Riding on improved earnings, the road cargo platform has re-filed to list on the Hong Kong stock market, but its valuation may suffer in a weak market.

Riding on improved earnings, the road cargo platform has re-filed to list on the Hong Kong stock market, but its valuation may suffer in a weak market

Key Takeaways:

  • Lalatech, which operates the logistics and delivery platform Huolala, shrank its loss last year and posted an adjusted profit of $150 million in the first half of this year
  • But the struggling Hong Kong market may put a dampener on the company’s IPO, as shares in archrival Gogox have lost 96% of their value

 

By Fai Pui

The logistics giant whose orange delivery vans weave around China’s streets and alleyways has set a fresh course for the Hong Kong stock market, propelled by better earnings figures.

The fleet of brightly colored vehicles delivers goods for businesses and individuals through a freight platform known as “Huolala” in mainland China and “Lalamove” in Hong Kong.

Last Thursday, parent company Lalatech Holdings Ltd made a renewed attempt to deliver a successful IPO on the Hong Kong Stock Exchange, after its first listing bid got snarled up in the Chinese government’s crackdown on the powerful platform economy.

Last year, the Chinese government repeatedly held regulatory talks with Huolala, which provides logistics and cargo delivery services. Once the probe appeared to be over, Lalatech applied for a Hong Kong IPO in March this year and looked to be on track to raise up to $1 billion. However, just a month later Huolala was called back by regulators to investigate and rectify what they described as “obvious problems”. The IPO journey ground to a halt.

In its latest prospectus, Lalatech addresses China’s anti-monopoly regulations as a risk factor for its future business. “In light of our leading market position, we have received and may continue to receive heightened scrutiny from governmental authorities under the anti-monopoly and anti-unfair competition laws and regulations,” the company said.

Lalatech is the world’s biggest logistics trading platform in terms of the gross transaction value (GTV) of freight orders matched and paid for on digital platforms, according to a Frost & Sullivan report cited in the IPO paperwork. Lalatech enjoyed a total GTV of $3.93 billion in the first half of this year, and a market share of 44%. The research found that the company also ranked first in China, with a total GTV of $3.63 billion and a market share of 61%.

Looking at the company’s earnings record, Lalatech’s revenue has risen for three consecutive years. From $529 million in 2020, revenue grew nearly 60% to $845 million in 2021 and then rose 22.6% to $1.04 billion last year. The company still landed in the red over the three-year period, with annual net losses of $812 million, $2.09 billion and $92.9 million, although the financial picture has improved this year.

In the first half of 2023, revenue rose nearly 25% to $600 million, and the net loss came in at $53.7 million. But the company logged an adjusted profit of $150 million for the six months, mainly due to a change in the fair value of $175 million of redeemable convertible preferred shares.

Lalatech operates in more than 400 cities in 11 markets around the world, but China is its mainstay business. The company made $547 million in platform service revenue in China in the first half of this year, but only $53.37 million from elsewhere. The IPO fundraising is aimed at driving the growth of its core business in China in the next three to five years while accelerating a global expansion.

Lalatech founder Chow Shing Yuk is a star of the Chinese business world with a dramatic backstory. Born in Guangdong, he moved to Hong Kong with his family as a child. He once described growing up in a humble wooden house in Hong Kong, but he aced his school exams and won a scholarship to study in the U.S. He decided to switch his studies to economics because he found physics, his first choice, too boring. Later Chow was admitted to Stanford University and graduated with distinction.

After university, Chow joined Bain & Company as a strategy consultant, making more than a million yuan a year. However, he quit after only three years and started to study Texas Hold’em, a form of poker. He was a professional poker player for eight years, amassing winnings of nearly HK$30 million ($3.85 million).

Chow returned to Hong Kong in 2009, investing his money into apartments at a time when the property market was in the grip of post-crisis pessimism. He sold his property holdings in 2013 and ploughed the money in what he described as the biggest gamble of his life, the haulage venture “EasyVan” that went on to become Huolala.

Chow was a top-ranked student, a big earner at Bain, a high roller at the poker table and now a self-made entrepreneur. His start-up career hit many obstacles: a lack of business experience, programming problems and a shortage of operating capital. He was once accused of plagiarism by Steven Lam, the founder of GoGoVan, a rival logistics platform operating in Hong Kong. Chow did not issue a denial but said victory in business relied on the strength of the product. The two platforms fought a fierce market battle in Hong Kong and expanded their combat zone all the way to Southeast Asia.

Peer’s price plunge

Needing plenty of ammunition in the fight for market share, Chow launched 11 rounds of financing for Lalatech. From 2014 to November 2021, the company raised $2.66 billion from big names including Tencent Holdings (0700.HK), Meituan (3690.HK), BOC (Hong Kong) (2388.HK), Hillhouse Capital, Sequoia Capital, Boyu Capital, FWD Group and Hong Kong Science and Technology Parks Corporation.

According to the prospectus, Lalatech completed its latest round of Series G financing last year, obtaining $230 million at $76.16 per share, 29% more than the $58.98 per share during the Series F round in 2021. The Series F financing pushed Lalatech’s valuation to $10 billion, according to mainland media reports, implying a rise to $12.9 billion after the Series G round.

But the reality may not live up to the expectation, in a bleak market environment. Lalatech’s archrival Gogox Holdings (2246.HK), operator of the Gogox logistics platform, listed in June last year at HK$21.5 per share, gaining a market capitalization of about HK$13.2 billion. But the firm’s share price has since plummeted to HK$0.87 as of last Friday, slashing 96% off its market value in just 15 months. In a struggling Hong Kong market investors are clearly gloomy about the industry’s prospects.

The price-to-sales (P/S) ratio for Gogox has fallen to just 0.63 times. On that basis, if Lalatech’s first-half revenue of $600 million translated into $1.2 billion for the full year, the company’s market capitalization would be a mere HK$6.3 billion, half of the assumed value at the last round of financing.

Investors are generally giving new listings the cold shoulder when the Hong Kong market seems gripped by permafrost. It could be a stretch for Lalatech to score a higher valuation if Chow’s listing attempt succeeds. Let’s see if the consummate gambler can play another winning hand in the biggest wager of his life, or whether his luck is running out.


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