Stock research on global mid-cap companies

Evaluate Research

Evaluate Research provides institutional quality stock research on small-cap and  mid-cap companies on a global basis, thus helping connect investors with the company.

At Evaluate Research, we provide free of cost to all investors a 20-25 page Initiation Report which evaluates in great detail all aspects of the company:  growth opportunities, catalysts, business description, competitive positioning, SWOT analysis, risks, etc.  In addition, we determine specific price targets for the company based on detailed 5-year complete forecasts of financial statements including IS, BS, CF, ratios, etc.  Finally, whereas many sell-side brokers offer sketchy and irregular ongoing maintenance research of companies, if not outright dropped or termination of coverage, at Evaluate Research we systematically monitor and regularly publish Update Notes covering quarterly earnings, major corporate events, etc.

All of the research reports are broadly and freely disseminated globally to leading Fund Managers and analysts who invest specifically in mid-size equities, and also on leading investment information platforms including: Bloomberg, Thomson Reuters, FactSet etc.

Stock research on global mid-cap companies, Evaluate Research

Equity Bottom-Up

We spoke with the management of Buy-rated Hywin Holdings [NASDAQ: HYW; US$5.69; $159 million cap] recently, and it appears overall business trends continue to be solid and on track.&nbsp; As Hywin mentioned in its mid-period [six month first half ending in December for FY 06/2022] press release in October, which “highlight(ed) achievements in growth of asset management franchise”, Hywin continues to experience growth in key metrics, despite recent volatility in China/HK financial markets.&nbsp; As reported earlier, Hywin’s most recent earnings report for the period ended June showed 81% YoY EPS growth on 43% sales growth.&nbsp; While we don’t yet have any specific numbers for the current period, Hywin appears to be growing the distribution volumes in its wealth management business, as well as the AUM of its asset management business.&nbsp; Costs appear to be under control, with the vast majority of the branch network covering all of China already built out, and the relevant CAPX completed.&nbsp; The Relationship Manager team continues to grow, and productivity improvements are being driven by having more clients, newer products with higher value-add/margins, and an emphasis on servicing repeat customers.&nbsp; We discuss in the attached Update Note several concerns which are impacting the broader China/HK markets, such as real estate exposure, regulatory concerns, impact of Common Prosperity, etc.
&nbsp;
Maintain $14 Price Target, Undervalued on 4.1x P/E &amp; 70% Net Cash
Hywin’s stock is trading at clear deep value levels on several different metrics.&nbsp; Given weakness in China/HK markets, Hywin’s undervalued stock has become even cheaper.&nbsp; On reported earnings, Hywin is trading at 4.9x P/E on FY 06/2021 results, and 4.1x P/E on our forecast for forward FY 06/2022.&nbsp; It should be noted that FY 06/2021 results are an actual trailing period.&nbsp; Currently its competitor [Noah Holdings; NOAH] is trading at a P/E of 7.7x, and the overall Hong Kong equity index and the Shanghai Composite are at 11.1x and 11.8x forward 2022 consensus estimates, respectively.&nbsp; Hywin is thus effectively trading at more than a 50% discount to peers and relevant benchmarks.&nbsp; Our price target of US$14.00 would imply a P/E on trailing 12.0x FY 06/2021, and 10.2x on our FY 06/2022 estimates.&nbsp; We think our price target is thus based on very reasonable, if not conservative, assumptions.&nbsp; Adjusted for Hywin’s large net cash position, the target P/E levels implied by our $14.00 price target would be effectively 7.4x – still a large discount to the overall market and competitors.
&nbsp;
Hywin has US$109 million, or US$3.95 per share/ADS, in net cash [with zero debt] as of the most recently reported balance sheet as of June-end.&nbsp; An appreciating CNY currency has further increased Hywin’s net cash in USD terms.&nbsp; According to our forecast model, with a large FCF yield, Hywin will have US$4.77 per share/ADS in net cash as of FY 06/2022.&nbsp; This represents approximately 84% of the current share price, suggesting very limited downside risk, in our view.&nbsp; With our extensive experience in investing in deep value stocks, good things invariably happen for shareholders with companies with high net cash and strong FCF.&nbsp;&nbsp; Favorable returns and outcomes for investors include high dividend and special dividend payouts, large buybacks, accretive acquisitions, being taken over, etc.
&nbsp;
Conclusion:&nbsp; High Growth Record, Market Leadership, Strong FCF
Hywin, China’s third largest, and most rapidly growing, independent wealth management provider and investment advisor, represents a unique combination of clear deep value and rapid growth in a secular growth sector.&nbsp; We maintain our Buy rating and a $14.00 price target, which we indicated in our Initial Report a few months back in June.&nbsp; Our target suggests nearly 150% appreciation for the stock price.&nbsp; The upside opportunity looks very compelling to us, with the stock trading at over a 40% discount to its March 2021 IPO price of $10.00.&nbsp; The stock is still very much undiscovered following its NASDAQ listing, and Evaluate Research remains the only firm who is now actively covering the company.
&nbsp;
Among the market leaders in an underpenetrated market, Hywin continues to expand its branch network and client base which, along with rising productivity as measured by transaction volume, should ensure solid growth going forward.&nbsp; Numerous interactions with management give us confidence in the following key tenets of our thesis:
&nbsp;
<ul>
<li>A Market Leader:&nbsp; Hywin is the 3rd largest independent wealth management provider in China, with a growing 7.5% market share.</li>
<li>Strong Net Income Growth: 111% net income growth and 81% EPS per ADS growth for FY 06/2021</li>
<li>Rising Productivity:&nbsp; Operating Margins jump to 15.3% in FY 06/2021, up from 12.4% last year.&nbsp; June quarter margins higher at 15.7%</li>
<li>Clear Deep Value:&nbsp; 4.9x P/E on trailing FY 06/2021, 4.1x P/E on our forward FY06/2022 estimate</li>
<li>Robust FCF &amp; ROE:&nbsp; 26.7% FCF Yield on FY06/2022est., FCF &gt;/= 100% Net Income; 34% actual ROE for FY 06/2021</li>
<li>Net Cash:&nbsp; Hywin has a stellar BS with 70% net cash to market cap</li>
<li>Secular Growth Sector:&nbsp; 3rd party wealth management penetration rate only 6.2% in China in 2019, versus 32% in Hong Kong &amp; 62% in USA.</li>
</ul>
&nbsp;
Today’s Update Note attached…..
&nbsp;

We spoke with the management of Buy-rated Hywin Holdings [NASDAQ: HYW; US$5.69; $159 million cap] recently, and it appears overall business trends continue to be solid and on track.&nbsp; As Hywin mentioned in its mid-period [six month first half ending in December for FY 06/2022] press release in October, which “highlight(ed) achievements in growth of asset management franchise”, Hywin continues to experience growth in key metrics, despite recent volatility in China/HK financial markets.&nbsp; As reported earlier, Hywin’s most recent earnings report for the period ended June showed 81% YoY EPS growth on 43% sales growth.&nbsp; While we don’t yet have any specific numbers for the current period, Hywin appears to be growing the distribution volumes in its wealth management business, as well as the AUM of its asset management business.&nbsp; Costs appear to be under control, with the vast majority of the branch network covering all of China already built out, and the relevant CAPX completed.&nbsp; The Relationship Manager team continues to grow, and productivity improvements are being driven by having more clients, newer products with higher value-add/margins, and an emphasis on servicing repeat customers.&nbsp; We discuss in the attached Update Note several concerns which are impacting the broader China/HK markets, such as real estate exposure, regulatory concerns, impact of Common Prosperity, etc.
&nbsp;
Maintain $14 Price Target, Undervalued on 4.1x P/E &amp; 70% Net Cash
Hywin’s stock is trading at clear deep value levels on several different metrics.&nbsp; Given weakness in China/HK markets, Hywin’s undervalued stock has become even cheaper.&nbsp; On reported earnings, Hywin is trading at 4.9x P/E on FY 06/2021 results, and 4.1x P/E on our forecast for forward FY 06/2022.&nbsp; It should be noted that FY 06/2021 results are an actual trailing period.&nbsp; Currently its competitor [Noah Holdings; NOAH] is trading at a P/E of 7.7x, and the overall Hong Kong equity index and the Shanghai Composite are at 11.1x and 11.8x forward 2022 consensus estimates, respectively.&nbsp; Hywin is thus effectively trading at more than a 50% discount to peers and relevant benchmarks.&nbsp; Our price target of US$14.00 would imply a P/E on trailing 12.0x FY 06/2021, and 10.2x on our FY 06/2022 estimates.&nbsp; We think our price target is thus based on very reasonable, if not conservative, assumptions.&nbsp; Adjusted for Hywin’s large net cash position, the target P/E levels implied by our $14.00 price target would be effectively 7.4x – still a large discount to the overall market and competitors.
&nbsp;
Hywin has US$109 million, or US$3.95 per share/ADS, in net cash [with zero debt] as of the most recently reported balance sheet as of June-end.&nbsp; An appreciating CNY currency has further increased Hywin’s net cash in USD terms.&nbsp; According to our forecast model, with a large FCF yield, Hywin will have US$4.77 per share/ADS in net cash as of FY 06/2022.&nbsp; This represents approximately 84% of the current share price, suggesting very limited downside risk, in our view.&nbsp; With our extensive experience in investing in deep value stocks, good things invariably happen for shareholders with companies with high net cash and strong FCF.&nbsp;&nbsp; Favorable returns and outcomes for investors include high dividend and special dividend payouts, large buybacks, accretive acquisitions, being taken over, etc.
&nbsp;
Conclusion:&nbsp; High Growth Record, Market Leadership, Strong FCF
Hywin, China’s third largest, and most rapidly growing, independent wealth management provider and investment advisor, represents a unique combination of clear deep value and rapid growth in a secular growth sector.&nbsp; We maintain our Buy rating and a $14.00 price target, which we indicated in our Initial Report a few months back in June.&nbsp; Our target suggests nearly 150% appreciation for the stock price.&nbsp; The upside opportunity looks very compelling to us, with the stock trading at over a 40% discount to its March 2021 IPO price of $10.00.&nbsp; The stock is still very much undiscovered following its NASDAQ listing, and Evaluate Research remains the only firm who is now actively covering the company.
&nbsp;
Among the market leaders in an underpenetrated market, Hywin continues to expand its branch network and client base which, along with rising productivity as measured by transaction volume, should ensure solid growth going forward.&nbsp; Numerous interactions with management give us confidence in the following key tenets of our thesis:
&nbsp;

A Market Leader:&nbsp; Hywin is the 3rd largest independent wealth management provider in China, with a growing 7.5% market share.
Strong Net Income Growth: 111% net income growth and 81% EPS per ADS growth for FY 06/2021
Rising Productivity:&nbsp; Operating Margins jump to 15.3% in FY 06/2021, up from 12.4% last year.&nbsp; June quarter margins higher at 15.7%
Clear Deep Value:&nbsp; 4.9x P/E on trailing FY 06/2021, 4.1x P/E on our forward FY06/2022 estimate
Robust FCF &amp; ROE:&nbsp; 26.7% FCF Yield on FY06/2022est., FCF &gt;/= 100% Net Income; 34% actual ROE for FY 06/2021
Net Cash:&nbsp; Hywin has a stellar BS with 70% net cash to market cap
Secular Growth Sector:&nbsp; 3rd party wealth management penetration rate only 6.2% in China in 2019, versus 32% in Hong Kong &amp; 62% in USA.

&nbsp;
Today’s Update Note attached…..
&nbsp;

HYWIN [HYW]:  High Growth @ 4x P/E, 27% FCF Yield, 70% Net Cash: Business Update