Insurance coverage Marketer U-BX Pops Up in China-U.S. IPO Pipeline Regardless of Restricted Potential

Key takeaways:

•      On-line insurance coverage marketer U-BX has filed for a Nasdaq IPO that might increase as much as $33 million

•      The corporate operates on a skinny gross margin and solely posted modest income development in its newest fiscal 12 months, which may restrict its enchantment to traders

By Warren Yang

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. (NASDAQ:UBXG) because it turns into the newest in a trickle of smaller Chinese language firms in search of to restart the pipeline of such companies elevating contemporary funds by way 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 lift as a lot as $33 million in an IPO on the Nasdaq, in accordance with a preliminary prospectus filed late final month simply earlier than the Lunar New 12 months. The agency mentioned it plans to make use of the funds for analysis and growth, promoting and advertising and marketing, and basic working capital.

The modest IPO comes across the similar time as a equally pint-sized providing by Yi Po Worldwide Holdings, an operator of good parking techniques, which was filed final week. Each plans present that Chinese language firms are beginning to checklist 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 straight and thru a British Virgin Island entity, which might be diluted to about 65% after the IPO.

U-BX describes itself as a “main supplier of insurance coverage know-how companies,” giving the impression it’s amongst a bunch of “insurtech” performs which are scorching these days. However that appears somewhat deceptive. The corporate’s income primarily comes from luring customers to click on on insurers’ ads on social media platforms.

In its newest fiscal 12 months by way of final June, such earnings accounted for greater than half of its complete, although it fell 10% from the earlier 12 months, which if continued, may very well be worrisome. Such “digital promotion companies” in all probability require extra experience in social media advertising and marketing somewhat 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 most important income sources, contributing lower than 20% of the whole in its final fiscal 12 months, even after its gross sales rose 11% year-on-year. 

U-BX’s third line of enterprise hardly requires insurance coverage data and even know-how. That supply comes from its sale of non-insurance services and products that insurers can provide in promotional bundles, reminiscent of 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 12 months, greater than doubling.

U-BX’s general income elevated 18% to about $72.4 million within the final fiscal 12 months from the prior 12 months. That’s somewhat 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 12 months, its value 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 doesn’t incur a whole lot of working bills. Even so, as a result of the gross margin is so low, the corporate has been dropping cash with a unfavorable money circulation 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 big insurance coverage market, which is second now solely to the U.S. and projected to change into the world’s largest within the subsequent decade. Particularly, rising automotive possession because the nation’s family incomes rise signifies that gross sales for auto insurers, a key buyer group for U-BX, may also enhance.

Aggressive dangers

One in all U-BX’s largest dangers is that insurers could develop their very own on-line advertising and marketing capabilities and not want its sort of companies. In its prospectus, the corporate additionally warned it already faces stiff competitors from rivals reminiscent of Nan Yan Know-how, Xiaomar and Botpy Know-how, all unlisted. And the decline in income from digital promotion companies final 12 months doesn’t bode effectively for the corporate’s prospects.

U-BX says its key aggressive benefits embrace an “skilled and visionary” administration group, together with its on-line advertising and marketing and technological capabilities. These components, along with an editorial group that may produce high-quality content material on insurance coverage, look modest in comparison with the standard boastful language typically present in IPO advertising and marketing supplies.

Language apart, the corporate might want to develop extra progressive merchandise that convey substantial income to remain forward of the competitors. Maybe it will likely be ready to try this by beefing up its group and different assets utilizing new funds from the IPO, which might make declining income from its social media advertising and marketing companies much less of a priority.

However main insurers with a lot deeper pockets are additionally investing closely in new applied sciences, reminiscent of synthetic intelligence, to be used in underwriting and danger administration. And a rising variety of pure digital insurers like ZhongAn On-line P&C Insurance coverage (6060.HK), a three way partnership by Alibaba-affiliated Ant Group, Tencent (0700.HK) and Ping An Insurance coverage (2318.HK; 601318.SS), are particularly adept in that space. In opposition to this backdrop, it’s not clear how aggressive U-BX’s insurtech companies could be. 

On high of those drawbacks, Chinese language shares usually – particularly these associated to know-how, a class that might embrace U-BX – aren’t essentially the most enticing propositions for traders as of late as a consequence of regulatory crackdowns on a wide-range of industries that rocked your entire group within the second half of final 12 months.

Ought to U-BX worth its IPO shares at $5 every, the midpoint of its goal vary, it can 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 12 months. That’s really a tad increased than 1.9 for pure insurtech inventory ZhongAn, which has grown a lot quicker from a a lot increased base. That comparatively robust ratio may mirror decrease danger U-BX faces as a consequence of its position as a service supplier to the monetary sector, with out offering precise monetary companies which are extra closely regulated like ZhongAn’s.

This text was submitted by an exterior contributor and will not characterize the views and opinions of Benzinga.

Previous post The Container Retailer Inventory Tanked At present — Is It Value Shopping for?
Next post Viral TikTok upkeep knowledgeable ‘Trans Useful Ma’am’ shares the most important dwelling enchancment errors folks make