Reports that Beijing may finally ease oversight and prioritize economic stimulus prove optimistic for Full Truck Alliance
In 2017, a merger between two digital freight platforms Yunmanman and Huochebang formed Full Truck Alliance. The company runs a mobile app that connects truck drivers to people that need to ship items within China. Full Truck Alliance seeks to reshape the future with better technology, revolutionized logistics, and improved efficiency across the value chain while simultaneously optimizing its carbon footprint for our planet.
Full Truck Alliance managed to raise 1.6 Bn USD in their New York IPO last year. They found themselves recently tangled up in the same cybersecurity review as DiDi when planning to list in Hong Kong. Consequently the company decided to pause the potential listing as the Cyberspace Administration of China had previously scrutinized two of the companies apps, Huochebang and Yunmanman. That state agency claimed that these efforts aimed to “prevent national data security risks and safeguard national security.”
Global markets, including China’s, have continued to slump. There have been plenty of indicators that the Chinese economy is experiencing weakness resulting strongly from Covid related restrictions on businesses and production. Goldman Sachs’ GDP forecast for China was cut to 4% while Citi cut their generally more optimistic outlook for growth down to 4.2%. These numbers are quite below the estimate put out by the Chinese government of “around 5.5%.”
After many months of antitrust and data protection measures being brought upon tech firms in the country, Chinese officials finally met with leading domestic technology executives. At a meeting with the Chinese People’s Political Consultative Conference, Chinese Vice-Premier Liu said that the government supported a healthy development of the tech sector and their public listings. Following these statements, JP Morgan has upgraded China’s tech sector calling Alibaba, Meituan, Pinduoduo, and other major firms “overweight” indicating that they could outperform the average total return of stocks over the next 6 to 12 months. Alex Yao, their China Internet Analyst, and the team said “We think key risks to the sector have diminished, particularly in terms of regulatory risk, ADR delisting risk, and geopolitical risk.”
To properly manage the relationship between government and markets, China needs to be very careful in these volatile times to ensure that investors can remain confident. These major companies’ fundamentals must be able to perform relatively well despite the state’s interference. Along with Covid crackdowns, many companies are in very bad situations. Foriegn investors in China, by default, assume that the state will behave relatively pro-globalization for the foreseeable future. With that assumption in mind, these companies are bound to rise and even compete.
Full Truck Alliance’s share price currently sits well below its IPO price of 19 USD. Seeing how heavy regulatory sentiment can obliterate Alibaba’s price, Full Truck Alliance isn’t doing too bad. The company wasn’t mentioned in recent reports. It isn’t unreasonable to assume that Full Truck Alliance will maintain their US listing and soon give the green light for Hong Kong. However, in their most recent update, the trucking app company stated that, “For the second quarter of 2022, the company is likely to experience year-on-year declines in both (gross transaction value) and fulfilled orders.” Signs of short-term adversity, especially in the current macroeconomy have come to be expected. It isn’t unthinkable that in a pretty bullish scenario that the stock finally takes off due to excessive selling pressure towards the end of the year. This goes for many markets as bearishness is currently rampant.
For Full Truck Alliance, their business model is predicated on free flowing manufacturing and industries who need logistical support. Growth in fulfilled orders slowed from 41.6% growth in the previous Q4 to 13.6% year-on-year in Q1 of this year. The could expect for numbers to look rough for the rest of the year since they also had a freeze on new customers. The company enjoyed an 80% revenue growth performance in 2021 which is a tough act to follow in 2022. Their freight matching service is particularly strong and responsible for the company’s growth. Being more realistic on why the company is in a good position, since a lot of pessimism is priced in, there is so much room for them to grow. The same could be said for other firms but for Full Truck Alliance, the demand is certainly there and the technology is practical.
The price-to-sales ratio for Full Truck Alliance is 5.7 for its most recent stock price. It trades relatively strong compared to similar firms like JD Logistics. Many analysts on Wall Street are coming around to the fact that many Chinese stocks are performing with resilience. For FTA, all of their platforms continue to grow while market penetration continues to increase too. In the most recent earnings call, CFO of FTA said that their “users continue to exhibit strong stickiness.” A time should come where Covid is under control and heavy handed regulation subsides. Since general sentiment is that these hurdles will relatively soon ease off, there is opportunity for the stock to rebound.
Expectations are lowering for many companies' ability to perform with intense pressures weighing on the global economy. If things get worse, good companies and bad ones might experience setbacks regardless of performance depending on their profitability of course. FTA looks strong, competitive, stable, and primed for growth after the current storm of troubles subsides. When things do improve, FTA ought to be one of the better performing companies. We value FTA as a formidable and innovative company ready to shine. Many analysts have the firm as a buy or even a strong buy. It’s hard for anyone to feel bullish with so many things going wrong there is no denying that this firm is surviving and prepared to take the next steps in growing. Investors should understand that there is plenty of room for stocks to fall globally. In China, Covid disruptions could persist into 2023. The purpose of data security regulations still remain the same and are pretty steep for these firms. If major institutions are correct, 2022’s first half harshness shouldn't change the fact that many Chinese companies, including FTA, are overall good investments for the future economy.