Your Investment News From China to Wall Street

Dragon Victory Steers Into Automotive Services, Road Ahead Brightens

The four-year-old crowdfunding platform for entrepreneurs was doing okay until it ventured into auto services. Now, it's doing great.

Ed Newton
    Mar 30, 2018 10:47 AM  PT
Dragon Victory Steers Into Automotive Services, Road Ahead Brightens

Dragon Victory International Ltd. (Nasdaq: LYL), a Hangzhou-based company that provides crowdfunding resources and incubation services to entrepreneurs in China, opened a little side business last November.  The three-year-old company chose to branch out into automotive services, staking out a lucrative piece of the "after-sales" market with its affiliate Hangzhou Dacheng Automotive Technology Services. 

After a rough start as a publicly traded company, this new direction looks promising.

The automotive services company, a $2.6 million joint venture with entrepreneur Jiawei Cao, sells auto insurance on Dragon Victory's platform and offers auto services provided by independent automotive services specialists that have partnered with the company. 

With the new subsidiary in the mix, Dragon Victory finds itself suddenly recording growth at a rate of 30 percent a month. Company officials expect the joint venture to bring in more than $4.7 million by April of 2019.  

"We believe this is an excellent demonstration of the flexibility of our platform and our ability to integrate innovative new business models and adapt to the specific needs of specialized industries," said CFO Fred Gu. Dragon Victory owns 60 percent of the automotive venture, and Jiawei Cao owns 40 percent. 

Founded in 2014 by businessman Yu Han, Dragon Victory raised $8.5 million when it went public at $6 per share in October 2017. It opened at $13.67 on the Nasdaq and rose briefly to $14.99. But shares quickly plummeted to $5.56 before the end of the year. The company's stock closed this week at $3.44 per share. (Yu Han resigned shortly after the company went public. The current chairman and CEO is Jianjun Sun.) 


Performance of Dragon Victory shares since its IPO. (Source: Thomson Reuters Eikon)

Dragon Victory's crowdfunding platform is frequently described as "fast growing" and "reward-based." According to the company's promotional materials, the platform "is designed to enable small- and medium-sized companies, start-ups and idea generators to raise funding from participants through the Internet." 

The platform includes more than 2,000 "cooperation repair agency partnerships," which generate more than $635,000 a month in revenues. 

Dragon Victory's incubation services are related to marketing, sales, strategic planning and guidance, as well as supplementary resources such as legal, accounting, human resources and assisting with feasibility studies. 

The company's strategy is to replicate its Hangzhou platform model in other cities in China with mature markets. Additionally, the company "plans to integrate the upstream and downstream links of the auto parts supply chain, with blockchain and smart contract technology in order to explore the tremendous after-sales auto services market in China." 

Shift to Autos

The move into automotive services comes at a time when the huge Chinese auto industry is cooling. The manufacturing industry grew at an average rate of 24 percent a year between 2005 and 2011, overtaking the U.S. in 2010 as the largest single-country car market. However, analysts are predicting a 3 percent growth rate for 2018. 

But the downturn doesn't affect the market for insurance, auto repairs, car parts and other automobile-related goods and services. 

Dragon Victory plans to use its platform as a sales vehicle for auto insurance. Insurance customers in return receive rewards and vouchers for a range of auto services from partner auto service providers. Hangzhou Dacheng currently has more than 450 of these providers signed up. The company expects to have more than 20,000 auto service providers on board by the end of this year. 

In its most recent earnings report, Dragon Victory reported a revenue increase of 59.6 percent to $189 million for the six months ended Sept. 30. Income from operations dropped slightly to $570,000 for that period, down from $590,000 the previous year. But before tax income rose by 4 percent to $620,000. Net income was $1.7 million, up from about $653,000.