Even with the underlying geopolitical tensions, China's economy remains one of the most important in the world. As a matter of fact, China is one of the fastest-growing economies in the world, thanks to big businesses and a massive middle-class population that is eager to spend money to further grow the economy.
That is clearly illustrated by the fact that consumer spending during the Lunar New Year surpassed the pre-pandemic level, driven in large part by a surge in travel. Going forward, experts anticipate that China's economy will achieve robust economic growth of anywhere between 4-5 percent this year on the backdrop of increased government spending, a stronger credit impulse, and significant consumer spending and confidence.
What’s more, the Chinese authorities, together with the Ministry of Commerce, have branded 2024 as the "Year of Consumption Promotion," which bodes well for businesses in the region. This explains why several analysts have started getting upbeat about Chinese stocks. In a recent CNBC interview, for instance, Gustav Rhenman, founder and CIO of Asia Growth Capital Management, said, “It is only a matter of time when we have a ‘serious turnaround’ in Chinese stocks,” and there’s a good reason for this.
Some of the top companies in China now trade at ridiculously low valuations, not seen in decades, with the MSCI China Index, for example, trading at a forward price-to-earnings multiple of less than 10x, compared to developed world equities at 18x.
As such, it is clear that Chinese equities offer attractive valuations, and one such stock that investors should consider looking into is AGBA Group Holding Limited (NASDAQ:AGBA).
Known as the one-stop financial supermarket providing ‘wealth and health’ to its customers with state-of-the-art technologies and passionate customer care, AGBA is a B2B and B2C business operating in Guangdong-Hong Kong-Macao Greater Bay Area (GBA). The GBA is made up of two Special Administrative Regions of Hong Kong and Macao and nine municipalities (Guangzhou, Shenzhen, Zhuhai, Foshan, Huizhou, Dongguan, Zhongshan, Jiangmen, and Zhaoqing in Guangdong Province), and there are great reasons why the company chose to set up shop here.
Boasting a population of about 86 million people, the GBA ranks as one of the world's largest financial services markets thanks to its $2 trillion economy, which accounts for 13% of China’s GDP. Taking that into account, coupled with an aging population, targeting the GBA market is a strategic move to capitalize on the surging demand for health and wealth products.
AGBA Group Holding Limited (NASDAQ:AGBA) is organized into four principal businesses:
Distribution Business: Sells a wide range of financial products to retail and corporate customers through various types of sales representatives and earns group commissions.
Platform Business: Through its proprietary ‘One Platform', the group provides access to products and supporting services through internal and external distribution channels and earns platform fees.
FintTech Business: Invests in FinTech companies, capturing strategic benefits as well as financial rewards.
Healthcare Business: Provides healthcare services to corporate customers through a network of doctors and clinics.
A deeper dive into AGBA’s operations reveals why the company has the potential to unlock significant shareholder value going forward. First, the company’s unique business model continues to be validated, as illustrated by the fact that it is now the top financial services provider in Hong Kong. The group currently services about 17% of the Hong Kong broker market and reaches more than 400,000 individual and corporate clients in the GBA. This is thanks to its network of over 1500 independent financial advisors, who generate over HK$1 billion in annual commissions for the company, in addition to distributing almost 2,000 financial products and services from global premier financial brands.
Secondly, the adoption of the company’s technology platform has been ramping up. The platform not only provides all necessary front-end client services and back-end operations support to the IFAs but also provides educational courses for its advisors. The platform business generates revenue by charging platform fees, between 15% and 27% of gross commissions, to advisors. What’s great about the platform is that as AGBA’s ecosystem gets more tech-centered, both efficiency and margins will improve substantially since operating costs don't increase linearly with the number of users.
The healthcare business already has a strong foothold in Hong Kong thanks to the integration with Dr. Jones Fok & Associates Medical Scheme Management (JFA), which has been operating since 1979. Since healthcare providers are the key drivers of the ecosystem, influencing both the quality of treatments and the cost of service, AGBA has successfully onboarded over 1200 doctors and specialists and has grown its network of clinics to over 800 locations.
As mentioned earlier, this business model is gaining significant traction, especially considering recent partnerships such as the one with HSBC Life and the strategic collaboration with Zurich (HK) Life Assurance. Additionally, AGBA Group Holding Limited (NASDAQ:AGBA) completed a $6.2 million private placement led by group president Mr. Wing-Fai Ng and the management team at a 40% premium to the current share price. This followed a $50 million equity purchase agreement with Williamsburg Venture Holdings, which further reaffirms investor confidence in the company’s future growth prospects.
That confidence hasn't been misplaced considering that the company generated $41 million in revenue for the first nine months of 2023. That was more than double compared to the first nine months of 2022, and management expects FY23 revenue to come in at about $160 million. Although AGBA Group Holding Limited's (NASDAQ:AGBA) current market cap is about $35 million, it is clear that the shares are heavily discounted when looking at the sectors it operates in. Despite the lack of direct peers that are publicly listed, AGBA can be compared to insurance brokerages and tech-enabled wealth platforms, which have an EV/sales average of 6.5x and 3.5x, respectively, while AGBA is valued at only 0.6x.
Another Asian-based financial service company that is worth looking into is MoneyHero Group (NASDAQ:MNY). The company educates people about personal finance, helps them decide which products are best suited for their needs, and facilitates getting the product. It also connects financial institutions with their target customers and helps them achieve their customer acquisition objectives. The company’s business model is based on two pillars:
Financial Products Platforms: which provides free, comprehensive information across 1,500+ financial products, from credit cards and loans to varied insurance solutions, facilitated by partnerships with over hundreds of commercial partners.
B2B Business: which leverages the company’s Creatory platform to expand its ecosystem and user reach by providing its digital technology solutions to third-party online channel partners and content creators, enabling them to monetize their user base through our existing relationships with financial institutions.
MoneyHero Group (NASDAQ:MNY) recently revealed that it currently serves more than 2.6 million monthly unique users across Hong Kong and Singapore and was on track to record year-over-year revenue growth of at least 60% in Singapore and 50% in Hong Kong for the month of January 2024. According to the company’s most recent financial release, MNY booked about $55.1 million in revenue for the first nine months of 2023, representing an 8% growth from the similar period in 2022, with the online financial comparison platforms accounting for 83% of this amount. Hong Kong’s top-line contribution continued to exhibit strong growth, further illustrating its high appetite for financial products.
A closer look at the company’s valuation reveals that MNY’s stock is also trading at a discount compared to the sector’s average. The company’s EV/sales ratio is about 1.7x, which is compared to the Chinese fintech average of about 3.8x, implying that the stock could also have more room to grow its valuation.
FinVolution Group (NYSE:FINV) operates in the online consumer finance industry in China and internationally. The company runs a fintech platform that is powered by proprietary technologies to connect underserved borrowers with financial institutions that offer products and services like loans and investment management. Cumulatively, the company serves over 29 million borrowers in China, Indonesia, and the Philippines.
According to the company’s recently released third quarter earnings for the period ended September 30, 2023, FINV’s net revenue increased 7.6% year-over-year to $438.26 million during the period, illustrating China’s economic resilience. Also, non-GAAP net profit per ADS attributable to FINV’s ordinary shareholders grew 1.4% from the year-ago value to $0.30.
Interestingly, management has been able to leverage the use of artificial intelligence-generated content to increase traction online, a strategy that has been particularly effective in international markets where growth rates continue to outpace mainland China. Moreover, the company’s loan collection team managed to get a loan collection recovery rate of around 89%, driven by its AI-powered chatbot.
Although the company’s stock is up roughly 8% over the past month, a number of analysts believe that there is still room for further upside. For instance, Nomura initiated coverage on the stock with a buy rating and a $6.03 price target, while Thomas Chong from Jefferies maintained a buy rating with a price target of $6.
And it's not only analysts who believe that FINV could move higher. A number of hedge funds remain bullish on the stock. For instance, Acadian Asset Management LLC recently increased its position in the company by 193.9% during the 3rd quarter, according to its most recent filing with the SEC, bringing its total stake to about 2.3 million shares worth $11.7 million. Other large investors who increased their positions in the company include Point72 Asset Management L.P. and Vident Investment Advisory LLC.
Yiren Digital (NYSE:YRD) is a FinTech and online consumer finance marketplace operating in China. The company brands itself as an AI-driven, one-stop select financial and lifestyle services platform, providing credit services and wealth management products to borrowers and investors through its proprietary technology platform. The company currently derives about 40%, 22%, and 9% of its revenue from loan facilitation services, insurance brokerage services, and post-origination services, respectively.
YRD recently reported Q3 23 earnings, and some of the highlights include a 55.9% increase in total net revenue to RMB1.3 billion (US$179.7 million) compared to the similar period in 2022, driven by the persistent and growing demand for our small revolving loan products. Total loans facilitated in the period reached RMB9.8 billion (US$1.3 billion), representing an increase of 20.3% from the prior quarter while the cumulative number of insurance clients served reached 1.25 million, a 10.9% increase from the preceding quarter.
"Over the past quarter, we invested in AI across the enterprise, and we have noted tangible progress in improving operational efficiencies and enhanced profitability," said Mr. Ning Tang, Chairman and Chief Executive Officer. "We are confident in maintaining our leading position as an AI and technology-driven financial and lifestyle services platform through continued investments in technological innovation."
A quick look at YRD’s valuation also shows that the company’s shares are trading at a discount based on a number of metrics. For instance, YRD currently has a P/E multiple of 1.01x compared to Chinese fintech’s median P/E of about 9x. In addition, the company has at least 3x the cash on the balance sheet that the value of your company currently has.
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