…over two trading days after the Lunar New Year holiday.
On the first day of trading after the extended Lunar New Year holiday (February 3) Chinese markets closed nearly 8% down as coronavirus fears took hold. This was the biggest daily fall in five years, as traders dumped their shares amid continued worries about the impact on the global economy of the epidemic.
At the same time, China's new tech shares were doing even worse – the STAR market has a wider daily price limit, and traders took full advantage, with over 20 Star Market-listed companies hitting the -20% daily price limit as of the midday break on February 3.
February 4, the country's stocks modestly bounced back, especially the Star Market, which, in its sudden fall Monday, lost CNY 164.52 billion (USD 23.53 billion), or nearly 14.1% of its current total market cap, turned out to be a hasty climber a day later: the new board-listed stocks became, 10.43% more expensive on average, boosting the combined value of the 77 firms by CNY 119.98 billion (USD 17.15 billion) to CNY 1.12 trillion (USD 160.43 billion).
Automatic Test Equipment (ATE) and whole production line system provider HYC technology (688001:SH) – a key example of a Smart Manufacturing company in the STAR market – also followed the trend, dropping 20% on February 3 to CNY 39.44, and rebounding 10.29% on February 4, with a closing price of CNY 45.3. As of February 4, its market cap is at CNY 17.4 billion.
HYC's main products are applied by manufacturers in industries like LCD, flexible OLED, semi-conductors, new energy vehicle electronics, etc. HYC also provides customized data-integrated software platforms for such industries.
Its sales revenue reached CNY 698 million during the first half of 2019, with a year-on-year increase of 70.6%. In 2019 H1, both its contribution margin (49.3%) and net profit margin (19.3%) decreased by about five percent. The reason could be the increase in the price of raw materials. HYC is expanding fast in terms of the number of employees – it counted 955 staff by the end of 2018, according to data from Choice.
Confronted by this coronavirus epidemic, HYC has also reported that it has donated viral molecular detection materials valued at CNY 1.5 million to Wuhan.
Looking at the historical data of Smart Manufacturing-related companies such as BLT(688333:SH), Xinguang Optic-Electronics Technology (688011:SH), JPT (688025:SH). The industry overall performance in the STAR market shows a trend of bottoming first and then rebounding after the holiday.
Unlike the consumer market, which has been directly affected by the virus, the biggest concern of the manufacturing industry might be a lack of demand. As in many aspects of the crisis, the timing is extraordinary – heading into 2020, it seemed that the impact of the 2018-2019 trade war on domestic manufacturing investment had finally been surpassed. Investment activities in the fields of automobiles, electric vehicles, industry, and electronics have gradually picked up. Under the impact of the trade war, performance fluctuated, but it still maintained strong competitiveness and even expanded its share.
It is believed by some that, in 2020, the trend of gradual upgrading of high-end manufacturing will not change, and that this type of company has growth opportunities in the next few years. In the future, the allocation of high-quality companies in this area will continue to increase, even though fluctuations will exist.
On February 5, Ruisong Technology (688090:SH), another intelligent manufacturing solution and equipment provider, started its stock purchase underwritten by Guangfa Securities. The issuing price is CNY 27.55 per share, with a PE of 43.3. Besides, one of HYC's competitors HFTC (688200:SH), which focuses on ATE, will also start a stock purchase on February 7, the estimated issuing price is CNY 71.08 per share.
Again, the virus brings risk aversion and even a periodic downturn, but China's long-term demand for Smart Manufacturing solutions and the strategic direction of increasing investment in this field will not change.