ECM

In this briefing:

1. ESR Cayman Pre-IPO – Earnings and Segment Analysis
2. PagerDuty IPO Preview
3. China Risun (中国旭阳) – Quick Post-IPO Trading Update
4. GDS Holdings (GDS US): Placing a Good Opportunity to Gain Exposure to a High Growth Story
5. ECM Weekly (16 March 2019) – Embassy Office REIT, Tiger Brokers, Dongzheng Auto, Koolearn, CanSino

1. ESR Cayman Pre-IPO – Earnings and Segment Analysis

ESR Cayman (ESR HK) aims to raise up to US$1.5bn in its planned Hong Kong listing, as per media reports. The company is backed by Warburg Pincus and counts APG, the Netherlands’ largest pension provider, as one of its main investors.

In my earlier insight, I touched upon the company’s business model and provided an overview of its operations, ESR Cayman Pre-IPO – A Giant in the Making. 

In this insight, I’ll talk more about the financials and the drivers for each of the three segments.

2. PagerDuty IPO Preview

PagerDuty Inc (PD US) is a US based software company which is ready to complete its IPO in the next several weeks. Founded in 2009, PagerDuty helps companies to respond quickly when their websites go down. PagerDuty’s software helps companies to respond to items such as customer complaints and helps companies to spot problems. The company is known for capitalizing on its AI (Artificial Intelligence) models to quickly solve problems of why websites go down. 

The company has an excellent, diversified base of more than 10,000 customers in 90 countries including IBM, The World Bank, Airbnb, Netflix, GE, and Gap. One of the strong points of PagerDuty is the fact that it has gathered massive amounts of data from its more than 10,000 customers. The company also boasts a very high customer retention rate (139% net retention rate). A combination of the company’s strong AI capability coupled with the increasing amounts of Big Data provide a strong competitive advantage for the company since its AI capability may improve and get smarter with additional Big Data and continuous problem solving of why websites go down.

PagerDuty was most recently valued at $1.3 billion in September 2018 in a private market valuation (led by T.Rowe Price Group investing $90 million in the company), representing 16x the company’s annual revenue of $79.6 million as of 12 months ending January 2018. 

3. China Risun (中国旭阳) – Quick Post-IPO Trading Update

China Risun (1907 HK) raised USD 202 million at HKD 2.80 per share, near the low end of its IPO price range. We have previously covered the IPO in:

• China Risun (中国旭阳) IPO Quick Note: Past the Peak of Coking Cycle

In this insight, we will update on the deal dynamics, implied valuation, and include a valuation sensitivity table.

4. GDS Holdings (GDS US): Placing a Good Opportunity to Gain Exposure to a High Growth Story

Last Friday, Gds Holdings (Adr) (GDS US), the largest third-party data centre operator in China, announced the placing price of its public offering of 11.9 million ADS. At the placing price of $33.50 per share, GDS will raise net proceeds of $385.5 million which will be used for the development and acquisition of new data centres.

5. ECM Weekly (16 March 2019) – Embassy Office REIT, Tiger Brokers, Dongzheng Auto, Koolearn, CanSino

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 72.4% for IPOs and 63.7% for Placements 

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

New IPO filings

• FriendTimes Inc. (Hong Kong, >US$100m)
• Frontage (Hong Kong, re-filed)

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

• UBS and Rivals to Pay $100 Million to Settle Hong Kong IPO Cases
• Chinese Luxury Car Finance Firm Seeks $428 Million in Hong Kong IPO
• Online Educator Koolearn to Raise up to $233 Million in Hong Kong IPO
• Resurgence in Indian IPO market likely only after general elections
• Homeplus K-REIT Withdraws $1.5 Billion Korean IPO on Weak Demand
• Prospa may revive listing plan after beating prospectus forecasts
• Luckin Coffee chairman said to tap banks for $200m loan in exchange for IPO role

This week Analysis on Upcoming IPO

• Homeplus REIT IPO: A Key Landmark Deal in the History of the Korean REIT Market
• Up Fintech (Tiger Brokers) IPO Quick Take – It’s Not like Futu, Won’t Perform like It Either
• Embassy Office Parks REIT IPO – FY19 Revised Down, Yield Propped up by Zero Coupon Bond
• CanSino Biologics (康希诺) IPO: Valuation Update (Part 3)
• Dongzheng Auto Finance (东正汽车金融) IPO Review – Better off Buying the Parent
• Koolearn (新东方在线) IPO Review – Yet to See Results from Increased Spending

In this briefing:

1. PagerDuty IPO Preview
2. China Risun (中国旭阳) – Quick Post-IPO Trading Update
3. GDS Holdings (GDS US): Placing a Good Opportunity to Gain Exposure to a High Growth Story
4. ECM Weekly (16 March 2019) – Embassy Office REIT, Tiger Brokers, Dongzheng Auto, Koolearn, CanSino
5. Embassy Office Parks REIT: Why You Should Avoid It

1. PagerDuty IPO Preview

PagerDuty Inc (PD US) is a US based software company which is ready to complete its IPO in the next several weeks. Founded in 2009, PagerDuty helps companies to respond quickly when their websites go down. PagerDuty’s software helps companies to respond to items such as customer complaints and helps companies to spot problems. The company is known for capitalizing on its AI (Artificial Intelligence) models to quickly solve problems of why websites go down. 

The company has an excellent, diversified base of more than 10,000 customers in 90 countries including IBM, The World Bank, Airbnb, Netflix, GE, and Gap. One of the strong points of PagerDuty is the fact that it has gathered massive amounts of data from its more than 10,000 customers. The company also boasts a very high customer retention rate (139% net retention rate). A combination of the company’s strong AI capability coupled with the increasing amounts of Big Data provide a strong competitive advantage for the company since its AI capability may improve and get smarter with additional Big Data and continuous problem solving of why websites go down.

PagerDuty was most recently valued at $1.3 billion in September 2018 in a private market valuation (led by T.Rowe Price Group investing $90 million in the company), representing 16x the company’s annual revenue of $79.6 million as of 12 months ending January 2018. 

2. China Risun (中国旭阳) – Quick Post-IPO Trading Update

China Risun (1907 HK) raised USD 202 million at HKD 2.80 per share, near the low end of its IPO price range. We have previously covered the IPO in:

• China Risun (中国旭阳) IPO Quick Note: Past the Peak of Coking Cycle

In this insight, we will update on the deal dynamics, implied valuation, and include a valuation sensitivity table.

3. GDS Holdings (GDS US): Placing a Good Opportunity to Gain Exposure to a High Growth Story

Last Friday, Gds Holdings (Adr) (GDS US), the largest third-party data centre operator in China, announced the placing price of its public offering of 11.9 million ADS. At the placing price of $33.50 per share, GDS will raise net proceeds of $385.5 million which will be used for the development and acquisition of new data centres.

4. ECM Weekly (16 March 2019) – Embassy Office REIT, Tiger Brokers, Dongzheng Auto, Koolearn, CanSino

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 72.4% for IPOs and 63.7% for Placements 

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

New IPO filings

• FriendTimes Inc. (Hong Kong, >US$100m)
• Frontage (Hong Kong, re-filed)

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

• UBS and Rivals to Pay $100 Million to Settle Hong Kong IPO Cases
• Chinese Luxury Car Finance Firm Seeks $428 Million in Hong Kong IPO
• Online Educator Koolearn to Raise up to $233 Million in Hong Kong IPO
• Resurgence in Indian IPO market likely only after general elections
• Homeplus K-REIT Withdraws $1.5 Billion Korean IPO on Weak Demand
• Prospa may revive listing plan after beating prospectus forecasts
• Luckin Coffee chairman said to tap banks for $200m loan in exchange for IPO role

This week Analysis on Upcoming IPO

• Homeplus REIT IPO: A Key Landmark Deal in the History of the Korean REIT Market
• Up Fintech (Tiger Brokers) IPO Quick Take – It’s Not like Futu, Won’t Perform like It Either
• Embassy Office Parks REIT IPO – FY19 Revised Down, Yield Propped up by Zero Coupon Bond
• CanSino Biologics (康希诺) IPO: Valuation Update (Part 3)
• Dongzheng Auto Finance (东正汽车金融) IPO Review – Better off Buying the Parent
• Koolearn (新东方在线) IPO Review – Yet to See Results from Increased Spending

5. Embassy Office Parks REIT: Why You Should Avoid It

• Embassy Office Parks REIT (EOP IN) boasts an impressive portfolio of office assets with adequate geographic diversification, strong client relationships and sound reputation.
• Constructing/acquiring new office area is an integral part of Embassy’s growth strategy.
• This requires massive capex (e.g. Embassy’s last 3 year’s capex is Rs32bn). Since it pledges to distribute 100% of its EBITDA to unit holders, it will have no cash left for capex or making interest payments.
• Hence, post the IPO borrowings will increase to fund the capex. The interest expenses will lower the NDCF and in turn Dividend per unit.
• Embassy may choose to issue fresh units to fund part of the capex in the future. This will also result in lower Dividend per unit.
• Ascendas India Trust (AIT SP) shows us why you should be conservative while building in capital appreciation of REIT units. Despite revenues growing 3.18x over FY08-18, Ascendas’ Dividend per unit is flat over the period as its borrowings growth (29% Cagr) far outdid its revenue growth (12.3% Cagr). It also diluted equity to the tune of 37% over the period. Its units have seen no capital appreciation over the last decade.
• Embassy’s effective yield (adjusted for interest outgo notwithstanding its proposed workaround) works out to 6.4%- unattractive in our view.

In this briefing:

1. HLX02: Innovation Could Overtake
2. Aruhi Placement – Bigger than the IPO but Good Track Record and Price Performance Should Help

1. HLX02: Innovation Could Overtake

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.

2. Aruhi Placement – Bigger than the IPO but Good Track Record and Price Performance Should Help

Carlyle, along with SBI, plans to sell the rest of its stake in Aruhi Corp (7198 JP) for around US$280m.

Aruhi listed in Dec 2017, when Carlyle sold 18m shares. This is the second and final tranche of shares owned by Carlyle.  The total sale accounts for 41% of the company’s outstanding shares making it a relatively large deal to digest. 

However, the shares have done well since listing and the stock scores well on our framework. Valuations appear reasonable, if the company is able to achieve its mid-term targets.

In this briefing:

1. Aruhi Placement – Bigger than the IPO but Good Track Record and Price Performance Should Help

1. Aruhi Placement – Bigger than the IPO but Good Track Record and Price Performance Should Help

Carlyle, along with SBI, plans to sell the rest of its stake in Aruhi Corp (7198 JP) for around US$280m.

Aruhi listed in Dec 2017, when Carlyle sold 18m shares. This is the second and final tranche of shares owned by Carlyle.  The total sale accounts for 41% of the company’s outstanding shares making it a relatively large deal to digest. 

However, the shares have done well since listing and the stock scores well on our framework. Valuations appear reasonable, if the company is able to achieve its mid-term targets.

In this briefing:

1. China Risun (中国旭阳) – Quick Post-IPO Trading Update
2. GDS Holdings (GDS US): Placing a Good Opportunity to Gain Exposure to a High Growth Story
3. ECM Weekly (16 March 2019) – Embassy Office REIT, Tiger Brokers, Dongzheng Auto, Koolearn, CanSino
4. Embassy Office Parks REIT: Why You Should Avoid It
5. Koolearn (新东方在线) IPO Review – Yet to See Results from Increased Spending

1. China Risun (中国旭阳) – Quick Post-IPO Trading Update

China Risun (1907 HK) raised USD 202 million at HKD 2.80 per share, near the low end of its IPO price range. We have previously covered the IPO in:

• China Risun (中国旭阳) IPO Quick Note: Past the Peak of Coking Cycle

In this insight, we will update on the deal dynamics, implied valuation, and include a valuation sensitivity table.

2. GDS Holdings (GDS US): Placing a Good Opportunity to Gain Exposure to a High Growth Story

Last Friday, Gds Holdings (Adr) (GDS US), the largest third-party data centre operator in China, announced the placing price of its public offering of 11.9 million ADS. At the placing price of $33.50 per share, GDS will raise net proceeds of $385.5 million which will be used for the development and acquisition of new data centres.

3. ECM Weekly (16 March 2019) – Embassy Office REIT, Tiger Brokers, Dongzheng Auto, Koolearn, CanSino

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 72.4% for IPOs and 63.7% for Placements 

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

New IPO filings

• FriendTimes Inc. (Hong Kong, >US$100m)
• Frontage (Hong Kong, re-filed)

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

• UBS and Rivals to Pay $100 Million to Settle Hong Kong IPO Cases
• Chinese Luxury Car Finance Firm Seeks $428 Million in Hong Kong IPO
• Online Educator Koolearn to Raise up to $233 Million in Hong Kong IPO
• Resurgence in Indian IPO market likely only after general elections
• Homeplus K-REIT Withdraws $1.5 Billion Korean IPO on Weak Demand
• Prospa may revive listing plan after beating prospectus forecasts
• Luckin Coffee chairman said to tap banks for $200m loan in exchange for IPO role

This week Analysis on Upcoming IPO

• Homeplus REIT IPO: A Key Landmark Deal in the History of the Korean REIT Market
• Up Fintech (Tiger Brokers) IPO Quick Take – It’s Not like Futu, Won’t Perform like It Either
• Embassy Office Parks REIT IPO – FY19 Revised Down, Yield Propped up by Zero Coupon Bond
• CanSino Biologics (康希诺) IPO: Valuation Update (Part 3)
• Dongzheng Auto Finance (东正汽车金融) IPO Review – Better off Buying the Parent
• Koolearn (新东方在线) IPO Review – Yet to See Results from Increased Spending

4. Embassy Office Parks REIT: Why You Should Avoid It

• Embassy Office Parks REIT (EOP IN) boasts an impressive portfolio of office assets with adequate geographic diversification, strong client relationships and sound reputation.
• Constructing/acquiring new office area is an integral part of Embassy’s growth strategy.
• This requires massive capex (e.g. Embassy’s last 3 year’s capex is Rs32bn). Since it pledges to distribute 100% of its EBITDA to unit holders, it will have no cash left for capex or making interest payments.
• Hence, post the IPO borrowings will increase to fund the capex. The interest expenses will lower the NDCF and in turn Dividend per unit.
• Embassy may choose to issue fresh units to fund part of the capex in the future. This will also result in lower Dividend per unit.
• Ascendas India Trust (AIT SP) shows us why you should be conservative while building in capital appreciation of REIT units. Despite revenues growing 3.18x over FY08-18, Ascendas’ Dividend per unit is flat over the period as its borrowings growth (29% Cagr) far outdid its revenue growth (12.3% Cagr). It also diluted equity to the tune of 37% over the period. Its units have seen no capital appreciation over the last decade.
• Embassy’s effective yield (adjusted for interest outgo notwithstanding its proposed workaround) works out to 6.4%- unattractive in our view.

5. Koolearn (新东方在线) IPO Review – Yet to See Results from Increased Spending

Koolearn (1797 HK) is looking to raise up to US$S234m in its upcoming IPO.  We have previously covered the company in:

• Koolearn (新东方在线) Pre-IPO – Profitable Online Edu Company but Poor Sentiment Weighs
• New Regulatory Tightening on Online Education Reads Badly on Koolearn IPO

In this insight, we will look at the updates on financials and operating metrics, compare it to other listed online education companies, and run the deal through our framework.

The increase in spending on marketing has not yielded the intended results as the growth rates of student enrollment and gross billings slowing down. Furthermore, aggressive spending behavior is similar to that of STG and LAIX and both companies did not perform well post listing.

In this briefing:

1. Keppel Infrastructure Trust Placement – Scaled Down but Large Deal; Very Well Flagged Deal
2. Dongzheng Auto Finance (东正汽车金融) IPO Review – Better off Buying the Parent
3. CanSino Biologics (康希诺) IPO: Valuation Update (Part 3)
4. Embassy Office Parks REIT IPO – FY19 Revised Down, Yield Propped up by Zero Coupon Bond
5. Ruhnn IPO Preview: Hard to Stay Red-Hot for Long

1. Keppel Infrastructure Trust Placement – Scaled Down but Large Deal; Very Well Flagged Deal

Keppel Infrastructure Trust (KIT SP) plans to raise US$450m via an equity placement and non-renounacable preferential offering. Its sponsor, Keppel Corp Ltd (KEP SP) will subscribe in the placement and the preferential offering to maintain its 18.2% stake.

KIT announced the acquisition of IXOM in Nov 2018 and has been talking about the need to issue equity ever since. Its earlier presentations seem to indicate a preference for raising a large sum via an equity issuance. Furthermore, despite the smaller raise the accretion to DPU is probably only marginal. 

2. Dongzheng Auto Finance (东正汽车金融) IPO Review – Better off Buying the Parent

Dongzheng Automotive Finance (2718 HK) is raising up to US$428m in its upcoming IPO. We have covered the background of the company in Dongzheng Auto Finance (东正汽车金融) Pre-IPO Review – Dependent on Dealership Network for Growth. 

In this insight, we will look into the company’s valuation, compare it to listed auto peers, and run the deal through our framework.

3. CanSino Biologics (康希诺) IPO: Valuation Update (Part 3)

CanSino is a China-based biotechnology company with a focus on vaccine development. In our previous insight (link to Part 1 and Part 2), we have discussed CanSino’s drug pipeline, the competitive landscape, and the valuation. 

As the company is starting pre-marketing, we will provide an updated valuation based on new information obtained from the approved application document. Our base case valuation for CanSino is USD 856 million on a pre-money basis. Majority of the rNPV based SOTP valuation still comes from its meningococcal conjugate vaccine (MCV2 and MCV4). Over the past few months, the company has completed Phase III for MCV4 and submitted NDA (new drug application) for MCV2 candidates.

4. Embassy Office Parks REIT IPO – FY19 Revised Down, Yield Propped up by Zero Coupon Bond

Embassy Office Parks REIT (EOP IN) plans to raise around US$680m in its India IPO. Of this, it has already raised around US$125m from Capital Group, who came in as a strategic investor. EOP will primarily hold office assets in Bengaluru, Pune and Noida with a total portfolio size of around US$4.5bn. 

In my previous insights I’ve covered the company background, its projected growth and compared it to its main listed peer and other yield assets in India: 

• Embassy Office Parks REIT – Good Assets but Projections Might Be a Tad Too Bullish, and
• Embassy Office Parks REIT – Comparison with AIT and a Look at the Required Yield

In this insight, I’ll cover the deal dynamics, compare the revised forecast in the RHP with the earlier one from the DRHP, comment on the yield boost from the zero coupon debt and run the deal through our framework.

5. Ruhnn IPO Preview: Hard to Stay Red-Hot for Long

Ruhnn Holding Ltd (RUHN US) is an e-commerce platform which drives sales through KOLs (key opinion leaders). Ruhnn is the largest internet KOL facilitator in China as measured by revenue, the number of online stores and GMV in 2018 according to Frost & Sullivan. Ruhnn is backed by Alibaba Group Holding (BABA US), an 8.6% shareholder, and is seeking to raise $200 million through a Nasdaq IPO.

In this briefing:

1. GDS Holdings (GDS US): Placing a Good Opportunity to Gain Exposure to a High Growth Story
2. ECM Weekly (16 March 2019) – Embassy Office REIT, Tiger Brokers, Dongzheng Auto, Koolearn, CanSino
3. Embassy Office Parks REIT: Why You Should Avoid It
4. Koolearn (新东方在线) IPO Review – Yet to See Results from Increased Spending
5. NASDAQ:GDS Placement – Visible Growth, Additional Ping An Investment

1. GDS Holdings (GDS US): Placing a Good Opportunity to Gain Exposure to a High Growth Story

Last Friday, Gds Holdings (Adr) (GDS US), the largest third-party data centre operator in China, announced the placing price of its public offering of 11.9 million ADS. At the placing price of $33.50 per share, GDS will raise net proceeds of $385.5 million which will be used for the development and acquisition of new data centres.

2. ECM Weekly (16 March 2019) – Embassy Office REIT, Tiger Brokers, Dongzheng Auto, Koolearn, CanSino

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 72.4% for IPOs and 63.7% for Placements 

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

New IPO filings

• FriendTimes Inc. (Hong Kong, >US$100m)
• Frontage (Hong Kong, re-filed)

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

• UBS and Rivals to Pay $100 Million to Settle Hong Kong IPO Cases
• Chinese Luxury Car Finance Firm Seeks $428 Million in Hong Kong IPO
• Online Educator Koolearn to Raise up to $233 Million in Hong Kong IPO
• Resurgence in Indian IPO market likely only after general elections
• Homeplus K-REIT Withdraws $1.5 Billion Korean IPO on Weak Demand
• Prospa may revive listing plan after beating prospectus forecasts
• Luckin Coffee chairman said to tap banks for $200m loan in exchange for IPO role

This week Analysis on Upcoming IPO

• Homeplus REIT IPO: A Key Landmark Deal in the History of the Korean REIT Market
• Up Fintech (Tiger Brokers) IPO Quick Take – It’s Not like Futu, Won’t Perform like It Either
• Embassy Office Parks REIT IPO – FY19 Revised Down, Yield Propped up by Zero Coupon Bond
• CanSino Biologics (康希诺) IPO: Valuation Update (Part 3)
• Dongzheng Auto Finance (东正汽车金融) IPO Review – Better off Buying the Parent
• Koolearn (新东方在线) IPO Review – Yet to See Results from Increased Spending

3. Embassy Office Parks REIT: Why You Should Avoid It

• Embassy Office Parks REIT (EOP IN) boasts an impressive portfolio of office assets with adequate geographic diversification, strong client relationships and sound reputation.
• Constructing/acquiring new office area is an integral part of Embassy’s growth strategy.
• This requires massive capex (e.g. Embassy’s last 3 year’s capex is Rs32bn). Since it pledges to distribute 100% of its EBITDA to unit holders, it will have no cash left for capex or making interest payments.
• Hence, post the IPO borrowings will increase to fund the capex. The interest expenses will lower the NDCF and in turn Dividend per unit.
• Embassy may choose to issue fresh units to fund part of the capex in the future. This will also result in lower Dividend per unit.
• Ascendas India Trust (AIT SP) shows us why you should be conservative while building in capital appreciation of REIT units. Despite revenues growing 3.18x over FY08-18, Ascendas’ Dividend per unit is flat over the period as its borrowings growth (29% Cagr) far outdid its revenue growth (12.3% Cagr). It also diluted equity to the tune of 37% over the period. Its units have seen no capital appreciation over the last decade.
• Embassy’s effective yield (adjusted for interest outgo notwithstanding its proposed workaround) works out to 6.4%- unattractive in our view.

4. Koolearn (新东方在线) IPO Review – Yet to See Results from Increased Spending

Koolearn (1797 HK) is looking to raise up to US$S234m in its upcoming IPO.  We have previously covered the company in:

• Koolearn (新东方在线) Pre-IPO – Profitable Online Edu Company but Poor Sentiment Weighs
• New Regulatory Tightening on Online Education Reads Badly on Koolearn IPO

In this insight, we will look at the updates on financials and operating metrics, compare it to other listed online education companies, and run the deal through our framework.

The increase in spending on marketing has not yielded the intended results as the growth rates of student enrollment and gross billings slowing down. Furthermore, aggressive spending behavior is similar to that of STG and LAIX and both companies did not perform well post listing.

5. NASDAQ:GDS Placement – Visible Growth, Additional Ping An Investment

GDS Holding, the largest carrier-neutral, cloud-neutral data centre operator in China, is raising USD 400 million from a private placement. The deal was launched last night (US time) post the company’s results announcement. In this insight, we will cover: 

• Details of the deal
• Key takeaways from its 4Q2018 results
• USD 150 million investment by Ping An
• Its shareholders
• The score in our Placement Framework

In this briefing:

1. ECM Weekly (16 March 2019) – Embassy Office REIT, Tiger Brokers, Dongzheng Auto, Koolearn, CanSino
2. Embassy Office Parks REIT: Why You Should Avoid It
3. Koolearn (新东方在线) IPO Review – Yet to See Results from Increased Spending
4. NASDAQ:GDS Placement – Visible Growth, Additional Ping An Investment
5. Keppel Infrastructure Trust Placement – Scaled Down but Large Deal; Very Well Flagged Deal

1. ECM Weekly (16 March 2019) – Embassy Office REIT, Tiger Brokers, Dongzheng Auto, Koolearn, CanSino

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 72.4% for IPOs and 63.7% for Placements 

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

New IPO filings

• FriendTimes Inc. (Hong Kong, >US$100m)
• Frontage (Hong Kong, re-filed)

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

• UBS and Rivals to Pay $100 Million to Settle Hong Kong IPO Cases
• Chinese Luxury Car Finance Firm Seeks $428 Million in Hong Kong IPO
• Online Educator Koolearn to Raise up to $233 Million in Hong Kong IPO
• Resurgence in Indian IPO market likely only after general elections
• Homeplus K-REIT Withdraws $1.5 Billion Korean IPO on Weak Demand
• Prospa may revive listing plan after beating prospectus forecasts
• Luckin Coffee chairman said to tap banks for $200m loan in exchange for IPO role

This week Analysis on Upcoming IPO

• Homeplus REIT IPO: A Key Landmark Deal in the History of the Korean REIT Market
• Up Fintech (Tiger Brokers) IPO Quick Take – It’s Not like Futu, Won’t Perform like It Either
• Embassy Office Parks REIT IPO – FY19 Revised Down, Yield Propped up by Zero Coupon Bond
• CanSino Biologics (康希诺) IPO: Valuation Update (Part 3)
• Dongzheng Auto Finance (东正汽车金融) IPO Review – Better off Buying the Parent
• Koolearn (新东方在线) IPO Review – Yet to See Results from Increased Spending

2. Embassy Office Parks REIT: Why You Should Avoid It

• Embassy Office Parks REIT (EOP IN) boasts an impressive portfolio of office assets with adequate geographic diversification, strong client relationships and sound reputation.
• Constructing/acquiring new office area is an integral part of Embassy’s growth strategy.
• This requires massive capex (e.g. Embassy’s last 3 year’s capex is Rs32bn). Since it pledges to distribute 100% of its EBITDA to unit holders, it will have no cash left for capex or making interest payments.
• Hence, post the IPO borrowings will increase to fund the capex. The interest expenses will lower the NDCF and in turn Dividend per unit.
• Embassy may choose to issue fresh units to fund part of the capex in the future. This will also result in lower Dividend per unit.
• Ascendas India Trust (AIT SP) shows us why you should be conservative while building in capital appreciation of REIT units. Despite revenues growing 3.18x over FY08-18, Ascendas’ Dividend per unit is flat over the period as its borrowings growth (29% Cagr) far outdid its revenue growth (12.3% Cagr). It also diluted equity to the tune of 37% over the period. Its units have seen no capital appreciation over the last decade.
• Embassy’s effective yield (adjusted for interest outgo notwithstanding its proposed workaround) works out to 6.4%- unattractive in our view.

3. Koolearn (新东方在线) IPO Review – Yet to See Results from Increased Spending

Koolearn (1797 HK) is looking to raise up to US$S234m in its upcoming IPO.  We have previously covered the company in:

• Koolearn (新东方在线) Pre-IPO – Profitable Online Edu Company but Poor Sentiment Weighs
• New Regulatory Tightening on Online Education Reads Badly on Koolearn IPO

In this insight, we will look at the updates on financials and operating metrics, compare it to other listed online education companies, and run the deal through our framework.

The increase in spending on marketing has not yielded the intended results as the growth rates of student enrollment and gross billings slowing down. Furthermore, aggressive spending behavior is similar to that of STG and LAIX and both companies did not perform well post listing.

4. NASDAQ:GDS Placement – Visible Growth, Additional Ping An Investment

GDS Holding, the largest carrier-neutral, cloud-neutral data centre operator in China, is raising USD 400 million from a private placement. The deal was launched last night (US time) post the company’s results announcement. In this insight, we will cover: 

• Details of the deal
• Key takeaways from its 4Q2018 results
• USD 150 million investment by Ping An
• Its shareholders
• The score in our Placement Framework

5. Keppel Infrastructure Trust Placement – Scaled Down but Large Deal; Very Well Flagged Deal

Keppel Infrastructure Trust (KIT SP) plans to raise US$450m via an equity placement and non-renounacable preferential offering. Its sponsor, Keppel Corp Ltd (KEP SP) will subscribe in the placement and the preferential offering to maintain its 18.2% stake.

KIT announced the acquisition of IXOM in Nov 2018 and has been talking about the need to issue equity ever since. Its earlier presentations seem to indicate a preference for raising a large sum via an equity issuance. Furthermore, despite the smaller raise the accretion to DPU is probably only marginal. 

In this briefing:

1. Embassy Office Parks REIT: Why You Should Avoid It
2. Koolearn (新东方在线) IPO Review – Yet to See Results from Increased Spending
3. NASDAQ:GDS Placement – Visible Growth, Additional Ping An Investment
4. Keppel Infrastructure Trust Placement – Scaled Down but Large Deal; Very Well Flagged Deal
5. Dongzheng Auto Finance (东正汽车金融) IPO Review – Better off Buying the Parent

1. Embassy Office Parks REIT: Why You Should Avoid It

• Embassy Office Parks REIT (EOP IN) boasts an impressive portfolio of office assets with adequate geographic diversification, strong client relationships and sound reputation.
• Constructing/acquiring new office area is an integral part of Embassy’s growth strategy.
• This requires massive capex (e.g. Embassy’s last 3 year’s capex is Rs32bn). Since it pledges to distribute 100% of its EBITDA to unit holders, it will have no cash left for capex or making interest payments.
• Hence, post the IPO borrowings will increase to fund the capex. The interest expenses will lower the NDCF and in turn Dividend per unit.
• Embassy may choose to issue fresh units to fund part of the capex in the future. This will also result in lower Dividend per unit.
• Ascendas India Trust (AIT SP) shows us why you should be conservative while building in capital appreciation of REIT units. Despite revenues growing 3.18x over FY08-18, Ascendas’ Dividend per unit is flat over the period as its borrowings growth (29% Cagr) far outdid its revenue growth (12.3% Cagr). It also diluted equity to the tune of 37% over the period. Its units have seen no capital appreciation over the last decade.
• Embassy’s effective yield (adjusted for interest outgo notwithstanding its proposed workaround) works out to 6.4%- unattractive in our view.

2. Koolearn (新东方在线) IPO Review – Yet to See Results from Increased Spending

Koolearn (1797 HK) is looking to raise up to US$S234m in its upcoming IPO.  We have previously covered the company in:

• Koolearn (新东方在线) Pre-IPO – Profitable Online Edu Company but Poor Sentiment Weighs
• New Regulatory Tightening on Online Education Reads Badly on Koolearn IPO

In this insight, we will look at the updates on financials and operating metrics, compare it to other listed online education companies, and run the deal through our framework.

The increase in spending on marketing has not yielded the intended results as the growth rates of student enrollment and gross billings slowing down. Furthermore, aggressive spending behavior is similar to that of STG and LAIX and both companies did not perform well post listing.

3. NASDAQ:GDS Placement – Visible Growth, Additional Ping An Investment

GDS Holding, the largest carrier-neutral, cloud-neutral data centre operator in China, is raising USD 400 million from a private placement. The deal was launched last night (US time) post the company’s results announcement. In this insight, we will cover: 

• Details of the deal
• Key takeaways from its 4Q2018 results
• USD 150 million investment by Ping An
• Its shareholders
• The score in our Placement Framework

4. Keppel Infrastructure Trust Placement – Scaled Down but Large Deal; Very Well Flagged Deal

Keppel Infrastructure Trust (KIT SP) plans to raise US$450m via an equity placement and non-renounacable preferential offering. Its sponsor, Keppel Corp Ltd (KEP SP) will subscribe in the placement and the preferential offering to maintain its 18.2% stake.

KIT announced the acquisition of IXOM in Nov 2018 and has been talking about the need to issue equity ever since. Its earlier presentations seem to indicate a preference for raising a large sum via an equity issuance. Furthermore, despite the smaller raise the accretion to DPU is probably only marginal. 

5. Dongzheng Auto Finance (东正汽车金融) IPO Review – Better off Buying the Parent

Dongzheng Automotive Finance (2718 HK) is raising up to US$428m in its upcoming IPO. We have covered the background of the company in Dongzheng Auto Finance (东正汽车金融) Pre-IPO Review – Dependent on Dealership Network for Growth. 

In this insight, we will look into the company’s valuation, compare it to listed auto peers, and run the deal through our framework.

In this briefing:

1. Embassy Office Parks REIT IPO – FY19 Revised Down, Yield Propped up by Zero Coupon Bond
2. Ruhnn IPO Preview: Hard to Stay Red-Hot for Long
3. Dongzheng Auto Finance (东正汽车金融) Pre-IPO Review – Dependent on Dealership Network for Growth
4. Up Fintech (Tiger Brokers) IPO Quick Take – It’s Not like Futu, Won’t Perform like It Either
5. Short Haidilao (海底捞) Before Earning & Lock-Up Expiry

1. Embassy Office Parks REIT IPO – FY19 Revised Down, Yield Propped up by Zero Coupon Bond

Embassy Office Parks REIT (EOP IN) plans to raise around US$680m in its India IPO. Of this, it has already raised around US$125m from Capital Group, who came in as a strategic investor. EOP will primarily hold office assets in Bengaluru, Pune and Noida with a total portfolio size of around US$4.5bn. 

In my previous insights I’ve covered the company background, its projected growth and compared it to its main listed peer and other yield assets in India: 

• Embassy Office Parks REIT – Good Assets but Projections Might Be a Tad Too Bullish, and
• Embassy Office Parks REIT – Comparison with AIT and a Look at the Required Yield

In this insight, I’ll cover the deal dynamics, compare the revised forecast in the RHP with the earlier one from the DRHP, comment on the yield boost from the zero coupon debt and run the deal through our framework.

2. Ruhnn IPO Preview: Hard to Stay Red-Hot for Long

Ruhnn Holding Ltd (RUHN US) is an e-commerce platform which drives sales through KOLs (key opinion leaders). Ruhnn is the largest internet KOL facilitator in China as measured by revenue, the number of online stores and GMV in 2018 according to Frost & Sullivan. Ruhnn is backed by Alibaba Group Holding (BABA US), an 8.6% shareholder, and is seeking to raise $200 million through a Nasdaq IPO.

3. Dongzheng Auto Finance (东正汽车金融) Pre-IPO Review – Dependent on Dealership Network for Growth

Dongzheng Automotive Finance (2718 HK) is looking to raise approximately US$300 – 500m in its upcoming IPO. 

DAF is a fast growing auto finance company which acquires customers through a network of dealership around China. Its net interest income grew by 66% CAGR from FY2016 to FY2018 while net fees/comms income and profit grew by 39.6% and 61% CAGR over the same period.

However, most of its growth originated from ZhengTong dealers and joint promotion arrangement. Excluding loans from joint promotion arrangement, gross outstanding loan had only grown by 12% CAGR.

In this insight, we will look at the company’s business, analyze the competitive landscape, provide thoughts on valuation, and some questions for management.

4. Up Fintech (Tiger Brokers) IPO Quick Take – It’s Not like Futu, Won’t Perform like It Either

Up Fintech (TIGR US) plans to raise up to US$91m in its US listing. The company counts Xiaomi Corp (1810 HK) and Interactive Brokers Group, Inc (IBKR US) as its main investors.

In my earlier insights, I commented about Tiger’s reliance on IBKR and compared its operations with Futu Holdings Ltd (FHL US):

• Up Fintech (Tiger Brokers) Pre-IPO Quick Note – Much Too Reliant on IBKR
• Futu Holdings IPO Quick Note – Comparison with Tiger Brokers – Same Market, Different Economics

In this insight, I’ll run the deal through our framework and comment on valuations.

5. Short Haidilao (海底捞) Before Earning & Lock-Up Expiry

Haidilao International, the largest Chinese cuisine player by valuation, was listed on September 26th last year and lock-up expiry will be on March 26th. The stock has returned 24% since listing. 

• As it heads into lock-up expiry, we will examine Haidilao’s shareholder structure and potential shares up for sale.
• Haidilao was included in the Hong Kong Connect Scheme on December 10th, 2018 and shares held by mainland investors have been consistently increasing.
• But we think Haidilao’s valuation has built in a perfect growth scenario.
• Risk of de-rating for Haidilao warrants a short position.

Our previous coverage on Meituan Dianping

• Haidilao IPO First Glance: Legendary Hot Pot Restaurant that Will Be Hot (Part 1)
• Haidilao (海底捞) IPO: Superior Metrics in a Scalable Segment (Part 2)
• Haidilao (海底捞) IPO: Near Term Rapid Growth but Deceleration Ahead (Part 3)
• Haidilao (海底捞) IPO: Appealing Valuation at the Low End for a Branded National Champion (Part 4) 
• Haidilao (海底捞) Post-IPO Trading Update: Not Much Upside from High End, Lessons from Meituan