IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

Equity Capital Markets

Horizon Construction Development / Equity Capital Markets

<ul>
<li>
<a href="https://www.smartkarma.com/entities/horizon-construction-development" target="_blank" data-smartkarma-citation="entities:35117:1" rel="noopener">Horizon Construction Development (1887128D HK)</a>/HCD, a subsidiary of <a href="https://www.smartkarma.com/entities/far-east-horizon-ltd" target="_blank" data-smartkarma-citation="entities:420:1" rel="noopener">Far East Horizon (3360 HK)</a>, is pre-marketing an HKEx IPO to raise US$200-250 million, according to press reports.</li>
<li>In <strong><em><a href="https://www.smartkarma.com/insights/horizon-construction-development-ipo-the-bull-case" target="_blank" data-smartkarma-citation="insights:100813" rel="noopener">Horizon Construction Development IPO: The Bull Case</a></em></strong>, we highlighted the key elements of the bull case. In this note, we outline the bear case.</li>
<li>The key elements of the bear case rest on core business margin decline, unexplained headcount reduction, cash burn, long receivable days and stretched balance sheet.</li>
</ul>



Horizon Construction Development (1887128D HK)/HCD, a subsidiary of Far East Horizon (3360 HK), is pre-marketing an HKEx IPO to raise US$200-250 million, according to press reports.
In Horizon Construction Development IPO: The Bull Case, we highlighted the key elements of the bull case. In this note, we outline the bear case.
The key elements of the bear case rest on core business margin decline, unexplained headcount reduction, cash burn, long receivable days and stretched balance sheet.


Horizon Construction Development IPO: The Bear Case

<ul>
<li>
<a href="https://www.smartkarma.com/entities/horizon-construction-development" target="_blank" data-smartkarma-citation="entities:35117:1" rel="noopener">Horizon Construction Development (1887128D HK)</a>/HCD, a subsidiary of <a href="https://www.smartkarma.com/entities/far-east-horizon-ltd" target="_blank" data-smartkarma-citation="entities:420:1" rel="noopener">Far East Horizon (3360 HK)</a>, is pre-marketing an HKEx IPO to raise US$200-250 million, according to press reports.</li>
<li>HCD is the largest equipment operation service provider in China in terms of revenue in 2021, according to Frost &amp; Sullivan.</li>
<li>The key elements of the bull case rest on market share gains, an anticipated post-COVID recovery boost, high revenue visibility, stable operating margin and young equipment life.</li>
</ul>



Horizon Construction Development (1887128D HK)/HCD, a subsidiary of Far East Horizon (3360 HK), is pre-marketing an HKEx IPO to raise US$200-250 million, according to press reports.
HCD is the largest equipment operation service provider in China in terms of revenue in 2021, according to Frost &amp; Sullivan.
The key elements of the bull case rest on market share gains, an anticipated post-COVID recovery boost, high revenue visibility, stable operating margin and young equipment life.


Horizon Construction Development IPO: The Bull Case

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Periscope Analytics

Periscope Analytics focuses on event-driven trades across Asia Pacific and provides comprehensive, timely and systematic coverage of index changes to major Asia Pacific indices in a structured manner.

The analysis includes forecasted inclusions and exclusions to all major Asian indices that have significant amount of tracking assets, including estimates of passive buy/sell flow on the stocks. The service also provides commentary and impact of market consultations, ground rule changes, and other events (IPOs, spin-offs, M&A) that could lead to index changes and passive flow.

Periscope Analytics works with multi-strategy hedge funds, proprietary trading firms, stat arb trading groups and long-only investors that invest and trade in the Asia Pacific region with the data being used to trade index rebalances, avoid pre-positioning and passive flow, and to time entry into and exit from stocks.

Event-Driven Trades Across Asia Pacific

Quantitative Analysis

<ul>
<li>Total short interest in Hong Kong is HK$435.1bn, marginally higher from end-December. Short notional has moved in line with the <a href="https://www.smartkarma.com/entities/hong-kong-hang-seng-index" target="_blank" data-smartkarma-citation="entities:22899:1" rel="noopener">Hong Kong Hang Seng Index (HSI INDEX)</a>. </li>
<li>Total short notional of the KOSPI and KOSDAQ market has moved up since end-December and is in line with the move higher in the <a href="https://www.smartkarma.com/entities/korea-stock-exchange-kospi-200-index" target="_blank" data-smartkarma-citation="entities:26021:1" rel="noopener">KOSPI2 INDEX</a> and <a href="https://www.smartkarma.com/entities/kosdaq-150-index" target="_blank" data-smartkarma-citation="entities:31077:1" rel="noopener">KOSDAQ 150 Index</a>.</li>
<li>Short notional in Taiwan is lower over the quarter even as the <a href="https://www.smartkarma.com/entities/taiwan-stock-exchange-weighted-index" target="_blank" data-smartkarma-citation="entities:26056:1" rel="noopener">TWSE INDEX</a> has moved higher over the period. There has been big short covering on some stocks.</li>
</ul>


Total short interest in Hong Kong is HK$435.1bn, marginally higher from end-December. Short notional has moved in line with the Hong Kong Hang Seng Index (HSI INDEX). 
Total short notional of the KOSPI and KOSDAQ market has moved up since end-December and is in line with the move higher in the KOSPI2 INDEX and KOSDAQ 150 Index.
Short notional in Taiwan is lower over the quarter even as the TWSE INDEX has moved higher over the period. There has been big short covering on some stocks.


Short Interest Movements (Q1 2023): HK, Korea, Taiwan, Australia

External broker reports(aggregated public sources), CMB International

CMB International

External broker reports(aggregated public sources)

Incorporated in Hong Kong, supported by the mainland and targeting in global market, CMB International Capital Corporation Limited (“CMBI”) is an integrated financial institution providing comprehensive and professional services. As a wholly-owned subsidiary of China Merchants Bank ("CMB"), by leveraging on the Group’s synergy and coordination in domestic and overseas markets, as well as CMB’s strong resources and outstanding social reputation, CMBI and its subsidiaries have been actively implementing diversified business strategies and set up an overall layout of main business segments including Corporate Finance, Asset Management, Wealth Management, Global Markets and Structured Finance, etc. Adhering to the philosophy of “being clients oriented and increasing our own values by the way of creating value for clients”, CMBI endeavors to provide quality and integrated financial services to institutional, corporate and individual customers both domestic and overseas including Hong Kong IPO sponsorship and underwriting, share placement and rights issue for listed companies, financial advisors, bonds issuance services, asset management, direct investment, wealth management, equity sales and trading, etc.

Equity Bottom-Up

<ul><li>FEH continued to deliver double-digit profit growth in FY22, with net profits up 11% YoY, translating into 12% YoY growth in 2H21.</li><li>Pre-provision operating profit (PPoP) increased by 6% YoY in FY22, and was up 7% YoY in 2H22.</li><li>The decent earnings growth was primarily driven by 1) continual NIM expansion against macro headwinds (+53bps YoY to 4.67% in FY22, and +37bps HoH to 4.86% in 2H22) on the back of both lower funding costs and higher asset yields, and 2) robust revenue growth from industrial operations (+16% YoY). Asset quality remained stable in 2H22, with NPL ratio and 30+ days overdue ratio further trending down HoH. </li></ul><p><em>Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.</em></p>

FEH continued to deliver double-digit profit growth in FY22, with net profits up 11% YoY, translating into 12% YoY growth in 2H21.Pre-provision operating profit (PPoP) increased by 6% YoY in FY22, and was up 7% YoY in 2H22.The decent earnings growth was primarily driven by 1) continual NIM expansion against macro headwinds (+53bps YoY to 4.67% in FY22, and +37bps HoH to 4.86% in 2H22) on the back of both lower funding costs and higher asset yields, and 2) robust revenue growth from industrial operations (+16% YoY). Asset quality remained stable in 2H22, with NPL ratio and 30+ days overdue ratio further trending down HoH. Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

Far East Horizon (3360 HK) – NIM expansion HoH in 2H22; sound asset quality

<div><div><div><div><ul><li>FEH reported stable and decent results of 3Q22 in spite of the macro headwinds. In 9M22, total revenue and net profit both grew around 10% YoY, largely in line with 1H22 growth (revenue +9.5% YoY, net profit +10.5% YoY).</li><li>In spite of the lowering loan yields, FEH managed to further expand its NIM on both QoQ and YoY basis, thanks to the improved funding structure and costs.</li><li>We expect the NIM expansion will sustain into 4Q22. On asset quality front, the non-performing assets (NPA) ratio was flattish at 1.06% at end-3Q22 (vs. 1.06% at end-1H22) and likely will remain stable into 4Q22, in our view. </li></ul></div></div></div></div><p><em>Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.</em></p>

FEH reported stable and decent results of 3Q22 in spite of the macro headwinds. In 9M22, total revenue and net profit both grew around 10% YoY, largely in line with 1H22 growth (revenue +9.5% YoY, net profit +10.5% YoY).In spite of the lowering loan yields, FEH managed to further expand its NIM on both QoQ and YoY basis, thanks to the improved funding structure and costs.We expect the NIM expansion will sustain into 4Q22. On asset quality front, the non-performing assets (NPA) ratio was flattish at 1.06% at end-3Q22 (vs. 1.06% at end-1H22) and likely will remain stable into 4Q22, in our view. Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

Far East Horizon (3360 HK) – NIM expansion continued in 3Q

Hong Kong

Far East Horizon Ltd is a financial services provider. The Company specializes in providing financing solutions through equipment-based financial leasing. Far East currently targets industries that include healthcare, education, infrastructure construction, shipping, printing and machinery industries.

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Far East Horizon (3360 HK)

Horizon Construction Development IPO: The Bear Case

The key elements of the bear case rest on core business margin decline, unexplained headcount reduction, cash burn, long receivable days and...

Arun George

Horizon Construction Development IPO: The Bull Case

The key elements of the bull case rest on market share gains, an anticipated post-COVID recovery boost, high revenue visibility, stable operating...

Arun George

Short Interest Movements (Q1 2023): HK, Korea, Taiwan, Australia

The Insight looks at movements in short interest across HK, Korea, Taiwan and Australia stocks over Q1 and highlights large increases/decreases in...

Brian Freitas