In this briefing:
- Chunbo Co. IPO Preview: Valuation Analysis
- Mrs. Bectors Food Specialities Pre-IPO Quick Take – Sales for Its Main Segment Have Been Stagnant
- Xiaomi Placement – The Selling Continues
- Ayala Corp Placement – Selldown by Mitsubishi Likely to Reignite Overhang Worries
- Chengdu Expressway (成都高速) Post-IPO – Low Liquidity and Tiny Adjusted Free Float
1. Chunbo Co. IPO Preview: Valuation Analysis
We are bullish on the Chunbo Co. IPO. Our base case valuation of the company suggests a market cap of 448.4 billion won or 44,845 won, which would be 19.5% higher than the mid-point of the bankers’ IPO price band of 37,500 won. We used an estimated P/E of 21.1x (30% premium to the comps’ average P/E of 16.2x) and an estimated net profit of 21.2 billion won in 2019 to derive our base case valuation.
Chunbo Co Ltd (278280 KS) is a provider of fine chemical materials in Korea, is planning to start its institutional bookbuilding of its IPO starting January 21st. Its chemical materials are used in numerous industries including the display, semiconductors, rechargeable batteries, and medical. The IPO base deal size is between $78 million to $89 million.
Chunbo is more profitable and generates higher returns on equity than its peers. For example, Chunbo’s operating margin and ROE averaged 20.7% and 22.0%, respectively in 2016 and 2017. In comparison, the peers’ operating margin and ROE averaged 12.3% and 15.2%, respectively in 2016 and 2017.
2. Mrs. Bectors Food Specialities Pre-IPO Quick Take – Sales for Its Main Segment Have Been Stagnant
Mrs Bectors Food Specialities (814506Z IN) (BFS) plans to raise around US$100m+ in its India IPO via a sell-down of secondary shares.
As per Technopak, BFS is one of the leading manufacturers in the non-glucose biscuit segment in Northern India. It is also one of the largest supplier of buns to the quick-service restaurants and a leading supplier of breads in Delhi NCR and Maharashtra. In addition to its Indian operations, exports account for 30% of the revenue.
Despite providing a host of numbers, the company has failed to provide clear statistics on the growth of revenue of its main segment, domestic biscuits. If one tries to back out this numbers from the other statistics it seems to imply that revenue has been flat for five years. Despite showing some revenue and PATMI growth over the past five years, cash flow from operations as well have been stagnant.
3. Xiaomi Placement – The Selling Continues
An undisclosed institutional shareholder of Xiaomi Corp (1810 HK) is looking to sell 231m shares of the company for approximately US$273m.
There will likely to be more selling pressure in the near term. The 594m shares sold down by Apoletto and the anonymous shareholder who sold at a 14% discount does not inspire confidence. Furthermore, there will be even more overhang to come from the twelve-month lock-up expiry. The deal also scores poorly on our framework owing to its expensive valuation and the lack of information on the seller.
4. Ayala Corp Placement – Selldown by Mitsubishi Likely to Reignite Overhang Worries
Mitsubishi Corp (8058 JP) is looking to sell 9m shares of Ayala Corporation (AC PM) for approximately US$155m. Post-placement, Mitsubishi Corp will still hold 7.2% of Ayala Corp if the upsize option is not exercised.
The deal scores poorly on our framework owing to its the large deal size relative to its three-month ADV. The company is also slightly more leveraged than its peers. However, it was offset by cheaper valuation and a strong track record.
But, our deal breaker here is the fact that the selldown one year after 2018’s selldown may signal that Mitsubishi Corp. may return to sell more on the market again in the near-term. While Mitsubishi, in the past, has reaffirmed that their partnership with AC will likely continue, it should not serve as a reassurance that it will continue to hold shares in AC.
5. Chengdu Expressway (成都高速) Post-IPO – Low Liquidity and Tiny Adjusted Free Float
Chengdu Expressway Company Limited (1785 HK) raised US$112m at the fixed price of HK$2.20 per share. We have previously looked at the IPO in Chengdu Expressway (成都高速) IPO Review – Well-Managed but Unexciting.
In this insight, we will update on the deal dynamics, implied valuation, and include a valuation sensitivity table.
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