Brief IPOs & Placements: Metropolis IPO: Priced to Leave Limited Upside and more

In this briefing:

1. Metropolis IPO: Priced to Leave Limited Upside
2. Metropolis Healthcare IPO – Fairly Valued, at Best
3. Viva Biotech (维亚生物) IPO: Warning Signs from 2018 Numbers (Part 2)
4. LYFT: Wouldn’t It Be Ironic if This Was an IPO to Rent but Not Own?
5. Koolearn (新东方在线) Trading Update – A Wobbly Start

1. Metropolis IPO: Priced to Leave Limited Upside

We like Metropolis Health Services Limited (MHL IN) ’ track record of growing revenue/patient despite competition, premium pricing and strong margin defence. Margins have however, come under some pressure in 9MFY19. Its patient growth lags that of Dr Lal Pathlabs (DLPL IN)’s despite rapid network expansion. It is also at the highest risk from any government instituted pricing cap on pathology tests owing to (1) high share of institutional business and (2) premium pricing. Also, 51.6% of promoter stake will be pledged with lenders after the IPO. At the upper end of its price band, Metropolis is valued at 20.9x FY20F EV/EBITDA and 33.3x FY20F PE- at ~15% discount to Dr Lal. We see EPS compounding at 12% Cagr over FY18-21, lower than the 16% EPS Cagr of Dr Lal’s. We feel valuation leaves limited upside.

2. Metropolis Healthcare IPO – Fairly Valued, at Best

Metropolis Health Services Limited (MHL IN) (MHL) plans to raise around US$175m in its Indian IPO via a sell down of shares by the promoter and private equity owners. MHL is one of the largest diagnostic chains in the country.

In my previous insight, Metropolis Healthcare Pre-IPO Quick Take – Steady Performance but Growth Lagged Network Expansion, I analyzed MHL’s recent financial performance and compared it with its listed peers, Dr Lal Pathlabs (DLPL IN) and Thyrocare Technologies (THYROCAR IN).

In this insight, I’ll run the deal through our IPO framework and comment on valuation.

3. Viva Biotech (维亚生物) IPO: Warning Signs from 2018 Numbers (Part 2)

Viva Biotechnology, a China-based drug discovery company, is seeking to raise USD 200m to list on the Hong Kong Stock Exchange. It has recently obtained approval for listing by the Hong Kong Stock Exchange. In our previous insight (link here), we discussed the company’s fundamentals, its unique business model, its shareholders, and our thoughts on its valuation.

In this insight, we look at its latest prospectus and review our valuation for Viva Biotech.

4. LYFT: Wouldn’t It Be Ironic if This Was an IPO to Rent but Not Own?

Lyft Inc (LYFT US) announced an increase in its IPO price range from $62-68 to $70-72 after previous reports had indicated that the IPO became oversubscribed very early.

There has been significant coverage of the name on Smartkarma but a disappointing lack of obvious puns:

Lyft IPO: Key Takeaways from In-Depth Interviews with Drivers by Johannes Salim, CFA

Lyft IPO: Valuation Analysis (Prudent Investment or Quasi-Gambling?) and Lyft IPO Preview by Douglas Kim

Lyft IPO Preview: Maybe We’ll Just Walk? by Rickin Thakrar

LYFT Pre-IPO – Drivers and Shared Rides Hold the Key But the Numbers Are Missing by Sumeet Singh

We would highlight Johannes’ interview piece as being well worth a read to understand the driver perspective, as well as Sumeet’s piece and the comments sections for discussions of business model strengths and weaknesses.

Ultimately, this issue isn’t going to be bought for its cheapness and we would guess that it will be successful (initially) due to pent up demand and relatively strong broad stock market performance over the last few months. Below, however, we examine NY transportation data to point out what we feel are misconceptions about the overall value proposition of the ride sharing industry.

5. Koolearn (新东方在线) Trading Update – A Wobbly Start

Koolearn (1797 HK) raised about US$214m at HK$10.20 per share, the mid-point of its IPO price range. We have previously covered the IPO in: 

• Koolearn (新东方在线) IPO Review – Yet to See Results from Increased Spending
• New Regulatory Tightening on Online Education Reads Badly on Koolearn IPO
• Koolearn (新东方在线) Pre-IPO – Profitable Online Edu Company but Poor Sentiment Weighs

In this insight, we will update on the deal dynamics, implied valuation, and include a valuation sensitivity table.