Hywin Reports Another Solid Quarter; Investors Remain Cautious

Can the China-based wealth manager effectively manage its own shares?
Aug. 31, 2021 20:34
Hywin Reports Another Solid Quarter; Investors Remain Cautious

Hywin Holdings Ltd. (Nasdaq: HYW) reported record quarterly financials on Tuesday, but saw its stock decline 3% nevertheless on the day. Let's take a look at the Chinese wealth manager and how it has fared since its New York listing in late March.

In the fourth fiscal quarter through June, Hywin booked $77.8 million in revenue, up 43% year-over-year, and saw income double to $9.62 million, or 33 cents per share. In the 12 months through June, Hywin generated $277.11 million in revenue on income of $31.37 million, a 96% increase from the fiscal year 2020.

The company said the performance was a record, with CEO Wang Dian highlighting "76.7% repeat investment rate from our existing clients" and CFO Lawrence Lok noting the improvement in the "productivity per relationship manager" and the expenses-to-revenue ratio.

The small-cap company had 29,094 active clients during the fourth quarter, an increase of 18% year-over-year. The aggregate transaction value of wealth management products distributed through Hywin's platform rose 39% to 20.9 billion yuan, according to the report.

Hywin lifted off in late March this year in a small IPO secured by Network 1 Financial Securities Inc., Alexander Capital L.P., and Valuable Capital Ltd. The company had lured investors to its deal by saying it's the third-largest independent wealth management service provider in China, holding 7.5% market share in 2019.

The IPO funds – $30 million – were planned as expansion capital. In its prospectus, Hywin said it intended to grow its network in China and overseas, invest in IT and general corporate purposes. The company did expect to attract more interest, however, as the IPO was downsized.

In the months that followed, Hywin announced two wins at WealthBriefingAsia Greater China Awards 2021, consistently and strikingly growing revenue and income, and a new chief financial officer. Indeed, the aforementioned Wai (Lawrence) Lok joined the team in mid-August, formerly a senior investment banker at Citigroup.

On a side note, former Hywin CFO stayed with the company in the role of Vice President of Strategic Projects, according to the press release.

So, considering such consistently strong financial performance, why is HYW stock down 30% since the initial public offering? After pricing at $10 per share, in the matter of a week or so, HYW shares slid to just above $7 per share and stayed at or below that level since, slipping as low as $5.29 per share last week.

Considering the overall market landscape and especially the vulnerability of Chinese stocks at this point in time, one may say it's no wonder. But Hywin is unaffected by Beijing's crackdown on China's internet giants, nor has the company brought up any changes in the fintech sector that might negatively affect its future performance. On the contrary, Hywin recently received a Dealing in Securities license from the Hong Kong Securities watchdog, to add it to its existing Advising on Securities, Advising on Futures Contracts, and Asset Management licenses in the city.

So far, Hywin has been seeing low trading volume – the average is 12,653, according to Yahoo! Finance. On Tuesday, the volume surged fivefold on the performance update. HYW shares ended at $6.95 apiece.

Potentially weighing on the shares is the nearing of the lock-up period expiration. Starting from Sep. 22, insiders and main stockholders will be able to trade their shares in Hywin.

HYW, Hywin