After hitting the Hong Kong Stock Exchange three times, Yisou Technology (02550) finally made a big splash on the Hong Kong Stock Exchange.

On June 7, Yisou Technology was officially listed on the main board of the Hong Kong Stock Exchange. On the market, the stock opened high and moved strongly. At one point, it rose more than 80% in the intraday period. At the close, Yisou Technology surged 91.72% to HK$11.12, with a total market capitalization of HK$3,658 billion.

Moreover, in the dark market trading on the previous trading day, Yisou Technology's dark market also opened sharply, closing up 43.10% to HK$8.3, with a turnover of HK$3.0747 million, with a total market value of HK$2.73 billion; 500 shares per lot, without handling fees, earned HK$1,250 per lot.

So, is Yisou Technology, which is so popular in the secondary market, really that strong?

With the support of “routine callback”, Chen Tianqiao earned nearly 16 times as much

In fact, as can be seen from a deep dive into Yisou Technology's new gameplay, the reason for its sharp rise in stock prices on the first day of listing is not unrelated to “routine rebates.”

According to previous allotment results, in terms of global sales, Yisou Technology sold 14.8025 million shares at a price of HK$5.8 per share, 500 shares per lot, with a net proceeds of HK$40.7 million and a market value of HK$1,908 billion. In terms of placement,

At the public sale stage, Yisou Technology was subscribed about 114.59 times. The final number of shares distributed to the public sale was 1.95 million shares, accounting for about 13.17% of the total number of shares offered (after the right to adjust the size of the sale and redistribution), and 0.98 times the subscription for the international sale.

Rationally speaking, Yisou Technology's payback ratio is as high as 50%, but due to insufficient state allocations, the number of shares publicly sold in Hong Kong accounts for 13.17% of the number of shares offered globally, and this also just hits the “routine return” game.

According to the rebate mechanism, if the public sale subscription is 15 times or at least 50 times, the public sale ratio will increase from 10% to 30%, 50 times at least 100 times to 40%, and back to 50% if the subscription is 100 times or more; however, if the placement is not full and the public sale is full, the public sale subscription amount is less than 15 times, and the public sale subscription amount is less than 15 times, the public sale ratio can be increased from 10% to a maximum of 20%, but the price limit is required.

In the actual distribution process, there are three main ways to play callback. The first one is honestly distributed according to the callback mechanism above, called passive callback. The second type of gameplay, where the public sale portion of the subscription is less than 15 times, is returned to 20%, commonly known as active rebates. That is, when it is possible not to make a return call, take the initiative to increase the holding ratio of retail investors. It can be understood that international distributions cannot be sold. This kind of situation is quite scary. Historical data is mostly due to sharp declines. The third type is that the public sale portion is overbought, while the international placement portion is undersubscribed. According to the rules, it can only be refunded to no more than 20% at most. This kind of game is commonly known as a “trick game,” and it can be understood that some people don't want to distribute goods to retail customers.

However, Yisou Technology's public sale rebates 13.17%, which is in line with the “routine call” gameplay. Generally speaking, the emergence of this kind of “routine return” for IPOs often means that the main players (international placement portion) want to get as many tickets as possible and don't want to distribute tickets to retail investors (public sale portion). This kind of product that the main players want to grab is often not too poor in texture. The concentration of chips also helps the main players control the market. The big concepts all rose on the first day of listing. For example, the previous edition of Maifushi's bully edition, EDA's routine callback, and Auto Street's gimmick edition distribution and routine callback all surged on the first day.

In the current Hong Kong stock market where liquidity is scarce, there are many benefits. On the one hand, it has enhanced the liquidity of new shares. On the other hand, the main institutions have locked in more liquidity chips through routine transfers, which is also more conducive to institutional control. As a result, this kind of gameplay is currently quite popular in Hong Kong stocks, and with the support of Yisou Technology's “routine payback,” the first day of listing is undoubtedly equivalent to triggering an “upward button.”

The “upward button” supports it, and the biggest beneficiary of the investment should belong to Chen Tianqiao, the actual controller of Shanda Group. According to the prospectus, Shanda Group spent only 19.05 million yuan back then to obtain 6.27% of the shares, corresponding to a price of 0.97 yuan/share per share. Other investors such as Qianhai Hairun, Houju No. 3, and Yuanzhi Investment all had shareholding costs ranging from 4.27 yuan to 4.45 yuan, which meant that Chen Tianqiao's share price was only about one-fifth of the other investors. The 2-day increase has already enabled Chen Tianqiao to make a huge profit of nearly 16.

Profitability declined and competitive pressure intensified

Of course, if you look at the fundamentals, the Zhitong Finance App digs deep into its operating data and finds that the fundamentals of Yisou Technology are not “excellent”; it can even be said that it is lackluster, and there are quite a few hidden concerns.

First, revenue growth is slow, and profitability is declining.

As an established domestic Internet company, Yisou Technology was founded in 2005. The company started with a mobile search engine. At its peak, it was comparable to Baidu Google in the mobile search field. However, the good times did not last long, and the company's search business gradually weakened. Afterwards, Yisou Technology entered the digital digital reading industry and launched its flagship product, the Yisou Novel App, in 2013. Currently, the company mainly operates four business lines, including digital reading platform services, digital marketing services, online game distribution services and other digital content services.

As of December 31, 2023, the total number of registered users of the Yisou series of reading apps was 44.7 million. In terms of user activity, in recent years, the average number of monthly active users on the Yisou platform has continued to increase, from 23.9 million in 2021 to 25.6 million in 2022, and further increased to 26 million in 2023.

However, although user activity continues to increase, Yisou Technology's revenue growth rate is slow, and its profitability is poor. According to the previous prospectus, from 2021 to 2023, the company achieved revenue of 433 million yuan, 456 million yuan, and 559 million yuan respectively, with a compound annual growth rate of 8.9%; net profit for the same period was 5 million yuan, 44.45 million yuan, and 2.5 million yuan, respectively, and profits shrunk by nearly half in three years. Moreover, the company's profitability also declined significantly. Gross profit margins were 48.2%, 52.3%, and 46.5% respectively during the same period, and net interest rates were 11.5%, 9.7%, and 4.5% respectively, all of which declined year by year.

Second, “heavy marketing over R&D”, cash flow is tight.

Looking at the business model, Yisou Technology mainly provides users with digital reading, advertising, online games and other digital content (such as music and ringtones) on the platform. The Yisou recommendation engine collects and analyzes user behavior data to recommend more relevant content data to users, including literary resources and advertising content, and continuously trains algorithms to improve recommendation efficiency and effectiveness. In each year of the track record period, the company generated more than 90.0% of its revenue from advertising services provided under digital reading platform services and digital marketing services.

And in order to serve advertisers, Yisou Technology also offered “blood books” to serve. According to the prospectus, from 2021 to 2023, Yisou Technology's Internet traffic costs were 185 million yuan, 185 million yuan, and 266 million yuan respectively, accounting for the highest share of operating costs, at 82.5%, 84.9%, and 88.8%, respectively. In addition, the company's expenses continued to be high. Sales and distribution expenses during the period were RMB 99 million, RMB 134 million, and RMB 154 million respectively, accounting for 22.9%, 29.3% and 27.5% of total revenue, respectively.

In contrast, Yisou Technology's R&D investment has been declining. From 2021 to 2023, Yisou Technology's R&D expenses were 51 million yuan, 39 million yuan, and 38 million yuan respectively, accounting for only 11.8%, 8.5% and 6.7% of total revenue, respectively. The performance of the above data also clearly shows the company's current malaise of “heavy marketing over R&D.”

In addition to spending a large amount of “financial resources”, compounded by the decline in the company's profitability, Yisou Technology's cash flow was also clearly tight this year: it is reported that from 2021 to 2023, the net cash flow from the company's operating activities was 509.52 million yuan, 6.07 million yuan, and -29.501 million yuan, respectively. The company also stated in the risk alert that if the company records a net operating cash outflow in the future, working capital may be limited, which in turn may adversely affect its working capital and financial position.

However, in addition to poor fundamentals, Yisou Technology is also facing the risk of increased competitive pressure.

According to Yiguan, the average number of monthly active users of the Yisou Novel App in 2023 is about 20.0 million, ranking fifth in the Chinese digital reading market in terms of the average number of monthly active users. From 2018 to 2023, the Yisou Novel App ranked in the top five in the Chinese digital reading market for average monthly active users. Among the top ten apps in the Chinese digital reading market in 2023 (in terms of the average number of monthly active users), the Yisou Fiction App had an average daily usage time of 112.7 minutes in 2023, ranking fourth in terms of daily usage time per capita.

Although Yisou apps occupy a place in the Chinese digital reading market, there is a big gap compared to leading apps. In 2023, the average monthly activity in the Chinese digital reading industry was far higher than that of Yisou. The monthly activity of tomato novels, palm reading, seven cats, and QQ reading far surpassed Yizou. During the same period, the monthly activity of tomato free novels was about 5 times that of Yisou. In terms of daily usage time per person, it is also lower than QQ Reading, Seven Cats, and Palm Reading.

Other than that, Tomato and Palm Reading are backed by ByteDance. Seven Cats belong to Baidu's camp, and QQ Reading belongs to Tencent. In this era where traffic is king, there is no traffic support and preference from major Internet companies, and the growth of Yisou users is clearly weaker than competition with a “background.”

In summary, as an established domestic Internet company, it also has a certain leading position, and there is no shortage of advantages in technology, content, and user resources. This is also the reason investors are willing to give it high value on the day it goes public. However, with a slightly poor fundamental performance and increased competitive pressure on the industry, how far can it go? And wait for time to test.