Zico Files : China tech stocks opportunities – Kingsoft & Xiaomi

The tech stocks in China like Lenovo (922 HK) have been dwarfed by the emergence of the e-commerce titans like Alibaba (BABA US), Tencent (700 HK) and Baidu (BAIDUZ CH). These titans have successfully taken advantage of the huge market provided by the Chinese population.
Xiaomi is probably one of the fastest growing tech company in China. While many have heard about the success of its smartphone business, it’s not on investors’ radar because it is not listed on the stock markets. Xiaomi is shaking up established markets. Founded in 2010, Xiaomi has been seizing share in China at an aggressive clip. In the first half of 2014, it sold over 26 million smartphones — a 271 per cent jump from 2013. It made close to $5.3 billion in revenue during that period, up 149 per cent from the year before. Xiaomi have focused on branding, marketing, and savvy promotions. As Xiaomi spreads its brand around the world, it will exert significant pricing pressure on the likes of Samsung 5930 KS) and, eventually, Apple (AAPL US) itself.
However Xiaomi is not listed, at least not yet. It’s barely 5 years old (for that matter Tencent is only a little more than a decade old). At the same time investors will to ways to participate in this new juggernaut.
Kingsoft (3888 HK), a relatively “old name” in the China tech space, could be one of these ways. It is an incubator of sorts in the space and is a key hub of the Xiaomi ecosystem. And by the way Xiaomi’s founder Jun Lei is also chairman of Kingsoft. On its own as an incubator of Chinese tech businesses, it is also a sum-of -the -parts story. We think that over the longer-term (i.e. 12 to 18 months), the stock price could possibly reached the HK$30 level. That’s pretty significant upside from the current stock price of around HK$18. 

A Bit About Zico
Zico is our in house equity consultant who is currently a private fund manager with more than a fair share awards in the course of his illustrious career.
Having managed both global and also regional themed equity portfolios, he specialises in stock picking that maximises returns for his various absolute return portfolios.