Brief China: StubWorld: Wharf Under Pressure As Cooling Measures Bite and more

In this briefing:

1. StubWorld: Wharf Under Pressure As Cooling Measures Bite
2. The Economic and Financial Implications of Closing the Gilded Age for US Technology Companies
3. Global Tech Breakup
4. Dongzheng Auto Finance (东正汽车金融) IPO Review – Better off Buying the Parent
5. CanSino Biologics (康希诺) IPO: Valuation Update (Part 3)

1. StubWorld: Wharf Under Pressure As Cooling Measures Bite

This week in StubWorld …

• Wheelock & (20 HK) is coming up “expensive”, but it’s Wharf Holdings (4 HK) which is under-performing after PRC property sales targets are lowered amid Beijing’s cooling measures.

Preceding my comments on Wheelock and other stubs are the weekly setup/unwind tables for Asia-Pacific Holdcos.

These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold – the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent – of at least 20%.

2. The Economic and Financial Implications of Closing the Gilded Age for US Technology Companies

The technology sector’s influence on the US economy and financial markets over the past two decades has been significant, and largely considered to be beneficial, but these legacies may now be under threat from political and consumer backlashes.

Motivations for regulating large technology companies vary on a cross-border basis, ranging from customer data protection in the European Union (EU) to antitrust issues in the US.

Imposing utility-type regulations on technology companies that limit investment returns will hinder technological innovation, and, consequently, be detrimental to GDP growth for countries with ageing populations.

Digital technology innovation has produced permanent labour-saving investment opportunities in the US that have hollowed out job openings, thereby contributing to a flatter Phillips Curve and populism.

Meanwhile, populism and technological disputes are also evident on a cross-border basis, as testified by the current Sino-US trade standoff and leadership rivalry in 5G technology.

US political intervention after the 2020 Presidential Election could have a major bearing on market structures and capital destruction within the technology sector, particularly if antitrust measures gain bipartisan support.

3. Global Tech Breakup

By Eleanor Olcott, China Policy Analyst at TS Lombard

• Washington’s political drive to block Chinese access to US high-end tech is creating uncertainty in the industry
• The immediate effect is the redirection of Chinese VC money away from the US to Asian and European rivals
• The long-term trend is of  two rival centres of technology production- one focused on Shenzhen, the other on Silicon Valley

4. Dongzheng Auto Finance (东正汽车金融) IPO Review – Better off Buying the Parent

Dongzheng Automotive Finance (2718 HK) is raising up to US$428m in its upcoming IPO. We have covered the background of the company in Dongzheng Auto Finance (东正汽车金融) Pre-IPO Review – Dependent on Dealership Network for Growth. 

In this insight, we will look into the company’s valuation, compare it to listed auto peers, and run the deal through our framework.

5. CanSino Biologics (康希诺) IPO: Valuation Update (Part 3)

CanSino is a China-based biotechnology company with a focus on vaccine development. In our previous insight (link to Part 1 and Part 2), we have discussed CanSino’s drug pipeline, the competitive landscape, and the valuation. 

As the company is starting pre-marketing, we will provide an updated valuation based on new information obtained from the approved application document. Our base case valuation for CanSino is USD 856 million on a pre-money basis. Majority of the rNPV based SOTP valuation still comes from its meningococcal conjugate vaccine (MCV2 and MCV4). Over the past few months, the company has completed Phase III for MCV4 and submitted NDA (new drug application) for MCV2 candidates.