In this briefing:
- Sea Ltd: Follow-On Public Offering an Opportunistic Fundraising?
- Trade Talks/Huawei/National People’s Congress/Deleveraging/Stocks
- China Auto: Rate of Decline Moderating but Too Early to Call a Recovery
- ECM Weekly (2 March 2019) – Futu, Tiger Brokers, China Risun, China Tobacco, Zhejiang New Century
- EM Equity Strategy: Cyclicals Leading, China Surging
1. Sea Ltd: Follow-On Public Offering an Opportunistic Fundraising?
- We evaluate the attractiveness of Sea Ltd’s (SE US) US$1 bn follow-on public offering announced last Fri.
- This offering is a typical opportunistic fundraising as its ADR price has recently surged.
- At assumed deal price of US$21, SE post deal would trade at 4.6x 2019E P/adjusted sales (excl. 1P e-commerce sales), vs. peers average of 5.2x.
- We would recommend investors to go for the deal if it is priced at US$20 or lower.
2. Trade Talks/Huawei/National People’s Congress/Deleveraging/Stocks
China News That Matters
- Getting closer… though Trump might just walk away
- The most beautiful phones in the world?
- Rubber stamps and reading between lines
- Mission accomplished for deleveraging?
- Sitting on a volcano
In my weekly digest China News That Matters, I will give you selected summaries, sourced from a variety of local Chinese-language and international news outlets, and highlight why I think the news is significant. These posts are meant to neither be bullish nor bearish, but help you separate the signal from the noise.
3. China Auto: Rate of Decline Moderating but Too Early to Call a Recovery
The uptrend in China’s PV retail sales yoy rates has spilled over into the Chinese auto stocks. However we think it’s too early to conclude that China’s auto demand is recovering. yoy rate of retail sales in Dec 2018 was extremely low partly due to the distortion of China APT rate change. In Jan 2019, China’s PV retail sales remained weak with a 4% yoy decrease. Weekly data in Feb rebounded strongly because of distortion of Chinese New Year holidays. Industry experts estimate a 15% yoy decline on China’s PV retail sales in Feb, which indicates a 8% yoy decline in 2M2019. While the rate of decline has moderated it is too early to conclude China’s PV demand is recovering.
4. ECM Weekly (2 March 2019) – Futu, Tiger Brokers, China Risun, China Tobacco, Zhejiang New Century
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.
ECM activity seems to be picking up as we get more information on upcoming large IPOs in Hong Kong and the US.
Starting with Hong Kong, there are a handful of small ongoing IPOs such as Yincheng International Holdings (1902 HK), China Risun (1907 HK), and Zhejiang New Century Hotel Management Group (1158 HK). Yincheng, a small and highly levered property developer, will list next week on the 7th of March.
But, the upcoming IPOs are the ones that seem to be more exciting with the HKEX filing of ESR Cayman’s draft prospectus. The company is a logistics real estate developer backed by Warburg Pincus and was said to be seeking US$1.5bn in its IPO. There are also Global Switch and OneConnect which seemed to be one step closer to their IPO.
In the US, we are finally getting approvals after the government shutdown starting with the Tencent-backed Futu Holdings Ltd (FHL US) launching its IPO and it will be listing on the 8th of March.
Jumping on the broker IPO bandwagon, Jim Rogers-backed Up Fintech (TIGR US) has also filed with the SEC. Sumeet Singh had already compared the two companies in his note, Futu Holdings IPO Quick Note – Comparison with Tiger Brokers – Same Market, Different Economics.
There are also news reports that Luckin Coffee, a Starbucks competitor in China, has already tapped three banks for its US IPO.
Accuracy Rate:
Our overall accuracy rate is 72.2% for IPOs and 63.7% for Placements
(Performance measurement criteria is explained at the end of the note)
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New IPO filings
- ESR Cayman (Hong Kong, ~US$1.5bn)
- Jinshang Bank (Hong Kong, ~US$500m)
- China Everbright Water (Hong Kong, >US$100m, dual-listing)
- Up Fintech/Tiger Brokers (the US, >US$100m)
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.
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News on Upcoming IPOs
- Global Switch Picks Banks for Over $1 Billion IPO
- Warburg Pincus-backed ESR files for Hong Kong IPO of up to $1.5 billion
- Ping An plans IPO of fintech unit in HK at $1.35b
- Starbucks’ China rival Luckin Coffee taps 3 banks for US IPO
Smartkarma Community’s this week Analysis on Upcoming IPO
- 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
- China Risun (中国旭阳) IPO Quick Note: Past the Peak of Coking Cycle
- Futu Holdings IPO – Given the Team, Execution, and Backers, Might Be Worth a Look at the Low-End
- China Tobacco Intl (HK) IPO: Proxy For the Chinese Cigarette Consumption
- New Century Hotel (浙江開元酒店) IPO Review – Higher ADR and RevPAR than Peers but Margins Fall Short
- Futu Holdings Pre-IPO – FY18 Updates And Quick Thoughts on Valuation
- Yincheng Intl (银城国际) IPO Quick Note: A Highly Levered Nanjing Developer Bet
5. EM Equity Strategy: Cyclicals Leading, China Surging
Broadly speaking, RS for MSCI EM is currently exhibiting some mild deterioration vs. MSCI EAFE following four months of clear outperformance. Nonetheless, the MSCI EM index is bottoming and remains attractive from a price perspective. In today’s report we offer a technical appraisal of major EM markets, and offer a host of technically attractivec bottoms-up stock ideas across the EM universe.
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