FINV - Asian Financial Services Stocks Could Soar As Economic Tailwinds Intensify
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Even with theunderlying geopolitical tensions, China's economy remains one ofthe most important in the world. As a matter of fact, China is one ofthe fastest-growing economies in the world, thanks to big businessesand a massive middle-class population that is eager to spend money tofurther grow the economy.
That is clearly illustrated by the fact that consumer spendingduring the Lunar New Year surpassed the pre-pandemic level, driven inlarge part by a surge in travel. Going forward, experts anticipatethat China's economy will achieve robust economic growth ofanywhere between 4-5 percent this year on the backdrop of increasedgovernment spending, a stronger credit impulse, and significantconsumer spending and confidence.
What’s more, the Chinese authorities, togetherwith the Ministry of Commerce, have branded 2024 as the "Year ofConsumption Promotion," which bodes well for businesses in theregion. This explains why several analysts have started getting upbeatabout Chinese stocks. In a recent CNBC interview, for instance, GustavRhenman, 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 topcompanies in China now trade at ridiculously low valuations, not seenin decades, with the MSCI China Index, for example, trading at aforward price-to-earnings multiple of less than 10x, compared todeveloped world equities at 18x.
As such, it is clear that Chinese equities offerattractive valuations, and one such stock that investors shouldconsider looking into is AGBA Group Holding Limited(NASDAQ:AGBA).
Known as the one-stop financial supermarket providing ‘wealthand health’ to its customers with state-of-the-art technologies andpassionate customer care, AGBA is a B2B and B2C business operating inGuangdong-Hong Kong-Macao Greater Bay Area (GBA). The GBA is made upof two Special Administrative Regions of Hong Kong and Macao and ninemunicipalities (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 shophere.
Boasting apopulation of about 86 million people, the GBA ranks as one of theworld's largest financial services markets thanks to its $2trillion economy, which accounts for 13% of China’s GDP. Taking thatinto account, coupled with an aging population, targeting the GBAmarket is a strategic move to capitalize on the surging demand forhealth and wealth products.
AGBA Group Holding Limited (NASDAQ:AGBA) isorganized into four principal businesses:
Distribution Business: Sells a widerange of financial products to retail and corporate customers throughvarious types of sales representatives and earns groupcommissions.
Platform Business: Through its proprietary ‘OnePlatform', the group provides access to products and supportingservices through internal and external distribution channels and earnsplatform fees.
FintTech Business: Invests in FinTech companies,capturing strategic benefits as well as financial rewards.
HealthcareBusiness : Provides healthcare services to corporate customersthrough a network of doctors and clinics.
A deeper dive into AGBA’s operations revealswhy the company has the potential to unlock significant shareholdervalue going forward. First, the company’s unique business modelcontinues to be validated, as illustrated by the fact that it is nowthe top financial services provider in Hong Kong. The group currentlyservices about 17% of the Hong Kong broker market and reaches morethan 400,000 individual and corporate clients in the GBA. This isthanks to its network of over 1500 independent financial advisors, whogenerate over HK$1 billion in annual commissions for the company, inaddition to distributing almost 2,000 financial products and servicesfrom global premier financial brands.
Secondly, the adoption of the company’stechnology platform has been ramping up. The platform not onlyprovides all necessary front-end client services and back-endoperations support to the IFAs but also provides educational coursesfor its advisors. The platform business generates revenue by chargingplatform fees, between 15% and 27% of gross commissions, to advisors.What’s great about the platform is that as AGBA’s ecosystem getsmore tech-centered, both efficiency and margins will improvesubstantially since operating costs don't increase linearly withthe number of users.
The healthcare business already has a strong foothold in HongKong thanks to the integration with Dr. Jones Fok & AssociatesMedical 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 andhas grown its network of clinics to over 800 locations.
As mentioned earlier,this business model is gaining significant traction, especiallyconsidering recent partnerships such as the one with HSBC Life and thestrategic collaboration with Zurich (HK) Life Assurance. Additionally,AGBA Group Holding Limited (NASDAQ:AGBA) completed a $6.2 millionprivate placement led by group president Mr. Wing-Fai Ng and themanagement team at a 40% premium to the current share price. Thisfollowed a $50 million equity purchase agreement with WilliamsburgVenture Holdings, which further reaffirms investor confidence in thecompany’s future growth prospects.
That confidence hasn't been misplacedconsidering that the company generated $41 million in revenue for thefirst nine months of 2023. That was more than double compared to thefirst nine months of 2022, and management expects FY23 revenue to comein at about $160 million. Although AGBA Group Holding Limited's(NASDAQ:AGBA) current market cap is about $35 million, it is clearthat the shares are heavily discounted when looking at the sectors itoperates in. Despite the lack of direct peers that are publiclylisted, AGBA can be compared to insurance brokerages and tech-enabledwealth platforms, which have an EV/sales average of 6.5x and 3.5x,respectively, while AGBA is valued at only 0.6x.
Another Asian-basedfinancial service company that is worth looking into is MoneyHeroGroup (NASDAQ:MNY) . The company educates people about personalfinance, helps them decide which products are best suited for theirneeds, and facilitates getting the product. It also connects financialinstitutions with their target customers and helps them achieve theircustomer acquisition objectives. The company’s business model isbased on two pillars:
Financial Products Platforms: which provides free,comprehensive information across 1,500+ financial products, fromcredit cards and loans to varied insurance solutions, facilitated bypartnerships with over hundreds of commercial partners.
B2B Business: whichleverages the company’s Creatory platform to expand its ecosystemand user reach by providing its digital technology solutions tothird-party online channel partners and content creators, enablingthem to monetize their user base through our existing relationshipswith financial institutions.
MoneyHero Group (NASDAQ:MNY) recently revealed thatit currently serves more than 2.6 million monthly unique users acrossHong Kong and Singapore and was on track to record year-over-yearrevenue growth of at least 60% in Singapore and 50% in Hong Kong forthe month of January 2024. According to the company’s most recentfinancial release, MNY booked about $55.1 million in revenue for thefirst nine months of 2023, representing an 8% growth from the similarperiod in 2022, with the online financial comparison platformsaccounting for 83% of this amount. Hong Kong’s top-line contributioncontinued to exhibit strong growth, further illustrating its highappetite for financial products.
A closer look at the company’s valuation revealsthat MNY’s stock is also trading at a discount compared to thesector’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 itsvaluation.
FinVolution Group (NYSE:FINV) operates in the onlineconsumer finance industry in China and internationally. The companyruns a fintech platform that is powered by proprietary technologies toconnect underserved borrowers with financial institutions that offerproducts 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 releasedthird quarter earnings for the period ended September 30, 2023,FINV’s net revenue increased 7.6% year-over-year to $438.26 millionduring the period, illustrating China’s economic resilience. Also,non-GAAP net profit per ADS attributable to FINV’s ordinaryshareholders grew 1.4% from the year-ago value to $0.30.
Interestingly,management has been able to leverage the use of artificialintelligence-generated content to increase traction online, a strategythat has been particularly effective in international markets wheregrowth rates continue to outpace mainland China. Moreover, thecompany’s loan collection team managed to get a loan collectionrecovery rate of around 89%, driven by its AI-powered chatbot.
Although the company’sstock is up roughly 8% over the past month, a number of analystsbelieve that there is still room for further upside. For instance,Nomura initiated coverage on the stock with a buy rating and a $6.03price target, while Thomas Chong from Jefferies maintained a buyrating with a price target of $6.
And it's not only analysts who believe thatFINV could move higher. A number of hedge funds remain bullish on thestock. For instance, Acadian Asset Management LLC recently increasedits position in the company by 193.9% during the 3rd quarter,according to its most recent filing with the SEC, bringing its totalstake to about 2.3 million shares worth $11.7 million. Other largeinvestors who increased their positions in the company include Point72Asset Management L.P. and Vident Investment Advisory LLC.
Yiren Digital(NYSE:YRD) is a FinTech and online consumer finance marketplaceoperating in China. The company brands itself as an AI-driven,one-stop select financial and lifestyle services platform, providingcredit services and wealth management products to borrowers andinvestors through its proprietary technology platform. The companycurrently derives about 40%, 22%, and 9% of its revenue from loanfacilitation services, insurance brokerage services, andpost-origination services, respectively.
YRD recently reported Q3 23 earnings, and someof the highlights include a 55.9% increase in total net revenue toRMB1.3 billion (US$179.7 million) compared to the similar period in2022, driven by the persistent and growing demand for our smallrevolving loan products. Total loans facilitated in the period reachedRMB9.8 billion (US$1.3 billion), representing an increase of 20.3%from the prior quarter, while the cumulative number of insuranceclients served reached 1.25 million, a 10.9% increase from thepreceding quarter.
"Over the past quarter, we invested in AI across theenterprise, and we have noted tangible progress in improvingoperational efficiencies and enhanced profitability," said Mr.Ning Tang, Chairman and Chief Executive Officer. "We are confidentin maintaining our leading position as an AI and technology-drivenfinancial and lifestyle services platform through continuedinvestments in technological innovation."
A quick look at YRD’s valuation also shows that thecompany’s shares are trading at a discount based on a number ofmetrics. For instance, YRD currently has a P/E multiple of 1.01xcompared 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 thevalue of your company currentlyhas.
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