Several notable US investors have pointed on Chinese technology companies being cheap relative to their US counterparts. The table below shows the seven largest Chinese technology companies on market value in USD mn. and expected free cash flow yield by 2022, which is based on our expectation for free cash flow generation in percentage of revenue and consensus estimates for revenue in 2022. Except for Meituan, the other Chinese technology companies are valued at quite high implied equity risk premium compared to US technology companies, and with a much higher growth outlook than US companies this segment could easily attract investor attention when the news flow on Chinese technology regulation has tapered off.
Tencent | 727,210 | 4.7 |
Alibaba | 588,286 | 9.1 |
Meituan | 215,338 | 0.8 |
Pinduoduo | 164,181 | 7.3 |
JD.com | 114,897 | 8.7 |
Xiaomi | 89,109 | 7.3 |
Source: Bloomberg and Saxo Group
Oatly IPO shows the right themes get red hot valuations
The IPO market has not stopped despite the volatility in technology stocks this year. Yesterday’s IPO of Swedish based Oatly, maker of oat-based milk catering for the vegan segment, was oversubscribed and investors pushed the stock higher on first day of trading giving the company a market value of $12bn on the close, up 19% from the IPO price. This underscores that the right theme can attract very high equity valuations. With Oatly’s IPO and Beyond Meat being public this segment of vegan/vegetarian oriented companies will increase in size over time and these companies sit at the edge of the green transformation which is all about reducing the carbon footprint.