Digital financing and industry technology transformation to fuel future growth. The transformation to becoming a digital financing, platform, and industry technology service provider will enable SY Holdings (SY) to become asset-light and fuel future growth.
Wuxi Guojin acquisition and loan facilitation to fuel growth. The consolidation of Wuxi Guojin enables SY to noticeably expand its factoring assets, which will fuel growth in its digital financing business. We also expect good progress in its loan facilitation business, with revenue growth at a 62% CAGR in FY21-23F to reach 13% of total revenue.
NIM to recover in FY22F on improving loan mix. SY’s NIM landed at 6.4% in FY21, impacted by macro uncertainty, where it focused on higher quality clients with impacts from lower interest rates in China. We expect its NIM to recover to the 7% level in FY22F, driven mainly by an improving loan mix with stronger demand from the infrastructure sector.
Valuation:
Our TP is now based on a 2.0x (previously at 2.5x FY22F P/BV) FY22F P/BV, so as to factor in the recent impact from the H-share volatility. The multiple is at 1x standard deviation of its price-to- adjusted BV.
Where we differ:
We believe the market has yet to capture the positives from the acquisition of Wuxi Guojin and its fast progress in expanding its asset-light loan facilitation business. The former helps to generate better scale and explore new opportunities while the latter helps to diversify risk.
Key Risks to Our View:
1) Deterioration in asset quality, 2) deterioration in the relationships with core SOE buyers, 3) a significant economic slowdown in China, and 4) competition from traditional financial institutions and internet giants.