IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

Equity Capital Markets

17 Education & Technology Grou / Equity Capital Markets

<div><p><a href="https://www.smartkarma.com/entities/17-education-and-technology-group-inc" target="_blank" data-smartkarma-citation="entities:31033:1" rel="noopener">17 Education and Technology (YQ US)</a> is an online leading education technology company in China. It ranked fifth in online K-12 large-class after-school tutoring market as measured by gross billing and paid course enrolments in 2019 and 1H20, according to Frost &amp; Sullivan.</p></div><div><p>17 Education has launched its IPO at a price range of $9.50-11.50 per ADS. At the mid-point of the IPO price range, 17 Education will raise net proceeds of $265.2 million. Indications of interest have been received for up to $80 million of the offer shares from the CPE Fund, which is managed by China Pinnacle Equity Management. The IPO will be priced on 3 December. </p></div><div><div><div class="content-highlight"><p>In <a href="https://www.smartkarma.com/insights/17-education-technology-ipo-initiation-acquired-taste" target="_blank" data-smartkarma-citation="insights:45820" rel="noopener">17 Education &amp; Technology IPO Initiation: Acquired Taste</a>, we stated that investing in the China online education sector requires acceptance that the high upfront losses are a necessary evil which should generate returns through the lifetime value of K-12 students. For investors comfortable with this dynamic, we believe that 17 Education has attractive fundamentals. Our valuation analysis suggests that the IPO price is attractive. </p></div></div></div>

17 Education and Technology (YQ US) is an online leading education technology company in China. It ranked fifth in online K-12 large-class after-school tutoring market as measured by gross billing and paid course enrolments in 2019 and 1H20, according to Frost &amp; Sullivan.17 Education has launched its IPO at a price range of $9.50-11.50 per ADS. At the mid-point of the IPO price range, 17 Education will raise net proceeds of $265.2 million. Indications of interest have been received for up to $80 million of the offer shares from the CPE Fund, which is managed by China Pinnacle Equity Management. The IPO will be priced on 3 December. In 17 Education &amp; Technology IPO Initiation: Acquired Taste, we stated that investing in the China online education sector requires acceptance that the high upfront losses are a necessary evil which should generate returns through the lifetime value of K-12 students. For investors comfortable with this dynamic, we believe that 17 Education has attractive fundamentals. Our valuation analysis suggests that the IPO price is attractive. 

17 Education & Technology IPO: Valuation Insights

Pan-Asia Index Flows & Special Situations, Quiddity Advisors

Janaghan Jeyakumar, CFA

Pan-Asia Index Flows & Special Situations

Quiddity Advisors

Pan-Asia Catalysts/Events

Event-Driven

China Distance Education Holdings Ltd (ADR) / Event-Driven

China Distance Education Holdings Ltd (ADR)

<p>On 8th June, the top shareholders of <a href="https://www.smartkarma.com/entities/china-distance-education-hldgs-ltd-adr" target="_blank" data-smartkarma-citation="entities:9679:1" rel="noopener">China Distance Education Hldgs Ltd (Adr) (DL US)</a>, Mr.Zhengdong Zhu and his spouse Ms. Baohong Yin, made a "<em><a href="http://ir.cdeledu.com/news_en/PressReleases_en/li2006087242.shtml" target="_blank" rel="noopener">Preliminary Non-Binding Proposal</a></em>" to acquire all the outstanding shares of the company. </p><p>The Offer Price will be US$9.08 in cash per ADS (US$2.27 per ordinary share) and this translates to an implied market cap of US$307mn for the company. </p><p>The Target board has said it had "<em>just received the Proposal Letter and has not had an opportunity to carefully review and evaluate the proposal or make any decision with respect to the Company’s response to the proposal"</em>. </p><p>At the time of writing, the company's shares are at US$8.21 - approximately 9.6% below the Offer Price (10.6% upside).</p><p>In this insight, we take a look at the details of the proposal to evaluate the likelihood of this Deal going through.</p><p>More below the fold. </p>

On 8th June, the top shareholders of China Distance Education Hldgs Ltd (Adr) (DL US), Mr.Zhengdong Zhu and his spouse Ms. Baohong Yin, made a "Preliminary Non-Binding Proposal" to acquire all the outstanding shares of the company. The Offer Price will be US$9.08 in cash per ADS (US$2.27 per ordinary share) and this translates to an implied market cap of US$307mn for the company. The Target board has said it had "just received the Proposal Letter and has not had an opportunity to carefully review and evaluate the proposal or make any decision with respect to the Company’s response to the proposal". At the time of writing, the company's shares are at US$8.21 - approximately 9.6% below the Offer Price (10.6% upside).In this insight, we take a look at the details of the proposal to evaluate the likelihood of this Deal going through.More below the fold. 

China Distance Education (DL US): Takeover Proposal by the Founders

<p><a href="https://www.smartkarma.com/entities/youdao-inc" target="_blank" data-smartkarma-citation="entities:28315:1" rel="noopener">Youdao (DAO US)</a> is the online learning unit of <a href="https://www.smartkarma.com/entities/netease-inc-adr" target="_blank" data-smartkarma-citation="entities:17203:1" rel="noopener">Netease Inc (Adr) (NTES US)</a>, a 66% shareholder. Youdao has launched its IPO at an indicative price range of $15-18 per ADS. Along with a $125 million concurrent private placement, the net proceeds are $208.5 million at the mid-point of the IPO price range.</p><div class="content-highlight"><p>In <a href="https://www.smartkarma.com/insights/youdao-ipo-initiation-chasing-growth-at-all-costs" target="_blank" rel="noopener">our initiation note</a>, we noted that Youdao sits squarely in the growth-at-all-costs, highly-valued private companies category. We believe that Youdao's fundamentals struggle to justify its last private valuation round, let alone any aspiration to come to the public markets with an excessive valuation. Overall, our valuation analysis suggests that the IPO price range is unattractive.</p></div>

Youdao (DAO US) is the online learning unit of Netease Inc (Adr) (NTES US), a 66% shareholder. Youdao has launched its IPO at an indicative price range of $15-18 per ADS. Along with a $125 million concurrent private placement, the net proceeds are $208.5 million at the mid-point of the IPO price range.In our initiation note, we noted that Youdao sits squarely in the growth-at-all-costs, highly-valued private companies category. We believe that Youdao's fundamentals struggle to justify its last private valuation round, let alone any aspiration to come to the public markets with an excessive valuation. Overall, our valuation analysis suggests that the IPO price range is unattractive.

Youdao IPO: Valuation Calls for a Compulsory Re-Education

APAC IPOs & Placements

Zhen Zhou, Toh

Smartkarma

Smartkarma unites the fragmented investment industry, connecting institutional investors, independent research providers, and corporates within a single network.

Research Reinvented

<p><a href="https://www.smartkarma.com/entities/27137" target="_blank" data-smartkarma-citation="entities:27137:1">Puxin Ltd (NEW US)</a> is looking to raise up to US$144m in its upcoming IPO. Proceeds will be mostly used for strategic acquisitions with any remaining cash used for general corporate purposes.</p><p>Adding up all the acquisitions that the company has made since 2015 implies that the company is asking for an IPO valuation that is 4.9x of its total acquisition costs. Even if we assume that the acquisitions from 2015 and 2016 have grown by 5x, investors are essentially paying for a valuation that implies that Puxin can grow its FY2017 acquisitions by 4.8x which seems to be a stretch given the limited track record of the company.</p><p>In this insight, we will be looking at the company's overall financial performance, examine its acquisitions, compare the company against listed education peers. As usual, we will also run the deal through our ECM framework.</p>

Puxin Ltd (NEW US) is looking to raise up to US$144m in its upcoming IPO. Proceeds will be mostly used for strategic acquisitions with any remaining cash used for general corporate purposes.Adding up all the acquisitions that the company has made since 2015 implies that the company is asking for an IPO valuation that is 4.9x of its total acquisition costs. Even if we assume that the acquisitions from 2015 and 2016 have grown by 5x, investors are essentially paying for a valuation that implies that Puxin can grow its FY2017 acquisitions by 4.8x which seems to be a stretch given the limited track record of the company.In this insight, we will be looking at the company's overall financial performance, examine its acquisitions, compare the company against listed education peers. As usual, we will also run the deal through our ECM framework.

Puxin Education IPO Review - Asking for 4.9x of Company's Total Acquisition Cost Since 2015

Investment Advisors, JL Warren Capital

Junheng Li

Investment Advisors

JL Warren Capital

JL Warren Capital LLC is a leading independent equity research firm focused on Chinese companies and listed multinationals in China. We employ a bottom-up research approach that takes great care to avoid the acquisition of material non-public information. Through investigative due diligence including channel surveys and interviews, our research helps clients to pinpoint the dislocations in the market.

Equity Bottom-Up

<p>This note is not intended to be a preview of <a href="https://www.smartkarma.com/entities/1124" target="_blank" data-smartkarma-citation="entities:1124:1">TAL Education Group (TAL US)</a> FQ4 2018 (ended Feb 28, 2018) in coming weeks. Recently, management has been sharing its optimism of existing business performance and online expansion strategy with some investors.  This note focuses on the impact of latest policy changes on TAL growth strategy in the medium- to long-term.  While we are optimistic about the vast potential of the K12 tutoring services industry, as well as TAL’s historical execution, we are cautious about the company’s exposure to the government’s volatile policy changes and its restructuring effort to manage the risks in the short term. </p><p> </p><p>TAL is one the most expensive stocks among Chines ADR universe, trading at ~50x P/FY 2019E.  The premium valuation is driven by investors’ confidence that TAL will continue to take share in China’s large but fragmented tutoring service market, and that the company’s earnings growth will remain sustainable for years to come. However, we believe that policy volatility and restructuring risks can and should mute the optimism, causing valuation de-rating in the short-term.  Risk reward, TAL is not a long for the next 3-6 months, in our view.</p>

This note is not intended to be a preview of TAL Education Group (TAL US) FQ4 2018 (ended Feb 28, 2018) in coming weeks. Recently, management has been sharing its optimism of existing business performance and online expansion strategy with some investors.  This note focuses on the impact of latest policy changes on TAL growth strategy in the medium- to long-term.  While we are optimistic about the vast potential of the K12 tutoring services industry, as well as TAL’s historical execution, we are cautious about the company’s exposure to the government’s volatile policy changes and its restructuring effort to manage the risks in the short term.  TAL is one the most expensive stocks among Chines ADR universe, trading at ~50x P/FY 2019E.  The premium valuation is driven by investors’ confidence that TAL will continue to take share in China’s large but fragmented tutoring service market, and that the company’s earnings growth will remain sustainable for years to come. However, we believe that policy volatility and restructuring risks can and should mute the optimism, causing valuation de-rating in the short-term.  Risk reward, TAL is not a long for the next 3-6 months, in our view.

TAL Education: Policy Headwind and Restructuring Risks

China

NaaS Technology Inc. operates as an electric vehicle charging services provider. The Company serves customers in China.

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NaaS Technology (NAAS US)

17 Education & Technology IPO: Valuation Insights

17 Education has launched its IPO at a price range of $9.50-11.50 per ADS. Our valuation analysis suggests that the IPO price is attractive.

Arun George

China Distance Education (DL US): Takeover Proposal by the Founders

On 8th June, the top shareholders of China Distance Education Hldgs Ltd (Adr) (DL US), Mr.Zhengdong Zhu and his spouse Ms. Baohong Yin, made a...

Janaghan Jeyakumar, CFA

Youdao IPO: Valuation Calls for a Compulsory Re-Education

Youdao (DAO US) is the online learning unit of Netease Inc (Adr) (NTES US), a 66% shareholder. Youdao has launched its IPO at an indicative price...

Arun George

Puxin Education IPO Review - Asking for 4.9x of Company's Total Acquisition Cost Since 2015

Puxin Ltd (NEW US) is looking to raise up to US$144m in its upcoming IPO. Proceeds will be mostly used for strategic acquisitions with any...

Zhen Zhou, Toh

TAL Education: Policy Headwind and Restructuring Risks

This note is not intended to be a preview of TAL Education Group (TAL US) FQ4 2018 (ended Feb 28, 2018) in coming weeks. Recently, management has...

JL Warren Capital

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