Hong Kong Tech Investor on China's B2B Market (GSOL, EBAY, YHOO, BIDU)

We frequently receive e-mail from readers of The China Stock Blog with valuable comments relating to China and Chinese stocks trading on US stock exchanges. The latest comes from entrepreneur and technology investor Brent Suen who is an Executive Director in the Hong Kong office of Bay2Peak Strategies. His firm invests in and provides strategic advice to Greater China technology companies. Here are his thoughts on China's B2B market (permission to post granted):

With the recent fanfare created from Alibaba and Yahoo’s alliance and eBay (ticker: EBAY) and Global Sources (ticker: GSOL) partnership, investors around the world are scrambling to find a way to participate. Suddenly, e-commerce for China including B2B, B2C and C2C is hot…..literally overnight the enthusiasm for buying, building, partnering or investing in e-commerce to/from/within China is the hot topic…combine this with Baidu’s (ticker: BIDU) stellar IPO and it all looks like 1998 again…..

We all know that the population base, the internet proliferation, the huge surge in trade, and the increase in wealth can propel China ahead for many years to come. These reasons and a whole host of others are causing upward movement for early/mid and late stage funding candidates, IPO potentials and Strategic Partnership opportunities.

Having moved from the West Coast and been a resident in Hong Kong and investing/operating in China for the past 2 years has provided tremendous insight and an experience that is vastly different from the things I’ve seen over the past 17 years in the capital markets in the US.

One thing that stands out is that there can be 2-3 market leaders simultaneously e.g. Sina (ticker: SINA), Sohu (ticker: SOHU), Netease (ticker: NTES) in portals….Taobao and Eachnet in C2C….also US companies do not automatically dominate.

One of my investee companies, Tradeeasy Holdings (8163 – HKSE), is the #3 to Alibaba and Global Sources in the Greater China B2B portal arena. The company is listed on the Hong Kong Growth Enterprise Market (emerging companies) and operating for eight years now. The recent activity with Alibaba and Global Sources has caused interest from potential partners but zero interest on the investment side – to give you an idea of the disconnect between valuations, Alibaba is valued at approximately 40X revenues; Global Sources is trading at 2.38X revenues. The China internet stocks in aggregate are trading at roughly 8X revenues. Compare this to Tradeeasy which is trading at a valuation of .5X revenues and the shares haven’t traded in over two weeks.

Why is this? Primarily because HK investors here have shied away from tech for the past 4 years and the culture mostly lends itself to investment in property and basic industry on the local stock market. Ironic to think that we are sitting on China’s doorstep and western IT companies are typically more comfortable with Hong Kong as entrance to China and observance of IP protection.

The big questions are these – if the company is #3, can it become #2 or #1? What is your value add? How will you keep from getting squashed by the others in their landgrab and from their access to capital?

One of the greatest opportunities that exists in the market and one of the problems that most all China based manufacturers have is overstock and overproduction sitting on the warehouse floor. Many of them suffer from this and the opportunity to create a channel for getting it into potential global buyers hands is ripe for the taking….

A B2B portal with China supplier database and foreign buyer network is the perfect place to initiate trade and glean revenues from a transaction based model. The big hairball has been in minimum order quantities, logistics, payment, time lag to buyers, QC, customs, shipping etc. If there is a seamless solution to this, then its pretty clear that there is a massive opportunity for the one(s) who get it right.

Leadership in different internet segments will change drastically over the next few years so the old Chinese adage of “may you live in exciting times

Comments

[b2b directory:]

I have heard of Alibaba, Tradeeasy and GlobalSources. But is Global Source a big player to tie up with eBay?

2008 May 29 08:21 AM