HK/China Equity Long-Short

Osbert Tang, CFA

Thematic (Sector/Industry)

<p>The recent rise in local COVID-19 cases in China has made domestic air travel market more challenging in the near term, and this has already reflected on slowing traffic in Dec 2020. <a href="https://www.smartkarma.com/entities/china-southern-airlines-co-ltd" target="_blank" data-smartkarma-citation="entities:1078:1" rel="noopener">China Southern Airlines (1055 HK)</a> has the best performance in Dec and FY20 but we see headwinds given its significant domestic exposure. The government has advised minimising cross-province travel in the Spring Chinese New Year Travel Peak Season and many schools are suggesting the same.</p><p>We think there are two trades to capture such trend. One, "Long <a href="https://www.smartkarma.com/entities/air-china-ltd-h" target="_blank" data-smartkarma-citation="entities:8239:1" rel="noopener">Air China Ltd (H) (753 HK)</a>, short <a href="https://www.smartkarma.com/entities/china-southern-airlines-co-ltd" target="_blank" data-smartkarma-citation="entities:1078:1" rel="noopener">China Southern Airlines (1055 HK)</a>" as positive expectations on CSA's domestic exposure provides room for disappointment. Two, go long on domestic consumption names as savings in transportation and lodging expenses may be re-directed to F&amp;B and consumer discretionary. These include <a href="https://www.smartkarma.com/entities/haidilao-international-holding-ltd" target="_blank" data-smartkarma-citation="entities:27044:1" rel="noopener">Haidilao (6862 HK)</a>, <a href="https://www.smartkarma.com/entities/jiumaojiu-international-holdings-limited" target="_blank" data-smartkarma-citation="entities:28293:1" rel="noopener">Jiumaojiu (9922 HK)</a>, <a href="https://www.smartkarma.com/entities/yum-china-holdings-inc-0533692c-6dae-4014-baa1-ed0b050638f2" target="_blank" data-smartkarma-citation="entities:29259:1" rel="noopener">Yum China Holdings Inc (9987 HK)</a>, <a href="https://www.smartkarma.com/entities/anta-sports-products-ltd" target="_blank" data-smartkarma-citation="entities:10261:1" rel="noopener">Anta Sports Products (2020 HK)</a>, <a href="https://www.smartkarma.com/entities/li-ning-co-ltd" target="_blank" data-smartkarma-citation="entities:6047:1" rel="noopener">Li Ning Co Ltd (2331 HK)</a> and <a href="https://www.smartkarma.com/entities/topsports-international" target="_blank" data-smartkarma-citation="entities:28153:1" rel="noopener">Topsports International (6110 HK)</a>. Meanwhile, <a href="https://www.smartkarma.com/entities/meituan-dianping" target="_blank" data-smartkarma-citation="entities:26970:1" rel="noopener">Meituan (3690 HK)</a> may benefit on both the revenue and cost sides. </p>

The recent rise in local COVID-19 cases in China has made domestic air travel market more challenging in the near term, and this has already reflected on slowing traffic in Dec 2020. China Southern Airlines (1055 HK) has the best performance in Dec and FY20 but we see headwinds given its significant domestic exposure. The government has advised minimising cross-province travel in the Spring Chinese New Year Travel Peak Season and many schools are suggesting the same.We think there are two trades to capture such trend. One, "Long Air China Ltd (H) (753 HK), short China Southern Airlines (1055 HK)" as positive expectations on CSA's domestic exposure provides room for disappointment. Two, go long on domestic consumption names as savings in transportation and lodging expenses may be re-directed to F&amp;B and consumer discretionary. These include Haidilao (6862 HK), Jiumaojiu (9922 HK), Yum China Holdings Inc (9987 HK), Anta Sports Products (2020 HK), Li Ning Co Ltd (2331 HK) and Topsports International (6110 HK). Meanwhile, Meituan (3690 HK) may benefit on both the revenue and cost sides. 

Chinese Airlines: Domestic Market Gets a Little Challenging in the Near Term, How to Play It?

APAC IPOs & Placements

Zhen Zhou, Toh

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

JD Health International  / Equity Capital Markets


Aequitas Research puts out a weekly update on the deals that have been covered by the team recently along with updates for upcoming IPOs.




Much has happened since Ant Group (6688 HK)'s IPO got pulled so this will be a lengthy weekly note.
Thanks to The Wall Street Journal (WSJ), we now know that Xi Jinping personally cancelled Ant's IPO due to Jack Ma's brazen comments a few weeks earlier. This doesn't look good, especially with news of China’s antitrust watchdogs publishing draft rules targeting monopolistic practices of digital platforms.
The draft rules aim to prevent anti-competitive behavior among online platforms, collaboration on customer data, eliminating smaller payers, and etc. It also mentioned greater regulatory oversight of VIE which will obviously impact upcoming China IPOs and listed companies alike since most of them are built upon VIE structure to raise capital from foreign investors. The Chinese government has not officially legalized such a structure and could use this chance to reign in their control over these companies.
Well, it's 2020, just when you think the bad news end here, there's more. 



Hong Kong's Securities and Futures Commission (SFC) was said to be planning new code of conduct for equity and debt deals. This may see the introduction of framework to calculate fees for bookrunners. Companies looking to list may also need to secure underwriting syndicates earlier to limit non-bookrunners from pitching shares to investors to show they have demand in a bid to secure the bookrunner role. There are also potential changes to allocation rules, specifically, regarding the cornerstone structure in HK IPOs where cornerstone investors can secure guaranteed (usually larger) allocation in an IPO in exchange for a six-month lock-up period. For now, nothing is set in stone and, to be fair, this isn't necessarily bad since the goal here is to tighten supervision. 
Aside from Ant's IPO "hiccup" earlier, Hong Kong IPO activity is still looking strong, for now. JD Health (JDH HK), Blue Moon Group Holdings (BMG HK), and Evergrande Services was said to have gotten their approval this week and will start premarketing in the coming week. Netjoy (NETJOY HK) was also said to be seeking approval this week but we have yet to get confirmation of its approval.


JD Health (京东健康) Pre-IPO - Peer Comparison - It's a Close Fight and Competition Is Intensifying 

JD Health (京东健康) Pre-IPO - Assumptions and Valuations 

Blue Moon Group Pre-IPO - Initial Thoughts on Valuation 
Blue Moon Group Pre-IPO - The Positives - Dominant Market Share, Strong Online Sales

Blue Moon Group Pre-IPO - The Negatives - Flagging Offline Sales, Not Really a Primary Raising   
Blue Moon: No. 1 But No Exclusive Advantage, Observation on the Ground

Blue Moon Group Pre-IPO - Online Reviews and Peer Comparison   

Netjoy (云想科技) Pre-IPO: Growth Stalled for the Short Video Marketer 

CR Mixc Lifestyle Services (华润万象生活) Pre-IPO - SOE-Linked Parentage Didn’t Help 

Antengene (6996 HK) launched its IPO this week and Ke Yan, CFA, FRM shared his thoughts on valuation.


Antengene (德琪医药) IPO: Buy the Team 

We also covered recently filed Beijing Kuaishou Technology Co Ltd (1496219D CH) which is expected to raise US$5bn.


Kuaishou Technology Pre-IPO - The Positives - Hot Segment, Fast Growth 

Kuaishou Technology Pre-IPO - The Negatives - Ample Doubts Remain 

In Australia, it's a rare treat to get two IPOs almost at the same time. Dalrymple Bay Infrastructure and Nuix have set their terms for IPO and will begin their bookbuild process soon.
There will also be a few trading debuts next week. Jinke Smart Services (9666 HK), Shinsun Holdings (2599 HK), and Sunac Services (1516 HK) will debut in Hong Kong on Tuesday, Wednesday, and Thursday, respectively, followed by Gland Pharma (7172753Z IN) on Friday in India. 
Last but not least, for placements, there were deals across different countries and they were mostly secondary share sale. There is Ascendas Real Estate Investment Trust (AREIT SP) private and preferential placement in Singapore to buy office properties and data centres, Japan Airlines (9201 JP) primary placement to shore up balance sheet, selldowns by shareholders in Jiumaojiu (9922 HK), Shenzhou Intl Group Holdings (2313 HK), BDO Unibank Inc (BDO PM) and VGI PCL (VGI TB).
Out of these, the one that stood out (which happened to be the only one we chose to avoid) was VGI's placement which closed higher the day after its done despite its massive deal size (relative to ADV) and deep discount (11%) to last close. The deal was said to be driven by reverse enquiries and was well covered by institutional investors.


Japan Airlines Placement - Given the Uncertain Outlook, Might Need Further Correction 

Ascendas REIT Placement - Multiple Acquisitions to Be Made, Starting From US Office Properties 

Shenzhou International Placement - Conditioned for Selldowns 

Jiumaojiu (九毛九) Placement - Founder and Employees Selling 

BDO Unibank Placement - Wide Discount to Account for the Large Deal Size 

VGI Global Placement - Biggest Block Ever by BTS 





Accuracy Rate:



Our overall accuracy rate is 73.4% for IPOs and 66.1% for Placements 


(Performance measurement criteria is explained at the end of the note)





New IPO filings this week  




New Horizon Health (Hong Kong, ~US$300m)
Central China Management (Hong Kong, &gt;US$100m)

Below is a snippet of our IPO tool showing upcoming events for the next week. The IPO tool is designed to provide readers with timely information on all IPO related events (Book open/closing, listing, initiation, lock-up expiry, etc) for all the deals that we have worked on. You can access the tool here or through the tools menu.





News on Upcoming IPOs  





Australian port IPO seeks at least $477 million in test of appetite for coal assets
Nuix seeks to raise $705m in year’s biggest Australian IPO
Brookfield pushing ahead with India Reit IPO by year-end
Warburg Pincus-backed ESR plans REIT IPO of South Korean assets to raise $321m




Analysis on Upcoming IPOs






Name
Insight


Hong Kong


Antengene

Antengene (德琪医药) Pre-IPO: Proven R&amp;D Track Record by Founder Matters 


Blue Moon

Blue Moon Group Pre-IPO - The Positives - Dominant Market Share, Strong Online Sales 



Blue Moon

Blue Moon Group Pre-IPO - The Negatives - Flagging Offline Sales, Not Really a Primary Raising 



Blue Moon

Blue Moon: No. 1 But No Exclusive Advantage, Observation on the Ground 



Blue Moon

Blue Moon Group Pre-IPO - Online Reviews and Peer Comparison 



ByteDance

ByteDance (字节跳动) IPO: How Jinri Toutiao Paves The Way for a Bigger Empire (Part 1)



ByteDance

ByteDance (字节跳动) Pre-IPO: Why Facebook Should Worry About TikTok 



ByteDance

ByteDance (字节跳动) IPO: Tiktok the No.1 Short Video App for a Good Reason (Part 2)



ByteDance

ByteDance (字节跳动) Pre-IPO: How Has It Done in 1H? 



ByteDance

ByteDance: The Unlisted Company’s Video Apps Leading the Market and Threatening Internet Giants 



ByteDance

ByteDance (字节跳动) Pre-IPO: Why Facebook Should Worry About TikTok 



ByteDance

ByteDance (字节跳动) Pre-IPO - Globally the Most Downloaded App for Jan 2020 Driven by India 



ByteDance

ByteDance (字节跳动) Pre-IPO: Global Ambition Meets Regulatory Challenges 



Dida

Dida Pre-IPO - Making Hay While Big Brother Retreats 



E-Star Comm

E-Star Commercial Management Pre-IPO - Better Disclosure in New Prospectus 



E-Star Comm

E-Star Commercial Management Pre-IPO - Still Largely Reliant on Galaxy, Poor Disclosure Doesn’t Help 



Jiayuan Svcs

Jiayuan Services (佳源服务) Pre-IPO - Another Small Property Management Company 



JD Health

JD Health (京东健康) Pre-IPO - Well-Positioned to Ride China’s Healthcare Digitalization 



JD Health

JD Health (京东健康) Pre-IPO - Peer Comparison - It's a Close Fight and Competition Is Intensifying 



JD Health

JD Health (京东健康) Pre-IPO - Assumptions and Valuations 



Kilcoy

Kilcoy Global Foods Pre-IPO - Rapid Earnings Growth on the Back of Margin Improvement 



Kilcoy

Kilcoy Global Foods Pre-IPO - A Lot of Things Still Remain Unexplained 



Kuaishou

Kuaishou Technology Pre-IPO - The Positives - Hot Segment, Fast Growth 



Kuaishou

Kuaishou Technology Pre-IPO - The Negatives - Ample Doubts Remain 



Megvii

Megvii (旷视) Pre-IPO - Remarkable Growth (Part 1) 


Megvii

Megvii (旷视) Pre-IPO - A Bet on the Future - Segments, Revenue Drivers and Growth Potential 


Megvii

Megvii (旷视) Pre-IPO - The Real Race Is in Research - Founders' Profile and Talent 


Megvii

Megvii (旷视) Pre-IPO - Competitive Landscape and Peer Analysis 


Megvii

Megvii (旷视) Pre-IPO -  Initial Thoughts on Valuation 


Ocumension

Ocumension (欧康维视) Pre-IPO: All Ready for a Great Listing Except a Block Buster 


Pop Mart

Pop Mart Pre-IPO - The Negatives - Is It a Brand Owner or Just a Retailer? 


Pop Mart

Pop Mart Pre-IPO - The Positives - Expanding Portfolio+Wider Distribution= Explosive Earnings Growth 


Pop Mart

Pop Mart Pre-IPO - Peer Set and Valuation 


Pop Mart

Pop Mart Pre-IPO Quick Note - On the Ground - Pop-Up Stores Are Effective 


RemeGen

RemeGen (荣昌生物) Pre-IPO: Thoughts on Valuation of RC18 and RC48 


Toplist

Toplist China Pre-IPO - Overwhelmingly More Negatives than Positives 


Tasly

Tasly Biopharm (天士力生物) IPO: Visible Growth from Approved Drug but Lacks Blockbusters 


WeDoctor

WeDoctor (微医) Pre-IPO -App Walk Through - The Online Medical Directory and More 


WeDoctor

WeDoctor (微医) Pre-IPO - A More Focused Online Medical Svc Provider than Ping An Good Doctor 


India


ASK

ASK Investment Managers Pre-IPO - Riding on a Wave of Wealth 


Anmol Ind
Anmol Industries Pre-IPO Quick Take - No Growth, Generous Payments to Founders


Bharat Hotel

Bharat Hotels Pre-IPO - Catching up with Peers 



Burger King

Burger King India Pre-IPO - Has Been Growing Fast and Plans to Grow Even Faster 



Burger King

Burger King India Pre-IPO - Peer Comparison Yields Interesting Nuggets on Profitability and Capex 



Bajaj En

Bajaj Energy Pre-IPO - Supposed to Deliver Steady Performance if Only Its Sole Client Would Let It 



CMS Info
CMS Info Systems Pre-IPO - When a PE Sells to Another PE... Only One Gets the Timing Right


Crystal Crop
Crystal Crop Protection Pre-IPO - DRHP Raises More Questions than in Answers


ESAF SFB

ESAF Small Finance Bank Pre-IPO - Growing Fast but Remains Highly Dependant on a Related Party 


Flemingo 
Flemingo Travel Retail Pre-IPO - Its a Different Business in Every Country


Emami Cem

Emami Cement Pre-IPO - Still in Ramp Up Phase but Shares Pledge Might Lead to an Early IPO 


IRFC

Indian Railway Finance Pre-IPO - Low Risk, Low Margin Business 


NSE
NSE IPO Preview- Not Only Fast..its Risky and Expensive


NSE
National Stock Exchange Pre-IPO Review - Bigger, Better, Stronger but a Little Too Fast for Some


Mrs. Bector
Mrs. Bectors Food Specialities Pre-IPO Quick Take - Sales for Its Main Segment Have Been Sta



LIC


Life Insurance Corporation of India Pre-IPO - Early Take on India's Largest IPO 



Lodha

Lodha Developers Pre-IPO - Second Time Lucky but Not Really that Much Affordable


Lodha
Lodha Developers IPO: Presence in Affordable Segment Saves Lodha the Blushes in a Sluggish Mkt


Penna Cem

Penna Cement - Aggressive Expansion Plans Even Though Past Performance Has Been Tepid 


PNB Met
PNB Metlife Pre-IPO Quick Take - Doesn't Stack up Well Versus Its Larger Peers


Samhi Hotels

Samhi Hotels Pre-IPO - Assets and Borrowings Are Growing, but Earnings Haven’t Kept Pace 


Malaysia


QSR
QSR Brands Pre-IPO - As Healthy as Fast Food


Thailand


PTTOR

PTT Oil and Retail IPO - F&amp;B Business Is the Profit Driver 


The U.S


CDP

CDP Holdings Pre-IPO Review - Highly Reliant on Best Inc. 


CloudMinds
CloudMinds Inc Early Thoughts - Still Nascent





ECM Weekly (15 November 2020) - JD Health, Kuaishou, CR Mixc Life, Antengene, and Placements!

<div><p>Shareholders of <a href="https://www.smartkarma.com/entities/jiumaojiu-international-holdings-limited" target="_blank" data-smartkarma-citation="entities:28293:1" rel="noopener">Jiumaojiu (9922 HK)</a> are looking to raise around US$78m by selling about 35m shares.</p></div><div><p>This is the founder's first time selling which may trigger overhang concerns. But his shares are locked up for twelve months and he still has significant skin in the game. The wide discount offered at the price range, relative to the percentage of shares sold, probably reflects the overhang concerns.</p></div><div><p>Our previous notes on the deal:</p></div><div><ul style="list-style-type: disc;">
<li>
<a href="https://www.smartkarma.com/insights/jiumaojiu-trading-off-to-a-great-start-with-638x-oversubscription" target="_blank" data-smartkarma-citation="insights:35813" rel="noopener">Jiumaojiu (九毛九) Trading - Off to a Great Start with 638x Oversubscription</a> </li>
<li>
<a href="https://www.smartkarma.com/insights/jiumaojiu-ipo-tai-er-s-strength-shines-through" target="_blank" data-smartkarma-citation="insights:35524" rel="noopener">Jiumaojiu (九毛九) IPO - Tai Er’s Strength Shines Through</a> </li>
<li><a href="https://www.smartkarma.com/insights/jiumaojiu-pre-ipo-early-thoughts-new-brand-driving-growth" target="_blank" rel="noopener">Jiumaojiu (九毛九) Pre-IPO Early Thoughts - New Brand Driving Growth</a></li>
<li>
<a href="https://www.smartkarma.com/insights/jiumaojiu-placement-right-at-lock-up-expiry" target="_blank" data-smartkarma-citation="insights:41280" rel="noopener">Jiumaojiu  (九毛九)  Placement - Right at Lock-Up Expiry</a> </li>
</ul></div>

Shareholders of Jiumaojiu (9922 HK) are looking to raise around US$78m by selling about 35m shares.This is the founder's first time selling which may trigger overhang concerns. But his shares are locked up for twelve months and he still has significant skin in the game. The wide discount offered at the price range, relative to the percentage of shares sold, probably reflects the overhang concerns.Our previous notes on the deal:

Jiumaojiu (九毛九) Trading - Off to a Great Start with 638x Oversubscription 

Jiumaojiu (九毛九) IPO - Tai Er’s Strength Shines Through 
Jiumaojiu (九毛九) Pre-IPO Early Thoughts - New Brand Driving Growth

Jiumaojiu  (九毛九)  Placement - Right at Lock-Up Expiry 


Jiumaojiu (九毛九) Placement - Founder and Employees Selling

Quality-first, Business-perspective Strategy, Urbem (HK) Limited

Steven Chen

Quality-first, Business-perspective Strategy

<ul>
<li>Founder-led businesses are supposed to receive more appreciation among investors;</li>
<li>It would be intriguing to explore how Chinese founders and business owners pay themselves, as executive compensation is a significant part of corporate governance, a common weakness among most Chinese public companies;</li>
<li>We examine a pool of selected value-generative, founder-led, Chinese businesses across industries, and market caps to demonstrate the similarity and any dissimilarity.</li>
</ul>


Founder-led businesses are supposed to receive more appreciation among investors;
It would be intriguing to explore how Chinese founders and business owners pay themselves, as executive compensation is a significant part of corporate governance, a common weakness among most Chinese public companies;
We examine a pool of selected value-generative, founder-led, Chinese businesses across industries, and market caps to demonstrate the similarity and any dissimilarity.


<ul>
<li>Warren Buffett's dream business, well exemplified by Berkshire's See's Candies, is the one that can deliver a sizable increase in earnings power through minimal capital reinvested;</li>
<li>The quality above is what exactly is missing among most Chinese companies these days, in our opinion;</li>
<li>Nonetheless, we managed to land on three businesses that share such a rare characteristic.</li>
</ul>


Warren Buffett's dream business, well exemplified by Berkshire's See's Candies, is the one that can deliver a sizable increase in earnings power through minimal capital reinvested;
The quality above is what exactly is missing among most Chinese companies these days, in our opinion;
Nonetheless, we managed to land on three businesses that share such a rare characteristic.


Three Chinese Stocks that Meet Warren Buffett's Definition Of "Dream Business"

China

Jiumaojiu International Holdings Limited operates as a holding company. The Company, through its subsidiaries, focuses on manufactures food products. Jiumaojiu International Holdings serves customers in China.

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Jiumaojiu (9922 HK)

Chinese Airlines: Domestic Market Gets a Little Challenging in the Near Term, How to Play It?

Slowed domestic air traffic in Dec and rise in local COVID-19 cases mean more challenging environment in the next two months. "Long Air China,...

Osbert Tang, CFA

ECM Weekly (15 November 2020) - JD Health, Kuaishou, CR Mixc Life, Antengene, and Placements!

Much has happened since Ant's IPO got pulled. VIE structure may be at risk and HK ECM practices could get a squeeze from new code of conduct for...

Zhen Zhou, Toh

Jiumaojiu (九毛九) Placement - Founder and Employees Selling

This is the founder's first time selling which may trigger overhang concerns. But his shares are locked up for twelve months and he still has...

Zhen Zhou, Toh

How Chinese Founders Pay Themselves

Take a look at how Chinese founders and business owners pay themselves and gauge the soundness of corporate governance among founder-operated and...

Steven Chen

Three Chinese Stocks that Meet Warren Buffett's Definition Of "Dream Business"

We have developed two primary metrics to gauge the "dream business" quality of business: i.e., the return on retained earnings and the incremental...

Steven Chen

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