In a nice niche
　　Well-positioned to benefit from China’s fast-growingcommercial factoring segment, supported by favourablepolicies to promote SME financing
　　Key strengths: 1) Solid relationships with 10 core buyers, 2)Technology/data-driven risk management model, and 3)Deep knowledge in three focused industries
Substantial balance sheet expansion potential with flexiblemodel to result in fast asset turnover, with clear ROEexpansion opportunity
　　Initiate with BUY and target price of HK$8.9, implying 64%potential share price upside
　　Fast-growing trajectory. Sheng Ye Capital (“SYC”) is the leadingindependent commercial factoring provider in China with 2% ofcommercial factoring market share. We see great growthpotential for SYC as the company benefits from low factoringpenetration, favourable policies in prompting SME financing, solidrelationships with 10 core buyers, and a proven technology/datadrivencredit model. Its healthy balance sheet with fast assetturnover capability offers ROE expansion opportunities, which wesee as the main share price driver.
　　Where we differ: The market has underestimated SYC’s growthpotential, which is also boosted by fast asset turnover rather thansimply leveraging up. Hence, we opine that SYC’s valuation hasbeen mispriced given that the company is empowered by itsFintech ability rather than a traditional non-bank financial model.
　　Other catalysts: Notice 205 by CBIRC presents a great opportunityfor third-party factoring companies to grab more market share.
　　The ability to secure sufficient funding sources will help fuel afaster loan growth and higher ROE.
　　Valuation:
　　Our target price is based on 2.2x FY21F P/BV, which is in line withits past 3-year mean and backed by ROE of 16-19% in FY21-22F.
　　Key Risks to Our View:
　　1) Deterioration in asset quality, 2) deterioration in therelationships with SOE core buyers, 3) significant China economicslowdown, 4) rising competition from traditional financialinstitutions and internet giants, 5) potential policy risk to call formore stringent capital requirement and reserve buffer.