Brief TMT & Internet: So-Young (新氧) Pre-IPO Review – Au Naturel and more

In this briefing:

1. So-Young (新氧) Pre-IPO Review – Au Naturel
2. StubWorld: Amorepacific Is “Cheap”, Again; Kingboard Cleans House
3. NTT DoCoMo: Sale of HTHK Mobile Stake Is the End of an Era (Thankfully)
4. Changliao (畅聊) AKA Paipai (派派) Pre-IPO Review – Self-Sufficient
5. Hollysys Auto Tech Placement – Has Ample Cash, Reasons for the Raising Remain Unclear

1. So-Young (新氧) Pre-IPO Review – Au Naturel

So-Young (SY US) is looking to raise US$150m in its upcoming IPO. The company filed its prospectus with the SEC on Monday.

The company operates online platforms (mobile, website, and WeChat mini program) for discovering, evaluating, and reserving medical aesthetic services in China. It helps medical aesthetic service providers acquire customers through user generated content and other creative content format.

In this insight, we will look at the company’s business model, analyze its financial and operating performance, review the competitive landscape and point out some questions for management.

2. StubWorld: Amorepacific Is “Cheap”, Again; Kingboard Cleans House

This week in StubWorld …

• Amorepacific Group (002790 KS)‘s discount to NAV veers towards its one-year wide level, however newsflow, liquidity and financial performance side with Amorepacific Corp (090430 KS).
• Kingboard Laminates Holdings (1888 HK)‘s more reasonable tilt for Kingboard Copper Foil Hldgs (KCF SP) has minimal bearing on the group, but one wonders when Elec & Eltek Int (ELEC SP) will similarly be taken out.

Preceding my comments on Amorepacific, Kingboard and other stubs, are the weekly setup/unwind tables for Asia-Pacific Holdcos.

These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold – the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent – of at least 20%.

3. NTT DoCoMo: Sale of HTHK Mobile Stake Is the End of an Era (Thankfully)

NTT Docomo Inc (9437 JP) recently announced it would sell its 25% stake in Hutchinson Telecom Hong Kong’s ( Hutchison Telecommunications Hk Hld (215 HK)  mobile unit for US$60mn with closing expected at the end of May. This ends a 20-year association with Hutchinson forged in the initial excitement over 3G in 1999 but it hasn’t been a good ride for DoCoMo which lost close to 90% on its Hutchison investments and its other international forays were not much better.  On a related note, the HK mobile sale follows soon after DoCoMo’s exit from its credit card joint venture with Sumitomo Mitsui but we would not read anything into this beyond a rationalization of its non-core investments.

4. Changliao (畅聊) AKA Paipai (派派) Pre-IPO Review – Self-Sufficient

Changliao Inc (CL HK) is looking to raise about US$100m in its upcoming IPO. The company just filed its draft prospectus with the HKEX last week.

Changliao is a fast-growing social networking entertainment platform. The business model of engaging and monetizing users through interactive games is interesting.

However, the need for an IPO is questionable since the company has a healthy net cash balance sheet and it had paid out dividends in the past two years. It can easily finance its growth through debt or operating cash flow. 

Tencent is an investor in the firm, however, it had only invested RMB9m in the company in FY2016. There are no other notable investors despite several rounds of financing.

In this insight, we will look at the company’s business model, analyze its financial performance and operating metrics.

5. Hollysys Auto Tech Placement – Has Ample Cash, Reasons for the Raising Remain Unclear

Hollysys Automation Technolo (HOLI US) plans to raise around US$170m in its follow-on offering.

The company has been reporting flattish earnings for the past few years and remains well positioned in its main segments. HOLI is net cash, it has ample cash for that matter, and it has been generating operating cash flow consistently. It hasn’t provided any specific reasons for the capital raise. Which makes one wonder if this is just an opportunistic raise. 

In my view, either the company needs to clearly disclose the intended use of capital or it needs to offer the deal at a very wide discount to where the shares are currently trading.