Incident Overview

On February 23, 2020, Jiayun Technology disclosed plans for a non-public offering of A-shares. The issuance targets were Jiasu Network, the controlling shareholder of the company, and Zhang Bing, director of the company. The total amount of capital to be raised from this non-public offering of shares will not exceed 674 million yuan. The number of additional shares to be issued will not exceed 190,366,567 shares (including the principal amount), not more than 30% of the company's total share capital prior to the issuance. Among them, the number of shares to be subscribed by Jiasu Network will account for 80.5% of the increase in the number of shares issued, and the number of shares Zhang Bing plans to purchase will account for 19.5%.

Historical overview: The risk of impairment of goodwill has been eliminated. Jiasu Network, which has a strong shareholder background, is a wholly-owned investment platform of Kaisa Group (1638.HK). According to the company's December 5, 2017 announcement, Jiasu Network acquired 21.25% of the company shares of Zhou Jianlin, the then controlling shareholder of Ming Jia United, restructured the board of directors and company management, and issued an announcement on January 26, 2018 disclosing that it acquired 80% of Colorful Interactive's shares for 10.8 million yuan through its wholly-owned subsidiary Jinyuan Interactive. Mingjia Union changed its name on May 22, 2018 It's Jiayun Technology. After the completion of this private offering, Jiasu Network's shareholding share will increase from 21.31% to 34.97%, further increasing its holding ratio. Zhang Bing is the chairman of Colorful Interactive and holds 20% of Colourful Interactive's shares. As an asset introduced by Kaisa after entering the market, Colorful Interactive injected vitality into the mobile internet advertising business of other subsidiaries. The share of performance of 2019H1 continued to increase in 2018 and, and is expected to exceed 80% in the future.

According to the company's 2018 annual report, the company accrued 0.97 (remaining 3.00), 2.92 (remaining 0.19), 8.00 (full billing), and 0.0046 (full billing) of goodwill impairment for its subsidiaries Jinyuan Interactive, Cloud Time and Space, Weiying Interactive, and Huateng Era, respectively. Since Colorful Interactive is a subsidiary of Jinyuan Interactive and Cloud Time and Space is profitable, we think it is less likely that the company will lose goodwill in the future.

Fixed increase outlook: The fixed capital increase will effectively optimize the company's internal ecology over the past two years. Jiayun Technology's board of directors and management structure have continued to be optimized, and the core executives of Kaisa Group have successively joined the board of directors to participate in management decisions.

In January 2018, Guo Xiaoqun was elected to the board of directors and served as the company's director. Zhong Liang was elected to the board of directors in January 2019 and assumed the position of general manager in October of the same year. Zeng Li was newly appointed secretary of the board in November of the same year, Guo Xiaoqun was newly appointed as chairman in December 2019, and Sun Vietnam, Zhai Xiaoping, and Zhang Bing were elected to the board of directors. Guo Xiaoqun is the son of Guo Ying, one of the actual controllers of Kaisa. Since May 2018, he has worked as an executive in the financial and real estate subsidiary of Kaisa Group; Zhong Liang has served as the general manager of the investment banking department of Kaisa Group and assistant to the group president; Sun Vietnam is currently the vice chairman of the board of directors and executive director of Kaisa Group; Zhai Xiaoping is currently the senior vice president of Kaisa Group and vice president of its financial group; Zhang Bing has served as the head of the KA department of Tencent, Baidu, 360 Search in November 2016, and is currently the chairman of the board of directors and vice president of the subsidiary financial group. manager. A number of core executives of Kaisa Group have appointed directors and senior management positions, which is expected to inject Kaisa's many years of experience in operation and management, continuously optimize the resource integration of Jiayun Technology, and bring vitality to the company's development. Colorful Interactive is the core asset of the company, and Zhang Bing became a director as the founder, chairman and general manager, which is expected to further develop its operating advantages in the field of mobile internet advertising and consolidate the competitiveness of the company's core assets.

According to the company announcement, all of the funds raised this time will be used to supplement working capital, which is in line with the company's business operation and development needs, which is conducive to optimizing the company's capital structure, enhancing the short-term solvency of listed companies, enhancing the company's ability to withstand financial risks, improving the company's profitability, and demonstrating the confidence and determination of shareholders and executives. In the context of the introduction of the “most relaxed in history” refinancing regulations, Jiayun Technology's current non-public offering of shares is aimed at Jiasu Network, the controlling shareholder of the company, and director Zhang Bing. We believe that the fixed increase incident was actually an act of increasing holdings by the controlling shareholders and core executives. The period for Jiasu Network's fixed increase shares was lifted for no less than 36 months, and Zhang Bing was not less than 18 months. At the same time, the company released a shareholder return plan for the 2020-2022 shareholder, further demonstrating the confidence of the controlling shareholders and core executives in the company's future development.

Core business outlook: The low-level acquisition of Colorful Interactive shows its ability to invest. Mobile Internet advertising space is vast. In January 2018, the company issued an announcement revealing that its subsidiary Jinyuan Interactive acquired 80% of Colorful Interactive's shares at a price of 10.8 million yuan. The acquisition of Colorful Interactive added 10.7 million yuan in goodwill. Currently, there is no risk of impairment. Colorful Interactive mainly provides customers with one-stop integrated marketing solutions. It has strong competitiveness in the industry. It has been the core commercialization partner of leading media such as OPPO, vivo, Xiaomi, Samsung, and Huawei for many years. According to the company's announcement, recently the company has successively obtained the qualifications of Xiaomi Advertising's exclusive agent for the 2020 lifestyle service industry, vivo's 2020 online service industry core agent, and OPPO 2020's e-commerce finance and gaming dual industry agent qualifications. At the same time, the company increased its layout in the field of content marketing such as streaming advertising and short videos. In 2019 and 2020, it obtained a huge number of engine advertising agents of the year (hypertraffic platforms such as Today's Headline, Douyin, Watermelon Video, Volcano Video, etc. owned by ByteDance) for two consecutive years.

According to the company's 2018 semi-annual report, annual report and 2019 semi-annual report, Colorful Interactive's performance was stable, with operating income of 1421, 3946 and 1,928 billion yuan respectively, and net profit of 2794, 3595, and 35.62 million yuan respectively. The company's profitability continued to rise. The company has been deeply involved in the field of mobile Internet advertising for many years. With the continuous release of mobile Internet advertising market space, the proportion of mobile advertising in Internet advertising continues to increase. It is estimated that in 2021, mobile advertising will account for more than 85% of online advertising, and there is broad scope for the future development of colorful interaction. We believe that colorful interaction is the core asset of Jiayun Technology, and the current market significantly underestimates its competitiveness and market value. We believe that the market competitiveness and profitability of the mobile internet advertising business, which mainly focuses on colorful interactions, is expected to be further improved.

Investment advice: First coverage, giving a “increase in holdings” rating

This time, the controlling shareholders and core executives have increased their holdings and promised strict conditions for lifting the ban. On the one hand, they have shown their confidence in the company's future development. On the other hand, injecting fixed capital into the company will greatly relieve financial pressure and bring vitality to the company's operations. We expect the company to achieve operating income of 5.498, 60.10, and 6.504 billion yuan respectively in 2019-2021, with net profit of 0.12, 0.81, and 129 million yuan respectively, and EPS of 0.02, 0.13, and 0.20 yuan respectively. PE corresponding to the current stock price is 257, 39, and 24 times, respectively, covering the “increase in holdings” rating for the first time.

Risk warning

The risk of a macroeconomic downturn, the risk of core brain drain, and the risk of suppliers being too concentrated.