中国软件业：金融科技投资将在监管更加严格的新时代激增

1、EQUITY RESEARCH REPORTTELECOMS, MEDIA & TECHNOLOGYJanuary 2019SijieMa HYPERLINK / a a Disclaimer & Disclosures: This report must be read with the disclosures and the analystcertifications in the Disclosure appendix, and with the Disclaimer, which forms part of itWhy read this report?Tough new rules

2、have been introduced to regulate Chinas asset management industry. We analyse the impact this will have on the countrys financial IT marketWe think the new regulations should generate a surge in demand for new and upgraded IT systems in both 2019 and 2020We initiate on four companies with a strong p

3、resence in different parts of this fast-growing industry Hundsun, Aisino, Ysstech and HyUnion with Buy ratingsContents HYPERLINK l _bookmark0 Why fintech is in thefast lane HYPERLINK l _bookmark1 The of fintech HYPERLINK l _bookmark2 The shape and size of the HYPERLINK l _bookmark2 financial IT mark

4、etinChina HYPERLINK l _bookmark3 Policy drivers: New rules, HYPERLINK l _bookmark3 new era =morefintech21 HYPERLINK l _bookmark4 Hundsun (600570 26 HYPERLINK l _bookmark5 Aisino (600271 38 HYPERLINK l _bookmark6 Ysstech(300377CH)46 HYPERLINK l _bookmark7 HyUnion(002537CH)54 HYPERLINK l _bookmark8 Di

5、sclosureappendix63 HYPERLINK l _bookmark9 Disclaimer66Why fintech is in the fast lanePolicy can be a double-edged sword in China. While tough new rules are making life more difficult for the asset management industry, they will boost demand for products and services supplied by the countrys leading

6、fintech companies. We assess how much the market leaders stand to benefit in the next two years. We also initiate coverage on four companies with a strong presence in different parts of this fast-growing industry Hundsun, Aisino, Ysstech and HyUnion with Buy ratings.The power of policy supportIn Chi

7、na theres another powerful growth driver government policyThe four technologies that help improve and automate financial services artificial intelligence, blockchain, cloud computing, and big data are developing at breath-taking speed in all the worlds leading economies. To no ones surprise, the use

8、 of financial technology fintech, as it is widely known by major banks, insurance companies, brokers, and asset management companies is uniformly on the rise. In China, however, theres another powerful driver benefiting the industry government policy.In April last year, China announced wide-ranging

9、new regulations aimed at reducing the level of risk in the countrys USD15trn asset management industry, part of a broader initiative to rein in the scale of leverage and the shadow banking industry. While this may make life harder for asset managers in the short term, we feel sure it will be good ne

10、ws for the countrys leading fintech companies a good example of how policy can be a double-edged sword in China.Although we are still awaiting the release of the full details of the reforms, the upshot is that financial institutions will have to comply with this super-guidance by the end of 2020, wh

11、ich suggeststhatinvestmentinITareasrelatedtotrading,productmanagement,valuation,custody, disclosure and risk management should rise sharply in the next two years. In this reportwe: Lay out our bullish investment thesis for Chinas fintech market Quantify the size of Chinas financial IT market Provide

12、 estimates of what the new regulations mean in terms of increasing the size of the market Initiate coverage of four leading fintech companies, all with Buy ratingsIncreasing and less cyclical financial IT investment to benefit fintech companiesThe size of Chinas financial IT marketAside from policy

13、support, we are positive on Chinas fintech sector because we think it will continue to grow rapidly even during periods when the countrys stock markets underperform. The reality is that large financial companies need to keep investing in IT, particularly in fintech, because it helps them keep up wit

14、h competitors, meet regulatory requirements, improve efficiency, and cut costs. Market performance fluctuates, but the performance of IT platforms cant, as it would be bad for business.According to our estimates, total IT investment by financial institutions ranges between 0.5% and 5% of their reven

15、ue in 2017. If we narrow this down to fintech investment, we come up with a range of between 0.2% and 2% of revenue (for the banking sector, we use percentage of profit after tax rather than revenue to measure investment levels). We estimate that Chinas financial IT market is now worth more than RMB

16、100bn.Exhibit 1. Chinas financial IT market in 2017 (RMBbn)MonetaryfinancialservicesBanks profitaftertax2,201Banks IT investmentofsolutions34Banks investment ofITsolutions/PAT1.5%Banks totalITinvestmentc80Banks totalITinvestment/PAT3%CapitalmarketBrokersrevenue311BrokersIT investment12BrokersITinves

17、tment/revenue3.7%InsuranceInsurers revenue(premiumincome)Insurers investment ofITsolutions6.6Insurers investment ofITsolutions/revenue0.2%OthersTrustrevenue119TrustIT investment1.1TrustITinvestment/revenue0.9%Source: IDC, Wind, HSBC Qinahai SecuritiesExhibit 2. Brokers revenue and IT investment fore

18、casts (RMBbn)02012201320142015201620172018e2019e140%90%40%-10%-60%BrokersrevenueBrokersITinvestmentRevenuey-o-yIT investmenty-o-ySource: SAC, HSBC and HSBCQH estimateBased on the targets in the 13th Five-year Plan, we estimate a CAGR of 9.4% for banking industry IT investment in 2015-20e. We also ex

19、pect the level of IT investment by brokerages and insurance industries to rise in the next few years. As a result, we think investment in the financial IT market will grow at a faster rate than the overall financial industry.Broadly speaking, the concept of fintech is already a well-developed concep

20、t in China. According to EY, in terms of fintech users as a percentage of the digitally active population,Chinas asset management industry will not forget 27 April 2018 in a hurryChina had an adoption rate of 69% in 2017, while the US and global average both recorded a rate of 33%. We believe this i

21、s mainly because of the rapid rise of Chinas Internet giants.Policy entering the era of super-guidanceChinas asset management industry will not forget 27 April 2018 in a hurry. That was the day when the four big financial regulators the Peoples Bank of China (PBOC), the China Banking and Insurance R

22、egulatory Commission (CBIRC), the China Securities Regulatory Commission (CSRC), and the State Administration of Foreign Exchange (SAFE) unveiled a set of new rules that will tighten supervision of this USD15trn industry.Called the Guiding Opinions on Regulating the Asset Management Business of Fina

23、ncial Institutions, they provide a unified regulatory framework that standardises the regulations of the asset management industry by promoting information transparency and risk management. In our view, they will lead to more investment in IT systems by companies needing to comply with the new rules

24、 in the areas of trading, product management, risk management, custody, and disclosure. We believe the era of policy super-guidance is one of the most important catalysts for the fintech.In Exhibit 3, we provide a scenario analysis of the potential increase in market size, by sub- segment. For our b

25、ase case, we forecast new spending on IT systems and upgrades of RMB744.4m in 2019e and RMB1.1bn in 2020e; in the optimistic case, our forecasts are RMB810m and RMB1.2bn.Exhibit 3. Scenario analysis of the potential increase in the size of the market based on the “Guiding Opinions”Sub-sectorsBasecas

26、eOptimisticcaseAverageno.ofAverageprice Basecase Optimisticcase No. of institutions No. of institutionsmodules /systemsto upgrade/(RMBm)Market sizeMarket sizeMarket sizeMarket sizepurchase(RMBm)(RMBm)(RMBm)(RMBm)2019e2020e2019e2020eBrokerage*657820.526.039.031.246.8Fund management*586920.523.234.827

27、.641.4Trust686830.540.861.240.861.2Futures*748920.529.644.435.653.4Insurance*748920.529.644.435.653.4BankingLarge commercial banks5540.54.06.04.06.0Joint-equity commercial banks121240.59.614.49.614.4Postal Savings Bank10.81.2City commercial banks13413440.5107.2160.8107.2160.8Private banks886.49.6Rur

28、al commercial bank*33438940.5267.2400.8311.2466.8Asset management subsidiaries5050110200300200.0300.0Total744.41,116.6810.01215.0Note: We assume 50% and 60% of the brokers, fund management companies, futures companies, and insurance companies, as well as 30% and 35% of the rural commercial banks hav

29、e module upgrade demand in the base case and the optimistic case, respectivelySource: HSBC Qianhai Securities estimatesInitiate coverage on four companiesTop1 of non-bank financial IT sectorHundsun (600570 CH; CP: RMB55.02; Buy; TP: RMB64.66)Hundsun, one of Chinas leading fintech companies that inve

30、sts heavily in R&D, plays a prominent role in the domestic non-bank financial IT sector, particularly in the area of trading systems and asset management systems. We forecast a revenue CAGR of 25.3% and a net profit CAGR of 27% for 2017-20e, based on our estimates of how much the company stands to b

31、enefit from new guiding opinions covering the asset management industry. We expect it to take 80% of the incremental revenue the policies will generate based on its market share of investment management systems.The dominant player of Chinas tax systems marketA leading provider of asset management sy

32、stemsAs Hunduns most innovative businesses are still making a loss, we use a sum-of-the-parts approach to value the company and derive a target price of RMB64.66 (details on page 34). Potential share price catalysts include the publication of more detailed regulations related to the guiding opinions

33、, the issuance of other policies strengthening regulatory supervision, and the opening up of the capital market. Stakeholders in the company include Ant Financial, an affiliate of Alibaba.Aisino (600271 CH; CP: RMB24.57; Buy; TP: RMB28.40)Aisino, a state-owned enterprise (SOE), holds the dominant po

34、sition in Chinas tax systems market. It has played a leading role in a number of major government initiatives, includingthe Golden Tax Project to upgrade the countrys taxation system through the introduction of advanced IT systems, the third stage of which covers the whole tax system at all levels o

35、f government; (2) the Golden Shield Project, which monitors the Internet; and (3) the Golden Card Project, which links customs points through a national electronic data interchange. Its tax control products covered over 10m users in 2017. The company also uses its large amount of tax data to help ba

36、nks assess creditrisk.We forecast revenue and net profit CAGRs of 14.3% and 16.5% in 2017-20e. As Aisinos cash flow is growing steadily, we apply a two-stage DCF approach (3% risk-free rate, 7% country risk premium, beta of 0.91) to derive a target price of RMB28.40. Potential share price catalysts

37、include easing policy for loans and inclusive finance, and advantageous policies for tax systems.Ysstech (300377 CH; CP: RMB11.60; Buy; TP: RMB14.23)Ysstech is a leading provider of asset management and custodian systems. As of end-2017, its products covered more than 350 financial institutions in C

38、hina, including major banks, fund management companies, and brokers. We forecast revenue and net profit CAGRs of 37.9% and 33.5% in 2017-20e, as we expect the demand for system upgrades to fuel revenue growth, underpinned by the new polices outlined in the guiding opinions.As Ysstechs main business

39、is highly correlated with the financial IT industry, we apply a target PE of 27x to 2019e EPS of RMB0.53, to derive our target price of RMB14.23. Potential share price catalysts include the introduction of new policies or regulations related to the asset sector, demand for new products and system Hy

40、Union (002537 CH; CP: RMB10.38; Buy; TP: RMB11.97)Up until July 2016, HyUnion was a manufacturer that supplied auto and home appliance parts to the domestic market. Then it acquired Union Mobile Financial Technology (UMF), a leading company in third-party payment and mobile information services. As

41、a result, HyUnion now has two distinct operations the established manufacturing business which accounted for 72.8% of revenue in 2017, and the new fintech products (27.2%). China Mobile and UnionPay, which were both major shareholders of UMF, hold stakes in HyUnion.We believe the fast-expanding fint

42、ech business will be the main driver in the next few year, and forecast revenue and net profit CAGRs of 22.4% and 31.6% in 2017-20e. We apply a PE of 20 x (one standard deviation below the adjusted historical average) to our 2019e EPS estimate of RMB0.60 to derive a target price of RMB11.97 based on

43、 our 2019e EPS. Potential share price catalysts include higher-than-expected growth of the third-party payment business.Share price performanceChinas fintech index dropped 20% in 2018, a better performance than Chinas computer index, which fell 30%. At the individual stock level, Hundsun rose 7% in

44、2017 and Aisino rose 8%, helped by the tighter regulatory environment, in our opinion.Where we are different from market consensusOur estimates are generally lower than Wind consensus. We believe most analysts have priced in the benefits of the policies related to the asset management industry. Our

45、estimates are more conservative as these benefits largely in the form of investment in IT were slow to materialise last year. We also believe that our forecasts pay more attention to the companies investment income, which may cause fluctuations in net profit.Exhibit 4. HSBC Qianhai estimates vs cons

46、ensus (RMBm)Company Estimate HSBCQianhaiestimates WindConsensus HSBC Qianhai vsconsensus indicator2018e2019e2020e2018e2019e2020e2018e2019e2020eHundsunRevenue3,2434,0885,2453,2854,1915,420-1.3%-2.5%-3.2%Net profit5637309715957631,005-5.4%-4.3%-3.4%AisinoRevenue33,69438,80144,43533,87739,24146,209-0.5

47、%-1.1%-3.8%Net profit1,6112,0452,4621,6352,0512,620-1.5%-0.3%-6.1%YsstechRevenue7881,0931,4088021,1361,543-1.7%-3.9%-8.7%Net profit287391496288405542-0.3%-3.4%-8.4%HyUnionRevenue5,2146,2747,3235,1376,6298,6251.5%-5.4%-15.1%Net profit5627499435677951,141-0.8%-5.7%-17.3%Source: Wind, HSBC Qianhai Secu

48、rities estimatesExhibit 5. Comparable companiesTickerCompanyMarket cap ClosingpriceEPSgrowth PE (x) PEG ROE PB (x) (RMBbn)8Jan2018e2019e2018e2019e2018e2018e2019e2018e2019e600570 CHHundsun33.9955.0220%30%60472.217%20%9.88.5600271 CHAisino45.7624.573%27%28221.715%18%4.13.8300377 CHYsstech8.6111.6038%3

49、6%30220.910%13%3.02.8002537 CHHyUnion12.9510.3836%33%23170.78%10%1.71.6600446 CHSZKingdom8.9910.54144%45%27190.416%19%4.13.5603383 CHAPEX3.7931.56-32%13%34302.811%11%3.3N/A300348 CHSunline5.6417.5435%42%43301.011%14%4.64.1Average (China)17.1123.0335%32%35271.413%15%4.44.1TickerCompanyMarket cap Clos

50、ingpriceEPSgrowth PE (x) PEG ROE PB (x) (USDbn)8Jan2018e2019e2018e2019e2018e2018e2019e2018e2019eFISV USFISERV29.3173.551%6%25243.347%46%4.53.5FIS USFIDELITY33.79103.19-30%42%38278.19%11%3.23.2NATIONAL INFOSSNC USSS&C11.1246.24-58%183%70255.818%17%2.62.4TECHNOLOGIESFDC USFIRST DATA16.3117.42-31%-1%16

51、16N/A15%14%3.42.8Average (US)22.6360.10-0.3058%37235.722%22%3.43.0Source: Bloomberg, Wind, HSBC Qianhai Securities estimates for Hundsun, Aisino, Ysstech, and HyUnionExhibit 6. R&D spending and capex of comparable companies in 2017TickerCompanyRevenue R&D expenses (RMBm)R&D/revenueR&Dexpenses(%) per

52、 staff(RMBm)Capex (RMBm)Capex perstaff(RMBm)600570 CHHundsun2666129248.5%0.19983.7%0.01600271 CHAisino297545701.9%0.036252.1%0.03300377 CHYsstech53719335.9%0.1021940.8%0.11002537 CHHyUnion39961423.6%0.041403.5%0.04600446 CHSZKingdom422848811.5%0.081363.2%0.02603383 CHAPEX2445020.4%0.065924.1%0.07300

53、348 CHSunline88010311.8%0.03829.3%0.02Average (China)604440619.1%0.0819412.4%0.04TickerCompanyRevenue R&D expenses (USDm)R&D/revenueR&Dexpenses(%) per staff(USDm)Capex (USDm)Capex perstaff(USDm)FISV USFISERV5696N/AN/AN/A2875.0%0.01FIS USFIDELITY NATIONAL9123N/AN/AN/A6136.7%0.01SSNC USINFOSS&C TECHNO

54、LOGIES16751539.2%0.02462.7%0.01FDC USFIRST DATA12052N/AN/AN/A5184.3%0.02Average (US)71371539.2%0.023664.7%0.01Source: Bloomberg, Wind, HSBC Qianhai SecuritiesExhibit 7. Financial indicators of comparable companies in 2017TickerCompanyRevenue per staffProfit per staffFCF per staffRevenue/fixedProfit/

55、fixedFCF/ fixedROIC(RMB)(RMB)(RMB)assets (RMB)assets (RMB)assets (RMB)600570 CHHundsun392,59669,389120,6187.281.292.2417.2%600271 CHAisino1,424,75174,534107,16527.341.432.0613.1%300377 CHYsstech273,431106,142-174,3880.680.27-0.447.9%002537 CHHyUnion1,117,463115,757-76,0804.850.50-0.335.9%600446 CHSZ

56、Kingdom702,40021,931-111,50310.930.34-1.745.9%603383 CHAPEX290,556121,464-435,2026.292.63-9.4114.5%300348 CHSunline268,35026,750-18,9983.150.31-0.227.8%Average (China)638,50776,567-84,0558.650.97-1.1210.3%TickerCompanyRevenue per staffProfit per staffFCF per staffRevenue/fixedProfit/fixedFCF/ fixedR

57、OIC(USD)(USD)(USD)assets (USD)assets (USD)assets (USD)FISV USFISERV237,33351,91761,79114.613.193.8016.9%FIS USFIDELITY172,13224,88756,71714.962.164.936.6%SSNC USNATIONAL INFO SS&C202,15939,68469,04216.593.265.676.9%FDC USTECHNOLOGIES FIRST DATA547,81866,59195,00012.671.542.207.0%Average (US)289,8614

58、5,77070,63814.712.544.159.4%Source: Company data, Wind, BloombergPotential sector catalysts and risksSector catalysts The publication of more details about the new asset management regulations. This would give banks and other financial institutions a clearer picture of what they need to do in terms

59、of upgrading their IT systems. Downstream demand: the further opening of Chinas financial market would create new demand for fintech and IT products and upgrades. One example of this is the launch of Shanghai-London Stock Connect, which is expected to take place this year. A faster-than-expected rec

60、overy of the capital market.Sector downside risks Government policy can be a double-edged sword. For example, while super-guidance promotes the use of fintech applications by increasing demand for upgrades, it may alsoshrink the size of addressable market by limiting the business operations of asset