In this briefing:
- Luzhou City Commercial Bank IPO (泸州市商业银行) Trading Update – Low Liquidity, as Expected
- Last Week’s GER IPO Research: Tencent Music, IPO Trading Strategy Deep Dive, WuXi, Junshi & Xinyi
- ECM Weekly (15 December 2018) – Wanka, Alpha Smart, CMGE Tech, Junshi Science, Xinyi Energy.
- Fosun Tourism IPO Trading Update – Low Traded Volume and Fair Value Indicate It Has a Long Way to Go
- Alpha Smart – Pre-IPO – PE Investors Recovered 56% of Their Cost in Two Years but Left It in Debt
1. Luzhou City Commercial Bank IPO (泸州市商业银行) Trading Update – Low Liquidity, as Expected
Luzhou Commercial Bank Co Ltd (1983 HK) IPO raised about US$222m at HKD3.18 per share, close to the bottom end of its price range. We have covered the IPO in our previous insight, Luzhou City Commercial Bank IPO (泸州市商业银行) – Earnings Lagging Asset Growth Owing to Tightening Spread.
In this insight, we will update on the deal dynamics, implied valuation, and include a valuation sensitivity table.
2. Last Week’s GER IPO Research: Tencent Music, IPO Trading Strategy Deep Dive, WuXi, Junshi & Xinyi
Another busy week for IPO research from the GER team. This week, we recap the Tencent Music Entertainment (TME US) IPO which we noted is more fairly valued post its day one rally. Secondly, we dig into Chinese domiciled IPOs that are listed in the States and find some interesting trends on maximizing the ‘pop’, knowing when to get out and an assessment of longer-term performance. Arun nails his DCF valuation on WuXi AppTec Co. Ltd. (2359 HK) which closed at his base-case valuation while he recommends getting involved at the low-end for Shanghai Junshi Bioscience Co. Ltd. (1387344D CH) . Finally, Xinyi Energy Holdings Ltd (1671746D HK) spares further wrath as it postpones its IPO – Venkat digs into the reasons why he is cautious on the company.
Quote of the week:
Please note the post-apocalyptical fiction section has been moved to current affairs
– Sign in front of a UK bookstore
Video of the week: Santas hit the slopes in Maine
This is our last wrap of 2018 – we wish you a safe and happy festive period – and we will back in 2019!
Best wishes – Rickin, Venkat and Arun
3. ECM Weekly (15 December 2018) – Wanka, Alpha Smart, CMGE Tech, Junshi Science, Xinyi Energy.
Aequitas Research puts out a weekly update on the deals that have been covered by Smartkarma Insight Providers recently, along with updates for upcoming IPOs.
IPO listings this week have mostly been within our expectation. Mobvista (1860 HK), Natural Food International H (1837 HK), and Fosun Tourism (1992 HK) have all struggled to hold on to their IPO price on the first day of trading. Unfortunately, WuXi AppTec Co (2359 HK) has also struggled on this first day despite our expectation that the company should be trading at a relatively smaller 19% A-H premium which would imply about 11% upside based on Ke Yan, CFA, FRM‘s sensitivity analysis and Wuxi Apptec’s A share Friday close price.
In the US, Tencent Music Entertainment (TME US) performed well within our expectation. The company’s share price opened about 9% above IPO price. As Sumeet Singh has mentioned in his insight, Tencent Music IPO – Firework – Trading Strategies, this is unlikely going to be a bumper IPO and short-term investors could take profit at high single-digit to low double-digit returns on debut. Indeed, after a decent debut, TME has collapsed below its IPO price, probably due to investors taking profit as the broad market traded poorly on Friday.
Next week, all eyes will be on Softbank Corp (9434 JP)‘s debut and Mio Kato, CFA summarised in his note some of the reasons why Softbank Corp could perform poorly in the near term. Bookbuild results have been mixed. Bloomberg report suggested that Softbank’s international bookbuild was 2-3x oversubscribed while retail offering was at almost 2x. However, Nikkei Asian Review’s article reported that it has been a struggle to sell the IPO shares to retail investors. In any case, we will put out a note next week on our thoughts on bookbuild, updated valuation of peers, and how we think the IPO will likely trade after the recent series of events.
Other debuts next week include Luzhou Commercial Bank Co Ltd (1983 HK), Wanka Online (1669726D HK), and Asiainfo Technologies (1675 HK).
Accuracy Rate:
Our overall accuracy rate is 72% for IPOs and 64% for Placements
(Performance measurement criteria is explained at the end of the note)
New IPO filings this week
- Shanghai Henlius Biotech (Hong Kong, ~US$500m)
- Ingrid Millet (Hong Kong, re-filed)
Below is a snippet of our IPO tool showing upcoming events for the next week. The IPO tool is designed to provide readers with timely information on all IPO related events (Book open/closing, listing, initiation, lock-up expiry, etc) for all the deals that we have worked on. You can access the tool here or through the tools menu.
News on Upcoming IPOs
- Chat-service firm Slack taps Goldman Sachs to lead IPO: sources
- Kyobo Life Insurance to seek IPO next year
- Uber has confidentially filed to go public
- London billionaire Michael Spencer boosts stake in Singapore Life, considers IPO
- Brokerages scramble on tepid investor response over SoftBank IPO
- After delivering 24 electric cars, this Chinese startup has IPO dreams
- Solar energy firm Xinyi said to postpone up to $582m Hong Kong IPO
Smartkarma Community’s this week Analysis on Upcoming IPO
- Alpha Smart – Pre-IPO – PE Investors Recovered 56% of Their Cost in Two Years but Left It in Debt
- Xinyi Energy IPO Valuation: Asking More Than What It Is Paying to Acquire Target Portfolio
- CMGE Tech (中手游) Pre-IPO Review – Unfortunate Timing
- Junshi Bioscience (君实医药) IPO: Rich Is Valuation, but Catalyst Ahead
- Junshi Biosciences IPO Valuation: Sensibly Priced with Upside at the Low-End
- Wanka Online IPO – Quick Note – Even After the Downsize Its Still Too Expensive
- Xinyi Energy (信义能源) IPO: High Dividend Yield but Depreciating Asset
- Softbank IPO: Signs Point to Risk of Early IPO Price Break
- WuXi AppTec IPO Valuation: Bull/Bear Case DCF Scenarios
- Wuxi Apptec (药明康德) IPO: What You Need to Know Before the Trading Debut
List of pre-IPO Coverage on Smartkarma
4. Fosun Tourism IPO Trading Update – Low Traded Volume and Fair Value Indicate It Has a Long Way to Go
Fosun Tourism (1992 HK)‘s IPO was priced at the low-end, HKD15.60/share. The retail tranche was undersubscribed while the institutional tranche was said to be moderately over-subscribed. I have covered most aspects of the deal in my earlier insights:
- Fosun Tourism Pre-IPO – No Improvement or Major Changes in Club Med Since the Acquisition
- Fosun Tourism IPO – Fair Value Is Probably Below Low-End
In this insight, I’ll provide an update on the deal dynamics, valuations and provide a table with the implied valuations at different share price levels.
5. Alpha Smart – Pre-IPO – PE Investors Recovered 56% of Their Cost in Two Years but Left It in Debt
Alpha Smart (ALS HK), the parent of Chinese menswear fashion retailer GXG, plans to raise US$300m in its Hong Kong IPO. L Catterton, LVMH’s investment arm, along with another PE investor, owns a 73% stake in the company.
Earnings have been consistently growing with the highest contribution still coming from its flagship brand “GXG”. The recent expansion of the online channel has further aided sales growth, with ASL claiming to be the largest menswear retailer in terms of online sales.
Apart from a large dividend payout which covered half of the acquisition costs for L Capital, nothing much seems to have changed recently. In addition, operating cash flow has not kept pace with earnings due to a consistent increase in inventory. To add to that there are a few related party issues as well including some stores being run by former employees.
