The controlling shareholder receives over 0.15 billion yuan.

Investor Network Zhang Wei

Currently, the domestic third-party payment industry has formed a competitive landscape where Alipay and WeChat Pay lead by far, while other platforms are vying for the remaining market share. Under the pressure of the "dual oligopoly," many small and medium platforms hope to expand their brand influence among consumers and enhance their industry status by going public.

One of them is Shanghai Fuyou Payment Service Co., Ltd. (hereinafter referred to as "Fuyou Payment" or "the Company"), which planned to go public on the A-share market (only accepted listing guidance and did not submit a prospectus) and has made two attempts to go public on the Hong Kong Stock Exchange in 2024.

On November 8, Fuyou Payment disclosed its prospectus on the Hong Kong Stock Exchange's official website, planning to conduct an initial public offering (IPO) and list on the Hong Kong Stock Exchange. This is Fuyou Payment's second submission to the Hong Kong Stock Exchange. On April 30 this year, Fuyou Payment submitted its first application, which became invalid on October 30.

The information in the prospectus reveals issues such as the company lacking a controlling shareholder, increasing revenue without increasing profits, relatively low market share, and last-minute dividends before the IPO. Ultimately, whether Fuyou Payment can become the second mainland payment platform listed in Hong Kong after Lianlian Digital (02598.HK) in 2024 remains to be seen by investors.

The absence of a controlling shareholder in the company raises concerns.

Public information shows that Fuyou Payment was founded by industry veteran Chen Jian. Chen Jian previously taught at Xiamen University and then held positions at Shenzhen City Commercial Bank, CM Bank, China UnionPay, and other financial institutions, participating in the establishment of China UnionPay.

In 2008, Chen Jian officially entered the industry and founded Fuyou Group. According to the official website, Fuyou Group primarily operates in third-party payment, covering acquiring, comprehensive payment, cross-border payment, insurance brokerage, and other businesses. In 2011, Fuyou Payment was established. Currently, Fuyou Group directly holds 52.72% of Fuyou Payment's shares and is the major shareholder.

According to the prospectus submitted to the Hong Kong Stock Exchange for the first time, Fuyou Payment has numerous individual shareholders and no actual controllers. This has also attracted the attention of regulators.

The prospectus shows that there are 64 individual shareholders in Fuyou Payment, collectively holding about 43% of the shares. Among them, Cai Meizhen, who holds 2.33%, is Chen Jian's spouse; Wang Hua, who holds 0.5%, is the sister of Cai Meizhen's mother. At the same time, Fuyou Group has 60 shareholders. Chen Jian holds 9.49% of Fuyou Group's shares; Cai Meizhen holds 7.11% of Fuyou Group's shares.

Fuyou Payment stated that since no shareholder of Fuyou Group holds more than 10%, the equity is dispersed, resulting in the company being in a state of no actual controller. In response, the China Securities Regulatory Commission issued supplementary materials for overseas issuance and listing in June this year, requiring Fuyou Payment to provide additional explanations for the basis and reasonableness of having no actual controller.

Lawyer Wang Rengen from Sichuan Fuyou Law Firm believes that if a company remains in a state of no actual controller for a long time, it may negatively impact the company's governance, decision-making efficiency, and even equity stability. Whether the supplementary materials provided by Fuyou Payment to the China Securities Regulatory Commission will be recognized remains to be seen.

Pre-IPO 'liquidation-style' dividends.

As mentioned earlier, Fuyou Group has 60 shareholders, and Fuyou Payment has as many as 64 individual shareholders. The emergence of such a situation is by no means a coincidence; it is because Fuyou Payment only had one private placement during its financing process, which was directed at all shareholders of Fuyou Group.

In December 2017, Fuyou Payment distributed 77.25 million shares to all shareholders of Fuyou Group, with each shareholder subscribing according to their shareholding ratio in Fuyou Group. Subsequently, Fuyou Payment introduced other investors through equity trading, while some early shareholders began to cash out.

In April of this year, just before Fuyou Payment submitted its application to the Hong Kong Stock Exchange for the first time, Shanghai Qingyi, Ningbo Zhefu, Jiang Weixian, Chen Zhaoyang, and others transferred a total of 29.8189 million shares to Fuyou Group. Why were these shareholders able to withdraw right before the IPO of Fuyou Payment?

It turns out that when Fuyou Payment brought in strategic investors such as Shanghai Qingyi, Ningbo Zhefu, Jiang Weixian, Lou Shunming, Chen Zhaoyang, Ni Xiaoqiang, and Jinggangshan Mingtian, special rights such as sales rights and redemption rights were granted to the relevant investors. Shanghai Qingyi, Ningbo Zhefu, Jiang Weixian, Chen Zhaoyang, and others exercised their rights before the IPO and chose to exit.

On the other hand, Fuyou Payment also carried out large dividends before the IPO.

According to the prospectus, from 2021 to 2023, Fuyou Payment distributed dividends of 0.14 billion yuan, 25 million yuan, and 0.12 billion yuan respectively, for a total of 0.285 billion yuan in three distributions. During the same period, Fuyou Payment's net income totaled 0.311 billion yuan. The amount distributed as dividends accounted for approximately 92% of the company’s total profit.

Equity information shows that Fuyou Group directly holds 52.72% of Fuyou Payment's shares. Based on this, through the three dividend distributions, Fuyou Group has received over 0.15 billion yuan. As of the end of 2023, Fuyou Payment's net operating cash flow was 0.233 billion yuan, with cash on hand of 0.314 billion yuan and short-term deposits of 0.1 billion yuan. Perhaps due to sufficient cash flow, Fuyou Payment had the courage for a 'clearing-style' dividend before the IPO.

Urgently need to enhance industry position.

Statistical data shows that Alipay and WeChat Pay have long occupied a dominant position in the domestic payment industry. According to statistics released by Analysys in 2023, in the comprehensive payment sector, Alipay has a market share of 34.5% and WeChat Pay 29%; in the mobile payments sector, Alipay's transaction scale accounts for 54.5% and WeChat Pay 38.8%.

The position of the two major 'oligopolies' is temporarily unshakable, and other platforms can only compete for the remaining market. Fortunately, the domestic payment market is large enough that small and medium-sized platforms like Fuyou Payment can still survive.

Financial data shows that from 2021 to 2023, the revenue of Fuyou Payments was 1.102 billion yuan, 1.142 billion yuan, and 1.506 billion yuan respectively, with net income of 0.147 billion yuan, 0.071 billion yuan, and 0.093 billion yuan for each period.

Among other listed peers, Lianlian Digital's revenue in 2023 was 1.028 billion yuan, with a net income loss of 0.654 billion yuan; yeahka (009923.HK) had revenue of 3.951 billion yuan and a net income of 11.63 million yuan in 2023. Among A-share listed companies, Lakala's revenue in 2023 was 5.934 billion yuan, with a net income of 0.458 billion yuan.

According to data from Frost & Sullivan, from 2019 to 2022, China's comprehensive payment market TPV (Total Payment Volume) increased from 150.1 trillion to 226.3 trillion, with a compound annual growth rate of 14.7%, and it is expected to reach 513 trillion by 2028, with the same period's compound annual growth rate also exceeding 14%.

In terms of comprehensive revenue and net income, Fuyou Payments is currently approximately in the midstream position of the mobile payments industry. The industry's prospects are broad, and Fuyou Payments also needs to go public to further enhance its position in the industry.

The prospectus shows that Fuyou Payments plans to use 35% of the total funds raised from the IPO for increasing payment innovation solutions, 30% for investing in technology platforms and infrastructure, 15% for expanding payment networks and deepening cooperation with ecological partners, 10% for overseas business, and 10% for general corporate purposes. (Produced by Think Finance)■