China New Higher Education (CNHE) priced its Hong Kong initial public offering late on Monday night, raising HK$915 million ($117.88 million) post-greenshoe.
The 329.153 million primary share deal (including the greenshoe) was priced at HK$2.78 per share, 33% through the HK$2.56 to HK$3.22 marketed price range.
The retail order book is said to have closed two times covered, which means no clawbacks have been triggered and local investors will be allocated 10% of the base deal.
This oversubscription ratio is very similar to Minsheng Education, the last private sector educational company to come to market in March.
The institutional order book is said to have closed a number of times covered with participation from roughly 50 accounts and an allocation policy, which saw the top five investors receive half the institutional tranche.
This means there was a longer tail than recent Hong Kong IPO's, which have typically had far more concentrated order books and relied heavily on cornerstone tranches to underpin pricing that often did not hold up in the secondary market.
Bankers said China New Higher Education very deliberately decided to scrap its own cornerstone tranche shortly before launch to try to ensure better secondary market liquidity. As a result, the deal was said to include some institutional long-only accounts as well as hedge funds, Chinese corporates and high-net-worth investors.
Valuation
At HK$2.78 per share, the sixth IPO from the Chinese private education sector has been priced at 14.6 times consensus forward earnings.
This means that on a forward price to earnings basis, it has offered a reasonable discount to two of its three closest comparables: Wisdom Education (4.9% discount) and Yuhua Education (17.38% discount).
However, it has now come at a 2.5% premium to Minsheng Education, as a result of a change in its peers’ respective trading patterns since the IPO order book opened on April 3.
Yuhua Education continues to outperform the market and is now up 30.25% since its IPO in February and 4.7% since CNHE was formally launched. It had a particularly strong day this Monday, rising 3.09% compared to a 0.19% decline in the Hang Seng China Enterprises Index.
It is now trading around 17.67 times forward earnings, although it has not been able to close the gap with China Maple Leaf Education, which had the strongest week of all last week, rising 7.5% to close at HK$6.30 on Monday.
The latter has now breached the 20 times forward p/e level again and appears to be heading back to the level it was previously trading at last autumn before the government up-ended analysts’ financial models with its new education policy.
Minsheng, on the other hand, has not fared so well and is now back to its IPO price after falling 4.2% last week to close at HK$1.38 on Monday. It is trading around 14.25 times forecast 2017 earnings.
Minsheng is considered CNHE’s closest comparable as like CNHE it only operatse in the higher education sector and has, therefore, been the best stock for hedge funds to short, or institutions to rotate out of.
Wisdom Education also came under selling pressure last week, falling 3.37%. Like Yuhua Education, it also enjoyed a very strong rebound yesterday, rising 2.03% to close at HK$2.01, or at 15.34 times forward earnings.
Listing for CNHE is scheduled for April 19.
Pre-greenshoe, the company has offered 20% of its enlarged share capital. Post deal, the controlling shareholder, Li Xaoxuan and his associates, will hold a 55.3% stake, while pre-IPO investors Ping An Insurance and CCB will own 12.42% and 7.3% respectively. Minority investors will hold the remaining 5%.
BNP Paribas is sole sponsor, with Citic CLSA and CCBI as joint global co-ordinators, plus CCBI, CICC, Haitong and First Capital as joint bookrunners.
