SGOCO Group Ltd. (NASDAQ: SGOC) has completed a 1-for-4 reverse stock split of the company’s authorized ordinary shares, and the stock increased by more than 30% on Monday. SGOCO Group has potential to grow because of several factors including a recent acquisition of a clean technology company.
China’s Local Tech Companies Gain Popularity and Hong Kong’s Trade Expansion with Southeast Asian Nations
The growth of the Chinese economy is slowing down, and the measures taken by the Chinese government, like the continuous devaluation of its currency, have one very imported consequence – the strengthening of Chinese companies. Technology companies in China already proved to be a serious competition for American tech giants, which have been fighting for a dominant position in the second largest economy in the world. The devaluation of the Yuan, which is currently at lowest value in five years, makes Chinese products cheaper in comparison to American products.
As a result Chinese technology products have been consistently increasing in popularity, in China and abroad, as exports escalate. Chinese customers now prefer more and more products from local companies, damaging sales plans of Apple (NASDAQ:AAPL), Hewlett-Packard (NYSE:HPQ), Cisco Systems (NASDAQ:CSCO), and International Business Machines (NYSE:IBM).
Hong Kong Exports Relationship with China and ASEAN
Hong Kong’s electronics industry has also been growing at a rapid pace, and is the largest merchandise export earner in the region according to a research conducted by HKTDC Research. A majority of all exports, an estimate of 60%, are products in the high-tech sector. As technology advances and prices falling due to heavy competition, more and more modern technologically advanced products are reaching mass production levels.
Hong Kong’s exports in the electronics industry sector had increased 4% during the first half of 2015 alone. Among the products that have become the most popular last year are computer devices with wireless connectivity, like notebook computers and tablets.
The Chinese mainland is the primary destination of Hong Kong’s businesses, 54% of total exports, but Europe, with 9% of exports and North America, also with 9%, are important as well.
Great news for Hong Kong are also expected from the Association of Southeast Asian Nations (ASEAN), is the fourth-largest exporting region in the world, trailing only the European Union, North America, and China/Hong Kong. To more effectively capitalize on expanding trade, in 2014 Hong Kong and ASEAN began crucial negotiations on a Hong Kong-ASEAN Free Trade Agreement (FTA). The agreement is expected to include a reduction or elimination of import tariffs, promotion and protection of investment, as well as intellectual property co-operation. The negotiations are expected to be completed in 2016, and without a doubt will result in stronger economic relations between Hong Kong and ASEAN.
Hong Kong’s Small Cap Companies and SGOCO Group
Most companies from Hong Honk are listed on OTC market in the United States, and the once that made to the arena of the official stock exchanges are small cap companies like Melco Crown Entertainment Ltd (NASDAQ:MPEL), O2Micro International Limited (NASDAQ:OIIM) and SGOCO Group Ltd., which is a Hong Kong based technology company with a focus on innovative display products and services to consumers and business in various industries.
SGOCO business model is based on driving sales of a wide range of display and application based products, including tablet PCs, e-reader notebooks, rotating screens, CCTV monitors for security systems, billboards monitors for advertising as well as touch screens.
SGOCO’s multiple brand strategy and local brand recognition designed to capitalize on China’s growing and emerging urban demographic and a booming youth generation.
On December 30th SGOCO has announced of an important acquisition of Boca International Limited, which will help the technology company to advance in product design, more effective distribution and brand development in the Chinese display and computer market. Boca develops and manufactures Phase Change Material (PCM-TES) storage system products.
PCM is a widely used substance with a high heat of fusion, which is capable of storing and releasing large amounts of energy, and as a result is saving energy consumption and increases the speed limit for computers.
Boca’s Phase Change Material storage system is environmentally friendly and is designed to be used for more than ten years. Being environmentally friendly is important for business, and China is becoming more and more aware of the importance ‘green’ products play in the market today. China has already applied several regulations on the matter, which resemble in many ways the approach of Europe to clean energy. This includes regulations that will impact sales of electronic products, like restrictions on batteries and accumulators that contain mercury, and other hazardous substances.
Boca acquisition may turn out to be a good one. The company is anticipating about 7,000 projects in the US and over 8,000 new and modifiable projects in China itself as well as in South East Asia in the near future.
SGOCO Group's current situation along with the Chinese economy, and the development of trade relations between Hong Kong and ASEAN can be seen as a benefit for small tech growth companies.