Chinese ADSs of 2020: Where Are They Now?
So far in 2020, marked by the Covid-19 pandemic, seven Chinese companies in various industry sectors completed their IPOs in New York. They were a co-living rental company, Phoenix Tree, a podcast platform Lizhi, a biopharma developer I-Mab, a biotechnology maker AnPac, a wealth management company Huize, a healthcare information platform Zhongchao, and WiMi, which operates in the holographic AR space.
The first trimester witnessed a drop in China's economic output for the first time in nearly half a century – a 6.8% contraction in GDP compared with a year ago. And while the pace of growth of China's economy has been losing steam for a while, these numbers are a direct indicative of the business shutdowns in attempts to stop the deadly epidemic.
In this overview, CW is looking at how the newly-public Chinese companies and their stocks have fared during probably the worst crisis they have had to overcome.
Phoenix Tree Holdings Ltd. (NYSE: DNK)
Phoenix Tree, which operates a co-living rental platform called Danke, had a drab trading run. Since debut on January 17, the stock in the company had barely – by 40 cents – exceeded the issue price of $13.50 per American depositary share. Since then, it's been one jagged slide for the stock. As of late April, DNK was trading at the level of $7, down 48%.
In all, together with the post-IPO additional share purchase by the underwriters, Phoenix Tree raised $128.4 million, less than half of an expected $300 million. Of the IPO amount, up to 75.6% could have been acquired by three of its existing corporate shareholders and a strategic investor, as the company indicated in its prospectus. The lock-up period will expire on July 15.
Phoenix Tree had planned to use the IPO capital for expansion, "including sourcing and renovating additional apartment units," and improving its technology. However, Covid-19 led the company to implement a cost-savings strategy. In its earnings report posted in late March, Phoenix Tree commented on the coronavirus impact, saying it now operates fewer apartments and has taken cost control measures including halting its renovation projects and cutting pay for the management team. Phoenix Tree has also launched online apartment viewing on its platform and offered partial rental waivers.
China's real estate was among the hardest-hit sectors during Covid-19. Many cities in China had zero transactions in the housing sectors in February and agencies were going bankrupt, as Pandaily reported. At the same time, banks and online lending platforms saw more borrowers falling behind on their payments. However, homebuying has reportedly surged in recent weeks in first- and second-tier cities as the country has been recovering from strict quarantine measures.
Phoenix Tree also said that it expects the impact from the outbreak to be short-term and foresees a rebound as people return to work and study and, hence, to renting co-living spaces.
Lizhi Inc. (Nasdaq: LIZI)
Despite its brevity, it's been a troubled public run for Lizhi. Just over the past few days, LIZI has been steadily trending upwards from its $4.17 per ADS bottom – but still at half its issue price of $11. The interactive audio-sharing platform raised $45 million in IPO on Jan. 17 and did well on debut, but that was about it. Despite the online-social nature of its business, which would seemingly save the stock from downfall during the Covid-19 isolation period, investors saw the intense competition, losses, and debt.
In fact, as CW wrote in an analysis this week, Lizhi's debt-to-asset ratio was 136.6% as of Dec. 31. That means, the company had more liabilities than assets. In addition, Lizhi's main source of revenue – virtual gifting as rewards for mostly free podcasts – seems unstable, CW analysts found. Meanwhile, to attract and retain its hosts, Lizhi's content spend has only been growing.
Lastly, China's online content sharing space is facing intense competition. Himalaya reportedly commands a 60% share in China's podcast market.
Another threat is coming from the massively popular scandalous unicorn app TikTok, operated by ByteDance, which is also reportedly readying for IPO. While TikTok has focused on video-sharing, it has also been testing audio features. The company exceeded 400 million daily users recently compared to Lizhi's 38.8 million during the year-end trimester. This week, TikTok's Chinese version, Douyin, hit over 2 billion downloads on Google Play and Apple's App Store, according to a Wednesday report by TechCrunch.
On the bright side, Lizhi's industry does seem to be doing better than most during the Covid-19 quarantine. For the first quarter of 2020, the Chinese company said it expects to see year-over-year revenue growth of between 33.8% and 41.4%.
I-Mab (Nasdaq: IMAB)
So far, I-Mab has had the most successful run among the Chinese ADSs listed this year. The third China-based company to debut in New York on the busy Jan. 17, its shares have been on a stairs-like uptrend. This week, IMAB is trading above the $19 level – compared with its IPO price of $14.
The biopharma company, which develops treatments for cancers and autoimmune disorders, remains at clinical stage and is thus racking up losses. For 2019, I-Mab reported losses of $208.6 million on licensing and collaboration revenues of $4.3 million.
However, the company is quickly advancing towards commercialization. This week, the company announced the first dosing in the Phase 3 trials of human CD38 antibody TJ202/MOR202, combined with Celgene's revlimid (lenalidomide) and dexamethasone, in patients with relapsed/refractory multiple myeloma. It acquired exclusive rights to develop and sell the drug in mainland China, Taiwan, Hong Kong, and Macao from MorphoSys (Nasdaq: MOR).
In early April, I-Mab also rode on the wave of Covid-19 biopharma developments, having advanced toward clinical study for TJM2 to treat cytokine release syndrome (CRS) associated with severe illness caused by the coronavirus. It announced it has received the green light from the U.S. Food and Drug Administration (FDA) to launch the study for the I-Mab-discovered antibody. In addition to the U.S., I-Mab expects to conduct clinical trials of TJM2 in China and South Korea.
In its annual report filed with the SEC on Wednesday, I-Mab commented on the Covid-19 impact. Other than having to arrange remote working, the company said it could see "some delay in regulatory interactions and inspections and patient recruitment and participation" as the regulators focused all resources on the pandemic.
After IPO expenses, I-Mab received net proceeds of $96.4 million from its listing on the Nasdaq, according to its latest filing.
AnPac Bio-Medical Science Co. Ltd. (Nasdaq: ANPC)
This company, with operations in China and the United States, develops technology for early cancer screening and detection. However, it now hopes to use its technology for detecting Covid-19. In a late February announcement, AnPac said it has filed for a provisional patent application to use its "novel detection technology, methods and apparatus for coronavirus detection" with the U.S. patent office.
The company also said it began research with a hospital in China on the ability of its cancer differentiation analysis (CDA) to detect "the risk of coronavirus." AnPac Bio said it expects the project to be challenging and long-term.
As of September, AnPac Bio had 121 patents granted and 89 patents pending globally. Its CDA technology can detect the risk of up to 26 cancer types using a single blood test. The company's chief consultant is Dr. Michael Levitt, 2013 Nobel Laureate in Chemistry. Dr. Levitt previously served on the Scientific Advisory Boards of DuPont Merck Pharmaceuticals, Amgen Inc. (Nasdaq: AMGN), and PDL Biopharma (Nasdaq: PDLI), among others.
In the United States, AnPac operates a clinical studies lab in San Jose, for which it received registration in March 2019, and plans to open facilities in Philadelphia, Pennsylvania in 2020. The company is collaborating with a number of U.S. universities and medical centers on research.
AnPac raised $16 million in a quiet IPO on Jan. 30, selling 1.3 million of its American depositary shares. As of late April, its stock was trading near the level of $8 per ADS compared with the issue price of $12.
Huize Holding Ltd. (Nasdaq: HUIZ)
This Shenzhen-based insurance platform is also trading below its IPO level. Huize had the guts to go public in the midst of the Covid-19 outbreak in China and sold 5.25 million ADSs on the Nasdaq at $10.50 on Feb.12. As of late April, HUIZ shares were traded $3 below that level.
To be fair, we'll mention the peak of $14.80 per share HUIZ hit in early March, when it sold an additional 72,453 shares to the underwriters post-IPO, as well as its bottom of $4.83 in mid-April.
Just two months after its public debut, Huize announced a $10 million share repurchase program to spike investors' interest. Since then, shares in the company have steadily inched higher as China has been exiting months of lockdown and returning to normal operations.
On its online platform, Huize connects insurance providers and users, focusing on long-term life and health insurance products for the young generation. The company does not bear underwriting risks and is not affiliated with any of the insurance providers, according to its filings.
For the fourth quarter, Huize reported revenue growth of 44% to $36.6 million on losses of $1.1 million. In the first quarter, the company expects to generate between $32.6 million and $35.4 million in operating revenue, according to a March statement.
In a recent report, Asia Insurance Review noted an uptrend in demand for health insurance among the Chinese, specifically, for short-term products, under the Covid-19 pandemic. Health insurance providers that operate online platforms have been especially successful. The medium reported striking growth at Waterdrop Insurance Mall (30 million new users in Jan.-Feb. 2020), Tencent's WeSure (25 million users during pandemic), and ZhongAn (55% year-over-year increase in premium income).
Meanwhile, traditional insurance providers are also expanding online, a move that is bound to weigh on the highly competitive market. However, AIR cited WeSure COO, general manager Bruce Xie, as saying the transition may take years.
China is the world's second-largest insurance market.
Zhongchao Inc. (Nasdaq: ZCMD)
This small rush IPO, worth $12 million, took place in late February after Covid-19 had already spread overseas and caused outbreaks in Iran and Italy. ZCMD sold 3 million ordinary shares at $4 each.
These days, its stock is trading at half that level. ZCMD shares began to slide from the get-go, though they did hit a high of $4.98 at some point. About a couple of weeks after debut, it waivered just under $2.
With headquarters in Beijing and Shanghai, Zhongchao provides information, professional training, and education services in the healthcare sector. It offers both online and onsite courses, which could have boosted ZCMD's stock during school closures across China. According to its filings, "a vast majority" of revenues Zhongchao generates from its online medical and education training courses. However, the overall market uncertainty and the scale of the company left investors indifferent.
Commenting on the outbreak period, ZCMD wrote, "The Company was able to continue servicing its customers with minimum interruption. Although we were unable to adhere to original delivery timeliness of certain projects due to the strict movement restrictions imposed by the government, we have managed to convert certain onsite training and education programs to online programs and timely deliver the updated training information."
Zhongchao also said it launched a curriculum of 60 courses covering a wide range of medical specialties during in the wake of Covid-19.
WiMi Hologram Cloud Inc. (Nasdaq: WIMI)
The Chinese holographic AR company WiMi lifted off in an online IPO on April 1, raising $26.1 million. This week, it was trading at $5.25 per ADS, 25 cents below issue price.
WiMi provides holographic AR solutions on its cloud platform to clients in the advertising and entertainment spaces. The company's next milestone is expanding in the education area, where the necessity for online resources became especially apparent during the COVID-19 outbreak, WiMi's general manager of science, Michael He, told CapitalWatch in an interview on IPO day.
Eventually, WiMi wants to work with the government on the development of electronic classrooms and integrating hologram videos with school textbooks. It is also toying with the idea of bringing the best city teachers to schools in rural China – when the hardware catches up with the computer algorithms, according to He.
The company also expects that 5G development will lead to new heights in holographic AR development in the spaces of retail, travel, household, and communication.
This week, WiMi filed its annual report with the U.S. SEC, posting 42% annual revenue growth to $45.7 million in 2019. Net income reached $14.7 million, it said. The company also said its ads revenue may be negatively impacted by Covid-19 during the first quarter.
When asked about the challenges WiMi has had to overcome, He said the coronavirus was its biggest one yet. While this period has been tough, He added, WiMi is headed for long-term growth.
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