Yeahka Ramps Up E-Commerce Bid, But Investors Cash Out

Critical takeaways:

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• Yeahka’s force into the remarkably competitive e-commerce place will come as advancement slows for its main cellular payments organization

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• Company’s inventory has fluctuated because its 2020 listing, and now trades in close proximity to its IPO selling price soon after a roaring commence in early 2021

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By Trevor Mo

“Don’t get worried. E-commerce in China may perhaps be fiercely aggressive, but we nonetheless see a fantastic likelihood to make cash from it.”

That is the most recent information coming from Hong Kong-listed Yeahka Ltd. (9923.HK), which announced this thirty day period it would challenge about HK$550 million ($70 million) really worth of five-calendar year convertible bonds to diversify outside of its main cell payment products and services. The corporation will use the funds to ramp up more recent enterprises, like “further accelerating the scale of its in-store e-commerce business enterprise,” according to a assertion produced on July 5. 

Just two times later on one of the company’s biggest supporters, banking large JPMorgan, revealed it had sold off a massive portion of its stake in the corporation that it experienced just disclosed accumulating times before, dropping its position to 11.98% from 15.26%. That enhancement seems to be related to the convertible bond concern, considering that JPMorgan was 1 of the underwriters of that challenge.  

We’ll study the company’s modern e-commerce ramp-up shortly and review its probabilities of success. But initial, we’ll search back at Yeahka’s record and what the firm does. 

Yeahka was founded in 2011 just as the cellular payment company in China was starting to growth. The business afterwards carved out a area of interest by positioning itself as an unbiased substitute to Alipay and WeChat spend, the duo that have occur to dominate China’s mobile payments space in current yrs.

Yeahka produced a collection of payment applications – these types of as QR codes – that allow for retailers to use a single unified channel to take a wide vary of payment choices, which include Alipay and WeChat pay back, as well as other scaled-down suppliers. The corporation requires a slice from each and every transaction its system can help to facilitate.

Yeahka’s inventory has noticed its share of ups and downs since its IPO two many years ago. Its IPO shares sold for HK$16.64 in June 2020, then roared to a history significant of much more than HK$80 in early 2021. But it’s been all downhill from there, and their Friday close of HK$17.26 signifies just a smaller get from the primary IPO value.

Even right after the retreat, Yeahka still measures favorably when compared with its friends. It trades at a value-to-earnings (P/E) ratio of about 15 instances and a rate-to-sales (P/S) ratio of about 2.5. Its most significant rival, Shenzhen-listed Lakala Payment (300773.SZ), trades at a lessen P/E ratio of 12 and P/S ratio of 2.21 moments. U.S.-based Sq. Inc. SQ, which has a comparable design to Yeahka’s, trades at a P/S ratio of 2.16, nevertheless it is dropping dollars and consequently has no P/E.

Mounting problems

Yeahka made its recent e-commerce thrust after momentum for its core cell payment business commenced shedding steam about the earlier couple of decades, versus a backdrop of an more and more saturated sector. In 2021, its payment services grew just 24%, as opposed to 115% in 2019. 

The company’s initial e-commerce foray commenced with its start of an app called Leshangquan in 2019. But that campaign ramped up much more lately after its announcement last November that it would devote 100 million yuan ($14.8 million) in a company of neighborhood way of living solutions called Qianqianhui.  

Yeahka targets “in-retailer e-commerce services,” which center on on the web marketplaces that connect people to companies of community providers such as dining. Marketplace operators usually acquire a cut of transactions carried out on their platforms. 

But attaining a sizeable existence in the house could establish a large challenge for Yeahka. For starters, the in-retailer e-commerce marketplace in China is by now fairly saturated, with Meituan (3690.HK) as the dominant participant just after successful a brutal subsidy war various years back. Even e-commerce giant Alibaba BABA has mainly retreated from the area soon after burning enormous quantities of funds to consider to entice merchants and customers to its Koubei platform.

Yeahka’s administration has been keen to emphasize it has a significant asset for its e-commerce endeavor in its vast community of retailers and shoppers constructed up in excess of the years by means of its mobile payment providers. As of the conclusion of previous yr, the enterprise had 7.3 million lively payment merchants and 945 million individuals in its community.

Persuading some of those people retailers to listing companies on Leshangquan may well be possible because most of them presently use some of Yeahka’s software package equipment and other analytics companies. But leveraging its 945 million consumers, who have far less ties with the business, could be a lot more tricky because most are unaware of Yeahka and feel they are conducting their purchases directly by way of the big payment businesses like Alipay.

Yeahka has set an ambitious purpose of reaching gross goods volume (GMV) of at the very least 2.8 billion yuan for the e-commerce organization this year, up by a aspect of seven from 398 million yuan in 2021. This sort of a ramp-up would inevitably involve significant shelling out, potentially posing a significant exam for the organization this calendar year.

Nonetheless, the firm is attempting to offer traders on the e-commerce initiative. Money markets and corporate progress standard manager Ben Zhao touted the company’s major info abilities bordering people as one particular of its benefit propositions. “We never want to be a system (but) are far more like a instrument … we will also screen the most related articles to our users primarily based on their viewing behavior or consumption patterns,” Zhao told analysts in an earning simply call earlier this 12 months.

In the identical connect with, Chairman Luke Liu pointed to the major potential of the current market, where by organizations nonetheless have room to develop. The community way of living services market place in China is expected to get to 35 trillion yuan in 2025, explained Liu, citing a report from local market research organization iResearch.

Just one factor that could work in Yeahka’s favor is its track history for squeezing extra revenue from the merchants who are its main profits resource. Over the a long time, the business has made a full established of software package and analytics instruments ranging from buyer romantic relationship administration to economic management equipment. Providing much more products and services to its service provider base has served the enterprise incrementally diversify its businesses.

Of Yeahka’s 3 billion yuan in 2021, about 21% came from its “merchant solutions” category, up from just 1.7% in 2017, in accordance to its annual earnings studies. Most of its 2021 revenues – about 75% – arrived from revenue of mobile payment providers, with “in-retailer e-commerce services” contributing the remaining 4%.

It could acquire a while still to establish no matter if Yeahka can get a large new improve from its e-commerce organization, the very same way it did from computer software. But it looks at minimum JPMorgan may possibly not want to hold out all over to see if that occurs.

This tale has been current to display that JPMorgan was one particular of the underwriters of Yeahka’s convertible bond problem