Chinese bank IPO seeks to emulate its tech clients

Noah Holdings

26/06/2018 03:14

(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own.)
    By Alec Macfarlane
    HONG KONG, June 26 (Reuters Breakingviews) - Beijing’s
unicorn banker wants to run with the crowd. China Renaissance, a
boutique advisory shop run by former Morgan Stanley  MS.N 
rainmaker Fan Bao, just unveiled blueprints for an initial
public offering in Hong Kong. Some of its tech-titan clients
such as Meituan Dianping are doing the same. Slow revenue growth
and a small bottom line, however, make the mooted valuation look
punchy. 
    China Renaissance works with the country’s hottest startups.
It advises the likes of ride-hailing titan Didi Chuxing and has
been helping e-commerce giant JD.com  JD.O  raise money for
years. It also manages private equity funds and is building an
onshore securities business that’s growing at a similar pace to
its customers. Revenue in the division swelled to $12 million
last year, six times more than in 2016. 
    Also like many a startup, China Renaissance has little
profit to show. It earned $32,000 last year and lost $65 million
in the first quarter, following heavy investment in areas
including its new brokerage operation. The mix of businesses can
make comparisons difficult. Assume, however, that earnings
return to 2016 levels of $32 million, and at the bottom end of a
$4 billion to $5 billion valuation target range reported by
Reuters, it would represent an absurd multiple of 125 times.  
    Generously using a first-quarter $35 million adjusted net
profit figure, which includes unrealised income from private
equity investments, and annualizing it would value China
Renaissance at 29 times. U.S. boutiques PJT Partners  PJT.N  and
Moelis  MC.N  – as well as Chinese money manager Noah  NOAH.N  –
all trade at about 21 times their expected earnings for the next
12 months, according to Eikon.  
    Those rivals have something in common that makes them less
risky: they’re not focused on one sector. And though he opened
his shop in 2005, Bao will have to be careful to avoid the fate
of Silicon Valley’s Four Horsemen: Alex. Brown, Hambrecht &
Quist, Montgomery Securities and Robertson Stephens. They
underwrote some of the biggest dot-com deals of the 1990s, but
were swallowed up and mostly disappeared. 
    Juggling its own IPO while simultaneously working on myriad
technology market debuts could also be a challenge. If nothing
else, the enthusiasm for new tech stocks means China Renaissance
could benefit from an investment halo effect. 
    On Twitter https://twitter.com/AlecMac11

    
    CONTEXT NEWS
    - China Renaissance, an investment bank primarily focused on
advising Chinese technology companies, on June 25 filed for an
initial public offering in Hong Kong. 
    - The Beijing-based company, run by former Morgan Stanley
and Credit Suisse banker Fan Bao, aims to raise between $600
million and $800 million from the public listing, and is
targeting a valuation of $4 billion to $5 billion, Reuters
reported on the same day, citing unnamed sources. 
    - China Renaissance generated $139 million in revenue in
2017, up from $133 million in 2016. 
    - The company reported $32,000 of profit attributable to
owners of the company in 2017, down from $31.8 million in the
previous year, according to the draft prospectus. The decline
was primarily due to substantial investments made into Huajing,
its onshore securities division, and its investment management
units. 
    - Goldman Sachs and ICBC are joint sponsors of the IPO. 
    - For previous columns by the author, Reuters customers can
click on  MAC/ 
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    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Investment bank China Renaissance seeks up to $800 mln in IPO
-sources     urn:newsml:reuters.com:*:nL4N1TR4A9
IPO filing     http://www.hkexnews.hk/app/SEHK/2018/2018062402/Documents/SEHK201806250041.pdf\
BREAKINGVIEWS - Jack-of-all-apps Meituan masters few for IPO   
 urn:newsml:reuters.com:*:nL4N1TR18Z
BREAKINGVIEWS - China tech boom upgrades Hong Kong trading desks
    urn:newsml:reuters.com:*:nL3N1SH08R
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Editing by Jeffrey Goldfarb and Katrina Hamlin)
 ((alec.macfarlane@thomsonreuters.com; Reuters Messaging:
alec.macfarlane.thomsonreuters.com@reuters.net))