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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Shanghai Haohai Biological Technology / Equity Capital Markets

Shanghai Haohai Biological Technology (6826 HK)

Shanghai Haohai Biological Technology's appears to be one of the dominant player in the niche biomedical consumable market, supplying supplement material for the therapeutic application of orthopedics,&nbsp;<a href="http://www.merriam-webster.com/dictionary/hemostasis" target="_blank">hemostasis</a>&nbsp;and anti-adhesion, ophthalmology, and finally wound care and tissue filling.&nbsp;<ul><li>The company has a short history of establishment. It was formed by the combination of four acquired companies in Shanghai.&nbsp;</li><li>On one hand, the financials of the company appears to be supportive to its high valuation compared to peers.&nbsp;On the other hand, it&nbsp;was <a href="http://www.csrc.gov.cn/pub/zjhpublic/G00306202/cyb/201301/t20130109_220277.htm?keywords=" target="_blank">rejected by CSRC for its Shenzhen listing</a>&nbsp;in 2012, due to unfair dealing with minority shareholder and the material fact that its supplier of key raw material is also at the same time its&nbsp;key&nbsp;competitor.</li><li>Furthermore, the purpose of IPO seems dubious given the net cash position and strong operating cash flow. We are not comfortable with the fact that a big portion of proceeds will be used for M&amp;A without identifiable targets. For an M&amp;A player, we would prefer&nbsp;reputable private equity investors such as Shanghai Fosun Pharma (2196 HK). There are other red flags that also makes us uncomfortable, notably its dishonesty in transactions and intention to mislead investors (conscious or unconscious?).&nbsp;</li><li>Finally, we ran the IPO through our Smartkarma&nbsp;IPO evaluation framework which also indicates that it is not a convincing buy.&nbsp;</li></ul>Conclusion: We would&nbsp;avoid the deal.

Shanghai Haohai Biological Technology's appears to be one of the dominant player in the niche biomedical consumable market, supplying supplement material for the therapeutic application of orthopedics,&nbsp;hemostasis&nbsp;and anti-adhesion, ophthalmology, and finally wound care and tissue filling.&nbsp;The company has a short history of establishment. It was formed by the combination of four acquired companies in Shanghai.&nbsp;On one hand, the financials of the company appears to be supportive to its high valuation compared to peers.&nbsp;On the other hand, it&nbsp;was rejected by CSRC for its Shenzhen listing&nbsp;in 2012, due to unfair dealing with minority shareholder and the material fact that its supplier of key raw material is also at the same time its&nbsp;key&nbsp;competitor.Furthermore, the purpose of IPO seems dubious given the net cash position and strong operating cash flow. We are not comfortable with the fact that a big portion of proceeds will be used for M&amp;A without identifiable targets. For an M&amp;A player, we would prefer&nbsp;reputable private equity investors such as Shanghai Fosun Pharma (2196 HK). There are other red flags that also makes us uncomfortable, notably its dishonesty in transactions and intention to mislead investors (conscious or unconscious?).&nbsp;Finally, we ran the IPO through our Smartkarma&nbsp;IPO evaluation framework which also indicates that it is not a convincing buy.&nbsp;Conclusion: We would&nbsp;avoid the deal.

CSRC rejected it for IPO. Red flags. AVOID.