How to get into Hong Kong’s pre-IPO action

BYD: The Chinese EV-maker backed by Berkshire-Hathaway

The Chinese government’s policies on electric vehicles are causing the growth of the EV industry, and BYD is well-poised to benefit from this tailwind.

 

BYD is a major player in the Chinese market, and has grown to become a major manufacturer of automobiles, battery-powered bicycles, buses, truck, forklift, solar panels, rechargeable batteries, and most notably mobile-phone batteries.

 

Sales of its newest models have been extremely promising, with 31% year-on-year growth based on November 2020’s vehicle sale numbers despite a pandemic-stricken year.

 

While net revenue and profit fell (as expected) in Q1 FY2020, it rebounded quickly to 120% and 1,362% in the subsequent quarters, setting a record high for the company, and management expects Q4’s profit to be up 2,356% y-o-y. That’s…some pretty high standards to beat, even if they’re of your own.

 

Note that the company recently announced they intend to issue no more than 183 million H shares to raise funds, which will dilute profits and shareholder holdings in the short-term.

 

POEMS’ analyst used a Sum-Of-The-Parts analysis to derive BYD’s valuation:

• Original business (automobile, mobile phone, rechargeable battery and photovoltaic): HK $89 – 139 per share
• Power battery business: : HK $94 – 138 per share
• Semiconductor business: HK $8.90 – 12.50 per share

 

GDS: Data Centres in China for Rising Consumption

China is also one of the largest and fastest-growing digital economy in the world. Their rapid adoption of new technologies such as 5G, cloud computing, IoT and artificial intelligence has exponentially increased the volume of data created, transmitted, processed and stored, most of which will take place within data centers, with no signs of slowing down.

 

 

GDS is a leading high-performance data center and IT infrastructure service provider in China, with 98% of its self-developed data centers located in first-tier markets such as Shanghai, Beijing, Shenzhen, Guangzhou and Hong Kong. These are strategic areas with the highest density of Internet users, with a high proportion of data and applications that are mission-critical and latency-sensitive. 

 

Its contracts are 71% with cloud services customers, with a contract duration of 6 – 10 years.

 

Customers include Alibaba and Tencent, which account for 55% of total contracted area.

In terms of competition, the IDC market structure in China is 62.3% dominated by the 3 major telecommunication operators (China Mobile, China Unicom, and China Telecom).

But the downside with telco operators is that because they often rely on the operators’ own networks to connect, and customers lack the flexibility to connect with other operators’ networks. This leaves a gap for third-party IDC companies like GDS, which are neutral to operators and cloud service providers, so their customers can access all major telecommunications networks in China.

GDS leads the third-party IDC market with a market share of 21.9% (but 4.8% of the total IDC market in China).

For future growth, as of June 30, 2020, the Company has significant land reserves which could be used to build more data centers to capture enterprise-level clients in these key Tier 1 markets. In total, the Company holds a net floor area of 320,000 sqm for future development, which is double the room for development compared with the total net computer room area of its present 250,000 Sqm in operation

Some of the reports also reference original information sources in Chinese, so that can be really helpful for those of you who might have difficulties reading the Chinese language, but still want to ride on the growth of Chinese companies anyway.
Another potential tool to use is the Stock Analytics function on POEMS. If you’re using the POEMS 2.0 mobile app instead, then this is found under Watchlist > Stock Analytics.
Particularly useful if you don’t have a paid subscription for Bloomberg or Thomson Reuters data, because here you can see details on a stock’s financial data, business, valuations, operating performance, and more.
I personally prefer to cross-check and run my own numbers after that, but this serves as a good overall view first before I decide whether the stock piques my interest enough to delve deeper into research.

Get Access to Pre-IPO Hong Kong Stocks

What’s more, if you were bummed about missing out on several IPOs this year, fret not because on POEMS, you can also trade by buying 1 day before the stock’s official listing on the HKEX.

 

Some interesting counters worth watching include Kuaishou (Stock Code: 1024) which is ByteDance’s biggest (video app) competitor, or even the niche Suzhou Basecare Medical Device (Stock Code: 2170) which develops genetic screening and diagnostic devices to detect chromosomal abnormalities in embryos.

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Disclosure: This post is written in collaboration with POEMS by PhillipsCapital.