We do not recommend retail value investors invest in UP at this time. Hold shares but we are Bearish on buying China’s Fintechs and UP Fintech in particular. Risks abound.
China is hot on tightening regulations fraught with worry for national security. UP Fintech Holding’s move of brokerage services to Hong Kong is about image not value.
Seeking Alpha’s Quant Rating for UP is Very Bearish. Factor Grades are low. Growth gets a high mark attracting Bullish ratings from analysts and Wall Street. Growth needs firm undergirding.
metamorworks/iStock via Getty Images Fintech is Growing Fast & Furious
UP Fintech Holding Ltd ( TIGR ) is another of a slew of China Fintech stocks grabbing the attention of foreign investors. Hold shares if you own them but I am Bearish on buying China’s Fintechs and TIGR in particular at this time. Risks abound.
Fintech has blossomed into a robust, mature, and major industry in China. According to KPMG Pulse of Fintech, “Fintech investment in China increased from $900 million in H2’20 to over $1.3 billion in H1’21.” According to other experts, China led the world in 2020 by a large margin in the adoption of Fintech services. Analysts describe it as “the ideal breeding ground for a vibrant FinTech industry.” Source Statista
The trend is for Fintech in China to grow exponentially over the next decade. The securities industry is being transformed. Digitalization is the engine driving insurance and securities companies. The Chinese are standardizing data processing and converting data into an asset. The Head of KPMG China claims , Fintech is matching business needs in ways that “will lead to greater integration of big data, financial technology and business scenarios.” Strong Sentiment for TIGR
The hallmark of Fintech is diversity. It attracts global investments for venture capital, wealth-tech, crypto and cybersecurity, SPACS, M&A, B2B like banking services. UP Fintech Holding Limited is an online brokerage firm for Chinese investors. They trade equities and other financial instruments on multiple exchanges, whether the customers live in China or elsewhere. UP services include brokerage and execution, margin financing, account management, education, and customer support.
In its Q2 ’21 unaudited financial report , the company touts its growth trend. They added 153K-funded accounts in Q2. That is an increase of over 353% Y/Y and 30.4% Q/Q. Over 60% are overseas investors. UP’s total account balance nearly reaches $24B. The account balance is 3xs greater than the prior-year balance and ~12% higher from Q1 ’21. Total revenue of $60.2M in Q2 ’21 is a 98.7% increase from Q2 ’20. The firm’s net profit margin grew to 6.1% from 2.8% last year. The firm’s market cap is $1.31B.
Analysts and Wall Street are bullish and very bullish on TIGR. The share price is +80% over the past 52 weeks but plummeted from a high of $38.50 to $8.66 to start the third week of October. Some analysts set a consensus price target at $23.31. The PE is 38.6 (fwd). Short interest is a whopping 28.7%. Source: Yahoo Finance
TIGR is getting wind in its sails on the announcement the Hong Kong Securities and Futures Commission approves of the acquisition of Ocean Joy Securities Limited. I am convinced any upswing in share price from this move will be short-lived.
UP Fintech Holding will operate its brokerage services from Hong Kong. Ocean Joy Securities Limited is licensed with the SFC for Type I (Dealing in Securities) and Type II (Dealing in Futures Contracts) regulated activities.
China is hot on tightening regulations fraught with worry for national security. UP Fintech Holding’s move of brokerage services to Hong Kong is about image not value . China wants to capitalize on the image of Hong Kong as a business hub. The rumbling and tumbling losses of substantial foreign companies from the trade wars are unlikely to attract more business for UP in Hong Kong than Beijing. Other Risks
The Seeking Alpha Quant Rating for UP Fintech Holding is very bearish: The Factor Grades are relatively low except for Growth. Growth needs firm undergirding: Source Seeking Alpha
TIGR maintains a debt ratio ($169M) against equity ($416.5M) of +40%. Cash flow covers the debt. There is no information on recent efforts at reducing the debt. There are insufficient data to assess debt to EBIT. Their accounts payable is a tad less than cash and short-term investments together.
Other risks to investors are the high volatility of the share price and the high debt-to-equity ratio. The Chinese government is tightening control over fintech firms through increased regulation. For example, the government […]