Sheng Ye Capital (6069.HK/SYC) is a leading supply chain fintech platform. Through its Dual-Engine, One-Platform strategy, the company harnesses industrial technology and digital finance to create a comprehensive supply chain finance ecosystem. Recently, SYC expanded SaaS-based technology solution in China’s infrastructure and medical supply chain finance industry, in order to provide intelligent matching of assets to capital, offering a one-stop SaaS and fintech solution for enterprises and financial institutions, while effectively addressing the financing needs and pain points of SMEs within the supply chain ecosystem. We believe the platform development of SaaS system will further solidify SYC competitive moat on the back of tech and industry know-how. We remain our BUY rating on SYC and lift PT of HK$15, implying a 53% potential upside. Our bullish view on SYC is supported by:
SYC is at the forefront of product innovation, providing purpose-built and end-to-end tech solutions to enhance efficiency among partners across the infrastructure and medical supply chain ecosystem. SYC invested Beijing Mengcheng Technology (MC Tech), a leading SaaS provider of engineering management solutions for the infrastructure sector, at RMB21m through a series B financing round with Tencent Co-lead Strategic Investment - Tencent Venture, and signed a strategic collaboration agreement with MC Tech for upcoming SaaS platform development. Management mentioned that MC Tech is managing over RMB3tn of projects and spanning >5k infrastructure construction projects, including railway, highway, and municipal engineering, it represents MC Tech’s existing project value over RMB1bn each. Also, Some of MC Tech’s key customers include central enterprises, SOEs, and private enterprises. As such, we think MC Tech solutions are highly acclaimed by numerous project managers and engineers, the strategic corporation with MC Tech and Tencent Venture continues to expand SYC customer base across diversified verticals with a strong flywheel effect, connecting to business partners of its FIs and anchors enterprise customers, as well as their respective upstream suppliers and downstream distributors, developing a comprehensive supply chain finance ecosystem in the infrastructure industry.
　　Potentially stronger user stickiness with customized SaaS products. Income from digital financing solution and sales of factoring assets contributed stable revenue to SYC with 50% CAGRs in 2022-2023E. Additionally, fintech platform-based income streams will contribute to an increasing share of revenue going forward. Management stated that fintech platform-based services and SaaS-based technology solution will start contributing turnover in the second half of this year, with a mid-term (2-3 years) and long-term (5 years) revenue target is 30%/10% and 50%/20% respectively. More specifically, by business segment, we forecast total revenue of fintech platform-based services /SaaS-based technology solution to grow at CAGRs of 50%/112% respectively.
　　Stable revenue growth for digital financing solutions. We expect SYC’s factoring assets could grow sustainable as we see huge demand for factoring services from SMEs esp. capital-intensive sectors (main SYC’s clients are from energy/ infrastructure) which face huge barriers of entry to obtaining funding. Generally, SYC has a solid client relationship with coverage of 11 core enterprise ecosystem, spanning over 1,600 entities, total platform users of over 8,200 and 62 funding partners. It offers flexible financial solutions to clients for the supply chain ecosystem. We believe the strategic focus on SME financing of banks and financial institutions in China, particularly bolstered by the government’s promotion of inclusive finance will support factoring asset demand in the upcoming year, particularly the “Notice 205” released by China Banking Insurance Regulatory Commission in Oct 2019. The notice requires the aggregate value of accounts receivables (ARs) from a debtor being an affiliated company of the factoring company must not exceed 40% of its total risk assets (vs. market norm 90%), this would encourage more collaboration with third-party companies. We expect SYC’s factoring interest revenue could grow sustainability and its leading position could be further solidified under such policy tailwinds.