In this briefing:
- Wuxi Biologics Placement – Past Deals Have Done Well but Progressive Returns Are Getting Lower
- Frontage Holding (方达控股) IPO: Updates from 2018 Numbers
- Aveo: Take Advantage of the Lull To Take a Second Crack
- China Blood Products: Deals Highlight Values
- CanSino Biologics (康希诺) IPO: Valuation Attractive, Lilly Asia Doubling Up (Part 4)
1. Wuxi Biologics Placement – Past Deals Have Done Well but Progressive Returns Are Getting Lower
Biologics holdings is looking to raise upto US$517m by selling a 4.2% stake in Wuxi Biologics (Cayman) Inc (2269 HK). This will be fourth placement by the company since it listed less than two years ago. Below is a link to our coverage of the listing and the earlier placement:
- Jun 2017 – US$500m: WuXi Biologics IPO Review – An Opportunity to Get Exposure to Biologics in China
- Dec 2017- US$550m: Wuxi Biologics Placement – Selldown Right when Lockup Expires Suggests Eagerness to Offload
- Mar 2018 – US$600m: Wuxi Biologics Placement – In Time for the Next Lock-Up, Returns Will Probably Not Match Prior Ones
- Jun 2018 – US$500m: Wuxi Biologics Placement – Probably Not a Surprise to Sell Again when Lock-Up Expires
Each of the past placement has been of a similar size and has generally done well. The company recently reported results which were ahead of street estimates. The deal scores a marginal positive score on our framework but there is still a lot more selling left once the 90-day lock-up expires.
2. Frontage Holding (方达控股) IPO: Updates from 2018 Numbers
Frontage Holding, a contract research organization subsidiary of A-share listed Hangzhou Tigermed Consulting (300347 CH), re-filed to list on the Hong Kong Stock Exchange recently. We have covered the company’s fundamentals in our previous insight here. In this insight, we will provide an updated analysis based on new data available from the new prospectus, as well as our thoughts on valuation.
3. Aveo: Take Advantage of the Lull To Take a Second Crack
Back in August, I argued a case for the privatisation of Aveo Group (AOG AU), which at the time was trading at a P/B of 0.6x versus ~2x for peers. Also in late August, Aveo announced a strategic review to examine all options to close the gap between Aveo’s market capitalisation and the value of the underlying retirement properties.
Aveo’s steep discount to peers was/is ostensibly due to the presence of Mulpha International (MIT MK)‘s large stake (22.5%), crowding out institutional ownership; Mulpha and Aveo sharing the same chairman, inferring (yet categorically denied) Aveo’s absence of independence; and the ongoing class action lawsuit.
That was a brutal recommendation, and lacking a hard catalyst, shares declined to $1.55 in January, recovering to $2.05 today, still ~12% shy of the price at the time of my last note.
This time is different.
Aveo announced in early February a number of indicative non-binding bids were received for a “whole of company transaction” with AFR reporting (paywalled) that Lone Star had joined the fray. Other interested parties are believed to include Blackstone and Cerberus Capital Management.
Aveo’s share price is up ~20% since announcing the receipt of the indicative bids, having drifted down from a (recent) closing peak of $2.14 earlier this month.
Aveo is currently trading at an attractive 0.52x P/B vs. 1.8x for its peer group, with the next closest peer valuation at 0.7x P/B. An offer of >0.7x, a level last traded as recently as June 2018, appears reasonable with ~92% of assets in investment property.
Further afield, Mulpha trades at a P/B of 0.25x, while the stake in Aveo accounts for 104% of its market cap, and around 25% of NAV. It’s discount to NAV has significantly narrowed since February, but Mulpha continues to trade at a discount to 76%.
Timeline of Events
Date | Data in the Date |
End-2005 | Mulpha’s stake in Aveo (then called FKP) was acquired after a share swap with Mulpha Norwest |
Feb 2006 | Mulpha’s Seng Huang Lee joined Aveo’s board |
2009 | Seng Huang Lee appointed Aveo’s chairman |
Nov-2013 | Aveo’s last entitlement offer |
Aug 2016 | Last significant institutional placement at $3.40/share |
Jun 2017 | |
Sept 2017 | Class action suit filed |
Aug 2018 | |
Aug 2018 | Strategic review announced |
Sep 2018 | Perpetual becomes a substantial shareholder |
Nov 2018 | Perpetual increases stake to 6.22% |
Nov 2018 | Strategic review update. Indicative bids to be submitted by late Jan 2019 |
Dec 2018 | Buyback and cancellation of shares (just 100k) |
Feb-2018 | Assessment of non-binding bids commenced |
4. China Blood Products: Deals Highlight Values
Grifols SA (GRF SM) and Shanghai RAAS Blood Products Co Ltd (002252.SZ) recently announced an asset exchange that effectively combines the companies’ blood products operations in China. This transaction marks the third investment (two are cross-border) into the industry in the last two years. Despite some challenges arising from recent healthcare reforms, the industry has favorable supply/demand dynamics and high barriers to entry. US-listed China Biologic Products (CBPO US) trades at a significant discount to the implied private market values, but requires patience as management adjusts to the new operating environment.
5. CanSino Biologics (康希诺) IPO: Valuation Attractive, Lilly Asia Doubling Up (Part 4)
CanSino Biologics started its book building today to raise up to USD 160 million to list in Hong Kong. In our previous insights (links provided below), we provided a detailed analysis of the company’s core drug candidates, its shareholders and our thoughts on valuation. In this insight, we will cover the following topics:
- Recap of our valuation
- Highlight of cornerstone investors
- Our thoughts on the deal
Our coverage on Cansino IPO
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