Brief IPOs & Placements: Guotai Junan Placement: A Reasonable Price for Reasonable Performance and more

In this briefing:

1. Guotai Junan Placement: A Reasonable Price for Reasonable Performance
2. Guotai Junan Securities Placement Quick Take – Might Be Too Big to Sail
3. Studio City – Thoughts on Lock-Up Expiry
4. Changliao (畅聊) AKA Paipai (派派) Pre-IPO Review – Self-Sufficient
5. Hollysys Auto Tech Placement – Has Ample Cash, Reasons for the Raising Remain Unclear

1. Guotai Junan Placement: A Reasonable Price for Reasonable Performance

Guotai Junan Securities (H) (2611 HK), a Chinese securities firm, has launched a primary placement to raise HK$2.7 billion ($345 million) at a placing price of HK$16.34. The placing price is a 7% discount to the last close price of HK$17.64.

2. Guotai Junan Securities Placement Quick Take – Might Be Too Big to Sail

Guotai Junan Securities (H) (2611 HK) plans to raise around US$350m via placing new H-Shares. We had earlier covered the IPO, you can find our coverage below:

• Guotai Junan Securities IPO: Second, if Not the Largest, China Security Broker, A-H Premium Examined
• Guotai Junan IPO: A Big Player but Relatively Less Liquid, How A-H Premium Plays

This is a large deal to digest and the shares seem to be trading at a relatively tighter A-H spread versus peers.

3. Studio City – Thoughts on Lock-Up Expiry

Studio City, a spin-off by MLCO US, was listed on October 18th, 2018 and its lock-up will expire next week on April 16th. The company raised USD 359 million in its IPO with the majority of the shares taken up by its shareholders.

In this insight, we will review the company’s operation, shares subject to lock-up expiry and its valuation vs peers. 

Our previous insights on Studio City

• Studio City (新濠影汇) IPO: A Melco Spin-Off Turning Profitable
• Studio City (新濠影汇) IPO: Attractive Valuation with Options for Long-Term Upside (Part 2)
• Studio City (新濠影汇) IPO Trading Update: Performance Within Expectations, Near-Term Upside Capped

4. Changliao (畅聊) AKA Paipai (派派) Pre-IPO Review – Self-Sufficient

Changliao Inc (CL HK) is looking to raise about US$100m in its upcoming IPO. The company just filed its draft prospectus with the HKEX last week.

Changliao is a fast-growing social networking entertainment platform. The business model of engaging and monetizing users through interactive games is interesting.

However, the need for an IPO is questionable since the company has a healthy net cash balance sheet and it had paid out dividends in the past two years. It can easily finance its growth through debt or operating cash flow. 

Tencent is an investor in the firm, however, it had only invested RMB9m in the company in FY2016. There are no other notable investors despite several rounds of financing.

In this insight, we will look at the company’s business model, analyze its financial performance and operating metrics.

5. Hollysys Auto Tech Placement – Has Ample Cash, Reasons for the Raising Remain Unclear

Hollysys Automation Technolo (HOLI US) plans to raise around US$170m in its follow-on offering.

The company has been reporting flattish earnings for the past few years and remains well positioned in its main segments. HOLI is net cash, it has ample cash for that matter, and it has been generating operating cash flow consistently. It hasn’t provided any specific reasons for the capital raise. Which makes one wonder if this is just an opportunistic raise. 

In my view, either the company needs to clearly disclose the intended use of capital or it needs to offer the deal at a very wide discount to where the shares are currently trading.