IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

Arun has over 15 years’ experience covering the Technology sector. During this time, he has worked with technology start-ups and as an equity analyst in investment banks and independent research firms. He was formerly a Technology Analyst for Canaccord Genuity, Altium Securities, Espirito Santo Investment Bank, Noble Group and Clear Capital. He has a dual Master’s degree in Financial Engineering and Industrial and Operations Engineering from the University of Michigan. He obtained his Bachelor’s degree in Mechanical Engineering from the Indian Institute of Technology, Bombay. He is also a CFA charterholder.

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

Equity Capital Markets

Tongdao Liepin Group / Equity Capital Markets

<a href="https://www.smartkarma.com/entities/27177" target="_blank" data-smartkarma-citation="entities:27177:1">Wise Talent Information Tech (6100 HK)</a>, referred to as Liepin, is a leading online talent acquisition services (job recruitment) platform in China. At the mid-point of the IPO price range of HK$28.50-35.50 per share, Wise Talent will raise HK$2,816 million ($366 million), resulting in a market cap of $2.1 billion. Wise Talent is backed by venture capital firm Matrix Partners China, a 24% shareholder.Wise Talent is a leader in the China mid-to-high talent acquisition service market which is defined as the market for hiring talents with an average annual salary of at least RMB100K. The market is forecasted to grow at robust 20.3% CAGR between 2017 to 2022. Over the last three years, Wise Talent has rapidly grown revenue and reported its first profit and positive FCF in 2017. Overall, on a fundamental basis, we are positive on Wise Talent because:<ol><li>The mid-to-high talent acquisition service market is highly fragmented with the top ten service providers only accounting for 2.9% of the market as measured by revenue in 2017. In this context, Wise Talent is the market leader with its revenue share steadily rising from 0.55% in 2015 to 0.85% in 2017.</li><li>Wise Talent’s revenue market share gains are corroborated by the steady increase in <a href="https://www.liepin.com/" target="_blank">liepin.com</a>’s site traffic over the last three years, according to Rank2traffic. Rank2traffic also estimates that 47% of the site visits to liepin.com were direct (vs through a search engine or referral site) highlighting liepin’s strong brand recognition.</li><li>Wise Talent has limited overlap with listed Chinese talent acquisition service providers, 51job and Zhaopin, as measured by talent category. Nevertheless, it is useful to benchmark Wise Talent’s growth and margins vs listed peers. Notably, Wise Talent’s revenue growth as outpaced listed peers since FY16 primarily due to the faster growth of its business customers.</li><li>Wise Talent’s adjusted EBITDA margin of 5.4% in 2017 was significantly below 51job (36%) and Zhaopin (22%). We believe that Wise Talent’s lower margin is primarily due to its smaller revenue base vs listed peers. As Wise Talent continues to grow at a rapid clip, economies of scale will drive margin expansion and will likely eventually lead to comparable margins as its listed peers.</li></ol>For valuation, we have used a blended peer group of listed Asian talent acquisition service providers. Based on our estimates and at IPO mid-point, Wise Talent trades at a 2019 P/E of 35x and PEG of 0.4x vs median Asian talent acquisition service providers P/E of 31x and PEG of 0.2x. Notably at an IPO price of HK$28.50 (low-end of the pricing range), Wise Talent trades in line with the blended median of its peer group on a 2019 P/E basis. Consequently, we are inclined to participate in the Wise Talent IPO at the low-end of the proposed pricing range.

Wise Talent Information Tech (6100 HK), referred to as Liepin, is a leading online talent acquisition services (job recruitment) platform in China. At the mid-point of the IPO price range of HK$28.50-35.50 per share, Wise Talent will raise HK$2,816 million ($366 million), resulting in a market cap of $2.1 billion. Wise Talent is backed by venture capital firm Matrix Partners China, a 24% shareholder.Wise Talent is a leader in the China mid-to-high talent acquisition service market which is defined as the market for hiring talents with an average annual salary of at least RMB100K. The market is forecasted to grow at robust 20.3% CAGR between 2017 to 2022. Over the last three years, Wise Talent has rapidly grown revenue and reported its first profit and positive FCF in 2017. Overall, on a fundamental basis, we are positive on Wise Talent because:The mid-to-high talent acquisition service market is highly fragmented with the top ten service providers only accounting for 2.9% of the market as measured by revenue in 2017. In this context, Wise Talent is the market leader with its revenue share steadily rising from 0.55% in 2015 to 0.85% in 2017.Wise Talent’s revenue market share gains are corroborated by the steady increase in liepin.com’s site traffic over the last three years, according to Rank2traffic. Rank2traffic also estimates that 47% of the site visits to liepin.com were direct (vs through a search engine or referral site) highlighting liepin’s strong brand recognition.Wise Talent has limited overlap with listed Chinese talent acquisition service providers, 51job and Zhaopin, as measured by talent category. Nevertheless, it is useful to benchmark Wise Talent’s growth and margins vs listed peers. Notably, Wise Talent’s revenue growth as outpaced listed peers since FY16 primarily due to the faster growth of its business customers.Wise Talent’s adjusted EBITDA margin of 5.4% in 2017 was significantly below 51job (36%) and Zhaopin (22%). We believe that Wise Talent’s lower margin is primarily due to its smaller revenue base vs listed peers. As Wise Talent continues to grow at a rapid clip, economies of scale will drive margin expansion and will likely eventually lead to comparable margins as its listed peers.For valuation, we have used a blended peer group of listed Asian talent acquisition service providers. Based on our estimates and at IPO mid-point, Wise Talent trades at a 2019 P/E of 35x and PEG of 0.4x vs median Asian talent acquisition service providers P/E of 31x and PEG of 0.2x. Notably at an IPO price of HK$28.50 (low-end of the pricing range), Wise Talent trades in line with the blended median of its peer group on a 2019 P/E basis. Consequently, we are inclined to participate in the Wise Talent IPO at the low-end of the proposed pricing range.

Liepin IPO Preview: You're Hired but It’ll Cost You