Do Not Expect the Next Tencent or Alibaba to Come from ChinaAntitrust, reform in education, real estate and medical care policies, Common Prosperity... all of these show that China is undergoing earth-shaking change. These changes have brought large uncertainty, making many investors afraid to invest in Chinese projects and companies. However, over the next decade, China sure will become the world's largest economy. How to better understand the opportunities and risks of the Chinese market and deal with certainty and uncertainty is a crucial problem. EqualOcean launched a series of research, China's Future Investment Watch, hoping to provide clues for global investors.
It is said that one of the most regrettable decisions of Richard Li, PCCW chairman and son of Li Ka-Shing, was not investing in Tencent in 2000. Indeed, the Tencent-led 2C Internet giants, such as Alibaba, Baidu, DiDi, Meituan, and ByteDance, experienced a golden age from 2000 to 2014 and have an increasing influence in China, resembling FAANG (Facebook, Apple, Amazon, Netflix, and Google) in the United States. Some of the companies are now deeply rooted in Chinese life and help their investors make impressive gains. However, we believe that the investment logic of China has changed currently, and investors who plan to invest in China now or in the future should know the new logic behind recent events. We will display the changes in three aspects: political, economic, and people.
New tones in the Chinese political environment
First of all, we think the Chinese political environment has changed, especially in the past four years. Since the advent of 'Modern Times' in China, the Chinese have been adhering to a rising belief in 'Industry Salvation' – or the transformation of the whole country through industrial advances. Therefore, the Chinese government has been focusing on supporting the development of the traditional industrial business in the first decade of the 21st century to raise the country's manufacturing power and quickly improve its international competitiveness. At the same time, the Chinese government has been looking upon the Internet as a relatively inefficient investment environment, and Internet companies receive little support officially. Unable to receive domestic help, Internet companies have to turn to VC/PE in developed countries or even go for cross-border IPOs. Owing to the capital support from VC/PE in the developed market and the neglect of policies, the Internet industry has experienced a long period of 'barbaric' growth. Many companies have begun to stand out during this time, such as the well-known Alibaba, Baidu, and Tencent.
Finally, from about 2013 to 2014, the Chinese government realized the advent of the digital age and the importance of the Internet. However, as the Internet is an emerging industry for China and the development path of other countries is difficult to learn from, Chinese regulators have been paying attention to finding a balance between growth and structural optimization. Between 2013 to 2017, we believe that China paid more attention to the growth side of the Internet instead of setting restrictions to optimize the structure of the Internet industry. Many policies can testify to the point; in November 2014, during the First World Internet Conference, the Chinese premier, Keqiang Li, pointed out that the Internet is a new tool for the Mass Entrepreneurship and Innovation national strategy; in June 2015, the China Ministry of Industry and Information Technology (MIIT) issued a notice to lift foreign ownership restrictions in the e-commerce sector, while the China State Council issued guidance to encourage the development of cross-border e-commerce companies simultaneously.
However, since late 2017, the Chinese government has changed its focus to acting as the Internet's support in terms of industrial (and technology) and legal compliance for Internet-related companies (the structural optimization side). Since November 2017, the policy document issuance has evolved to combine Internet concepts with general industrial and put forward concepts of 'Internet plus Advanced Manufacturing and Industrial Internet'; these were still being emphasized in official documents up to 2021. At the same time, the 2020 Central Economic Work Conference proposed 'strengthening antitrust and preventing disorderly capital expansion' as one of the key tasks in 2021. In December 2020, Alibaba, Tencent, and Hive Box Technology were punished, and the State Administration of market supervision also investigated Alibaba for creating a suspected monopoly. In March 2021, the State Administration of market supervision made administrative punishment decisions targeting many Internet giants, including Alibaba, Tencent, JD.COM, ByteDance, and Meituan.
In general, the emergence of large Internet companies such as Tencent and Alibaba was largely due to the neglect and laissez-faire of national policies from 2000 to 2013. More importantly, the neglect of policies has led to chaos in the industry, such as unfair competition, 996 culture, and P2P lending scams. With the endless emergence of reform policies, Internet companies have gradually recovered from the 'barbaric' growth stage to arrive at a relatively normal growth stage.
GDP growth driver becoming ineffective in the next decade
Second, the growth pattern of Chinese GDP in the past two decades is also a driver. In economics, GDP is defined as: GDP = Consumption + Investment + Government Spending + Net Exports (GDP = C + I + G + NX). After China joined the WTO in 2001, for a long time, China's economic growth mainly depended on official investment and trade surplus. Relying on the whole industrial chain system and developed light industry, China ushered in seven years of high GDP growth from 2001 to 2007.
However, such a growth mode is criticized by other economies because it relies too much on the I and NX. High net export indicates a high dependence upon foreign trade, and the excessive investment made by governments causes serious overcapacity, resources wasting, and environmental damage. These are the problems currently being solved by China, which proposes to increase the proportion of consumption-driven growth (which is much higher in developed countries). The slowdown of economic growth is one of the consequences. This is also the main reason why China has asked for speed reduction in recent years. Besides, China's economy grew into the world's second-largest economy one decade ago. It is difficult to maintain a high growth rate with such a large GDP base. Then from 2007, the GDP growth showed a downtrend.
We believe that the GDP growth rate change is an important reason for the rapid expansion of Internet companies from a valuation standpoint. As we all know, Discounted cash flow method (DCF) is often used by fund managers as an absolute valuation tool. One of the important parameters is the terminal growth rate, and the countries' GDP growth rate is used as the reference for this rate. The decline in terminal growth rate means an increase in valuation, even if the companies' operating remains consistent. We mentioned that China's GDP growth rate has been declining since 2007, which means that downward GDP boosted Internet companies' valuation, especially overseas-listed companies. We believe that this indirectly accelerates the development of Internet giants.
Nevertheless, we think GDP growth has stabilized within 5% to 6% level since the pandemic 2020, and China also said that it no longer pays attention to growth figures. We believe that in the past, the driving effect of downward GDP growth has gradually disappeared. The valuation of the Internet industry is gradually returning to rationality and it is difficult to reproduce the explosive growth.
From the 2C era to the 2B era
Third, To-Consumer (2C) companies' losing of competitive advantage is also a factor behind the change of the investing logic. In the past two decades, the most well-known players have been all the 2C companies. Such companies mainly gain profit from individual consumers, either directly (self-operated e-commerce and individual services) or indirectly (advertising and commission). Before 2017, the vast majority of Internet companies actually growth along with growing traffic. In other words, part of the company's growth came from the growth of customers and Chinese Internet users.
However, with the number of Chinese Internet users reaching the ceiling (the growth rate of 2C companies' customers is slowed down). The companies that were previously relying on user growth need to change their strategies in order to achieve further development. Therefore, many companies have chosen the road of horizontal development, accelerating financing acquisition and marching other industries. There are many temporary winners, such as Tencent and Alibaba.
Though it seems like the only way they can take when user bases reaching the ceiling (The penetration rate has grown to over 70%, as chart shows), we do not think all horizontal development 2C companies will succeed because it is hard for such companies to maintain their existing advantages in such a way. Hainan Airlines (HNA) is a bad example. In 2003, HNA began to implement diversified strategic transformation – that is, a horizontal development strategy. After the crisis in 2008, HNA began to accelerate overseas acquisitions. From a single local air transportation enterprise, it has developed into a giant operating in dozens of industries such as air travel, modern logistics, science, and technology. In its heyday, the company had assets of up to CNY 2.5 trillion, ranking 170 in the world, and owned the equity of many well-known companies, such as Hilton Hotels, Deutsche Bank, and Virgin Australia. However, the company's horizontal development over the years has brought high liabilities and serious liquidity problems, even default problems. Finally, in January 2021, the HNA Group went bankrupt. Except for HNA, many other giants also suffer from the same problems, such as Wanda Group and Anbang Group. Based on all these events, we think 2C will find it hard to maintain its previous high growth in the next decade, beginning in 2021.
In contrast, To-Business (2B) companies do not charge from individual customers and do not rely on the traffic-oriented business model. A significant reason why investors did not favor 2B companies before 2017 is that s2Cks prices rose slowly, which was not in line with the rapid capital increase desired by Chinese and foreign VC/PE. However, when the growth of 2C companies slows down, the values of 2B companies may become understood. We believe that 2B companies will become a new direction for China's development in the future. In other words, it is not easy to see such fast-growing 2C companies as Pinduoduo in China in the next decade.
Heading toward a semi-developed market
In conclusion, on the one hand, we believe that the standardization of policies, the decline of economic growth, and Internet users' situations all indicate the development phase of China: the Chinese market is switching from an emerging market to a semi-developed market. Moreover, based on observation of the macro and micro levels, we believe that this trend is happening rapidly and irreversibly.
On the other hand, we believe that China is learning lessons from Germany now rather than the United States. Germany has many hidden world champions in different micro-sectors, such as Hauni Maschinenbau and JF Hillebrand. This is also in line with China's Specialization, Refinement, Differentiation, Innovation of SMB strategy – that is, to support technically advanced small and medium-sized companies who focus on specific markets, rather than diversify giants that covering many different businesses such as Alibaba and Tencent.
Bottom line
For investors, based on the above analysis, we still firmly believe that China is a market worthy of investment. However, the logic of investing in China has changed, and small and medium-sized Chinese companies with core technology (potential invisible world champions) may become high-quality investment targets in the future.
China
XPeng Says Its Supercharging Stations Reach 400XPeng expects to expand its supercharging stations to dozens of cities, including Taiyuan, Tangshan, Nantong and Luoyang, within the next three months.
XPeng Motors said Tuesday it put 102 new supercharging stations into operation in August, bringing the total to 400, covering 101 cities in China.
Sixteen of those superchargers are located in highway service areas, bringing it to 27 superchargers in highway service areas, XPeng said.
The company added 36 new destination charging stations in August, bringing the total to 81, it said.
To date, the total number of XPeng-branded supercharging stations and third-party supercharging stations where users can enjoy a certain amount of free charging benefits is 1,596, the company said.
In comparison, XPeng's local counterpart NIO put 87 new battery swap stations into operation in August. It also added 56 supercharging stations and 73 destination charging stations in August.
In addition, NIO added one NIO House, 13 NIO Spaces, and three NIO Service Centers in August.
As of September 13, NIO had 445 battery swap stations, 300 fast charging stations, and 502 destination charging stations, according to CnEVPost database.
XPeng announced on July 12 that it is reducing the free charging allowance of 3,000 kWh per year offered to subscribers to 1,000 kWh per year as of August 1.
As XPeng customers continue to expand, the reduction in the free charging allowance is to ensure that the XPeng supercharging system can provide better and sustainable replenishment services to customers, the company explained, as quoted by sznews.com.
This article was first published by Phate Zhang on CnEVPost, a website focusing on new energy vehicle news from China.
Li Auto, XPeng, NIO Top Insurance RegistrationsThe NEV sales volume accounted for 17% of total new car sales in the month.
Li Auto had the highest number of insurance registrations among China's new car makers in August, with 9,394 units, according to a table released Saturday by Sina Auto based on data from the China Automotive Technology and Research Center (CATARC).
XPeng Motors came in second, with 6,945 insurance registrations in August, followed by NIO with 6,476.
Earlier this month, Li Auto released figures showing it delivered a record 9,433 Li ONEs, the company's only model, in August, up 248 percent year-over-year and up 9.8 percent from July.
XPeng said it delivered 7,214 vehicles in August, up 172 percent year-over-year but down 10 percent from July.
NIO said it delivered 5,880 vehicles in August, up 48 percent year-over-year and down about 26 percent from July.
The CATARC figures are based on insurance registrations for vehicles and are closer to true retail sales each month, as vehicles must have insurance in place and in effect before they can be licensed.
Neta Automobile ranked fourth with 6,038 insurance registrations in August. The company previously said it delivered 6,613 vehicles in August.
Leap Motor ranked fifth with 4,777 insurance registrations in August. The company previously said it delivered 4,488 vehicles in August.
WM Motor had 3,144 insurance registrations in August, the CATARC data show. It has not yet released sales figures for August.
Arcfox, the BAIC-owned EV brand, had 856 insurance registrations in August, compared with 642 for Seres, which sells cars in partnership with Huawei, 469 for HiPhi and 408 for Dongfeng Motor's premium EV brand Voyah.
This article was first published by Phate Zhang on CnEVPost, a website focusing on new energy vehicle news from China.
Tesla Hikes Model Y Performance Price in China by USD 1,550The company's CEO Elon Musk said to roll out an entry model in 2023.
Tesla announced on Weibo on Saturday that the starting price of the Model Y Performance in China has been raised by CNY 10,000 (USD 1,550) to CNY 387,900, with those who have previously reserved unaffected.
The Securities Times quoted a Tesla China public relations source as saying that the price increase was mainly due to fluctuations in manufacturing costs.
On January 1, Tesla announced the official launch of the China-made Model Y and the new Model 3. The Model Y Performance starts at CNY 369,900, down by CNY 165,100 from the previous price of CNY 535,000.
The Model Y Performance has not been delivered, and Tesla's website previously showed the version was expected to begin deliveries in the third quarter of 2021. After Tesla raised the price today, the website shows deliveries are expected to begin in the fourth quarter.
In May, the price of the Model Y Performance was raised from CNY 369,900 to CNY 377,900, and in August, the model went from pre-sale "pending regulatory approval" status to on-sale status.
The China-made Model Y Standard Range and Long Range versions remain unchanged at CNY 276,000 and CNY 347,900 respectively.
Interestingly, a Chinese Tesla owner said on social media Friday that his Model Y received a push from Tesla about a software package to improve acceleration performance.
The updated information shows that the owner can shorten the vehicle's 0-100 km/h acceleration time from 5 seconds to 4.4 seconds by paying CNY 14,100 (USD 2,190).
The owner did not specify which version of his Model Y is, but this should be the long-range version with dual-motor all-wheel drive, as Information on Tesla's website shows that only that version has a 0-100 km/h acceleration time of 5 seconds.
In comparison, the Model Y Performance has a 0-100 km/h acceleration time of 3.7 seconds.
This article was first published by Phate Zhang on CnEVPost, a website focusing on new energy vehicle news from China.
FITCH NEWS - TRADABLE MAINLAND REAL ESTATE INDEX - HKG - DAILYCool down on big news as we can see, by zooming out, that the increasing price have found strong resistance and started a durable wide range.
The range is clear in this chart, the top is illustrated by the blue line and the bottom by the black line.
The bleu line is a resistance tested multiple times , repeat failed attempts leading to a price fall and possibly weakening the uptrend chances believes.
The red arrow shows probably where the biggest failure has happened. Mega high volumes and a nice wig.
The black line represents a probably super strong support. Beware of fake breaks, it has happened in the past.
The little dotted line shows possibly how the price is evolving trying to get out of the range.
Fitch news has created an interest about what impact this could have globally. For the moment zooming out we can see that it is just lot of noise for not much as this level have been reached several times before and was expected.
Now it is probably more convenient to observe this black line level and see what happen. High volumes involved would show a clear direction. Daily, Weekly, monthly : yes, but not to be observed in hourly.
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Thanks for the like and shares, really appreciated! This idea is not a financial advice but just a sentiment.
iQIYI Achieves Steady but Slow Growth in Q2 2021China's online entertainment service company iQIYI released its unaudited Q2 2021 financial results on August 12. The revenue growth was rather unimpressive, while the company has been implementing strategies around expanding market presence, diversifying content, and securing a larger user base in light of future growth.
iQiyi (IQ:NASDAQ) is an online entertainment company in China, providing a variety of video streaming services and premium content to worldwide users. The company's deep-learning-based predictive algorithms utilize third-party content to build content libraries catering to the diverse tastes of its users.
A glance at the Q2 2021 financials
According to iQIYI's unaudited financial results, the company's revenues reached CNY 7.6 billion in the second quarter of 2021, a 3% YoY increase. In contrast, Tencent's total revenue achieved a year-over-year increase of 23% during the same quarter. Total subscribing members reflected a slow growth as well, increasing 106.2 million by June 30, 2021, up only 1.2% year-over-year.
However, the company's operating loss and diluted net loss showed a decline from the previous year. Specifically, during this quarter, iQIYI's operating loss was CNY 1.1 billion and its operating loss margin was 15%, compared to CNY 1.3 billion and 17% in 2020, respectively. The decreased net loss partially resulted from iQIYI's diversified content and latest movie series, including theatrical, S-rated network, and original movies under the Premium Video On Demand (PVOD) model. For PVOD movies distributed through a paid subscription, the company earned 42% of revenue share despite other content providers.
The content distribution revenue did not have positive financials compared to the other two revenue streams, this part dragged down 20% from the same period in 2020 due to fewer barter transactions and increased cash transactions that caused offsets. Barter transactions determine the value of content revenue estimated by the company's internal management.
iQIYI's expenses also played a critical role in balancing the second quarter's financials. Specifically, the costs were flat compared with the same period in 2020. Unlike the first quarter of 2021, when the company's content costs had an 8% increase from the same period in 2020 due to the decline of licensed content cost, the second quarter returned to the flat level. The R&D and general expenses also had a slight year-over-year increase of approximately one-to-two percent in this quarter. The total other expenses were also driven higher by the increased interest expenses in various financing activities. Equipped with core competitiveness in the online entertainment industry, iQIYI is also empowered by proprietary technologies to curate captivating content for users and stimulate a large-scale paid content subscription business in China. In January 2021, iQIYI's VR division announced the completion of a Series B funding round led by Yitang Changhou Fund and Fresh Capital, setting the record for the largest single round of funding in China's VC sector since 2020.
iQIYI's disciplined strategies
Yu Gong, the Chief Executive Officer of iQIYI, explained that the second-quarter results were largely in line with the company's expectations. Although the growth was not significant, he stated that the increased number of subscribed members was driven by the hit original dramas launched during this second quarter, providing some positive operating metrics.
Meanwhile, iQIYI launched its Lite app targeting lower-tier cities in China and overseas markets, including Southeast Asia. Overviewing China's Internet demographics, the emergence of live streaming and short-to-medium video platforms, like Douyin and Kuaishou, have cut a big share of the long video market. To encounter this challenge, the long-video streaming service, iQIYI, decided to increase the penetration rate of suburban users to develop new markets. In this way, the company aims to improve user retention by securing users with low-cost phones. Since launching this app in 2019, the company has seen rapid user growth. By the second quarter of 2021, this app's peak DAU exceeded 1.3 million, with over 1 million average weekly daily active users.
The company's strategies have placed membership, online advertising, and content distribution services as three primary revenue streams. In that regard, member services revenue was CNY 4 billion, flat compared with the last year. Online advertising, on the other hand, had shown a 15% increase from the same period last year, driven by the sustained rebound of brand-advertising budgets amid the macroeconomic recovery after the coronavirus pandemic in China. With the increasing penetration rate of digital technology among Gen X and Gen Z populations in the country, the company is expected to see new consumers using its subscription services.
In a nutshell
iQIYI's 2021 Q2 financial results showed the company's ability to carry on growth momentum in attracting more users based on an expanded content portfolio and enlarging user base. The company's revenue growth and reduced year-over-year net loss have displayed a trend of slowly improving business performance.
Would you buy this?WNW 52 Week Range 4.2800 - 160.6800
Wunong Net Technology Company Limited, engages in the online retail of foods products in China.
The company offers green food, organic food, intangible cultural heritage food, agricultural products, and pollution-free products.
It also operates a restaurant under the Wunong Food Hall name and engages in the wholesale of agricultural products.
I`m looking forward to read your opinion on it.
Tencent Responds as CCTV Exposes the Account Renting ProblemSo far, the gaming giant has sued or sent letters to more than 20 account trading platforms and several e-commerce platforms, demanding them to stop all relevant services.
The rates for account renting services for Honor of Kings – which usually cost CNY 33 per two hours – have been emerging on the Internet and, in response, Tencent Game, the gaming sector under the tech giant Tencent – developer of the MOBA game Honor of Kings – claimed that account leasing and selling seriously damaged the game's real name system and protection mechanism for minors. By far, having sued or sent out letters to more than 20 platforms, it demanded a full stop of all relevant services.
On August 30, 2021, the National Press and Publication Administration issued a 'notice' to prevent minors from falling addicted to online games. The 'notice' states that all online gaming enterprises can provide minors, on Friday, Saturday, Sunday and legal holidays only, with one-hour services max (specifically from 20:00 to 21:00) and offering online gaming services to minors in any form at any other time is prohibited.
Yet, on the evening of September 6, CCTV, the state-controlled outlet, outlined in its news broadcast how a grey industrial chain has emerged on the Internet that rents and sells game accounts, which enables the minors to play online games without restrictions. On the account renting platforms, users can trade accounts of a variety of popular games including Honor of Kings and PUBG.
So far, the owner of Honor of Kings has called on relevant departments to issue corresponding laws and regulations to strictly control the account leasing and selling problem.
Despite the issuing of the 'notice', according to surveys, the policy did not have a material impact on the revenue of gaming companies. Previously, Tencent disclosed in the 2021 interim report that players under 16 accounted for only 2.6% of the total game revenue, of which only 0.3% came from players under 12.
Analysts from Jefferies Group predicted that about 5% of Tencent's game revenue came from minors under the age of 18. In other words, if the game business accounts for about 60% of the gaming tycoon's total revenue, the new regulation's impact would be barely 3%.
Dada Posts Strong Q2 2021 Results The Chinese local on-demand delivery and retail platform has announced its unaudited financial results for the second quarter, maintaining the strong growth momentum.
– In the second quarter of 2021, Dada Nexus' (DADA:NASDAQ) total net revenues increased to CNY 1.47 billion, which is above the Street's consensus expectation of CNY 1.41 billion and the company's high-end guidance of CNY 1.45 billion. Aligning the revenue recognition method of Dada Now last-mile delivery services to net basis, pro forma revenue growth would have been 81.3% year-over-year.
Dada also reported a quarterly non-GAAP net loss of CNY 549 million, against the Street's expectation of CNY 615 million.
Dada has continued to win Chinese consumers' trust by providing "timely, efficient and high-quality services." The number of trailing-twelve-month active consumers on JDDJ increased by around 60% year-on-year to 51.3 million as of June 30. The company will continue to execute its in-depth cooperation with JD, to better serve the omni-channel and on-demand needs of JD's over 530 million active users. GMV of JDDJ for the twelve months ended June 30, was CNY 32.3 billion, an increase of 77% year-over-year.
"Dada Group has long served the real economy and is growing together with brick-and-mortar retailers as well as our brand partners. We welcome the stepping up of regulations and firmly believe it will be good for the long-term sustainable development of the industry. There is enormous potential in the on-demand retail industry for us to explore," said Mr. Philip Kuai, Chairman and Chief Executive Officer of Dada Group. "Through the deepening cooperation with JD, we continue to build strong partnerships with our retail and brand partners, working together to create value to consumers. Our partners will continue to benefit from our technology platform and high levels of innovation. Together, with Dada's commitment to bring people everything on demand, we will continue to focus on long-term value creation to the benefit of enterprises and consumers around China."
JDDJ has maintained a top position in the supermarket category and partnered with 80 of the top 100 supermarket chains, including 9 of the top 10. Meanwhile, it established direct partnerships with smartphone brands, including Apple and vivo, and has newly partnered with Microsoft, ASUS, Dell and Alienware, gradually moving their offline stores online. As a SaaS product that enables retailers to drive O2O sales while streamlining operations, Dada's Haibo System has been adopted by more than 4,300 retail chain stores as of the end of August, covering over 40% of the top 100 supermarket chains.
As a platform that connects consumers and merchants with crowdsource-based delivery services, Dada Now provides a large number of flexible employment opportunities to society, and at the same time, it is committed to protecting the rights and interests of gig economy workers. During the second quarter, Dada Now's on-demand delivery service to chain merchants continued to see explosive growth, with year-over-year revenue growth accelerating to over 140%. In July, it officially launched the Dada Autonomous Delivery Open Platform, which is open to autonomous vehicle companies, such as JD Logistics and aims to accelerate the commercial use of autonomous delivery.
LTC Long @ 176.57Yesterday's inaugural post flagged a bullish valuation signal on Litecoin (spot ref 176.57). Some additional colour.
RETINA™ provides machine generated signals based on macro factors. Yes, any asset - especially crypto - can be driven by a host of things. Regulatory risk is clearly a very real threat.
But ultimately, financial assets reflect their macro environment - where we are in the growth cycle, is inflation rising / falling, are financial conditions easing or tightening, where is risk appetite etc? Quant Insight's algorithms capture all these & distil it all down into a macro-warranted fair model value. The difference between spot price & fair value = a Fair Value Gap. Essentially a way to track dislocations in markets between the price of crypto, FX, cmdties etc & their fundamental environment.
RETINA™ then pushes these signals out.
Litecoin's macro fair value is currently 236.
The biggest driver is global inflation expectations. Higher global bond yields & steeper yield curves are also consistent with higher XLCUSD.
A "risk on" environment also helps. Note that includes events in China. China stress features as a top driver via sovereign CDS spreads. One word of caution therefore to LTC longs - if the Ever Grande story bleeds into the banking sector & beyond, that's bad news & a risk scenario that requires careful monitoring.
All-in-all, Litecoin wants a reflationary, risk on backdrop & offers a useful inflation hedge.
CQQQ going up!AMEX:CQQQ
At 4H, they broke through the 100MA and buried themselves in the additional resistance level = 74.
A local rollback is possible, but after that the growth will continue. Or it will reach 100MA on 1D and the first target and then retest the level 74, unloading local indicators to continue to grow on the rest of the targets. Having also reached the second goal, the chart will break through the resistance of 100MA 1D and change the trend.
Target: 77.25, 80.34, 86.63
ZME Potential Gap. Curling. Curling here on daily. Used highest volume day as a beacon for potential trendline in green. Gapping on these Chinese Edus is common.
Technical analysis update: HSI (7th September 2021)Hang Seng index declined over 20% from its peak on 18th February 2021. Then it made lows on 27th July 2021 (at 24 748.84 HKD) and on 20th August 2021 (at 24 851.60 HKD). We are bullish on Hang Sang index and we think current price is very attractive for long entry. Because of that we would like to set medium term price target for HSI to 28 000 HKD.
Technical analysis
RSI is bullish. Stochastic is also bullish. MACD is bullish too, however, it is still in the bearish zone below 0 points. Though, we expect it to cross above 0 which will further bolster bullish case for HSI. ADX is leveling down suggesting that neutral trend is present at the moment. Closest supports can be drawn by extending horizontal line from recent lows (at 24 748.84 HKD and at 24 851.60 HKD). Closest resistance is at 26 822.47 HKD. We will observe HSI over the coming few weeks. We will watch out for breakout above resistance. We expect this phenomenon to support bullish thesis for HSI similarly like MACD crossover.
Disclaimer: This analysis is not intended to encourage any buying or selling of any particular securities. Furthermore, it should not serve as basis for taking any trade action by individual investor. Your own due dilligence is highly advised before entering trade.
Cango's Recent Moves Show Its Business ResilienceThe company generated CNY 558 million in net profit in Q2 2021, up 695% from a year ago.
Cango facilitates transactions through a technology-enabled service platform in China's automotive industry.
The country's auto market is reviving and is set to be in a growth trajectory for quite some time.
The company has expanded its upstream business, entering the flourishing NEV market.
Though the local NEV leaders are prone to sell cars directly, dealers will keep playing an important role in the Chinese market, especially in the lower-tier cities.
Cango's stock looks cheap now.
The relieved travel restrictions have revived trading activity in China's passenger vehicle market, the world's largest in terms of both demand and supply. Cango (CANG:NYSE), a company aimed at disrupting the auto value chain in China, has presented solid Q2 2021 results. This article will introduce Cango, its strategy and future development outlook.
Introduction
In 2010, Cango was founded by a group of veterans in China's auto financing industry with the idea of making auto transactions "simpler, easier and more pleasant." There was a certain degree of demand for such a platform in China's vast but underserved lower-tier cities' markets. Started with auto loan services, the company's scope later stretched to the vehicle sales business upstream and after-market services downstream. By the end of 2020, Cango had built a network consisting of 47,740 auto dealers, accumulatively serving more than 1.9 million car buyers. The company currently covers more than 1/3 of China's total new car dealers, and over 75% of dealers in Cango's network are located in tier 3-5 cities.
Over the past ten years, the company has established a technology-driven platform that connects various participants along the auto value chain, including dozens of large and mid-sized commercial banks, insurance firms, as well as major gasoline vehicle OEMs and high-tech new energy vehicle (NEV) OEMs.
China's auto market is back on a growth trajectory
Cango's business is rooted in the flourishing auto trading activities in China. Although the pandemic has hammered buying cars in brick-and-mortar stores, the total transactions have shown resilience. According to CPCA, the Chinese light vehicle sales hit 19 million in 2020, down 6.8% year-on-year. However, the outlook for future sales is rather encouraging: CAAM expects the market to grow by 10% in 2021. Moreover, the organization forecasts that the 2025 sales will reach 30 million, with a CAGR of 4.6% from 2021 to 2025.
The driving force of surging future sales will be the rise of per capita ownership of cars. Based on the World Bank's data, China's car ownership was 283 units per thousand inhabitants in 2019. At the same time, China's population density was 149 people per kilometer squared, GDP per capita was USD 10,276. By comparison, Japan and South Korea are more densely populated, have higher GDP and car ownership rates per capita. Thus, China's auto market sees great potential.
Lower-tier cities are showing strong momentum in the rise of the car ownership rate. There are several catalysts. One is the policy of 'sending cars to the countryside' under which people who live in rural places receive subsidies when buying cars. Electric vehicles have been added into the list in recent years. Second, lower-tier cities in China often have no restrictions on getting vehicle plates, further stimulating car sales. Third, citizens in lower-tier cities have less debt burden on housing so that they can potentially spend more money buying cars.
Cango's next big move
Following the big trend, Cango also stepped up its efforts in the NEV market. NEV manufacturers, which usually adopt the direct operation and sales model, are actively seeking traffic in the lower-tier markets and professional traffic operation support. Cango's strong foothold in the lower-tier markets and service capabilities in auto transaction puts it in an ideal position to meet its needs. Although some in the industry argue that NEVs' direct sales won't need dealers and related service providers like Cango, we believe, however, that dealers will continue to play an important role in the new segment's development.
Inspired by Tesla, China's NEV market was initially driven mainly by direct sales. This model was soon adopted by other EV players, including NIO, Xpeng and Li Auto. Intuitively, direct sales skip dealers so that ensures better customer services and more profit to OEMs however incurs large front costs of opening new stores. Currently, all the public EV companies' valuations are very sensitive to the vehicle delivery numbers. The relationship between electric car brands and dealers is dialectical. In 2018 and 2019, some brands like NIO and Xpeng needed funds to open new stores. After raising enough funds through IPOs, NIO and Xpeng both decided to lower the number of franchised stores.
So far, EV brands have accumulated a lot of orders, but short-term deliveries are restricted to their production capacity. As production ramps up, same-store sales will touch the ceiling, especially in the lower-tier cities. By that time, these brands are likely to reconstruct the dealer network. Besides, not all NEV brands have enough capital to open and run offline stores independently. This makes incorporations with dealers almost inevitable.
Meanwhile, NEV brands try to minimize their sales and marketing costs through an offline-to-online mode, which considers experiencing a vehicle offline, then buying it on a digital platform. High efficiency will be difficult to achieve with such a method. First of all, for most families, especially those living in lower-tier cities, a car purchase is an important event requiring both time and capital. If there is no physical store nearby, the customer experience will be downgraded. Second, brand variety is essential in the auto sector. OEMs' products face millions of requirements from picky buyers, and a few car brands are unlikely to satisfy all requirements.
Besides, as the US and Japan's history has shown, dealers aren't likely to be pushed out of the market. The United States' long automotive history has proven how important dealerships are in a large and populous country. China shares similar attributes. According to iiMedia, there are currently 287 million cars in China, with 72 cities having more than one million cars, 33 cities having more than two million cars. What's more, car buyers across the country have different consumption behavior patterns. For example, lower-tier cities' dwellers prefer domestic brands' full-size vehicles. In the Eastern regions, buyers have a higher acceptance of electric cars than their inland peers. In short, for NEV players, it's hard to adopt a standard promotion strategy in such a diverse market. Distributors and adjacent service providers like Cango can coordinate resources, making the process more resilient.
Being a middleman
Apart from stepping into NEV business. Cango is striving to expand the business upstream including B2B and B2C. By the end of Q2 2021, the company has CNY 1.5 billion cash on hand, enough to support this new asset-light business. For example, owing to its relationship with registered dealers, Cango can provide demand-side insights from dealers to OEMs and vice versa. Cango helps dealers get vehicles they want. For B2C, Cango helps prospective car buyers find suitable cars in its dealer network. All of these are processed through their massive network on a tech-enabled platform.
In its Q2 2021 earnings results, the company reported over 50% of total revenues generated from its auto trading business segment. This figure looks significant, considering that Cango's expansion into the sector started in H1 2020. Though this part of the business currently posted a lower gross margin (being positive, meanwhile), we believe it is necessary, even critical, for Cango to expand to upstream segments. By doing so, it will synergize the auto financing business and reduce single business risk. More importantly, with the integration of car sources, financing, insurance and other after-market services, the company gets to strengthen the bond with its dealership network. We can find similar stories in the history of all the large car servicing companies.
For example, US firm CarMax integrated auto financing and used car business. It has been facing competition from online used car platforms in recent years. To address the problem, CarMax rolled out its 'omnichannel platform,' which is aimed at allowing customers to buy a car online, in-store, or through any combination of the two. Cango's new business is similar to that of CarMax, getting through the information asymmetry between buyers and sellers. Chinese dealers are also adjusting their strategies to acquire larger chunks of the auto value chain. Zhongsheng Group, a high-end vehicle dealer, is concentrating on the used car business. Another dealership brand China Grand Automotive's business model consists of related businesses like auto financing.
Risks
We consider Cango's expansion to upstream business risky. As per above, large Chinese dealerships have been expanding their business scope and they may have the same addressable market. But luckily, Cango is deeply rooted in lower-tier cities, which are less attractive for large competitors.
Most overseas-listed Chinese stocks are currently facing a number of regulatory risks. However, as we stated in our previous NIO analysis, the government is targeting tech giants, as well as education and gaming businesses. In other words, sectors that directly influence the social sphere. Auto dealerships are less likely to suffer from the crackdown.
Summary
Cango has decided to expand its business to new energy and other upstream business segments. This strategic orientation is well-weighted and mainly based on two points. The separation of NEV OEMs and dealers will come and go, with the two models coexisting for a long time. Based on global examples, business diversity is necessary for a small car servicing company to grow. In addition, Cango's business is highly dependent on the auto trading activity in China, which is back on a growth trajectory and will contribute to the company's growth. Notwithstanding, the tumultuous summer of 2021 saw Cango decline to a historical low. This has triggered the company to launch a share buy-back program. We consider Cango an interesting investment opportunity at these levels.
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Alibaba: A Bad Investment with Brilliant TechnicalsThe recent news about Alibaba's "donation" to the CCP agenda machine has sent the $BABA worshipers into full defensive mode. YouTube videos and Seeking Alpha articles on the equity have exploded in popularity and volume. Long term, investing in Chinese equities is a gamble but, if you're on the right side of the trade, you can certainly make a lot of money. This may or may not be the case with Alibaba. Present retail sentiment may likely force the stock upward but I think this will be taken as an opportunity by smart money to sell into strength. The retail money will be left holding a bag of CCP garbage. I'm (cautiously) short.
Didi looks 65% bullish - double bottom in the daily News just announced about didi:
Beijing was considering taking a stake in the ride-hailing company and possibly bringing it under state control. It’s unclear what size stake Beijing would consider taking in the company.
but in another source it showed2 billion dollars which is 5% from the company which is not a huge portion. 12 months pt for me is 23.
entry 9.07 for 440 shares