In this briefing:
- CHG: Short-Term Cost Pressures Create an Opportunity to Invest
- Keytruda Approved for Lung Cancer Treatment in China – A Review of PD-1 Battle Field
- Shanghai/Shenzhen Connect – Inflow Turned Cautious in March but MSCI Adjustment Ahead
- RHT Health Trust – 40.7% Net Returns Since Jan. Is There Any Upside Left?
- ECM Weekly (30 March 2019) – ESR, Yunji, Ruhnn, Jinxin Fertility, Metropolis Health, Viva Biotech
1. CHG: Short-Term Cost Pressures Create an Opportunity to Invest
We initiate coverage of CHG with a BUY rating and a 2019E target price of Bt2.53, derived from a discounted cash flow valuation (WACC of 6.2% and terminal growth of 2.0%). This is equivalent to 44.5 PE’19E, which is near its five-year trading average of 43.7x.
The story:
- Competitive player in a key strategic location
- Pressures from launch of new greenfield hospitals should be short term
- Recent share price retreat opens an investment opportunity
- Expected flat earnings in 2019E and growth at a 19% CAGR in 2020-21E
Risks: Medical personnel shortage
Litigation for medical services
Change in social security policy
2. Keytruda Approved for Lung Cancer Treatment in China – A Review of PD-1 Battle Field
Anti-PD-1 monoclonal antibody (mAb) is a hotly contested immunotherapy area in China, with seven companies working on clinical trials covering various lines of treatment for more than a dozen indications. Out of these indications, we have highlighted in our previous coverage on Chinese biotech companies that the most critical indication is the first line treatment of lung cancer, particularly non-small cell lung cancer (NSCLC). Valuation of PD-1 related drugs anchors many of the Hong Kong-listed biotech companies, such as Innovent Biologics Inc (1801 HK), Shanghai Junshi Bioscience Co. Ltd. (1877 HK), BeiGene Ltd (6160 HK), CStone Pharma (2616 HK) and China A-share listed Jiangsu Hengrui Medicine Co., (600276 CH).
In March, Merck’s Keytruda (generic name pembrolizumab) was approved by NMPA for the first line treatment of EGFR and ALK-negative non-squamous NSCLC. This marks Keytruda the first approved PD-1 drugs for the first line treatment of NSCLC in China.
In this insight, we will review the status and targeted indications of clinical trials of PD-1 candidates by domestic players.
3. Shanghai/Shenzhen Connect – Inflow Turned Cautious in March but MSCI Adjustment Ahead
In our Discover SZ/SH Connect series, we aim to help our investors understand the flow of northbound trades via the Shanghai Connect and Shenzhen Connect, as analyzed by our proprietary data engine. We will discuss the stocks that experienced the most inflow and outflow by offshore investors in the past seven days.
We split the stocks eligible for the northbound trade into three groups: those with a market capitalization of above USD 5 billion, and those with a market capitalization between USD 1 billion and USD 5 billion.
We note that in March, northbound inflows turned more cautious vs strong inflows in February (link to our Feb note) and January (link to our Jan note). Nevertheless we see strong inflows into Healthcare sector, led by Jiangsu Hengrui Medicine Co., (600276 CH). We also highlight Universal Scientific Industrial Shanghai (601231 CH 环旭电子) in the mid cap space that attracted strong northbound inflows.
4. RHT Health Trust – 40.7% Net Returns Since Jan. Is There Any Upside Left?
Since my last insight on RHT Health Trust (RHT SP) on 29th Jan 2019 – RHT Health Trust – Cash on Sale , investors who bought into RHT Health Trust at S$0.029 per unit would have netted a return on investment of 40.7% if they sell out today, including the cash distribution that they have received in 1st March.
Since last insight in January, RHT reported major changes to its Board of Directors and Management. The strong background of the new BOD and CEO in investment banking and REIT management will be valuable to RHT as it progresses to transform itself and acquire new business/assets to inject into the Trust.
Key investment thesis remains unchanged. RHT Health Trust is an event-driven play and the catalyst will be the announcement of an RTO deal to inject new assets/business into the Trust. This will be the key driver to further upside in RHT.
Proposed investment strategy at this stage is to hold on to the investment in RHT and look for opportunities to add if RHT trades lower. Target entry price is S$0.016 per unit, which translates to a NAV discount of 27.3%.
5. ECM Weekly (30 March 2019) – ESR, Yunji, Ruhnn, Jinxin Fertility, Metropolis Health, Viva Biotech
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.
CanSino Biologics Inc (6185 HK)‘s debut in Hong Kong this week was spectacular. It closed almost 60% above its IPO price on the first day. In Ke Yan, CFA, FRM‘s trading update note, he pointed out that valuation is trading close to fair value and that the near term driver will be the progress of the NMPA review and commercialization of MCV2. On the other hand, Koolearn (1797 HK)‘s IPO was not as fortunate. The company got listed on the same day but struggled to hold onto its IPO price even though it was oversubscribed.
For upcoming IPOs, Dongzheng Automotive Finance (2718 HK) will finally be listing next week on the 3rd of April after re-launching its IPO at a much lower fixed price of HK$3.06 per share. Sun Car Insurance(1879 HK), however, pulled its IPO even though reports mentioned that books were covered. We are also hearing that Shenwan Hongyuan Hk (218 HK) will be pre-marketing its IPO next week while CIMC Vehicle will be seeking approval soon.
India’s IPO market is starting to warm up after long lull period as Metropolis Health Services Limited (MHL IN) and Polycab India (POLY IN) are launching their IPOs next week. Sumeet Singh had already shared his thoughts on valuation for Metropolis Healthcare and his early thoughts on Polycab in:
- Metropolis Healthcare IPO – Fairly Valued, at Best
- Polycab India Limited Pre-IPO – Market Leader with Steady Growth but with a Few Unanswered Question
Meanwhile, in the U.S, Ruhnn Holding Ltd (RUHN US) launched its IPO to raise about US$125m and we heard that books have already been covered. Lyft Inc (LYFT US)‘s strong debut even after it priced above its original IPO price range should bode well would likely mean that there will be more tech unicorns looking to list in the coming few months.
In Malaysia, we also heard that Leong Hup International (LEHUP MK) will be pre-marketing next week while in Indonesia, Map Actif will open its books for US$200 – 400m IPO next week as well.
Accuracy Rate:
Our overall accuracy rate is 72.4% for IPOs and 63.9% for Placements
(Performance measurement criteria is explained at the end of the note)
New IPO filings
- Haitong UniTrust International Leasing (Hong Kong, re-filed)
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
- As IPO flood recedes, Asia bankers bet on follow-on capital raising
- Bitmain forced to delay Hong Kong IPO amid crypto-mining decline
This week Analysis on Upcoming IPO
- Viva Biotech (维亚生物) IPO: Warning Signs from 2018 Numbers (Part 2)
- Metropolis Healthcare IPO – Fairly Valued, at Best
- Jinxin Fertility (锦欣生殖) Pre-IPO: Strong Foothold in Sichuan but Weak Sentiment for Sector
- Ruhnn (如涵) Pre-IPO Review- Significant Concentration Risk
- Yunji (云集) Pre-IPO Review – Poor Disclosure on Data
- ESR Cayman Pre-IPO- First Stab at Valuation
- Leong Hup Pre-IPO – Hard to Pinpoint What’s Going to Be the Revenue Driver Going Forward
- Dongzheng Auto Finance (东正汽车金融) IPO Review – Relaunched at Lower Price
- SNK Corp (950180 KS)
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