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

<ul>
<li>We analyse the changes of A/H premium on 136 stocks over the last week.</li>
<li>A/H premium increase was led by consumer Staples and consumer discretionary and industrials sectors.</li>
<li>We highlight A/H premium at 52 week peak: BYD, Xinjiang Gold Wind, Ganfeng Lithium. </li>
</ul>


We analyse the changes of A/H premium on 136 stocks over the last week.
A/H premium increase was led by consumer Staples and consumer discretionary and industrials sectors.
We highlight A/H premium at 52 week peak: BYD, Xinjiang Gold Wind, Ganfeng Lithium. 


A/H Premium Weekly: BYD, Xinjiang Gold Wind, Ganfeng Lithium

HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

China Everbright Environment / Equity Bottom-Up

<ul>
<li>China's special purpose bonds (SPB) issuance by local governments stayed high for 4Q21; but as from NDRC, proceeds of these bonds will be used in 1Q22 to boost economic growth.</li>
<li>NDRC has already made early release of Rmb1.46trn SPB quota for 2022 to local governments, and provided guidance and supervision to ensure speedy and targeted use of proceeds in early-2022.</li>
<li>Both <a href="https://www.smartkarma.com/entities/china-everbright-environment-group-limited" target="_blank" data-smartkarma-citation="entities:15946:1" rel="noopener">China Everbright Environment (257 HK)</a> and <a href="https://www.smartkarma.com/entities/china-communications-construction-co-ltd" target="_blank" data-smartkarma-citation="entities:265:1" rel="noopener">China Communications Construction (1800 HK)</a> are well placed to capture SPB-funded projects. Yet their valuations are still very appealing despite good YTD performance.</li>
</ul>


China's special purpose bonds (SPB) issuance by local governments stayed high for 4Q21; but as from NDRC, proceeds of these bonds will be used in 1Q22 to boost economic growth.
NDRC has already made early release of Rmb1.46trn SPB quota for 2022 to local governments, and provided guidance and supervision to ensure speedy and targeted use of proceeds in early-2022.
Both China Everbright Environment (257 HK) and China Communications Construction (1800 HK) are well placed to capture SPB-funded projects. Yet their valuations are still very appealing despite good YTD performance.


Special Purpose Bonds in 2022: Benefiting China Everbright Env (257 HK) & China Comm Const (1800 HK)

China Communications Construction / Equity Bottom-Up

3Q21 result of <a href="https://www.smartkarma.com/entities/china-communications-construction-co-ltd" target="_blank" data-smartkarma-citation="entities:265:1" rel="noopener">China Communications Construction (1800 HK)</a> (CCCC) marks another steady quarter with reported growth of 4.9% YoY. We believe the improvement in construction business has been partly offset by weaker toll road operation given the negative traffic impact from higher domestic COVID-19 cases during the summer time. Hence, recurring profit was weaker with a marginal 1.2% decline in 3Q21. Nonetheless, 9M21 vs. 9M19 still sees a steady CAGR of 4.8% in earnings. Also, there is good YoY growth in operating cash flow.We expect a recovery in traffic to bode well for CCCC's investment projects, adding to its good cost management and positive reversal in credit and asset impairments. The encouraging 3Q21 new contract momentum (+57.6% YoY) and the sharp rebound in overseas contracts signed is expected to underpin CCCC's outlook for the next two years. Valuation multiples are clearly still very undemanding - 0.21x P/B, 3.3x PER and 6% dividend yield.

3Q21 result of China Communications Construction (1800 HK) (CCCC) marks another steady quarter with reported growth of 4.9% YoY. We believe the improvement in construction business has been partly offset by weaker toll road operation given the negative traffic impact from higher domestic COVID-19 cases during the summer time. Hence, recurring profit was weaker with a marginal 1.2% decline in 3Q21. Nonetheless, 9M21 vs. 9M19 still sees a steady CAGR of 4.8% in earnings. Also, there is good YoY growth in operating cash flow.We expect a recovery in traffic to bode well for CCCC's investment projects, adding to its good cost management and positive reversal in credit and asset impairments. The encouraging 3Q21 new contract momentum (+57.6% YoY) and the sharp rebound in overseas contracts signed is expected to underpin CCCC's outlook for the next two years. Valuation multiples are clearly still very undemanding - 0.21x P/B, 3.3x PER and 6% dividend yield. 

China Comm Const (1800 HK): Sustaining a Stable Track in 3Q21

<a href="https://www.smartkarma.com/entities/china-communications-construction-co-ltd" target="_blank" data-smartkarma-citation="entities:265:1" rel="noopener">China Communications Construction (1800 HK)</a> (CCCC) has a very solid 1H21 with net profit growth of 88.3% YoY. While the low base in 1H20 has exaggerated the growth rate; relative to 1H19, net profit still increased 18.3%, implying a healthy operational recovery back to pre-pandemic level. The remarkable 28.5% YoY increase in new contract value also demonstrated its strong foothold in the domestic market. All in all, we believe the market should be happy with CCCC's interim result. We believe CCCC will maintain good new contract momentum for the rest of the year as supported by the acceleration of issuance of special purpose bonds by local governments. Having already achieved 58% of its full-year target, there is potential for it to beat its FY21 expectation. The current excellent backlog, which equals to 4.75x its FY20 revenue, also implies that forward earnings are well secured. At 0.2x P/B, 2.8x PER and 6.6% dividend yield for FY21, we believe CCCC is grossly undervalued.

China Communications Construction (1800 HK) (CCCC) has a very solid 1H21 with net profit growth of 88.3% YoY. While the low base in 1H20 has exaggerated the growth rate; relative to 1H19, net profit still increased 18.3%, implying a healthy operational recovery back to pre-pandemic level. The remarkable 28.5% YoY increase in new contract value also demonstrated its strong foothold in the domestic market. All in all, we believe the market should be happy with CCCC's interim result. We believe CCCC will maintain good new contract momentum for the rest of the year as supported by the acceleration of issuance of special purpose bonds by local governments. Having already achieved 58% of its full-year target, there is potential for it to beat its FY21 expectation. The current excellent backlog, which equals to 4.75x its FY20 revenue, also implies that forward earnings are well secured. At 0.2x P/B, 2.8x PER and 6.6% dividend yield for FY21, we believe CCCC is grossly undervalued. 

China Comm Const (1800 HK): A Healthy 1H21 with Full Operational Recovery

Founder of Antler Capital

Stanley Tsai, CFA

Thematic (Sector/Industry)

For all the roller coaster rides the sector has taken investors on over the years, the Chinese property developers have been unsettlingly consistent in one regard. The CNY1tn fixed asset investment (FAI) homebuilders coughed up in May continued a two-decades long secular trend that may make or break China's still fragile recovery (Exhibit 1).
The Debt-Fueled Supercycle. The sector has seen its share of excesses and corrections, exemplified by the post-GFC FAI expansion and subsequent retrenchment. Covid might have driven up construction costs, but the enthusiasm of would-be homeowners has shown no signs of abating. Just as the developers are working overtime to deleverage their balance sheets, household debt is piling up and may approach alarming levels over the next five years if mortgage growth doesn't decelerate quickly enough.
The Inventory Drawdown. Behind the headline FAI number is a more nuanced picture of inventory reductions and landbank replenishment. Housing starts slowed in May and dipped below project completions on a 12-month rolling basis. This affords cash-strapped property firms an opportunity to rebuild their cashflows, while deploying cash to projects in hand.
The Insatiable Demand. The 0.5% m/m or 5% y/y rise in home prices last month may appear benign in other settings. In the context of China's already exorbitant base, recent data points are a cause for concern. Among the largest cities across the country, those in the Greater Bay Area stand out as outliers, with valuations skyrocketing in spite of the latest round of lockdowns.
The Aggressive Developers. The increasingly bullish undertones of sell-side notes that have landed on our desks are centered around the inventory drawdown / cashflow rebuild story of the perceived higher-quality names in the space. We are not buyers of that story just yet and our work suggests that many developers have been acquiring land at a more aggressive rate than they had planned at the beginning of the year. Regulators are already keeping a close eye on recent transactions and we think we should too.
<table class="table table-striped">
<tbody>
<tr>
<td style="width: 746px;">Exhibit 1: Monthly Housing FAI | 3M Moving Avg (CNY bn)</td>
</tr>
<tr>
<td style="width: 746px;">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/215/144/original/image_45072834061624549646155.png?1624549646" class="editor-image img-responsive" data-smartkarma-image-id="215144"></figure>
Source: National Bureau of Statistics, Our analysis
</td>
</tr>
</tbody>
</table>
Related Insights
<ul>
<li>
<a href="https://www.smartkarma.com/insights/china-financials-silver-linings-playbook" target="_blank" data-smartkarma-citation="insights:53013" rel="noopener">China Financials: Silver Linings Playbook</a> </li>
<li>
<a href="https://www.smartkarma.com/insights/glut-and-famine-we-might-see-snow-in-china-this-summer" target="_blank" data-smartkarma-citation="insights:52840" rel="noopener">Glut and Famine: We Might See Snow in China This Summer</a> </li>
<li>
<a href="https://www.smartkarma.com/insights/china-macro-operation-twist-the-deposit-version" target="_blank" data-smartkarma-citation="insights:53435" rel="noopener">China Macro: Operation Twist | The Deposit Version</a> </li>
<li>
<a href="https://www.smartkarma.com/insights/china-macro-consumers-remain-on-the-sidelines-as-their-home-equity-grows" target="_blank" data-smartkarma-citation="insights:53210" rel="noopener">China Macro: Consumers Remain on the Sidelines, as Their Home Equity Grows</a> </li>
<li>
<a href="https://www.smartkarma.com/insights/china-macro-ppi-peaks-while-cpi-eases-tightening-fears" target="_blank" data-smartkarma-citation="insights:52778" rel="noopener">China Macro: PPI Peaks, while CPI Eases Tightening Fears</a> </li>
<li>
<a href="https://www.smartkarma.com/insights/china-macro-exports-disappoint-but-it-s-still-early-in-the-game" target="_blank" data-smartkarma-citation="insights:52728" rel="noopener">China Macro: Exports Disappoint, but It's Still Early in the Game</a> </li>
</ul>

For all the roller coaster rides the sector has taken investors on over the years, the Chinese property developers have been unsettlingly consistent in one regard. The CNY1tn fixed asset investment (FAI) homebuilders coughed up in May continued a two-decades long secular trend that may make or break China's still fragile recovery (Exhibit 1).
The Debt-Fueled Supercycle. The sector has seen its share of excesses and corrections, exemplified by the post-GFC FAI expansion and subsequent retrenchment. Covid might have driven up construction costs, but the enthusiasm of would-be homeowners has shown no signs of abating. Just as the developers are working overtime to deleverage their balance sheets, household debt is piling up and may approach alarming levels over the next five years if mortgage growth doesn't decelerate quickly enough.
The Inventory Drawdown. Behind the headline FAI number is a more nuanced picture of inventory reductions and landbank replenishment. Housing starts slowed in May and dipped below project completions on a 12-month rolling basis. This affords cash-strapped property firms an opportunity to rebuild their cashflows, while deploying cash to projects in hand.
The Insatiable Demand. The 0.5% m/m or 5% y/y rise in home prices last month may appear benign in other settings. In the context of China's already exorbitant base, recent data points are a cause for concern. Among the largest cities across the country, those in the Greater Bay Area stand out as outliers, with valuations skyrocketing in spite of the latest round of lockdowns.
The Aggressive Developers. The increasingly bullish undertones of sell-side notes that have landed on our desks are centered around the inventory drawdown / cashflow rebuild story of the perceived higher-quality names in the space. We are not buyers of that story just yet and our work suggests that many developers have been acquiring land at a more aggressive rate than they had planned at the beginning of the year. Regulators are already keeping a close eye on recent transactions and we think we should too.



Exhibit 1: Monthly Housing FAI | 3M Moving Avg (CNY bn)




Source: National Bureau of Statistics, Our analysis




Related Insights


China Financials: Silver Linings Playbook 

Glut and Famine: We Might See Snow in China This Summer 

China Macro: Operation Twist | The Deposit Version 

China Macro: Consumers Remain on the Sidelines, as Their Home Equity Grows 

China Macro: PPI Peaks, while CPI Eases Tightening Fears 

China Macro: Exports Disappoint, but It's Still Early in the Game 


China Properties: Like Clockwork, Real Estate Investments Haven't Skipped a Beat

China

China Railway Construction Corporation Limited provides transportation infrastructure construction services. The Company constructs railway, highway, urban track, and other infrastructure. China Railway Construction also provides real estate development and materials trading services.

China Railway Construction Cor (601186 CH)

Price Gauge
52-week Range	0.00 - 0.00
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China Railway Construction Cor (601186 CH)

A/H Premium Weekly: BYD, Xinjiang Gold Wind, Ganfeng Lithium

We highlight A/H premium increase led by consumer Staples and consumer discretionary and industrials sectors, and stocks at 52 week high: BYD,...

Ke Yan, CFA, FRM

Special Purpose Bonds in 2022: Benefiting China Everbright Env (257 HK) & China Comm Const (1800 HK)

We see local governments' special purpose bonds issuance and uses for 4Q21 and 1Q22 to benefit environmental and infrastructure construction...

Osbert Tang, CFA

China Comm Const (1800 HK): Sustaining a Stable Track in 3Q21

CCCC's flat 3Q21 reflects better construction but lower toll road profit, partly as traffic is disrupted by COVID-19 cases during summer. Outlook...

Osbert Tang, CFA

China Comm Const (1800 HK): A Healthy 1H21 with Full Operational Recovery

The market should welcome CCCC's 88.3% 1H21 profit growth, and we expect new contract momentum to stay strong. Its backlog covered 4.75x its FY20...

Osbert Tang, CFA

China Properties: Like Clockwork, Real Estate Investments Haven't Skipped a Beat

Housing FAI in May continued a secular trend that may make or break China's recovery. Inventory drawdowns may afford developers some breathing...

Stanley Tsai, CFA

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)