ANALYSIS: Puyi Seeks Growth Amid Economic Challenges

Puyi operates a wealth management platform. Interested investors may wish to wait until 1H 2020's results are known before seeking an entry point.

Donovan Jones
    Mar 22, 2020 5:15 AM  PT
ANALYSIS: Puyi Seeks Growth Amid Economic Challenges
author: Donovan Jones   

Short Take

Puyi (PUYI) went public in the U.S. on March 29, 2019.

The firm operates a wealth management platform connecting Chinese investors with wealth managers.

PUYI is no doubt feeling the twin effects of the U.S. China trade conflict and China's coronavirus outbreak.

Once we learn more about the impact of these two negative events on the firm's first half 2020's results, investors may wish to watch the stock for a potential entry point in 2H 2020.

Company

Guangzhou, China-based Puyi was founded in 2010 to provide wealth management services by connecting third-party wealth managers with consumers online via its marketplace and offline through its branch network.

Management is headed by CEO Yong Ren, who has more than ten years of management experience and three years as Vice President at a well-known financing company in the industry.

Puyi has developed a portfolio of wealth management services that include publicly raised fund products, exchange administered products and asset management plans online, and privately raised fund products offline.

Also, the company's portfolio of corporate finance services includes financial solutions for product design, identification of sources of funding, compliance and risk management.

Market & Competition

According to a 2018 market research report by Boston Consulting Group and Lufax, China's overall wealth management market is valued at about $6.1 trillion.

The main factor expected to drive online wealth management market growth is forecasted stricter regulatory control over the asset and wealth management industry.

The online wealth management segment accounts for 34.6%, or $2.13 trillion, of China's overall wealth management market, growing at a CAGR of 50% over the last five years.

Major competitors that provide or are developing online wealth management services in China include:

  • X Financial (XYF)

  • Pintec (PT)

  • Ant Financial (BABA)

Other commercial banks, online-based financial service providers, and on-bank traditional financial institutions provide increasingly sophisticated online capabilities.

Recent Performance

Puyi's topline revenue by quarter has been uneven, but Q2 2019 was 28% higher than the same period in 2018:

(Source: Seeking Alpha)

Gross profit by quarter has also been uneven, producing the lowest results in the two most recent reporting periods of Q1 - Q2 2019:

(Source: Seeking Alpha)

Operating income by quarter has also been disappointing and sharply lower versus previous similar periods

(Source: Seeking Alpha)

Earnings per share (diluted) have dropped sharply in the most recent two quarters, as the chart shows here:

(Source: Seeking Alpha)

Since its IPO, PUYI's stock price has dropped 11.15% vs. the U.S. Capital Markets index' fall of 20.8% and the overall U.S. market drop of 16.6%, as the chart below indicates:

(Source: Simply Wall Street)

Commentary

PUYI last reported financial results on October 15, 2019, for the fiscal year ended June 30, 2019.

The firm produced uneven topline revenue growth but could point to a positive trend in revenue growth despite the difficult economic conditions in China then as a result of its trade conflict with the U.S.

Less successful were its operating income and earnings per share results, which showed deterioration during the five-quarter period.

Management uses what it calls a ‘seed client' marketing model, where it invests in a small number of clients to enable them to spread the word about the company's service.

In addition, it has spent more on partnering with independent investment advisors as modified ‘seed' marketing persons.

Additionally, G&A expenses have risen markedly and appear to be the main contributor to the negative operating and earnings impacts.

With reporting results only through Q2 2019, U.S. investors await the next report from Puyi, and in the interim have kept the firm's stock price below its original IPO price level.

Furthermore, investors also will need to factor in the effects of the coronavirus outbreak in China on both the firm's operations, marketing efforts as well as client demand and utilization of its services.

While the 2H 2019 results will likely only include the negative effects of the trade U.S. China conflict, the 1H 2020 results will bear the full brunt of the coronavirus outbreak and will probably be negative.

Interested investors may wish to watchlist the stock for review for a second half 2020 potential entry point and after we know more about the firm's 1H 2020's results.

(The opinions expressed by contributing analysts do not reflect the position of CapitalWatch or its journalists. The analyst has no positions in any stocks mentioned, no plans to initiate any positions within the next 72 hours, and no business relationship with any company whose stock is mentioned in this article. Information provided is for educational purposes only, may be incomplete or out of date, and does not constitute financial, legal, or investment advice.)


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