In this briefing:
- Nexon Sale: Bidding Pushed Back to Next Month – This Is All About Tencent
- Shenwan Hongyuan IPO: Palatable at the Low-End IPO Price Range
- Agricultural Bank of China: It Takes More than One Cold Day for a River to Freeze a Meter Deep.
- Shenwan Hongyuan (申万宏源) A+H: No Reason for a Valuation Premium
- So-Young (新氧) Pre-IPO Review – Au Naturel
1. Nexon Sale: Bidding Pushed Back to Next Month – This Is All About Tencent
Korea’s news outlet Maeil Economic Daily reported yesterday that the main bidding of Nexon sale was pushed back to next month. It was originally planned for this month. Maeil said lower-than-expected interest among potential bidders was the main reason. More specifically, Tencent isn’t showing any serious commitment or intention.
Tencent is the key player in this event. But Tencent seems to be hiding its cards. Following are reasonable conclusions at this point wrt what must be going on in this deal:
- Tencent has the upper hand in all situations.
- Tencent must be the one who is taking more time and pushing back the schedule.
- But there is still a higher chance that Tencent will stay in this race to the end.
- But it is also very possible that final offer price will be lower than initially and currently expected as Tencent will likely get better deal conditions.
2. Shenwan Hongyuan IPO: Palatable at the Low-End IPO Price Range
Shenwan Hongyuan Group (H) (1707387D HK) seeks to raise IPO proceeds of $1.16-1.25 billion, which is down from its early indication of a $1.5 billion raise. The IPO was launched with 13 cornerstone investors representing 69% of the deal, at the mid-point of the IPO price range.
In our IPO initiation note, we pointed out that Shenwan Hongyuan’s fundamentals are reflective of a mid-tier firm struggling to stand out. Based on our relative valuation analysis, we would participate in the IPO at most at the low-end of the proposed IPO range.
3. Agricultural Bank of China: It Takes More than One Cold Day for a River to Freeze a Meter Deep.
Agricultural Bank Of China (1288 HK) reported stolid numbers for 2018. A PH Score of 7.6 encapsulates positive change in variables such as Capitalisation, Asset Quality, Margin, Efficiency, and Provisioning though Profitability and Liquidity gauges slipped somewhat. The attractive valuation variable contributes to the score.
Underlying top-line growth of 8%, supported by low double-digit credit growth from moderate deposit expansion, was matched by OPEX increment.
The increase in Interest Income on earning Assets was relatively synchronised to the rise in Interest Expenses on interest-bearing Liabilities.
We mention this as too often in China of late we have seen OPEX growth far outstripping underlying Income gains and Funding cost expansion rise well in excess of Interest Income growth.
Asset Quality was quite stable. Despite lingering SMLs and a double-digit rise in substandard Loans, NPLs actually decreased YoY. The bank though boosted Loan Loss Provisions by 40% YoY and Loan Loss reserve ratios were tightened. A monumental increase in Loan recoveries generated net negative charge-offs. This shows that the bank is pulling no punches with debtors.
Capitalisation ratios were fortified.
A concern would be the increased exposure to CRE which accounts for 31% of the Loan portfolio. This is the greatest risk in the grand scheme of things and has generated much comment given real estate values and the pace of appreciation. (Is a 5-6x increase since the creation of a private market so elevated? Prices are still well below levels of India).
Shares trade at an Earnings and Dividend Yield of 19% and 5.5%, at a P/Book of 0.7x, at a Franchise Valuation of 8%, and with a Total Return Ratio of 1.5x. Thus the bank can be deemed an Income opportunity.
4. Shenwan Hongyuan (申万宏源) A+H: No Reason for a Valuation Premium
Shenwan Hongyuan started institutional book building today. We have covered the fundamentals of the company in our previous insight (Shenwan Hongyuan (申万宏源) A+H: A Commoditized Broker Business). In this insight, we will discuss:
- Valuation comparison with peers
- A-H premium history of Chinese brokers
- Key metrics of past Chinese brokers listing in the H-share market
- Concerns of liquidity
5. So-Young (新氧) Pre-IPO Review – Au Naturel
So-Young (SY US) is looking to raise US$150m in its upcoming IPO. The company filed its prospectus with the SEC on Monday.
The company operates online platforms (mobile, website, and WeChat mini program) for discovering, evaluating, and reserving medical aesthetic services in China. It helps medical aesthetic service providers acquire customers through user generated content and other creative content format.
In this insight, we will look at the company’s business model, analyze its financial and operating performance, review the competitive landscape and point out some questions for management.
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.
