Metaverse Vision | Hang Seng Index launched the Metaverse Index, with the top ten major stocks leading the way!

On May 23, Hang Seng Indices launched the Hang Seng China Metaverse Index, adding new members to its megatrend index series and further diversifying products.

According to Hang Seng Index, the metaverse concept covers the field of virtual worlds using advanced technology to create virtual reality, games, and other digital experiences. Recently, it has attracted global attention and has become a new investment theme for investors. The Hang Seng China Metaverse Index was launched to reflect the performance of mainland Chinese companies involved in metaverse-related businesses, value chains and development.

Although the metaverse concept has been around for a short time, its related topics have sparked a buzz in the market. CITIC Securities recently released a research report stating that the ultimate metaverse connects the physical world with the digital world.It will become a way of life for humans 20 years from now, reshaping the digital economy system.The metaverse merges large numbers of discrete single-point innovations into new species, bringing potential and opportunities beyond imagination for a long time.

In the documents published by the Hang Seng Index Company, the targets included in the Metaverse Index include both A shares and Hong Kong stocks.The specific targets are as follows:

The top 10 shares by weight are: Tencent, NetEase, Kuaishou, Goertek, Shunyu Optical Technology, Wingtech, 37 Entertainment, Zhongke Chuangda, Dongshan Precision, and Baidu.

The author mainly divides the top 10 companies into two categories: one category is major Internet technology companies, such as Tencent, NetEase, Kuaishou, and Baidu; the other category is hardware equipment companies related to virtual reality (VR/AR), such as Goertek, Shunyu Optical Technology, Wingtech, Zhongke Chuangda, and Dongshan Precision. However, 37 Mutual Entertainment is a game company and belongs to the metaverse consumer application level.

Simply put, 4 major internet companies, 1 game company, and 4 hardware technology companies.

The author classified Hong Kong stocks and A shares, and counted the financial situation and stock price performance in recent years, respectively.

Let's first look at Hong Kong stock companies, 4 major Internet companies, and 1 hardware technology company: Shunyu Optical Technology.

The net profit performance for the past three years (2019-2021) is as shown above. Tencent is still Big Mac, Baidu and NetEase are in the middle, and Kuaishou lost a lot in 2020 but improved in 2021. The profit of Shunyu Optical Technology has been relatively stable in the past three years, which is a steady upward trend.

However, in terms of stock price performance from the beginning of the year to date, Tencent and Baidu fell the worst, falling by about 21% and 14% respectively. Although Kuaishou and NetEase fell similarly, the decline was not deep, less than 10%. Shunyu Optical Technology's stock price “dropped” this year, down about 53%.

The Federal Reserve's interest rate hike is quite serious in “weakening” overvalued stocks such as technology stocks.Under the general trend of shrinking liquidity, overvalued technology stocks, whether they are US stocks, Hong Kong stocks, or A shares, have already reacted ahead of time in terms of stock prices. Technology stocks in US stocks and Hong Kong stocks have been falling since the end of last year, while stock prices for A-share renewable energy, photovoltaics, chips, etc. have been adjusted for a long time, and only recently have there been a rebound.

Let's go back to the companies mentioned above. Shunyu Optical Technology announced on May 9 that the shipment volume of major products in April is shown below. Other lenses increased rapidly compared to car lenses, and mobile phone lenses also improved month-on-month.

The company's business is closely related to consumer electronics.Yamato recently released a research report stating that it reaffirms the “buy” rating of Shunyu Optics (02382). The report stated that despite short-term pressure brought about by factors such as shortage of components and exchange rates, management is optimistic about the company's long-term prospects and the resumption of upgrading specifications, and reconfirmed the bank's positive views.It is expected to resume steady profit growth from the second half of this year to next year.The year-on-year increase is expected to be 21%-44% due to improved specifications, stock earnings, and increased contributions from electric vehicles/VR, and the agency suggests that long-term investors can absorb the opportunity.

Among the top 10 major stocks in the metaverse index, there are 5 Hong Kong stock companies and 5 A-share companies.The A-share side, on the other hand, mainly focuses on hard technology (virtual reality devices).

The table below shows the net profit of the five A-share companies in recent years.

Although it is not as good as big internet companies in terms of net profit scale, it is impressive in terms of growth. The profits of these five companies have been growing steadily over the past three years. In the table above, judging from the net profit scale of the 2021 annual report, Goertek shares are the most profitable and have had the best growth in the past 3 years: from the level of 1.28 billion in 2019 to the level of 2.84 billion yuan in 2020, to the level of 4.27 billion yuan in 2021, the growth rate is very impressive. Meanwhile, several other companies, such as Wingtai Technology, Dongshan Precision, and Zhongke Chuangda, nearly doubled their profits in 2019-2020.

However, in terms of stock price performance, these 5 companies also performed poorly this year. The average decline was greater than that of the five Hong Kong stocks.

Goertek and Wingtech were originally known in the market for the Apple industry chain, but in recent years they have also opened up a new growth curve.Goertek shares entered the metaverse through VR products. The author reported in several articles as early as August of last year, such as “ByteDance or Entering VR, Goertek Shares are blocked from rising and stopping, and which individual stocks can rise?” , “Why did VR leader Goertek stock suddenly explode?” etc.

Well-known Technology is entering the semiconductor chip field. From a low-margin mobile phone ODM foundry to a popular A-share high-tech semiconductor manufacturer, the rise of Wingtech Technology has always been enjoyed by the market. In 2019, it became famous in the world by “devouring elephants” to acquire world-renowned semiconductor company Anshi Group and is well known in the market. However, stock prices did not perform well this year. Stock prices suddenly fell to a standstill in March without negative news. See the author's article at the time “”Wingtech, which the agency is optimistic about, suddenly fell to a standstill. Who is smashing the market?”.

Meanwhile, Higashiyama Precision and Zhongke Chuangda are mainly deployed in the automotive field.

For example, Higashiyama Precision recently announced that it plans to establish a subsidiary in Mexico through its wholly-owned subsidiary DSBJ, which is mainly engaged in R&D, production and sales of parts in the fields of new energy vehicles and energy storage.

Minsheng Securities review: Driven by automobile electrification and intelligence, the use and value of automotive PCBs continues to increase. Dongshan Precision PCB products are expected to continue to expand in ADAS, lidar, smart cockpits, etc.; the company empowers the automotive sector with high quality and low heat dissipation technology accumulated over many years in the communications field, and is expected to further increase the category and value of bicycle products; the trend of automotive intelligence is obvious, spawning demand for touch screens. The company's photoelectric display business is expected to make breakthroughs in the automotive field in the future.

As for Zhongke Chuangda, it mainly works in the field of intelligent operating systems, which is a concept of automotive electronics and artificial intelligence.According to the company's quarterly report for this year, the company's intelligent software business achieved revenue of about 380 million yuan, an increase of about 24.6% year on year; the smart car business achieved revenue of about 355 million yuan, an increase of about 50.4% year on year; and the smart IoT business achieved revenue of about 418 million yuan, an increase of about 67.2% year on year.

The company announced a fixed increase on May 13. The total amount of capital to be raised will not exceed 310 million yuan (including capital). The net amount of capital raised after deducting issuance fees will be used for the following projects:

As can be seen from the table, the projects to be funded this time involve cutting-edge technology fields such as edge computing, extended reality (XR), vehicle operating systems, and distributed computing power network technology.

37 Mutual Entertainment is a company that is deeply involved in game products.On the metaverse side, 37 Mutual Entertainment cooperated with Zhidu Co., Ltd. to jointly promote the deep integration of next-generation metaverse technology and the game economy, implement the “Internet +” action plan on the other side of Meta, and build a nationally leading 37 Mutual Entertainment metaverse exhibition hall. For details, see the author's previous article “Complementary strengths? 37 Mutual Entertainment and Zhidu Co., Ltd. join hands to “invade” the metaverse!”.

After the above analysis, it can be seen that among the top 10 weighted individual stocks in the metaverse index announced by Hang Seng Index, each company has its own unique advantages in the metaverse and cutting-edge fields of technology, and the company's own performance strength should not be underestimated. Although the current stock price performance is poor, judging from the increase in net profit, they are all relatively “steady”. No wonder they will be selected for the Metaverse Index launched by Hang Seng Index.

In terms of the future development of the metaverse, CITIC Securities expects the metaverse to enter a prototype exploration period in the next 3-5 years, but the agency also pointed out that currently the metaverse is still in the early stages of development, and the time required for technology research and development is uncertain. After the early popularity gradually subsided, capital investment is more cautious.Therefore, projects such as more practical smart devices, virtual performances, and VR games are the main areas that the market places more importance on and is increasingly investing in.

Author: Hsu Yu-yao

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