Manycore makes second listing attempt as mood brightens for tech companies

The virtual interior design startup filed for a Hong Kong IPO after its earlier New York listing attempt unraveled

Key Takeaways:

• Virtual interior design company Manycore has filed for a Hong Kong IPO after its New York listing application in 2021 failed
• The IPO could be buoyed by a wave of positive sentiment as Chinese tech stocks rally amid optimism over AI development and expectations of government support

By Warren Yang

It wasn’t long ago that Manycore Tech Inc. became a victim of circumstances beyond its control as it sought a New York listing that ultimately failed. Now, whether by design or not, the virtual interior design startup may be benefiting from a different set of external developments as it makes a second attempt to go public – this time closer to home in Hong Kong.

Last Friday, the company filed for a Hong Kong IPO, with big-name underwriters JPMorgan and CCB International as co-sponsors, indicating the listing could be relatively large, raising $100 million or more. The encore listing attempt comes more than three years after its failed first application in 2021.

In that first effort, Manycore put together a reasonably compelling story for investors. The company, using third-party data, described itself as the leading provider of interior design, decoration and construction software, with a 10% market share in terms of gross billings. It said the market was set for explosive growth as millions of Chinese sought software that creates interactive visualizations of designs and floorplans of their properties in a country where home ownership is considered nearly essential for most young people.

But unfortunately for Manycore, investors were growing wary of Chinese companies in general at that time as tensions between Washington and Beijing were heating up. Particularly, Chinese authorities stepped up scrutiny of overseas-listed domestic tech companies with large volumes of user data, raising concerns about information they transfer across borders.

Those concerns were embodied in the short-lived New York listing by DiDi Global, China’s version of Uber. Chinese regulators weren’t so happy about DiDi’s U.S. listing plan to begin with, fearing it could make the company’s huge pool of user data accessible to U.S. regulators. But the company proceeded anyway, completing an IPO in the summer of 2021. All hell broke loose soon after as Beijing took steps to punish the company for failing to complete a required data security review, and DiDi ended up delisting from New York the following year.

A long-running spat over American regulators’ inability to access audit documents of U.S.-listed Chinese companies didn’t help matters. That led a number of Chinese companies, including some of the largest state-owned enterprises, to leave U.S. stock exchanges in 2022.

All this clearly wasn’t favorable for Manycore’s New York IPO attempt, making it little surprise that the listing never materialized.

Upbeat mood

Fast forward to the present when the mood is far more upbeat for Chinese tech companies, many of which are increasingly abandoning their former preference for New York to list in Hong Kong instead. For starters, the rise of artificial intelligence (AI) startup DeepSeek is fueling optimism about prospects for the whole sector. Most recently, President Xi Jinping met with China’s top tech entrepreneurs this week in Beijing, including Alibaba founder Jack Ma, which seemed to signal the government’s intent to take better care of a group that was previously the subject of numerous regulatory crackdowns.

At least that’s how the market interpreted the move, sending the Hang Seng Tech Index to a new three-year high after the meeting, extending gains for the past month to more than 30%.

The resurgence of Chinese tech stocks could be a boon for Manycore, considered one of the “Six Little Dragons” of Hangzhou, China’s equivalent of Silicon Valley, along with DeekSeek. Manycore’s Kujiale software is cloud-based and allows users to create 3D renderings of home interior layouts. The company is also looking to increase the use of AI, and makes frequent mention of the hot technology. In its latest prospectus for the Hong Kong IPO, it prominently describes itself as a “fast-growing, disruptive design and visualization platform” powered by AI.

The term “AI” is used more than 100 times in the company’s latest prospectus, more than four times the 24 mentions in its original 2021 New York IPO prospectus before the AI craze began in late 2023 with ChatGPT.

The suddenly warming climate for a sector that has weathered a long, harsh winter makes Manycore’s timing look quite good for its latest listing attempt. The company was looking to raise up to $200 million from the Hong Kong IPO, according to a Bloomberg report last year. That’s a considerable sum, twice the initial target for the U.S. IPO. But it may not be too far-fetched, given that Manycore’s valuation hit $2 billion after a funding round in 2020, according to a media report.

Also, the company’s revenue increased 88% from 2020 to 2023, the latest annual reporting period included in its prospectus for the Hong Kong IPO. So, the company could make a case for a doubling of its valuation during the period solely based on its business growth. 

That said, Manycore’s recent annual growth isn’t exactly mind-blowing. Its revenue increased by a mediocre 10% to 663 million yuan ($91 million) in 2023 from the prior year, and rose 13.8% to 552.9 million yuan in the first nine months of last year from the year-ago period. While such growth doesn’t look particularly large, the company’s ability to maintain such momentum in the face of China’s slowing economy and property downturn still looks relatively commendable.

Manycore has yet to make money, largely due to high R&D expenses. Its loss for 2023 narrowed a bit to 646 million yuan from 704 million yuan a year earlier, and similarly narrowed to 422 million yuan in the first nine months of last year from 489 million yuan a year earlier. But those are still large amounts that are nearly equal to its entire revenue. Because of these losses, Manycore’s cash holdings are dwindling as well.

A $2 billion valuation for Manycore would give the company a price-to-sales (P/S) ratio of more than 20, based on its 2023 revenue. By comparison, shares in Autodesk (ADSK.US), which pioneered architectural design software and is the international leader in the field of computer aided design trade at a much lower P/S ratio of 11. And unlike Manycore, Autodesk is comfortably profitable.

Despite what looks like a high valuation target, Manycore may have positive sentiment on its side – a critical factor when it comes to capital markets. That means the company probably wants to wrap up its Hong Kong IPO sooner rather than later to take advantage of the tide of positive sentiment that will die down eventually.

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