Asia Pac IPO & Placement Research, China biotech, Aequitas Research

Ke Yan, CFA, FRM

An inquisitive investment analyst with background in both finance and computing. Covering ECM research, biotech, market data analytics.

Asia Pac IPO & Placement Research, China biotech

Smartkarma

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Guolian Securities Co Ltd H / Equity Capital Markets

<p>Guolian Securities, a China Jiangsu province based security broker that ranks 45 in 2014 by stock and fund brokerage, is raising US$405-US$471m in HK IPO. The offering implies a market cap of US$1.7bn to US$2.0bn post listing, making it the smallest China brokers listed in Hong Kong. On valuation, the deal offers deep discount to its peers at the low end. However, at the high end, the narrow discount appears to be unappealing. </p><ul><li>The key risk to the deal's short term performance is that the deal does not have greenshoe provision due to regulatory requirement that limits foreign holdings in China brokers. The key risk in the longer term is the declining commission rate in China and the regulatory changes that further liberalize the market.  We see limited competitive advantage of the company and we don't see clear growth strategy from the company to mitigate the risk.</li><li>We put Guolian Security in our Smartkarma IPO framework and it rates well. However, we note that the favorable score is partly attributed to the fact that a large portion of the deal is taken up by cornerstone investors, which appears to be common in recent IPOs and doesn't appear to have positive correlation to strong performance (<a href="http://www.smartkarma.com/insights/future-prospects-might-be-good-but-remain-a-long-way-off-we-remain-lukewarm-on-the-deal" target="_blank">AAG Energy</a> for example). </li><li>Net-net, we see limited upside from the deal. If we were to have exposure to Chinese brokers, we would prefer leading national players, such as Huatai Sec, GF Sec or Citic Sec.</li></ul><p> </p>

Guolian Securities, a China Jiangsu province based security broker that ranks 45 in 2014 by stock and fund brokerage, is raising US$405-US$471m in HK IPO. The offering implies a market cap of US$1.7bn to US$2.0bn post listing, making it the smallest China brokers listed in Hong Kong. On valuation, the deal offers deep discount to its peers at the low end. However, at the high end, the narrow discount appears to be unappealing. The key risk to the deal's short term performance is that the deal does not have greenshoe provision due to regulatory requirement that limits foreign holdings in China brokers. The key risk in the longer term is the declining commission rate in China and the regulatory changes that further liberalize the market.  We see limited competitive advantage of the company and we don't see clear growth strategy from the company to mitigate the risk.We put Guolian Security in our Smartkarma IPO framework and it rates well. However, we note that the favorable score is partly attributed to the fact that a large portion of the deal is taken up by cornerstone investors, which appears to be common in recent IPOs and doesn't appear to have positive correlation to strong performance (AAG Energy for example). Net-net, we see limited upside from the deal. If we were to have exposure to Chinese brokers, we would prefer leading national players, such as Huatai Sec, GF Sec or Citic Sec. 

Another broker riding the A-shares wave, little discernible difference from the lot. Limited upside