bearishmitch

[bearishmitch]

ECM Weekly (20 October 2018) - San Miguel F&B, Mobvista, AoBiome, Stealth Bio, Coronado

Aequitas Research puts out a weekly update on the deals that have been covered by Smartkarma Insight Providers recently, along with updates for upcoming IPOs.

Activity in the ECM space has been fairly muted this week. We've only had three listings this week, two in the US and one in Thailand, but no other new IPO being approved or looking to launch any time soon. 

Starting off with the US listings, Studio City International Holdings Limited (MSC US) made a decent debut on Thursday, trading +47% at the day high. The strong performance stood out in a period of disappointing tech IPOs and it has been well flagged out by  Ke Yan, CFA, FRM in his final valuation note. He pointed out that the IPO is offered at a decent discount to Melco Resorts & Entertainment (MLCO US) and Sjm Holdings (880 HK)'s FY18E EV/EBITDA. The float for MSC is expected to be small with MCE Cotai and Silver Point Capital taking up 15.3m and10.2m ADS respectively.

Niu Technologies (NIU US), on the other hand, closed below its IPO price on its Friday debut. It rallied up as much as 13% in early trading but crashed below its IPO price shortly after. Prior to its debut, the IPO was significantly downsized from 8m ADS to 7m ADS and its price range got cut from US$10.50 - 12.50 down to US$9 - 10. In our earlier note, our blue sky valuation already suggested limited upside at the initial price range. We will follow up with a quick trading update next Monday.

Back in Asia, Osotspa Co Ltd (OSP TB) opened on the first of trading at a high of THB30 but has been continuously sold down since then to close just above its IPO price. In our post-IPO update note, we pointed out that Carabao Group (CBG TB) which was trading at 34.6x FY2019E P/E ratio, down from 38x. But since then, CBG has gone on to fall by another 10% and it is now trading at about 31.5x FY2019E EV/EBITDA which explains the correction in OSP's share price and upside at this price level would still limited since we are pegging OSP's valuation at a discount to CBG. Nevertheless, if at any point OSP trades below its IPO price, we can expect near-term support from bookrunners.

In the pipeline, there are two decent size IPOs coming the way of Malaysia. QSR Malaysia and Leong Hup International both filed their prospectus this week and they are expected to raise US$500m and US$600m respectively. Thailands' TCC Group is also said to be planning an IPO of its domestic property business which could raise at least US$1.5bn.

Next week, Coronado Global Resources Inc (CRN AU) will debut in Australia and Sumeet Singh has covered the valuation in his note. The shares were said to be priced at A$4/share, at the bottom end of its range, as per AFR and prior to the start of bookbuilding, it was reported that books were covered counting the pre-orders and retail orders. However, even at the low-end, the shares are still expensive versus peers. 

In the placement space, there is San Miguel Food and Beverage (FB PM) which downsized its re-IPO size from 1.02bn shares to just 523m shares. The selldown is an effort to comply with the minimum public ownership rule in the Philippines. We like the company and its dominant market share but our base case SOTP valuation suggests no upside at the top-end of the price range and a decent upside only from the bottom end.

Accuracy Rate:

Our overall accuracy rate is 71.9% for IPOs and 64.2% for Placements 

(Performance measurement criteria is explained at the end of the note)

Below is a snippet of our IPO tool showing upcoming events for the next week. The IPO tool is designed to provide readers with timely information on all IPO related events (Book open/closing, listing, initiation, lock-up expiry, etc) for all the deals that we have worked on. You can access the tool here or through the tools menu.

Source: Aequitas Research, Smartkarma

News on Upcoming IPOs

Thailand's richest man plans US$1.5b property IPO

U.S. private equity-owned Coronado cuts IPO size, raises about $550 mln

Philippines’ San Miguel halves food unit IPO size, seeks $920m

Malaysian poultry biz Leong Hup International seeks $600 mln listing by year-end

QSR Brands looks to expansion of KFC and Pizza Hut outlets following IPO

Smartkarma Community's this week Analysis on Upcoming IPO

Tencent-Backed IPOs: Be Wary as They Often Prove to Be Disaste source https://www.smartkarma.com/insights/ecm-weekly-20-october-2018-san-miguel-f-b-mobvista-aobiome-stealth-bio-coronado?utm_medium=feed&utm_source=RSS

[bearishmitch]

Bank Central Asia (BBCA IJ) - Firmer Going Underfoot & Fishing for Minnows - On the Ground in J-Town

Expectations of a more cautious outlook for the remainder of 2018 may have to be put on hold, with a more positive outlook than expected coming from a conversation with Bank Central Asia (BBCA IJ) management. 

Loan growth has remained solid since Ramadan, driven by corporate loans and helped by companies seeking funding from banks versus the bond market.

Competition with Tier 2 banks for corporate loans has become less intense as these banks focus on smaller size commercial and SME loans.

Bank Central Asia (BBCA IJ) is better positioned to serve corporate customers given its strong liquidity position, secured by cheap funding and a high CASA ratio. 

The bank has started to raise rates incrementally and expects to see more of a negative impact on consumer loans. NIMs will start to improve in 2H18 but there will likely be more of a positive impact in 2019.

Bank Central Asia (BBCA IJ) remains the best quality proxy for private corporate lending, consumer, and transactional banking in Indonesia. It is the most dynamic bank amongst the Big 4, all the others being State-owned banks. It has the lowest cost of funding for Indonesian banks and hence is well placed to benefit from rising interest rates, though the impact will not come through until next year. It is considering acquiring smaller banks but most likely very small, which is unlikely to have a meaningful impact on its capital. According to Bloomberg Consensus, the bank trades on 20.0x FY19E PER and 17.7x FY20E PER, with forecast earnings growth of +13.2% and +13.0% for FY9E and FY20E respectively. It trades on an FY18E PBV of 4.2x, with an ROE of 18.3%, which is a premium to the sector but justified given the quality of management.

» Get straight to the source on Smartkarma.

Mitch recommends source https://www.smartkarma.com/insights/bank-central-asia-bbca-ij-firmer-going-underfoot-fishing-for-minnows-on-the-ground-in-j-town?utm_medium=feed&utm_source=RSS

[bearishmitch]

Hong Kong’s chief executive has bravely begun to tackle the city’s ‘untouchable’ issues – starting with tunnel pricing

Chief Executive Carrie Lam Cheng Yuet-ngor must take credit for beginning to tackle in her Policy Address some hitherto “untouchable” issues that have sat for decades in her predecessors’ “too difficult baskets”. Most obvious is of course housing, but surely maternity leave, and employer offsets for MPF pension payments must count as serious efforts to break seemingly perpetual consultation cycles that have persistently kicked the can down the road on all...Mitch recommends source https://www.scmp.com/business/companies/article/2169332/hong-kongs-chief-executive-has-bravely-begun-tackle-citys

[bearishmitch]

Hong Kong has more millionaires than ever before but loses out to rival Singapore on average wealth

Hong Kong now has more millionaires than ever before but still lags behind its traditional rival Singapore in terms of individual wealth, according to a survey by the Credit Suisse Research Institute. The number of Hongkongers worth more than US$1 million stood at 179,000 by the middle of 2018, up 9 per cent from a year ago. But there was little improvement in terms of the average worth of a Hongkonger, with the city remaining in 14th place globally. Rival finance hub Singapore crept into the...Mitch recommends source https://www.scmp.com/business/banking-finance/article/2169419/hong-kong-has-more-millionaires-ever-loses-out-rival

[bearishmitch]

Uber IPO Preview: Its Sprawling Empire and Battle Lines (Part 1)

Uber is preparing for an IPO in the next six months, putting it in direct competition for funds with Lyft, according to a recent article in the Wall Street Journal. (behind paywall).

The proposed valuation is north of USD 100 bn (media reports range it from USD 100 – 120 bn), with Goldman Sachs and Morgan Stanley set to be hired as lead underwriters for the mega IPO.

Uber was hoping to raise some USD 1.5bn from junk bonds ahead of its IPO, and managed to raise USD 2bn.

In this article, I will summarise the business verticals of Uber and where it faces strong competitors. The subsequent parts of this series will provide deeper analysis into each major business vertical.

This series is being co-authored by Valerie Law, CFA and Daniel Hellberg, both seasoned analysts in the transport-logistics sectors.

» Get straight to the source on Smartkarma.

Mitch recommends source https://www.smartkarma.com/insights/uber-ipo-preview-its-sprawling-empire-and-battle-lines-part-1?utm_medium=feed&utm_source=RSS

[bearishmitch]

Residential site in Tuen Mun receives just three bids in worst response to Hong Kong land sale since 2010

A small plot of land in the New Territories has received the poorest response since Hong Kong’s government resumed land sales in 2010, in the latest sign the world’s priciest property market is on the wane. The city’s Lands Department said it had received three bids from developers for the parcel of residential land in Tuen Mun after the tender closed at noon on Friday. No government land sale has received fewer bids in the last eight years. The dismal response comes just...Mitch recommends source https://www.scmp.com/business/article/2169386/residential-site-tuen-mun-receives-just-three-bids-worst-response-hong-kong

[bearishmitch]

It’s Not Over Yet, but Lift the Bar on Defence

A Correction and Not the End of the Cycle. In our view, the equity market sell-off in the past few weeks is a correction and a return to more normal levels of volatility rather than the start of an earnings recession.  Indicators such as the yield curve, credit spreads and the Fed’s Loan Officer’s Survey all suggest the cycle still has legs.  However, the market is beginning to price an EPS growth slowdown and risks are rising as we come towards the end of the cycle.

Moving Back to a More Normal Trading Environment. Investors should expect higher volatility during a Fed tightening cycle and it has been surprisingly absent during the past 12 months, apart from the current episode and the January correction.  We think we are probably returning to a more normal late-cycle equity market environment than we have seen for a while.  However, risk assets should still probably outperform bonds and cash.

Growth runs over a speed bump. In our September model portfolio update, we moved underweight Miners, remained underweight Banks and held no Telcos and only one Tech stock (WTC).  We decided to diversify the portfolio by adding a net number of 4 stocks and skew the portfolio towards more towards defensive earners.  However, this also meant we raised the bar on several Growth stocks that have been at the pointy end of the correction.  In hindsight, we would have seen better performance over the past few weeks by picking out some Value stocks.  However, for Value to outperform over an extended period, earnings must be sustainable and we could not find enough candidates to meet this criterion. 

Defensive Growth can be rewarded. Instead, we tried to add stocks with more defensive earnings.  In Consumer Discretionary, we added TAH, and NVT, while in Healthcare we added RMD.  TAH,NVT and RMD demonstrated good defensive earnings quality during the recent reporting season and we think this will be rewarded as the global bull market matures.  CSL, COH and ALL have all disappointed in the past month or so, despite good earnings reports in August.  However, we think these stocks will again outperform in the months ahead as defendable earnings rather than Growth at any valuation is rewarded. 

» Get straight to the source on Smartkarma.

Mitch recommends source https://www.smartkarma.com/insights/it-s-not-over-yet-but-lift-the-bar-on-defence?utm_medium=feed&utm_source=RSS

[bearishmitch]

Wealth managers UBS and Julius Baer restrict travel to China after Singapore banker is detained

Two large global wealth managers have imposed restrictions on staff travel to China after a UBS Group AG employee was detained, underlining the challenges of capturing business in a country where fortunes are growing the fastest on the planet. UBS has asked some bankers not to travel to China after the incident, according to people with knowledge of the matter, who asked not to be identified because the measures aren’t public. Julius Baer also imposed a travel ban for its relationship...Mitch recommends source https://www.scmp.com/news/china/money-wealth/article/2169454/wealth-managers-ubs-and-julius-baer-restrict-travel-china

[bearishmitch]

Midterms Update: Outlook Remains Troubled for Democrats

Turnout and voter enthusiasm data is mixed but doesn’t support predictions of a “blue wave”

Trump is stirring the opposition in a politically useful way

Digital interest in the House battleground districts continues to put the Democrats short of the 25 seats needed to flip the House

» Get straight to the source on Smartkarma.

Mitch recommends source https://www.smartkarma.com/insights/midterms-update-outlook-remains-troubled-for-democrats?utm_medium=feed&utm_source=RSS

[bearishmitch]

EU emerges as champion of free trade with Singapore deal

Against the backdrop of rising protectionism and a raging trade war, two stout proponents of free trade have shown there is another way: a free flow of goods and services. The European Union and Singapore signed the EU-Singapore Free Trade Agreement, which will boost services, improve market access, and see tariffs between both parties eliminated in five years. In signing the deal on Friday, Singapore’s Prime Minister Lee Hsien Loong, President of the European Council Donald Tusk and...Mitch recommends source https://www.scmp.com/news/asia/southeast-asia/article/2169439/eu-emerges-champion-free-trade-singapore-deal

[bearishmitch]

Trump strikes a blow in US-China struggle with Build Act to contain Xi’s Belt and Road

Democrats and Republicans in the United States may be deeply divided on almost every aspect of President Donald Trump’s inconsistent foreign policy, but on one issue they are in unison: China’s US$1.1 trillion “Belt and Road Initiative” must be contained. That rare spirit of bipartisanship was clearly evident this month with the passing of the Better Utilisation of Investment Leading to Development (Build) Act by supermajority votes in both chambers of the American...Mitch recommends source https://www.scmp.com/week-asia/geopolitics/article/2169441/trump-strikes-blow-us-china-struggle-build-act-contain-xis

[bearishmitch]

Is Chinese capitalism in crisis, as stock market rout drives private companies into the state’s arms?

China’s private enterprises, not even middle-aged in their experiment with capitalism, are rushing back into the government’s arms for financial succour, as the country’s worst stock market rout in three years has starved more and more companies of cash. At least 32 companies listed on the Shanghai and Shenzhen bourses sold controlling stakes to the Chinese state as of October 17 , six of them to the central government, while 26 were taken over by provincial or city-level...Mitch recommends source https://www.scmp.com/business/companies/article/2169381/chinese-capitalism-crisis-stock-market-rout-drives-private

[bearishmitch]

Japanese Small-Cap Names with Consensus Changes Leading into Earning Season....

We know that historically there has been a lot of leakage leading into Earnings Season. In a different life, I remember Fuji Photo calling me in and given me a preview of the earnings results 2 weeks before the actual announcement. It may not happen as much now in the large-cap space, so we took a look at the small-cap space with very little coverage to see if there are movements in consensus.

» Get straight to the source on Smartkarma.

Mitch recommends source https://www.smartkarma.com/insights/japanese-small-cap-names-with-consensus-changes-leading-into-earning-season?utm_medium=feed&utm_source=RSS

[bearishmitch]

Thoughts for the weekend

“You are an embarrassment to your parents.”Mitch recommends source https://www.ft.com/content/5862bfbb-9b66-389e-95e5-a0c98cfdff76

[bearishmitch]

Thanachart Capital: You Need Dividend Growth and Time. That's It. Time Arbitrage.

Fundamental trends at Thanachart Capital (TCAP TB) are benign and stand out within Thailand’s somewhat heated banking universe. The bank has been getting better at what is does over the last few years and key metrics/signals for the third straight year underline positive fundamental momentum embodied in a high PH Score™. This stands in sharp contrast to its more “popular” and larger peers. The bank is becoming something of a serial fundamental momentum outperformer. TCAP is now on a much firmer footing than some years ago, and has a solid platform from which to continue evolving positively.

Some investors may shy away from a hire purchase focus and franchise but that may underestimate TCAP. The high concentration of lending to hire purchase (52% of loans) is mitigated by prudent credit policy and risk management as evidenced by enhanced quality of this exposure at the core of the business model and related falling credit costs.

The main line of business should not detract from the proposition of an undervalued, improving, market leader in the aforementioned sector. In addition, TCAP has other strings to its bow. Regarding diversification and business risk, TCAP is not a “one trick pony” with exposure to corporates (18% of loans), SMEs (12% of loans), and mortgages (14% of loans). In addition, TCAP is active in leasing, insurance (fast-growing), credit cards, fund management (mainly mutual funds), and brokerage.

The fact that Scotiabank remains a supportive major shareholder (49% of TBank) is a plus as the cosmopolitan shrewd Canadian lender is a central and proactive management presence and brings varied skills and experience to the table as well as funding lines.

Shares rate good value on P/Book (0.9x), Earnings Yield (13.5%), Dividend Yield (4.5%), total Return Ratio (1.6x), and Franchise Value (8.5%) with the tailwinds (again) of a quintile 1 PH Score™ (7.5) and buyback programme. RSI at 44 intimates that shares are underbought.

» Get straight to the source on Smartkarma.

Mitch recommends source https://www.smartkarma.com/insights/thanachart-capital-you-need-dividend-growth-and-time-that-s-it-time-arbitrage?utm_medium=feed&utm_source=RSS

[bearishmitch]

Missing: Tesla's full self-driving option

Now you see it, now you don't.Mitch recommends source https://www.ft.com/content/db414790-2fb0-33c6-9139-b4a282255689

[bearishmitch]

Real Estate Loans Blow up Has Been Cooking For NBFC As High Competition Drove Down Quality & Yields

NBFCs along with global PE funds have provided almost 80% of Real estate sector financing needs in the last 5 years as banks slowly reduced exposure to the sector

Given the prevalent slowdown in the real estate sector, much of the lending was simply a refinancing of loans between NBFCs and also from banks to NBFCs. Developers meanwhile managed to sell just about enough apartments to service the debt

High competition among NBFCs resulted in significantly lower yields for construction finance, from 18-20% in FY16 down to 13-14% in FY18. With NBFCs carrying exposure to B category builder, the NPL risks run high

NBFCs had a false sense of security by having geeks structure these loans nicely (compared to PSU banks) and also took comfort in higher collateral (basically more unfinished apartments!).  

Several NBFCs face a double whammy as mortgage finance for the end user has also dried up and so has firms ability to refinance construction finance loans. NBFCs with higher exposure to developer loans are witnessing large sell-off in the markets (see table below) 

» Get straight to the source on Smartkarma.

Mitch recommends source https://www.smartkarma.com/insights/real-estate-loans-blow-up-has-been-cooking-for-nbfc-as-high-competition-drove-down-quality-yields?utm_medium=feed&utm_source=RSS