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.
Celltrion Healthcare (091990 KS) reported preliminary 2018 results that were dramatically short of expectations as the company cut shipments to reduce distributors’ inventories. Management had announced plans to shift to a direct sales model to get better control over pricing decisions, but the magnitude of Q4’s shortfall (94% decline in revenue) raises questions about the role of “channel stuffing” in boosting prior periods’ results. In addition, we expect some spillover effect on Celltrion Inc (068270 KS)‘s Q4’s results. This Insight discusses the results in brief and contrasts Celltrion Healthcare’s results with those of Samsung Bioepis.
We continue to avoid these stocks.
Get Straight to the Source on Smartkarma
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
Strong Q1 to Come: We recently had a call with Amarin’s CEO, John Thero, and update our model with quarterly estimates. Q1 should see revenue growth of +55% YoY to $68m, an operating loss of -$30m, and EPS of -$0.09. Consensus is at $66m, -$38m, and -$0.12, respectively.
ACC Event Leads to Stock Drop: Amarin released “late-breaking” results from its Reduce-It trial at the American College of Cardiology (ACC) conference last Monday. While the data was considered “landmark” by doctors in attendance, the stock has fallen by nearly 14% since the event, showing a clear disconnect between the market and the medical community.
New Data Upgrades Risk Reduction to 30% & Shows Strong Prevention of CVD Recurrence: The key data at the ACC showed that Vascepa has a 30% relative risk reduction (RRR) rate for total CVD events (initially, it was 25% RRR rate for “major adverse” CVD events). Additionally, it was discovered that Vascepa reduced secondary CVD events by 32%, third events by 31%, and fourth events by 48%. 50% of patients who have experienced a cardiovascular event have a recurrence within one year, while 75% have recurrences within three years.
New Data Should Fast-Track Label Expansion & Impact Earnings Significantly: Doctors on a panel discussion after Amarin’s presentation at the ACC were dazzled by the data, saying that it will change the way CVD is treated in the US. We got the sense that this should lead to the FDA giving Vascepa “fast-track” (6 months vs regular 10 months) treatment for label expansion, which will surely lead to higher revenues this year and an expanded market henceforth.
New Prescriptions up 62% YTD: Amarin’s CEO, John Thero, told us he has more talks with doctors about Vascepa these days than he does with investors, which highlights increasing interest in the US medical community over Vascepa and explains the new prescription growth of +62% year-to-date. Successful label expansion by the FDA should widen Vascepa’s addressable market by nearly 20x.
Our Talks With CEO Point to a Strong Q1: The first quarter is seasonally slow, but our impressions from our talk with CEO John Thero is that the company is most likely outperforming its internal targets for Q1 growth. Amarin assumes 53% sales growth for the full year, but has stated that Q1 should be “seasonally slower”. Weekly prescription data show that Vascepa is growing over 50% in the seasonally slow Q1. Sales should pick up from Q2 and surge in the usual peak season of Q4.
2019 Revenues should Reach $500m (+120% YoY): We see 2019 revenues of $503m, with operating profit of $88m (17.5% operating margin) and EPS of $0.23. Consensus sees sales of $363m (guidance is at $350m), with an operating loss of -$58m and EPS of -$0.17.
Buyout Possibilities Remain High: We continue to see Amarin as one of the most attractive buy-out candidates among big pharma companies in the CVD field. Because Vascepa is a treatment taken in conjunction with statin medication like Lipitor, Pfizer appears like the most likely suitor, although there many others.
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.
Theme of the week: Block trades/Placements + news flow on upcoming IPOs
Starting with placements, the shareholders of Wuxi Biologics (Cayman) Inc (2269 HK) are back on the market again to sell some shares. They been quite consistent with the selling and our team have covered the company the IPO each of the placements. Wisetech Global (WTC AU) and Platinum Asset Management (PTM AU) also had blocks that were sold earlier this week. The former did excceedingly well post-placement, currently more than 10% above its deal price while the latter had struggled as a result of Kerr and his ex-wife selling a portion of their shares in the company.
As for upcoming IPOs, Hong Kong ECM activity is ramping up. Megvii, the Chinese AI startup is looking to list in Hong Kong or US whereas China Feihe (FEIHE HK) is said to be revisit its US$1bn HK IPO. Ke Yan, CFA, FRM has covered the latter in this insight almost two years ago.
We also heard that Frontage had already met investors and Ke Yan, CFA, FRM has provided preliminary thoughts on valuation in:
Mulsanne Group (previously known as Alpha Smart (GXG)), Xinyi Energy Holdings, CMGE Tech, and 360 ludashi (鲁大师) re-filed their draft prospectuses. We have covered Mulsanne and Xinyi Energy in:
360 ludashi’s previous filing indicated that its IPO deal size will be small (<US$100m). However, the updated financials shown an almost 50% YoY PATMI growth which could put its IPO at a borderline deal size of US$100m if growth maintains at 50%.
In the U.S, Yunji Inc. (YJ US) filed for a US$200m IPO. The company runs a Chinese e-commerce site that uses a social platform to promote its products. We will be writing an early note on the company next week.
In Singapore, Eagle Hospitality REIT is said to have started investor education for its IPO while Lendlease is planning to raise up to US$500m for its retail REIT according to media reports.
In other ASEAN markets, there are also a handful of IPOs to watch out for.
In Indonesia, Lion Air is said to be targeting US$1bn listing in the third quarter of this year and it is starting to gauge investor interest. MAP Actif has already started pre-marketing its IPO.
In Thailand, Kerry Express Thailand is said to have hired banks to prepare for a >US$100m IPO.
In Malaysia, QSR Brands (QSR MY) has started to pre-market for its US$500m IPO. Sumeet Singh had previously written an early note:
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.
Biologics holdings is looking to raise upto US$517m by selling a 4.2% stake in Wuxi Biologics (Cayman) Inc (2269 HK). This will be fourth placement by the company since it listed less than two years ago. Below is a link to our coverage of the listing and the earlier placement:
Each of the past placement has been of a similar size and has generally done well. The company recently reported results which were ahead of street estimates. The deal scores a marginal positive score on our framework but there is still a lot more selling left once the 90-day lock-up expires.
Frontage Holding, a contract research organization subsidiary of A-share listed Hangzhou Tigermed Consulting (300347 CH), re-filed to list on the Hong Kong Stock Exchange recently. We have covered the company’s fundamentals in our previous insight here. In this insight, we will provide an updated analysis based on new data available from the new prospectus, as well as our thoughts on valuation.
Back in August, I argued a case for the privatisation of Aveo Group (AOG AU), which at the time was trading at a P/B of 0.6x versus ~2x for peers. Also in late August, Aveo announced a strategic review to examine all options to close the gap between Aveo’s market capitalisation and the value of the underlying retirement properties.
Aveo’s steep discount to peers was/is ostensibly due to the presence of Mulpha International (MIT MK)‘s large stake (22.5%), crowding out institutional ownership; Mulpha and Aveo sharing the same chairman, inferring (yet categorically denied) Aveo’s absence of independence; and the ongoing class action lawsuit.
That was a brutal recommendation, and lacking a hard catalyst, shares declined to $1.55 in January, recovering to $2.05 today, still ~12% shy of the price at the time of my last note.
This time is different.
Aveo announced in early February a number of indicative non-binding bids were received for a “whole of company transaction” with AFR reporting (paywalled) that Lone Star had joined the fray. Other interested parties are believed to include Blackstone and Cerberus Capital Management.
Aveo’s share price is up ~20% since announcing the receipt of the indicative bids, having drifted down from a (recent) closing peak of $2.14 earlier this month.
Aveo is currently trading at an attractive 0.52x P/B vs. 1.8x for its peer group, with the next closest peer valuation at 0.7x P/B. An offer of >0.7x, a level last traded as recently as June 2018, appears reasonable with ~92% of assets in investment property.
Further afield, Mulpha trades at a P/B of 0.25x, while the stake in Aveo accounts for 104% of its market cap, and around 25% of NAV. It’s discount to NAV has significantly narrowed since February, but Mulpha continues to trade at a discount to 76%.
Timeline of Events
Date
Data in the Date
End-2005
Mulpha’s stake in Aveo (then called FKP) was acquired after a share swap with Mulpha Norwest
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
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.
Celltrion Healthcare (091990 KS) reported preliminary 2018 results that were dramatically short of expectations as the company cut shipments to reduce distributors’ inventories. Management had announced plans to shift to a direct sales model to get better control over pricing decisions, but the magnitude of Q4’s shortfall (94% decline in revenue) raises questions about the role of “channel stuffing” in boosting prior periods’ results. In addition, we expect some spillover effect on Celltrion Inc (068270 KS)‘s Q4’s results. This Insight discusses the results in brief and contrasts Celltrion Healthcare’s results with those of Samsung Bioepis.
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.
Starting with listings in Hong Kong next week, CStone Pharma (2616 HK) and Dexin China Holdings (2019 HK) will list on the 26th of February. Dexin is said to have priced at the mid-point of its price range while CStone is priced above its mid-point.
We also heard that Haitong Unitrust International Leasing was given the green light by CSRC for its Hong Kong IPO. The company had previously re-filed its draft prospectus in September last year. Shanghai Dongzheng Automotive Finance has also received approval from CSRC for its IPO.
There had also been a small property developer, YinCheng, that had launched its US$100m IPO. Jinxin Fertility had also just filed its draft prospectus with the HKEX.
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.
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
Celltrion Healthcare (091990 KS) reported preliminary 2018 results that were dramatically short of expectations as the company cut shipments to reduce distributors’ inventories. Management had announced plans to shift to a direct sales model to get better control over pricing decisions, but the magnitude of Q4’s shortfall (94% decline in revenue) raises questions about the role of “channel stuffing” in boosting prior periods’ results. In addition, we expect some spillover effect on Celltrion Inc (068270 KS)‘s Q4’s results. This Insight discusses the results in brief and contrasts Celltrion Healthcare’s results with those of Samsung Bioepis.
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.
Starting with listings in Hong Kong next week, CStone Pharma (2616 HK) and Dexin China Holdings (2019 HK) will list on the 26th of February. Dexin is said to have priced at the mid-point of its price range while CStone is priced above its mid-point.
We also heard that Haitong Unitrust International Leasing was given the green light by CSRC for its Hong Kong IPO. The company had previously re-filed its draft prospectus in September last year. Shanghai Dongzheng Automotive Finance has also received approval from CSRC for its IPO.
There had also been a small property developer, YinCheng, that had launched its US$100m IPO. Jinxin Fertility had also just filed its draft prospectus with the HKEX.
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.
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
Celltrion Healthcare (091990 KS) reported preliminary 2018 results that were dramatically short of expectations as the company cut shipments to reduce distributors’ inventories. Management had announced plans to shift to a direct sales model to get better control over pricing decisions, but the magnitude of Q4’s shortfall (94% decline in revenue) raises questions about the role of “channel stuffing” in boosting prior periods’ results. In addition, we expect some spillover effect on Celltrion Inc (068270 KS)‘s Q4’s results. This Insight discusses the results in brief and contrasts Celltrion Healthcare’s results with those of Samsung Bioepis.
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.
Starting with listings in Hong Kong next week, CStone Pharma (2616 HK) and Dexin China Holdings (2019 HK) will list on the 26th of February. Dexin is said to have priced at the mid-point of its price range while CStone is priced above its mid-point.
We also heard that Haitong Unitrust International Leasing was given the green light by CSRC for its Hong Kong IPO. The company had previously re-filed its draft prospectus in September last year. Shanghai Dongzheng Automotive Finance has also received approval from CSRC for its IPO.
There had also been a small property developer, YinCheng, that had launched its US$100m IPO. Jinxin Fertility had also just filed its draft prospectus with the HKEX.
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.
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
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.
Theme of the week: Block trades/Placements + news flow on upcoming IPOs
Starting with placements, the shareholders of Wuxi Biologics (Cayman) Inc (2269 HK) are back on the market again to sell some shares. They been quite consistent with the selling and our team have covered the company the IPO each of the placements. Wisetech Global (WTC AU) and Platinum Asset Management (PTM AU) also had blocks that were sold earlier this week. The former did excceedingly well post-placement, currently more than 10% above its deal price while the latter had struggled as a result of Kerr and his ex-wife selling a portion of their shares in the company.
As for upcoming IPOs, Hong Kong ECM activity is ramping up. Megvii, the Chinese AI startup is looking to list in Hong Kong or US whereas China Feihe (FEIHE HK) is said to be revisit its US$1bn HK IPO. Ke Yan, CFA, FRM has covered the latter in this insight almost two years ago.
We also heard that Frontage had already met investors and Ke Yan, CFA, FRM has provided preliminary thoughts on valuation in:
Mulsanne Group (previously known as Alpha Smart (GXG)), Xinyi Energy Holdings, CMGE Tech, and 360 ludashi (鲁大师) re-filed their draft prospectuses. We have covered Mulsanne and Xinyi Energy in:
360 ludashi’s previous filing indicated that its IPO deal size will be small (<US$100m). However, the updated financials shown an almost 50% YoY PATMI growth which could put its IPO at a borderline deal size of US$100m if growth maintains at 50%.
In the U.S, Yunji Inc. (YJ US) filed for a US$200m IPO. The company runs a Chinese e-commerce site that uses a social platform to promote its products. We will be writing an early note on the company next week.
In Singapore, Eagle Hospitality REIT is said to have started investor education for its IPO while Lendlease is planning to raise up to US$500m for its retail REIT according to media reports.
In other ASEAN markets, there are also a handful of IPOs to watch out for.
In Indonesia, Lion Air is said to be targeting US$1bn listing in the third quarter of this year and it is starting to gauge investor interest. MAP Actif has already started pre-marketing its IPO.
In Thailand, Kerry Express Thailand is said to have hired banks to prepare for a >US$100m IPO.
In Malaysia, QSR Brands (QSR MY) has started to pre-market for its US$500m IPO. Sumeet Singh had previously written an early note:
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.
Biologics holdings is looking to raise upto US$517m by selling a 4.2% stake in Wuxi Biologics (Cayman) Inc (2269 HK). This will be fourth placement by the company since it listed less than two years ago. Below is a link to our coverage of the listing and the earlier placement:
Each of the past placement has been of a similar size and has generally done well. The company recently reported results which were ahead of street estimates. The deal scores a marginal positive score on our framework but there is still a lot more selling left once the 90-day lock-up expires.
Frontage Holding, a contract research organization subsidiary of A-share listed Hangzhou Tigermed Consulting (300347 CH), re-filed to list on the Hong Kong Stock Exchange recently. We have covered the company’s fundamentals in our previous insight here. In this insight, we will provide an updated analysis based on new data available from the new prospectus, as well as our thoughts on valuation.
Back in August, I argued a case for the privatisation of Aveo Group (AOG AU), which at the time was trading at a P/B of 0.6x versus ~2x for peers. Also in late August, Aveo announced a strategic review to examine all options to close the gap between Aveo’s market capitalisation and the value of the underlying retirement properties.
Aveo’s steep discount to peers was/is ostensibly due to the presence of Mulpha International (MIT MK)‘s large stake (22.5%), crowding out institutional ownership; Mulpha and Aveo sharing the same chairman, inferring (yet categorically denied) Aveo’s absence of independence; and the ongoing class action lawsuit.
That was a brutal recommendation, and lacking a hard catalyst, shares declined to $1.55 in January, recovering to $2.05 today, still ~12% shy of the price at the time of my last note.
This time is different.
Aveo announced in early February a number of indicative non-binding bids were received for a “whole of company transaction” with AFR reporting (paywalled) that Lone Star had joined the fray. Other interested parties are believed to include Blackstone and Cerberus Capital Management.
Aveo’s share price is up ~20% since announcing the receipt of the indicative bids, having drifted down from a (recent) closing peak of $2.14 earlier this month.
Aveo is currently trading at an attractive 0.52x P/B vs. 1.8x for its peer group, with the next closest peer valuation at 0.7x P/B. An offer of >0.7x, a level last traded as recently as June 2018, appears reasonable with ~92% of assets in investment property.
Further afield, Mulpha trades at a P/B of 0.25x, while the stake in Aveo accounts for 104% of its market cap, and around 25% of NAV. It’s discount to NAV has significantly narrowed since February, but Mulpha continues to trade at a discount to 76%.
Timeline of Events
Date
Data in the Date
End-2005
Mulpha’s stake in Aveo (then called FKP) was acquired after a share swap with Mulpha Norwest
Grifols SA (GRF SM) and Shanghai RAAS Blood Products Co Ltd (002252.SZ) recently announced an asset exchange that effectively combines the companies’ blood products operations in China. This transaction marks the third investment (two are cross-border) into the industry in the last two years. Despite some challenges arising from recent healthcare reforms, the industry has favorable supply/demand dynamics and high barriers to entry. US-listed China Biologic Products (CBPO US) trades at a significant discount to the implied private market values, but requires patience as management adjusts to the new operating environment.
Get Straight to the Source on Smartkarma
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
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.
Starting with listings in Hong Kong next week, CStone Pharma (2616 HK) and Dexin China Holdings (2019 HK) will list on the 26th of February. Dexin is said to have priced at the mid-point of its price range while CStone is priced above its mid-point.
We also heard that Haitong Unitrust International Leasing was given the green light by CSRC for its Hong Kong IPO. The company had previously re-filed its draft prospectus in September last year. Shanghai Dongzheng Automotive Finance has also received approval from CSRC for its IPO.
There had also been a small property developer, YinCheng, that had launched its US$100m IPO. Jinxin Fertility had also just filed its draft prospectus with the HKEX.
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.
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
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.
Starting with listings in Hong Kong next week, CStone Pharma (2616 HK) and Dexin China Holdings (2019 HK) will list on the 26th of February. Dexin is said to have priced at the mid-point of its price range while CStone is priced above its mid-point.
We also heard that Haitong Unitrust International Leasing was given the green light by CSRC for its Hong Kong IPO. The company had previously re-filed its draft prospectus in September last year. Shanghai Dongzheng Automotive Finance has also received approval from CSRC for its IPO.
There had also been a small property developer, YinCheng, that had launched its US$100m IPO. Jinxin Fertility had also just filed its draft prospectus with the HKEX.
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.
Fortis Healthcare (FORH IN) ‘s hospital business continued to improve in FQ3 while the lab business remained stable. This Insight briefly focuses on the highlights of the results and their implications. The hiring of a CEO out of Narayana Hrudayalaya (NARH IN) signals continued (and likely intensified) focus on efficiency to improve profitability.
We continue to think that Fortis is a promising turnaround story. Refer to the Insight Stream for the history of this situation.
Get Straight to the Source on Smartkarma
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
Biologics holdings is looking to raise upto US$517m by selling a 4.2% stake in Wuxi Biologics (Cayman) Inc (2269 HK). This will be fourth placement by the company since it listed less than two years ago. Below is a link to our coverage of the listing and the earlier placement:
Each of the past placement has been of a similar size and has generally done well. The company recently reported results which were ahead of street estimates. The deal scores a marginal positive score on our framework but there is still a lot more selling left once the 90-day lock-up expires.
Frontage Holding, a contract research organization subsidiary of A-share listed Hangzhou Tigermed Consulting (300347 CH), re-filed to list on the Hong Kong Stock Exchange recently. We have covered the company’s fundamentals in our previous insight here. In this insight, we will provide an updated analysis based on new data available from the new prospectus, as well as our thoughts on valuation.
Back in August, I argued a case for the privatisation of Aveo Group (AOG AU), which at the time was trading at a P/B of 0.6x versus ~2x for peers. Also in late August, Aveo announced a strategic review to examine all options to close the gap between Aveo’s market capitalisation and the value of the underlying retirement properties.
Aveo’s steep discount to peers was/is ostensibly due to the presence of Mulpha International (MIT MK)‘s large stake (22.5%), crowding out institutional ownership; Mulpha and Aveo sharing the same chairman, inferring (yet categorically denied) Aveo’s absence of independence; and the ongoing class action lawsuit.
That was a brutal recommendation, and lacking a hard catalyst, shares declined to $1.55 in January, recovering to $2.05 today, still ~12% shy of the price at the time of my last note.
This time is different.
Aveo announced in early February a number of indicative non-binding bids were received for a “whole of company transaction” with AFR reporting (paywalled) that Lone Star had joined the fray. Other interested parties are believed to include Blackstone and Cerberus Capital Management.
Aveo’s share price is up ~20% since announcing the receipt of the indicative bids, having drifted down from a (recent) closing peak of $2.14 earlier this month.
Aveo is currently trading at an attractive 0.52x P/B vs. 1.8x for its peer group, with the next closest peer valuation at 0.7x P/B. An offer of >0.7x, a level last traded as recently as June 2018, appears reasonable with ~92% of assets in investment property.
Further afield, Mulpha trades at a P/B of 0.25x, while the stake in Aveo accounts for 104% of its market cap, and around 25% of NAV. It’s discount to NAV has significantly narrowed since February, but Mulpha continues to trade at a discount to 76%.
Timeline of Events
Date
Data in the Date
End-2005
Mulpha’s stake in Aveo (then called FKP) was acquired after a share swap with Mulpha Norwest
Grifols SA (GRF SM) and Shanghai RAAS Blood Products Co Ltd (002252.SZ) recently announced an asset exchange that effectively combines the companies’ blood products operations in China. This transaction marks the third investment (two are cross-border) into the industry in the last two years. Despite some challenges arising from recent healthcare reforms, the industry has favorable supply/demand dynamics and high barriers to entry. US-listed China Biologic Products (CBPO US) trades at a significant discount to the implied private market values, but requires patience as management adjusts to the new operating environment.
CanSino Biologics started its book building today to raise up to USD 160 million to list in Hong Kong. In our previous insights (links provided below), we provided a detailed analysis of the company’s core drug candidates, its shareholders and our thoughts on valuation. In this insight, we will cover the following topics:
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
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.
Starting with listings in Hong Kong next week, CStone Pharma (2616 HK) and Dexin China Holdings (2019 HK) will list on the 26th of February. Dexin is said to have priced at the mid-point of its price range while CStone is priced above its mid-point.
We also heard that Haitong Unitrust International Leasing was given the green light by CSRC for its Hong Kong IPO. The company had previously re-filed its draft prospectus in September last year. Shanghai Dongzheng Automotive Finance has also received approval from CSRC for its IPO.
There had also been a small property developer, YinCheng, that had launched its US$100m IPO. Jinxin Fertility had also just filed its draft prospectus with the HKEX.
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.
Fortis Healthcare (FORH IN) ‘s hospital business continued to improve in FQ3 while the lab business remained stable. This Insight briefly focuses on the highlights of the results and their implications. The hiring of a CEO out of Narayana Hrudayalaya (NARH IN) signals continued (and likely intensified) focus on efficiency to improve profitability.
We continue to think that Fortis is a promising turnaround story. Refer to the Insight Stream for the history of this situation.
The oncology treatment landscape in China is evolving rapidly as the government has prioritized access to innovative drugs to meet this significant unmet need. In particular, investors considering the Shanghai Henlius Biotech (1566213D HK) listing should be aware of the emergence of a drug that potentially is superior to Roche Holding AG (ROG SW)‘s Herceptin (and Shanghai Henlius’ HLX02) for the treatment of patients with HER2-positive breast cancer (and ultimately HER2-positive gastric cancer). While there should be good demand for cheaper alternatives to Herceptin, the availability of a superior alternative potentially shortens the lifecycle of Herceptin biosimilars.
China has only recently “modernized” its drug approval and reimbursement, so there is little precedent to rely upon to estimate the speed and magnitude of changes in the market. As brokers rollout forecasts for the company and HLX02, investors should ask if the numbers somehow reflect this risk.
We do not have a view of the offering, but tag this Insight as Bearish because we are highlighting a potential risk.
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