China

In this briefing:

1. IQiyi (IQ): In 4Q18, Baidu’s Growth Engine Lost Control Over Content Cost
2. Sharp MoM Decline In January Semi WFE Sales Casts A Spanner In Second Half Recovery Works.
3. HK Connect Discovery Weekly: Geely, Great Wall Motor and Sands China (2019-02-22)
4. Hopewell’s Egregiously Bad Offer, But What Can You Do?
5. Yincheng Intl (银城国际) IPO Quick Note: A Highly Levered Nanjing Developer Bet

1. IQiyi (IQ): In 4Q18, Baidu’s Growth Engine Lost Control Over Content Cost

• We notice that the growth rate of cost of revenues exceeded the growth rate of membership revenues.
• We believe that the margins will continue to decline even if the advertising business recovers.
• IQ has the largest monthly active users in the video market, but it does not have an obvious advantage over Tencent Holdings (700 HK) .

2. Sharp MoM Decline In January Semi WFE Sales Casts A Spanner In Second Half Recovery Works.

According to SEMI, North American (NA) WFE sales for January 2019 fell to $1.9 billion, down ~10% sequentially and ~20% YoY. This was an abrupt reversal of the recovery trend implied by the December 2018 sales of $2.1 billion and is the biggest monthly sales YoY decline since June 2013.

Just as declining monthly WFE sales preceded the current semiconductor downturn by some six months, the continuation of December’s MoM WFE decline reversal trend was a prerequisite for a second half recovery in the broader semiconductor sector. With that trend well and truly broken,  we now anticipate a more delayed, gradual and prolonged recovery, one which is now unlikely to materialise until late third, early fourth quarter 2019. 

3. HK Connect Discovery Weekly: Geely, Great Wall Motor and Sands China (2019-02-22)

In our Discover HK Connect series, we aim to help our investors understand the flow of southbound trades via the Hong Kong Connect, as analyzed by our proprietary data engine. We will discuss the stocks that experienced the most inflow and outflow by mainland investors in the past seven days.

We split the stocks eligible for the Hong Kong Connect trade into three groups: component stocks in the HSCEI index, stocks with a market capitalization between USD 1 billion and USD 5 billion, and stocks with a market capitalization between USD 500 million and USD 1 billion.

In this week’s HK Connect Discovery, we highlight the strong inflow to automobile stocks and Sands China. 

4. Hopewell’s Egregiously Bad Offer, But What Can You Do?

The Scheme Document for the privatisation of Hopewell Holdings (54 HK) has been dispatched. The court meeting will be held on the 21 March. The consideration will be paid (on or before) the 14 May.  The IFA (China Tonghai Capital) considers the $38.80/share Offer to be fair & reasonable. The Scheme is conditional on ≥75% for, ≤10% against from disinterested shareholders. As Hopewell is HK-incorporated, there is no “head count ” test.  The full timetable is as follows:

After hearing conflicting opinions on what constitutes a blocking stake, a chat with the banker confirmed the blocking stake, as per the Companies Ordinance, is tied to 63.07% of shares out (i.e. Scheme shareholders – see page 95); whereas the Takeovers Code is tied to 59.42% of shares out. Effectively there are two assessments on the blocking stake and the more stringent (the 59.42% out in this case) prevails. 

With the Offer Price representing a 43% discount to NAV, wider than the largest discount precedent in past nine years (the Glorious Property (845 HK) offer, which incidentally was voted down), the IFA creatively argues that extenuating factors such as the premium to historical price needs to also be taken into account. Hardly original, but that is where investors must decide whether this is as good as it’s going to get – given the Wu family’s control, there will not be a competing offer – or to hold out for a superior price longer term. This is a final offer and it will not be increased.

What the IFA fails to discuss is that the widest successful discount to NAV privatisation was 29.4% for New World China Land (917 HK) in 2016. And all precedent transactions (successful or otherwise) are PRC (mainly) property development related; except for Wheelock which operated property in Hong Kong (like Hopewell) and in Singapore, which was privatised at a 12.1% discount to NAV.

Therein lies the dilemma – what is a fair and reasonable discount to NAV for a Hong Kong investment property play? With limited precedents, it is challenging to categorically reach an opinion. And that is the disingenuous conclusion from the IFA that the premium to last close and with reference to historical pricing, is in effect the overriding reason to conclude the Offer is reasonable. I would argue the Wu family has made a low-ball offer for what is essentially an investment property play with quantifiable asset value.

A blocking sake is 5.9% or 51.6mn shares. First Eagle, which recently voted down the Guoco Group Ltd (53 HK) privatisation that was pitched at a ~25% discount to NAV, holds 2.7% (according to CapIQ).

Trading at a wide gross/annualised return of 7%/37.5%, reflecting the risk to completion, and the significant downside should the scheme be voted down. Tough one – the premium to last close and with reference to the 10-year price performance, should be sufficient to get it over the line, and the basis for this “bullish” insight. But only for the brave.

5. Yincheng Intl (银城国际) IPO Quick Note: A Highly Levered Nanjing Developer Bet

Yincheng International, a China Yangtze delta focused property developer, is raising up to USD 110 million to list on the Hong Kong Stock Exchange. In this note, we will cover the following topics:

• The company’s property portfolio
• Financial performance that concerns us
• Shareholders and use of proceeds
• Our view on the deal

In this briefing:

1. Sharp MoM Decline In January Semi WFE Sales Casts A Spanner In Second Half Recovery Works.
2. HK Connect Discovery Weekly: Geely, Great Wall Motor and Sands China (2019-02-22)
3. Hopewell’s Egregiously Bad Offer, But What Can You Do?
4. Yincheng Intl (银城国际) IPO Quick Note: A Highly Levered Nanjing Developer Bet
5. Another US LNG Project Goes Ahead: Positive for the Contractors; Negative for Others Looking to FID

1. Sharp MoM Decline In January Semi WFE Sales Casts A Spanner In Second Half Recovery Works.

According to SEMI, North American (NA) WFE sales for January 2019 fell to $1.9 billion, down ~10% sequentially and ~20% YoY. This was an abrupt reversal of the recovery trend implied by the December 2018 sales of $2.1 billion and is the biggest monthly sales YoY decline since June 2013.

Just as declining monthly WFE sales preceded the current semiconductor downturn by some six months, the continuation of December’s MoM WFE decline reversal trend was a prerequisite for a second half recovery in the broader semiconductor sector. With that trend well and truly broken,  we now anticipate a more delayed, gradual and prolonged recovery, one which is now unlikely to materialise until late third, early fourth quarter 2019. 

2. HK Connect Discovery Weekly: Geely, Great Wall Motor and Sands China (2019-02-22)

In our Discover HK Connect series, we aim to help our investors understand the flow of southbound trades via the Hong Kong Connect, as analyzed by our proprietary data engine. We will discuss the stocks that experienced the most inflow and outflow by mainland investors in the past seven days.

We split the stocks eligible for the Hong Kong Connect trade into three groups: component stocks in the HSCEI index, stocks with a market capitalization between USD 1 billion and USD 5 billion, and stocks with a market capitalization between USD 500 million and USD 1 billion.

In this week’s HK Connect Discovery, we highlight the strong inflow to automobile stocks and Sands China. 

3. Hopewell’s Egregiously Bad Offer, But What Can You Do?

The Scheme Document for the privatisation of Hopewell Holdings (54 HK) has been dispatched. The court meeting will be held on the 21 March. The consideration will be paid (on or before) the 14 May.  The IFA (China Tonghai Capital) considers the $38.80/share Offer to be fair & reasonable. The Scheme is conditional on ≥75% for, ≤10% against from disinterested shareholders. As Hopewell is HK-incorporated, there is no “head count ” test.  The full timetable is as follows:

After hearing conflicting opinions on what constitutes a blocking stake, a chat with the banker confirmed the blocking stake, as per the Companies Ordinance, is tied to 63.07% of shares out (i.e. Scheme shareholders – see page 95); whereas the Takeovers Code is tied to 59.42% of shares out. Effectively there are two assessments on the blocking stake and the more stringent (the 59.42% out in this case) prevails. 

With the Offer Price representing a 43% discount to NAV, wider than the largest discount precedent in past nine years (the Glorious Property (845 HK) offer, which incidentally was voted down), the IFA creatively argues that extenuating factors such as the premium to historical price needs to also be taken into account. Hardly original, but that is where investors must decide whether this is as good as it’s going to get – given the Wu family’s control, there will not be a competing offer – or to hold out for a superior price longer term. This is a final offer and it will not be increased.

What the IFA fails to discuss is that the widest successful discount to NAV privatisation was 29.4% for New World China Land (917 HK) in 2016. And all precedent transactions (successful or otherwise) are PRC (mainly) property development related; except for Wheelock which operated property in Hong Kong (like Hopewell) and in Singapore, which was privatised at a 12.1% discount to NAV.

Therein lies the dilemma – what is a fair and reasonable discount to NAV for a Hong Kong investment property play? With limited precedents, it is challenging to categorically reach an opinion. And that is the disingenuous conclusion from the IFA that the premium to last close and with reference to historical pricing, is in effect the overriding reason to conclude the Offer is reasonable. I would argue the Wu family has made a low-ball offer for what is essentially an investment property play with quantifiable asset value.

A blocking sake is 5.9% or 51.6mn shares. First Eagle, which recently voted down the Guoco Group Ltd (53 HK) privatisation that was pitched at a ~25% discount to NAV, holds 2.7% (according to CapIQ).

Trading at a wide gross/annualised return of 7%/37.5%, reflecting the risk to completion, and the significant downside should the scheme be voted down. Tough one – the premium to last close and with reference to the 10-year price performance, should be sufficient to get it over the line, and the basis for this “bullish” insight. But only for the brave.

4. Yincheng Intl (银城国际) IPO Quick Note: A Highly Levered Nanjing Developer Bet

Yincheng International, a China Yangtze delta focused property developer, is raising up to USD 110 million to list on the Hong Kong Stock Exchange. In this note, we will cover the following topics:

• The company’s property portfolio
• Financial performance that concerns us
• Shareholders and use of proceeds
• Our view on the deal

5. Another US LNG Project Goes Ahead: Positive for the Contractors; Negative for Others Looking to FID

US private LNG company Venture Global is starting construction on its 10 million ton per annum (mtpa) US LNG export facility in Louisiana after gaining approval from the US Federal Energy Regulatory Commission (FERC). This is positive for the LNG contractor market and we discuss the companies involved in the project. 

This follows final investment decision taken on Golden Pass (Exxon and Qatar Proceed with US$10bn Golden Pass LNG Terminal: Positive for Chiyoda and MDR US) and supports our thesis of a large wave of new projects that will be sanctioned in the coming months (A Huge Wave of New LNG Projects Coming in the Next 18 Months: Positive for The E&C Companies). This was viewed as a relatively speculative project and with aggressively low cost and timing estimates.

In this briefing:

1. HK Connect Discovery Weekly: Geely, Great Wall Motor and Sands China (2019-02-22)
2. Hopewell’s Egregiously Bad Offer, But What Can You Do?
3. Yincheng Intl (银城国际) IPO Quick Note: A Highly Levered Nanjing Developer Bet
4. Another US LNG Project Goes Ahead: Positive for the Contractors; Negative for Others Looking to FID
5. Last Week in GER Research: Best World, Graincorp, Myob and New Century IPO

1. HK Connect Discovery Weekly: Geely, Great Wall Motor and Sands China (2019-02-22)

In our Discover HK Connect series, we aim to help our investors understand the flow of southbound trades via the Hong Kong Connect, as analyzed by our proprietary data engine. We will discuss the stocks that experienced the most inflow and outflow by mainland investors in the past seven days.

We split the stocks eligible for the Hong Kong Connect trade into three groups: component stocks in the HSCEI index, stocks with a market capitalization between USD 1 billion and USD 5 billion, and stocks with a market capitalization between USD 500 million and USD 1 billion.

In this week’s HK Connect Discovery, we highlight the strong inflow to automobile stocks and Sands China. 

2. Hopewell’s Egregiously Bad Offer, But What Can You Do?

The Scheme Document for the privatisation of Hopewell Holdings (54 HK) has been dispatched. The court meeting will be held on the 21 March. The consideration will be paid (on or before) the 14 May.  The IFA (China Tonghai Capital) considers the $38.80/share Offer to be fair & reasonable. The Scheme is conditional on ≥75% for, ≤10% against from disinterested shareholders. As Hopewell is HK-incorporated, there is no “head count ” test.  The full timetable is as follows:

After hearing conflicting opinions on what constitutes a blocking stake, a chat with the banker confirmed the blocking stake, as per the Companies Ordinance, is tied to 63.07% of shares out (i.e. Scheme shareholders – see page 95); whereas the Takeovers Code is tied to 59.42% of shares out. Effectively there are two assessments on the blocking stake and the more stringent (the 59.42% out in this case) prevails. 

With the Offer Price representing a 43% discount to NAV, wider than the largest discount precedent in past nine years (the Glorious Property (845 HK) offer, which incidentally was voted down), the IFA creatively argues that extenuating factors such as the premium to historical price needs to also be taken into account. Hardly original, but that is where investors must decide whether this is as good as it’s going to get – given the Wu family’s control, there will not be a competing offer – or to hold out for a superior price longer term. This is a final offer and it will not be increased.

What the IFA fails to discuss is that the widest successful discount to NAV privatisation was 29.4% for New World China Land (917 HK) in 2016. And all precedent transactions (successful or otherwise) are PRC (mainly) property development related; except for Wheelock which operated property in Hong Kong (like Hopewell) and in Singapore, which was privatised at a 12.1% discount to NAV.

Therein lies the dilemma – what is a fair and reasonable discount to NAV for a Hong Kong investment property play? With limited precedents, it is challenging to categorically reach an opinion. And that is the disingenuous conclusion from the IFA that the premium to last close and with reference to historical pricing, is in effect the overriding reason to conclude the Offer is reasonable. I would argue the Wu family has made a low-ball offer for what is essentially an investment property play with quantifiable asset value.

A blocking sake is 5.9% or 51.6mn shares. First Eagle, which recently voted down the Guoco Group Ltd (53 HK) privatisation that was pitched at a ~25% discount to NAV, holds 2.7% (according to CapIQ).

Trading at a wide gross/annualised return of 7%/37.5%, reflecting the risk to completion, and the significant downside should the scheme be voted down. Tough one – the premium to last close and with reference to the 10-year price performance, should be sufficient to get it over the line, and the basis for this “bullish” insight. But only for the brave.

3. Yincheng Intl (银城国际) IPO Quick Note: A Highly Levered Nanjing Developer Bet

Yincheng International, a China Yangtze delta focused property developer, is raising up to USD 110 million to list on the Hong Kong Stock Exchange. In this note, we will cover the following topics:

• The company’s property portfolio
• Financial performance that concerns us
• Shareholders and use of proceeds
• Our view on the deal

4. Another US LNG Project Goes Ahead: Positive for the Contractors; Negative for Others Looking to FID

US private LNG company Venture Global is starting construction on its 10 million ton per annum (mtpa) US LNG export facility in Louisiana after gaining approval from the US Federal Energy Regulatory Commission (FERC). This is positive for the LNG contractor market and we discuss the companies involved in the project. 

This follows final investment decision taken on Golden Pass (Exxon and Qatar Proceed with US$10bn Golden Pass LNG Terminal: Positive for Chiyoda and MDR US) and supports our thesis of a large wave of new projects that will be sanctioned in the coming months (A Huge Wave of New LNG Projects Coming in the Next 18 Months: Positive for The E&C Companies). This was viewed as a relatively speculative project and with aggressively low cost and timing estimates.

5. Last Week in GER Research: Best World, Graincorp, Myob and New Century IPO

In this version of the GER weekly research wrap, we assess the controversy surrounding potentially inflated revenue concerns for Best World International (BEST SP) . Secondly, we dig into the latest M&A situation for Graincorp Ltd A (GNC AU) amidst a testy AGM and a slow resolution to a binding bid which may limit a bump. In addition, we update on the KKR bid for MYOB Group Ltd (MYO AU) which Arun contends is unlikely to receive a counter bid due to KKR’s blocking stake. Finally, we initiate on the IPO of hotelier Zhejiang New Century Hotel Management Group (ZHEKAIH HK).  A calendar of upcoming catalysts is also attached. 

More details can be found below. 

Best of luck for the new week – Rickin, Venkat and Arun

In this briefing:

1. Yincheng Intl (银城国际) IPO Quick Note: A Highly Levered Nanjing Developer Bet
2. Another US LNG Project Goes Ahead: Positive for the Contractors; Negative for Others Looking to FID
3. Last Week in GER Research: Best World, Graincorp, Myob and New Century IPO
4. Trade Talks/Huawei/ Stock Surprise/Monetary Policy /Greater Bay Area
5. NextDecade’s Oil-Linked Contract Offering Signals More Hurdles Ahead for US LNG Project Developers

1. Yincheng Intl (银城国际) IPO Quick Note: A Highly Levered Nanjing Developer Bet

Yincheng International, a China Yangtze delta focused property developer, is raising up to USD 110 million to list on the Hong Kong Stock Exchange. In this note, we will cover the following topics:

• The company’s property portfolio
• Financial performance that concerns us
• Shareholders and use of proceeds
• Our view on the deal

2. Another US LNG Project Goes Ahead: Positive for the Contractors; Negative for Others Looking to FID

US private LNG company Venture Global is starting construction on its 10 million ton per annum (mtpa) US LNG export facility in Louisiana after gaining approval from the US Federal Energy Regulatory Commission (FERC). This is positive for the LNG contractor market and we discuss the companies involved in the project. 

This follows final investment decision taken on Golden Pass (Exxon and Qatar Proceed with US$10bn Golden Pass LNG Terminal: Positive for Chiyoda and MDR US) and supports our thesis of a large wave of new projects that will be sanctioned in the coming months (A Huge Wave of New LNG Projects Coming in the Next 18 Months: Positive for The E&C Companies). This was viewed as a relatively speculative project and with aggressively low cost and timing estimates.

3. Last Week in GER Research: Best World, Graincorp, Myob and New Century IPO

In this version of the GER weekly research wrap, we assess the controversy surrounding potentially inflated revenue concerns for Best World International (BEST SP) . Secondly, we dig into the latest M&A situation for Graincorp Ltd A (GNC AU) amidst a testy AGM and a slow resolution to a binding bid which may limit a bump. In addition, we update on the KKR bid for MYOB Group Ltd (MYO AU) which Arun contends is unlikely to receive a counter bid due to KKR’s blocking stake. Finally, we initiate on the IPO of hotelier Zhejiang New Century Hotel Management Group (ZHEKAIH HK).  A calendar of upcoming catalysts is also attached. 

More details can be found below. 

Best of luck for the new week – Rickin, Venkat and Arun

4. Trade Talks/Huawei/ Stock Surprise/Monetary Policy /Greater Bay Area

China News That Matters

• Nearing an agreement?
• Can´t live with ´em, can´t live without ´em.
• Just a trillion greenbacks up since January.
• Prudence please, no “flood-style” irrigation. 
• Wear flowers in your hair.

5. NextDecade’s Oil-Linked Contract Offering Signals More Hurdles Ahead for US LNG Project Developers

NextDecade Corp (NEXT US) recently announced that it started offering long-term contracts indexed to the crude Brent in order to attract more LNG buyers. This follows the agreement reached by Tellurian Inc (TELL US) with Vitol back in December to index a long term contract with the Asian LNG price benchmark JKM. While typically US LNG projects are indexed to the Henry Hub, declining crude oil and LNG prices seem to have diminished the appeal of the Henry Hub pricing compared to the oil indexation. This insight takes a look at the latest trends in the LNG markets to assess which companies are taking the lead in the race to bring to FID in 2019 their proposed LNG projects.

Exhibit 1: NextDecade adds Brent indexation to its commercial offering

In this briefing:

1. Another US LNG Project Goes Ahead: Positive for the Contractors; Negative for Others Looking to FID
2. Last Week in GER Research: Best World, Graincorp, Myob and New Century IPO
3. Trade Talks/Huawei/ Stock Surprise/Monetary Policy /Greater Bay Area
4. NextDecade’s Oil-Linked Contract Offering Signals More Hurdles Ahead for US LNG Project Developers
5. ECM Weekly (23 February 2019) – Futu, CStone, Dexin, New Century, AB InBev, MabPharma

1. Another US LNG Project Goes Ahead: Positive for the Contractors; Negative for Others Looking to FID

US private LNG company Venture Global is starting construction on its 10 million ton per annum (mtpa) US LNG export facility in Louisiana after gaining approval from the US Federal Energy Regulatory Commission (FERC). This is positive for the LNG contractor market and we discuss the companies involved in the project. 

This follows final investment decision taken on Golden Pass (Exxon and Qatar Proceed with US$10bn Golden Pass LNG Terminal: Positive for Chiyoda and MDR US) and supports our thesis of a large wave of new projects that will be sanctioned in the coming months (A Huge Wave of New LNG Projects Coming in the Next 18 Months: Positive for The E&C Companies). This was viewed as a relatively speculative project and with aggressively low cost and timing estimates.

2. Last Week in GER Research: Best World, Graincorp, Myob and New Century IPO

In this version of the GER weekly research wrap, we assess the controversy surrounding potentially inflated revenue concerns for Best World International (BEST SP) . Secondly, we dig into the latest M&A situation for Graincorp Ltd A (GNC AU) amidst a testy AGM and a slow resolution to a binding bid which may limit a bump. In addition, we update on the KKR bid for MYOB Group Ltd (MYO AU) which Arun contends is unlikely to receive a counter bid due to KKR’s blocking stake. Finally, we initiate on the IPO of hotelier Zhejiang New Century Hotel Management Group (ZHEKAIH HK).  A calendar of upcoming catalysts is also attached. 

More details can be found below. 

Best of luck for the new week – Rickin, Venkat and Arun

3. Trade Talks/Huawei/ Stock Surprise/Monetary Policy /Greater Bay Area

China News That Matters

• Nearing an agreement?
• Can´t live with ´em, can´t live without ´em.
• Just a trillion greenbacks up since January.
• Prudence please, no “flood-style” irrigation. 
• Wear flowers in your hair.

4. NextDecade’s Oil-Linked Contract Offering Signals More Hurdles Ahead for US LNG Project Developers

NextDecade Corp (NEXT US) recently announced that it started offering long-term contracts indexed to the crude Brent in order to attract more LNG buyers. This follows the agreement reached by Tellurian Inc (TELL US) with Vitol back in December to index a long term contract with the Asian LNG price benchmark JKM. While typically US LNG projects are indexed to the Henry Hub, declining crude oil and LNG prices seem to have diminished the appeal of the Henry Hub pricing compared to the oil indexation. This insight takes a look at the latest trends in the LNG markets to assess which companies are taking the lead in the race to bring to FID in 2019 their proposed LNG projects.

Exhibit 1: NextDecade adds Brent indexation to its commercial offering

5. ECM Weekly (23 February 2019) – Futu, CStone, Dexin, New Century, AB InBev, MabPharma

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

Accuracy Rate:

Our overall accuracy rate is 72.1% for IPOs and 63.7% for Placements 

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

New IPO filings

• Jinxin Fertility Group (US$600m, Hong Kong)

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

• Fund Companies Ask Hong Kong to Relax IPO Investment Rules
• Chinese Tech Giants Seek Further IPO Rule Changes in Hong Kong
• Sembcorp could delay India energy IPO due to market conditions
• PNB Metlife IPO likely next fiscal

Smartkarma Community’s this week Analysis on Upcoming IPO

• New Century Hotel Mgmt IPO Preview: Two-Speed Businesses
• New Century Hotel (浙江開元酒店) Pre-IPO – Improved Profitability Not Driven by Underlying Operations
• Ab InBev Asia Pre-IPO – Quick Note – More like CR Beer Rather than Tsingtao
• MabPharma (迈博医药) IPO: Assembled for a Trade?
• Hyundai Autoever IPO Preview
• Hyundai Autoever IPO Pricing: Likely to Be a Dull Event Given No Growth Story & Glovis Merger
• HLX02: Innovation Could Overtake

In this briefing:

1. Last Week in GER Research: Best World, Graincorp, Myob and New Century IPO
2. Trade Talks/Huawei/ Stock Surprise/Monetary Policy /Greater Bay Area
3. NextDecade’s Oil-Linked Contract Offering Signals More Hurdles Ahead for US LNG Project Developers
4. ECM Weekly (23 February 2019) – Futu, CStone, Dexin, New Century, AB InBev, MabPharma
5. UK Trip – Wake up to Deflation Risk

1. Last Week in GER Research: Best World, Graincorp, Myob and New Century IPO

In this version of the GER weekly research wrap, we assess the controversy surrounding potentially inflated revenue concerns for Best World International (BEST SP) . Secondly, we dig into the latest M&A situation for Graincorp Ltd A (GNC AU) amidst a testy AGM and a slow resolution to a binding bid which may limit a bump. In addition, we update on the KKR bid for MYOB Group Ltd (MYO AU) which Arun contends is unlikely to receive a counter bid due to KKR’s blocking stake. Finally, we initiate on the IPO of hotelier Zhejiang New Century Hotel Management Group (ZHEKAIH HK).  A calendar of upcoming catalysts is also attached. 

More details can be found below. 

Best of luck for the new week – Rickin, Venkat and Arun

2. Trade Talks/Huawei/ Stock Surprise/Monetary Policy /Greater Bay Area

China News That Matters

• Nearing an agreement?
• Can´t live with ´em, can´t live without ´em.
• Just a trillion greenbacks up since January.
• Prudence please, no “flood-style” irrigation. 
• Wear flowers in your hair.

3. NextDecade’s Oil-Linked Contract Offering Signals More Hurdles Ahead for US LNG Project Developers

NextDecade Corp (NEXT US) recently announced that it started offering long-term contracts indexed to the crude Brent in order to attract more LNG buyers. This follows the agreement reached by Tellurian Inc (TELL US) with Vitol back in December to index a long term contract with the Asian LNG price benchmark JKM. While typically US LNG projects are indexed to the Henry Hub, declining crude oil and LNG prices seem to have diminished the appeal of the Henry Hub pricing compared to the oil indexation. This insight takes a look at the latest trends in the LNG markets to assess which companies are taking the lead in the race to bring to FID in 2019 their proposed LNG projects.

Exhibit 1: NextDecade adds Brent indexation to its commercial offering

4. ECM Weekly (23 February 2019) – Futu, CStone, Dexin, New Century, AB InBev, MabPharma

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

Accuracy Rate:

Our overall accuracy rate is 72.1% for IPOs and 63.7% for Placements 

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

New IPO filings

• Jinxin Fertility Group (US$600m, Hong Kong)

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

• Fund Companies Ask Hong Kong to Relax IPO Investment Rules
• Chinese Tech Giants Seek Further IPO Rule Changes in Hong Kong
• Sembcorp could delay India energy IPO due to market conditions
• PNB Metlife IPO likely next fiscal

Smartkarma Community’s this week Analysis on Upcoming IPO

• New Century Hotel Mgmt IPO Preview: Two-Speed Businesses
• New Century Hotel (浙江開元酒店) Pre-IPO – Improved Profitability Not Driven by Underlying Operations
• Ab InBev Asia Pre-IPO – Quick Note – More like CR Beer Rather than Tsingtao
• MabPharma (迈博医药) IPO: Assembled for a Trade?
• Hyundai Autoever IPO Preview
• Hyundai Autoever IPO Pricing: Likely to Be a Dull Event Given No Growth Story & Glovis Merger
• HLX02: Innovation Could Overtake

5. UK Trip – Wake up to Deflation Risk

By Bo Zhuang, Chief China Economist

• London-based investors are turning cautiously optimistic on China’s growth outlook amid the latest easing measures in January
• There is still little awareness about the rising deflation risk
• Interest in the trade war has subsided

In this briefing:

1. Trade Talks/Huawei/ Stock Surprise/Monetary Policy /Greater Bay Area
2. NextDecade’s Oil-Linked Contract Offering Signals More Hurdles Ahead for US LNG Project Developers
3. ECM Weekly (23 February 2019) – Futu, CStone, Dexin, New Century, AB InBev, MabPharma
4. UK Trip – Wake up to Deflation Risk
5. Today’s NBS Data On China House Prices Across 70 Cities – Lower Priced Cities Keep Catching Up

1. Trade Talks/Huawei/ Stock Surprise/Monetary Policy /Greater Bay Area

China News That Matters

• Nearing an agreement?
• Can´t live with ´em, can´t live without ´em.
• Just a trillion greenbacks up since January.
• Prudence please, no “flood-style” irrigation. 
• Wear flowers in your hair.

2. NextDecade’s Oil-Linked Contract Offering Signals More Hurdles Ahead for US LNG Project Developers

NextDecade Corp (NEXT US) recently announced that it started offering long-term contracts indexed to the crude Brent in order to attract more LNG buyers. This follows the agreement reached by Tellurian Inc (TELL US) with Vitol back in December to index a long term contract with the Asian LNG price benchmark JKM. While typically US LNG projects are indexed to the Henry Hub, declining crude oil and LNG prices seem to have diminished the appeal of the Henry Hub pricing compared to the oil indexation. This insight takes a look at the latest trends in the LNG markets to assess which companies are taking the lead in the race to bring to FID in 2019 their proposed LNG projects.

Exhibit 1: NextDecade adds Brent indexation to its commercial offering

3. ECM Weekly (23 February 2019) – Futu, CStone, Dexin, New Century, AB InBev, MabPharma

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

Accuracy Rate:

Our overall accuracy rate is 72.1% for IPOs and 63.7% for Placements 

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

New IPO filings

• Jinxin Fertility Group (US$600m, Hong Kong)

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

• Fund Companies Ask Hong Kong to Relax IPO Investment Rules
• Chinese Tech Giants Seek Further IPO Rule Changes in Hong Kong
• Sembcorp could delay India energy IPO due to market conditions
• PNB Metlife IPO likely next fiscal

Smartkarma Community’s this week Analysis on Upcoming IPO

• New Century Hotel Mgmt IPO Preview: Two-Speed Businesses
• New Century Hotel (浙江開元酒店) Pre-IPO – Improved Profitability Not Driven by Underlying Operations
• Ab InBev Asia Pre-IPO – Quick Note – More like CR Beer Rather than Tsingtao
• MabPharma (迈博医药) IPO: Assembled for a Trade?
• Hyundai Autoever IPO Preview
• Hyundai Autoever IPO Pricing: Likely to Be a Dull Event Given No Growth Story & Glovis Merger
• HLX02: Innovation Could Overtake

4. UK Trip – Wake up to Deflation Risk

By Bo Zhuang, Chief China Economist

• London-based investors are turning cautiously optimistic on China’s growth outlook amid the latest easing measures in January
• There is still little awareness about the rising deflation risk
• Interest in the trade war has subsided

5. Today’s NBS Data On China House Prices Across 70 Cities – Lower Priced Cities Keep Catching Up

Today’s data from the National Bureau of Statistics (NBS) on new home prices for 70 major cities in January shows on average a marginally accelerating year-on-year price growth and a slower month-on-month increase.  This continues to contrast with the year-on-year deceleration in SouFun-CREIS 100 Cities price index.

In this briefing:

1. NextDecade’s Oil-Linked Contract Offering Signals More Hurdles Ahead for US LNG Project Developers
2. ECM Weekly (23 February 2019) – Futu, CStone, Dexin, New Century, AB InBev, MabPharma
3. UK Trip – Wake up to Deflation Risk
4. Today’s NBS Data On China House Prices Across 70 Cities – Lower Priced Cities Keep Catching Up
5. US Dollar Demand – Fading Appetite

1. NextDecade’s Oil-Linked Contract Offering Signals More Hurdles Ahead for US LNG Project Developers

NextDecade Corp (NEXT US) recently announced that it started offering long-term contracts indexed to the crude Brent in order to attract more LNG buyers. This follows the agreement reached by Tellurian Inc (TELL US) with Vitol back in December to index a long term contract with the Asian LNG price benchmark JKM. While typically US LNG projects are indexed to the Henry Hub, declining crude oil and LNG prices seem to have diminished the appeal of the Henry Hub pricing compared to the oil indexation. This insight takes a look at the latest trends in the LNG markets to assess which companies are taking the lead in the race to bring to FID in 2019 their proposed LNG projects.

Exhibit 1: NextDecade adds Brent indexation to its commercial offering

2. ECM Weekly (23 February 2019) – Futu, CStone, Dexin, New Century, AB InBev, MabPharma

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

Accuracy Rate:

Our overall accuracy rate is 72.1% for IPOs and 63.7% for Placements 

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

New IPO filings

• Jinxin Fertility Group (US$600m, Hong Kong)

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

• Fund Companies Ask Hong Kong to Relax IPO Investment Rules
• Chinese Tech Giants Seek Further IPO Rule Changes in Hong Kong
• Sembcorp could delay India energy IPO due to market conditions
• PNB Metlife IPO likely next fiscal

Smartkarma Community’s this week Analysis on Upcoming IPO

• New Century Hotel Mgmt IPO Preview: Two-Speed Businesses
• New Century Hotel (浙江開元酒店) Pre-IPO – Improved Profitability Not Driven by Underlying Operations
• Ab InBev Asia Pre-IPO – Quick Note – More like CR Beer Rather than Tsingtao
• MabPharma (迈博医药) IPO: Assembled for a Trade?
• Hyundai Autoever IPO Preview
• Hyundai Autoever IPO Pricing: Likely to Be a Dull Event Given No Growth Story & Glovis Merger
• HLX02: Innovation Could Overtake

3. UK Trip – Wake up to Deflation Risk

By Bo Zhuang, Chief China Economist

• London-based investors are turning cautiously optimistic on China’s growth outlook amid the latest easing measures in January
• There is still little awareness about the rising deflation risk
• Interest in the trade war has subsided

4. Today’s NBS Data On China House Prices Across 70 Cities – Lower Priced Cities Keep Catching Up

Today’s data from the National Bureau of Statistics (NBS) on new home prices for 70 major cities in January shows on average a marginally accelerating year-on-year price growth and a slower month-on-month increase.  This continues to contrast with the year-on-year deceleration in SouFun-CREIS 100 Cities price index.

5. US Dollar Demand – Fading Appetite

In 2011 the world experienced the best year of demand expansion – in US dollar terms – in any year since the financial crisis, until 2018 that is. But you would hardly realise that that was the case by reading the newswires, the stories there since early 2018 have been about ‘synchronised slowdown’ and, in particular, the demand downdraft from China. The reality is that developed countries (the US, EU, UK and Japan) plus developing Asia (China, India and the Asean-4) produced US$4.1trn of ‘new’ GDP demand in 2011 and in 2018 was on course to produce US$4.1trn in new dollar demand.

In this briefing:

1. ECM Weekly (23 February 2019) – Futu, CStone, Dexin, New Century, AB InBev, MabPharma
2. UK Trip – Wake up to Deflation Risk
3. Today’s NBS Data On China House Prices Across 70 Cities – Lower Priced Cities Keep Catching Up
4. US Dollar Demand – Fading Appetite
5. Confluence of Politics – China Bans Australian Coal Imports (Flash Note)

1. ECM Weekly (23 February 2019) – Futu, CStone, Dexin, New Century, AB InBev, MabPharma

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

Accuracy Rate:

Our overall accuracy rate is 72.1% for IPOs and 63.7% for Placements 

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

New IPO filings

• Jinxin Fertility Group (US$600m, Hong Kong)

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

• Fund Companies Ask Hong Kong to Relax IPO Investment Rules
• Chinese Tech Giants Seek Further IPO Rule Changes in Hong Kong
• Sembcorp could delay India energy IPO due to market conditions
• PNB Metlife IPO likely next fiscal

Smartkarma Community’s this week Analysis on Upcoming IPO

• New Century Hotel Mgmt IPO Preview: Two-Speed Businesses
• New Century Hotel (浙江開元酒店) Pre-IPO – Improved Profitability Not Driven by Underlying Operations
• Ab InBev Asia Pre-IPO – Quick Note – More like CR Beer Rather than Tsingtao
• MabPharma (迈博医药) IPO: Assembled for a Trade?
• Hyundai Autoever IPO Preview
• Hyundai Autoever IPO Pricing: Likely to Be a Dull Event Given No Growth Story & Glovis Merger
• HLX02: Innovation Could Overtake

2. UK Trip – Wake up to Deflation Risk

By Bo Zhuang, Chief China Economist

• London-based investors are turning cautiously optimistic on China’s growth outlook amid the latest easing measures in January
• There is still little awareness about the rising deflation risk
• Interest in the trade war has subsided

3. Today’s NBS Data On China House Prices Across 70 Cities – Lower Priced Cities Keep Catching Up

Today’s data from the National Bureau of Statistics (NBS) on new home prices for 70 major cities in January shows on average a marginally accelerating year-on-year price growth and a slower month-on-month increase.  This continues to contrast with the year-on-year deceleration in SouFun-CREIS 100 Cities price index.

4. US Dollar Demand – Fading Appetite

In 2011 the world experienced the best year of demand expansion – in US dollar terms – in any year since the financial crisis, until 2018 that is. But you would hardly realise that that was the case by reading the newswires, the stories there since early 2018 have been about ‘synchronised slowdown’ and, in particular, the demand downdraft from China. The reality is that developed countries (the US, EU, UK and Japan) plus developing Asia (China, India and the Asean-4) produced US$4.1trn of ‘new’ GDP demand in 2011 and in 2018 was on course to produce US$4.1trn in new dollar demand.

5. Confluence of Politics – China Bans Australian Coal Imports (Flash Note)

• China implements coal import caps specifically targeting Australian producers
• Unclear as to how widespread these restrictions will eventually be
• Thermal and metallurgical coal exports affected
• Impacting ~A$8.4Bn of metallurgical coal exports; or 4.4% of national income
• Thermal coal exports affected worth ~A$3.8Bn; or an additional 2% of national income
• Collectively, thermal and metallurgical exports equate to ~0.9% of Australian annual GDP 
• Actions appear to be a response to blocking Huawei bidding for the 5G network
• Recent Chinese cyber-attacks harden Australian Government’s resolve
• Expect similar Chinese measures (in time) to be applied to other commodities and industries

In this briefing:

1. UK Trip – Wake up to Deflation Risk
2. Today’s NBS Data On China House Prices Across 70 Cities – Lower Priced Cities Keep Catching Up
3. US Dollar Demand – Fading Appetite
4. Confluence of Politics – China Bans Australian Coal Imports (Flash Note)
5. The Internet: Hacks, Clicks, and Money

1. UK Trip – Wake up to Deflation Risk

By Bo Zhuang, Chief China Economist

• London-based investors are turning cautiously optimistic on China’s growth outlook amid the latest easing measures in January
• There is still little awareness about the rising deflation risk
• Interest in the trade war has subsided

2. Today’s NBS Data On China House Prices Across 70 Cities – Lower Priced Cities Keep Catching Up

Today’s data from the National Bureau of Statistics (NBS) on new home prices for 70 major cities in January shows on average a marginally accelerating year-on-year price growth and a slower month-on-month increase.  This continues to contrast with the year-on-year deceleration in SouFun-CREIS 100 Cities price index.

3. US Dollar Demand – Fading Appetite

In 2011 the world experienced the best year of demand expansion – in US dollar terms – in any year since the financial crisis, until 2018 that is. But you would hardly realise that that was the case by reading the newswires, the stories there since early 2018 have been about ‘synchronised slowdown’ and, in particular, the demand downdraft from China. The reality is that developed countries (the US, EU, UK and Japan) plus developing Asia (China, India and the Asean-4) produced US$4.1trn of ‘new’ GDP demand in 2011 and in 2018 was on course to produce US$4.1trn in new dollar demand.

4. Confluence of Politics – China Bans Australian Coal Imports (Flash Note)

• China implements coal import caps specifically targeting Australian producers
• Unclear as to how widespread these restrictions will eventually be
• Thermal and metallurgical coal exports affected
• Impacting ~A$8.4Bn of metallurgical coal exports; or 4.4% of national income
• Thermal coal exports affected worth ~A$3.8Bn; or an additional 2% of national income
• Collectively, thermal and metallurgical exports equate to ~0.9% of Australian annual GDP 
• Actions appear to be a response to blocking Huawei bidding for the 5G network
• Recent Chinese cyber-attacks harden Australian Government’s resolve
• Expect similar Chinese measures (in time) to be applied to other commodities and industries

5. The Internet: Hacks, Clicks, and Money

There is this thing called the internet that can be pretty cool sometimes. In all seriousness though, the internet is a driving force for making money and spending money. Last week we took a long look at mobile phones and continuing a deep dive on technology today we take look at the internet in China. This will not be a total encyclopedia but a snap shot of some key features.