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.

Equity Capital Markets

17 Education & Technology Grou / Equity Capital Markets

17 Education is a leading online tuition provider in China. The company was founded by former regional head of New Oriental Education and is looking to raise up to USD 300m via a listing in the US.17 Education has a unique business model whereby it provides a free in-school solution to teachers, students and parents and upsells after-school paid tuition. On one hand it has a large pool of verified students to upsell its paid after-school tuition. On the other hand its conversion and market share is low, relative to its addressable market.While a majority of the paid-enrollment came from the in-school pools of students, it still needs to spend the majority of its gross profit as the promotional course expenses. We think it is so far a hard business. Our preliminary assessment suggests that it could take the company until the end of 2022 to reach breakeven.The company had negative newsflow of administrative warning for its collection of personal data as well as unauthorized in-app purchases for homework related online games.

17 Education is a leading online tuition provider in China. The company was founded by former regional head of New Oriental Education and is looking to raise up to USD 300m via a listing in the US.17 Education has a unique business model whereby it provides a free in-school solution to teachers, students and parents and upsells after-school paid tuition. On one hand it has a large pool of verified students to upsell its paid after-school tuition. On the other hand its conversion and market share is low, relative to its addressable market.While a majority of the paid-enrollment came from the in-school pools of students, it still needs to spend the majority of its gross profit as the promotional course expenses. We think it is so far a hard business. Our preliminary assessment suggests that it could take the company until the end of 2022 to reach breakeven.The company had negative newsflow of administrative warning for its collection of personal data as well as unauthorized in-app purchases for homework related online games.

17 Edu & Tech (一起教育) Pre-IPO: Far from Profitability

Equity Analyst, LightStream Research

Shifara Samsudeen, ACMA, CGMA

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Forensic Accounting

<a href="https://www.smartkarma.com/entities/seek-ltd" target="_blank" data-smartkarma-citation="entities:676:1" rel="noopener">Seek Ltd (SEK AU)</a>  operates an international portfolio of employment and education businesses across Australia, New Zealand, China, Hong Kong, South-East Asia, Brazil and Mexico. The company operates an online marketplace that offers employment classifieds in Australia and internationally. In addition, Seek also offers advice in relation to education courses.The company has been accused by Blue Orca Capital (<a href="https://static1.squarespace.com/static/5a81b554be42d6b09e19fc09/t/5f99f9ba94399006bdb5f02c/1603926464878/Blue+Orca+Short+SEEK+Ltd+%28ASX+SEK%29.pdf" target="_blank" rel="noopener">https://static1.squarespace.com/static/5a81b554be42d6b09e19fc09/t/5f99f9ba94399006bdb5f02c/1603926464878/Blue+Orca+Short+SEEK+Ltd+%28ASX+SEK%29.pdf</a>) and some of the accusations laid out by Blue Orca include fake job postings on the company’s website, misrepresentation of its market share and inflated profits.<div class="content-highlight">We think Zhaopin’s platform is rotten, which is devastating for Seek’s prospects. Seek has historically paid a dividend, giving the false impression that its business produces healthy profits and cash flows. But these payments have been largely funded by debt. A serial acquirer, Seek has repeatedly tapped the capital markets to fund acquisitions, raising its Net Debt-to-reported EBITDA to 3.2x. By our calculation, Seek’s true leverage is much higher</div>In this insight, we attempt to examine some of these allegations and have assessed the merits of those claims using the company’s financials.

Seek Ltd (SEK AU)  operates an international portfolio of employment and education businesses across Australia, New Zealand, China, Hong Kong, South-East Asia, Brazil and Mexico. The company operates an online marketplace that offers employment classifieds in Australia and internationally. In addition, Seek also offers advice in relation to education courses.The company has been accused by Blue Orca Capital (https://static1.squarespace.com/static/5a81b554be42d6b09e19fc09/t/5f99f9ba94399006bdb5f02c/1603926464878/Blue+Orca+Short+SEEK+Ltd+%28ASX+SEK%29.pdf) and some of the accusations laid out by Blue Orca include fake job postings on the company’s website, misrepresentation of its market share and inflated profits.We think Zhaopin’s platform is rotten, which is devastating for Seek’s prospects. Seek has historically paid a dividend, giving the false impression that its business produces healthy profits and cash flows. But these payments have been largely funded by debt. A serial acquirer, Seek has repeatedly tapped the capital markets to fund acquisitions, raising its Net Debt-to-reported EBITDA to 3.2x. By our calculation, Seek’s true leverage is much higherIn this insight, we attempt to examine some of these allegations and have assessed the merits of those claims using the company’s financials.

Seek Ltd: Some of the Outrageous Claims by Blue Orca Look Irrefutable

Supun Walpola

New Oriental Education & Techn / Equity Capital Markets

<ul><li>
<a href="https://www.smartkarma.com/entities/new-oriental-education-tech-grp-adr" target="_blank" data-smartkarma-citation="entities:531:1" rel="noopener">New Oriental Education (EDU US)</a> (New Oriental) is the latest US-listed Chinese company to launch a secondary listing on the HKEX. </li></ul><ul>
<li>New Oriental’s HKEX offer will have two tranches; a Hong Kong offer and an international offer. The maximum offer price for the Hong Kong offer is set at HKD1,399 per share. New Oriental is expected to set the international offer price by November 3, 2020. The final Hong Kong offer price will be the lower of the international offer price and the maximum offer price above. </li>
<li>In this note, we take a quick look at New Oriental's fundamentals and the valuation ahead of its HKEX listing. </li>
</ul>


New Oriental Education (EDU US) (New Oriental) is the latest US-listed Chinese company to launch a secondary listing on the HKEX. 
New Oriental’s HKEX offer will have two tranches; a Hong Kong offer and an international offer. The maximum offer price for the Hong Kong offer is set at HKD1,399 per share. New Oriental is expected to set the international offer price by November 3, 2020. The final Hong Kong offer price will be the lower of the international offer price and the maximum offer price above. 
In this note, we take a quick look at New Oriental's fundamentals and the valuation ahead of its HKEX listing. 


New Oriental HKEX Listing: An Attractive Growth Profile but Expensive

Overseas Chinese Equities, Aequitas Research

Ming Lu

Overseas Chinese Equities

Equity Bottom-Up

Alibaba Group Holding  / Equity Bottom-Up

<ul>
<li>Alibaba (BABA) became the largest shareholder of Sun Art (6808 HK).</li>
<li>Foxconn (2354 TT) sold all shares in Alibaba (BABA).</li>
<li>New Classics Media (NCM) announced a list of 56 new TV series, which will benefit both Tencent (700 HK) and China Literature (772 HK).</li>
</ul>


Alibaba (BABA) became the largest shareholder of Sun Art (6808 HK).
Foxconn (2354 TT) sold all shares in Alibaba (BABA).
New Classics Media (NCM) announced a list of 56 new TV series, which will benefit both Tencent (700 HK) and China Literature (772 HK).


China Internet Weekly (26Oct2020): BABA Bought Sun Art, Foxconn Sold BABA

<div class="content-highlight">
In our previous note, <a href="https://www.smartkarma.com/insights/ihuman-ipo-competition-is-likely-to-eat-into-profits" target="_blank" data-smartkarma-citation="insights:43574" rel="noopener">IHuman IPO: Competition Is Likely to Eat into Profits</a>, we suggested that, while we like iHuman for its robust medium-term growth profile, tight competition in the online edutainment market would prevent this strong growth from being reflected in the bottom-line, and we would only subscribe to the IPO as long as these weaknesses are compensated through the valuation. However, iHuman’s valuation looks expensive to us compared to its Chinese edutech peers, making the risk-reward nowhere near attractive.
</div>


In our previous note, IHuman IPO: Competition Is Likely to Eat into Profits, we suggested that, while we like iHuman for its robust medium-term growth profile, tight competition in the online edutainment market would prevent this strong growth from being reflected in the bottom-line, and we would only subscribe to the IPO as long as these weaknesses are compensated through the valuation. However, iHuman’s valuation looks expensive to us compared to its Chinese edutech peers, making the risk-reward nowhere near attractive.


China

Gaotu Techedu inc develops educational software. The Company offers online K-12 large class after school tutoring as well as foreign language, professional and other courses. Gaotu Techedu serves students in China

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Gaotu Techedu (GOTU US)

17 Edu & Tech (一起教育) Pre-IPO: Far from Profitability

17 Education is a leading online tuition provider in China. The company was founded by former regional head of New Oriental Education and is...

Ke Yan, CFA, FRM

Seek Ltd: Some of the Outrageous Claims by Blue Orca Look Irrefutable

Blue Orca Capital has published a short-sell report on Seek Ltd. We attempt to examine some of these allegations and have assessed the merits of...

Shifara Samsudeen, ACMA, CGMA

New Oriental HKEX Listing: An Attractive Growth Profile but Expensive

In this note, we take a quick look at New Oriental Education (EDU US)'s fundamentals and the valuation ahead of its HKEX listing.

Supun Walpola

China Internet Weekly (26Oct2020): BABA Bought Sun Art, Foxconn Sold BABA

Alibaba (BABA) became the largest shareholder of Sun Art (6808 HK). Foxconn (2354 TT) sold all shares in Alibaba (BABA). New Classics Media...

Ming Lu

IHuman IPO: Just Not Worth It

In our previous note, we suggested that, while we like iHuman for its robust medium-term growth profile, tight competition in the online...

Supun Walpola

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