Brief Healthcare: IPO Analytics: Corporate Governance – Alpha Generator, Shortlist of Bookrunners to Avoid/Keep Happy and more

In this briefing:

1. IPO Analytics: Corporate Governance – Alpha Generator, Shortlist of Bookrunners to Avoid/Keep Happy
2. Shanghai Henlius (复宏汉霖) IPO: Not an Impressive Biosimilar Portfolio
3. RHT Health Trust – Cash on Sale
4. CStone Pharma IPO Preview: Mixed Prospects of Late-Stage Clinical Drug Candidates

1. IPO Analytics: Corporate Governance – Alpha Generator, Shortlist of Bookrunners to Avoid/Keep Happy

Since inception of our IPO research in 2015, the Aequitas Research team has covered over 361 IPOs, which raised over US$100m each, across Asia Pacific (excluding Korea and China A-shares) and the US (Asia linked listings).

For this insight, we used data from our IPO framework, the prospectus, company filings and market data to analyse 244 IPOs across Developed and Emerging Asia Pacific (excluding Korea and China A-shares) that took place over 2016-18. Our results are split across two insights.

In our previous insight, IPO Analytics: Cut your losses and let you profits runs, holds true for IPOs, we highlighted:

• Overall IPOs have provided an average 4.8% return at the end of the first week, some geographies like India and Thailand have clearly outperformed with average returns of over 10%.
• IPOs in Hong Kong despite topping the list with the most number of deals provided only 2.4% average returns.
• In terms of sectors, Financials and Real Estate sector have been the biggest capital guzzlers in the region. While Healthcare has been a consistent underperformer across geographies over the first few months of listing.
• Incremental returns are higher from holding on to winners than from trying to bet on losers turning around, both in terms of the percentage of such cases and in terms of the average returns overall.

This is the second and final part of our twin series of insights covering our findings. In this insight, we’ll analyse the best and worst bookrunners by country, corporate governance impact on listing performance, earnings and liquidity analysis. Our key findings include:

• Some of the biggest names in Investment Banking, one American bank in particular, has by far the lousiest record of providing investor returns from IPOs in this region
• IPOs without any corporate governance issues outperformed the ones with a few issues by 9% on the first day and over the first month. Deals with related party issues and cash/dividend payout prior to listing performed the worst on average.
• Sales estimates at the time of IPO appear to be a lot more reliable than the net income estimates. The latter has a bias towards being revised downwards much more so than the sales estimates. Target price changes seem to mirror share price movements and were largely out of sync with earnings revisions
• In terms of volume traded as percentage of shares offered, deals that did well on an average trade 2.5x more than deals that were under water. India had the highest proportion of shares being flipped owing to the high allocation to retail and HNIs while Australia had the lowest liquidity.

This report has been prepared by the entire Aequitas Research Team:  Ke Yan, CFA, FRM, Zhen Zhou, Toh and  Sumeet Singh.

2. Shanghai Henlius (复宏汉霖) IPO: Not an Impressive Biosimilar Portfolio

Shanghai Henlius, a subsidiary of Fosun Pharma, is seeking to list in Hong Kong. In this insight, we will discuss the following topics:

• The company’s background
• Details of pipeline drug candidates, the potential market of these products and the competition
• Shareholders and investors
• Summary of our likes and concerns
• Questions for management meetings

We will leave the discussion of valuation for our next insight.

• CStone Pharma (基石药业) IPO: Strong Assembly and Backing (Part 1)

• Viva Biotech (维亚生物) IPO: When CRO Becomes Early Stage Biotech Investor

• Hansoh Pharma (翰森制药) IPO: Takeaways from Recent 4+7 City Centralized Tender Results

• Hansoh Pharma (翰森制药) IPO: A Leading Generic Player with Regulatory Overhang (Part 1)
• WuXi Apptec (药明康德) IPO: This A+H Listing Will Be Different

• Frontage Holding (方达控股) IPO: More Disclosure Needed to Understand Moat and Growth Prospect
• Ascentage Pharma (亚盛医药) IPO: Too Early for an IPO
• Junshi Bioscience (君实医药) IPO: Thoughts on Valuation (Part 2)
• Junshi Bioscience (君实医药) IPO: Early in Application but Behind in Key Indications (Part 1)
• CanSino Biologics (康希诺) IPO: Promising Pre-Clinical Results but Vaccine Scandal Weighs (Part 1)

• AOBiome Therapeutics IPO: Hope for Natural Therapeutic Treatment
• Stealth Biotherapeutics IPO: Cure the Symptoms but Not the Cause (Part 1)
• Innovent Biologics (信达生物) IPO: Pricing the PD-1 and Biosimilars Competition (Part 2)
• Innovent Biologics (信达生物) IPO: A Major PD-1 MAb Competitor Might Have Just Emerged (Part 1)
• MicuRx Pharma (盟科医药) IPO: Betting on Single Drug in the Not so Attractive Antibiotic Segment
• Hua Medicine (华领医药) IPO: Thoughts on Valuation
• Hua Medicine (华领医药) IPO: Reviving Roche’s Failed Attempt?
• BeiGene (百济神州) IPO: Dual-Listing with Upside Capped in the Near Term
• Ascletis Pharma (歌礼制药) IPO: Valuation Not Justified by Ganovo and Ravidasvir NPV (Part 3)
• Ascletis Pharma (歌礼制药) IPO: Three Valuation Risk Factors (Part 2)
• Ascletis Pharma (歌礼制药) IPO: Emerging Player in the Crowded HCV Drug Market
• China Isotope & Radiation IPO: Oligopoly, Visible Growth and High Barrier to Entry
• Zai Lab IPO: Thoughts on Valuation, Risks and Upsides (Part 2)
• Zai Lab IPO: Experienced Team, Promising In-Licensing Drug Pipeline (Part 1)

3. RHT Health Trust – Cash on Sale

On 15^th January 2019, RHT Health Trust (RHT SP) announced the completion of the disposal of RHT’s entire asset portfolio of clinical establishments and hospitals in India to Fortis.

The balance net cash proceeds of S$32.52 mil will be retained as undistributed proceeds to cover on-going expenses of RHT following Completion. This translates to a cash NAV of S$0.04 per unit.

RHT’s closing unit price today was S$0.029 per unit, translating to a 28% discount to its cash NAV of S$0.04 per unit.

Taking Saizen REIT’s premium as a reference, RHT could potentially trade up to a 20% premium to its cash NAV, implying a unit price of S$0.048 per unit, or an upside potential of 65.5% when it announces progress in acquiring new assets/business.

Key risk is the suspension in trading of RHT units if it is unable to acquire new business.

Recommended investment strategy is to acquire RHT at current price (steep discount to cash NAV), hold out till a re-rating upon the announcement of a potential acquisition, and divest at a premium to cash NAV.

4. CStone Pharma IPO Preview: Mixed Prospects of Late-Stage Clinical Drug Candidates

CStone Pharma (CSTONE HK) is a biopharmaceutical company which is developing a pipeline of 14 drug candidates of which 9 are in clinical development. CStone has started pre-marketing for a Hong Kong IPO to raise around $400 million, according to press reports.