Get started

China

Is Evergrande the next Lehman Brothers ??China`s economic model is based on real estate investment to drive growth. 20 Mil apartment buildings per year. China`s residential property is 20% of GDP every year. Too much! Real estate activities in China close to 30% of GDP every year. Huge! Chinese Government is Bashing the private sector, look at GOTU and BABA for example. Evergrande, second largest property developer in China has more than $300 billion in debt! Evergrande has $83.5 million interest payment Sept. 23 and a $42.5 million payment on Sept. 29 Failure to to pay in 30 days can put Evergrande in default. Today Evergrande has a Market Cap of 30.099B! At its peak, Evergrande was traded 13.5X higher! Evergrande’s potential debt blowup can send shock waves through financial markets! Today was just the beginning.
HKEX:3333Short
by TopgOptions
11
XPeng Says P5 Had 6,159 Orders in 24 Hours of Official LaunchThe company said that 54 percent of those orders were for the LiDAR-equipped models. XPeng Motors said Friday that it accumulated 6,159 orders for its new sedan, the P5, in the first 24 hours of its official launch. The company announced Wednesday evening Beijing time that the P5 became available for order in China in six configurations with a subsidized price range of CNY 157,900 (USD 24,500) to CNY 223,900, and deliveries will begin in late October. XPeng said today that 90 percent of these new orders are for models that support XPILOT 3.5 and XPILOT 3.0, its autonomous driving assistance system. It's worth noting that this does not mean that all of these customers are subscribed to the XPILOT system, as they will need to spend additional money. XPeng did not disclose the percentage of customers who subscribed to the service. XPeng debuted a new naming scheme for the P5 model, with the P representing the model's highest level of intelligence, followed by the E and G. The numbers in the names of the different models represent their NEDC ranges. The P series, with the highest intelligence rating, offers a choice of 550 km and 600 km NEDC ranges, while the E and G series both offer a choice of 460 km and 550 km ranges. Among these models, only two models of the P series are equipped with LiDAR, priced at CNY 199,900 and 223,900 respectively. They can allow users to pay for a subscription to XPILOT 3.5 at a standard price of CNY 45,000, and users will be able to enjoy a discounted price of CNY 25,000 if they subscribe before delivery. The two E series models are priced at CNY 177,900 and CNY 192,900 respectively. They allow users to pay for a subscription to XPILOT 3.0 at a standard price of CNY 36,000, and users will be able to enjoy a discounted price of CNY 20,000 if they subscribe before delivery. The two models of the G series are priced at CNY 157,900 and CNY 172,900 respectively and do not support the XPILOT system. This article was first published by Phate Zhang on CnEVPost, a website focusing on new energy vehicle news from China.
NYSE:XPEV
by EqualOcean
Dada Nexus Beats Q2 2021 Earnings Estimates, Growth AcceleratesCreating extra value for JD.com's 530 million active users will be the company's next strategic endeavor. With the tumultuous unfolding around China's major New York-listed tech companies, plenty of mid-cap stocks have been affected as well, losing their market value in 2021. In some cases, however, investors' fear has little to nothing to do with the firms' real fundamentals. Dada Nexus (DADA:NASDAQ) may be one such company. The Chinese operator of on-demand delivery and retail platforms recently posted its Q2 2021 financials. This time, the key results slightly exceeded both the analyst consensus and the firm's own projections, showing a pro forma revenue growth of 81.3% (the revenue recognition model was changed in April) and CNY 549 million in net loss – the Street's average expectation was CNY 615 million. Dada was founded in 2014 as an "open local on-demand delivery platform" and took its present form after a merger with JD.com's (JD:NASDAQ) spinoff JDDJ in 2016; since the completion of that deal, it has been developing around a duo of products, boosting the core services' scope and building adjacent businesses and partnerships. In June 2020, the firm went public on Nasdaq, raising funds vital to stay competitive in the ongoing battle for Chinese consumers. A growth-stage company, Dada is scrambling for a larger market share while moving towards profitability. Throughout the June quarter, its expansion continued. This article looks at the key indicators' dynamics to analyze Dada Now and JDDJ's performance within those three months. We first crunch the newly reported data, then calculate key ratios to track the progress in financials and unit economics. To top it off, we provide a glance at Dada's tech initiatives beyond the two platforms. "JD's over 530 million users" and COVID-19 In the twelve months through June 2021, the number of JDDJ's active users reached 51.3 million, increasing by 58.8% year-on-year. Dada relates this growth, among other things, to its cooperation with JD.com. During the earnings call, the company's executives stated that it "continued to win customers' trust" and is going to proceed with the "in-depth cooperation with JD to better serve the omnichannel and on-demand needs of JD's over 530 million active users." In addition, a new tool is being constructed at the intersection of the two digital ecosystems: 'Fujin', the former's entry point within the latter's app, has been tested in a handful of cities, including Shenzhen and Shanghai. The duet's convergence is happening amid a post-COVID boom in the Chinese on-demand retail market. The number of users in the space has lately skyrocketed and is projected (link in Chinese) to grow at a 31% CAGR from 2019 to 2023. Consumers have changed their shopping habits forever. It's also crucial that despite the magnitude of new possible outbreaks in China, this trend will remain strong, as the fix-cost-burdened offline stores are embracing online traffic. And Dada is among the country's top platforms that drive brick-and-mortar players' online sales, accelerating their adoption of digital tools. From the ESG perspective, COVID-19 has pushed Dada Group to shoulder more social responsibility. Its executives stated that the company had worked "closely with local governments to provide the daily supplies and the on-demand delivery for the customers," and, as a result, "received recognition from the government." More merchants, new partners and categories Users are just a part – although the most critical one – of the story. The supply-side matters as much. As per the company, this quarter, JDDJ made significant progress in category expansion. In retrospect, Dada started its business with groceries and has now covered a number of areas, such as pharma and apparel. By now, it has been taking the lead in the supermarket category and seeking partnerships with big chains. By the end of Q2 2021, hands had been shaken between Dada and "80 chains out of China's top 100." The most recent attempt in the consumer electronics arena was emphasized a couple of times in the investor conference. As on-demand retailing has gradually been recognized by smartphone manufacturers, Dada has partnered with hundreds of distributors and established cooperation with Apple and vivo, among other major brands. Besides, the company stepped further into the PC category, cooperating with Microsoft, Asus, Dell and Alienware, among others. In response to an analyst's question, the executives disclosed that the potential of some new categories, including home appliances and cosmetics, will be further explored. User acquisition at full pelt In Q2, Dada's total expenses have added to around CNY 2.21 billion. The sales and marketing cost grew from CNY 386 million in Q2 2020 to CNY 824 million in Q2 2021. According to the unaudited financial results, this boost was mainly driven by the rising "incentives given to JDDJ consumers" and "referral fees paid to retailer store staff and third parties" to attract new users to the platform. Considerable investment was also directed to R&D, showing the intention to build comprehensive tech products on top of the company's commercial network. (One is Haibo.) The operations and support expenses reached CNY 1.14 billion, compared with CNY 1.10 billion in the same quarter of 2020. The rise in rider cost stemming from the increasing intra-city delivery order volume mainly contributed to the accretion of this category; but this was partially offset by the decrease of rider-related costs incurred by the last-mile delivery business model upgrade – "effective since April 2021, the cost of riders for last-mile delivery services has been directly paid through third-party companies instead of through the company." Even though the company experienced massive revenue growth in Q2, the spending on market expansion has kept the net profit margin at low levels. On a sequential basis, though, Dada improved its net profit margin, thanks to the efficiency gain in operations and consumer incentives. Unit economics steadily improving Positive dynamics in absolute figures, be it revenue or user pool growth, are never enough to claim success for a pre-profit platform economy enterprise. Dada's key business ratios, nonetheless, show some progress, too. The trailing-twelve-months (TTM) revenue of JDDJ jumped from CNY 1.10 billion in Q4 2019 to CNY 2.97 billion in Q2 2021. In the meantime, the number of the platform's new users has been growing steadily, from 24.4 million to 51.3 million, up by 110.2%. The average revenue per user (ARPU) thereby rose from CNY 45.20 to CNY 57.90. Using Meituan's Q2 2019 number (53.6%) as a proxy for quarter-on-quarter user retention rate (as opposed to customer churn) and the only assumption in this analysis, we found that JDDJ's user base may not only grow on the TTM basis, but the speed might have been accelerating continuously over the past eight quarters, which was perhaps caused by the platform's significant word-of-mouth marketing potential and effective referral system. New tech, no red flags Reporting a financially solid three-month period, Dada announced a few other updates this time. For one thing, it included an extra 1,000 stores into SaaS Haibo's network. The company is also developing an open autonomous delivery operation system, enabling on-demand retail applications for various hardware providers. The system has been tested and reportedly adopted by JD's SEVEN FRESH and Yonghui Superstores. Both projects are narratives to keep tabs on. Those are highly likely to become key differentiators in the upcoming maturity phase of the on-demand delivery and retail market. Over the past quarters, Dada Nexus has been growing at high double digits; good fundamentals and a balanced tactical arsenal are set to protect its market position. For the full article with the charts, please visit the original link.
NASDAQ:DADALong
by EqualOcean
long position < we are hold it for 6 - 12 monthPlatON, initiated and driven by the LatticeX Foundation, is a next-generation Internet infrastructure protocol based on the fundamental properties of blockchain and supported by the privacy-preserving computation network. “Computing interoperability” is its core feature. By building a computing system assembled by Verifiable Computation, Secure Multi-Party Computation, Zero-Knowledge Proof, Homomorphic Encryption and other cryptographic algorithms and blockchain technology, PlatON provides a public infrastructure in open source architecture for global artificial intelligence, distributed application developers, data providers and various organizations, communities and individuals with computing needs.
Long
by mustafa_abdullah16
Pinduoduo: Stellar Performance Reinforces Industry PositionChina's largest e-commerce company is transforming its development strategy. Pinduoduo turned losses into gains in the second quarter of 2021, defending its leading position in the Chinese e-commerce area with 849.9 million annual active buyers. Pinduoduo mainly focuses on lower-tier cities' customers and follows a 'universal social welfare' way to expand its business. Agricultural products and reinforcing networks among farmers and customers may become the next profit points for the company. Dazzling financial results On August 24, 2021, Pinduoduo (PDD: NASDAQ) held it's Q2 2021 earning call, showing rather impressive financial results. Its stock surged over 20% at the beginning of that trading day. Pinduoduo turned losses into gains for the first time in the second quarter of 2021. In Q2 2021, the company achieved revenue of CNY 23.05 billion, up 89% year-on-year. Its operating profit reached nearly CNY 2 billion (with non-GAAP operating profit of CNY 3.19 billion), compared with an operating loss of CNY 1.64 billion. In the remarkable quarter, the company received gains (net income attributable to ordinary shareholders) of CNY 2.41 billion, which is a big move compared with a net loss of CNY 0.90 billion in the same quarter of 2020. The company's basic earnings per ADS increased to USD 0.30, and diluted EPS reached USD 0.27. At the same time, its annual active buyers reached 849.9 million as of June 30, 2021, and average monthly active users (MAUs) increased to 738.5 million, accounting for 87% of its annual active buyers, defending its leading position in China's e-commerce area. Analyzing the financials, we found that Pinduoduo's cost control contributes the most to the result. Due to increased promotion and coupon expenses, the company's sales and marketing expenses only increased 14% to CNY 10.39 billion. In comparison, general and administrative costs only increased 10% to CNY 0.43 billion, compared with the same quarter in 2020. Its operating margin and the net margin reached a historical high in the past three years, accounting for 8.7% and 17.9%, respectively. Notably, its sales and marketing expenses ratio has been cut to 45%, compared with 81% and 73% for the same quarter in 2019 and 2020, showing its consistent cost control efforts. When dissecting its revenue structure, we found online marketing services still act as the primary resource of its revenue, which reached CNY 18.08 billion, up 64% year-on-year. According to the earnings call, this was due to the continued increase in merchant activities while merchants are exploring new ways to engage with users. Meanwhile, revenues from transaction services reached CNY 3.01 billion, surging 164% year-on-year, owing to the fulfillment and services provided in the new Duo Duo Grocery platform. As for the revenues from merchandise sales, as a temporary way to meet user demand for specific products, the income from this section was CNY 1.96 billion. Agriculture may become the key to its future As one of the fastest-growing e-commerce companies globally, Pinduoduo has focused on lower-tier markets' consumption demand, becoming famous for value-for-money goods. Consumers can purchase products at a lower price as a group on its merchandise platform. In this way, consumers are allowed to share feedback regarding products on their social media accounts, further amplifying the advertising influence of the company at the same time. Pinduoduo only needed two years to gain CNY 100 billion GMV (in contrast, Ali Group and JD used five and ten years, respectively). The company went public on Nasdaq in July 2018. Then in March 2021, it became China's most prominent e-commerce giant in terms of MAU. The company is infamous for some of its products' poor quality. Even though most of them are cheap, the quality is often worse than it's desired by consumers. To resolve this issue, here are two solutions: the company could build a higher quality sub-platform, or a more 'universal-type social welfare' platform, with which it can gather profit from a broader population. Pinduoduo chose the second one. In April 2019, the company launched a critical transformation, building the Duo Duo Farms platform to help farmers in China's impoverished counties create new online sales channels. In traditional ways, farmers sell primary products to dealers, and dealers trade themselves. When customers purchase the product, the price has been increased much higher than its cost, which harms both farmers and customers. Then, when PDD becomes the mediator, it connects farmers directly with consumers across the country and applies customer-to-manufactory (C2M) to help them build their brands, forming a win-win situation. By the end of 2020, the platform has helped over 1.13 million farmers to sell over 2.06 million tons of agricultural produce. We think Pinduoduo's transformation had a positive impact on its business operations. Before 2020, Pinduoduo had adopted a low-cost publicity model to convert the advertising fees payable to the media into rewards for users who introduce new customers. However, at this stage, we believe that since user numbers are gradually approaching the ceiling (as over half of the people in China are Pinduoduo's users), the model of wildly attracting new customers may no longer be suitable for the company and is difficult to bring profit growth. Facts have also confirmed our idea that the growth rate of the company's MAUs has been gradually slowing down since 2019. So Pinduoduo turned its developing direction to retain its users and add more value instead of attracting more users. Focusing on China's most prominent supply side is a good strategy – after all, it is a blue ocean with few competitions. Hence, we are optimistic about the long-term development of Pinduoduo and believe that its agricultural focus might generate new opportunities. Valuation and bottom line We used EV/revenue and P/B ratio to value the company. Considering that the company has been able to turn losses into profits and its competitors have much lower ratios, we decided to use the adjusted historical average method. From the chart, it is obvious that the ratio is at a low level, which we think is mainly caused by the regulation changes in China recently. Based on its current financial performance, momentum, and competitive landscape, we calculated that 13.5x EV/revenue and 17.5x P/BV is an appropriate valuation for Pinduoduo in 12 months, which corresponds to a target price of USD 141.52. Key risks 1. Pinduoduo's largest risk comes from possible conflicts with registered merchants. The company provides a favorable discount at the expense of downtrodden platform merchants. Besides, the merchants are the primary resources that benefit most of Pinduoduo's promotion activities. Small-scale merchants find it difficult to survive on this platform. In the long run, we think it will lead to the weakness of the supply side and harm the whole platform. 2. Another risk is that the problem of low-quality products still exists. Since the Pinduoduo platform has more razor-thin margins than other platforms, many merchants chose to sell defective goods in Pinduoduo while selling better goods on Tmall and JD.com. We think it is not conducive to the original impression transformation of the company in the long term. For the full article with the charts, please visit the original link.
NASDAQ:PDDLong
by EqualOcean
XPeng Launches P5 Sedan with Starting Price around USD 24,500The company has secured a supply partnership with SK Innovation (SKI), a South Korean power battery supplier, which will provide it with high nickel-based Li-ion batteries with 80% nickel content. After two months of pre-sales, XPeng Motors' new sedan, the P5, officially went on sale on September 15 at prices several thousand CNY lower than the pre-sale prices. XPeng announced at a press conference on Wednesday that the P5 is immediately available for order in China in six configurations with a subsidized price range of CNY 157,900 (USD 24,500) to CNY 223,900, and deliveries will begin in late October. The exact post-subsidy pricing for these models is as follows: 600P CNY 223,900 550P CNY 199,900 550E CNY 192,900 460E CNY 177,900 550G CNY 172,900 460G CNY 157,900 For comparison, XPeng's flagship sedan, the P7, has a starting price of CNY 229,900. The P5 went on pre-sale on July 17 with a price range of CNY 160,000 (USD 24,700) to CNY 230,000. XPeng debuted a new naming scheme on the P5 model, with P representing the model's highest level of intelligence, followed by E and G. The numbers in the names of the different models represent their NEDC range. The P series with the highest intelligence level offers 550 km and 600 km NEDC range options, while the E series and G series both offer 460 km and 550 km range options. The battery for the 460 km range model is a lithium iron phosphate battery, while the 550 km and 600 km versions are ternary lithium batteries. XPeng previously boasted that the P5 is the world's first LiDAR-equipped model, but it is worth noting that only the P Series is equipped with this component, while the E Series and G Series models are not equipped with LiDAR. In terms of intelligent configuration, the P series comes with XPILOT 3.5 driver assistance system, the E series comes with XPILOT 3.0, while the G series does not offer this system. The XPILOT 3.5 enables the extension of NGP (Navigation Guided Pilot) from highways to city roads. The standard price of XPILOT 3.5 is CNY 45,000, and subscribers will be able to enjoy a limited-time discounted price of CNY 25,000 if they subscribe before delivery. The standard price for XPILOT 3.0 is CNY 36,000 and 20,000 if users subscribe before delivery. The urban NGP will allow high precision navigation and assisted driving, adapted to China's challenging urban road conditions. NGP will also be upgraded to NGP-L - a highway NGP with LiDAR - to enable safer and more capable assisted driving on China's highways and expressways, the company said. XPeng's existing ACC and LCC systems will also be upgraded and enhanced to ACC-L and LCC-L status in P5, which incorporates LiDAR to enable P5 to identify congested vehicles earlier and stationary vehicles more accurately. "With the P5, we have delivered a new level in sophistication and technological advancement for smart EVs in China, at a competitive price point," said He Xiaopeng, Chairman and CEO of XPeng. "We believe this is an age of intelligence, and that intelligence will redefine mobility as a whole. Now we have made the best-in-class smart family sedan available at the CNY 200,000 price range, bringing some of the most advanced driver assistance functionality to China's vast and fast-growing middle-class consumer base," He said. "We have drawn inspiration from customers' feedback, especially during the pandemic, and from the best models in the conventional family sedan and recreational vehicle (RV) class, while taking functionality and features to a whole new level," He added. This article was first published by Phate Zhang on CnEVPost, a website focusing on new energy vehicle news from China.
NYSE:XPEV
by EqualOcean
Do Not Expect the Next Tencent or Alibaba to Come from ChinaAntitrust, reform in education, real estate and medical care policies, Common Prosperity... all of these show that China is undergoing earth-shaking change. These changes have brought large uncertainty, making many investors afraid to invest in Chinese projects and companies. However, over the next decade, China sure will become the world's largest economy. How to better understand the opportunities and risks of the Chinese market and deal with certainty and uncertainty is a crucial problem. EqualOcean launched a series of research, China's Future Investment Watch, hoping to provide clues for global investors. It is said that one of the most regrettable decisions of Richard Li, PCCW chairman and son of Li Ka-Shing, was not investing in Tencent in 2000. Indeed, the Tencent-led 2C Internet giants, such as Alibaba, Baidu, DiDi, Meituan, and ByteDance, experienced a golden age from 2000 to 2014 and have an increasing influence in China, resembling FAANG (Facebook, Apple, Amazon, Netflix, and Google) in the United States. Some of the companies are now deeply rooted in Chinese life and help their investors make impressive gains. However, we believe that the investment logic of China has changed currently, and investors who plan to invest in China now or in the future should know the new logic behind recent events. We will display the changes in three aspects: political, economic, and people. New tones in the Chinese political environment First of all, we think the Chinese political environment has changed, especially in the past four years. Since the advent of 'Modern Times' in China, the Chinese have been adhering to a rising belief in 'Industry Salvation' – or the transformation of the whole country through industrial advances. Therefore, the Chinese government has been focusing on supporting the development of the traditional industrial business in the first decade of the 21st century to raise the country's manufacturing power and quickly improve its international competitiveness. At the same time, the Chinese government has been looking upon the Internet as a relatively inefficient investment environment, and Internet companies receive little support officially. Unable to receive domestic help, Internet companies have to turn to VC/PE in developed countries or even go for cross-border IPOs. Owing to the capital support from VC/PE in the developed market and the neglect of policies, the Internet industry has experienced a long period of 'barbaric' growth. Many companies have begun to stand out during this time, such as the well-known Alibaba, Baidu, and Tencent. Finally, from about 2013 to 2014, the Chinese government realized the advent of the digital age and the importance of the Internet. However, as the Internet is an emerging industry for China and the development path of other countries is difficult to learn from, Chinese regulators have been paying attention to finding a balance between growth and structural optimization. Between 2013 to 2017, we believe that China paid more attention to the growth side of the Internet instead of setting restrictions to optimize the structure of the Internet industry. Many policies can testify to the point; in November 2014, during the First World Internet Conference, the Chinese premier, Keqiang Li, pointed out that the Internet is a new tool for the Mass Entrepreneurship and Innovation national strategy; in June 2015, the China Ministry of Industry and Information Technology (MIIT) issued a notice to lift foreign ownership restrictions in the e-commerce sector, while the China State Council issued guidance to encourage the development of cross-border e-commerce companies simultaneously. However, since late 2017, the Chinese government has changed its focus to acting as the Internet's support in terms of industrial (and technology) and legal compliance for Internet-related companies (the structural optimization side). Since November 2017, the policy document issuance has evolved to combine Internet concepts with general industrial and put forward concepts of 'Internet plus Advanced Manufacturing and Industrial Internet'; these were still being emphasized in official documents up to 2021. At the same time, the 2020 Central Economic Work Conference proposed 'strengthening antitrust and preventing disorderly capital expansion' as one of the key tasks in 2021. In December 2020, Alibaba, Tencent, and Hive Box Technology were punished, and the State Administration of market supervision also investigated Alibaba for creating a suspected monopoly. In March 2021, the State Administration of market supervision made administrative punishment decisions targeting many Internet giants, including Alibaba, Tencent, JD.COM, ByteDance, and Meituan. In general, the emergence of large Internet companies such as Tencent and Alibaba was largely due to the neglect and laissez-faire of national policies from 2000 to 2013. More importantly, the neglect of policies has led to chaos in the industry, such as unfair competition, 996 culture, and P2P lending scams. With the endless emergence of reform policies, Internet companies have gradually recovered from the 'barbaric' growth stage to arrive at a relatively normal growth stage. GDP growth driver becoming ineffective in the next decade Second, the growth pattern of Chinese GDP in the past two decades is also a driver. In economics, GDP is defined as: GDP = Consumption + Investment + Government Spending + Net Exports (GDP = C + I + G + NX). After China joined the WTO in 2001, for a long time, China's economic growth mainly depended on official investment and trade surplus. Relying on the whole industrial chain system and developed light industry, China ushered in seven years of high GDP growth from 2001 to 2007. However, such a growth mode is criticized by other economies because it relies too much on the I and NX. High net export indicates a high dependence upon foreign trade, and the excessive investment made by governments causes serious overcapacity, resources wasting, and environmental damage. These are the problems currently being solved by China, which proposes to increase the proportion of consumption-driven growth (which is much higher in developed countries). The slowdown of economic growth is one of the consequences. This is also the main reason why China has asked for speed reduction in recent years. Besides, China's economy grew into the world's second-largest economy one decade ago. It is difficult to maintain a high growth rate with such a large GDP base. Then from 2007, the GDP growth showed a downtrend. We believe that the GDP growth rate change is an important reason for the rapid expansion of Internet companies from a valuation standpoint. As we all know, Discounted cash flow method (DCF) is often used by fund managers as an absolute valuation tool. One of the important parameters is the terminal growth rate, and the countries' GDP growth rate is used as the reference for this rate. The decline in terminal growth rate means an increase in valuation, even if the companies' operating remains consistent. We mentioned that China's GDP growth rate has been declining since 2007, which means that downward GDP boosted Internet companies' valuation, especially overseas-listed companies. We believe that this indirectly accelerates the development of Internet giants. Nevertheless, we think GDP growth has stabilized within 5% to 6% level since the pandemic 2020, and China also said that it no longer pays attention to growth figures. We believe that in the past, the driving effect of downward GDP growth has gradually disappeared. The valuation of the Internet industry is gradually returning to rationality and it is difficult to reproduce the explosive growth. From the 2C era to the 2B era Third, To-Consumer (2C) companies' losing of competitive advantage is also a factor behind the change of the investing logic. In the past two decades, the most well-known players have been all the 2C companies. Such companies mainly gain profit from individual consumers, either directly (self-operated e-commerce and individual services) or indirectly (advertising and commission). Before 2017, the vast majority of Internet companies actually growth along with growing traffic. In other words, part of the company's growth came from the growth of customers and Chinese Internet users. However, with the number of Chinese Internet users reaching the ceiling (the growth rate of 2C companies' customers is slowed down). The companies that were previously relying on user growth need to change their strategies in order to achieve further development. Therefore, many companies have chosen the road of horizontal development, accelerating financing acquisition and marching other industries. There are many temporary winners, such as Tencent and Alibaba. Though it seems like the only way they can take when user bases reaching the ceiling (The penetration rate has grown to over 70%, as chart shows), we do not think all horizontal development 2C companies will succeed because it is hard for such companies to maintain their existing advantages in such a way. Hainan Airlines (HNA) is a bad example. In 2003, HNA began to implement diversified strategic transformation – that is, a horizontal development strategy. After the crisis in 2008, HNA began to accelerate overseas acquisitions. From a single local air transportation enterprise, it has developed into a giant operating in dozens of industries such as air travel, modern logistics, science, and technology. In its heyday, the company had assets of up to CNY 2.5 trillion, ranking 170 in the world, and owned the equity of many well-known companies, such as Hilton Hotels, Deutsche Bank, and Virgin Australia. However, the company's horizontal development over the years has brought high liabilities and serious liquidity problems, even default problems. Finally, in January 2021, the HNA Group went bankrupt. Except for HNA, many other giants also suffer from the same problems, such as Wanda Group and Anbang Group. Based on all these events, we think 2C will find it hard to maintain its previous high growth in the next decade, beginning in 2021. In contrast, To-Business (2B) companies do not charge from individual customers and do not rely on the traffic-oriented business model. A significant reason why investors did not favor 2B companies before 2017 is that s2Cks prices rose slowly, which was not in line with the rapid capital increase desired by Chinese and foreign VC/PE. However, when the growth of 2C companies slows down, the values of 2B companies may become understood. We believe that 2B companies will become a new direction for China's development in the future. In other words, it is not easy to see such fast-growing 2C companies as Pinduoduo in China in the next decade. Heading toward a semi-developed market In conclusion, on the one hand, we believe that the standardization of policies, the decline of economic growth, and Internet users' situations all indicate the development phase of China: the Chinese market is switching from an emerging market to a semi-developed market. Moreover, based on observation of the macro and micro levels, we believe that this trend is happening rapidly and irreversibly. On the other hand, we believe that China is learning lessons from Germany now rather than the United States. Germany has many hidden world champions in different micro-sectors, such as Hauni Maschinenbau and JF Hillebrand. This is also in line with China's Specialization, Refinement, Differentiation, Innovation of SMB strategy – that is, to support technically advanced small and medium-sized companies who focus on specific markets, rather than diversify giants that covering many different businesses such as Alibaba and Tencent. Bottom line For investors, based on the above analysis, we still firmly believe that China is a market worthy of investment. However, the logic of investing in China has changed, and small and medium-sized Chinese companies with core technology (potential invisible world champions) may become high-quality investment targets in the future.
NYSE:BABA
by EqualOcean
XPeng Says Its Supercharging Stations Reach 400XPeng expects to expand its supercharging stations to dozens of cities, including Taiyuan, Tangshan, Nantong and Luoyang, within the next three months. XPeng Motors said Tuesday it put 102 new supercharging stations into operation in August, bringing the total to 400, covering 101 cities in China. Sixteen of those superchargers are located in highway service areas, bringing it to 27 superchargers in highway service areas, XPeng said. The company added 36 new destination charging stations in August, bringing the total to 81, it said. To date, the total number of XPeng-branded supercharging stations and third-party supercharging stations where users can enjoy a certain amount of free charging benefits is 1,596, the company said. In comparison, XPeng's local counterpart NIO put 87 new battery swap stations into operation in August. It also added 56 supercharging stations and 73 destination charging stations in August. In addition, NIO added one NIO House, 13 NIO Spaces, and three NIO Service Centers in August. As of September 13, NIO had 445 battery swap stations, 300 fast charging stations, and 502 destination charging stations, according to CnEVPost database. XPeng announced on July 12 that it is reducing the free charging allowance of 3,000 kWh per year offered to subscribers to 1,000 kWh per year as of August 1. As XPeng customers continue to expand, the reduction in the free charging allowance is to ensure that the XPeng supercharging system can provide better and sustainable replenishment services to customers, the company explained, as quoted by sznews.com. This article was first published by Phate Zhang on CnEVPost, a website focusing on new energy vehicle news from China.
NYSE:XPEV
by EqualOcean
Li Auto, XPeng, NIO Top Insurance RegistrationsThe NEV sales volume accounted for 17% of total new car sales in the month. Li Auto had the highest number of insurance registrations among China's new car makers in August, with 9,394 units, according to a table released Saturday by Sina Auto based on data from the China Automotive Technology and Research Center (CATARC). XPeng Motors came in second, with 6,945 insurance registrations in August, followed by NIO with 6,476. Earlier this month, Li Auto released figures showing it delivered a record 9,433 Li ONEs, the company's only model, in August, up 248 percent year-over-year and up 9.8 percent from July. XPeng said it delivered 7,214 vehicles in August, up 172 percent year-over-year but down 10 percent from July. NIO said it delivered 5,880 vehicles in August, up 48 percent year-over-year and down about 26 percent from July. The CATARC figures are based on insurance registrations for vehicles and are closer to true retail sales each month, as vehicles must have insurance in place and in effect before they can be licensed. Neta Automobile ranked fourth with 6,038 insurance registrations in August. The company previously said it delivered 6,613 vehicles in August. Leap Motor ranked fifth with 4,777 insurance registrations in August. The company previously said it delivered 4,488 vehicles in August. WM Motor had 3,144 insurance registrations in August, the CATARC data show. It has not yet released sales figures for August. Arcfox, the BAIC-owned EV brand, had 856 insurance registrations in August, compared with 642 for Seres, which sells cars in partnership with Huawei, 469 for HiPhi and 408 for Dongfeng Motor's premium EV brand Voyah. This article was first published by Phate Zhang on CnEVPost, a website focusing on new energy vehicle news from China.
NASDAQ:LI
by EqualOcean
Tesla Hikes Model Y Performance Price in China by USD 1,550The company's CEO Elon Musk said to roll out an entry model in 2023. Tesla announced on Weibo on Saturday that the starting price of the Model Y Performance in China has been raised by CNY 10,000 (USD 1,550) to CNY 387,900, with those who have previously reserved unaffected. The Securities Times quoted a Tesla China public relations source as saying that the price increase was mainly due to fluctuations in manufacturing costs. On January 1, Tesla announced the official launch of the China-made Model Y and the new Model 3. The Model Y Performance starts at CNY 369,900, down by CNY 165,100 from the previous price of CNY 535,000. The Model Y Performance has not been delivered, and Tesla's website previously showed the version was expected to begin deliveries in the third quarter of 2021. After Tesla raised the price today, the website shows deliveries are expected to begin in the fourth quarter. In May, the price of the Model Y Performance was raised from CNY 369,900 to CNY 377,900, and in August, the model went from pre-sale "pending regulatory approval" status to on-sale status. The China-made Model Y Standard Range and Long Range versions remain unchanged at CNY 276,000 and CNY 347,900 respectively. Interestingly, a Chinese Tesla owner said on social media Friday that his Model Y received a push from Tesla about a software package to improve acceleration performance. The updated information shows that the owner can shorten the vehicle's 0-100 km/h acceleration time from 5 seconds to 4.4 seconds by paying CNY 14,100 (USD 2,190). The owner did not specify which version of his Model Y is, but this should be the long-range version with dual-motor all-wheel drive, as Information on Tesla's website shows that only that version has a 0-100 km/h acceleration time of 5 seconds. In comparison, the Model Y Performance has a 0-100 km/h acceleration time of 3.7 seconds. This article was first published by Phate Zhang on CnEVPost, a website focusing on new energy vehicle news from China.
NASDAQ:TSLA
by EqualOcean
FITCH NEWS - TRADABLE MAINLAND REAL ESTATE INDEX - HKG - DAILYCool down on big news as we can see, by zooming out, that the increasing price have found strong resistance and started a durable wide range. The range is clear in this chart, the top is illustrated by the blue line and the bottom by the black line. The bleu line is a resistance tested multiple times , repeat failed attempts leading to a price fall and possibly weakening the uptrend chances believes. The red arrow shows probably where the biggest failure has happened. Mega high volumes and a nice wig. The black line represents a probably super strong support. Beware of fake breaks, it has happened in the past. The little dotted line shows possibly how the price is evolving trying to get out of the range. Fitch news has created an interest about what impact this could have globally. For the moment zooming out we can see that it is just lot of noise for not much as this level have been reached several times before and was expected. Now it is probably more convenient to observe this black line level and see what happen. High volumes involved would show a clear direction. Daily, Weekly, monthly : yes, but not to be observed in hourly. ______________________________________________________ Thanks for the like and shares, really appreciated! This idea is not a financial advice but just a sentiment.
SSE:H11143
by Diallo_Charts_Ideas
iQIYI Achieves Steady but Slow Growth in Q2 2021China's online entertainment service company iQIYI released its unaudited Q2 2021 financial results on August 12. The revenue growth was rather unimpressive, while the company has been implementing strategies around expanding market presence, diversifying content, and securing a larger user base in light of future growth. iQiyi (IQ:NASDAQ) is an online entertainment company in China, providing a variety of video streaming services and premium content to worldwide users. The company's deep-learning-based predictive algorithms utilize third-party content to build content libraries catering to the diverse tastes of its users. A glance at the Q2 2021 financials According to iQIYI's unaudited financial results, the company's revenues reached CNY 7.6 billion in the second quarter of 2021, a 3% YoY increase. In contrast, Tencent's total revenue achieved a year-over-year increase of 23% during the same quarter. Total subscribing members reflected a slow growth as well, increasing 106.2 million by June 30, 2021, up only 1.2% year-over-year. However, the company's operating loss and diluted net loss showed a decline from the previous year. Specifically, during this quarter, iQIYI's operating loss was CNY 1.1 billion and its operating loss margin was 15%, compared to CNY 1.3 billion and 17% in 2020, respectively. The decreased net loss partially resulted from iQIYI's diversified content and latest movie series, including theatrical, S-rated network, and original movies under the Premium Video On Demand (PVOD) model. For PVOD movies distributed through a paid subscription, the company earned 42% of revenue share despite other content providers. The content distribution revenue did not have positive financials compared to the other two revenue streams, this part dragged down 20% from the same period in 2020 due to fewer barter transactions and increased cash transactions that caused offsets. Barter transactions determine the value of content revenue estimated by the company's internal management. iQIYI's expenses also played a critical role in balancing the second quarter's financials. Specifically, the costs were flat compared with the same period in 2020. Unlike the first quarter of 2021, when the company's content costs had an 8% increase from the same period in 2020 due to the decline of licensed content cost, the second quarter returned to the flat level. The R&D and general expenses also had a slight year-over-year increase of approximately one-to-two percent in this quarter. The total other expenses were also driven higher by the increased interest expenses in various financing activities. Equipped with core competitiveness in the online entertainment industry, iQIYI is also empowered by proprietary technologies to curate captivating content for users and stimulate a large-scale paid content subscription business in China. In January 2021, iQIYI's VR division announced the completion of a Series B funding round led by Yitang Changhou Fund and Fresh Capital, setting the record for the largest single round of funding in China's VC sector since 2020. iQIYI's disciplined strategies Yu Gong, the Chief Executive Officer of iQIYI, explained that the second-quarter results were largely in line with the company's expectations. Although the growth was not significant, he stated that the increased number of subscribed members was driven by the hit original dramas launched during this second quarter, providing some positive operating metrics. Meanwhile, iQIYI launched its Lite app targeting lower-tier cities in China and overseas markets, including Southeast Asia. Overviewing China's Internet demographics, the emergence of live streaming and short-to-medium video platforms, like Douyin and Kuaishou, have cut a big share of the long video market. To encounter this challenge, the long-video streaming service, iQIYI, decided to increase the penetration rate of suburban users to develop new markets. In this way, the company aims to improve user retention by securing users with low-cost phones. Since launching this app in 2019, the company has seen rapid user growth. By the second quarter of 2021, this app's peak DAU exceeded 1.3 million, with over 1 million average weekly daily active users. The company's strategies have placed membership, online advertising, and content distribution services as three primary revenue streams. In that regard, member services revenue was CNY 4 billion, flat compared with the last year. Online advertising, on the other hand, had shown a 15% increase from the same period last year, driven by the sustained rebound of brand-advertising budgets amid the macroeconomic recovery after the coronavirus pandemic in China. With the increasing penetration rate of digital technology among Gen X and Gen Z populations in the country, the company is expected to see new consumers using its subscription services. In a nutshell iQIYI's 2021 Q2 financial results showed the company's ability to carry on growth momentum in attracting more users based on an expanded content portfolio and enlarging user base. The company's revenue growth and reduced year-over-year net loss have displayed a trend of slowly improving business performance.
NASDAQ:IQ
by EqualOcean
Tencent Responds as CCTV Exposes the Account Renting ProblemSo far, the gaming giant has sued or sent letters to more than 20 account trading platforms and several e-commerce platforms, demanding them to stop all relevant services. The rates for account renting services for Honor of Kings – which usually cost CNY 33 per two hours – have been emerging on the Internet and, in response, Tencent Game, the gaming sector under the tech giant Tencent – developer of the MOBA game Honor of Kings – claimed that account leasing and selling seriously damaged the game's real name system and protection mechanism for minors. By far, having sued or sent out letters to more than 20 platforms, it demanded a full stop of all relevant services. On August 30, 2021, the National Press and Publication Administration issued a 'notice' to prevent minors from falling addicted to online games. The 'notice' states that all online gaming enterprises can provide minors, on Friday, Saturday, Sunday and legal holidays only, with one-hour services max (specifically from 20:00 to 21:00) and offering online gaming services to minors in any form at any other time is prohibited. Yet, on the evening of September 6, CCTV, the state-controlled outlet, outlined in its news broadcast how a grey industrial chain has emerged on the Internet that rents and sells game accounts, which enables the minors to play online games without restrictions. On the account renting platforms, users can trade accounts of a variety of popular games including Honor of Kings and PUBG. So far, the owner of Honor of Kings has called on relevant departments to issue corresponding laws and regulations to strictly control the account leasing and selling problem. Despite the issuing of the 'notice', according to surveys, the policy did not have a material impact on the revenue of gaming companies. Previously, Tencent disclosed in the 2021 interim report that players under 16 accounted for only 2.6% of the total game revenue, of which only 0.3% came from players under 12. Analysts from Jefferies Group predicted that about 5% of Tencent's game revenue came from minors under the age of 18. In other words, if the game business accounts for about 60% of the gaming tycoon's total revenue, the new regulation's impact would be barely 3%.
OTC:TCEHY
by EqualOcean
Dada Posts Strong Q2 2021 Results The Chinese local on-demand delivery and retail platform has announced its unaudited financial results for the second quarter, maintaining the strong growth momentum. – In the second quarter of 2021, Dada Nexus' (DADA:NASDAQ) total net revenues increased to CNY 1.47 billion, which is above the Street's consensus expectation of CNY 1.41 billion and the company's high-end guidance of CNY 1.45 billion. Aligning the revenue recognition method of Dada Now last-mile delivery services to net basis, pro forma revenue growth would have been 81.3% year-over-year. Dada also reported a quarterly non-GAAP net loss of CNY 549 million, against the Street's expectation of CNY 615 million. Dada has continued to win Chinese consumers' trust by providing "timely, efficient and high-quality services." The number of trailing-twelve-month active consumers on JDDJ increased by around 60% year-on-year to 51.3 million as of June 30. The company will continue to execute its in-depth cooperation with JD, to better serve the omni-channel and on-demand needs of JD's over 530 million active users. GMV of JDDJ for the twelve months ended June 30, was CNY 32.3 billion, an increase of 77% year-over-year. "Dada Group has long served the real economy and is growing together with brick-and-mortar retailers as well as our brand partners. We welcome the stepping up of regulations and firmly believe it will be good for the long-term sustainable development of the industry. There is enormous potential in the on-demand retail industry for us to explore," said Mr. Philip Kuai, Chairman and Chief Executive Officer of Dada Group. "Through the deepening cooperation with JD, we continue to build strong partnerships with our retail and brand partners, working together to create value to consumers. Our partners will continue to benefit from our technology platform and high levels of innovation. Together, with Dada's commitment to bring people everything on demand, we will continue to focus on long-term value creation to the benefit of enterprises and consumers around China." JDDJ has maintained a top position in the supermarket category and partnered with 80 of the top 100 supermarket chains, including 9 of the top 10. Meanwhile, it established direct partnerships with smartphone brands, including Apple and vivo, and has newly partnered with Microsoft, ASUS, Dell and Alienware, gradually moving their offline stores online. As a SaaS product that enables retailers to drive O2O sales while streamlining operations, Dada's Haibo System has been adopted by more than 4,300 retail chain stores as of the end of August, covering over 40% of the top 100 supermarket chains. As a platform that connects consumers and merchants with crowdsource-based delivery services, Dada Now provides a large number of flexible employment opportunities to society, and at the same time, it is committed to protecting the rights and interests of gig economy workers. During the second quarter, Dada Now's on-demand delivery service to chain merchants continued to see explosive growth, with year-over-year revenue growth accelerating to over 140%. In July, it officially launched the Dada Autonomous Delivery Open Platform, which is open to autonomous vehicle companies, such as JD Logistics and aims to accelerate the commercial use of autonomous delivery.
NASDAQ:DADALong
by EqualOcean
LTC Long @ 176.57Yesterday's inaugural post flagged a bullish valuation signal on Litecoin (spot ref 176.57). Some additional colour. RETINA™ provides machine generated signals based on macro factors. Yes, any asset - especially crypto - can be driven by a host of things. Regulatory risk is clearly a very real threat. But ultimately, financial assets reflect their macro environment - where we are in the growth cycle, is inflation rising / falling, are financial conditions easing or tightening, where is risk appetite etc? Quant Insight's algorithms capture all these & distil it all down into a macro-warranted fair model value. The difference between spot price & fair value = a Fair Value Gap. Essentially a way to track dislocations in markets between the price of crypto, FX, cmdties etc & their fundamental environment. RETINA™ then pushes these signals out. Litecoin's macro fair value is currently 236. The biggest driver is global inflation expectations. Higher global bond yields & steeper yield curves are also consistent with higher XLCUSD. A "risk on" environment also helps. Note that includes events in China. China stress features as a top driver via sovereign CDS spreads. One word of caution therefore to LTC longs - if the Ever Grande story bleeds into the banking sector & beyond, that's bad news & a risk scenario that requires careful monitoring. All-in-all, Litecoin wants a reflationary, risk on backdrop & offers a useful inflation hedge.
COINBASE:LTCUSDLong
by UnknownUnicorn25542523
CQQQ going up!AMEX:CQQQ At 4H, they broke through the 100MA and buried themselves in the additional resistance level = 74. A local rollback is possible, but after that the growth will continue. Or it will reach 100MA on 1D and the first target and then retest the level 74, unloading local indicators to continue to grow on the rest of the targets. Having also reached the second goal, the chart will break through the resistance of 100MA 1D and change the trend. Target: 77.25, 80.34, 86.63
AMEX:CQQQLong
by DirectorTradinga
Technical analysis update: HSI (7th September 2021)Hang Seng index declined over 20% from its peak on 18th February 2021. Then it made lows on 27th July 2021 (at 24 748.84 HKD) and on 20th August 2021 (at 24 851.60 HKD). We are bullish on Hang Sang index and we think current price is very attractive for long entry. Because of that we would like to set medium term price target for HSI to 28 000 HKD. Technical analysis RSI is bullish. Stochastic is also bullish. MACD is bullish too, however, it is still in the bearish zone below 0 points. Though, we expect it to cross above 0 which will further bolster bullish case for HSI. ADX is leveling down suggesting that neutral trend is present at the moment. Closest supports can be drawn by extending horizontal line from recent lows (at 24 748.84 HKD and at 24 851.60 HKD). Closest resistance is at 26 822.47 HKD. We will observe HSI over the coming few weeks. We will watch out for breakout above resistance. We expect this phenomenon to support bullish thesis for HSI similarly like MACD crossover. Disclaimer: This analysis is not intended to encourage any buying or selling of any particular securities. Furthermore, it should not serve as basis for taking any trade action by individual investor. Your own due dilligence is highly advised before entering trade.
TVC:HSILong
by Tradersweekly
2
Cango's Recent Moves Show Its Business ResilienceThe company generated CNY 558 million in net profit in Q2 2021, up 695% from a year ago. Cango facilitates transactions through a technology-enabled service platform in China's automotive industry. The country's auto market is reviving and is set to be in a growth trajectory for quite some time. The company has expanded its upstream business, entering the flourishing NEV market. Though the local NEV leaders are prone to sell cars directly, dealers will keep playing an important role in the Chinese market, especially in the lower-tier cities. Cango's stock looks cheap now. The relieved travel restrictions have revived trading activity in China's passenger vehicle market, the world's largest in terms of both demand and supply. Cango (CANG:NYSE), a company aimed at disrupting the auto value chain in China, has presented solid Q2 2021 results. This article will introduce Cango, its strategy and future development outlook. Introduction In 2010, Cango was founded by a group of veterans in China's auto financing industry with the idea of making auto transactions "simpler, easier and more pleasant." There was a certain degree of demand for such a platform in China's vast but underserved lower-tier cities' markets. Started with auto loan services, the company's scope later stretched to the vehicle sales business upstream and after-market services downstream. By the end of 2020, Cango had built a network consisting of 47,740 auto dealers, accumulatively serving more than 1.9 million car buyers. The company currently covers more than 1/3 of China's total new car dealers, and over 75% of dealers in Cango's network are located in tier 3-5 cities. Over the past ten years, the company has established a technology-driven platform that connects various participants along the auto value chain, including dozens of large and mid-sized commercial banks, insurance firms, as well as major gasoline vehicle OEMs and high-tech new energy vehicle (NEV) OEMs. China's auto market is back on a growth trajectory Cango's business is rooted in the flourishing auto trading activities in China. Although the pandemic has hammered buying cars in brick-and-mortar stores, the total transactions have shown resilience. According to CPCA, the Chinese light vehicle sales hit 19 million in 2020, down 6.8% year-on-year. However, the outlook for future sales is rather encouraging: CAAM expects the market to grow by 10% in 2021. Moreover, the organization forecasts that the 2025 sales will reach 30 million, with a CAGR of 4.6% from 2021 to 2025. The driving force of surging future sales will be the rise of per capita ownership of cars. Based on the World Bank's data, China's car ownership was 283 units per thousand inhabitants in 2019. At the same time, China's population density was 149 people per kilometer squared, GDP per capita was USD 10,276. By comparison, Japan and South Korea are more densely populated, have higher GDP and car ownership rates per capita. Thus, China's auto market sees great potential. Lower-tier cities are showing strong momentum in the rise of the car ownership rate. There are several catalysts. One is the policy of 'sending cars to the countryside' under which people who live in rural places receive subsidies when buying cars. Electric vehicles have been added into the list in recent years. Second, lower-tier cities in China often have no restrictions on getting vehicle plates, further stimulating car sales. Third, citizens in lower-tier cities have less debt burden on housing so that they can potentially spend more money buying cars. Cango's next big move Following the big trend, Cango also stepped up its efforts in the NEV market. NEV manufacturers, which usually adopt the direct operation and sales model, are actively seeking traffic in the lower-tier markets and professional traffic operation support. Cango's strong foothold in the lower-tier markets and service capabilities in auto transaction puts it in an ideal position to meet its needs. Although some in the industry argue that NEVs' direct sales won't need dealers and related service providers like Cango, we believe, however, that dealers will continue to play an important role in the new segment's development. Inspired by Tesla, China's NEV market was initially driven mainly by direct sales. This model was soon adopted by other EV players, including NIO, Xpeng and Li Auto. Intuitively, direct sales skip dealers so that ensures better customer services and more profit to OEMs however incurs large front costs of opening new stores. Currently, all the public EV companies' valuations are very sensitive to the vehicle delivery numbers. The relationship between electric car brands and dealers is dialectical. In 2018 and 2019, some brands like NIO and Xpeng needed funds to open new stores. After raising enough funds through IPOs, NIO and Xpeng both decided to lower the number of franchised stores. So far, EV brands have accumulated a lot of orders, but short-term deliveries are restricted to their production capacity. As production ramps up, same-store sales will touch the ceiling, especially in the lower-tier cities. By that time, these brands are likely to reconstruct the dealer network. Besides, not all NEV brands have enough capital to open and run offline stores independently. This makes incorporations with dealers almost inevitable. Meanwhile, NEV brands try to minimize their sales and marketing costs through an offline-to-online mode, which considers experiencing a vehicle offline, then buying it on a digital platform. High efficiency will be difficult to achieve with such a method. First of all, for most families, especially those living in lower-tier cities, a car purchase is an important event requiring both time and capital. If there is no physical store nearby, the customer experience will be downgraded. Second, brand variety is essential in the auto sector. OEMs' products face millions of requirements from picky buyers, and a few car brands are unlikely to satisfy all requirements. Besides, as the US and Japan's history has shown, dealers aren't likely to be pushed out of the market. The United States' long automotive history has proven how important dealerships are in a large and populous country. China shares similar attributes. According to iiMedia, there are currently 287 million cars in China, with 72 cities having more than one million cars, 33 cities having more than two million cars. What's more, car buyers across the country have different consumption behavior patterns. For example, lower-tier cities' dwellers prefer domestic brands' full-size vehicles. In the Eastern regions, buyers have a higher acceptance of electric cars than their inland peers. In short, for NEV players, it's hard to adopt a standard promotion strategy in such a diverse market. Distributors and adjacent service providers like Cango can coordinate resources, making the process more resilient. Being a middleman Apart from stepping into NEV business. Cango is striving to expand the business upstream including B2B and B2C. By the end of Q2 2021, the company has CNY 1.5 billion cash on hand, enough to support this new asset-light business. For example, owing to its relationship with registered dealers, Cango can provide demand-side insights from dealers to OEMs and vice versa. Cango helps dealers get vehicles they want. For B2C, Cango helps prospective car buyers find suitable cars in its dealer network. All of these are processed through their massive network on a tech-enabled platform. In its Q2 2021 earnings results, the company reported over 50% of total revenues generated from its auto trading business segment. This figure looks significant, considering that Cango's expansion into the sector started in H1 2020. Though this part of the business currently posted a lower gross margin (being positive, meanwhile), we believe it is necessary, even critical, for Cango to expand to upstream segments. By doing so, it will synergize the auto financing business and reduce single business risk. More importantly, with the integration of car sources, financing, insurance and other after-market services, the company gets to strengthen the bond with its dealership network. We can find similar stories in the history of all the large car servicing companies. For example, US firm CarMax integrated auto financing and used car business. It has been facing competition from online used car platforms in recent years. To address the problem, CarMax rolled out its 'omnichannel platform,' which is aimed at allowing customers to buy a car online, in-store, or through any combination of the two. Cango's new business is similar to that of CarMax, getting through the information asymmetry between buyers and sellers. Chinese dealers are also adjusting their strategies to acquire larger chunks of the auto value chain. Zhongsheng Group, a high-end vehicle dealer, is concentrating on the used car business. Another dealership brand China Grand Automotive's business model consists of related businesses like auto financing. Risks We consider Cango's expansion to upstream business risky. As per above, large Chinese dealerships have been expanding their business scope and they may have the same addressable market. But luckily, Cango is deeply rooted in lower-tier cities, which are less attractive for large competitors. Most overseas-listed Chinese stocks are currently facing a number of regulatory risks. However, as we stated in our previous NIO analysis, the government is targeting tech giants, as well as education and gaming businesses. In other words, sectors that directly influence the social sphere. Auto dealerships are less likely to suffer from the crackdown. Summary Cango has decided to expand its business to new energy and other upstream business segments. This strategic orientation is well-weighted and mainly based on two points. The separation of NEV OEMs and dealers will come and go, with the two models coexisting for a long time. Based on global examples, business diversity is necessary for a small car servicing company to grow. In addition, Cango's business is highly dependent on the auto trading activity in China, which is back on a growth trajectory and will contribute to the company's growth. Notwithstanding, the tumultuous summer of 2021 saw Cango decline to a historical low. This has triggered the company to launch a share buy-back program. We consider Cango an interesting investment opportunity at these levels. For the full article with the charts, please visit the original link.
NYSE:CANGLong
by EqualOcean