Brief China: China New Higher Education: Negatives Mostly Baked-In and more

In this briefing:

1. China New Higher Education: Negatives Mostly Baked-In
2. Dongzheng Auto Finance (东正汽车金融) IPO Review – Relaunched at Lower Price
3. Amarin–Our Talks With The CEO & An Update on New Trial Data Released at ACC Conference
4. Europe Vs China/Trade War/Huawei/Tech Moves/Bonds
5. Ruhnn IPO Valuation: Face Value

1. China New Higher Education: Negatives Mostly Baked-In

• China New Higher Education’s (CNHE) share price has more than halved since my bearish note in June last year.
• The fall in share price was caused by a few factors, namely uncertainties caused by regulations, a negative report by a short-seller, and below-consensus earnings.
• Market expectations of the education provider’s growth have come down, providing us an opportunity to relook at the stock.

2. 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.

3. Amarin–Our Talks With The CEO & An Update on New Trial Data Released at ACC Conference

• 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. 
• For more details about Amarin, its Reduce-It trial, and potential global sales, please refer to this in-depth report Amarin–2019’s Biggest Buyout Target for Big Pharma

4. Europe Vs China/Trade War/Huawei/Tech Moves/Bonds

China News That Matters

• Rome revives the Old Silk Road
• Double or triple it! Trump wants more 
• Huawei: filing patents, feigning patience
• Chinese firms push Beijing’s AI dreams 
• Bonds at the bank

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.