So-Young's Buyout Offer - How Real Is It?
Some questions remain for the Chinese platform promoting plastic surgery.
Anna Vod
Anna Vod
Nov. 22, 2021 19:23
So-Young's Buyout Offer - How Real Is It?

(CapitalWatch, Nov. 22, New York) The troubled Chinese company So-Young International Inc. (Nasdaq: SY) was the top gainer among Chinese stocks on Monday in New York, surging nearly 12% intraday following a going-private proposal.

In a statement today, So-Young said it is reviewing an offer from the co-founder, chairman, and CEO Xing Jin and his affiliates to acquire all outstanding shares in SY at $5.30 apiece. That represents a 23% upside from Friday's close.

The news sent SY shares up to $4.84 as of midday, but that was not enough to pare the losses of investors who purchased the stock in January-February. Year-to-date, shares in SY are down 55% - and even lower from the 52-week high of $17.40 per share.

And while many Chinese stocks have suffered due to the regulatory crackdown this year, So-Young didn't seem to be among them. Instead, it suffered from a declining trust from the investors. One reason to which the devaluation can be attributed is the May report by Blue Orca Capital. In it, the short-seller alleged that So-Young fabricated bookings made through its aesthetic surgery promotion platform.

Blue Orca said in the report that it contacted the clinics from which So-Young supposedly made revenue and concluded that the company exaggerated the bookings by up to five times. The report also alleged that So-Young inflated its ads revenue, showing that the cosmetic surgery clinics supposedly paid much more to advertise on So-Young than they would gain from the bookings made through the platform.

The short-seller also brought up a "history of dishonesty," referring to local media reports about "numerous incidents" of fabricated sales, kickback schemes with clinics, and using fake users to book fake procedures, among other things. Thus, Blue Orca cited a 2016 article on Sohu saying that some investors had pulled out of pre-IPO financing round after the company had falsified some data.

"Lips can be fake. Financials shouldn't be," Blue Orca stated. "We believe, based on our extensive diligence, that SY is a struggling platform replete with fake bookings. In our opinion, the evidence indicates that the Company is likely massively exaggerating the popularity of its platform, its booking and advertising revenues, and even the user generated content."

At the time, So-Young refuted the allegations and launched a share buyback plan. It further said that it "is open to cash verification and diligence to be conducted by competent third-party advisers." However, it failed to announce that it has launched such an independent internal investigation as is usually the case with the sort of allegations, like investors have seen Luckin Coffee (OTC: LKNCY) do last year.

Speaking of Luckin and remembering its quick demise last year, So-Young completed its IPO in New York at the same time as the coffee giant, in May 2019. Considering So-Young has stayed afloat and listed for over two years now – unlike Luckin – that can be called a success in itself. Perhaps, Beijing is to thank for that: The watchdog has been preoccupied with scrutinizing the tech giants and slapping fine after fine on industry leaders like Alibaba Group (NYSE: BABA; HKEX: 9988) and regime-criticizing Jack Ma.

Last week, So-Young reported third quarter results, showing it booked $67 million in revenue, up 20% year-over-year, and income that surged to $1.1 million. Considering the financials are sound, the company has enjoyed some strong business growth this year overall, seeing doubled revenues in the first quarter, 38% growth in the second quarter, and now 20% growth in the third. In the fourth quarter, however, So-Young expects a slowdown. The company forecast revenue growth of up to 6% in the year-end trimester.

The company's financial report showed an optimistic outlook from CEO Jin and CFO Min Yu and made no mention of a going-private consideration. In September, So-Young hired a new chief technology officer, Xuejian Li. It is unclear whether today's move is an actual plan by the CEO to take the company private or an attempt to boost SY stock, as some Chinese companies have been known to do.

In its latest press releases, So-Young made no mention of the shares repurchased in its 12-month $70 million share buyback plan announced as a show of confidence in May following the short-seller report.

CapitalWatch Disclaimer

Information provided is for educational purposes only and does not constitute financial, legal, or investment advice. The author has no position in So-Young International.

Topics :SY, So-Young, Stocks
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