In this briefing:
- Ruhnn (如涵) Pre-IPO Review- Significant Concentration Risk
- Frontage Holding (方达控股) IPO: Updates from 2018 Numbers
- Tencent Music 4Q18 Quick Note – Growth on Track, Margins Could Drag – Stock Price Needs a Breather
- Lyft IPO: Valuation Analysis (Prudent Investment or Quasi-Gambling?)
- Platinum Asset Management Placement – Co-Founder Selling + Weak Earnings Momentum
1. Ruhnn (如涵) Pre-IPO Review- Significant Concentration Risk
Ruhnn Holding Ltd (RUHN US) is looking to raise about US$200m in its upcoming IPO.
The company is an internet key opinion leader (KOL) incubator in China. Revenue and GMV grew at impressive rates of 63% and 57% YoY in FY2018, respectively.
The idea of being able to leverage on KOLs influence over consumers to understand demand and retain consumers is interesting but Ruhnn has yet to demonstrate that it has a sustainable business model.
Gross margin has deteriorated and losses widened as a percentage of revenue. Service fee paid to KOLs as a percentage of revenue has increased and showed little improvement in 9M FY2019. The company depends heavily on the top KOL, Zhang Dayi, to generate revenue, almost half of the company’s GMV and revenue is generated from her.
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. Tencent Music 4Q18 Quick Note – Growth on Track, Margins Could Drag – Stock Price Needs a Breather
Tencent Music Entertainment (TME US) reported its full year results today, post US market close. Revenue growth was slightly ahead of estimates as paying ratio continue to improve for both online music (subscription revenue) and social entertainment (live streaming). Growth for the latter continued to be driven more by ARPU rather than user growth.
The concerning bit in the results was the decline in gross margins as the company continues to invest in more content.
My previous insights on TME’s IPO:
- The company’s performance: Tencent Music Pre-IPO Review – The Final Countdown – Growth Doesn’t Seem to Be Slowing Down,
- The working of the apps: Tencent Music Pre-IPO – This Is How We Do It – A Quick Look at How the Apps Work,
- Industry dynamic: Tencent Music Pre-IPO – Industry – Don’t Cry – In 2010 a Little Red Dot Almost Overtook the Dragon, and
- Peer analysis: Tencent Music Pre-IPO – Quick Peer Analysis – If I Was You, I’d Wanna Be Me Too – Bigger and Faster,
- Valuations overview: Tencent Music Pre-IPO – Valuations Estimates – Leaving on a Jet Plane – $30bn Was Quite Stretched.
- First take on the IPO pricing: Tencent Music Pre-IPO Updates – Welcome to the Jungle – Rumoured Asking Valuations More Reasonable
- IPO valuation update: Tencent Music IPO – Don’t Stop Me Now – 9M18 Updates, Outlook and Price Limits
- Some more information on Ultimate Music acquisition: Tencent Music IPO – A Little Less Conversation – A Little More Information on Ultimate Music
- Trading strategies: Tencent Music IPO – Firework – Trading Strategies
4. Lyft IPO: Valuation Analysis (Prudent Investment or Quasi-Gambling?)
Our base case forecast is Case 2 (among three scenarios analysis), which suggests an implied market cap of $21 billion or $75 per share. Given that our intrinsic value of the company does not provide enough upside versus the likely IPO price, we would AVOID this deal.
Even if the company is able to complete this IPO, raising nearly $2.0-2.5 billion, it is very possible that the company may need to come back to the market in two or three years in a secondary share offering, which would dilute the existing shareholders. This is probably the biggest risk I see with the Lyft IPO right now.
Our base case financial forecast for Lyft assumes the following:
- Sales growth rate (CAGR from 2018 to 2030) – 26.6%
- Year in which Lyft turns operating profit positive – 2025
- Operating margin in 2030 – 15.0%
5. Platinum Asset Management Placement – Co-Founder Selling + Weak Earnings Momentum
The co-founder of Platinum Asset Management (PTM AU), Kerr Neilson, and Judith Neilson are looking to sell 30m shares of the company at a fixed price of A$5.00.
The deal scores poorly on our framework due to its poor track record, large deal size, weak earnings momentum and relatively expensive valuation. The selldown comes after the company weak 1H FY19 results last month which could put pressure on share price in the near term.
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