{"id":5287,"date":"2023-10-25T09:45:54","date_gmt":"2023-10-25T09:45:54","guid":{"rendered":"https:\/\/infundpros.com\/news\/linklogis-deconstructed-by-chinas-slumping-property-market\/"},"modified":"2023-10-25T09:45:54","modified_gmt":"2023-10-25T09:45:54","slug":"linklogis-deconstructed-by-chinas-slumping-property-market","status":"publish","type":"post","link":"https:\/\/infundpros.com\/?p=5287","title":{"rendered":"Linklogis Deconstructed By China\u2019s Slumping Property Market"},"content":{"rendered":"
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What a difference a year makes for Linklogis Inc.<\/strong> (OTCPK:LNKLF, 9959.HK).<\/p>\n

Just a year ago, the provider of cloud-based software-as-a-service (SaaS) platforms for supply chain financing seemed like a no-brainer beneficiary of Beijing\u2019s efforts to assist businesses by letting them use unpaid bills owed by their state-owned customers to obtain new financing. Fast-forward to now, however, when the Tencent-backed company is among the growing casualties of China\u2019s deepening real estate slump that is sending ripples through the vast economy.<\/span><\/p>\n

Real estate companies collectively represent a large customer group for Linklogis, and, simply put, their troubles are translating to reduced demand for the company\u2019s main products. The total volume of assets processed on Linklogis\u2019 AMS Cloud platform decreased about 13% year-on-year in the first nine months of this year, according to its latest business update<\/em> released last Friday. Transactions on its ABS Cloud platform also fell nearly 30% in value. Linklogis\u2019 customer retention rate that once hovered near perfect dropped 10 percentage points to 86% as well.<\/span><\/p>\n

In supply chain financing, a company, or an \u201canchor,\u201d uses unpaid bills it owes to its suppliers to help them obtain funding, leveraging the anchor\u2019s own creditworthiness. Both the anchor and suppliers benefit because the former gets more time to pay its bills, while the latter can get fresh cash to finance their operations. Such supply chain financing in China has been expanding fast, partly because of a general shortage of financing available to small and medium-sized enterprises (SMEs) from traditional banks.<\/p>\n

A growing number of Linklogis\u2019 users with real estate sector ties may be dropping off the company\u2019s platforms as the sector\u2019s overall creditworthiness worsens. Making matters worse, banks in general are becoming more risk-averse as China\u2019s economy slows.<\/p>\n

Since the end of 2021, state-owned companies have been required to use technology platforms, like Linklogis\u2019, to aid their suppliers through supply chain financing. Consequently, the number of Linklogis\u2019 anchor partners and customers jumped last year, and that growth continued this year. But it seems that acquiring more customers may be the easy part, while getting them to use the company\u2019s products more is another matter.<\/p>\n

Linklogis\u2019 AMS and ABS Cloud platforms are designed to make it easier to pool supply chain assets, such as unpaid bills, into investable securities. That process is normally cumbersome, if not a daunting, for smaller companies that are not financially savvy. Such securitization can be a handy way of raising money for companies using illiquid assets like receivables. But like bonds or loans, asset-backed securities (ABS) carry default risks since they can go unpaid.<\/p>\n

That means when investors lose confidence in the financial health of businesses, issuing ABS becomes more difficult. And that\u2019s exactly what\u2019s happening in China right now. Issuance of structured financing instruments like ABS decreased about 12% year-on-year in the first half of 2023, according to S&P Global Ratings, which projects the figure for the whole year will fall about 8% from 2022.<\/p>\n

Issuance of securities backed by supply chain assets shrank by an even larger 20% during the January-June period, according to Wind data included in Linklogis\u2019 interim report. And issuance by real estate companies dropped even more, nearly halving during the six months.<\/p>\n

Real estate reliance<\/strong><\/h2>\n

Real estate enterprises represented as much as 42% of Linklogis\u2019 anchor customers and partners at the end of 2021, though that ratio has shrunk fast since then. Even so, they still accounted for a sizable 15% at the end of June. Also, infrastructure and construction enterprises, which are often closely tied to the real estate sector, made up another 29% of Linklogis\u2019 anchors and partners.<\/p>\n

There\u2019s no sign that China\u2019s property downturn will end anytime soon, with a lot of structural issues still remaining to be worked out. Borrowing has been hard for the sector since Beijing started to rein in reckless debt-fueled expansion in 2020, making it difficult for developers to refinance their debt and also raise funds for new projects.<\/p>\n

Declining home prices are also keeping many buyers on the sidelines, depriving developers of their main revenue source and adding to their liquidity stress. Developers\u2019 growing difficulties finishing their projects is making potential homebuyers even more anxious, leading to further delays in property development due to lack of cash.<\/p>\n

Beijing recently eased borrowing rules for home buyers, and local governments have been scaling back purchasing curbs in some cities. Still, new home prices in China fell for a third consecutive month in September, as odds for a quick revival look pretty long.<\/p>\n

To reduce its reliance on ABS-related transactions, and to diversify away from real estate-related companies, Linklogis is trying to boost its other products, including sales over its \u201cMulti-tier Transfer Cloud\u201d platform. This financing solution converts receivables from transactions between SMEs and their anchor customers into digital payment obligations (DigiPos) through the use of blockchain technology.<\/p>\n

Linklogis\u2019 assets processed into DigiPos surged more than 70% year-on-year in the first nine months of this year. But fees from that business appear to be much lower than those from ABS-related transactions. That may explain why even though the volume of Multi-tier Transfer Cloud transactions more than doubled in the first half of the year, Linklogis\u2019 overall revenue still declined 23% year-on-year during the six-month period. The company confirms that in a way by saying its \u201cpricing strategy\u201d for the product \u201cnegatively\u201d affected its revenue growth during the six months.<\/p>\n

Linklogis\u2019 gross profit margin also fell more than 20 percentage points to about 60% during the six-month period. And worse, it plunged into the red.<\/p>\n

Linklogis shares are down more than 60% this year and now trade at a miniscule trailing price-to-earnings (P\/E) ratio of less than 1 even as its profits evaporate. The stock is worth a tiny fraction of its price at the time of Linklogis\u2019 IPO less than three years ago. By comparison, the P\/E ratios are higher for another major fintech group of online loan facilitators, including a 4 for FinVolution Group (FINV) and a 7 for Lufax (LU; 6623.HK).<\/p>\n

The gap shows that as creative as Linklogis has been with its innovative financing services, the company is still highly vulnerable to macroeconomic headwinds.<\/p>\n

Disclosure:<\/strong> None.<\/p>\n

Original Post<\/p>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

What a difference a year makes for Linklogis Inc. (OTCPK:LNKLF, 9959.HK). Just a year ago, the provider of cloud-based software-as-a-service (SaaS) platforms…<\/p>\n","protected":false},"author":1,"featured_media":5288,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[20],"tags":[],"class_list":{"0":"post-5287","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-news"},"yoast_head":"\nLinklogis Deconstructed By China\u2019s Slumping Property Market | inFundPros<\/title>\n<meta name=\"description\" content=\"What a difference a year makes for Linklogis Inc. (OTCPK:LNKLF, 9959.HK). 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