Credit Suisse picks Chinese 'little giant' stocks, says the start-ups are a growing force

Published Tue, Apr 5 202210:42 PM EDT

There's a group of government-endorsed start-ups in China that's becoming a "growing force" in the country's push for greater technological self-reliance, according to Credit Suisse. The investment bank has singled out 32 names in this group of small- and medium-sized firms, which China has called "little giants" in its plan to boost thousands of start-ups in the country. China last year announced that it aims to develop 10,000 "little giants" by 2025 in a bid to help such firms grow into global leading forces in niche sectors, and so far the government has named over 4,700 of them. Only 310 are listed, and these stocks have reported faster revenue growth as well as higher gross margin compared with the wider market, according to Credit Suisse. "Faced with challenges arising from the global pandemic and heightened geopolitical tension, China's technology self-reliance and supply chain security have never been as important as today," wrote Credit Suisse research analyst Edmond Huang, who led a team of analysts in compiling this report. "'Little giants', a group of government-endorsed innovative SMEs, are on the rise in the nation's push to achieve technology independence and strengthen advanced manufacturing capabilities," he said. Around a quarter of the 310 firms are in tech, a third in industrials and 20% in the materials sector, the bank said. In the industrials sector, automation and aerospace will be the "breeding ground," while the battery sector will benefit from higher electric vehicle penetration, said Credit Suisse. In health care, medical devices as well as biological and chemical upstream manufacturing would be areas to watch, said the bank. In tech, China will continue to support the domestic semiconductor industry, the bank said. Tensions with the U.S. has caused China to push for technological self-reliance , particularly in the chip sector. But the country has struggled to catch up with rivals in the U.S. and other parts of Asia. Countries increasingly see semiconductors as key to national security and a sign of technological prowess. "Most of these companies focus on developing niche products, or cutting-edge technologies that China lacks in the manufacturing sector, or those that could fill up the gaps along the supply chains," Credit Suisse's Huang wrote. "We believe these companies will likely play a critical role in the nation's technology advancement and supply chain security, helping China retain its global manufacturing powerhouse position and move up the value chain," he added. As part of its scheme to boost start-ups, the Chinese government identifies companies and offers them a slew of support measures, providing direct fiscal support, tax breaks and land grants, among other incentives. Credit Suisse said Beijing's list of criteria for selecting "little giants" includes products China lacks in its manufacturing sector, products or technology that fills gaps in its supply chain or that could create a breakthrough. The index of 310 stocks, which has soared 77% since May 2019, has also outperformed the broader market index, according to the investment bank. It has beaten the CSI 300, which tracks China's largest mainland-listed stocks, by 63% and run "neck to neck" with the startup-heavy ChiNext, says the bank. The listed "little giants" also posted faster revenue growth than their peers on the mainboard. The group reported three-year compound annual growth rate of 21.8% in revenue from 2018 to 2020, outpacing the CSI 300's 3.1% growth and ChiNext's 13.4%. Such firms formed the highest proportion on the ChiNext at 40%, with 28% on the main board in Shanghai, 26% on the Star board, and the rest on the Beijing stock exchange. The investment bank identified key sectors that most of the "little giants" are clustered in, including industrials, battery, tech, health care and autos. It highlighted 32 "little giants" in these sectors. Automation Harmontronics KDT Machinery Leader Harmonious Drive Quick Intelligent Equipment Yijiahe Technology Aerospace EST Tools Huarui Precision Hyatech KEDE Numerical Control OKE Precision Cutting Zhejiang Headman Machinery Materials Anhui Estone Materials Technology Pylon Technologies Shenzhen Dynanonic Sino-Platinum Metals Sunresin New Materials XTC New Energy Materials Tech Awinic Technology Fullhan Microelectronics Infosec Technologies Speechocean Torch Electron XGIMI Health care Amoy Diagnostics Haoyuan Chemexpress NanoMicro Technology Tinavi Medical Technologies Autos Beijing SinoHytec Guilin Fuda Hangzhou XZB Tech Keboda Wuhan LinControl Automotive Electronics

An AI robot by CloudMinds is on display on the opening day of the China International Robot Show 2018 at the National Exhibition and Convention Centre on July 4, 2018 in Shanghai, China.

China News Service