In this briefing:
- Tencent Music (TME): Both Live Video and Music Fairly Valued, No Action
- AsiaInfo Tech (亚信科技) IPO: What You Need to Know Before the Trading Debut
- Harbin Electric Expected To Be Privatised
1. Tencent Music (TME): Both Live Video and Music Fairly Valued, No Action
- We believe that TME is fairly valued based on peer companies’ price / sales ratios.
- The Chinese internet peer companies as comparison bases in valuation have declined significantly more than indices, we believe it is not a concern that indices declined further.
- We believe that the main business of music will grow strongly in 2019 and 2020 due to the rapid growth of both the paying user base and ARPU (Average Revenues per User per month).
2. AsiaInfo Tech (亚信科技) IPO: What You Need to Know Before the Trading Debut
AsiaInfo Tech priced its IPO at HKD 10.50/share and will start trading today. Prior to the trading debut, in this short note, we summarize the latest information with updates on our valuation.
Our Previous Insight on AsiaInfo Tech:
- AsiaInfo Tech (亚信科技) IPO: Cost Control Is the Key (Part 1)
- AsiaInfo Tech (亚信科技) IPO: Lessons from Privatization and Three Bearish Trends (Part 2)
- AsiaInfo Tech (亚信科技) IPO: Latest Numbers Showcase the Company’s Questionable Expansion Plan
- AsiaInfo Tech (亚信科技) IPO: Valuation Rich Vs Delisting and Peers
3. Harbin Electric Expected To Be Privatised
Power generation equipment manufacturer Harbin Electric Co Ltd H (1133 HK) is currently suspended pursuant to Hong Kong’s Codes on Takeovers and Mergers and Share Buy-backs, suggesting a privatisation offer from parent Harbin Electric Corporation (“HEC”) is pending.
HE is PRC incorporated, therefore a privatisation by way of a merger by absorption may be proposed, similar to Advanced Semiconductor Mfg Corp Ltd. (3355 HK) as discussed in ASMC’s Merger By Absorption.
HE has perennially traded at discount to net cash. As at its last traded price, the discount to net cash (using the 2018 interim figure of HK$12.4bn or HK$7.27/share) was 65%.
HE issued 329mn domestic shares (~47.16% of the existing issued domestic shares and ~24.02% of the existing total issued shares) to its parent in January this year, at HK$4.56/share or a 60.9% discount to the June 2017 book value. A similar discount to the June 2018 book value backs out HK$4.15/share, or ~67% upside from the undisturbed price, in line with the premium to ASMC’s Offer.
A privatisation would require a scheme-like vote for the H-shares. HEC holds no H shares. There are 675mn H shares and no single shareholder controls a 10% (or more) blocking stake.
Dissension rights are available according to HE’s articles of association, although what constitutes a “fair price” under those rights, and the timing of the settlement under such rights, are not evident.
There are likely to be the customary PRC regulatory approvals required, however as HEC is already the controlling shareholder and an SOE, these conditions are not in doubt.
Should an offer emerge, expect completion in ~6 months from the initial announcement.
