ReportCN 3rd Edition – Best Brokerage Reports in China

Macro: China’s housing demand on the rise – where might consensus go wrong?

Report Author: Hong Liang, et al.

Brokerage: CICC

First staggering facts revealed: “only 23% of Chinese live in cities that have a population exceeding one million, vs. 45% in the US, 65% in japan. Only 11% of Chinese live in mega cities with a population that exceeds 5 million, vs. 21% and 57% in US and Japan.”

Prop-1

On the other hand – upgrading needs are always there:

Prop-2

Most importantly, inventory levels are polarized: within tier-1 cities it’s less than 6 months’ of inventory, whereas much higher in 2nd and 3rd-tier cities:

Prop-3

Who’s taking the most from the property sales value? Government – on average they took 60-70% of the transaction value, of which 25% being taxes and fees, whereas 37% being land sales receipts.

Prop-4

The conclusion Liang makes is quite progressive – a dismantlement of the hukou system, which divides urban and rural households strictly by policies, is needed. In that scenario, urban residential housing will be undersupplied. That, in turn, needs to be resolved through harsher requirements on land sales by local governments. Indeed, it’s easier to say than done. Nevertheless, a great lead for those who wants to check the temperature of China’s property boom on a macro level.

Go Global (1): A New Era for Chinese Investment Abroad 

Author: Hanfeng Wang

Brokerage: CICC

“In deals completed in 2015, the acquired companies were valued at a median P/E ratio of 32.6x and at a median P/B ratio of 2.0x; the median premium paid by Chinese companies reached 26.4%, near historical average.”

F&S-1

Number of transactions worth >$1 bn hit a record high in 2015:

F&S-2

A Panorama of Chinese companies’ overseas acquisition:

F&S-4

More overseas investments into DM:

F&S-5

That said, challenges summarized by Wang – 1) clear target and strategic planning; 2) need for complete due dilligence; 3) business and cultural integration post-transaction.

Chinese Logistics Firm – A Deep Dive Research

Author: Pinghui Wang, et al.

Brokerage: Xingye Securities

First of all, Chinese express delivery tariffs are much lower (less than 10% of US-equivalent price for most items) than US express delivery cost.

express

Maximum daily processing capacity wise, China has doubled that of US and also grew substantially over the years (up 60% from 2014 to 160 million packages):

express-2

Unit economics– The biz model is the key here: franchising seems to be the way majority of Chinese firms have been working on here (apart from Shunfeng), different from UPS/DHL model – most firms could collect a franchising fee of 0.9-1 RMB per package and incur a 0.1-0.2 transportation cost; on top of this margin, the core logistics provider will provide core transportation, adding a 0.2 RMB/package margin; thus overall, there is a 0.9 RMB/package gross margin. Considering 8-10 million packages per day volume, this is not a small business at all. Because of the higher cost structure of direct management model, franchising firms (Yuantong, Zhongtong, Yunda) have lower prices than that of EMS and Shunfeng.

The report author expect a diverging need of different biz models: e-commerce companies will prefer franchising model – cheap and lean; high-end commercial customer would prefer direct management model – reliable and efficient. Thus, he expects the oligopoly competitive structure to continue.

 

 

 

 

 

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