announcements, and other brokers' behavior in recent issuance. 

QUICK NOTE: China Brokers Share Issuance: CITIC Secs gets CSRC OK to issue US$6bn

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

Ke Yan, CFA, FRM

Asia Pac IPO & Placement Research, China biotech

Smartkarma

Smartkarma unites the fragmented investment industry, connecting institutional investors, independent research providers, and corporates within a single network.

Research Reinvented

Street observers&nbsp;are blaming the slow down in visitor traffic from mainland as a result of the pro-democratic Occupy Central,&nbsp;increasing tension between Hongkongers and mainland Chinese, and anti-corruption campaign in China for the weak retail sales in Hong Kong.Would this be a one off event?Behind the scene, however, we think there are three important long term bearish structural trends that will have persistent&nbsp;impact on Hong Kong's tourism industry:&nbsp;<ul><li>We examined how Hong Kong is loosing its attractiveness to mainland Chinese.</li><li>We looked at how&nbsp;it is getting easier for Chinese to explore the world</li><li>We highlight some factors that are deterring Chinese from choosing Hong Kong &nbsp;as their holiday destination</li></ul>

Street observers&nbsp;are blaming the slow down in visitor traffic from mainland as a result of the pro-democratic Occupy Central,&nbsp;increasing tension between Hongkongers and mainland Chinese, and anti-corruption campaign in China for the weak retail sales in Hong Kong.Would this be a one off event?Behind the scene, however, we think there are three important long term bearish structural trends that will have persistent&nbsp;impact on Hong Kong's tourism industry:&nbsp;We examined how Hong Kong is loosing its attractiveness to mainland Chinese.We looked at how&nbsp;it is getting easier for Chinese to explore the worldWe highlight some factors that are deterring Chinese from choosing Hong Kong &nbsp;as their holiday destination

Hong Kong's Future? 3 structural bears for retailer/tourism

Hong Kong

Allied Properties (H.K.) Limited, through its subsidiaries, provides investment, brokerage, and financing services.  The Company also develops and invests in property, provides property management, and operates hotels.

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Allied Properties (H.K.) (56 HK)

Hong Kong's Future? 3 structural bears for retailer/tourism

Street observers are blaming the slow down in visitor traffic from mainland as a result of the pro-democratic Occupy Central, increasing tension...

Ke Yan, CFA, FRM

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QUICK NOTE: China Brokers Share Issuance: CITIC Secs gets CSRC OK to issue US$6bn

While not unexpected, the train chugs on....China brokers continue to issue equity, and launch IPOs.After GF Securities (1776 HK) launched a US$4bn...

Travis Lundy

Hong Kong's Future? 3 structural bears for retailer/tourism

Street observers are blaming the slow down in visitor traffic from mainland as a result of the pro-democratic Occupy Central, increasing tension...

Ke Yan, CFA, FRM