ECM Weekly (6 October 2018) - Tencent Music, Aston Martin, Osotspa, China Renaissance

The buzz of the week goes to Tencent Music Entertainment (TME US) which just filed its F-1/A document in the US on the 2nd of October, targeting to raise U$1bn. Since this has been a widely anticipated IPO, there are already plenty of insights on Smartkarma (SMARTKARMA SP).

Most would agree that TME has set itself apart from most US-Chinese ADR listings this year by being a fast-growing market leader operating at a profit. Furthermore, as mentioned by Sumeet Singh, adjusting for consolidation shows that revenue growth accelerated over 1H18 vs 2017 YoY growth. However, on the flip side, we are seeing a common argument that the paying ratio is far lower than Spotify Technology Sa (SPOT US).

In the UK, Aston Martin (AML LN) 's IPO has been a disaster, breaking its IPO price within the first hour of trading. As mentioned in Sumeet Singh 's previous insights, the company has done a lot of things right to get to where it is today. However, it lags Ferrari on almost all measures apart from earnings growth, thus, it needs to trade at a discount to Ferrari. The below table provides an update of the implied share price at different discount levels to Ferrari.

Next week, we may see some volatility in recent US IPOs such as NIO Inc (NIO US), Qutoutiao Inc (QTT US), and 111 Inc (YI US) since their analyst quiet period will be ending and there could be initiation reports by the bookrunners on these companies. Coincidentally, JL Warren Capital put out a bearish note on NIO Inc (NIO US) in SELL NIO –A Dangerous Bet on Chinese EV Target Price: $3 (52% Downside), noting that the company should not be trading at more than 1x EV/Sales (2020 blue sky) and their target price is at about US$3 per share, representing ~52% downside from US$6.30 share price.

Back in Hong Kong, China Renaissance Holdings (1911 HK) bounced from its low of the second day of trading back to close at HK$26 price level. This was close to our call in the trading note China Renaissance (华兴资本) Trading Update - Trading in Line with CICC, pointing out that HK$22 - 23 are good levels to be buying the company since it represents an 11 - 16% upside to CICC's P/E ratio. This was probably also helped by having bookrunner support which we usually saw late afternoon buying.

Next week, Midea Real Estate (3990 HK) and Jiangxi Ganfeng Lithium (1772 HK) will be listing in Hong Kong and, coincidentally, both companies were priced at the bottom of their price range. Whereas, on the flip side, Osotspa Co Ltd (OSP TB) was priced at the top of its price range suggesting strong demand from investors. The company is valued at a significant discount to Carabao Group (CBG TB) to reflect its slower growth and market share loss (albeit still dominant).

In Australia, another IPO bites the dust as Latitude Financial Services (1272471D AU) is said to have deferred its IPO. On the other hand, we are hearing that Property Exchange Australia (PEXA) is looking to list with a valuation of over a billion.