Feeling flush

Royal Flush: broker-in-waiting?

Last week was the 150th anniversary of Abraham Lincoln’s assassination. Before the era of cross-Atlantic cables, the news travelled at steamboat speed, reaching Europe in 12 days. Reuters was the first to report the shooting in London, which then threw European financial markets into turmoil.

News reporting like this cemented Reuters’ position as the leading news agency in London. Later the advent of ‘the American century’ fuelled the growth of Dow Jones, and later Bloomberg, in New York.

With China’s own economy now larger than America’s (in purchasing power parity rankings), a number of firms are competing to become the Chinese answer to Thomson Reuters and Bloomberg. “Reuters was born when London became a world financial centre… It is just a matter of time to see the emergence of a powerful Chinese financial information company,” says Zhang Changhong, chairman of Great Wisdom (or Shanghai Dazhihui).

Zhang heads one of the aspiring data providers. Indeed, he was so keen to turn his Shanghai-based firm into a Chinese Bloomberg that he may have taken a few steps too far. Great Wisdom’s desktop terminals, including their keyboards and colour codes, looked so similar to Bloomberg designs that the Americans took Zhang to the Chinese courts. The case was dropped in 2013 after Great Wisdom made some changes to its terminals, according to the Global Times.

Since then Zhang’s fortunes have brightened, largely because China’s stock markets have been the world’s best performing since the second half of 2014. Companies such as Great Wisdom epitomise the new euphoria among Chinese investors. As of this week, it was trading at a valuation 626 times above its 2014 earnings, with a market capitalisation of Rmb64 billion ($10.3 billion).

A smaller rival of Great Wisdom’s has registered even more spectacular gains, prompting the Wall Street Journal to label it as the most expensive stock in China.

Shenzhen-listed Hithink Royal Flush is now worth Rmb40 billion, having increased in value more than 10 times over the past 12 months. It now trades at 746 times its reported net profit. It provides web-based financial data and services (at the site 10jqka.com.cn). By the end of last year, it had 226 million registered users. Subscription and advertising fees on its premium content (mainly financial data, as news is largely free) accounted for almost 75% of its Rmb260 million in income. System installation and maintenance contributed another 17%, while about 8% came from fast-growing “other services”, like distributing asset management products, the Economic Herald magazine reports.

East Money Information, another data provider with a market cap of Rmb72 billion, made half of its total revenue selling third-party asset management products last year.

“All these big three listed players are expanding into financial services,” the Economic Herald noted.

Unlike Bloomberg and Reuters, the Chinese firms seem set to become brokerages. Last week East Money announced that it will spend Rmb4.5 billion to acquire Tibet-based Tongxing Brokerage, while Great Wisdom unveiled a Rmb8.5 billion takeover of Xiangcai Securities late last year. CBN says that both deals came with brokerage licences, and the expectation is that Royal Flush will push deeper into financial services too.

All three started out as data providers, but are now turning to selling financial products across their huge customer bases. The trio’s combined market cap stands at $28 billion, just below Thomson Reuters’ $35 billion. But a big piece of the puzzle is missing in the Chinese market. Another major player – Wind Information – isn’t listed. And with the recent bull run in Chinese stocks, analysts are waiting for Wind to take the plunge too (see WiC217 for our profile of the company’s founder Lu Feng).

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