In this briefing:
- China Kepei Edu (科培教育) Post-IPO – Tepid Demand Means Little Support if IPO Price Breaks
- Recruit Holdings Placement – A Tiny, Long Overdue Sell Down
- Maoyan Entertainment IPO Valuation: Press the Skip Button
- Hujiang Education (沪江教育) Pre-IPO – Spending More than It Earns
- Polycab India Limited Pre-IPO – Market Leader with Steady Growth but with a Few Unanswered Question
1. China Kepei Edu (科培教育) Post-IPO – Tepid Demand Means Little Support if IPO Price Breaks
Kepei Education (1890 HK) has raised US$112m at HK$2.48 per share, just slightly above the mid-end of the IPO price range. We have previously covered the insight in:
- China Kepei Edu (科培教育) Pre-IPO Review – A Well Run Private Higher Education Company
- China Kepei Edu (科培教育) IPO – Regulation Poses Significant Near-Term Risks
In this insight, we will update on the deal dynamics, implied valuation, and include a valuation sensitivity table.
2. Recruit Holdings Placement – A Tiny, Long Overdue Sell Down
Toppan Printing (7911 JP) is looking to sell 10.5m shares in Recruit Holdings (6098 JP) for about US$263m. Post-placement, Toppan Printing will still have about 6% stake (103m shares) in Recruit Holdings.
The deal scores well on our framework owing to its strong price and earnings momentum and stellar track record. However, it was offset by its relatively expensive valuation compared to peers. The selldown by Toppan Printing is tiny relative to the three-month ADV which the market would likely be able to absorb. The sell down is also long overdue considering that Toppan Printing skipped the 2016 secondary offering in which many shareholders have participated.
3. Maoyan Entertainment IPO Valuation: Press the Skip Button
Maoyan Entertainment (EPLUS HK) is the largest online movie ticketing service provider in China. The mid-point of Maoyan’s IPO price range of HK$14.8-20.4 per share implies a market value of $2.5 billion (HK$19.8 billion). Five cornerstone investors have agreed to buy $30 million or 10% of the offering at the IPO mid-point. The cornerstone investors are Imax China Holding (1970 HK), Hylink Digital Solutions, Prestige of The Sun, Welight Capital and Xiaomi Corp (1810 HK).
Our analysis suggests Maoyan is being offered at a material premium to a peer group of major Chinese internet companies. Due to challenging prospects faced by Maoyan as outlined in our previous research, we believe a premium rating is unwarranted. Consequently, we are inclined to sit out this IPO.
4. Hujiang Education (沪江教育) Pre-IPO – Spending More than It Earns
Hujiang Education (1414698D CH) (HET) is planning to raise US$200m in its upcoming IPO.
HET has grown its revenue at an impressive 73% CAGR from 2015 to 2017 and has been accompanied by gross margin expansion. The strong growth was supported by improving operating metrics such as an increase in student enrollment and average spending.
However, HET has been making losses and continues to spend more than its net billing. It is unclear whether HET had already achieved break even for its proprietary courses before expanding into its CCtalk platform. But from its high level of expenses, it seems unsustainable for HET to be relying heavily on the sales and marketing spending to get users to purchase online courses.
In this insight, we will look into the company’s financial and operating performance, regulatory risks regarding K12 courses, aggressive spending on sales and marketing, and the performance of other online education companies.
5. Polycab India Limited Pre-IPO – Market Leader with Steady Growth but with a Few Unanswered Question
Polycab India (POLY IN) plans to raise around US$280m in its IPO through a mix of selling primary and secondary shares. It is the largest manufacturer of wires and cables in India with a 12% market share, as per CRISIL research. The company has also recently entered the consumer electrical segments.
Sales growth has been decent while margin expansion has helped the company to report much higher PATMI growth. Although, cash flow from operations has lagged earnings growth as working capital requirements have been volatile. In addition, receivables quality seems to be deteriorating. To add to that the rationale for the dealers and employees rationalization hasn’t been clearly explained.
In this insight, I’ve covered the above points, compared the company to its listed peers and commented on valuations. Should the deal be offered at multiples close to its wires and cables peers, it might still be interesting.
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