In the context of supply chain transformation and upgrading, how do you view the certainty of Prime Industrial Finance (00730.HK)?

Gelonghui Finance ·  Jan 25 01:35

The current complex global macroeconomic situation is obvious to all, and it also brings uncertainty to the continued recovery of international financial markets.

Currently, the Hong Kong stock market is still in a weak state of adjustment in search of direction. Only those sectors in the market where business growth continues to be steady or have more definite growth expectations can be favored by capital and overcome the trend of resisting falling or even bucking the trend.

In the current uncertain market environment, seeking certainty has become an unavoidable choice for investors, and the key is to clarify macroeconomic trends. From this perspective, enterprises that can actively adapt to China's current economic trends and policies and promote industrial upgrading and transformation are relatively more certain in their future development.

Certainty 1: Promoting supply chain transformation and upgrading as a general trend

Currently, under the influence of multiple factors such as the game of great powers, the epidemic of the century, and industrial changes, competition in the supply chain has risen to the national level. The global supply chain pattern is being restructured at an accelerated pace, gradually reversing the trend of globalization.

Judging from the competition method, the competition between major countries for dominance in the supply chain has entered a heated stage, and the market-based competition in the past has gradually been replaced by regionalized and factionalized competition methods. For example, the “US-Mexico-Canada Agreement” launched in 2020 actively guides multinational companies to invest in North America through rules of origin, intellectual property rights, labor, and environmental provisions, and has prompted a large number of enterprises in the fields of toys, clothing, tires, electronics, etc. to move from China and other regions to Mexico in recent years.

In terms of layout orientation, the COVID-19 outbreak has highlighted the importance of supply chain security. Localized and diversified layouts are replacing the previous global layout that prioritized efficiency. In particular, in industries with long and complex supply chains such as automobiles, electronics, and machinery, safety has become a more important consideration in supply chain layout. In this context, countries are attracting the manufacturing industry back to the mainland by increasing subsidies and improving the industrial ecology.

More importantly, along with the accelerated development of a new round of scientific and technological revolution and industrial transformation, the current smart low-carbon technology driver is replacing previous drivers such as labor and land, greatly changing traditional production methods. Data shows that at present, more than 120 countries around the world have proposed the goal and vision of achieving “carbon neutrality” by 2050. The green supply chain has basically become a mandatory requirement, and a series of changes have profoundly changed the organizational model of the industrial chain.

In the context of anti-globalization, the threat of “stuck necks” in some parts of the industrial chain is difficult to eliminate in the short term, and competition in the industrial chain has been upgraded to a high point of international competition. Faced with multiple pressures, the Chinese economy is also undergoing transformation and restructuring by promoting industrial upgrading, industry integration, and product upgrades. However, given that China's economic transformation is currently still experiencing a shift in development, a painful period of structural adjustment, and a period of digestion of stimulus policies, it is facing a situation where many contradictions are compounded and hidden risks are increasing.

In response, Wu Jinglian believes that reasons and coping strategies should be sought from the supply side. Analyze the root cause of the problem and take measures from the supply side. In recent years, as China's industrialization process has reached the middle to late stages, the gap between the level of general technology and advanced countries has been greatly narrowed. Under such circumstances, to improve supply, the most important thing is to improve efficiency.

How can efficiency be improved?

In the author's opinion, optimize the operation of the supply chain to minimize the cost, so that the supply chain starts with procurement to the method of satisfying the end customer. In other words, it promotes the upgrading of the industrial organization model and economic development by improving the management efficiency of the supply chain. Behind this, one word is inseparable — supply chain management.

However, managers usually pay more attention to logistics and information management in the supply chain, but it is easy to overlook the importance of capital flow. In order to maintain the stability of the supply chain and continuously reduce supply chain costs, the supply chain gradually focuses on improving the actual efficiency of capital flows and continuously optimizing and improving business processes. In this context, supply chain finance is an important part of supply chain management, and promoting its upgrading and development is a “top priority”.

So, while adhering to the innovation and stability of the Chinese economy, what kind of role can take on this heavy responsibility and become a pioneer of reforms to promote the transformation and upgrading of supply chain finance? This is exactly what we need to dissect next.

Certainty 2: Large state-owned enterprises adapt to national trends and act as pioneers of reform

In recent years, China has adopted a series of major policies in areas such as fiscal taxation, monetary policy, and industrial support. Among them, promoting finance to better serve the real economy, including the use of various effective tools such as interest rate cuts and downgrades, driving banks to reduce fees for enterprises, and guiding loan interest rates downward, is an important prerequisite for all work.

According to incomplete statistics, in the past two years, the country has introduced more than 30 support policies related to supply chain finance. It was also separately proposed for the first time in this year's government report that it is important guidelines to “innovate supply chain financial service models”, accelerate the development of the digital economy, and promote the deep integration of the digital economy with the real economy.

For enterprises, big policies guide the direction and often mean huge and highly determined policy dividends. But not all businesses get a share of the pie. Among them, large state-owned enterprises, which occupy leading positions in many key industries and have huge resources and influence, are unquestionably better qualified for the title of “pioneer of reform”.

On the one hand, such enterprises usually have abundant capital, technology, and human resources, enabling them to invest and innovate on a large scale in supply chain finance. On the other hand, the close ties between large state-owned enterprises and the government enable them to respond quickly to changes in national policies and markets, and can effectively promote the optimization and innovation of supply chain finance.

Currently, many large domestic state-owned enterprises have made significant progress in supply chain finance. For example, the supply chain finance platform business of Shougang Industrial Finance Group, a subsidiary of Shougang Group, can better control risks in financing business by deeply participating in supply chain process management and information sharing.

This business of Shouhui Industrial Finance started in the Shougang Group industrial chain business ecosystem. According to data, Shougang Group's supply-chain related business scale is about 320 billion yuan, with annual procurement of 120 billion yuan upstream of the Shougang industrial chain, and about 200 billion dollars of downstream revenue per year, constituting an annual turnover transaction scale of up to about 320 billion yuan. If supply chain finance is transformed, the estimated scale that the upstream side alone can open can reach 30 billion yuan per year. How to meet Shougang Group's industrial settlement needs and improve settlement efficiency through supply chain finance products such as “Shougang Beijing Ticket” is the focus of Shougang Industrial Finance's business development. And these actual business backgrounds and settlement requirements are also the certainties that Shouhui Industrial Finance can grasp in the midst of uncertainty.

In addition to the traditional steel industry, there are also industrial layouts related to physical operations, such as Shougang Park, integrated urban services, and international business. It is difficult to estimate the business scenarios and customer base size that can be reached indirectly and extended. More importantly, once this model is mature and safety and viability are continuously verified, it can also be easily replicated in upstream and downstream and other fields outside of Shougang Group's supply chain ecosystem.

In recent years, the scale of assets related to the national supply chain has grown at a compound annual growth rate of about 10.9%, reaching 35 trillion yuan in 2023, and is expected to be close to 40 trillion yuan in 2024. It can be seen that there is a lot of market space for transformation into supply chain financial services.

This shows that reforms of state-owned enterprises in the field of supply chain management not only help their own efficient operation, but also drive the optimization and upgrading of the entire industry and even related industrial chains.

Certainty 3: The transformed business model has been successfully verified, and the repurchase shows confidence in the future

As the only supply chain fintech platform that Shougang Group strives to build, Shougang Industrial Finance Group also uses its own methods to innovate and build the “capillaries” of the real economy to help the high-quality development of the national economy.

In terms of supply chain finance, around Shougang Group's supply chain, industrial chain and ecological chain, the platform connects upstream capital suppliers with downstream capital requirements, and leverages the “capillary” role of capital to reach end demand enterprises.

If it undertakes the definitive logic of industrial chain transformation and upgrading described above, Shouhui Industrial Finance will undoubtedly have grasped the “anchor” in the midst of change.

On November 30, 2022, Shouhui Industrial Fund launched the “Shougang Beijing Bill” for the first time. Relying on accounts payable by member units within the Shougang Group, it provides member units with detachable, transferable, and financeable multi-level electronic debt documents on the basis of settlement methods such as cash, bank notes, etc., which significantly facilitates enterprises to flexibly and conveniently finance and use funds.

On October 27, 2023, the company announced that the cumulative invoicing scale of the Shougang Supply Chain Fintech Platform built by Shouhui Industrial Finance has officially exceeded 10 billion yuan in the electronic certificate business.

Within less than a year of operation, “Shougang Beijing Ticket” continued to be optimized and iterated from scratch, and the business scale and number of customers showed a rapid growth trend. By the end of last year, more than 2,200 companies had entered the platform. The cumulative invoicing scale had exceeded 10 billion yuan, and the financing service scale was nearly 8 billion yuan. The account period had been shortened by more than 2 months, significantly reducing financing costs for core enterprise suppliers.

The company took the lead in achieving the 10 billion dollar milestone in “Shougang Beijing Ticket”. The business model was successfully verified, solving the problem of “difficult and expensive financing” for small and medium-sized enterprises plaguing the supply chain ecosystem, and giving full play to the supporting role of finance in the real economy.

Judging from actual operating results, the business model of the Shouhui Finance Supply Chain Finance Platform not only conforms to the country's policy guidelines, but also leverages the brand advantages and resource value of the company and its parent company, Shougang Group.

According to observations, Shouhui Industrial Finance has launched a continuous repurchase program in the past month, and has launched share repurchase operations in the secondary market for many consecutive days. This is the first large-scale continuous repurchase launched by the company since the new business reform. Since the launch of the repurchase program in mid-December, the cumulative stock price increase has been 19.1%.

According to Wind statistics, as of January 4, 2024, the company has repurchased a total of 7.333 million shares in this round (still in progress), accounting for only 0.18% of the total share capital. In late April 2023, the company issued a general authorization notice for the board of directors, according to data, the board of directors of the company can obtain general authorization to repurchase 10% of the company's issued share capital according to the actual situation.

Simply put, it is a repurchase action with a cumulative ratio of 10% or less throughout the year. The company's management and board of directors may execute it according to the circumstances. If this ratio is exceeded, it must be further reviewed and approved by the shareholders' meeting. Based on the total share capital of 3,985 billion shares on the announcement date, the maximum operational limit is expected to be close to 400 million shares. Further, the potential implementation progress derived from the maximum number of shares to be repurchased is less than 2%.

Judging from the pace of time, as soon as the company completed business transformation and achieved initial good results, it immediately launched a share repurchase plan, which clearly shows that management is confident about the business prospects.

In the first half of 2023, Shouhui Industrial Finance achieved revenue of HK$100 million and realized a parent profit of HK$22.406 million, a sharp increase of 141% over the previous year, reflecting significant results in the transformation of the business model.

According to the latest public financial data, the total assets of Shouhui Industrial's financial management caliber exceed 3 billion yuan, shareholders' equity of 2,833 billion yuan, and carrying cash of 378 million yuan. At the same time, the company has also obtained an external credit line of up to 7 billion yuan, which indicates that the company still has a lot of energy to be “released.” In contrast, the market value of Prime Industrial Finance is less than HK$700 million, and the net market ratio is less than 0.5 times.

By comparing the potential space for transformation of the supply chain finance business from the parent company and the larger market space for the supply chain finance business in the future, it can be seen that there is a significant imbalance between the business heritage and growth potential of Prime Industrial Finance and the current market value of the company.

In every way, it is suspected that it is seriously underestimated. This may be due to the continued weak adjustments in the Hong Kong stock market over the past two years, and the results of the company's reforms and transformation have yet to be seen by the market.

What is certain, however, is that the estimated scale that can be issued within the Shougang Group alone can reach 70 billion yuan. If calculated based on the 1-2% interest spread common in the industry, it may bring profits of more than 1 billion dollars to listed companies, or support the market value of First Value Finance of more than 10 billion dollars. In the future, once this model is implemented, if replicated in upstream and downstream and other fields outside of Shougang Group's supply chain ecosystem, it is also something that can be expected to open up the company's value space. For a company with such definitive performance and value, it is rare in the current uncertain market. Therefore, it is only a matter of time before the company's performance and value certainty are gradually recognized by the market.

As Li Lu, founder of Himalaya Capital, once said, “Everything is a long-term process. If you take a little longer and look a little further, you will see that this period provides excellent, patient, and long-term investors with excellent investment opportunities.” Looking back one day in the future, will Shouhui Industrial Finance, a Hong Kong stock listed company, be an example of this? The answer is probably becoming more obvious.

Disclaimer: This content is for informational and educational purposes only and does not constitute a recommendation or endorsement of any specific investment or investment strategy. Read more
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