Many Idea Cloud to Float Shares in Hong Kong Amid Stormy Skies

The integrated marketing solutions provider faces uncertainty as many of its core consumer goods clients suffer from pandemic-related disruptions

Key Takeaways:

• Many Idea Cloud has filed for a Hong Kong IPO after two earlier unsuccessful experiments aimed at tapping China’s A-share market
• The company is highly dependent on clients in the fast-consumer goods and clothing industries that have been hit hard by the pandemic

By Stone Shek

A Covid storm is taking a toll on Many Idea Cloud Holdings Ltd., a digital marketing services provider whose customers rely on consumer spending to do business. But that hasn’t stopped the company from seeking a windfall from investors as it makes a second attempt at a Hong Kong listing in a years-long bid to tap domestic and international capital markets.

The company made its initial Hong Kong IPO filing at the end of January this year, but that application expired at the end of July. It launched its second attempt earlier this month, updating its prospectus by adding in financials for the first four months of 2022 in its bid to entice investors.

Many Idea Cloud’sbusiness mainly consists of event and digital content marketing. The company ranks third in China for event content marketing services, according to third-party market data in its prospectus. Its clients span a range of industries, from sportswear brands like 361 Degrees (1361.HK) and Xtep (1368.HK), to China Resources Land (1109.HK) and China Vanke (2202.HK) in real-estate, as well as Hengan International (1044.HK) in the personal care industry.

Based in the Southeastern city of Xiamen, Many Idea Cloud’s marketing services cover five categories: content marketing, SaaS interactive marketing, digital marketing, public relations event planning and media advertising. Founder Liu Jianhui started his company as Xiamen Many Idea Interactive in 2012, and expanded gradually from providing PR event planning services to also include digital marketing and media advertising services.

Xiamen Many Idea Interactive went public on the thinly-traded National Equities Exchange and Quotations (NEEQ) board in Beijing in 2015. But like many companies that also tried out the NEEQ after failing to get approved for listings on the larger Shanghai and Shenzhen stock exchanges, it delisted in November 2020. It later applied to list on the Shenzhen Stock Exchange’s Nasdaq-style ChiNext Market and passed a review by the market’s listing committee.

But the pandemic’s arrival in 2020 sent the company’s business into a tailspin, which also threw its A-share application into doubt. With all that uncertainty, the company finally pulled the plug on the ChiNext listing plan in January 2021.

In December last year, all of Xiamen Many Idea’s integrated digital marketing service assets and liabilities were transferred to Xiamen Instant Interactive, another company owned by Liu. Everything left was restructured to form the current Many Idea Cloud, which plans to use funds from its IPO to develop and strengthen its SaaS interactive marketing platform, build up its IP content portfolio and expand its integrated marketing solutions business.

Its content marketing services insert commercials for its clients’ brands into various events and videos to raise their recognition and boost sales volume. More than 200 clients have hired the company to provide integrated marketing solutions, its prospectus shows. It is especially reliant on clients from the fast-consumer goods, clothing and footwear industries, which supplied between 70% and 80% of its revenue in the past three years.

Suspended marketing campaigns

The pandemic hasn’t been kind to companies like Many Idea Cloud, whose retail customers took a beating from China’s stringent disease control measures that included lockdowns and frequent store closures. The company admits it had to cancel or hold off some of its marketing projects because of the lockdowns, including three content-marketing and 15 PR planning projects in 2020. As a result, its revenue fell by 21.1% in 2020 to 308 million yuan ($45.5 million), while its net profit plunged over 60% to 26.42 million yuan.

Some of its business started to recover as China brought its pandemic under control in the second half of 2020. But recurring flare-ups forced it to suspend five content marketing projects in 2021. Combined with a 35.5% drop in its PR event planning revenue, its operating revenue failed to return to 2019’s level and only rallied by 14.6% to 353 million yuan last year.

Just when the company was regaining its stride and investing in digital marketing to increase its revenue, the outbreak of the Omicron variant in February cast a shadow on its operations once more. During the first four months of the year, a sports event designed as a content marketing project with a contract value of 7.5 million yuan had to be postponed. Another nine projects it was pitching or negotiating with clients also were temporarily shelved.

While the company’s revenue for the first four months actually doubled to 143 million yuan year-on-year, that’s more a reflection of the chilly performance at the beginning of last year than momentum for this year’s recovery. And the figure fails to capture the negative impact in May, when the entire city of Shanghai was locked down and many other parts of China implemented similar preventative measures.

Many Idea Cloud’s other financial indicators tell a similar story of wild fluctuations throughout the pandemic. Its gross margin fell from 33.1% in 2019 to 24.2% in 2020, mainly due to budget cuts made by clients as the pandemic was starting. The figure recovered some ground last year and reached 32.4%, mostly thanks to the launch of its more profitable SaaS interactive marketing services.

But the pandemic’s toll shows up once again in the company’s turnover days for trade receivables, which increased significantly from 123.7 days in 2019 to 191.9 days in 2020. The figure dropped slightly last year but was still well above 2019 levels at 178.2 days, suggesting many clients were still having difficulties making payment on time due to capital flow problems during the pandemic.

Many Idea Cloud was valued at a modest 1.2 billion yuan at its latest financing round in January 2022, according to its prospectus. That gives it a price-to-earnings (P/E) ratio of 21.3 times based on last year’s net profit, sharply higher than 7.8 times and 10.3 times for Netjoy Holdings (2131.HK) and Joy Spreader Group (6988.HK).

Investors may buy into that higher valuation if they see the company emerging soon from the Covid storm that has wreaked havoc on its finances these last few years. Then again, Many Idea Cloud may also be forced to discount its valuation closer to its peers if investors see more rain in the company’s future.

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