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Fathom China
Fathom China Team
Sep 02nd 2021
Pinduoduo: Taking Big Regulatory Risks
Pinduoduo is China’s go-to online marketplace for low-priced goods in low-income places. It wins customers through rock-bottom prices and innovative team-based buying. After only six years, Pinduoduo is China’s third biggest e-commerce company by sales and number-one by users who buy at least once a year. It now wants to move into wealthier cities, aided by a massive product-subsidy scheme launched in 2019. Yet Pinduoduo faces big regulatory...
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Fathom China
Fathom China Team
Jul 09th 2021
Feihe: Evidence Of Undisclosed Related Parties
China’s best-selling infant formula is made by Beijing-based China Feihe (“Feihe”). Short seller Blue Orca Capital (“Blue Orca”) in July 2020 accused Feihe of faking profits by using undisclosed related-party transactions with suppliers and service providers to over-report revenue and under-report expenses.
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Fathom China
Fathom China Team
Jun 25th 2021
Bilibili: Moving Beyond Anime And Games
Young Chinese who are wild about anime and games love Bilibili. The video platform is a cross between YouTube and Netflix: Bilibili lets users post their own content, and offers licensed or self-produced shows. Bilibili makes money through game distribution, advertising and paid memberships. Efforts to offer more general content without upsetting the loyal fan base have so far proven successful but drive up costs. A problem is that too much of...
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Fathom China
Fathom China Team
Apr 22nd 2021
Lexin: Fintech Regulations Take Their Toll
LexinFintech Holdings (“Lexin”) is a leading online consumer-finance company. The well-run private firm has found its niche in loans for university students and young professionals. Its main challenge is regulators who are alarmed by fintech firms that provide unlicensed financial services, and that market to students.
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Fathom China
Fathom China Team
Jan 18th 2021
Dada: Booming Market, Intensifying Competition
Dada Nexus (“Dada”) is one of China’s biggest on-demand delivery services, especially for fresh groceries. It will likely grow quickly as Chinese order more perishable foods online. The well-run company’s strength is its close relationship with top shareholders, JD.com (“JD”) and Walmart. Yet Dada’s reliance on those relationships is also its weakness. JD provides 50% of Dada’s revenue, much of which comes from old-fashioned logistics deliveries...
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Fathom China
Fathom China Team
Dec 01st 2020
Mindray: A Helping Hand From Covid
Shenzhen Mindray Bio-Medical Electronics (“Mindray”) is well positioned in a booming industry. It is China’s biggest maker of medical equipment, especially patient monitors and ultrasound machines. Its products are considered a good value, although with fewer functions than more expensive machines made by multinationals.
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Fathom China
Fathom China Team
Sep 08th 2020
Fuling Zhacai: Steady, Not Trendy
Chongqing Fuling Zhacai Group (“Fuling Zhacai”) created a national market for a salty niche side dish from China’s remote hinterland: hot pickled mustard tubers. That success would be like putting anchovies in every American kitchen. The well-run state-owned company has room to grow. The problem is the product: it is an inexpensive condiment, lasts a long time, is eaten in tiny quantities, lends itself to a small set of dishes, and is not a...
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Fathom China
Fathom China Team
Aug 04th 2020
Ant Financial And Tencent: Satisfying Fintech Regulators
Regulatory scrutiny of Ant Financial and the fintech arm of Tencent Holdings (“Tencent”) has raised concerns that Beijing wants to restrict China’s fintech industry, or to hand big parts of it to state-owned companies. A close examination of Beijing’s actions so far, however, reveal that recent controls stem from a financial de-risking campaign launched in 2017. Beijing wants to avoid Wirecard-like frauds and other instability by ensuring that...
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Fathom China
Fathom China Team
Jun 15th 2020
Ping An Good Doctor: Living Off Its Parent
Ping An Good Doctor seems like a candidate for a short attack. The company earns about half its money from related-party transactions with its parent. It also spent nearly US$100mn to buy a firm from its parent for reasons that are unclear, then recorded nearly all the assets as intangible. The structure of PAGD’s variable-interest entity in China was strange from the start, and now that the owners of the VIE have resigned from PAGD’s board, it...
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Fathom China
Fathom China Team
Apr 09th 2020
JD: Seeking A Growth Strategy
China’s number-two e-commerce company is known for quick deliveries of genuine products, especially electronics. Yet JD’s traditional strengths provide fewer advantages today. Competitors who operate third-party platforms, like Alibaba Group Holding (“Alibaba”), provide more products, deliver almost as fast and have earned consumers’ trust. In response, JD wants to expand toward lower-income users in the countryside, and to promote its own third...
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Fathom China
Fathom China Team
Feb 04th 2020
Haitian Food: Tight Channels Impede Growth
Several online sources of varying reliability have indicated that Foshan Haitian Flavoring and Food (“Haitian”), a maker of condiments that include soy sauce, oyster sauce and sesame oil, has sold more product to its distributors than its distributors can sell to retailers—a practice known as “stuffing the channels.” Such practices would enable Haitian to hit revenue targets in the short term but would cause long-terms sales declines as...
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Fathom China
Fathom China Team
Jan 10th 2020
Baozun: Dominating A Low-Margin Industry
Baozun is China’s biggest provider of end-to-end e-commerce services for major brands. It does everything companies need to run online stores—warehousing, marketing, call centers, web-page design and more. Baozun’s leading position looks secure as big foreign companies, which constitute most of its customers, appear pleased with its services.
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Fathom China
Fathom China Team
Dec 11th 2019
Alibaba: Making Nice With The State
Many observers of China’s internet companies have a perception that Alibaba Group Holding (“Alibaba”) is in trouble with the government. We have heard concerns that Alibaba is too big to control, too rich at a time of looming economic hardship, and that now-retired founder Jack Ma is too powerful. Two developments support that theory: Ma’s resignation, and a new e-commerce law that took effect in January 2019. Yet Fathom China disagrees. We see...
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Fathom China
Fathom China Team
Nov 29th 2019
Baidu: Falling From The Ranks
Baidu is falling from the ranks of the great powers. Unlike the other BAT companies, Alibaba Group Holding (“Alibaba”) and Tencent Holdings (“Tencent”), Baidu has not thrived on mobile phones or in markets outside its core search business. Instead, Baidu’s effort to scrape more income from search has alienated users, who increasingly find Baidu’s results irrelevant or even dangerous. Baidu has good prospects in the booming market of cloud...
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Fathom China
Fathom China Team
Sep 20th 2019
Dingli: Poised For A Lift
Zhejiang Dingli Machinery (“Dingli”) enjoyed first-mover advantage in China’s soaring market for aerial work platforms—machinery like cherry pickers that allow workers to operate safely from several stories high. Dingli started early, built a technology advantage and has a strong distribution network. Although it is considered expensive in China, its equipment still sells at 20% less than that of foreign competitors. Dingli is poised to benefit...
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Fathom China
Fathom China Team
Aug 28th 2019
Han’s Laser: A Story With More Holes Than Swiss Cheese
Han’s Laser Technology Industry Group (“Han’s Laser”) misled shareholders about a huge real-estate investment in Switzerland. The company bought a property in the ski village of Engelberg and called it a research center. As the small renovation budget swelled to US$140mn, Han’s Laser told a series of half-truths to hide its real plan: owning a tourism hotel. The investment creates manifold opportunities for undisclosed related-party transactions...
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Fathom China
Fathom China Team
Jul 18th 2019
Sino Biopharm: Industry Reforms Are A Tough Pill
Sino Biopharmaceutical (“Sino Biopharm”) is one of China’s most successful drug makers, but it faces headwinds. The politically well-connected firm is a holding company with 30 subsidiaries, and this report focuses on the three most important. All are under pressure from government efforts to cut drug prices, and sales revenue is falling for many of Sino Biopharm’s top drugs. In search of new markets, Sino Biopharm is shifting from its...
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Fathom China
Fathom China Team
May 17th 2019
Kingdee: Leading The Transition To Cloud
Kingdee International Software Group (“Kingdee”) is one of China’s largest suppliers of business process management software. Its products help businesses integrate and automate supply chain management, customer relations, human resources and other functions. Most revenue still comes from on-premise software that clients install on their own servers. The next step up in technology is to the cloud, where Kingdee’s main service is software-as-a-...
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Fathom China
Fathom China Team
Apr 17th 2019
Hengrui: Regulatory Reforms Create Uncertainties
Jiangsu Hengrui Medicine (“Hengrui”) is a leading Chinese drug firm that grew by making generic medications whose patents have expired. An estimated 70% of its revenue comes from generics, especially those that fight cancer. Recent government reforms are driving down drug prices, threatening Hengrui’s margins and profits. Following a few years of market chaos, the company’s position should improve as small rivals drop out and unit sales increase...
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Fathom China
Fathom China Team
Mar 07th 2019
JD Logistics: Great Service At Great Expense
China’s second-biggest e-commerce company, JD.com (“JD”), in 2016 launched a new business—it opened its logistics services to non-JD merchants. JD had long been known for its vertically integrated warehousing and deliveries, in contrast with industry leader Alibaba Group Holdings (“Alibaba”), which outsources both. JD tried to turn a cost center into a profit center in 2017 by creating JD Logistics (“JDL”). JDL will deliver pretty much anything...
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