What’s New
Transformation to become a digital financing, platform-based, and industrial technology service provider.
Recent investments in healthcare/infrastructure SaaS provider and collaboration with Tencent Cloud to accelerate growth in new business scopes.
Growth momentum expected to resume in FY22F with earnings CAGR of 29% in FY22-23F, despite the soft 1H21 given the temporary standstill due to transformation.
Lower FY21/22F earnings by 5-9% to reflect soft 1H21. Rolling over valuation base to FY22F, we lift TP to HK$11.2 on higher multiple. Maintain BUY.
Investment Thesis
Digital financing and industry technology transformation to fuel future growth: The transformation to become a digital financing, platform service, and industry technology service provider is expected to fuel future growth.
Broadening funding sources to fuel growth. The continuous efforts in diversifying funding sources and its digitalisation effort will lead to a 22%/44% CAGR in loan disbursement and loan facilitation growth in FY21-23F.
Asset quality stabilising in FY21F: With the normalisation of the China economy post-pandemic, we expect its overdue ratio to improve with credit costs at 39bps/34bps in FY21/22F versus 40bps in FY20.
Valuation
Our TP is based on a 2.5x (previously at 2.1x FY21F P/BV) FY22F P/BV, which is in line with its past 3-year mean. We believe this is justified by a 29% earnings CAGR in FY21-23F.
Where we Differ
We believe the market has yet to capture the growth potential following SYC’s business transformation to become both digital financing, platform service and industrial technology service provider. This not only may serve as the next growth engine but also helps to diversify risk and mitigate the issue of over- reliance on its own balance sheet expansion to fuel growth.
Embrace for the next growth era
Since the announcement to strategically transform into a digital financing and industry technology service provider, and to leverage its various technology strength to better embed into both its core buyers/SME supply chain ecosystem in January 2021, we have seen good progress in its business transformation for the past six months, with key initiatives and strategic investments to further strengthen its technology offering, which include the followings:
Launch strategic partnership with China Railway Capital.
Strategically invest in LinkedCare, an integrated management solution Software-as-a- Service (SaaS) provider for dental clinics and aesthetic companies.
Collaborate with Tencent Cloud in area of smart construction.
Strategically invest in Beijing Mengcheng Technology (MC Tech), a leading SaaS provider of engineering management solutions for the infrastructure sector.
Through the above collaborations, we believe this will strengthen SYC’s technology and digital supply chain platform offering to both its core buyers and SME clients, hence, to be better embedded into the core buyers ecosystem. This will enable SYC to better obtain and capture real-time and authentic mass transaction data within the ecosystem, which, in turn, enables it to provide better financing solutions to its SME customers and more importantly, to mitigate risk.
Soft 1H21 earnings expected only temporary
SYC reported soft 1H21 earnings, with net profit posted at Rmb16.7m, down 9% y-o-y and came in below ours and market’s expectation. Excluding gains from changes in fair value of the investment equity tranche in ABS issuance, profit posted +2% y-o-y. According to the management, the earnings growth slowdown was mainly due to its proactive business transformation, which led to a temporary standstill in business growth. However, as the digital finance and industry technology transformation, along with the continuous plaformisation effort, is reaching completion, growth momentum is expected to resume moving into FY21F.