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. ECM Weekly (23 March 2019) – ESR, Sun Car, Ruhnn, CanSino, Frontage, Wuxi Bio, WiseTech,
2. Woori Financials Placement – One Overhang Gone in a Well Flagged Deal, Another Remains
3. Up Fintech (Tiger Brokers) IPO Trading Update – First Day Volume Was Higher than Futu, Close to QTT
4. Wuxi Biologics Placement – Past Deals Have Done Well but Progressive Returns Are Getting Lower
5. Ruhnn (如涵) Pre-IPO Review- Significant Concentration Risk

1. ECM Weekly (23 March 2019) – ESR, Sun Car, Ruhnn, CanSino, Frontage, Wuxi Bio, WiseTech,

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 72.3% for IPOs and 64.3% for Placements 

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

New IPO filings

• Yunji (the U.S, ~US$200m)
• 360 LuDaShi (Hong Kong, potentially >US$100m)
• CMGE Tech (Hong Kong, re-filed)
• Mulsanne Group – FKA Alpha Smart – AKA GXG (Hong Kong, re-filed)
• Xinyi Energy (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

• Chinese AI start-up Megvii mulls IPO in either Hong Kong or New York to raise  US$800m
• Lendlease planning to raise up to US$500m with retail Reit listing on SGX
• Indonesia’s Lion Air Starts Work on $1 Billion IPO
• Chinese Tower Operator Guodong Is Said to Plan Hong Kong IPO
• Feihe International ‘revisits plan for Hong Kong IPO’
• Solar co Xinyi Energy revives Hong Kong IPO plan

This week Analysis on Upcoming IPO

• Ruhnn (如涵) Pre-IPO Review- Significant Concentration Risk
• Frontage Holding (方达控股) IPO: Updates from 2018 Numbers
• Sun Car Insurance Agency (盛世大联) IPO: Over Valued Vs P&C Companies
• ESR Cayman Pre-IPO – Earnings and Segment Analysis
• CanSino Biologics (康希诺) IPO: Valuation Attractive, Lilly Asia Doubling Up (Part 4)
• PagerDuty IPO Preview

2. Woori Financials Placement – One Overhang Gone in a Well Flagged Deal, Another Remains

Woori Bank (000030 KS) plans to raise US$233m by selling its entire stake in Woori Financial Group (316140 KS). 

The selldown has been well flagged as the company has been in the midst of converting to a Holdco, as a part of which it was given six months to sell this stake. The deal scores a marginal positive score on our framework owing to its earnings momentum and track record.

On the flip side, the government too has flagged its plans to sell its 18%+ stake, as soon as possible.

3. Up Fintech (Tiger Brokers) IPO Trading Update – First Day Volume Was Higher than Futu, Close to QTT

Up Fintech (TIGR US)‘s IPO was priced at US$8/share, above its range of US$5-7/ADS raising at total of US$111m, including the proceeds from the private placement with Interactive Brokers Group, Inc (IBKR US). 

In my earlier insights, I looked at the company’s background,  past financial performance, scored the deal on our IPO framework and compared it to Futu Holdings Ltd (FHL US): 

• Futu Holdings IPO Quick Note – Comparison with Tiger Brokers – Same Market, Different Economics
• Up Fintech (Tiger Brokers) Pre-IPO Quick Note – Much Too Reliant on IBKR
• Up Fintech (Tiger Brokers) IPO Quick Take – It’s Not like Futu, Won’t Perform like It Either

In this insight, I will re-visit some of the deal dynamics, comment on share price drivers and provide a table with implied valuations.

4. Wuxi Biologics Placement – Past Deals Have Done Well but Progressive Returns Are Getting Lower

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:

• Jun 2017 – US$500m: WuXi Biologics IPO Review – An Opportunity to Get Exposure to Biologics in China
• Dec 2017- US$550m: Wuxi Biologics Placement – Selldown Right when Lockup Expires Suggests Eagerness to Offload
• Mar 2018 – US$600m: Wuxi Biologics Placement – In Time for the Next Lock-Up, Returns Will Probably Not Match Prior Ones
• Jun 2018 – US$500m: Wuxi Biologics Placement – Probably Not a Surprise to Sell Again when Lock-Up Expires

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.

5. Ruhnn (如涵) Pre-IPO Review- Significant Concentration Risk

Ruhnn Holding Ltd (RUHN US) is looking to raise about US$200m in its upcoming IPO.

The company is an internet key opinion leader (KOL) incubator in China. Revenue and GMV grew at impressive rates of 63% and 57% YoY in FY2018, respectively.

The idea of being able to leverage on KOLs influence over consumers to understand demand and retain consumers is interesting but Ruhnn has yet to demonstrate that it has a sustainable business model. 

Gross margin has deteriorated and losses widened as a percentage of revenue. Service fee paid to KOLs as a percentage of revenue has increased and showed little improvement in 9M FY2019.  The company depends heavily on the top KOL, Zhang Dayi, to generate revenue, almost half of the company’s GMV and revenue is generated from her.

In this briefing:

1. Frontage Holding (方达控股) IPO: Updates from 2018 Numbers
2. Tencent Music 4Q18 Quick Note – Growth on Track, Margins Could Drag – Stock Price Needs a Breather
3. Lyft IPO: Valuation Analysis (Prudent Investment or Quasi-Gambling?)
4. Platinum Asset Management Placement –  Co-Founder Selling + Weak Earnings Momentum
5. Sun Car Insurance Agency (盛世大联) IPO: Over Valued Vs P&C Companies

1. Frontage Holding (方达控股) IPO: Updates from 2018 Numbers

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.

2. Tencent Music 4Q18 Quick Note – Growth on Track, Margins Could Drag – Stock Price Needs a Breather

Tencent Music Entertainment (TME US) reported its full year results today, post US market close. Revenue growth was slightly ahead of estimates as paying ratio continue to improve for both online music (subscription revenue) and social entertainment (live streaming). Growth for the latter continued to be driven more by ARPU rather than user growth. 

The concerning bit in the results was the decline in gross margins as the company continues to invest in more content. 

My previous insights on TME’s IPO:

• The company’s performance: Tencent Music Pre-IPO Review – The Final Countdown – Growth Doesn’t Seem to Be Slowing Down,
• The working of the apps: Tencent Music Pre-IPO – This Is How We Do It – A Quick Look at How the Apps Work,
• Industry dynamic: Tencent Music Pre-IPO – Industry – Don’t Cry – In 2010 a Little Red Dot Almost Overtook the Dragon, and
• Peer analysis: Tencent Music Pre-IPO – Quick Peer Analysis – If I Was You, I’d Wanna Be Me Too – Bigger and Faster,
• Valuations overview: Tencent Music Pre-IPO – Valuations Estimates – Leaving on a Jet Plane – $30bn Was Quite Stretched.
• First take on the IPO pricing: Tencent Music Pre-IPO Updates – Welcome to the Jungle – Rumoured Asking Valuations More Reasonable
• IPO valuation update: Tencent Music IPO – Don’t Stop Me Now – 9M18 Updates, Outlook and Price Limits
• Some more information on Ultimate Music acquisition: Tencent Music IPO – A Little Less Conversation – A Little More Information on Ultimate Music
• Trading strategies: Tencent Music IPO – Firework – Trading Strategies

3. Lyft IPO: Valuation Analysis (Prudent Investment or Quasi-Gambling?)

Our base case forecast is Case 2 (among three scenarios analysis), which suggests an implied market cap of $21 billion or $75 per share. Given that our intrinsic value of the company does not provide enough upside versus the likely IPO price, we would AVOID this deal. 

Even if the company is able to complete this IPO, raising nearly $2.0-2.5 billion, it is very possible that the company may need to come back to the market in two or three years in a secondary share offering, which would dilute the existing shareholders. This is probably the biggest risk I see with the Lyft IPO right now. 

Our base case financial forecast for Lyft assumes the following:

• Sales growth rate (CAGR from 2018 to 2030) – 26.6%
• Year in which Lyft turns operating profit positive – 2025
• Operating margin in 2030 – 15.0%

4. Platinum Asset Management Placement –  Co-Founder Selling + Weak Earnings Momentum

The co-founder of  Platinum Asset Management (PTM AU), Kerr Neilson, and Judith Neilson are looking to sell 30m shares of the company at a fixed price of A$5.00. 

The deal scores poorly on our framework due to its poor track record, large deal size, weak earnings momentum and relatively expensive valuation. The selldown comes after the company weak 1H FY19 results last month which could put pressure on share price in the near term.

5. Sun Car Insurance Agency (盛世大联) IPO: Over Valued Vs P&C Companies

Sun Car Insurance Agency is a leading automobile insurance agency and B2B2C automobile after-sales service provider in China. The company is listed in the NEEQ board since 2014 and is raising up to USD 167 million to list in Hong Kong. In this insight we cover:

• The company’s two major business lines, the automobile insurance agency and automobile butler services
• The industry backdrop
• The company’s shareholder
• Our thought on valuation

In this briefing:

1. Lyft IPO: Key Takeaways from In-Depth Interviews with Drivers
2. Wisetech Global Placement – Past Deal Did Well but Valuations Looks Stretched
3. Hyundai Autoever IPO Bookbuilding: Surprising Results, Local Street Bets on Autoever/Glovis Merger
4. A Trading Strategy for Hyundai Autoever Post IPO
5. CanSino Biologics (康希诺) IPO: Valuation Attractive, Lilly Asia Doubling Up (Part 4)

1. Lyft IPO: Key Takeaways from In-Depth Interviews with Drivers

• In-depth interviews with two full-time drivers reveal that Lyft Inc (0812823D US) has disrupted the incumbent Yellow Cab in NY City due to better take-home income economics for drivers.
• Bargaining and pricing power favor LYFT (vs. drivers) as LYFT could provide the volume (sufficient number of rides per day) for drivers.
• LYFT’s path to profitability depends on 1) the further scale-up of network effect 2) diversification of transportation-related business and 3) progress in autonomous cars’ unit cost economics.
• Given its track record as a disruptive force, investors could be willing to pay up (over 5.0x P/S multiple) for LYFT, making the IPO a hot deal.

2. Wisetech Global Placement – Past Deal Did Well but Valuations Looks Stretched

Wisetech Global (WTC AU) plans to raise US$177m/AUD250m in order to shore-up its balancesheet for future acquistiions. 

The company has done exceedingly well since listing and even its past fund raising delivered good returns. However, the deal scores a mixed score on our framework as valuations appear strecthed with the stock trading above analysts target price. Thus, the deal might warrant a large discount.

3. Hyundai Autoever IPO Bookbuilding: Surprising Results, Local Street Bets on Autoever/Glovis Merger

• Subscription rate is 797 to 1. Offer price was fixed at ₩48,000, substantially higher than the upper end. Deal size is now ₩168.5bil. Company value is put at slightly higher than ₩1tril. Demands are spread out pretty well between long-term funds and hot money and local and foreign investors as well. All of the orders are universally placed at 75% of upper end or higher.
• Local street is betting on Autoever/Glovis merger not long after this IPO. That is, HMG is still wanting the initial Glovis/Mobis merger plan. To better manage to win shareholder support, they must be thinking that bigger Glovis can be an answer. This means HMG should do whatever it takes to make Autoever bigger in the immediate future.
• This is what local street is betting on and why they went really aggressive on this IPO. As witnessed in the bookbuilding results, this street mentalitywon’t be changed any time soon. We should expect even stronger prices after new shares are listed on Mar 28.

4. A Trading Strategy for Hyundai Autoever Post IPO

In this report, we provide a trading strategy for Hyundai Autoever Corp (0978519D KS) IPO, which is expected to start trading on March 28th. The IPO price has been finalized at 48,000 won, which is 9% higher than the high-end of the original IPO price of 44,000 won. The institutional investors’ demand for the Hyundai Autoever IPO was very strong at 797 to 1.

Given the very strong institutional demand for this IPO, it appears that our base case valuation (59,454 won), which is 24% higher than the IPO price, may be too conservative. A more likely scenario now is that the stock reaches about 60,000 won to 65,000 won in the first few hours of trading on the first day, overshooting its intrinsic value and sells off a bit for a few days/weeks, enters a consolidation phase and then resumes its higher share price again. 

Of the 913 institutional investors that participated in the Hyundai Autoever IPO survey, 89% of them thought that the intrinsic value of the company should be more than the high end of the IPO price range (44,400 won), which provides a strong vote of confidence that this IPO should do well once it starts trading. 

5. CanSino Biologics (康希诺) IPO: Valuation Attractive, Lilly Asia Doubling Up (Part 4)

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:

• Recap of our valuation
• Highlight of cornerstone investors
• Our thoughts on the deal

Our coverage on Cansino IPO

• CanSino Biologics (康希诺) IPO: Promising Pre-Clinical Results but Vaccine Scandal Weighs (Part 1)
• CanSino Biologics (康希诺) IPO: Thoughts on Valuation (Part 2)
• CanSino Biologics (康希诺) IPO: Valuation Update (Part 3)

In this briefing:

1. Jinxin Fertility (锦欣生殖) Pre-IPO: Strong Foothold in Sichuan but Weak Sentiment for Sector
2. Ruhnn (如涵) IPO Review – Expensive Influence
3. Yunji (云集) Pre-IPO Review – Poor Disclosure on Data
4. ESR Cayman Pre-IPO- First Stab at Valuation
5. Yunji IPO Preview: Balance Sheet Points to Waning Engagement

1. Jinxin Fertility (锦欣生殖) Pre-IPO: Strong Foothold in Sichuan but Weak Sentiment for Sector

Jinxin Fertility, a leading privately owned assisted reproductive service provider in China and the US, refiled to list in Hong Kong. Per news reports, the company planned to raise up to USD 500 million. In this insight, we will cover the following topics:

• Business lines and its hospitals
• The assisted reproductive service industry
• Key risks
• Shareholders and use of proceeds
• Our early thoughts on valuation

2. Ruhnn (如涵) IPO Review – Expensive Influence

Ruhnn Holding Ltd (RUHN US) is looking to raise up to US$155m in its upcoming IPO. We have previously covered the company’s fundamentals in: Ruhnn (如涵) Pre-IPO Review- Significant Concentration Risk.

In this insight, we will value the company business segments by parts, look at the deal dynamics, and run the deal through our IPO framework.

3. Yunji (云集) Pre-IPO Review – Poor Disclosure on Data

Yunji Inc. (YJ US) is looking to raise about US$200m in its upcoming IPO. 

YJ is a membership-based social e-commerce platform. Growth from FY2016 to FY2018 has been stupendous. Revenue has grown at a 218% CAGR while gross profit grew at 175% CAGR. Losses have been shrinking as a percentage of revenue and the company seems to be close to break even.

However, the disclosure of data is poor. There is no clear explanation how the company has achieved such strong growth in FY2018 without having to provide a proportionately larger incentive in the same period. 

4. ESR Cayman Pre-IPO- First Stab at Valuation

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 insights: I touched upon the company’s business model and provided an overview of its operations, ESR Cayman Pre-IPO – A Giant in the Making and talk about the financials and the drivers for each of the three segments, ESR Cayman Pre-IPO – Earnings and Segment Analysis.

In this insight, I’ll look at valuing each of the segments.

5. Yunji IPO Preview: Balance Sheet Points to Waning Engagement

Yunji Inc. (YJ US) is a leading membership-based social e-commerce platform in China which primarily sells merchandise through its Yunji app. Yunji is also referred to as a multi-level revenue sharing platform as the business model is based on providing incentives to members to promote products and invite new members through their social networks. Yunji is seeking to raise $200 million through a Nasdaq IPO.

In this briefing:

1. Zhongliang (中梁地产) Pre-IPO Review – Incredible Growth Bogged Down by Related Party Transactions
2. CIMC Vehicle (中集车辆): Market Leader of Semi-Trailers but Little Growth Ahead
3. ECM Weekly (30 March 2019) – ESR, Yunji, Ruhnn, Jinxin Fertility, Metropolis Health, Viva Biotech
4. Metropolis IPO: Priced to Leave Limited Upside
5. Metropolis Healthcare IPO – Fairly Valued, at Best

1. Zhongliang (中梁地产) Pre-IPO Review – Incredible Growth Bogged Down by Related Party Transactions

Zhongliang Holdings (ZLH HK) is looking to raise about US$800m in its upcoming IPO. 

ZLH is a fast-growing  real estate developer in China. Its completed projects are mostly in the Zhejiang Province but its projects under development are spread across the country.

It was highly leveraged in FY2016 as it ramped up its expansion efforts but had been able to reduce it significantly to about 260% net debt to equity levels while effective interest rates on debt has been falling every year.

In this insight, we will look at the company’s operations and financials, identify key corporate governance issues, and share our thoughts on peer valuation.

2. CIMC Vehicle (中集车辆): Market Leader of Semi-Trailers but Little Growth Ahead

CIMC Vehicle, the largest manufacturer of semi-trailers in the world and a subsidiary of CIMC, will start to pre-market its USD300-500 million IPO in Hong Kong, as per media reports. In this insight, we will cover the following topics:

• Company background
• Semi-trailer and truck body industry
• Shareholders and pre-IPO investors
• Our thoughts on valuation

3. ECM Weekly (30 March 2019) – ESR, Yunji, Ruhnn, Jinxin Fertility, Metropolis Health, Viva Biotech

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 63.9% for Placements 

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

New IPO filings

• Haitong UniTrust International Leasing (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

• As IPO flood recedes, Asia bankers bet on follow-on capital raising
• Bitmain forced to delay Hong Kong IPO amid crypto-mining decline

This week Analysis on Upcoming IPO

• Viva Biotech (维亚生物) IPO: Warning Signs from 2018 Numbers (Part 2)
• Metropolis Healthcare IPO – Fairly Valued, at Best
• Jinxin Fertility (锦欣生殖) Pre-IPO: Strong Foothold in Sichuan but Weak Sentiment for Sector
• Ruhnn (如涵) Pre-IPO Review- Significant Concentration Risk
• Yunji (云集) Pre-IPO Review – Poor Disclosure on Data
• ESR Cayman Pre-IPO- First Stab at Valuation
• Leong Hup Pre-IPO – Hard to Pinpoint What’s Going to Be the Revenue Driver Going Forward
• Dongzheng Auto Finance (东正汽车金融) IPO Review – Relaunched at Lower Price
• SNK Corp (950180 KS)

4. Metropolis IPO: Priced to Leave Limited Upside

We like Metropolis Health Services Limited (MHL IN) ’ track record of growing revenue/patient despite competition, premium pricing and strong margin defence. Margins have however, come under some pressure in 9MFY19. Its patient growth lags that of Dr Lal Pathlabs (DLPL IN)’s despite rapid network expansion. It is also at the highest risk from any government instituted pricing cap on pathology tests owing to (1) high share of institutional business and (2) premium pricing. Also, 51.6% of promoter stake will be pledged with lenders after the IPO. At the upper end of its price band, Metropolis is valued at 20.9x FY20F EV/EBITDA and 33.3x FY20F PE- at ~15% discount to Dr Lal. We see EPS compounding at 12% Cagr over FY18-21, lower than the 16% EPS Cagr of Dr Lal’s. We feel valuation leaves limited upside.

5. Metropolis Healthcare IPO – Fairly Valued, at Best

Metropolis Health Services Limited (MHL IN) (MHL) plans to raise around US$175m in its Indian IPO via a sell down of shares by the promoter and private equity owners. MHL is one of the largest diagnostic chains in the country.

In my previous insight, Metropolis Healthcare Pre-IPO Quick Take – Steady Performance but Growth Lagged Network Expansion, I analyzed MHL’s recent financial performance and compared it with its listed peers, Dr Lal Pathlabs (DLPL IN) and Thyrocare Technologies (THYROCAR IN).

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

In this briefing:

1. Xinyi Energy IPO Preview: Second Time Lucky?
2. Leong Hup Pre-IPO – Hard to Pinpoint What’s Going to Be the Revenue Driver Going Forward
3. Dongzheng Auto Finance (东正汽车金融) IPO Review – Relaunched at Lower Price
4. Pinterest IPO Preview
5. Ruhnn IPO Valuation: Face Value

1. Xinyi Energy IPO Preview: Second Time Lucky?

Xinyi Energy Holdings Ltd (1671746D HK) has filed IPO prospectus once again to list its solar generation business that was spun-off from its parent company Xinyi Solar Holding Ltd. Xinyi Energy has 9 operational solar farms with a total capacity of ~950MW.

The company is set to acquire additional solar farms of 540MW capacity from its parent company in a separate transaction post IPO.

Xinyi Energy has not indicated the size and pricing of its offer, however, according to various media reports the company is expected to raise nearly HK$570M (around 12% of the previous offering of HK$4.5B). A significant portion of IPO proceeds is expected to be utilised towards upfront payment of 50% for acquiring solar farms from its parent company and the remainder for working capital and debt repayment. Although we have a positive view of the solar energy sector, the IPO pricing will determine our overall view of the company.

2. Leong Hup Pre-IPO – Hard to Pinpoint What’s Going to Be the Revenue Driver Going Forward

Leong Hup International (LEHUP MK) (LHI) plans to raise up to US$400m in its Malaysian IPO. LHI is one of the largest integrated poultry producer in Southeast Asia. 

LHI was listed on Bursa Malaysia from 1990 to 2012.  Since delisting, it has consolidated  its Southeast Asia operations under a single entity and is now looking to relist the larger entity.

While revenue has been growing steadily, margins have been volatile. In addition, its difficult to pinpoint which products are performing well in which geographies. The feedmills business seems to be a more consistent performer as compared to the livestock business. It’s also a larger revenue contributor in the faster growing regions.

3. Dongzheng Auto Finance (东正汽车金融) IPO Review – Relaunched at Lower Price

Dongzheng Automotive Finance (2718 HK) (DAF) re-launched its IPO at a lower fixed price of HK$3.06 per share, expecting to raise about US$208m. We have covered the fundamentals and valuation of the company in:

• Dongzheng Auto Finance (东正汽车金融) Pre-IPO Review – Dependent on Dealership Network for Growth
• Dongzheng Auto Finance (东正汽车金融) IPO Review – Better off Buying the Parent

In this insight, we will only look at the company’s updated valuation and re-run the deal through IPO framework.

4. Pinterest IPO Preview

Pinterest Inc (PINS US), a leading digital media platform in the US, is getting ready for an IPO in the next several weeks. In our view, this is one of the most exciting global tech IPOs since the Elastic NV (ESTC US) IPO in October 2018. Pinterest has one of those rare combinations of strong sales growth, leading website brand awareness, loyal users network effect, and a clear path to profitability. Pinterest was most recently valued at $12.3 billion in private market valuation when it raised $150 million in 2017. 

One of the attractive features about Pinterest is the fact that it has a very loyal user base among moms in the US. According to the company,  about two thirds of its total user base are female, mostly in the US. Nearly 8 out of 10 moms (who are often the decision makers for purchasing household goods) and about half of the millennials in the US regularly use Pinterest.  

The company has a very attractive income statement. Its revenue increased 59% CAGR from 2016 to 2018 and its operating losses have been declining nicely. Operating loss as a percentage of sales declined from 62.9% in 2016 to 9.9% in 2018. 

5. Ruhnn IPO Valuation: Face Value

Ruhnn Holding Ltd (RUHN US) is an e-commerce platform which drives sales through KOLs (key opinion leaders), backed by Alibaba Group Holding (BABA US) which an 8.6% shareholder. It announced its IPO price range of $11.50-13.50 per ADS. At the mid-point of the IPO price range, Ruhnn will raise net proceeds of $113 million, resulting in a fully diluted market cap of $1 billion.

In this briefing:

1. Viva Biotech (维亚生物) IPO: Warning Signs from 2018 Numbers (Part 2)
2. LYFT: Wouldn’t It Be Ironic if This Was an IPO to Rent but Not Own?
3. Koolearn (新东方在线) Trading Update – A Wobbly Start
4. CanSino Biologics (康希诺) IPO Trading Update – Time to Cash Out
5. SNK Corp IPO Preview

1. Viva Biotech (维亚生物) IPO: Warning Signs from 2018 Numbers (Part 2)

Viva Biotechnology, a China-based drug discovery company, is seeking to raise USD 200m to list on the Hong Kong Stock Exchange. It has recently obtained approval for listing by the Hong Kong Stock Exchange. In our previous insight (link here), we discussed the company’s fundamentals, its unique business model, its shareholders, and our thoughts on its valuation.

In this insight, we look at its latest prospectus and review our valuation for Viva Biotech.

2. LYFT: Wouldn’t It Be Ironic if This Was an IPO to Rent but Not Own?

Lyft Inc (LYFT US) announced an increase in its IPO price range from $62-68 to $70-72 after previous reports had indicated that the IPO became oversubscribed very early.

There has been significant coverage of the name on Smartkarma but a disappointing lack of obvious puns:

Lyft IPO: Key Takeaways from In-Depth Interviews with Drivers by Johannes Salim, CFA

Lyft IPO: Valuation Analysis (Prudent Investment or Quasi-Gambling?) and Lyft IPO Preview by Douglas Kim

Lyft IPO Preview: Maybe We’ll Just Walk? by Rickin Thakrar

LYFT Pre-IPO – Drivers and Shared Rides Hold the Key But the Numbers Are Missing by Sumeet Singh

We would highlight Johannes’ interview piece as being well worth a read to understand the driver perspective, as well as Sumeet’s piece and the comments sections for discussions of business model strengths and weaknesses.

Ultimately, this issue isn’t going to be bought for its cheapness and we would guess that it will be successful (initially) due to pent up demand and relatively strong broad stock market performance over the last few months. Below, however, we examine NY transportation data to point out what we feel are misconceptions about the overall value proposition of the ride sharing industry.

3. Koolearn (新东方在线) Trading Update – A Wobbly Start

Koolearn (1797 HK) raised about US$214m at HK$10.20 per share, the mid-point of its IPO price range. We have previously covered the IPO in: 

• Koolearn (新东方在线) IPO Review – Yet to See Results from Increased Spending
• New Regulatory Tightening on Online Education Reads Badly on Koolearn IPO
• Koolearn (新东方在线) Pre-IPO – Profitable Online Edu Company but Poor Sentiment Weighs

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

4. CanSino Biologics (康希诺) IPO Trading Update – Time to Cash Out

CanSino Biologics raised USD 148 million at HKD 22/share, at the high end of its guided price range. We have previously covered the IPO in the following note: 

• CanSino Biologics (康希诺) IPO: Promising Pre-Clinical Results but Vaccine Scandal Weighs (Part 1)
• CanSino Biologics (康希诺) IPO: Thoughts on Valuation (Part 2)
• CanSino Biologics (康希诺) IPO: Valuation Update (Part 3)
• CanSino Biologics (康希诺) IPO: Valuation Attractive, Lilly Asia Doubling Up (Part 4)

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

5. SNK Corp IPO Preview

SNK Corp (950180 KS), a Japanese game company founded in 1978, is trying to complete its IPO in the Korean stock market (KOSDAQ) in April. SNK is well known its The King of Fighters game. The IPO price range is between 30,800 won and 40,400 won. The IPO base deal size ranges from $114 million to $150 million. 

This is the second time that SNK Corp is trying to complete the IPO after a failed attempt in late 2018. The company has reduced the average IPO price range by 12% this time compared to the first try in late 2018.

The bankers used four comparable companies including Webzen, NCsoft, Pearl Abyss, and Netmarble Games to value SNK Corp. Using P/B valuation method, the bankers derived an average P/B multiple of 4.1x. The bankers then took the applied equity (controlling interest) of the company and applied the P/B multiple of 4.1x to derive an implied value of the company. After applying additional 8.57% to 32.99% IPO discount, the bankers derived an IPO price range of 34,300 – 46,800 won.  

In this briefing:

1. Embassy Office Parks REIT Trading Update – Lowest Volume Traded for Any Indian Listing Since 2018
2. Last Week in GER Research: Lyft, Rakuten, Lynas, Yunji IPO, Xinyi IPO and Ruhnn IPO
3. Qutoutiao Offering: Funding a Costly Battle
4. PNB Metlife Pre-IPO Quick Take – Doesn’t Stack up Well Versus Its Larger Peers
5. QTT Placement: Liquidity Warrants a Quick Trade

1. Embassy Office Parks REIT Trading Update – Lowest Volume Traded for Any Indian Listing Since 2018

Embassy Office Parks REIT (EOP IN) raised US$665m in its IPO, making it the first REIT listing for India.

In my previous insights I’ve covered the company background, its projected growth, 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
• Embassy Office Parks REIT – Comparison with AIT and a Look at the Required Yield, and
• Embassy Office Parks REIT IPO – FY19 Revised Down, Yield Propped up by Zero Coupon Bond

In this insight, I will re-visit some of the deal dynamics, comment on share price drivers and provide a table with implied valuations.

2. Last Week in GER Research: Lyft, Rakuten, Lynas, Yunji IPO, Xinyi IPO and Ruhnn IPO

Below is a recap of the key analysis produced by the Global Equity Research team. This week, we update on Lyft Inc (LYFT US) now that it is below its IPO price and remind of the potentially muted impact for strategic holder Rakuten Inc (4755 JP). On the M&A front, Arun digs into the conditional deal for Lynas Corp Ltd (LYC AU) from Wesfarmers Ltd (WES AU). With regards to IPO research, we initiate on e-commerce player Yunji Inc. (YJ US) and solar company Xinyi Energy Holdings Ltd (1671746D HK) while we update on the IPO valuation of Ruhnn Holding Ltd (RUHN US). 

In addition, we have provided an updated calendar of upcoming catalysts for EVENT driven names below. 

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

3. Qutoutiao Offering: Funding a Costly Battle

On Friday, Qutoutiao Inc (QTT US) unveiled plans to raise around $11 million (based on the closing price of $11.45 per ADS) through a public offering of 1.1 million ADS. Also, certain selling shareholders will offer 7.5 ADS in the offering. The public offering comes hot on the heels of the announcement of a $171.1 million convertible loan from Alibaba Group Holding (BABA US) on 28 March.

4. PNB Metlife Pre-IPO Quick Take – Doesn’t Stack up Well Versus Its Larger Peers

Pnb Metlife (PNBM IN) plans to raise around US$350m in its IPO via a secondary sale. All the owners plan to sell a part of their stake in the IPO. The deal will likely be launched in 2H19.

While operations have been on the right track in terms of growth and product mix, the company still lags its larger peers on most key parameters. Thus, despite its large distribution network the company has failed to gain market share over the past few years.

In this insight, I’ll do a quick comparison of PNB Metlife versus its listed peers. You can find my prior IPO coverage for the sector at these links:

• ICICI Pru Life IPO Review – Cheaper than HDFC-Max Life but Still Might Be Only Fairly Valued
• SBI Life IPO – Faster, Better and Soon to Be Bigger but Expensive Nonetheless
• HDFC Standard Life IPO – Great Brand, Prudent Product Mix but Not Such a Great Price

5. QTT Placement: Liquidity Warrants a Quick Trade

Qutoutiao Inc (QTT US) announced a USD 100 million share sales by the company and its shareholders, slightly more than two weeks after the lock-up expiration on March 13th.  In this insight, we will provide our quick thought on the deal. 

In this briefing:

1. Polycab India Limited IPO – Probably Near Peak Margins, Improvements Unexplained
2. Dongzheng Auto Finance (东正汽车金融) Trading Update – Could Be Worth Setting up a Trade
3. Bilibili Offering: Unnecessary and Opportunistic
4. Bilibili Placement: Momentum Bodes Well
5. Map Aktif Follow-On Offering – Lace up for a Potential Long Run

1. Polycab India Limited IPO – Probably Near Peak Margins, Improvements Unexplained

Polycab India (POLY IN) plans to raise around US$190m in its IPO through a mix of selling primary and secondary shares. It is the largest manufacturer of wires and cables in India with a 12% market share, as per CRISIL research. The company also recently entered the consumer electrical segments. 

I covered the company background and past financial performance in my previous insight, Polycab India Limited Pre-IPO – Market Leader with Steady Growth but with a Few Unanswered Question.

In this insight, I’ll run the deal through our IPO framework, and comment on valuation and updates since the previous filing.

2. Dongzheng Auto Finance (东正汽车金融) Trading Update – Could Be Worth Setting up a Trade

Dongzheng Automotive Finance (2718 HK) raised US$208m at a fixed price of HK$3.06 per share. We have covered the IPO extensively in:

• Dongzheng Auto Finance (东正汽车金融) Pre-IPO Review – Dependent on Dealership Network for Growth
• Dongzheng Auto Finance (东正汽车金融) IPO Review – Better off Buying the Parent
• Dongzheng Auto Finance (东正汽车金融) IPO Review – Relaunched at Lower Price

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

3. Bilibili Offering: Unnecessary and Opportunistic

On Monday, Bilibili Inc (BILI US) unveiled plans to raise around $192 million (based on the closing price of $18.95 per ADS) through a public offering of 10.6 million ADS and a concurrent offering of $300 million convertible senior notes. Also, certain selling shareholders will offer 6.5 ADS in the offering.

4. Bilibili Placement: Momentum Bodes Well

Bilibili announced a USD 300 million share placement and a USD 300 million convertible note placement after market close on Monday. This is the first major placement since Bilibili’s IPO in March 2018. In this insight, we will provide our thoughts on the deal and score the deal in our ECM Framework. 

5. Map Aktif Follow-On Offering – Lace up for a Potential Long Run

CVC is looking to raise about US$353m through the sale of about 648m Map Aktif Adiperkasa PT (MAPA IJ) shares in the follow-on offering.

Map Aktif (MAPA) is a sports, leisure, and kids retailer in Indonesia. It is a subsidiary of Mitra Adiperkasa (MAPI IJ).  The selldown might not be totally unexpected as CVC planned to exit its investment by 2020. However, post this selldown it will still have 192m share left.