Mohamad Faizal Bin Ramli/iStock through Getty Photos
A small enterprise that operates on razor-thin margins and is rising solely modestly is a tricky promote for traders, irrespective of the way you slice it. That actuality could quickly confront U-BX Know-how Ltd. (UBXG) because it turns into the newest in a trickle of smaller Chinese language corporations in search of to restart the pipeline of such corporations elevating contemporary funds by means of U.S. listings.
The Beijing-based firm, which offers on-line promotion and different companies for insurers, goals to promote 6 million new shares at $4.50-$5.50 every to boost as a lot as $33 million in an IPO on the Nasdaq, in keeping with a preliminary prospectus filed late final month simply earlier than the Lunar New Yr. The agency mentioned it plans to make use of the funds for analysis and improvement, promoting and advertising, and common working capital.
The modest IPO comes across the identical time as a equally pint-sized providing by Yi Po Worldwide Holdings, an operator of good parking methods, which was filed final week. Each plans present that Chinese language corporations are beginning to listing once more within the U.S., following a half-year pause sparked by regulatory considerations on either side of the Pacific that now are getting resolved.
U-BX is providing shares equal to about 27% of its present excellent complete. Co-founder and CEO Chen Jian, who beforehand labored at web ventures together with Qunar and Autohome, owns greater than 80% of the corporate instantly and thru a British Virgin Island entity, which will likely be diluted to about 65% after the IPO.
U-BX describes itself as a “main supplier of insurance coverage expertise companies,” giving the impression it is amongst a gaggle of “insurtech” performs which might be scorching these days. However that appears somewhat deceptive. The corporate’s income primarily comes from luring shoppers to click on on insurers’ ads on social media platforms.
In its newest fiscal yr by means of final June, such revenue accounted for greater than half of its complete, although it fell 10% from the earlier yr, which if continued, could possibly be worrisome. Such “digital promotion companies” in all probability require extra experience in social media advertising relatively than deep familiarity with insurance coverage.
U-BX does present one thing extra resembling an insurtech service that calculates payout dangers for insurers, based mostly on a proprietary algorithm named “Magic Mirror.” However that service is the smallest of its three fundamental income sources, contributing lower than 20% of the entire in its final fiscal yr, even after its gross sales rose 11% year-on-year.
U-BX’s third line of enterprise hardly requires insurance coverage data and even expertise. That supply comes from its sale of non-insurance services that insurers can provide in promotional bundles, equivalent to automotive wash or automotive upkeep plans. Income from that a part of the enterprise elevated on the quickest tempo amongst its three segments within the final fiscal yr, greater than doubling.
U-BX’s general income elevated 18% to about $72.4 million within the final fiscal yr from the prior 12 months. That is relatively underwhelming for a corporation that’s nonetheless fairly small and must impress traders with its development potential.
Furthermore, the corporate’s excessive prices are consuming closely into its profitability. Within the final fiscal yr, its price of income, which incorporates charges for cloud companies, amounted to greater than 98% of complete gross sales, leading to a paltry gross margin of 1.4%. U-BX as a complete is sort of small with simply three dozen staff, so it would not incur numerous working bills. Even so, as a result of the gross margin is so low, the corporate has been shedding cash with a adverse money stream from operations every year since its inception in 2018, which it warned could proceed.
One factor working in U-BX’s favor is China’s enormous insurance coverage market, which is second now solely to the U.S. and projected to develop into the world’s largest within the subsequent decade. Specifically, rising automotive possession because the nation’s family incomes rise signifies that gross sales for auto insurers, a key buyer group for U-BX, can even enhance.
Aggressive dangers
Certainly one of U-BX’s greatest dangers is that insurers could develop their very own on-line advertising capabilities and not want its kind of companies. In its prospectus, the corporate additionally warned it already faces stiff competitors from rivals equivalent to Nan Yan Know-how, Xiaomar, and Botpy Know-how, all unlisted. And the decline in income from digital promotion companies final yr would not bode nicely for the corporate’s prospects.
U-BX says its key aggressive benefits embody an “skilled and visionary” administration staff, together with its on-line advertising and technological capabilities. These elements, along with an editorial staff that may produce high-quality content material on insurance coverage, look modest in comparison with the standard boastful language typically present in IPO advertising supplies.
Language apart, the corporate might want to develop extra revolutionary merchandise that carry substantial income to remain forward of the competitors. Maybe it will likely be in a position to do this by beefing up its staff and different sources utilizing new funds from the IPO, which might make declining income from its social media advertising companies much less of a priority.
However main insurers with a lot deeper pockets are additionally investing closely in new applied sciences, equivalent to synthetic intelligence, to be used in underwriting and threat administration. And a rising variety of pure digital insurers like ZhongAn On-line P&C Insurance coverage (OTCPK:ZZHGF) (OTCPK:ZZHGY), a three way partnership by Alibaba-affiliated Ant Group, Tencent (OTCPK:TCEHY) and Ping An Insurance coverage (OTCPK:PNGAY) (OTCPK:PIAIF) (601318.SS), are particularly adept in that space. Towards this backdrop, it isn’t clear how aggressive U-BX’s insurtech companies might be.
On high of those drawbacks, Chinese language shares generally – particularly these associated to expertise, a class that would embody U-BX – aren’t essentially the most enticing propositions for traders as of late as a result of regulatory crackdowns on a variety of industries that rocked your complete group within the second half of final yr.
Ought to U-BX value its IPO shares at $5 every, the midpoint of its goal vary, it’s going to have a market capitalization of $142.5 million, translating right into a price-to-sales (P/S) ratio of about 2 based mostly on annual income for the final fiscal yr. That is truly a tad greater than 1.9 for pure insurtech inventory ZhongAn, which has grown a lot sooner from a a lot greater base. That comparatively robust ratio may replicate the decrease threat U-BX faces as a result of its function as a service supplier to the monetary sector, with out offering precise monetary companies which might be extra closely regulated like ZhongAn’s.
Disclosure: None
Unique Publish
Editor’s Notice: The abstract bullets for this text have been chosen by Searching for Alpha editors.
