In this briefing:
- China Tobacco International IPO: Heavy Regulation, Declining Margins – A Bit Late to IPO Party
- Futu Holdings IPO Preview: Running Out of Steam
- IPO Radar: AutoCorp, Honda’s Avatar in Thailand
- Chengdu Expressway (成都高速) IPO Review – Well-Managed but Unexciting
- Weimob IPO Valuation: Optically Cheap
1. China Tobacco International IPO: Heavy Regulation, Declining Margins – A Bit Late to IPO Party
China Tobacco International (GHALPZ CH) is a subsidiary and offshore unit of China National Tobacco Corp., a state-owned enterprise (SOE). The company procures tobacco leaves from regions around the world and exports tobacco leaf products and branded cigarettes to the duty-free outlets outside China’s customs area and in Southeast Asia.
The IPO is expected to raise US$100M and the company expects to use the proceeds to expand market share, acquire new cigarette brands, working capital, and other corporate purposes.
2. Futu Holdings IPO Preview: Running Out of Steam
Futu Holdings Ltd (FHL US) is the fourth largest online broker in Hong Kong. Futu has filed for a Nasdaq IPO to raise $300 million, down from an earlier indication of a $500 million raise according to press reports. Futu is backed by Tencent Holdings (700 HK) (38.2% shareholder), Matrix Partners (6.1%) and Sequoia Capital (4.0%).
At first glance, Futu appears to be a winning new economy company as its rapid revenue growth has been accompanied by rising margins. However, on closer inspection, we believe that Futu’s fundamentals are at best mixed.
3. IPO Radar: AutoCorp, Honda’s Avatar in Thailand
In August 2017, Honda stole the top spot in Thai passenger cars from Toyota and held it for a few months. They are still formidable players, and ACG (AutoCorp) which runs Honda dealerships and service centers across Thailand, is expected to IPO some time in 2019. Here’s our quick look at the company.
- We value this IPO at Bt2/sh using DCF, since there’s really no good comparables. The company is expected to enjoy slower revenue growth and higher margins going forward as car sales slow down nationally and maintenance becomes a bigger chunk of the revenues.
- They only operate in four provinces and run 8 showrooms with over 6,000 sqm of display space. The service centers account for almost 17,200 sqm. The big chunk comes from lower margin car sales. Along with accessories, these account for 84% of revenues.
- The IPO is firmly underwritten by Singapore’s Phillips Securities and is good for more than a quarter of shares outstanding (26%). The founding Rangkanuwat family control all remaining shares and have committed to 6 month lock-up period.
4. Chengdu Expressway (成都高速) IPO Review – Well-Managed but Unexciting
Chengdu Expressway Company Limited (1785 HK) is looking to raise US$112m in its upcoming IPO.
The expressways that CEC operate are integral in Chengdu’s transport network. The expressways have been upgraded and expanded consistently over the past three years which has led to an increase in traffic and toll revenue. However, in terms of valuation, CEC will likely trade at a valuation closer to small expressway peers which implies a 10% downside.
In this insight, we will look at the company’s financial and operational performance, toll payment model, and compare its valuation to Hong Kong-listed expressway peers. We will also run the deal through our IPO framework.
5. Weimob IPO Valuation: Optically Cheap
Weimob.com (1260480D CH) is a combination of a SaaS software and an adtech (targeted marketing) business which has started book building to raise gross proceeds of $108-135 million. According to press reports, Weimob is being viewed favourably by investors as it is being offered at a “cheap” valuation of 18-23x 2019 P/E.
However, the valuation of 18-23x 2019 P/E is optically cheap. Our analysis suggests that including capitalised R&D, Weimob is being offered at a material premium to a peer group of major Chinese internet companies. Notably, our forecasts do not adjust for the capitalised contract acquisition costs which would further increase Weimob’s P/E multiple. Consequently, we believe that the proposed IPO price range is unattractive and would sit out this IPO.
Get Straight to the Source on Smartkarma
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
