Where Are They Now? Chinese 2019 Listings - Part 2

In this part two of the 2019 Chinese IPO review, we look at the troubles and achievements of the companies that increasingly meet distrust among U.S. investors.

Anna Vodopyanova
    Jun 14, 2020 8:00 AM  PT
Where Are They Now? Chinese 2019 Listings - Part 2
author: Anna Vodopyanova   

Today, we continue looking at Asia-based companies that chose Wall Street as their listing destination of choice. In this report, we shine a spotlight on the IPOs of the first half of 2019.

Last year was rough, marked by the Trump administration's tariff and tech wars, tightened listing rules, the slowdown in China's economy, and protests that shook up Hong Kong. We are looking at the companies' position in the market, major developments and troubles since going public, and how they had fared during the Covid-19 outbreak. 

Companies by ticker symbol in this report: GSX, LK, JFIN, YJ, SY, RUHN, PUYI, TIGR, and FUTU, starting from the most recent listing. The vast majority of these stocks are currently trading below IPO level.

June 6: GSX Techedu Inc. (NYSE: GSX)

This company sees no rest from short-seller bullying and lawsuits. GSX Techedu has consistently delivered skyrocketing revenue results since its IPO in early June 2019. However, certain short-seller firms claim those figures are significantly overstated.

GSX, an afterschool tutoring provider for K-12, raised $207.9 million in its IPO, priced at $10.50 per ADS. The deal was backed by some big banks including Credit Suisse, which these days are taking blows from multiple angles. The stock in GSX has enjoyed an uptrend in line with its financials and rose especially – as high as $46.40 – during the Covid-19 outbreak in China since the company streams live online classes.

However, in April 2020, Citron Research slapped a short on the stock, alleging inflated revenues by up to 70%. In May, Muddy Waters backed the allegations, saying GSX overstated its user numbers by "at least" 73.2%, and "quite likely" by 80.8% – and claimed it "openly recruits engineers to help it run bot farms."

Moreover, Grizzly Research had issued two reports, one in February and another last week, titled "Smoking Gun Evidence of Fraud." The firm alleged that GSX inflated its student numbers and revenue by a whopping 900%. Further, Grizzly claimed GSX bought more than 200,000 fake WeChat accounts, as well as national IDs, a practice that may lead to legal issues with Chinese authorities.

GSX denied all short reports and has threatened to sue Grizzly Research.

But now, its legal bills are mounting as the company faces multiple class-action suits in the United States from investors' rights litigators. In addition, GSX is battling VIPKid in a Beijing court. The rivaling online education platform is accusing GSX of trade secret theft. Two former VIPKid employees are working at GSX since the latter started hiring staff from rivaling educators last year, as reported by KrAsia.

In its latest earnings report, posted in early May, GSX stated revenues grew nearly fivefold year-over-year to $183.2 million in the first quarter, while net income reached $20.9 million. Paid course enrollments, GSX said, increased 307% to 774,000.

Muddy Waters called GSX a "massive loss-making business" and an "almost completely empty box."

Surprisingly, the three research firms had failed to lessen investor loyalty in GSX. As of early June, GSX stock rebounded from $29 to near $39 per share.

May 17: Luckin Coffee Inc. (Nasdaq: LK)

This Chinese company has become the epitome of a good trade gone bad. Once the most successful IPO of 2019, it is now fighting a delisting from the stock exchange and attempting to save its business after 2.2 billion yuan in uncovered fraud.

The coffee chain raised about $651 million in its initial public offering on May 17 and the concurrent private placement of shares. From its issue price of $17 per ADS, LK stock doubled by the year-end, then reached just over $50 in January before an anonymous short-seller alleged the coffee giant significantly overstated its sales in 2019.

The short-seller report, published by Muddy Waters, followed an internal investigation at Luckin, which led to the sacking of its chief executive officer Jenny Zhiya Qian, chief operating officer Jian Liu, and a number of other employees, as well as the resignation of chief technology officer, Gang He, and others.

Now, the coffee chain will start closing some stores it fought so furiously to open in its goal to outnumber Starbucks (Nasdaq: SBUX) in China – reportedly, Luckin operated more than 6,500 locations in April. These days, the loss-making Luckin is seeing mounting debt and lawyer expenses as it faces a class-action suit in the United States in addition to losing access to investor capital.

In addition, news surfaced last week that Luckin's chairman Zhengyao Lu may face criminal charges as investigators found emails in which he instructed colleagues to commit fraud. Earlier, Lu has been hit hard by creditors trying to liquidate his assets.

Shares in Luckin resumed trading in May after a monthlong hold and are traded as of mid-June at just over $3 apiece.

May 10: Jiayin Group Inc. (Nasdaq: JFIN) 

This peer-to-peer lender is trading at $3.90 per ADS compared to its issue price of $10.50. Its 52-week trading range is $1.60 to $30 per share, resembling just another stock flop – if it wasn't for the time frame of that range. After treading just above $2 per share since March, on Wednesday, June 10, JFIN went wild and soared to its highest level yet on some mysterious reason. It even issued a terse press release saying the company was unaware of what caused such volatility.

On Thursday, Jiayin reported revenue of $44.3 million, down 59%, on net income of $5.6 million, down 84%, for the first quarter. It dropped back down in trading to just under $4 per ADS that day. The company said 44.5% of its loans were funded by institutional investors during the first trimester – compared to zero at the same time last year.

Jiayin raised $36.8 million in its initial public offering a year ago. Like rivaling peer-to-peer lenders, the company has been transitioning to institutional funding sources and microfinancing after Beijing cracked down on the fraud-ridden sector. In October, the company had sold a subsidiary, Shanghai Caiyin Asset Management, to a third party guarantee company for $152.3 million.

Recently, Jiayin announced it has acquired a stake in a microcredit provider. In addition, the company is considering acquiring a lending license to make loans on its books.

May 3: Yunji Inc. (Nasdaq: YJ)

Yunji, an online retailer, became publicly traded on May 3 in an IPO worth $121 million. Issued at $11 per ADS, its stock now trades at under $3.

In the year of its IPO, Yunji has transitioned from a social e-commerce site that grew on membership incentives to operating on the marketplace model similar to Alibaba (NYSE: BABA; HKEX: 9988), JD.com (Nasdaq: JD), and Pinduoduo (Nasdaq: PDD). In fact, Yunji's membership-based model has reportedly caused some legal trouble in the past. Chinese medium Ikanchai reported in April 2019 that Yunji had been fined 9.6 million yuan on allegations of operating a pyramid scheme, after which the company improved, as confirmed by Hangzhou regulators. On a side note, the same medium said Yunji was hoping to raise $1 billion in a U.S. IPO.

The "improved" model worked as follows: Subscribers got access to discounts and other perks, and if they attracted additional buyers via social promotion, they would get cash bonuses. Yunji would incentivize users with Yun-coins and coupons for future purchases, according to the filings. Under the new marketplace business model Yunji launched in 2019, it charged merchants commissions on goods sold through the platform and was no longer responsible for the quality of the products.

E-commerce is a highly competitive market in China, dominated by the aforementioned three platforms – Alibaba, JD, and Pinduoduo. Yunji's CFO Chen Chen told CapitalWatch in an interview on IPO day that the company sought to stand out by selling products from non-mainstream, domestic suppliers, in addition to well-known brands – and it did not charge for ads, in contrast to platforms like Alibaba's Tmall.

Chen said, "Emerging brands – they can create or produce high-quality products, but they are small, and their resources are very limited. If you want to secure a page on Alibaba, you pay around 10 million yuan – that's a huge amount, but Alibaba will not guarantee any final sales results."

The shift to the new business model caused a reduction in revenue in the short-term, as CW columnist Donovan Jones demonstrated in his analysis of Yunji last month. YJ's topline revenue has been contracting significantly over the past five quarters, and gross profit similarly dropped. Jones noted the new model might lead to gains in the long term, but the uncertainty remains.

For 2019, Yunji reported $1.7 billion in revenues, down 10%, and losses of $17.8 million. For the first trimester of 2020, it posted $232.9 million in revenues on $1.9 million in net loss – slower-than-expected growth due to the Covid-19 outbreak.

May 2: So-Young International Inc. (Nasdaq: SY) 

The platform, which promotes plastic surgery, is trading 35% below its issue price in New York. It raised $179.4 million by selling shares priced at $13.80 apiece and has been fluctuating downwards, now at the level of $10.23.

In the first quarter, during the Covid-19 outbreak in China, So-Young enjoyed doubled user growth on its platform, as well as a 22% increase in paying medical service providers. Revenues declined 11% year-over-year to $25.8 million, but still exceeded So-Young's expectations, according to the report. Net loss was $5.1 million, in contrast, to posting a profit the year before. The company also noted strategic investments it has made to increase user stickiness.

For 2019, So-Young reported $165.4 million in revenues, up 87%, and income of $25.4 million, a 221% increase from 2018.

Other than financial reports, So-Young has been quiet on the news front. Don Jones rated So-Young as "neutral" in his analysis of the platform in April, taking a cautious approach as the medical aesthetic services were halted during the epidemic.

April 3: Ruhnn Holding Ltd. (Nasdaq: RUHN)

This stock is also a troubled one. China's largest social media influencers company debuted at $12.50 per share and has been trading below IPO level since ravaged by lawsuits and scandal.

The latter occurred just recently. In late April, Alibaba Group (NYSE: BABA; HKEX: 9988) demoted its youngest partner, Fan Jiang, after an alleged affair with the co-founder of Ruhnn. Jiang's wife accused him via social media of an affair with Dayi Zhang, herself a key opinion leader (KOL). Alibaba is an investor in Ruhnn and Jiang's alleged relationship with Zhang could mean preferential treatment, though the e-commerce giant said its internal investigation failed to discover such. It explained the demotion of Jiang, who oversaw the operations of Taobao and Tmall, on the damage he has done to Alibaba's reputation.

Now to the class action suit. A number of firms including Rosen Law and Glancy Prongay & Murray are pursuing Ruhnn for failing to disclose certain information at the time of IPO. Specifically, investors' right litigators allege that the number of RUHN's online stores has fallen by nearly 40%, the number of full-service KOLs on its platform has declined by 44%, and its revenue from the full-service segment has dropped by 46% on a sequential basis. Ruhnn had replied that all the information was "right, fully compliant and legal."

Don Jones has covered Ruhnn's growth efforts in a March 16 analysis, highlighting the addition of more KOLs to its network and its expansion to more social platforms, including China's top apps Weibo (Nasdaq: WB), Bilibili (Nasdaq: BILI), TikTok, Kuaishou, and Little Red Book.

Ruhnn lifted off on April 3 and raised $125 million. Its shares had a wild run, dropping to $3.06 per ADS and trading near that level from late May, rebounding in September to over $7 per share, falling again on lawsuits, then faring admirably during the Covid-19 outbreak, trading just under $9. From mid-March, however, it's been a slide until early June, when Ruhnn reported narrowed net loss and a $15 million share buyback program. As of mid- June, RUHN was at $3.37 per ADS.

March 29: Puyi Inc. (Nasdaq: PUYI)

A third-party wealth management platform, Puyi became publicly traded on March 29, raising $25.8 million for shares priced at $6 each. Its run can be called steady, if not successful since it's currently trading near $6.60 per share. Excluding the period from June 2019 to late August, when it hit as high as $14.80 per ADS, PUYI has stayed at nearly the same level. It briefly dropped below $5 per share – with a bottom of $4.11 – in late November, then managed to recover and keep treading near IPO level throughout the Covid-19 outbreak in China.

So steady, for no major reason, that it may raise some eyebrows.

In late March, Puyi reported revenue decreased 50% year-over-year to $9 million in the six months through December. Net loss was $3.2 million in contrast to $6.5 million in income the preceding year. Yong Ren, Puyi's chief executive officer appointed to the role in September 2019, commented on the results saying the company has been shifting to "the distribution of privately raised funds that mainly invest in public traded stocks" from those "that primarily invest in private companies," which resulted in "a short-term negative impact on our net revenues and profitability."

To note, the former CEO of Puyi, founder Haifeng Yu, remained the company's chairman after the new hire.

Ren also said in the statement that the transaction value of privately raised fund products has significantly declined since the beginning of 2020 due to the quarantine measures. He added that the company expects to incur losses of between $8.4 million to $9.8 million in the six months through June 2020. Even then, PUYI stock remained just about unphased. Its average trading volume is at 13,320.

March 20: Up Fintech Holding Ltd. (Nasdaq: TIGR)

Up Fintech, also known as Tiger Brokers, raised $104 million in its IPO. The trading platform, backed by Xiaomi Corp. (HKEX: 1810), sold 13 million ADSs priced at $8 each on March 20, 2019. Now, its stock is trading below $4 per share.

The company has taken a number of expansion steps since IPO. In July, it obtained a self-clearing license in the U.S. through the acquisition of Marsco Investment Corp. In late 2019, it launched Cash Plus, which invests in treasury bonds, investment-grade bonds, and bond ETFs. Last month, TIGR launched Fund Mall for investing in global mutual funds. The company has also been operating an ETF called the "UP Fintech China-U.S. Internet Titans ETF" (Nasdaq: TTTN). TTTN offers exposure to an index of 20 leading global internet companies and helps TIGR users learn about ETF investing.

Up Fintech also provides ESOP management services and IPO subscription services. The company recently announced it was one of the underwriters on 12 Chinese listings in New York in 2019.

TIGR reported $58.7 million in revenues for 2019, up 75% year-over-year, on $6.6 million in losses. Late in May, the company announced it turned to profit for the first time during the first quarter of 2020 as investors spent more time trading online during the lockdown period. TIGR's securities trading volume grew 58.3% year-over-year and revenues soared 137% to $23.2 million. Net income, it said, was $3 million during the quarter.

March 8: Futu Holdings Ltd. (Nasdaq: FUTU)

This Tencent-backed online brokerage enjoyed a better trading run and was indeed trading 51% above IPO level as of mid-June.

Futu raised about $170 million in its IPO and the concurrent private placement of shares. Initially issued at $12 per ADS, FUTU stock was traded just under that level for most of the year after the initial uptrend to over $18 and the subsequent slide on trade war-related market uncertainties. In June 2020, following strong financials, shares in the brokerage exceeded $19 per ADS.

After achieving significant growth at home in 2019, Futu hopes to expand in the United States. It has launched the mobile trading platform moomoo in free beta version at the end of 2018 from its office in Silicon Valley. Eventually, FUTU intends to deliver to U.S. investors all the functions of its Hong Kong counterpart, a stock trading app NiuNiu, which allows customers to trade stocks across mainland China, Hong Kong, and New York. It is, however, facing intense competition from established U.S. firms.

Like its rival Up Fintech, Futu provides ESOP management services and IPO subscription services, and operates a wealth management platform Money Plus, offering a number of fixed income and equity funds, as well as money market funds. In this report published in early May, CW puts both online brokerages side-by-side for better comparison.

Futu reported $136.4 million in revenues for 2019, up 31% year-over-year, on $21.3 million in income. In the first quarter this year, like its rival, Futu performed strongly, seeing revenues double and income grow 240% year-over-year. Revenues reached $63.3 million while net income was $20 million, the company said. The number of paying clients grew 60.4% year-over-year to 238,536.

We will wait and see if the brokerage can achieve the same growth in the U.S. market, where it faces intense competition from commission-free platforms.


This was part two of the two-part overview covering 2019 Chinese listings in New York working backward from June to January. Today, the continued listing status of some of these companies is uncertain as Wall Street is moving to act against the lack of audit transparency from Chinese firms and toward increased protection of the U.S. investor. In the context of increased Sino-American tensions, things could get ugly for the companies and their investors. The next stop for many of these companies will be Hong Kong, which has relaxed its listing policies in an attempt to attract Chinese techs – and investors.


For the first part of this review, check out our story from June 7.