U.S. IPO Week Ahead: China's #2 Search Engine Leads Busiest Week Of 2017 With 10 IPOs

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Includes: AMRH, APLS, BAND, CBTX, FEDU, HX, HYJF, IFRX, PPDF, SOGO, WSPT
by: Renaissance Capital IPO Research

The 4Q17 powers ahead with 10 IPOs scheduled to raise $2.0 billion in the week ahead. That would make it the IPO market's busiest week of the year. The activity level is unsurprising given the 31 new filings in October, a two-year high. We also expect a number of IPOs to launch this week in order to price before Thanksgiving.

China's recent surge of US IPOs continues this week with three deals, each boasting a large market, fast growth and profitability. Mobile search engine Sogou, the country's #2 player, aims to raise $540 million in the week's largest offering. China-based consumer lending platform PPDAI Group and tutoring company Four Seasons Education also plan to IPO in New York. Suburban office REIT Workspace Property Trust is raising $527 million with a 4% yield. Communications platform Bandwidth is raising $84 million to kickstart growth. We'll also see two $100+ million biotech IPOs, InflaRx and Apellis Pharmaceuticals, and two regional banks, TX-based CBTX and NY-based Metropolitan Bank.

US IPO Calendar

Issuer
Business

Symbol
Exchange

Deal Size($m)
Market Cap($m)

Price Range
Shares Filed

Bookrunners

AMERI Holdings
Princeton, NJ

AMRH
Nasdaq

$8
$111

$6.51
1,228,878

Northland Securities

Outsourced provider of IT services to SAP customers.

CBTX
Beaumont , TX

CBTX
Nasdaq

$60
$619

$24.00 - 26.00
2,400,000

Stephens Inc.
Keefe Bruyette

Commercial bank with locations throughout Southeast Texas.

Four Seasons Education
China

FEDU
NYSE

$101
$524

$9.00 - 11.00
10,100,000

Morgan Stanley
Citi
China Renaissance

Chinese provider of after school math tutoring services in Shanghai.

InflaRx
Germany

IFRX
Nasdaq

$100
$362

$14.00 - 16.00
6,667,000

J.P. Morgan
Leerink Partners
BMO Capital

Developing antibodies for rare autoimmune and inflammatory diseases.

Metropolitan Bank Holding
New York, NY

MCB
NYSE

$101
$267

$31.00 - 34.00
3,100,000

J.P. Morgan
Keefe Bruyette

Commercial bank with five branches in the New York MSA.

Apellis Pharmaceuticals
Crestwood, KY

APLS
Nasdaq

$150
$750

$13.00 - 15.00
10,714,000

Citi
J.P. Morgan
Evercore ISI

Developing a novel protein inhibitor for autoimmune and inflammatory diseases.

Sogou
China

SOGO
NYSE

$540
$4,784

$11.00 - 13.00
45,000,000

J.P. Morgan
Credit Suisse
Goldman Sachs

China's second largest mobile search engine backed by Tencent and Sohu.

Bandwidth
Raleigh, NC

BAND
Nasdaq

$84
$423

$20.00 - 22.00
4,000,000

Morgan Stanley
KeyBanc Capital
Baird

VoIP network offering voice and text software APIs to enterprises.

PPDAI Group
China

PPDF
NYSE

$298
$5,714

$16.00 - 19.00
17,000,000

Credit Suisse
Citi

Leading Chinese peer-to-peer online lending platform.

Workspace Property Trust
Horsham, PA

WSPT
NYSE

$527
$1,038

$12.00 - 15.00
39,000,000

Goldman Sachs
J.P. Morgan
BofA Merrill

REIT focused on US suburban office and flex real estate.

Hat-trick from China: Search, loans and education

Sogou (NYSE:SOGO) is China's second-largest provider of mobile search, a multi-billion-dollar market. It is also the fastest-growing, taking share from dominant player Baidu (NASDAQ:BIDU). It boasts a track record of strong free cash flow and profitability, but we note its heavy reliance on traffic from Tencent (OTCPK:TCEHY), also a key backer.

PPDAI Group (NYSE:PPDF) is raising almost $300 million at a market cap of $5.7 billion (5.7% float). A leading peer-to-peer lending platform PPDAI's IPO closely follows the October IPO of Chinese lending peer Qudian (NYSE:QD), which surged in initial trading before giving up most of its gains. Like Qudian, PPDAI boasts explosive growth and high margins, but the company has a short operating history at scale and faces shifting regulations.

More Chinese fintech IPOs have lined up to go public: Jianpu Technology (NYSE:JT) is scheduled for mid-November, three micro-cap deals are in the pipeline (HX, AIHS, HYJF), and Lexin (LEX.RC) is on our Private Company Watchlist.

Four Seasons Education (NYSE:FEDU) plans to raise $101 million in the the year's fourth US IPO of a Chinese education provider. Its peer group soared to all-time highs in mid-October and even after a slight pull back, Bright Scholar Education (BEDU; 129% from IPO) and RYB Education (RYB; 39%) have held up, while last month's RISE Education (REDU; -8%) had a weaker reception. A provider of after-school math tutoring, Four Seasons grew at 55% in the 1H17 with an impressive 35% EBITDA margin, but its concentration in Shanghai has started to cut into enrollment growth.

Two immunotherapy biotechs take a complement inhibitor public

Both biotech IPOs this week are developing drugs that inhibit the immune system's complement system to target a variety of autoimmune and inflammatory diseases.

Kentucky-based Apellis Pharmaceuticals (NASDAQ:APLS) plans to raise $150 million as it readies its sole candidate for multiple Phase 2 and 3 trials in 2018, initially targeting an eye disease and a rare blood disease. Its drug addresses markets with unmet needs and potentially-lucrative pricing, but trials will be costly, and a host of competitive drugs are in development. Backed by Morningside Group, insiders have indicated on $70 million (47% of the deal). Its fully diluted market cap of $750 million would be the year's largest for a US biotech.

Germany-based InflaRx (NASDAQ:IFRX) is raising $100 million as it prepares to enter Phase 2b trials in the beginning of 2018 for a rare inflammatory skin disease. Backers include RA Capital and Bain Capital, and insiders plan to buy $40 million on the IPO (40%).

Two regional banks: Houston and NYC

CBTX (NASDAQ:CBTX), a community bank with 34 branches in Houston and Beaumont, TX, plans to raise $60 million at a market cap of $619 million. With $3 billion in assets, it has steadily improved ROE and ROA. However, asset growth has been muted, and the disruption from Hurricane Harvey could impact earnings in the near term.

Metropolitan Bank Holding (NYSE:MCB) is a Manhattan-based commercial bank with $1.6 billion assets that provides loans to middle market companies and high-net-worth real estate investors. To date, the company has experienced rapid growth in the competitive NY banking market. With plans to use IPO proceeds to add a sixth branch, investors will weigh its heavy Manhattan commercial real estate concentration with its track record of consistent earnings growth.

Bandwidth (NASDAQ:BAND) plans to raise $84 million to market its CPaaS (communications platform-as-a-service). Competing with high-growth 2016 IPO Twilio (TWLO; +102% from IPO), Bandwidth should benefit as more enterprises integrate communication services into apps. It has historically been profitable with modest growth, but now plans to spend heavily on sales and marketing to accelerate CPaaS growth.

Workspace Property Trust (WSPT) is targeting more than $500 million at a billion-dollar market cap (19.8x 1H17 annualized PF FFO). The US suburban office space REIT intends to pay a 4% yield at the midpoint.

Last, OTCQB-listed Ameri Holdings (NASDAQ:AMRH) plans to raise $8 million in a Nasdaq uplisting. The outsourced IT services provider booked $47 million in sales during the LTM, with a -14% EBITDA margin.

IPO Market Snapshot

The Renaissance IPO Indices are market cap weighted baskets of newly public companies. The Renaissance IPO Index is up 33.4% year-to-date, ahead of the S&P 500, which is up 15.6%. Renaissance Capital's IPO ETF (NYSE: IPO) tracks the index, and top ETF holdings include First Data (NYSE:FDC) and Square (NYSE:SQ). The Renaissance International IPO Index is up 27.1% year-to-date, while the ACWX is up 22.8%. Renaissance Capital's International IPO ETF (NYSE: IPOS) tracks the index, and top ETF holdings include Japan Post and ABN AMRO Group.

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.