Daily Brief China: ESR Group , Shougang Fushan Resources, China Vanke , UGenix Biotech and more

• Bloomberg reports that the bidding consortium is in talks to bring in other partners, such as QIA, PIF, and CPP Investment Board, to aid in privatising ESR Group (1821 HK).
• Warburg Pincus and OMERS have blocking stakes for a Cayman scheme. Warburg Pincus is seemingly supportive, and the consortium’s expansion talks suggest confidence in meeting OMERS’ price expectations.
• Our best guess is that an offer is around HK$14.00. ESR’s current valuation is undemanding, with its forward EV/EBITDA multiple at a 40% discount compared to the median peers’ multiple.

• Shougang Fushan Resources (639 HK) is a play on strengthening coking coal prices with downside protection due to its net cash reserves of 1.1 bn USD (Vs. Mkt Cap 2.1).
• At the lower end of the cost curve, its EBITDA margins have averaged 54% (last 16 years), with its lowest EBITDA number of 19% in FY15.
• With an 80% payout, the company trades at a trailing yield of 9% (the average spot price assumed is 1900 RMB/ton).

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• China Vanke
• Lippo Malls Indonesia Retail Trust

• Although UGenix is a genetic technology company focusing on prenatal testing/precision oncology, it was the large-scale COVID-19 testing demand that made UGenix’s overall revenue grow rapidly, which, however, is unsustainable.
• NIPT market size is far less than expected. The clinical need for NGS has not developed as rigid demand. Restrictions on companion diagnosis pricing indicate market space would be compressed.
• The business of both prenatal testing and precision oncology are not easy. Due to uncertain commercialization outlook/profitability and other negative factors, UGenix’s stock price after IPO could underperform.