Company background: Yunyou Holdings, founded in 2009 and listed on the Hong Kong Stock Exchange on October 3, 2013, is China's leading developer of mobile games and online games. Since its inception, the company has launched hundreds of games in China and overseas markets. Its game publishing platform 91wan has attracted more than 200m cumulative users. Yunyou Holdings' online gaming business has been under pressure over the past few years. In December 2016, the company obtained government permission to launch Internet microfinance business in China, and made preparations for its Internet finance business. On August 16, 2017, the company started from Yinker Inc. Acquire a 55% stake in the high-end online wealth management business, simple Financial Management.
It turned from loss to profit in 2017. Revenue in 2017 fell 4.2 per cent year-on-year to 346.5 million yuan. Revenue from the game business fell 49.3% year-on-year to 183.4 million yuan in 2017. The year-on-year decline in revenue from the game business was mainly due to the fact that some of the company's major games entered the mature stage of their life cycle, generating lower revenue than the previous year, which was partly offset by an increase in revenue from overseas online games "Liberators".
The financial technology division of Yunyou Holdings recorded a turnover of 163 million yuan in 2017 and did not have such income in 2016. This income comes from the company's Internet microfinance business and online financial management business.
Adjusted EBITDA increased from minus 207.8 million yuan in 2016 to 58.6 million yuan in 2017. The company recorded a net profit of 68.6 million yuan in 2017, compared with a net loss of 396.5 million yuan in 2016. The change from loss to profit in 2017 is mainly due to (1) the contribution of financial technology business; (2) the improvement of the efficiency of sales, marketing, management and R & D expenses; and (3) certain investment income from the sale of Beijing Hongsoft equity. Excluding the impact of one-off projects, the company will still turn a profit in 2017. As of December 31, 2017, the company's cash, cash equivalents and short-term deposits totaled 689.6 million yuan, compared with 717 million yuan at the end of December 2016.
The business model of the financial technology division. The company's Internet microfinance business is mainly committed to providing practical and flexible short-term financing solutions for Chinese individuals and consumers not served by traditional financial institutions (such as banks). Almost all of the income from the company's Internet microfinance business comes from the accumulated interest on loans provided by customers. The company offers two types of loans: secured loans and mortgages. As of December 31, 2017, the company had 1428941 borrowers and made 7.5 billion yuan in loans in 2017. In determining the applicable interest rate of the loan, the company takes into account a number of factors: (1) the customer's background and credit history; (2) whether the loan is secured or secured; (3) the value of the collateral, if any; and (4) the purpose and duration of the loan. The average loan size in 2017 was 1641 yuan, and the average outstanding balance was 256 million yuan. The company provides short-term loans maturing in 1-3 months.
Develop AI system. After acquiring 55% stake in Jane Finance, Yunyou Holdings has developed four artificial intelligence systems: (1) business intelligence system ("Tianji"); (2) big data risk control system ("Kaiyang"); (3) property intelligent matching system ("Tianshu"); and (4) payment routing system ("Yuheng"). Yunyou Holdings has applied for patents for its smart asset matching technology and interest calculation method. As of March 27, 2018, the number of registered users of Jane Banking has exceeded 8.8 million, with a cumulative turnover of 96.7 billion yuan.
Develop AI system. After acquiring 55% stake in Jane Finance, Yunyou Holdings has developed four artificial intelligence systems: (1) business intelligence system ("Tianji"); (2) big data risk control system ("Kaiyang"); (3) property intelligent matching system ("Tianshu"); and (4) payment routing system ("Yuheng"). Yunyou Holdings has applied for patents for its smart asset matching technology and interest calculation method. As of March 27, 2018, the number of registered users of Jane Banking has exceeded 8.8 million, with a cumulative turnover of 96.7 billion yuan.
Yunyou Holdings provides online wealth management services through websites and mobile apps. The company charges service fees from asset providers and provides efficient, technology-driven asset matching services. The average annual return on investment of users who invest in online financial services is generally in the range of 5-7%.
Investors in the company's wealth management business are mainly adults between the ages of 25 and 35. Despite tighter regulation in China's financial technology industry, the company's management believes that the company's Internet microfinance business is compliant, licensed and equipped with a large amount of user data and technical capability. there will be healthier and more sustainable growth.
Our view: we believe that due to the tighter regulation of financial technology, the market may be concerned about the prospect of financial technology shares, including Yunyou Holdings. However, unlike some of its peers, Yunyou Holdings is not involved in P2P lending. We believe that after the company has set up a financial technology business, it may take some time for the market to pay attention to the shares again. Yunyou Holdings, one of the few fintech companies listed in Hong Kong, is still in its early stages of development. In view of its small market capitalization and low liquidity, some investors with higher risk appetite may be more interested in the company. We recommend that investors put the shares on the watch list. We believe that the company will strengthen its communication with investors and further explain its business model, which may enable the company to attract market attention.
Catalyst: announce mid-term results and M & An activities in 2018.