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Financial technology, otherwise known as “Fintech”, is more than just a catch phrase. It’s a sector that has changed the way hundreds of millions of Chinese people shop daily, using just their mobile, and how millions more have received credit with the increasing usage of big data.
It’s also a field that has created enormous value for individual companies. In 2018, Ant Financial Services Group, the parent of Chinese payment platform Alipay and a part of Alibaba Group (NYSE: BABA), raised US$14 billion at a rumoured US$150 billion valuation. By comparison, prominent US-based bank Goldman Sachs Group’s market cap is only US$72.5 billion.
Given China’s large market and the potential for immense value creation from fintech, let’s take a look at two of China’s leading fintech companies; Ping An Insurance Group Co (SEHK: 2318) and PAX Global Technology Ltd (SEHK: 327).
Ping An Insurance
Although it gets most of its revenue from insurance, Ping An has substantially invested in fintech and has a lot to show for it. In terms of spending, Ping An spends 1% of its annual sales, or around US$1 billion, into tech investment each year.
Much of that is geared toward potential technologies used in fintech – think blockchain, the cloud, artificial intelligence (AI), and facial recognition. Armed with those technologies, the company has sought to build fintech platforms in various sectors.
Some of Ping An’s fintech efforts have succeeded. The company owns part of Lufax, a peer-to-peer (P2P) lender and a wealth management platform that raised money at a post-raise valuation of US$39.4 billion earlier in the year.
Although Lufax is shrinking its P2P lending business due to regulation, the company is still worth a lot due to its wealth management business. In addition to Lufax, Ping An has a cloud arm that provides cloud services to financial institutions. It also has Ping An OneConnect that takes some of Ping An’s internally-developed technologies and offers them as a software-as-a-service (SaaS) to many small- and medium-sized financial institutions in China.
Given Ping An’s forward price-to-earnings (PE) ratio of 9.53 and earnings yield of 9.76%, the stock’s dividend yield of around 2.2% is relatively safe.
PAX Global Technology
PAX Global Technology is one of the leading suppliers of e-payment terminal solutions related to point-of-sale hardware and software applications. The payment terminal market is a big market.
According to the company, the worldwide market size for payment terminals amounted to US$62.3 billion in 2018 and is expected to increase around a compound annual growth rate (CAGR) of approximately 8% to reach US$108.5 billion by 2025.
Another trend benefiting PAX Global is the increasing use of Android phones for payments. In emerging countries, smartphone penetration is growing and mobile payments using the Android operating system have increased markedly.
Due to its research and development, PAX has developed Android terminals that target that market and the company has shipped more than 300,000 Android terminals in the first six months of 2019.
As a result of the global growth trends, PAX Global reported an increase in revenue of 26.2% year-on-year to HK$2.37 billion for the six months ended 30 June 2019. Earnings per share (EPS) also increased 26% to HK$0.296 for the first half of the year.
Fintech will be an increasingly big part of the future, and Ping An Insurance and PAX Global Technology stand to benefit. Both companies have invested a lot of capital into their fintech offerings and are primarily-positioned to grow as fintech increasingly disrupts traditional finance.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Hong Kong contributor Jay Yao doesn't own shares in any companies mentioned.