IPO Alert | Yidian Cloud, China's 'First Office Cloud Stock,' begins its offering today with an expected listing on May 25

Futu Insights reported on May 15, this Monday$EDIANYUN (02416.HK)$ Announced that the offering will take place from May 15 to May 18. The company plans to issue 58,575,000 shares, of which 5,858,000 shares (10%) will be offered publicly and 52,717,000 shares (90%) will be part of the international offering. The issue price is between HKD 10-12 per share, with a board lot of 500 shares, and it is expected to list on May 25.

Source: Prospectus

Company Overview

Yidian Cloud primarily provides one-stop office IT services to enterprise clients (mainly SMEs) via a subscription model. Enterprise IT services refer to comprehensive services enabling companies to operate using digital tools and resources, including computing hardware, network configurations, application software, and related maintenance services. The company’s revenue mainly comes from pay-as-you-go integrated office IT solutions, equipment sales, SaaS, and other services.

Currently, China’s enterprise office IT services market is still dominated by firms operating under the direct buyout model. The company primarily competes in the rapidly growing integrated office IT solutions market, where its penetration rate in the enterprise office IT services market increased from 0.3% in 2017 to 3.3% in 2021, and is expected to further grow to 16.9% by 2026. According to Frost & Sullivan, in terms of 2021 revenue, Yidian Cloud held a 0.6% market share in the enterprise office IT services industry. According to the same source, in 2021, in terms of revenue, number of serviced devices, and remanufacturing capacity, Yidian Cloud ranked first in China’s integrated office IT solutions industry, with a market share of 19.6% based on revenue.

Industry Overview

In terms of industries, driven by digital transformation, IT spending by Chinese enterprises has been steadily increasing. In recent years, thanks to the growing number of enterprises and their rising digital demands, IT expenditure has continued to rise, leading to rapid growth in China's enterprise IT services market. The number of enterprises in China surged from 30.3 million in 2017 to 48.8 million in 2021, with a compound annual growth rate (CAGR) of 12.6%. It is expected to climb to 84 million by 2026, with a CAGR of 11.5% between 2021 and 2026.

According to Frost & Sullivan, IT spending by Chinese enterprises increased from RMB 2,660.1 billion in 2017 to RMB 3,262.7 billion in 2021, with a CAGR of 5.2%, and is expected to reach RMB 4,349.8 billion by 2026, with a CAGR of 5.9% between 2021 and 2026.

In 2021, the overall market size of the enterprise office IT services industry reached RMB 156 billion, showing steady growth of 1.6% from 2016 to 2021. By 2026, the total enterprise office IT services are expected to reach RMB 213.9 billion, with a CAGR of 6.5%. This anticipated growth is due to the increasing popularity of the pay-per-use model among small and medium-sized enterprises and stronger business confidence in the post-COVID-19 era.

Financial Condition

In terms of financial performance, Yidiant Cloud's revenue increased by 45.6% from RMB 813 million in 2020 to RMB 1.184 billion in 2021, and further increased by 15.9% to RMB 1.372 billion in 2022, with a CAGR of 29.89%. Gross profit rose by 67.7% from RMB 337 million in 2020 to RMB 565 million in 2021, and further increased by 10.8% to RMB 627 million in 2022. Gross margin increased from 41.4% for the year ended December 31, 2020, to 47.7% for the year ended December 31, 2021, but slightly declined to 45.7% in 2022.

For the year ended December 31, 2020, the company reported an adjusted net loss (non-IFRS measure) of RMB 44.5 million, while for the years ended December 31, 2021, and 2022, the company reported adjusted net profits (non-IFRS measure) of RMB 93.5 million and RMB 135 million, respectively.

Source: Prospectus

Cornerstone Investor

Regarding cornerstone investors, a single cornerstone investor agreed to subscribe for the number of shares available for subscription at the offering price, totaling approximately HKD 157 million (assuming an offering price of HKD 11, the midpoint of the offering price range). This cornerstone investor is CEYUAN Investment (Chengdu High-Tech CEYUAN Youchan Equity Investment Fund Partnership (Limited Partnership)), managed by Chengdu High-Tech New Economy Venture Capital Co., Ltd., and controlled by the State-Owned Assets and Financial Bureau of Chengdu High-Tech Zone, mainly engaged in equity investments.

Use of Proceeds

In terms of use of proceeds, Yidiant Cloud's net proceeds are approximately HKD 111 million (assuming no exercise of the over-allotment option and calculated based on the mid-price of HKD 11). According to the prospectus, the company plans to allocate the net proceeds from the share offering as follows: approximately 40.0% will be allocated over the next three years to enhance the company’s sales and marketing capabilities and expand its service network; around 30.0% will be used over the next three years to optimize and expand service offerings to meet evolving customer needs and upgrade technical infrastructure to improve service quality; about 20.0% will be used to strengthen the company’s remanufacturing capabilities to increase operational efficiency and save labor costs over the next three years; approximately 10.0% will be used as working capital and for general corporate purposes.

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