In today’s briefing:
- WuXi XDC IPO: Valuation Insights
- StubWorld: Digital Garage Looking “Cheap”. Melco’s Consensus-Missing Results
- Sichuan Baicha Baidao Pre-IPO – The Negatives – Growth Is Unsustainable
- ChiNext/ChiNext50 Index Rebalance Preview: Time for a Turnaround
- Mengniu Dairy (2319 HK): Positive Read-Across From Yili 3Q23 Results And Briefing
- Shortlist Of High Conviction Ideas: Income, Value, and Margin of Safety – November 2023
- Pre-IPO Pu’er Lancang Ancient Tea (PHIP Updates) – Lack of Product Standardization Is the Pain Point
WuXi XDC IPO: Valuation Insights
- WuXi XDC Cayman (1877628D HK), a leading contract research, development and manufacturing organization (CRDMO), has launched an HKEx IPO to raise up to US$470 million.
- We previously discussed the IPO in WuXi XDC IPO: The Bull Case and WuXi XDC IPO: The Bear Case.
- Blue-Chip cornerstones will purchase US$300 million of the offer. Our base-case DCF valuation is HK$22.84 per share, 12.8% above the midpoint of the IPO price range.
StubWorld: Digital Garage Looking “Cheap”. Melco’s Consensus-Missing Results
- Digital Garage (4819 JP) is coming up “cheap” versus Kakaku.com Inc (2371 JP); and Melco International Development (200 HK) is trading “rich” to Melco Resorts & Entertainment (MLCO US).
- Preceding my comments on DG and Melco are the current setup/unwind tables for Asia-Pacific Holdcos.
- These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.
Sichuan Baicha Baidao Pre-IPO – The Negatives – Growth Is Unsustainable
- Sichuan Baicha Baidao Industrial (SBBI) is looking to raise up to US$300m in its upcoming HK IPO.
- SBBI sells new-style tea drinks through its ChaPanda stores. According to F&S, SBBI ranked third in China’s new-style tea shop market with a market share of 6.6%.
- In this note, we talk about the not so positive aspects of the deal.
ChiNext/ChiNext50 Index Rebalance Preview: Time for a Turnaround
- With the review period complete, we forecast 9 changes for the ChiNext Index (SZ399006 INDEX EQUITY) and 5 changes for the ChiNext 50 Index in December.
- Some of the potential adds will also have passive flows from the CSI Smallcap 500 Index trackers at the same time as the ChiNext Index rebalance.
- The potential adds have slipped a lot versus the potential deletes over the last few months as the National Team has tried to stabilise the market via ETF creations.
Mengniu Dairy (2319 HK): Positive Read-Across From Yili 3Q23 Results And Briefing
- The read-across for Inner Mongolia Yili Industrial Group (A) (600887 CH)‘s 3Q23 results and briefing to China Mengniu Dairy Co (2319 HK) was overall positive.
- For 3Q23, Yili’s sales grew 3% yoy and net profit increased 59% yoy, mainly due to lower raw milk prices, better product mix, cost savings and low base.
- China Mengniu Dairy Co (2319 HK) continues to be a good value play, with reasonable valuation (15x 2024E PE), stable growth (above 10% net profit growth), and proactive shareholder returns.
Shortlist Of High Conviction Ideas: Income, Value, and Margin of Safety – November 2023
- We compile our selection of small and mid-cap names with our desired characteristics of high dividend yields, value, and margin of safety.
- Our top picks are Perfect Medical Health (1830 HK), Water Oasis (1161 HK), Taste Gourmet (8371 HK), Uchi Technologies (UCHI MK), and The Keepers Holdings (KEEPR PM).
- Post a sharp correction, stocks trade at appetizing valuations, and with results seasons around the corner, we will provide updates for all names.
Pre-IPO Pu’er Lancang Ancient Tea (PHIP Updates) – Lack of Product Standardization Is the Pain Point
- Traditional tea companies are rarely seen in China’s secondary market. The most significant issue in the domestic tea industry is product standardization, leading to obvious bottlenecks in future revenue/profit scale.
- Despite increasing investment in sales/marketing, financial results of Lancang haven’t shown much improvement. Sales of 1966 products would continue to be under pressure due to weak demand during economic downturn.
- Lancang’s financial performance is unsatisfactory, with declining revenue growth and profit margin. We are not optimistic about the Company’s prospects. Valuation should be lower than Nayuki Holdings (2150 HK).
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