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MarketScreener Homepage  >  Equities  >  SHENZHEN STOCK EXCHANGE  >  Digital China Group Co., Ltd.    000034   CNE000000DQ6

DIGITAL CHINA GROUP CO., LTD.

(000034)
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In U.S.-China tech war, investors bet on China's localisation push

08/20/2020 | 02:50am EST
FILE PHOTO: Chinese and U.S. flags flutter near The Bund in Shanghai

As the U.S.-China "tech war" widens, investors are betting on China's efforts to replace U.S. technologies with indigenous applications to run networks in the state sector.

In recent months, local governments and state firms such as China Telecom have announced plans and procurements aimed at fostering a home-grown tech ecosystem to displace gear from the likes of Intel, Microsoft, Oracle and IBM.

An index tracking Chinese IT stocks has jumped nearly 30% this year, doubling blue-chip gains <.CSI300>.

"We're seeing more U.S. actions against China, and the future tends to be 'one world, two systems'," said Wu Kan, portfolio manager at Soochow Securities Co, who has invested in local tech leaders including China National Software & Service Co Ltd, China Greatwall Technology Group and Beijing Kingsoft Office Software.

"Any segment that faces decoupling risks represents big investment opportunities."

Some market watchers warn valuations of China tech stocks are getting frothy at roughly 60 times trailing earnings, noting Chinese firms could take years to catch-up to established global players. But Wu said price levels are justified by growth potential and direct government backing.

The Trump administration has recently strengthened restrictions on China's Huawei Technologies and sanctioned China-owned apps TikTok and WeChat. Washington also rolled out a "Clean Network" initiative to exclude Chinese tech firms perceived as threatening national security.

Under U.S. pressure, Chinese vendors are poised to gain local market share, said Jie Lu, Robeco's China research head.

"China will ramp up the investment and R&D intensity for critical industries such as semiconductors," Lu said.

Dongxing Securities predicted that a retooling would create a 1 trillion yuan ($144.46 billion) opportunity over the next three years for local vendors.

KUNPENG PUSH

Local governments are rushing to form industry federations to promote the use of Huawei's Kunpeng processing technologies.

Last week, China Unicom's Wuchang subsidiary struck a partnership with Huanghe Technology, which makes servers and PCs using Kunpeng technologies. In May, IT distributer Digital China said it was building plants to make PCs and servers using Kunpeng CPUs.

Also in May, China Telecom said it would procure up to 56,314 servers in 2020, one-fifth of them using Kunpeng and Hygon Dhyana chips, which rival U.S. brands Intel and AMD in a move seen as a gesture of Beijing's localisation push.

"China must promote domestic replacement to avoid being strangled, even as its current technology lags by far," Zhang Chi, chairman of Xin Ding Capital said during an investor roadshow for Haigon Information Technology, maker of Hygon Dhyana chips.

Some 95% of Chinese servers use CPUs from Intel.

It would be disaster, Zhang said, "if one day, Trump bans Intel from selling CPUs to China."

Zhang expects Chinese government agencies to replace all computers using U.S. chips in the next five years, echoing views of many analysts.

National Software & Service, which makes operating systems that compete with Windows and middleware that aims to rival IBM and Oracle, expects revenue this year to jump 70% to 10 billion yuan.

Beijing Kingsoft Office Software this week posted a 143% jump in first-half profit and said China's need for information security is boosting sales.

Beijing Baolande Software Corp also sees governments and finance clients as new growth engines thanks to replacement demand, investor relations official Guo Xing said.

But Brian Bandsma, New York-based portfolio manager at Vontobel Asset Management, said the opportunities in replacement demand would be limited, given less competitive local offerings and what may be longer-than-expected adoption rates.

"Companies like Microsoft have been around for decades and have a very complex piece of software that's being heavily used by multiple industries. There's a reason why Microsoft is in the position it's in," said Bandsma.

"There's probably too much optimism baked into valuations in terms of what these local companies are going to get out of China's focus on domestic suppliers."

($1 = 6.9223 Chinese yuan renminbi)

(This story corrects to fix typographical error in company name in fourth to last paragraph )

By Samuel Shen and Josh Horwitz


© Reuters 2020
Stocks mentioned in the article
ChangeLast1st jan.
AVICOPTER PLC -3.18% 51.22 End-of-day quote.7.36%
BEIJING KINGSOFT OFFICE SOFTWARE, INC. -3.50% 306.37 End-of-day quote.86.92%
CHINA GREATWALL TECHNOLOGY GROUP CO., LTD. -2.48% 14.53 End-of-day quote.-6.62%
CHINA NATIONAL SOFTWARE & SERVICE COMPANY LIMITED -1.44% 71.9 End-of-day quote.0.29%
CHINA TELECOM CORPORATION LIMITED 0.41% 2.42 End-of-day quote.-24.61%
DIGITAL CHINA GROUP CO., LTD. -4.23% 23.09 End-of-day quote.16.32%
DIGITAL CHINA HOLDINGS LIMITED -0.34% 5.88 End-of-day quote.45.19%
DONGXING SECURITIES CO., LTD. -1.52% 12.92 End-of-day quote.-1.67%
INTEL CORPORATION 0.09% 47.05 Delayed Quote.-21.45%
KINGSOFT CORPORATION LIMITED -1.90% 38.8 End-of-day quote.92.08%
MICROSOFT CORPORATION 0.00% 213.87 Delayed Quote.35.61%
SOOCHOW SECURITIES CO., LTD. -1.98% 9.88 End-of-day quote.-1.10%
UNITED STATES DOLLAR (B) / CHINESE YUAN IN HONG KONG (USD/CNH) 0.08% 6.5689 Delayed Quote.-5.54%
VONTOBEL HOLDING AG -0.97% 71.75 Delayed Quote.4.77%
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Financials
Sales 2020 91 288 M 13 880 M 13 880 M
Net income 2020 722 M 110 M 110 M
Net Debt 2020 - - -
P/E ratio 2020 21,9x
Yield 2020 -
Capitalization 15 575 M 2 363 M 2 368 M
Capi. / Sales 2020 0,17x
Capi. / Sales 2021 0,15x
Nbr of Employees 4 486
Free-Float 45,2%
Chart DIGITAL CHINA GROUP CO., LTD.
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Digital China Group Co., Ltd. Technical Analysis Chart | MarketScreener
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Technical analysis trends DIGITAL CHINA GROUP CO., LTD.
Short TermMid-TermLong Term
TrendsBearishNeutralNeutral
Income Statement Evolution
Consensus
Sell
Buy
Mean consensus OUTPERFORM
Number of Analysts 1
Average target price
Last Close Price 24,11 
Spread / Highest target -
Spread / Average Target -
Spread / Lowest Target -
EPS Revisions
Managers
NameTitle
Wei Guo Chairman, President & General Manager
Mei Zhang Chairman-Supervisory Board
Xin Xin Chief Financial Officer & Director
Xiao Yan Wang Director
Jin Mei Zhu Independent Director
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