Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Equity Capital Markets

Hygeia Healthcare Group / Equity Capital Markets

<div>
<p>For primary listings in Hong Kong, there are standard rules as to the lock-up duration. There are exceptions - lock-ups can be entered into and negotiated with underwriters, as is often the case for secondary listings.</p>
<p>There are other quirks such as specific lock-ups with respect to share incentive schemes, such as in <a href="https://www.smartkarma.com/entities/shenzhen-hepalink-pharmaceutical-h" target="_blank" data-smartkarma-citation="entities:29142:1" rel="noopener">Shenzhen HepaLink Pharmaceutical (H) (9989 HK)</a>, which have their own unique lock-up period - although in this case, the % of shares out (0.31%) affected  is largely immaterial. </p>
</div>
<div>
<p>According to <a href="https://en-rules.hkex.com.hk/rulebook/1007-0" target="_blank" rel="noopener">Main Board Rule 10.07(1)</a> (or <a href="https://en-rules.hkex.com.hk/rulebook/1316a" target="_blank" rel="noopener">GEM rule 13.16A(1)</a>), if a person/group of persons is/are listed as the controlling shareholder(s) of the issuer's listing application, they must adhere to a 6-month lock-up from the date of listing.</p>
</div>
<div>
<p>For cornerstone investors, the following is often stated in the share offer document:</p>
</div>
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<blockquote>
<p>Each of the Cornerstone Investors has agreed that it will not, whether directly or indirectly, at any time during the period of six months from and including the Listing Date (the “Lock-up Period”), dispose of any of the Offer Shares they have purchased pursuant to the relevant Cornerstone Investment Agreements, save for certain limited circumstances ... <br>Hepalink's <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0624/2020062400097.pdf" target="_blank" rel="noopener">Global Offering Doc</a> (page 403)</p>
</blockquote>
</div>
<div>
<p>Every week in my <a href="https://www.smartkarma.com/compose/insight/46538/Last%20Week%20in%20Event%20SPACE:%20Japan%20Post,%20JD.com,%20Toyota,%20NTT,%20Jardines,%20Indices/Exec.%20Orders,%20Tianneng.%20Read%20more:%20https:/skr.ma/vhr6W" target="_blank" rel="noopener">Event SPACE</a> wrap, I flag large moves (~10%) in CCASS holdings over the past week or so, moves that are often outside normal market transactions.  These may be indicative of share pledges.  Or potential takeovers. Or simply help understand volume swings. </p>
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<p>Large movement(s) concerning recently listed companies are likely lock-up related. </p>
</div>
<div>
<p>This monthly insight looks at companies that have been listed for around six months, as a guide to when insiders/controlling shareholders are permitted to sell, potentially creating an overhang which could depress prices.</p>
<p>I've also constructed a chart highlighting the performance of IPOs leading up to their lock-up, and compared this to the HSI index. The results are interesting. Spoiler - recent IPOs underperform. </p>
</div>
<div>
<p>A summary of Main Board listings in 2020 is also attached at the bottom of this insight.</p>
<p>More below the fold.</p>
</div>


For primary listings in Hong Kong, there are standard rules as to the lock-up duration. There are exceptions - lock-ups can be entered into and negotiated with underwriters, as is often the case for secondary listings.
There are other quirks such as specific lock-ups with respect to share incentive schemes, such as in Shenzhen HepaLink Pharmaceutical (H) (9989 HK), which have their own unique lock-up period - although in this case, the % of shares out (0.31%) affected  is largely immaterial. 


According to Main Board Rule 10.07(1) (or GEM rule 13.16A(1)), if a person/group of persons is/are listed as the controlling shareholder(s) of the issuer's listing application, they must adhere to a 6-month lock-up from the date of listing.


For cornerstone investors, the following is often stated in the share offer document:



Each of the Cornerstone Investors has agreed that it will not, whether directly or indirectly, at any time during the period of six months from and including the Listing Date (the “Lock-up Period”), dispose of any of the Offer Shares they have purchased pursuant to the relevant Cornerstone Investment Agreements, save for certain limited circumstances ...  Hepalink's Global Offering Doc (page 403)



Every week in my Event SPACE wrap, I flag large moves (~10%) in CCASS holdings over the past week or so, moves that are often outside normal market transactions.  These may be indicative of share pledges.  Or potential takeovers. Or simply help understand volume swings. 


Large movement(s) concerning recently listed companies are likely lock-up related. 


This monthly insight looks at companies that have been listed for around six months, as a guide to when insiders/controlling shareholders are permitted to sell, potentially creating an overhang which could depress prices.
I've also constructed a chart highlighting the performance of IPOs leading up to their lock-up, and compared this to the HSI index. The results are interesting. Spoiler - recent IPOs underperform. 


A summary of Main Board listings in 2020 is also attached at the bottom of this insight.
More below the fold.


Hong Kong IPOs: Lock-Up Expiries (December 2020 Edition)

Equity Analyst, LightStream Research

Oshadhi Kumarasiri

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.

Litian Pictures Holdings Ltd / Equity Capital Markets

<p>Chinese drama series distribution company, <a href="https://www.smartkarma.com/entities/litian-pictures-holdings-ltd" target="_blank" data-smartkarma-citation="entities:29040:1" rel="noopener">Litian Pictures Holdings Ltd (9958 HK)</a> is planning to raise HK$ 192-288m via a Hong Kong IPO. The company will issue 75m (27.71% of post-IPO shares outstanding) new shares (excluding an overallotment option of 11.25m shares) at an offer price range of HK$ 2.56-3.84 per share to raise funds primarily for content production and purchase. Book building ends on 15<sup>th</sup> June 2020 at 12.00 noon. The IPO price will be announced on 19<sup>th</sup> June, and the shares are expected to start trading from 22<sup>nd</sup> June 2020.</p><table class="table table-striped"><tbody>
<tr>
<td style="width: 230.0pt;"><p><strong>Litian Pictures Holdings Limited</strong></p></td>
<td style="width: 49.0pt;"><p style="text-align: right;"><strong>Low</strong></p></td>
<td style="width: 55.0pt;"><p style="text-align: right;"><strong>High</strong></p></td>
</tr>
<tr>
<td style="width: 230.0pt;"><p>IPO Price Range – HK$</p></td>
<td style="width: 49.0pt;"><p style="text-align: right;">2.56</p></td>
<td style="width: 55.0pt;"><p style="text-align: right;">3.84</p></td>
</tr>
<tr>
<td style="width: 230.0pt;"><p>Post-IPO Shares Outstanding (in millions)</p></td>
<td style="width: 49.0pt;"><p style="text-align: right;">300</p></td>
<td style="width: 55.0pt;"><p style="text-align: right;">300</p></td>
</tr>
<tr>
<td style="width: 230.0pt;"><p>Market Capitalisation - Post Money (HK$m)</p></td>
<td style="width: 49.0pt;"><p style="text-align: right;">768</p></td>
<td style="width: 55.0pt;"><p style="text-align: right;">1,152</p></td>
</tr>
<tr>
<td style="width: 230.0pt;"><p>Net Debt/Cash - Post Money (HK$m)</p></td>
<td style="width: 49.0pt;"><p style="text-align: right;">-6</p></td>
<td style="width: 55.0pt;"><p style="text-align: right;">-15</p></td>
</tr>
<tr>
<td style="width: 230.0pt;"><p>EV - Post Money (HK$m)</p></td>
<td style="width: 49.0pt;"><p style="text-align: right;">762</p></td>
<td style="width: 55.0pt;"><p style="text-align: right;">1,137</p></td>
</tr>
<tr>
<td style="width: 230.0pt;"><p>EV/Revenue - FY2019</p></td>
<td style="width: 49.0pt;"><p style="text-align: right;">1.8</p></td>
<td style="width: 55.0pt;"><p style="text-align: right;">2.7</p></td>
</tr>
<tr>
<td style="width: 230.0pt;"><p>EV/EBITDA - FY2019</p></td>
<td style="width: 49.0pt;"><p style="text-align: right;">6.1</p></td>
<td style="width: 55.0pt;"><p style="text-align: right;">9.1</p></td>
</tr>
<tr>
<td style="width: 230.0pt;"><p>P/Tangible BV</p></td>
<td style="width: 49.0pt;"><p style="text-align: right;">4.3</p></td>
<td style="width: 55.0pt;"><p style="text-align: right;">6.1</p></td>
</tr>
</tbody></table><div class="content-caption"><em>Source: Company Disclosures, *EV/EBITDA excludes IPO related consultancy fees</em></div><p><strong>Use of Proceeds </strong></p><ul>
<li>Approximately 50.0% (or HK$94m) will be used to produce 7 drama series and 4 web series across several major genres.</li>
<li>37.5% (or HK$71m) will be used to purchase copyrights (or broadcasting rights) of drama series produced by third parties.</li>
<li>7.5% (or HK$14m) will be used to expand the headcount of experienced professionals.</li>
<li>5.0% (or HK$9m) will be used to fund working capital and general corporate needs.</li>
</ul>

Chinese drama series distribution company, Litian Pictures Holdings Ltd (9958 HK) is planning to raise HK$ 192-288m via a Hong Kong IPO. The company will issue 75m (27.71% of post-IPO shares outstanding) new shares (excluding an overallotment option of 11.25m shares) at an offer price range of HK$ 2.56-3.84 per share to raise funds primarily for content production and purchase. Book building ends on 15th June 2020 at 12.00 noon. The IPO price will be announced on 19th June, and the shares are expected to start trading from 22nd June 2020.

Litian Pictures Holdings Limited
Low
High


IPO Price Range – HK$
2.56
3.84


Post-IPO Shares Outstanding (in millions)
300
300


Market Capitalisation - Post Money (HK$m)
768
1,152


Net Debt/Cash - Post Money (HK$m)
-6
-15


EV - Post Money (HK$m)
762
1,137


EV/Revenue - FY2019
1.8
2.7


EV/EBITDA - FY2019
6.1
9.1


P/Tangible BV
4.3
6.1

Source: Company Disclosures, *EV/EBITDA excludes IPO related consultancy feesUse of Proceeds 
Approximately 50.0% (or HK$94m) will be used to produce 7 drama series and 4 web series across several major genres.
37.5% (or HK$71m) will be used to purchase copyrights (or broadcasting rights) of drama series produced by third parties.
7.5% (or HK$14m) will be used to expand the headcount of experienced professionals.
5.0% (or HK$9m) will be used to fund working capital and general corporate needs.


Litian Pictures Holdings IPO Valuation: Overvalued at 4.3-6.1x Price To Tangible Book Value

Hong Kong

Litian Pictures Holdings Limited operates as a drama series distribution company. The Company provides drama series scripts selling, drama distribution agent, drama investing services, and other services. Litian Pictures Holdings offers services in China.

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Litian Pictures Holdings Ltd (9958 HK)

Hong Kong IPOs: Lock-Up Expiries (December 2020 Edition)

There exist the "moral hazard" around the expiry of lock-up periods. In 2020, IPO's have on average underperformed the HSI heading into the lock...

David Blennerhassett

Litian Pictures Holdings IPO Valuation: Overvalued at 4.3-6.1x Price To Tangible Book Value

Chinese drama series distribution company, Litian Pictures Holdings Ltd (9958 HK) is planning to raise HK$ 192-288m via a Hong Kong IPO. The...

Oshadhi Kumarasiri

Price Gauge

52-week Range

Market Cap (USDm)

P/E

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