IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

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Equity Capital Markets

China Youran Dairy Group Ltd / Equity Capital Markets

<div><p><a href="https://www.smartkarma.com/entities/china-youran-dairy-group-ltd" target="_blank" data-smartkarma-citation="entities:31075:1" rel="noopener">China Youran Dairy Group Ltd (1836774D CH)</a> is the world’s largest raw milk provider as measured by herd size of dairy cows as of 30 June 2020 and raw milk production volume in 1H20, according to Frost &amp; Sullivan. Youran was once a wholly-owned subsidiary of <a href="https://www.smartkarma.com/entities/inner-mongolia-yili-indus-a" target="_blank" data-smartkarma-citation="entities:3220:1" rel="noopener">Inner Mongolia Yili Industrial Group (A) (600887 CH)</a> until PAG Capital’s investment in 2015. Youran is pre-marketing an HKEx IPO to raise $800 million, according to press reports.   </p></div><div><div><div class="content-highlight"><p>In <a href="https://www.smartkarma.com/insights/china-youran-dairy-group-ipo-initiation-ecownomics" target="_blank" data-smartkarma-citation="insights:51709" rel="noopener">China Youran Dairy Group IPO Initiation: Ecownomics</a>, we stated that notwithstanding its high revenue dependence on Yili, Youran is capitalising on the favourable demand-supply imbalance for raw milk in China by delivering strong organic growth (on a pro-forma basis), rising margins and accretive acquisitions. We concluded that Youran is worth a look. In this note, we present our forecasts and take the first look at Youran's potential valuation range. </p></div></div></div>

China Youran Dairy Group Ltd (1836774D CH) is the world’s largest raw milk provider as measured by herd size of dairy cows as of 30 June 2020 and raw milk production volume in 1H20, according to Frost &amp; Sullivan. Youran was once a wholly-owned subsidiary of Inner Mongolia Yili Industrial Group (A) (600887 CH) until PAG Capital’s investment in 2015. Youran is pre-marketing an HKEx IPO to raise $800 million, according to press reports.   In China Youran Dairy Group IPO Initiation: Ecownomics, we stated that notwithstanding its high revenue dependence on Yili, Youran is capitalising on the favourable demand-supply imbalance for raw milk in China by delivering strong organic growth (on a pro-forma basis), rising margins and accretive acquisitions. We concluded that Youran is worth a look. In this note, we present our forecasts and take the first look at Youran's potential valuation range. 

China Youran Dairy Group IPO: Valuation First-Look

<p><a href="https://www.smartkarma.com/entities/china-youran-dairy-group-ltd" target="_blank" data-smartkarma-citation="entities:31075:1" rel="noopener">China Youran Dairy Group Ltd (1836774D CH)</a> is the world’s largest raw milk provider as measured by herd size of dairy cows as of 30 June 2020 and raw milk production volume in 1H20, according to Frost &amp; Sullivan. Youran was once a wholly-owned subsidiary of <a href="https://www.smartkarma.com/entities/inner-mongolia-yili-indus-a" target="_blank" data-smartkarma-citation="entities:3220:1" rel="noopener">Inner Mongolia Yili Industrial Group (A) (600887 CH)</a> until PAG Capital’s investment in 2015. Yili has remained as one of the controlling shareholders and owns 40.0% of the outstanding shares. Youran is pre-marketing an HKEx IPO to raise $800 million, according to press reports. </p><p>The downstream dairy value chain in China is highly concentrated with the top five dairy manufacturers by retail sales value of dairy products accounting for a combined market share of 73.5%, according to Frost &amp; Sullivan. The concentrated downstream dairy value chain is driving the need for upstream suppliers such as Youran with a larger scale and broader footprints. Raw milk demand for dairy consumption in China has outstripped raw milk supply over the years, and the shortfall in supply is expected to reach 21.0 million tons in 2025, according to Frost &amp; Sullivan.</p><div class="content-highlight"><p>Notwithstanding its high revenue dependence on Yili, Youran is capitalising on this market opportunity by delivering strong organic growth (on a pro-forma basis), rising margins and accretive acquisitions. Overall, we believe that Youran is worth a look.</p></div>

China Youran Dairy Group Ltd (1836774D CH) is the world’s largest raw milk provider as measured by herd size of dairy cows as of 30 June 2020 and raw milk production volume in 1H20, according to Frost &amp; Sullivan. Youran was once a wholly-owned subsidiary of Inner Mongolia Yili Industrial Group (A) (600887 CH) until PAG Capital’s investment in 2015. Yili has remained as one of the controlling shareholders and owns 40.0% of the outstanding shares. Youran is pre-marketing an HKEx IPO to raise $800 million, according to press reports. The downstream dairy value chain in China is highly concentrated with the top five dairy manufacturers by retail sales value of dairy products accounting for a combined market share of 73.5%, according to Frost &amp; Sullivan. The concentrated downstream dairy value chain is driving the need for upstream suppliers such as Youran with a larger scale and broader footprints. Raw milk demand for dairy consumption in China has outstripped raw milk supply over the years, and the shortfall in supply is expected to reach 21.0 million tons in 2025, according to Frost &amp; Sullivan.Notwithstanding its high revenue dependence on Yili, Youran is capitalising on this market opportunity by delivering strong organic growth (on a pro-forma basis), rising margins and accretive acquisitions. Overall, we believe that Youran is worth a look.

China Youran Dairy Group IPO Initiation: Ecownomics

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Bottom-Up

China Mengniu Dairy Co / Equity Bottom-Up

<div class="content-highlight">
<p>One of the biggest trends that COVID-19 has resulted has been the impact on the global population as millions of people delay having babies due to so many uncertainties associated with virus. China has been no exception. As such, the <a href="https://www.cnbc.com/2021/04/15/chinas-central-bank-pboc-paper-suggests-dropping-childbirth-limits.html" target="_blank" rel="noopener">People's Bank of China</a> released a working paper on 14 April that suggested that China faces severe population problems and that <strong>China allow three or more children per household. </strong></p>
<p>All in all, despite this urgent message from the People's Bank of China regarding the need to scrap the restriction in childbirth policy, this is not yet official. Nonetheless, given the fact that this document is coming from the People's Bank of China combined with the need to combat the big negative impact of COVID-19 on people having children, there could be an increasing probability that the Chinese government could indeed announce a change its policy to allow three or more children in 2021.</p>
</div><p>Some of the key infant formula related stocks that could benefit from the Chinese government allowing three or more children include <a href="https://www.smartkarma.com/entities/a2-milk-co-ltd-95d4fbed-afa1-41e9-bafb-a5f1ef97622e" target="_blank" data-smartkarma-citation="entities:22775:1" rel="noopener">A2 Milk Co Ltd (A2M AU)</a>, Beingmate Baby &amp; Child Food (002570 CH), and <a href="https://www.smartkarma.com/entities/china-mengniu-dairy-co" target="_blank" data-smartkarma-citation="entities:354:1" rel="noopener">China Mengniu Dairy Co (2319 HK)</a>.</p>


One of the biggest trends that COVID-19 has resulted has been the impact on the global population as millions of people delay having babies due to so many uncertainties associated with virus. China has been no exception. As such, the People's Bank of China released a working paper on 14 April that suggested that China faces severe population problems and that China allow three or more children per household. 
All in all, despite this urgent message from the People's Bank of China regarding the need to scrap the restriction in childbirth policy, this is not yet official. Nonetheless, given the fact that this document is coming from the People's Bank of China combined with the need to combat the big negative impact of COVID-19 on people having children, there could be an increasing probability that the Chinese government could indeed announce a change its policy to allow three or more children in 2021.
Some of the key infant formula related stocks that could benefit from the Chinese government allowing three or more children include A2 Milk Co Ltd (A2M AU), Beingmate Baby &amp; Child Food (002570 CH), and China Mengniu Dairy Co (2319 HK).

China May Scrap The Restriction of Childbirths - Impact on Baby Formula Related Stocks in China

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<div>
<p>On the 27 September, Jingang Trade, a company wholly-owned by <a href="https://www.smartkarma.com/entities/inner-mongolia-yili-indus-a" target="_blank" data-smartkarma-citation="entities:3220:1" rel="noopener">Inner Mongolia Yili Industrial Group (A) (600887 CH)</a>, and the Zhang Group <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0927/2020092700065.pdf" target="_blank" rel="noopener">entered</a> into a Share Subscription Agreement (SSA) with the Offeror,  a vehicle jointly held by Yili and the Zhang Group, such that Jingang Trade and the Zhang Group would transfer 432.641mn shares and 707.878mn shares respectively to the Offeror at HK$1.132/share. Upon completion of the SSA, the Offeror would hold 43.75% and be obligated to make a Mandatory General Offer (MGO) for all shares not owned. The MGO would be HK$1.132/share (an 11% premium to last close). The Offer price will not be increased.</p>
<p>The MGO is subject to a 50% (of all shares out) acceptance condition.</p>
<p>The SSA was completed on the <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0111/2021011100722.pdf" target="_blank" rel="noopener">11 January</a> and the <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0117/2021011700009.pdf" target="_blank" rel="noopener">Composite Doc</a> was despatched last night. The first close is the 8 February.</p>
<p>The Offeror has received 14 irrevocable undertakings (IU) from shareholders to accept the Offer in respect of 1,377,008,000 shares or 52.83% of shares out. Therefore, once the IU shareholders tender, the acceptance condition will have been met. Accordingly, the Offer is expected to become unconditional on or prior to the seventh day after the date of this Composite Doc.</p>
<p>The percentage of the Offer Shares made up by all of the IU shares is ~93.92%, therefore compulsory acquisition under section 88 of the Cayman Islands Companies Act and Rule 2.11 of the Takeovers Code will have been met.</p>
<p>As always, more below the fold.</p>
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On the 27 September, Jingang Trade, a company wholly-owned by Inner Mongolia Yili Industrial Group (A) (600887 CH), and the Zhang Group entered into a Share Subscription Agreement (SSA) with the Offeror,  a vehicle jointly held by Yili and the Zhang Group, such that Jingang Trade and the Zhang Group would transfer 432.641mn shares and 707.878mn shares respectively to the Offeror at HK$1.132/share. Upon completion of the SSA, the Offeror would hold 43.75% and be obligated to make a Mandatory General Offer (MGO) for all shares not owned. The MGO would be HK$1.132/share (an 11% premium to last close). The Offer price will not be increased.
The MGO is subject to a 50% (of all shares out) acceptance condition.
The SSA was completed on the 11 January and the Composite Doc was despatched last night. The first close is the 8 February.
The Offeror has received 14 irrevocable undertakings (IU) from shareholders to accept the Offer in respect of 1,377,008,000 shares or 52.83% of shares out. Therefore, once the IU shareholders tender, the acceptance condition will have been met. Accordingly, the Offer is expected to become unconditional on or prior to the seventh day after the date of this Composite Doc.
The percentage of the Offer Shares made up by all of the IU shares is ~93.92%, therefore compulsory acquisition under section 88 of the Cayman Islands Companies Act and Rule 2.11 of the Takeovers Code will have been met.
As always, more below the fold.






Zhongdi Dairy (1492 HK): Doc Out. Compulsory Acquisition Afforded

HK/China Equity Long-Short

Osbert Tang, CFA

<p>We believe <a href="https://www.smartkarma.com/entities/cpmc-holdings-ltd" target="_blank" data-smartkarma-citation="entities:10427:1" rel="noopener">CPMC Holdings (906 HK)</a> is an attractive alternative consumption play given its exposure to the rise in demand for food, beverages and household chemical product packaging in China. It is among the top player in China's packaging manufacturing (1-piece cans, 2-piece cans, tinplate packaging and plastic containers) with prominent customer profile including Coca-Cola, Tsingtao, Carlsberg, Blue Moon, Feihe, Yili and Jiaduobao etc. </p><p>The combination of margin expansion, capacity growth and surging consumption demand, we expect CPMC to post a steady rising ROE. We expect special DPS payout on the receipt of Rmb1.5bn repurchase consideration from JDB settlement, and this will place its dividend yield at least at 7.8%. Its 8.9x PER and 0.69x P/B represent deep discounts to its customers (40x PER) and packaging peers (23.4x) which are unjustified in our view.</p>

We believe CPMC Holdings (906 HK) is an attractive alternative consumption play given its exposure to the rise in demand for food, beverages and household chemical product packaging in China. It is among the top player in China's packaging manufacturing (1-piece cans, 2-piece cans, tinplate packaging and plastic containers) with prominent customer profile including Coca-Cola, Tsingtao, Carlsberg, Blue Moon, Feihe, Yili and Jiaduobao etc. The combination of margin expansion, capacity growth and surging consumption demand, we expect CPMC to post a steady rising ROE. We expect special DPS payout on the receipt of Rmb1.5bn repurchase consideration from JDB settlement, and this will place its dividend yield at least at 7.8%. Its 8.9x PER and 0.69x P/B represent deep discounts to its customers (40x PER) and packaging peers (23.4x) which are unjustified in our view.

CPMC Holdings (906 HK): An Attractive Inexpensive Alternative Consumption Play

China

Inner Mongolia Yili Industrial Group Co., Ltd. produces milk, powdered milk, ice cream, and other dairy products.  The Company also produces frozen food and noodles.

Inner Mongolia Yili Industrial Group (A) (600887 CH)

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Inner Mongolia Yili Industrial Group (A) (600887 CH)

China Youran Dairy Group IPO: Valuation First-Look

Youran is pre-marketing an HKEx IPO to raise $800 million, according to press reports. In this note, we present our forecasts and take the first...

Arun George

China Youran Dairy Group IPO Initiation: Ecownomics

Youran is pre-marketing an HKEx IPO to raise $800 million, according to press reports. Youran is attractive as it is delivering strong organic...

Arun George

Zhongdi Dairy (1492 HK): Doc Out. Compulsory Acquisition Afforded

Done deal. Expect shares to be suspended next month. Buy a spread or two below terms if available - currently trading through terms at HK$1.15...

David Blennerhassett

CPMC Holdings (906 HK): An Attractive Inexpensive Alternative Consumption Play

CPMC is well positioned to capture the strong packaging demand from food, beverage and chemical products driven by China's consumption growth. Yet,...

Osbert Tang, CFA

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

China Youran Dairy Group IPO: Valuation First-Look

Youran is pre-marketing an HKEx IPO to raise $800 million, according to press reports. In this note, we present our forecasts and take the first...

Arun George

China Youran Dairy Group IPO Initiation: Ecownomics

Youran is pre-marketing an HKEx IPO to raise $800 million, according to press reports. Youran is attractive as it is delivering strong organic...

Arun George

China May Scrap The Restriction of Childbirths - Impact on Baby Formula Related Stocks in China

The People's Bank of China released a paper on 14 April that suggested that China allow three or more children per household. In this insight, we...

Douglas Kim

Zhongdi Dairy (1492 HK): Doc Out. Compulsory Acquisition Afforded

Done deal. Expect shares to be suspended next month. Buy a spread or two below terms if available - currently trading through terms at HK$1.15...

David Blennerhassett

CPMC Holdings (906 HK): An Attractive Inexpensive Alternative Consumption Play

CPMC is well positioned to capture the strong packaging demand from food, beverage and chemical products driven by China's consumption growth. Yet,...

Osbert Tang, CFA