Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

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

Alibaba Group Holding  / Equity Capital Markets

<p>2020 marked our second full year of operations as an Independent Research Company, and our fifth year covering Equity Capital Markets (ECM). While the year started off on a precarious note for ECM, it ended with very strong momentum. Even as IPOs have hogged the limelight in 2020, we actually ended up covering more than twice the number of placements as IPOs. </p><p>We ended 2020 with an accuracy rate of 72.7% across 88 IPOs that we covered and 70.1% across 174 placements. While our placements hit rate improved, our IPO hit rate took a dip from 2019.</p><p>For those not familiar with our coverage, we aim to cover all IPOs and placements with a minimum deal size of US$100m across Asia-Pacific (ex-Korea), including China ADRs.</p>

2020 marked our second full year of operations as an Independent Research Company, and our fifth year covering Equity Capital Markets (ECM). While the year started off on a precarious note for ECM, it ended with very strong momentum. Even as IPOs have hogged the limelight in 2020, we actually ended up covering more than twice the number of placements as IPOs. We ended 2020 with an accuracy rate of 72.7% across 88 IPOs that we covered and 70.1% across 174 placements. While our placements hit rate improved, our IPO hit rate took a dip from 2019.For those not familiar with our coverage, we aim to cover all IPOs and placements with a minimum deal size of US$100m across Asia-Pacific (ex-Korea), including China ADRs.

Aequitas 2020 IPOs and Placements Performance - IPOs in the Limelight but Placements Stole the Show

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.

Equity Bottom-Up

<ul>
<li>Singapore based internet company, <a href="https://www.smartkarma.com/entities/sea-ltd" target="_blank" data-smartkarma-citation="entities:8509:1" rel="noopener">Sea Ltd (SE US)</a>, benefitted from the COVID-19 pandemic as Sea’s three main businesses lines, mobile gaming platform called Garena, an e-commerce platform called Shopee and a fintech business called SeaMoney experienced a rapid acceleration of revenue growth following the COVID-19 outbreak. As a result, the company’s share price surged over 400% during 2020.</li>
<li>In two previous insights on Sea Ltd, we analysed the fundamentals and long-term prospects of the company’s main business lines. This insight focuses on Sea’s valuation.</li>
</ul>


Singapore based internet company, Sea Ltd (SE US), benefitted from the COVID-19 pandemic as Sea’s three main businesses lines, mobile gaming platform called Garena, an e-commerce platform called Shopee and a fintech business called SeaMoney experienced a rapid acceleration of revenue growth following the COVID-19 outbreak. As a result, the company’s share price surged over 400% during 2020.
In two previous insights on Sea Ltd, we analysed the fundamentals and long-term prospects of the company’s main business lines. This insight focuses on Sea’s valuation.


Sea Ltd Valuation: SOTP Suggests Over 40% Downside Risk

Overseas Chinese Equities, Aequitas Research

Ming Lu

Overseas Chinese Equities

<ul class="">
<li>Tencent’s games had disappeared on Huawei’s app store for one day.</li>
<li>The State Administration of Market Regulation fined Alibaba, JD.com, and Vipshop RMB500,000 each for “unfair pricing”.</li>
<li>The Ministry of Culture and Tourism announced that it would continue the suspension of cross-border group tour during the vacations of the New Year’s Day and the Chinese New Year.</li>
</ul>


Tencent’s games had disappeared on Huawei’s app store for one day.
The State Administration of Market Regulation fined Alibaba, JD.com, and Vipshop RMB500,000 each for “unfair pricing”.
The Ministry of Culture and Tourism announced that it would continue the suspension of cross-border group tour during the vacations of the New Year’s Day and the Chinese New Year.


China Internet Weekly (4Jan2021): Tencent’s Conflict with Huawei, Authorities’ Ban on New Year Tour

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.

<div><p><a href="https://www.smartkarma.com/entities/yidu-tech-inc" target="_blank" data-smartkarma-citation="entities:29245:1" rel="noopener">Yidu Tech Inc (2158 HK)</a> is a software company that offers healthcare solutions built on big data and artificial intelligence (AI) technologies. Yidu ranked No.1 in terms of revenue among all healthcare big data solution providers in China in 2019 with a market share of 5.0% in the healthcare big data solutions market in China, according to EY. At the proposed IPO price range of HK$23.50-26.30 per share, Yidu will have a market cap of HK$21,191.4-23,716.3 million ($2.7-3.1 billion). At the mid-point of the IPO price range, the total net proceeds are HK$3,691.7 million ($476 million). </p></div><div><p>Eight cornerstone investors will subscribe for $210 million of the offer shares (41.78% of the offer shares at the mid-point of the price range). The cornerstone investors are OrbiMed, Canada Pension Plan Investment Board, Brunei Investment Agency, <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent Holdings (700 HK)</a>, Kerry Holdings, Matthews Funds, 3W Fund Management and China Orient Asset Management.</p></div><div><div><div class="content-highlight"><p>In <a href="https://www.smartkarma.com/insights/yidu-tech-ipo-initiation-patient-revolution" target="_blank" data-smartkarma-citation="insights:46392" rel="noopener">Yidu Tech IPO Initiation: Patient Revolution</a>, we stated that Yidu is an attractive play on China’s healthcare industry rising spend on IT and data services. Overall, we would participate in the IPO due to an attractive IPO price range.</p></div></div></div>

Yidu Tech Inc (2158 HK) is a software company that offers healthcare solutions built on big data and artificial intelligence (AI) technologies. Yidu ranked No.1 in terms of revenue among all healthcare big data solution providers in China in 2019 with a market share of 5.0% in the healthcare big data solutions market in China, according to EY. At the proposed IPO price range of HK$23.50-26.30 per share, Yidu will have a market cap of HK$21,191.4-23,716.3 million ($2.7-3.1 billion). At the mid-point of the IPO price range, the total net proceeds are HK$3,691.7 million ($476 million). Eight cornerstone investors will subscribe for $210 million of the offer shares (41.78% of the offer shares at the mid-point of the price range). The cornerstone investors are OrbiMed, Canada Pension Plan Investment Board, Brunei Investment Agency, Tencent Holdings (700 HK), Kerry Holdings, Matthews Funds, 3W Fund Management and China Orient Asset Management.In Yidu Tech IPO Initiation: Patient Revolution, we stated that Yidu is an attractive play on China’s healthcare industry rising spend on IT and data services. Overall, we would participate in the IPO due to an attractive IPO price range.

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven


Last Week in Event SPACE ...



The list of China Military Cos in which US persons are banned from investing continues to be a VERY big deal. It would be best to operate on a "better safe than sorry" basis. If you were not already out of these names, get out as soon as possible. 

Haier Smart Home (600690 CH)'s H/A discount has only been narrower on three trading days in the past year, all of which occurred in the second half of July, ahead of the pre-conditional proposal. to privatise Haier Electronics Group Co (1169 HK).

Avex Inc (7860 JP)'s ToSTNeT-3 stock repurchase would indicate activist Dalton exiting.

Beijing Jingneng Clean Energy (579 HK) is trading wide to terms following the despatch of the Composite Doc.
We still have a very large look-through discount on Naspers (NPN SJ).  As March approaches, the likelihood that investors realise there could be another large offering increases, which could put pressure on Tencent Holdings (700 HK) shares.
Plus, other events, CCASS movements, and Mood Spins.



(This insight covers specific insights &amp; comments involving Stubs, Pairs, Arbitrage, share Classifications, and Events - or SPACE - in the past week)




EVENTS




OFAC Makes a Longer List of Trump Names of China Military Cos
On the 12th of November, newly lame-duck US president Donald Trump signed an Executive Order (Executive Order on Addressing the Threat from Securities Investments that Finance Communist Chinese Military Companies) banning investment and capital provision by "US persons" to companies in lists established by the US Department of Defense. New guidance from OFAC has been released. Based on these updates, Travis expects that MSCI, FTSE, and S&amp;P will likely have to delete the major telcos, including China Unicom Hong Kong (762 HK), China Mobile (941 HK), and China Telecom Corp Ltd (H) (728 HK) as well as CNOOC Ltd (883 HK). I expect that they would have to delete China Tower (788 HK) as well because it is more than 50% owned by the three major telcos. Cgn Power Co Ltd H (1816 HK) appears not to be addressed in previous iterations of the index providers lists but I expect it gets the boot. 

Travis estimates roughly 20-25% of the float of major names appears to be held by US persons. And it isn't just index holders who have to sell. Other major fundamental holders ALSO have to sell. This event creates a multitude of problems which need to be addressed. The index holders "have to" sell at the time the names are deleted from the indices.
Hedge funds which would normally buy the dip are stuck too. They have US investors. If they do not, they might be OK, but normally hedge funds which buy the dip also have to sell to someone later, and all US persons may be out of commission for a while. Hedge funds who own long positions or short positions would have to unwind them if they have US persons as fund investors, or as SMA clients. Hedge funds, pensions, and other investors who have long or short positions in futures and options which are linked to these indices will also have to liquidate their positions.


Overall, it is a BIG list of names targeted (Travis has a list of 133 names, most of which appear to be 50+% controlled, which could be affected in portfolios). Investors would do well to understand how much of the float is for sale.



(link to Travis' insight: OFAC Makes a Longer List of Trump Names of China Military Cos)




SHARE CLASS





Haier Smart Home (600690 CH) (HSH) / Haier Smart Home Co Ltd (6690 HK) 

On the 31 July this year, Haier Electronics Group Co (1169 HK) (HEG) announced a pre-conditional Scheme such that HEG shareholders would receive 1.6 new HSH H shares plus HK$1.95 in cash.  HEG's shares were suspended on the 11 December subsequent to its privatisation, with an implied look-through discount for HSH's H shares to the As of  30.4%. The Hs received by HEG shareholders commenced trading under the code Haier Smart Home Co Ltd (6690 HK) on the 23 December with a closing discount to the As of 22.1%. It was 21.6% at the time of my insight. This is not sustainable. 




What is a "fair" discount for the Hs? The mid-point price from the independent valuer of $38.03 - see page 75 - implied a 32% discount - H to the As. The average A/H premium for the Hang Seng Stock Connect China AH Premium Index is currently ~43%, or a ~31% discount. 
Key peer Hisense Home Appliances Group Co., Ltd. H (921 HK) is trading at a ~37% discount to  Hisense Kelon Electrical-A (000921 CH) versus a one-year average of 32%. 


A  basket of liquid A/Hs trade at a 44% discount and one of HSH's closest peers is at 37%. The implied discount via the independent advisor was 32%.


The trade here is to short the Hs and go long the As, with a target discount of at least 30%. 



(link to my insight: Haier Smart Homes (6690 HK): H-Shares Trading Tight To A-Shares)




M&amp;A - ASIA





China Logistics Property Holdings (1589 HK) (CLPH) (Mkt Cap: $1.7bn; Liquidity: $1mn)




CLPH has announced its two largest shareholders - Li Shifa (chairman, holding ~28.2%) and RRJ Capital (~22.8%) - are "conducting a preliminary strategic review of their stakes in the Company, which involves up to approximately 51.5% shareholding of the Company." The media is reporting these two shareholders are seeking a 20% premium to the unaffected price or around ~$4.70/share, roughly a four-year high. A sale could potentially trigger an unconditional mandatory general offer; or it may be structured by way of a Scheme in which Li/RRJ provide irrevocables to vote in favour of the delisting resolutions.


 CLPH is trading at a FY20E/FY21E EV/EBITDA of 35x/31x vs. 20x/18x for peers.  CLPH has consistently traded at a premium to peers on an EV/EBITDA metric. Daniel Hellberg analyses CLPH's EV/portfolio (the book value of property, equity investments, PP&amp;E). A further 20-25% upside from here places CLPH EV/portfolio at ~1x versus 1.2x for GLP at the time of its privatisation.
This is, as yet, a pre-event. There is no guarantee an Offer is forthcoming. Yet the company is very much in play, one that is likely to garner considerable interest from prospective suitors given the scarcity of logistic asset disposals. I would be buying the dips here, with a possible fair value range of $4.75-HK$5.00.





links to: Daniel Hellberg's insight: Major Shareholders of CLPH (1589:HK) Selling! Revisiting Narrative &amp; Valuations my insight: China Logistics (1589 HK): Possible Offer As Major Shareholders Seek Exit


Avex Inc (7860 JP) (Mkt Cap: $0.5bn; Liquidity: $3mn)

On 28 December, Avex announced that it would buy back up to 2.7mm shares at a price of ¥1,078/share in a ToSTNeT-3 stock repurchase transaction. This appears to be activist Dalton exiting.

Given the pro-forma financials for March-end, you could not pay Travis Lundy to be short this company. There was a sharp pop on shares on the 25th after the news and the stock traded significant volume, but it opened high and then fell. There were sellers. 
Travis expects the company will have significant enough cash to pay off all debt and buy back a lot more shares should it want to do so.  While numerous commentators have mourned the slow-moving death of Japanese pop, Avex is so ubiquitous that he would expect the company to have considerable staying power on the music scene. Travis would buy here. 




(link to Travis' insight: Avex (7860) ToSTNeT-3 Buyback After HUGE News)

Beijing Jingneng Clean Energy (579 HK)  (Mkt Cap: $2.7bn; Liquidity: $2mn)
The Composite Doc is now out. Beginning on page 29, Gram Capital (IFA) traversed familiar ground in concluding the Offer was fair and reasonable. Gram analysed 10 peers (with an average PER and P/B of 6.87x and 0.48x vs. 9.05x and 0.81x for Jingneng under the Offer) and past privatization (for all industries, not energy specifically). Gram also flagged Jingneng's issue obtaining equity financing. This was also used as one of the reasons for the H-share Offer and delisting.

The EGM/H-share class meeting will be held on the 19 February, following which the Offer will remain open to acceptance up until the 1 March.  Payment under the Offer is expected on or before the 10 March. 96.43% of shares out are in CCASS, which should assist the bankers in rustling up shareholders to tender once the delisting is (or should be) approved at the H-class meeting. 
Trading (at the time of the insight) at a gross/annualised spread of 6.3%/38.1%, assuming payment on the 10 March. The tendering condition is the key risk, as seen in the Harbin Electric Co Ltd H (1133 HK)  fiasco. However, this appears a solid entry point.
This is the fourth Hong Kong-listed, clean-energy company subject to a privatisation or change of control since last year - and seventh in which interested parties have been circling. This Offer continues a clear directive to privatise clean energy plays. Some other possible names which could be targeted next include China Datang Corp Renewable Power (1798 HK).

(link to my insight: Beijing Jingneng (579 HK): Doc Out. IFA Says Fair &amp; Reasonable)







STUBS






Naspers (NPN SJ) / Prosus (PRX NA) / Tencent Holdings (700 HK) 


Back on the 30 October, Prosus announced it would conduct a US$5bn buyback of Prosus shares and Naspers shares (i.e. the subsidiary would buy shares in the parent to avoid passing down income from sub to parent which could be taxed). This was discussed at length by Travis Lundy in Naspers &amp; Prosus - A $5bn Catalyst Arrives. The buyback of Prosus shares and Naspers shares wasn't a lot in the grand scheme of things, but $5bn is $5bn, and the Naspers discount was quite wide. Prosus' discount to NAV has subsequently narrowed to ~23% (at the time of the insight), from a pre-buyback discount of 38%. 

The three-year anniversary of the sale of shares of Tencent is coming up in March, just before the fiscal year-end. That means Prosus/Naspers comes off lockup and could sell more shares of Tencent. There is nothing keeping Prosus from selling another US$10-15bn of Tencent (the position is currently worth US$211bn) and locking themselves up for another year, then continuing to buy Naspers and Prosus shares at a wide-ish discount. 
Stay long Naspers vs Tencent at the current look-through value. I would expect Tencent's operations to come under greater scrutiny, under a wider regulatory mandate.
If Naspers+Prosus decide to sell some more Tencent in late March 2021 while the Naspers discount is still 50%, I would expect that Naspers+Prosus might decide to buy more Naspers shares back rather than pay too much for something. 




(link to my insight: StubWorld: Tencent Under Pressure From Antitrust Push) 





TOPIX INCLUSIONS!






Odk Solutions (3839 JP) (Mkt Cap: $0.1bn; Liquidity: &lt;$1mn)  


after the close on 22nd December 2020, ODK announced they had received approval to move from the Second Section to the First Section of the Tokyo Stock Exchange as of 29th December 2020.  TSE1 reassignment triggers inclusion into the TOPIX Index and the Inclusion Event can be expected to be at the close of trading 28th January 2021. 


Janaghan Jeyakumar, CFA estimates the Inclusion quantity to be 615,000-738,000 shares. This translates to an Inclusion Size of ¥0.45-0.54bn and an Impact of 24-28 days of volume based on 3-month ADV.
According to the company's most recent "Long-term Management Plan" the company's revenue target for FY22E is ¥7bn which is 36% higher than their FY20A revenue. This translates to a revenue CAGR of ~16.6% from FY20A to FY22E. Going by FY20A numbers, the current price translates to EV/Revenue and EV/EBITDA multiples of 0.8x and 4.6x, respectively, which are significantly lower than the estimated average for peers. 
Janaghan would be Bullish until the Inclusion Date (28th January 2021).




(link to Janaghan's insight: TOPIX Inclusion: ODK Solutions (3839 JP): High Impact BLUE Name) 


In  TOPIX Inclusion Trade Summary: Dec 2020, Janaghan provided performance updates for 11 "Live" event stocks which are expected to have Inclusion Events at the end of January 2021 and 6 "Post" event stocks that completed their Inclusion Events at the end of November 2020 and December 2020. Furthermore, I have also highlighted some interesting Pre-event situations involving stocks that are likely to become TSE1-promotion candidates in the near future. 





M&amp;A - EUROPE




On 18 December, Castellum AB (CAST SS) increased its bid for Entra ASA (ENTRA NO) by 13.9% to NOK 185/share in cash and shares. On 23 December, SBB raised its cash (65%) and stock bid for Entra to NOK 190 per share. SBB's bid also offers a larger cash component. In Entra - SBB - Castellum: Bidding War Heats Up, Jesus Rodriguez Aguilar recommends a long in Entra. 




H/A MONITOR





The previous week saw a gentle rebound in Quiddity H/A Share Recommendations (mixed long/short the spreads). Spread momentum continues to rule the day in most sectors, but finally not all. There were 54 delta-neutral spread recommendations which gained 0.97% on average. We have ~50 spread recommendations for this past week.



(link to Travis' insight: Quiddity H/A: National Team Buys Continue in Industrials; Recos Gain 97bp, 50 Recos This Week)





M&amp;A - 2020 ROUND-UP





The average premium for the new deals announced (or first discussed) in December was ~27% and the YTD average premium for all deals discussed on Smartkarma (158 all-in) is ~31%.  The average for all deals discussed on Smartkarma in 2019 (145 deals all-in) was, coincidentally, 31.5%.
(link to my insight: (Mostly) Asia M&amp;A: 2020 Roundup)





OTHER M&amp;A &amp; EVENT UPDATES







WPP AUNZ (WPP AU) has entered into a Scheme Implementation Deed with WPP PLC (WPP LN).
Shandong now holds 61.54% in Cardinal Resources (CDV AU).

Nitori Holdings (9843 JP) announced that it had successfully completed the Tender Offer for Shimachu Co Ltd (8184 JP), gaining 77.04% of the shares outstanding. This is lower than I expected, but it will allow them to squeeze out minorities. 


Noted activist (or noisy engagement investor) Asset Value Investors announced today that it had gone from 6.03% holding in Kanaden Corp (8081 JP) to 0.74%  by selling 1.4mm shares (4.91%) of the company at JPY 1260/share.  


The bidder for Joban Kaihatsu (1782 JP) announced a change in the end date for the Tender Offer, changing the end date from 28 December 2020 to 25 January 2021.


Eco World Development (ECW MK) and Uem Sunrise Bhd (UEMS MK) are exploring the feasibility of a merger. 

Cowell E Holdings (1415 HK) delays the dispatch of the Composite Doc to the 22 January. 



CCASS


My ongoing series flags large moves (~10%) in CCASS holdings over the past week or so, moves which are often outside normal market transactions.  These may be indicative of share pledges.  Or potential takeovers. Or simply help understand volume swings. 


Often these moves can easily be explained - the placement of new shares, rights issue, movements subsequent to a takeover, lock-up expiry, amongst others. For those mentioned below, I could not find an obvious reason for the CCASS move.   






Name


% chg


Into


Out of




Coolpad (2369 HK) 
13.74%
Chiyu
Kingkey



360 Ludashi (3601 HK) 
30.76%
China Int'l
Outside CCASS



China Tontine Wines (389 HK) 
14.90%
CNI
Yuet Sheung



China Regenerative Medicine (8158 HK) 
10.25%
Prime
Outside CCASS


K Group (8475 HK)
34.37%
Sun Int'l
Quasar


Source: HKEx 




The following large movement(s) concern recently listed companies, and therefore are (likely) lock-up related.





Name


% chg


Into


Out of



Wenling (1379 HK)
29.15%
Realord
Outside of CCASS


Source: HKEx 








Last Week in Event SPACE: OFAC's Longer List, Haier, Avex, Beijing Jingneng, Naspers/Tencent

China

Tencent Holdings Limited operates as an investment holding company. The Company, through its subsidiaries, provides Internet and mobile value-added services (VAS), online advertising, and e-commerce transactions. Tencent Holdings offers services to users worldwide.

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Tencent Holdings (ADR) (TCEHY US)

Aequitas 2020 IPOs and Placements Performance - IPOs in the Limelight but Placements Stole the Show

2020 marked our second year of operations as an Independent Research Company, and our fifth year covering ECM. In 2020 we had an accuracy rate of...

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Sea Ltd Valuation: SOTP Suggests Over 40% Downside Risk

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Oshadhi Kumarasiri

China Internet Weekly (4Jan2021): Tencent’s Conflict with Huawei, Authorities’ Ban on New Year Tour

Tencent’s games had disappeared on Huawei’s app store for one day. The authorities fined BABA, JD, VIPS for “unfair pricing”. The authorities...

Ming Lu

Yidu Tech IPO: Valuation Insights

At the mid-point of the IPO price range, the total net proceeds are HK$3,691.7 million ($476 million). Overall, we would participate in the IPO due...

Arun George

Last Week in Event SPACE: OFAC's Longer List, Haier, Avex, Beijing Jingneng, Naspers/Tencent

The weekend is here! Pour yourself a coffee, grab a comfortable seat, and sift through a brief summary of insights on various events discussed...

David Blennerhassett

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