Ding Fengguan | Zhang Gao: Shallow Reflections on Value Investment and Industrial Trends
Source: China Fund News (February 6, 2017)
Title: "Reflections on 17 A-share Private Equity A Shares: The Time for the Next Bull Market to Open"
On the occasion of the Chinese New Year in 2017, Zhang Gao, chairman of Ding Feng Assets, was invited by China Fund News to write an article explaining the analysis and consideration of the Chinese economy, stock market investment and capital market in the Year of the Rooster.
Based on considerations of value investment and industry trends, Mr. Zhang Gao said in the article: “We can clearly see two clear trends in the industry: the concentration of traditional industries and the continuous improvement of the penetration rate of emerging industries.”
The following is the full text for readers.
The ultimate goal of investment is to obtain value added value, and the domestic capital market gradually evolves into three mainstream modes of value appreciation: value sharing, value reengineering and value arbitrage.
Value sharing is through mining research, followed by sharing of corporate growth, typically growth stock investment; or buying when the value of the company is significantly undervalued, waiting for the return of value, known as classic value investment.
Value reengineering is achieved through proactive management models, such as continuous M&A, and the formation of a positive cycle of market value expansion. Starting in 2013, it has become the main route for many small and medium-sized companies to increase their value. The classic model is to hold companies in the secondary market for a long time. The stock has become an important shareholder, and continues to assist the company in continuous mergers and acquisitions through the primary market to gradually increase the market value. There are two situations that are more likely to succeed: First, the industry is in an uptrend, but the securitization rate is not high. Listed companies use the first-mover advantage to continue to securitize companies in the same industry, and second, the company's growth can be quickly driven by capital investment, and Create a synergistic effect.
Value arbitrage. Usually refers to the fact that the fundamentals of the company or assets have not changed, and there is an imbalance in the price of the system design flaws, and once the trigger factor occurs, the value will change. Because institutional design tends to be long-term, arbitrage often has medium- and long-term structural characteristics. In particular, semi-market-oriented institutional design is prone to arbitrage, and the two largest assets that have sustained the largest increase in the past 20 years: real estate and shell companies have similar characteristics. . The real estate market is essentially a semi-market market. The transfer of the first-level land is completely monopolized by the government. Shell is essentially a new IPO channel. In both markets, demand is market-oriented, but supply is administratively controlled, and therefore it has a arbitrage basis. Arbitrage has a stable structural character, and once it is combined with leverage, it can generate huge returns. With the acceleration of IPO, the companies that have announced IPO plans in the New Third Board have greater opportunities for arbitrage. The opening of the Shanghai-Shenzhen-Hong Kong Stock Connect has also provided arbitrage opportunities for the Hong Kong stocks' undervalued blue chips.
Value reengineering requires strong resource integration and transaction architecture design capabilities. Value arbitrage requires cross-market and cross-border professional judgment. Relatively easy to grasp is value sharing. The most important element is to pay attention to industrial trends and competition patterns, especially to find the main trend of the main channel and the quality enterprises that can continue to win.
At present, we can clearly see two clear trends in the industry: the concentration of traditional industries and the continuous increase in the penetration rate of emerging industries.
The concentration of traditional industries continues to increase, and there is a strong drive for policy-side reforms, such as iron and steel, coal, and other industries, as well as the drive for market self-elimination, such as chemicals and papermaking. In addition, we observed that there are large investment opportunities in the integration of distribution channels in some traditional industries. Typical, such as medical device business, has a large space in the industry and continues to grow steadily. The competitive landscape is scattered. Private listed companies with aggressiveness, capital advantages, and efficiency advantages have greater room for integration. Once they become channel kings in the future, they also have huge value spaces extending upstream and downstream, which are worth paying attention to in the medium to long term.
In addition, high-quality companies in the environmental protection and garden industries driven by PPP policies will enjoy a high degree of prosperity in the coming years. The essence of PPP is to optimize financing methods, concentrate resources to quality companies, and increase market share. The future environmental protection industry will be The strong, Hengqiang will gradually produce several companies with a market value of 100 billion yuan.
Judging from the global comparative advantage, China's Internet and high-end manufacturing industries are rapidly rising. China has 7 of the 15 Internet companies with the highest market value in the world. At present, the Internet, especially e-commerce, is continuing to penetrate rapidly along the subdivided areas, and can pay attention to the cross-border e-commerce, community e-commerce, and industrial e-commerce (casual food, medicine, commodities, insurance) in the A shares and the new three boards. The income and profits of representative companies in the fields of e-commerce operations and other fields are growing rapidly. As a new model of community e-commerce, net red economy has developed rapidly. In essence, the community is a tribe, and net red as an opinion leader is the chief of the tribe.
The growth of electronics and telecommunications in high-end manufacturing is particularly evident. With the long-term cultivation of China’s huge domestic market, engineers’ dividends, and the strong support of the founder and the capital market, high-quality companies in the smartphone and communications equipment industry chain are expanding globally. Continuing to erode the share of competitors, China's entire vehicle and parts manufacturers may copy the expansion path of smart phones, and the semiconductor industry chain is starting to gain momentum. Electric, intelligent, and lightweight are the main directions for the future development of automobiles. China last year produced the world's largest electric vehicle production. Even so, the penetration rate is still less than 5%, and there is still huge space for the future.
Looking to the future, there is no doubt that the most imaginative space will be artificial intelligence and virtual reality. Now that the industry is in its infancy, with the gradual formation of products and business models, it will lead a new wave of technology consumption and create huge investment opportunities.