In this briefing:
- New Century Hotel (浙江開元酒店) Trading Update – Low Free Float, Poor Liquidity
- SMC (6273 JP): Profit Decline Accelerates
- ECM Weekly (9 March 2019) – Lyft, Shenwan Hongyuan, RHB Bank, Sea Ltd, Xinyi Solar, China Gas
1. New Century Hotel (浙江開元酒店) Trading Update – Low Free Float, Poor Liquidity
Zhejiang New Century Hotel Management Group (1158 HK) (NCH) raised about US$136m at HK$16.50 per share, just slightly below the mid point of its IPO price range. We have previously covered the IPO in:
- New Century Hotel (浙江開元酒店) Pre-IPO – Improved Profitability Not Driven by Underlying Operations
- New Century Hotel (浙江開元酒店) IPO Review – Higher ADR and RevPAR than Peers but Margins Fall Short
In this insight, we will update on the deal dynamics, implied valuation, and include a valuation sensitivity table.
2. SMC (6273 JP): Profit Decline Accelerates
Downturns in the semiconductor, auto and other user industries have caught up with SMC. Sales were down 4.0% year-on-year in the three months to December (the first decline in more than two years) and the decline in profits accelerated, with gross profit down 5.4%, operating profit down 10.6% and net profit down 18.8%. Year-on-year comparisons are likely to remain difficult for at least another two quarters.
In December, we wrote: “Management reports that semiconductor-related demand is down in all markets and that auto-related demand is down in the U.S. Auto sales are also declining in China.” (SMC (6273 JP): Profits Start to Decline ) Last week, WSTS reported the first decline in semiconductor sales in 30 months and the Nikkei newspaper reported that “Japanese chipmaker Renesas Electronics will temporarily halt work at 13 of the company’s 14 production facilities, including all nine domestic plants, due to high inventory levels and possible impact as Chinese demand for automotive and machinery tools plummets.” On Friday, March 8, SMC’s share price dropped by 3%.
SMC has left FY Mar-19 guidance unchanged, implying a 4.1% decline in sales and a 2.9% decline in operating profit in 4Q. In view of current trends, this looks over-optimistic. The shares are now selling at 17.8x our EPS estimate for FY Mar-19 and 18.6x our estimate for FY Mar-20. These multiples compare with a 5-year historical P/E range of 13.8x – 28.5x.
SMC is a leading supplier of pneumatic and other automated control equipment for the electronics, auto, machine tool and other industries.
3. ECM Weekly (9 March 2019) – Lyft, Shenwan Hongyuan, RHB Bank, Sea Ltd, Xinyi Solar, China Gas
Aequitas Research puts out a weekly update on the deals that have been covered by Smartkarma Insight Providers recently, along with updates for upcoming IPOs.
It has been a fairly hectic week. We have been busy writing on upcoming IPOs, post-IPO events, and, to top it all off, there were four placements (Sea Ltd, RHB Bank, Xinyi Solar, and China Gas) this week.
Hong Kong’s ECM activity seems to be picking up momentum. Starting off with approvals, Viva Biotech (1577881D HK) and Dongzheng Automotive Finance (2718 HK) filed their respective PHIP on HKEX. Ke Yan, CFA, FRM had previously written on Viva Biotech here while we are currently working on Dongzheng Automotive Finance (2718 HK) and also heard that Dongzheng Auto Finance had already kicked off pre-marketing on Monday.
For upcoming IPOs with completed bookbuilds, Yincheng International Holding (1902 HK) traded flat on debut (expected for a small and leveraged developer) while Zhejiang New Century Hotel Management Group (1158 HK), which had Ctrip and GreenTree as cornerstone investors, will list next Monday.
As for early coverage on IPOs, Sumeet Singh had already given a broad overview of ESR Cayman (ESR HK)‘s business. He will be following up with more detailed analyses in the coming weeks.
In the US, Futu Holdings Ltd (FHL US) debuted well on Friday, trading up to as high as US$17 per share before closing just above US$15 but still well above the IPO price. We had been slightly more conservative because it is not exactly a very exciting company doing something groundbreaking but the management background in tech appears strong and there are no corporate governance issues.Sumeet Singh will update on trading liquidity and post-IPO analysis next week.
For pipeline IPOs, we heard that Ehang is planning its US IPO and it is looking to raise about US$500m. This is the Chinese drone manufacturer which made waves just over a year ago with a video of a team testing its autonomous aerial vehicle shown in the video below. Suffice to say, if and when the IPO launches, it will be interesting.
Ruhnn had also filed for IPO this week and we heard that pre-marketing will start next week while bookbuild will likely launch end of the month. This is an Alibaba-backed e-commerce influencer platform and we will be analyzing the company soon.
We had also been exploring potential trade ideas surrounding lock-up expiry such as Nio (蔚来) Lock-Up Expiry – Scattered Pre-IPO Investors to Be the Sellers and Meituan Dianping (美团点评): Thoughts Before Lock-Up Expiry. NIO’s lock-up expiry had been an unfortunate case of poor outlook guidance in Q4 coinciding with lock-up expiry coming on the week after (11th March).
Accuracy Rate:
Our overall accuracy rate is 72.1% for IPOs and 63.6% for Placements
(Performance measurement criteria is explained at the end of the note)
New IPO filings
- Ruhnn (the U.S, ~US$200m)
- Sun Car Insurance (Hong Kong, >US$100m)
- Sichuan Languang Justbon Services (Hong Kong, ~US$100m)
- Mabpharm (Hong Kong, re-filed)
- Intellicentrics (Hong Kong, CLSA sole-sponsor, likely to be <US$100m)
Below is a snippet of our IPO tool showing upcoming events for the next week. The IPO tool is designed to provide readers with timely information on all IPO related events (Book open/closing, listing, initiation, lock-up expiry, etc) for all the deals that we have worked on. You can access the tool here or through the tools menu.
News on Upcoming IPOs
- Chinese drone maker EHang plans US IPO
- Airport REIT could finance Singapore’s massive infrastructure ambitions
- PNB MetLife Insurance IPO likely in Q2FY20
Smartkarma Community’s this week Analysis on Upcoming IPO
- Lyft IPO Preview
- Lyft IPO Preview: Maybe We’ll Just Walk?
- LYFT Pre-IPO – Drivers and Shared Rides Hold the Key But the Numbers Are Missing
- Embassy Office Parks REIT – Comparison with AIT and a Look at the Required Yield
- Shenwan Hongyuan (申万宏源) A+H: A Commoditized Broker Business
- Polycab IPO: Largest Cables Player, Asset-Heavy Low ROE Model = Vulnerable to Govt Capex Slowdown
- Hyundai Autoever IPO Valuation Analysis
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