In today’s briefing:
- China’s Crackdown on Big Tech: Not Over by Any Means
- Tencent Fined for Violating Disclosure on Past Transactions; Anti-Monopoly Probe Is Far From Over
- Golden Agri Resources (GGR SP) – Replanting and Processing to Drive Future Growth
- China Internet Weekly (11Jul2022): JD.com, Alibaba, Suning.com, GoGoX
- EVA Precision 838 HK: Play on EV Market Growth
- Hope Education (1765 HK): More than Just Hopes
- MicroPort MedBot (2252.HK)- Lack an “anchor” for Valuation Due to Uncertainties in Commercialization
China’s Crackdown on Big Tech: Not Over by Any Means
- Just as investors were starting to get comfortable investing in Chinese big tech, the Government has imposed new fines on a range of tech companies.
- Meanwhile, the June ending quarter could yet again be a disspointment with growth curtailed through lack of funding for loss making businesses.
- Having gained around 50% in June 2022 through signs of easing the tech crackdown, these new fines and a weak June-ending quarter could resend tech valuations to March-2022 lows.
Tencent Fined for Violating Disclosure on Past Transactions; Anti-Monopoly Probe Is Far From Over
- On 10th July, SAMR published 28 administrative penalties for violating anti-monopoly law related to disclosing past transactions on firms including Tencent, Alibaba, Didi, Weibo and Bilibili.
- A fine of RMB17.2m (US$2.56m) was imposed in total and were fined for not properly reporting past deals between March 2011 to July 2021.
- The market has come to believe that the anti-monopoly investigation in China is easing off, however, the recent development suggests that the anti-monopoly normalisation will continue.
Golden Agri Resources (GGR SP) – Replanting and Processing to Drive Future Growth
- A recent webinar hosted by Smartkarma with Golden Agri Resources revealed a company confident in the outlook for both its plantation and its value-added processing businesses.
- Golden Agri Resources leads the industry in terms of the yields on its plantations versus both Indonesia and Malaysia and continues to replant with higher-yielding varieties.
- The company has plentiful processing capacity for its own needs and those of third parties, which will help maintain margins. Management is confident in the outlook for palm oil prices.
China Internet Weekly (11Jul2022): JD.com, Alibaba, Suning.com, GoGoX
- JD.com opened a physical shopping mall and we believe it is following Alibaba.
- JD.com signed contract with a state-owned power company for two reasons.
- Two suppliers applied for the liquidation of Suning.com to the court.
EVA Precision 838 HK: Play on EV Market Growth
- Eva Precision Industrial Holdings (838 HK) is a supplier of office and automotive equipment (seat/battery frames and moulds), trading at 8.1x PE FY22 with an inflection point in earnings growth.
- As a supplier to Tesla Motors (TSLA US), Great Wall Motor (2333 HK), and Lucid, it is a play on the expansion of the EV space.
- Legacy business of office equipment will also experience growth due to the exit of foreign businesses like Fuji and Samsung enabling the company to have 25% CAGR revenue growth.
Hope Education (1765 HK): More than Just Hopes
- Hope Education Group Co Ltd (1765 HK) achieved good student enrollment quota increase for 2022/2023 academic year and student recruitment results at overseas schools are also very encouraging.
- Improvement in teaching quality and better facilities should narrow the gap of fees per student (Rmb11,814) with the national average (Rmb20,000), driving net profit growth in 3-5 years.
- Capex will come down over time given good upside in utilisation and the removal of management fees will relieve financial position. Its relative valuation is also inexpensive.
MicroPort MedBot (2252.HK)- Lack an “anchor” for Valuation Due to Uncertainties in Commercialization
- To achieve massive sales expansion, surgical robots and consumables have to reduce price largely to enter NRDL reimbursement. This is at odds with expectations that they will generate high profits.
- The actual market share gained and revenue generated by Medbot may fall far short of expectations, resulting in an inability to cover years of rapid growth in R&D/selling/administrative expenses.
- Due to uncertainties on commercialization and profitability outlook, Medbot lacks an “anchor” for valuation.The large fluctuation in share price would continue. Surgical robots are not a good business for now.
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