China’s hottest IPO in 2021 plunges 79% from its high

Equities 5 minutes to read
Picture of Peter Garnry
Peter Garnry

Chief Investment Strategist

Summary:  Our China Consumer & Technology basket is bouncing back in August but underneath the average performance some companies such as Kuaishou Technology, which IPO'ed back in February in the largest global IPO since Uber, is down 15% today causing other technology stocks to decline in China. We update our view on Chinese technology companies and also touch on the consumer segment which we believe is the next growth frontier for Chinese equities.


As we wrote on Monday our China Consumer & Technology basket was the worst performing in July amid the government’s crackdown on its for-profit education industry and wider technology sector. While the basket has bounced back in the first week of August there is still internal bleeding going up with the most notable being Kuaishou Technology, a content community and social platform, down 15% today in Hong Kong trading taking the decline from the closing high to whopping 79%.

05_PG_1
05_PG_2
Source: Saxo Group

Kuaishou Technology was the biggest technology since Uber raising $5.4bn in its IPO back in early February and rose in only 7 trading days from its IPO price of HKD 115 to HKD 415 catapulting the company into being one of the most valuable Chinese technology companies. The company together with ByteDance (parent company behind TikTok) are both removing an app on their platform called Zynn without further reasons explained and recently many platforms in China have been required to remove content and information. This part of a bigger move by the government which wants to control how and what content is served on various social platforms in China.

The crackdown on technology platforms in China has caused foreign investors to reduce exposure to the Chinese technology sector and in general the impact from the ongoing crackdown is uncertain at this point as Alibaba earnings call earlier this week also hinted at. Kuaishou Technology has also likely been hit by restrictions on its shares have been lifted leaving many major shareholders that been with the company for a long time to cash out. The Chinese technology crackdown that is now in its 10th month is also zooming in on removing certain tax advantages for gaming companies as they are now wildly profitable, something that could hit Tencent profitability.

A couple of months ago we argued that the risk-reward ratio was favouring some of the large Chinese technology companies despite the crackdown as valuations were getting quite attractive. As long as we do not see material impact on growth and profitability, we will not change that view, so investors with the right risk profile could find opportunities in this segment. We have also said, and that is why our basket has both consumer and technology companies, that consumer companies in China will be more immune from regulation as their business model is not depended on user data and does not pose a challenge for the political system.

This week China announced that it will carry out policies to incentivize more people in China to do more physical exercising and be healthier. The Chinese sports manufacturer Anta Sports rose 4.7% on the news and in general we encourage investors to get exposure to the Chinese consumer industry (see our basket composition below) as it will most likely be a high growth industry with expanding valuation multiples over the coming decade.

NameIndustryMarket Cap (USD mn.)Sales growth (%)EPS growth (%)Diff to PT (%)5yr return
Alibaba Group Holding LtdE-commerce545,56640.24.536.9137.3
Tencent Holdings LtdGaming & social media541,90327.424.167.0140.9
Kweichow Moutai Co LtdBeverages330,34310.511.133.4492.5
MeituanE-commerce166,44242.0NA71.4NA
BYD Co LtdCar manufacturer (EV & ICE)120,53151.9376.8-0.8463.2
Pinduoduo IncE-commerce111,894133.752.082.1NA
JD.com IncE-commerce111,31233.3112.938.9226.8
Hangzhou Hikvision Digital Technology Co LtdVideo surveillance87,33526.117.123.1292.8
Xiaomi CorpSmartphone manufacturer84,83228.9-4.028.5NA
China Tourism Group Duty Free Corp LtdDuty free goods77,06247.4290.239.91,087.4
Foshan Haitian Flavouring & Food Co LtdFood seasoning manufacturer76,51519.223.129.6524.6
Midea Group Co LtdHousehold appliances76,28518.417.843.5182.9
NIO IncCar manufacturer (EV)73,881202.337.943.5NA
WuXi AppTec Co LtdDrug manufacturing technology72,72637.759.09.6NA
NetEase IncGaming62,41524.6-17.443.5148.4
ANTA Sports Products LtdSports apparel61,5964.7-1.612.3936.8
Nongfu Spring Co LtdBeverages60,737-4.87.510.4NA
Baidu IncOnline search & advertising57,9286.530.980.6-2.1
Kuaishou TechnologySocial media47,66250.2NA185.5NA
Luxshare Precision Industry Co LtdConnectivity manufacturer45,11538.634.723.4637.1
Gree Electric Appliances Inc of ZhuhaiAir conditioners44,8051.57.051.1178.9
Will Semiconductor Co Ltd ShanghaiSemiconductors & image sensory43,16650.1228.419.8NA
Semiconductor Manufacturing International CorpSemiconductor foundry41,55528.9124.9-7.6329.2
XPeng IncCar manufacturer (EV)37,295216.9NA18.0NA
Haier Smart Home Co LtdHousehold appliances37,2214.5134.836.7NA
Foxconn Industrial Internet Co LtdNetworking equipment36,43910.27.048.6NA
Sunny Optical Technology Group Co LtdOptical instruments35,1750.419.4-2.7685.9
Shenzhou International Group Holdings LtdTextile manufacturing34,8891.60.111.3382.5
SAIC Motor Corp LtdCar manufacturer (EV & ICE)34,44910.242.231.05.7
JD Health International IncOnline healthcare platform30,95478.8NA94.7NA
BOE Technology Group Co LtdDisplay panels manufacturer30,86640.4793.5NA109.6
ZTE Corp5G & telecommunication27,15518.0125.83.9180.3
Yum China Holdings IncRestaurant chain26,30020.142.116.4NA
KE Holdings IncHousing transaction platform24,90286.9NA234.2NA
Haidilao International Holding LtdRestaurant chain19,6197.8-91.462.0NA
Tencent Music Entertainment GroupMusic streaming17,89017.92.698.8NA
Focus Media Information Technology Co LtdOffline advertising solutions16,92520.0238.992.0-11.5
Trip.com Group LtdOnline travel agency15,414-45.1NA83.8-43.8
Oppein Home Group IncHousehold furniture manufacturer13,48330.243.923.1NA
Topsports International Holdings LtdSports retailer9,2666.94.226.2NA
Aggregate / median3,389,84425.427.536.7204.9

Source: Bloomberg and Saxo Group
* Sales and EPS growth is measured on 12-month trailing figures, Diff to PT is the difference between consensus price target and the current price in %

05_PG_3
Source: Saxo Group

Quarterly Outlook

01 /

  • Macro Outlook: The US rate cut cycle has begun

    Quarterly Outlook

    Macro Outlook: The US rate cut cycle has begun

    Peter Garnry

    Chief Investment Strategist

    The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c...
  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

  • Equity Outlook: Will lower rates lift all boats in equities?

    Quarterly Outlook

    Equity Outlook: Will lower rates lift all boats in equities?

    Peter Garnry

    Chief Investment Strategist

    After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto...
  • FX Outlook: USD in limbo amid political and policy jitters

    Quarterly Outlook

    FX Outlook: USD in limbo amid political and policy jitters

    Charu Chanana

    Chief Investment Strategist

    As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ...
  • Commodity Outlook: Gold and silver continue to shine bright

    Quarterly Outlook

    Commodity Outlook: Gold and silver continue to shine bright

    Ole Hansen

    Head of Commodity Strategy

  • FX: Risk-on currencies to surge against havens

    Quarterly Outlook

    FX: Risk-on currencies to surge against havens

    Charu Chanana

    Chief Investment Strategist

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo...
  • Equities: Are we blowing bubbles again

    Quarterly Outlook

    Equities: Are we blowing bubbles again

    Peter Garnry

    Chief Investment Strategist

    Explore key trends and opportunities in European equities and electrification theme as market dynami...
  • Macro: Sandcastle economics

    Quarterly Outlook

    Macro: Sandcastle economics

    Peter Garnry

    Chief Investment Strategist

    Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p...
  • Bonds: What to do until inflation stabilises

    Quarterly Outlook

    Bonds: What to do until inflation stabilises

    Althea Spinozzi

    Head of Fixed Income Strategy

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ...
  • Commodities: Energy and grains in focus as metals pause

    Quarterly Outlook

    Commodities: Energy and grains in focus as metals pause

    Ole Hansen

    Head of Commodity Strategy

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)

Saxo Bank A/S (Headquarters)
Philip Heymans Alle 15
2900
Hellerup
Denmark

Contact Saxo

Select region

International
International

Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

This website can be accessed worldwide however the information on the website is related to Saxo Bank A/S and is not specific to any entity of Saxo Bank Group. All clients will directly engage with Saxo Bank A/S and all client agreements will be entered into with Saxo Bank A/S and thus governed by Danish Law.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.