Brief China: Notes from the Silk Road: Xtep Int’l Holdings (1368 HK): Time to Run (Away) For Now and more

In this briefing:

1. Notes from the Silk Road: Xtep Int’l Holdings (1368 HK): Time to Run (Away) For Now
2. Angang Steel: PMI Recovery to Support Shares: Close Short
3. QTT Placement: Liquidity Warrants a Quick Trade
4. Zhongliang (中梁地产) Pre-IPO Review – Incredible Growth Bogged Down by Related Party Transactions
5. CIMC Vehicle (中集车辆): Market Leader of Semi-Trailers but Little Growth Ahead

1. Notes from the Silk Road: Xtep Int’l Holdings (1368 HK): Time to Run (Away) For Now

Xtep International (1368 HK) has announced a placing and top-up subscription of new shares event, creating a capital base which is 9% larger. 

XTEP states that they have considered various ways of raising funds and consider that it would be in their best interests to raise equity funding through the placing and the subscription. 

With the share price down 16% since the placement, we examine what this means for the company’s fundamentals and shareholders. We believe the results will prove to be mixed for management and shareholders alike. We highlight how we expect the stock ranking to react, given we the placement was only a few days back and this is yet to reflect. This special situation analysis may surprise you with the conclusions.

2. Angang Steel: PMI Recovery to Support Shares: Close Short

INVESTMENT VIEW:
The recovery in China’s March PMI index to 50.8 shows an unexpected expansion in economic activity.  Historically, there is a strong correlation between the PMI and Chinese steel prices as well as Angang’s share price. 

We close our short on Angang Steel Co Ltd (H) (347 HK) shares. 

3. 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. 

4. 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.

5. 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