China Brilliant Global Limited (8026.HK) may own the world’s first “Supply Chain Digital Bank”. What will the value be?
Since last year, the “black swan” COVID-19 has swept the world and has made a huge impact on various countries. Hence, new trends have emerged. The penetration of digitization and intelligence has accelerated. As for financial sector, the development of digital banking is booming, which brings incredible business opportunities and becomes a new battlefield in the financial industry.
CBG combines the existing real economy business with the new digital bank to build a new scenario for the digital bank focus on supply chain. According to the company’s previous announcement, the bank is expected to start trial operation in the second half of 2021, and may own the world’s first digital bank focusing on supply chain finance.
In addition, the latest review result of Morgan Stanley Capital International (MSCI) shows that CBG has been included in the MSCI Hong Kong Micro Index in November 2020. Such relevant adjustment was made and be effective on 30 November 2020, after the market closed.
Statistics show that the MSCI Hong Kong Micro Index is constructed in a comprehensive and consistent manner and is one of the most widely used stock benchmarks used by institutional investors to measure the performance of investment portfolios. The index is currently covering thousands of stocks with good operating performance and potential from different regions and different market capitalizations. In other words, being included in the market benchmark index reflects the capital market’s full confidence in CBG’s development and prospects.
You can never imagine CBG’s business development strategy before reading the news mentioned above. Now, how should we view the real investment value hidden behind it?
Obtained A Full Banking License to Create A New Imagination
First, let’s sort out the basic situation of the proposed digital bank so that you can clarify its business positioning and audience.
According to an announcement made by CBG, it acquired the issued share capital of CBG Fintech Holdings Limited twice in 2020 through its wholly-owned subsidiary CFSG, and finally obtained 80% of the issued share capital of CBG Fintech Holdings Limited in order to expand its banking business.
According to public information, Kazakhstan is striving to build AIFC into a leading financial centre in Asia, and through China’s “One Belt, One Road” initiative to develop AIFC into an important offshore RMB centre. As a result, the digital bank for supply chain financing will have significant location investment advantages and market competitive advantages after its landing.
From the perspective of market competition, leading financial institutions such as China Development Bank, China Construction Bank, Industrial and Commercial Bank of China, Bank of China, and China International Capital Corporation have all settled in AIFC. Shanghai Stock Exchange and Silk Road Fund have also jointly invested in AIFC stock exchange (AIX), and owns 25% and 5% of AIX respectively. Possessing a full bank license issued by AIFC enables Brillink to become one of the formal, and global-oriented international financial institutions, and enables it to provide customers with one-stop supply chain financial services.
Besides, according to related research reports, the average online channel usage of global digital bank users has increased by more than 35% in the past three years, especially in Asia, where online transactions are well developed with digital bank customers reaching 1.7 billion in 2020. Moreover, after the outbreak of the epidemic, powerful companies continued to promote digital transformation and upgrading. In addition, with the booming of “New Infrastructure” led by national policies, the novel form of digital banking has been accelerated in the B-end and C-end at the same time.
However, the current market situation is that most of the leading companies have concentrated on the C-end market, while few companies will really focus on the B-end market and have the ability to take the lead in the B-end market.
We believe that digital banks with the abilities to develop B-end business are more likely to stand out in the market. Undoubtedly, it is a good timing for Brillink to intervene at this moment.
Specifically, Brillink’s B-end business covers the entire supply chain, mainly for high-quality customers in the IC and 5G industries, and has certain differences between the inclusive financial model that combines with the more common individuals and SME audiences in the market. Digital banks with such a background are even rarer. Under the wave of empowering the real economy, they are more likely to seize market opportunities.
As mentioned before, Brillink is the one of the few fintech company that will start digital banking at AIFC and obtains full license for deposits and loans. In view of this, the company’s digital banking business is likely to give priority to seizing the market, rapidly expanding the company’s sources of income, and opening up a new imagination for CBG to the market.
Strategic Planning and Resources Create High Synergies, Resulting in Strong and Promising Future
As we all know, to provide financial digital banking services for related companies by focusing on the supply chain can better serve the real economy and promote more efficient trade operation and circulation. The development path of focusing on advanced and technology-led high-end manufacturing or smart manufacturing industry chains such as 5G communications and electronic consumer product manufacturing, will conforms to the general trend of national development and the huge market of independent and self-controlled semiconductors. With its technical and capital barriers, and the threshold of high efficiency, the financial supply chain digital banking business have important characteristics, including irreplaceable and large-scale output.
Other than the competitive environment of the industry, investors also need to focus on the synergies brought by the supply chain resources of CBG.
Mr. Zhang Chunhua, the actual controller of CBG, is also the actual controller of China Brilliant Supply Chain Services Co. Limited(“CB”). CB, founded in 2006, is one of the first supply chain companies in the country to position on industrial supply chains. CB is the first batch of advanced technology service enterprises in Shenzhen. In recent years, it has won the honour of the best innovative enterprise in China’s supply chain management. It has won the China IC market supply chain service award for four consecutive years. It has also been recognized as a national service-oriented manufacturing demonstration platform, which has fully affirmed CB’s value and outstanding performance in serving the industry, and demonstrated CB’s position as a leader in the supply chain field.
In the past 15 years since CB’s establishment, its cumulative revenue has exceeded 113 billion dollars, cumulative tax payment has exceeded 40.5 billion dollars (including tariffs), and the total import and export of general trade has exceeded 55.6 billion US dollars. Its business covers more than 200 large and medium-sized cities in China, and reaching North America, South America, South Asia, Africa and other countries and regions. It has served over 10,000 high-quality customers in the upstream and downstream of the 5G, IC manufacturing, mobile phone manufacturing and other multi-industry chains, by providing one-stop supply chain services including cross-border comprehensive management services, global logistics solutions, meticulous industrial storage and financial supply chain.
It is worth noting that with such a large business scale and an operation mode of high proportion of supply chain financing, CB has an extremely low rate of bad debts since its opening, and its risk management and control capabilities are evident. These excellent customers and valuable business experience will be passed on to Brillink and its digital banking business with great probability. These above key points can be reasonably deduced, and the more important ones can be reflected in the following aspects.
On the one hand, the digital banking business can give full play to CB’s ability of transforming high-end B-end customers, including Xiaomi, Samsung, Siemens, Panasonic, ASM, Transsion, Huaqin, CVTE, Changhong, Cambrian and other top customer resources.
On the other hand, the bad debt rate of import and export loans has always been low, which is 65 times lower than the bad debt rate of general corporate loans. The cloud computing technology and the analysis ability of corporate credit rating big data that CB has accumulated for 15 years can provide the basic support for its digital banking business. From the top to the bottom of the capital supply end, to the capital demand end, it has formed a closed loop of the supply chain financial industry, and thus the risks of engaging in this type of loan business are relatively more controllable.
From the above points of view, CB’s strategic planning of digital bank business can create a high synergy development effect with the Group’s existing supply chain business. It is not just a simple coincidence of customer groups. The Group’s past import and export supply chain business also involved a large amount of supply chain financing. CB has mature experience in trade settlement, risk control, and specific operations. These are all available for reference for Brillink, and attain its business transformation smoothly.
In addition, there are bound to be a large number of potential customers in the customer resource network that the company has built, such as the many upstream and downstream suppliers of high-end industrial giants. Under such “direct and indirect” conversion model, the company’s future customer volume and market space will be immeasurable.
With the support of a good front-end business platform like CB, the digital banking business of CBG will never lack the stamina for development.
Core Assets Support High Valuations and Reveal Market Investment Value
With reference to the previous performance of financial platforms driven by technology, there have always been giants and unicorns, and no “dwarfs”.
We have sorted out the valuations of a number of digital banks with financing records, where we can see that many companies have the characteristics of good profitability and super high valuations, especially Chinese companies that operate online business like WeBank.
Looking back at the fundamentals of Brillink.
In terms of business logic, its parent group’s supply chain business gathers high-quality customers in fast-growing and highly professional industries such as 5G, IC manufacturing, and mobile phone manufacturing, with huge conversion opportunities. These can allow Brillink lower customer cost, sufficient customer stickiness and considerable room for growth. Furthermore, the purely online business model can effectively reduce service costs, eliminate high investment on offline branches and fixed asset, and reduce cost-to-income ratios. With the company’s low bad debt rate under effective risk control, and high gross profit margins, the return on business investment (or return on net assets) is expected to be quite impressive.
Looking ahead, Brillink has a clear development path and high visibility. It will benefit from tides of the times and national policies, such as the increasingly active investment in the “Belt and Road” initiative, New Infrastructure, the trend of autonomous control of 5G and semiconductors, as well as its parent company’s improving supply chain business services, with the increasing types and numbers of vertical industries and the re-expansion of service boundaries.
Therefore, we believe that CBG, to a certain extent, has the possibility of transferring to the Main Board and owns basic strength, due to its high-value core assets. As the first global/ Hong Kong stock with the concept of financial supply chain digital bank, it has a certain degree of scarcity, together with the imagination brought by its long-term development potential, there are many good reasons to judge that CBG’s digital bank assets will eventually enjoy a valuation premium. Compared with its current valuation level, the premium space appears to be quite sufficient. Investors can follow up to the timing and announcement of continuing to attract strategic investors and the trend of smart money.
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