Equity Analyst, LightStream Research

Aqila Ali

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.

Equity Capital Markets

Impro Precision Industries / Equity Capital Markets

The <a href="https://www.smartkarma.com/entities/impro-precision-industries" target="_blank" data-smartkarma-citation="entities:26779:1" rel="noopener">Impro Precision Industries (1286 HK)</a> IPO application commenced on the 18th of June 2019 and is expected to end by 12:00 noon, 21st June 2019, on the Stock Exchange of Hong Kong("SEHK"). Established in 2004, Impro is one of the fastest growing one-stop precision solution providers in China. The IPO price range is between HKD2.8 and HKD3.3 per share, while the IPO deal size could be around HKD1,032m, assuming a price of HKD3.05 (the mid-point of the proposed Offer Price range), with no over-allotment option being exercised.This insight covers Impro Precision’s background, its business model, key strengths, growth prospects, and risks. We have also analysed the financial performance and position of the company, and its valuation based on the offer price range. Based on our analysis, we think the company could see significant medium to long term upside. Impro’s continuous growth in investment casting and high precision casting, along with its aim to be a ‘one-stop solution’ provider, is likely to cement its position in the market. Growth across diversified end-markets combined with its leading market position and rapid customer base growth will be key to sustaining growth in the long run. As of now, we think the company is a steady one with diversified services that are robust enough to fend off competition in the market. The company, if successful in the growing end markets, is likely to trade at a FY1PE of 11.4x and an EV/EBITDA multiple of 6.7x.<div class="content-caption">Deal Specifics of Impro’s Global Offering</div><table class="table table-striped"><tbody>
<tr><td colspan="2">Details:</td></tr>
<tr>
<td>Application Period</td>
<td>June 18th, 2019 - Noon, June 21st 2019</td>
</tr>
<tr>
<td>Price Determination Date</td>
<td>June 21st 2019</td>
</tr>
<tr>
<td>Result Announcement Date</td>
<td>June 27th 2019</td>
</tr>
<tr>
<td>Dealing in Shares commence on</td>
<td>9 am June 28th 2019</td>
</tr>
<tr>
<td>Expected IPO price per share:  </td>
<td>Between HKD2.8 and HKD3.3</td>
</tr>
<tr>
<td>Number of Shares for IPO:</td>
<td>333m shares</td>
</tr>
<tr>
<td>No. of International Placing Shares</td>
<td>
 
299.9m shares
</td>
</tr>
<tr>
<td>No. of HK Offer Shares</td>
<td> 33.3m shares</td>
</tr>
<tr>
<td>Underwriters: </td>
<td> Morgan Stanley Asia Limited、BOCI Asia Limited、GF Securities (Hong Kong) Brokerage Limited、AMTD Global Markets Limited、DBS Asia Capital Limited</td>
</tr>
<tr>
<td>IPO base deal size: </td>
<td>Approx.HKD1,016m (based on Median)</td>
</tr>
<tr>
<td>Major Shareholder  </td>
<td>
 
Impro Development which is 100% owned by Mr LU
</td>
</tr>
<tr>
<td>Expected market cap after IPO:</td>
<td>Between HKD5,133 m – HKD6,049m</td>
</tr>
<tr>
<td>Use of Proceeds</td>
<td>
* HKD361.3m (40%)- Capex for capacity expansion especially in PRC and Mexico;
* HKD271.1m (30%)- repay interest bearing borrowings;
* HKD180.7m (20%) - finance potential acquisitions;
* The balance of HKD90.4m (10%)- general corporate purposes.
</td>
</tr>
</tbody></table><div class="content-remarks">Source: Company Disclosures</div>

The Impro Precision Industries (1286 HK) IPO application commenced on the 18th of June 2019 and is expected to end by 12:00 noon, 21st June 2019, on the Stock Exchange of Hong Kong("SEHK"). Established in 2004, Impro is one of the fastest growing one-stop precision solution providers in China. The IPO price range is between HKD2.8 and HKD3.3 per share, while the IPO deal size could be around HKD1,032m, assuming a price of HKD3.05 (the mid-point of the proposed Offer Price range), with no over-allotment option being exercised.This insight covers Impro Precision’s background, its business model, key strengths, growth prospects, and risks. We have also analysed the financial performance and position of the company, and its valuation based on the offer price range. Based on our analysis, we think the company could see significant medium to long term upside. Impro’s continuous growth in investment casting and high precision casting, along with its aim to be a ‘one-stop solution’ provider, is likely to cement its position in the market. Growth across diversified end-markets combined with its leading market position and rapid customer base growth will be key to sustaining growth in the long run. As of now, we think the company is a steady one with diversified services that are robust enough to fend off competition in the market. The company, if successful in the growing end markets, is likely to trade at a FY1PE of 11.4x and an EV/EBITDA multiple of 6.7x.Deal Specifics of Impro’s Global Offering
Details:

Application Period
June 18th, 2019 - Noon, June 21st 2019


Price Determination Date
June 21st 2019


Result Announcement Date
June 27th 2019


Dealing in Shares commence on
9 am June 28th 2019


Expected IPO price per share:  
Between HKD2.8 and HKD3.3


Number of Shares for IPO:
333m shares


No. of International Placing Shares

 
299.9m shares



No. of HK Offer Shares
 33.3m shares


Underwriters: 
 Morgan Stanley Asia Limited、BOCI Asia Limited、GF Securities (Hong Kong) Brokerage Limited、AMTD Global Markets Limited、DBS Asia Capital Limited


IPO base deal size: 
Approx.HKD1,016m (based on Median)


Major Shareholder  

 
Impro Development which is 100% owned by Mr LU



Expected market cap after IPO:
Between HKD5,133 m – HKD6,049m


Use of Proceeds

* HKD361.3m (40%)- Capex for capacity expansion especially in PRC and Mexico;
* HKD271.1m (30%)- repay interest bearing borrowings;
* HKD180.7m (20%) - finance potential acquisitions;
* The balance of HKD90.4m (10%)- general corporate purposes.


Source: Company Disclosures

Impro Precision: The One-Stop Precision Solutions Provider Seems to Have Modest Upside

Credit Analyst, BondAdviser

Jack Pobjoy

Credit Analyst

Australian bonds & fixed income research

BondAdviser

BondAdviser is the central reference point for intelligent information on Australian fixed income markets. We help you make informed decisions by providing unbiased research, transparent pricing data, analytics, portfolio tools and education.

BondAdviser has the broadest coverage of retail-accessible ASX-listed and over-the-counter Australian bonds and fixed income securities. We make it easy for you to review and compare investments before you place an order with your broker or dealer.

Credit

On the 21st of September 2016, <a href="https://www.smartkarma.com/entities/939" target="_blank" data-smartkarma-citation="entities:939:1">Alumina Ltd (AWC AU)</a> eceived a double notch credit downgrade from Standards &amp; Poor’s (S&amp;P) and as a result, the coupon rate on its 5.50% Alumina 2019 bonds stepped up by 1.75% to 7.25% p.a.Alumina is a non-operating entity and rather a steward for 40% of the assets of Alcoa World Alumina and Chemicals (AWAC), a joint venture between Alumina and US miner, Alcoa. In 2016, Alcoa Limited was split into two new entities, being Arconic (which contained the downstream business assets) and Alcoa Corp (which comprised the upstream business assets), with Alumina’s joint venture (JV) agreement transferring to Alcoa Corp ownership. This change in strategic partner and uncertain credit risk of Alcoa Corp at the time was a direct cause of the double notch downgrade of Alumina.In response to this action, BondAdviser initiated the Alumina 2019 bonds with a Buy recommendation given that the fundamental backdrop of aluminium industry remained strong, backed by sustained demand from China. The credit outlook of Alumina was undoubtedly subject to further downside risks but we remained comfortable with the fundamentals of the issuer and broader industry over the relatively short time to maturity of the instruments (~2.7 years at that time). Whilst there were structural implications of Alcoa’s decision - resulting in heightened risk, especially without the stability of the separated downstream operations, our primary view was that AWAC would remain a market leader in the alumina and aluminium industries and hence, would be much better positioned compared to other market participants in the event of a market downturn.On 7th of April 2017, our assumptions were justified when S&amp;P upgraded Alumina’s credit rating one notch, from BB to BB+. This resulted in a reversal (step-down) in the coupon on the Alumina 2019 bonds to 6.75%. More recently (17 April 2018), the credit rating agency revised its credit outlook on the group from ‘stable’ to ‘positive’, with a further credit upgrade appearing likely in the near term provided that operating leverage remains low and dividend distributions from AWAC are maintained. In such an event, Alumina would return to an investment grade BBB- rating, with the coupon stepping down to its original coupon rate of 5.50%.See the original report attached below.Figure 1. Alumina 6.75% 2019 Historical Credit Spread<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/052/201/original/AWC.png?1526276294" class="editor-image img-responsive" data-smartkarma-image-id="52201"></figure><div style="text-align: left;" class="content-caption">Source: BondAdviser</div>

On the 21st of September 2016, Alumina Ltd (AWC AU) eceived a double notch credit downgrade from Standards &amp; Poor’s (S&amp;P) and as a result, the coupon rate on its 5.50% Alumina 2019 bonds stepped up by 1.75% to 7.25% p.a.Alumina is a non-operating entity and rather a steward for 40% of the assets of Alcoa World Alumina and Chemicals (AWAC), a joint venture between Alumina and US miner, Alcoa. In 2016, Alcoa Limited was split into two new entities, being Arconic (which contained the downstream business assets) and Alcoa Corp (which comprised the upstream business assets), with Alumina’s joint venture (JV) agreement transferring to Alcoa Corp ownership. This change in strategic partner and uncertain credit risk of Alcoa Corp at the time was a direct cause of the double notch downgrade of Alumina.In response to this action, BondAdviser initiated the Alumina 2019 bonds with a Buy recommendation given that the fundamental backdrop of aluminium industry remained strong, backed by sustained demand from China. The credit outlook of Alumina was undoubtedly subject to further downside risks but we remained comfortable with the fundamentals of the issuer and broader industry over the relatively short time to maturity of the instruments (~2.7 years at that time). Whilst there were structural implications of Alcoa’s decision - resulting in heightened risk, especially without the stability of the separated downstream operations, our primary view was that AWAC would remain a market leader in the alumina and aluminium industries and hence, would be much better positioned compared to other market participants in the event of a market downturn.On 7th of April 2017, our assumptions were justified when S&amp;P upgraded Alumina’s credit rating one notch, from BB to BB+. This resulted in a reversal (step-down) in the coupon on the Alumina 2019 bonds to 6.75%. More recently (17 April 2018), the credit rating agency revised its credit outlook on the group from ‘stable’ to ‘positive’, with a further credit upgrade appearing likely in the near term provided that operating leverage remains low and dividend distributions from AWAC are maintained. In such an event, Alumina would return to an investment grade BBB- rating, with the coupon stepping down to its original coupon rate of 5.50%.See the original report attached below.Figure 1. Alumina 6.75% 2019 Historical Credit SpreadSource: BondAdviser

Australian Credit: Alumina Demonstrates The Value of Active Credit Investing

United States

Howmet Aerospace Inc. provides engineered metal products. The Company offers engines, fasteners, and structures, as well as forged wheels. Howmet Aerospace serves the aerospace and commercial transportation industries.

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Howmet Aerospace (HWM US)

Impro Precision: The One-Stop Precision Solutions Provider Seems to Have Modest Upside

The Impro Precision Industries (1286 HK) IPO application commenced on the 18th of June 2019 and is expected to end by 12:00 noon, 21st June 2019,...

Aqila Ali

Australian Credit: Alumina Demonstrates The Value of Active Credit Investing

On the 21st of September 2016, Alumina Ltd (AWC AU) eceived a double notch credit downgrade from Standards & Poor’s (S&P) and as a result,...

BondAdviser

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