Daily China: China Tower: Changing Our View to Positive. Low Cost Expansion Should Generate Better Returns and more

In this briefing:

1. China Tower: Changing Our View to Positive. Low Cost Expansion Should Generate Better Returns
2. IPO Trading Strategy: A Deep-Dive on Early Trade of Chinese Companies Listing in the US
3. Natural Foods IPO Trading Update – Not Expensive but Needs to Show a Clear Turnaround
4. Mobvista IPO Trading Update – Not a Buyer at Anywhere Close to These Level
5. China’s A-Share Market Comes of Age, Slowly

1. China Tower: Changing Our View to Positive. Low Cost Expansion Should Generate Better Returns

At the time of the IPO we were quite negative on China Tower (788 HK) prospects. However, in recent calls and meetings our view has changed and become more constructive. Chris Hoare now believes that China Tower is managing to generate co-location growth outside the Master Services Agreement (MSA) and at a much lower level of capital intensity (perhaps up to 50%) than indicated in the IPO. Management has also proven to be more open to shareholders than expected and with lower capex, higher FCF generation we upgrade to a BUY with a HK$1.60 target price.  The stock has started to move as the market has begun to understand the more positive outlook. It will be interesting to see if China Tower is allowed to retain these benefits long term.

Summary China Tower forecasts: 

2. IPO Trading Strategy: A Deep-Dive on Early Trade of Chinese Companies Listing in the US

Ahead of Tencent Music (TME US)‘s IPO today , we have done a deep-dive analysis on the past 28 major Chinese IPOs that have listed in the US. We note the following points

 A higher pop associated with a lower free float?

If it starts weak , we wouldn’t assume disaster – historically shares have broken above IPO price at some point during day one trade

Day one moves by pricing range – pops across the board

GER pricing view for Tencent music

Companies assessed in this report: X Financial (XYF US) , Qudian Inc (QD US) , Pinduoduo (PDD US) , Qutoutiao Inc (QTT US) , HUYA Inc (HUYA US) , Pintec Technology Holdings L (PT US) , 111 Inc (YI US) , Uxin Ltd (UXIN US) , BEST Inc (BSTI US) , Sunlands Online Education Gr (STG US) , Cango Inc (CANG US) , Huami Corp (HMI US) , Sea Ltd (SE US) , Aurora Mobile Ltd (JG US) , Viomi Technology Co Ltd (VIOT US) , Weidai Ltd (WEI US) , Jianpu Technology (JT US) , Greentree Hospitality (GHG US) , iQIYI Inc (IQ US), Sogou Inc (SOGO US) , Onesmart Education (ONE US) , CNFinance Holdings Ltd (1640496D US) , TuanChe Ltd (TC US) , NIO Inc (NIO US) , CooTek Cayman Inc (CTK US) , Niu Technologies (NIU US) , Mogu (MOGU US) , and Bilibili Inc (BILI US)

More details below 

3. Natural Foods IPO Trading Update – Not Expensive but Needs to Show a Clear Turnaround

Natural Food International H (1837 HK)‘s  IPO was priced at the low-end at HKD1.62/share. The retail tranche was 1.4x covered and the institutional tranche was said to be moderately over-subscribed. I have covered most aspects of the deal in my earlier insight, 

• Natural Food IPO – Quick Take – Network Expansion Can Only Go so Far, SSSG Might Have Turned -Ve

In this insight, I’ll provide an update on the deal dynamics, valuations and provide a table with the implied valuations at different share price levels.

4. Mobvista IPO Trading Update – Not a Buyer at Anywhere Close to These Level

Mobvista (1860 HK)‘s IPO was priced just above the low-end at HKD4/share, the retail tranche was 1.8x covered while the institutional tranche was moderately oversubscribed. I have covered most aspects of the deal in my earlier insights:

• Mobvista Pre-IPO – Impairments Would Have Wiped off past Profit, Related Parties Still Owed Money, and
• Mobvista IPO – One Client Rescued 1H18, the Slowdown Has Been on Since 2H17. P/ E Doesn’t Matter

In this insight, I’ll provide an update on the deal dynamics, valuations and provide a table with the implied valuations at different share price levels.

5. China’s A-Share Market Comes of Age, Slowly

• The Shanghai-London Stock Connect is set to launch in December
• These new investment channels and MSCI inclusion transform a market long viewed as a casino
• Beijing’s distrust of markets still leaves shares subject to political whim
• Sheer size means China’s markets could dominate EM portfolios for years to come
• First-rate trading and settlement systems, but idiosyncratic listing procedures
• Institutional investors and foreigners still play a limited role
• High leverage has put wider economy at risk in event of a market crash