On the evening of February 28, China Youzan (8083.HK) issued two major announcements. One is about China's privatization of Youzan, and the other is about Youzan Technology's application for listing on the main board by way of introduction. How should these two announcements be interpreted? What's the point and what does it mean? I'm sure many investors would like to know about it.

(Regarding China's Youzan privatization announcement)

(Regarding the listing announcement on the main board of Youzan Technology)

1. What are the intentions of China's privatization of Youzan and listing of the main board of Youzan Technology?

Judging from the announcement, there are three main actions China has endorsed:

1) Distribute the shares of Youzan Technology held by China Youzan to all Chinese Youzan shareholders;

2)The relevant shares are intended to be listed on the main board of the Stock Exchange by introduction in accordance with the listing of Youzan Technology;

3)After the distribution was completed, China's Youzan was privatized.

To understand the intentions behind China Youzan's move, we first need to understand the two major bottlenecks China Youzan is currently facing: first, China Youzan is currently listed on the GEM of the Hong Kong Stock Exchange, and liquidity is naturally restricted to a certain extent; second, the listed entity, China Youzan, contains only about 51% of the shares of Youzan Technology (formerly Qima Holdings Ltd), which means that the company's real most valuable asset has not been fully listed.

Through several major initiatives this time, China Youzan will resolve the company's two major historical issues once and for all, to achieve the complete listing of Youzan Technology on the main board with better liquidity. This also makes it possible for Youzan Technology to enter Hong Kong Stock Connect and the like in the future. Obviously, this is beneficial to Youzan Technology's value release, and it also reflects that the company's management is actively and actively leveraging the capital market.

Currently, China's Youzan is equivalent to a holding company. The company's business mainly consists of Youzan Technology's SaaS business and payment and other businesses. Among them, China's popular SaaS business has a leading market position and broad prospects in China, and is the company's most valuable investment business.

As China's core asset, Youzan Technology has always been the internal driving force of the company's stock price. China's Youzan stock price rose 367% in 2020, and since 2021, the stock price has further risen by more than 42%. The reason why it is highly sought after by investors is that the market is optimistic about the investment value of Youzan technology.According to the announcement, the bidder also believes that since China Youzan completed the main transaction to acquire 51% of Youzan Technology's interests in April 2018, the sharp increase in China's stock price, transaction volume, market value and valuation was mainly due to the inclusion of SaaS business operated by Youzan Technology Group.

2. What impact will Youzan Technology embark on a new journey on investors?

From the above, it is easy to understand why China Youzan is making this big move. This is also a major historic development for Youzan Technology. The company's SaaS business will go public in its entirety and embark on a new journey. So, what impact will it have on investors?

Since the listing of Youzan Technology is to be carried out by means of introduction, there is no public offering of shares for Youzan Technology.For investors who hold China Yousan, for every share of China Youzan, they will receive HK$0.1,352 in cash and0.05077265 shares of Youzan Technologyofthestake.

Some investors may be bothered about the assessed price given in the announcement, but in fact, there is no need to get bogged down.This is because HK$0.1352 in cash corresponds to the price of the company's payment business, while the shares of Youzan Technology held by China Youzan will be distributed to all Chinese Yosan shareholders, and 1 share of China Youzan corresponds to 0.05077265 shares of Youzan Technology. Furthermore, Youzan Technology explained that the listing did not raise additional capital, and there was no public subscription process, and investors had no opportunity to buy Youzan Technology shares at the assessed price.

So why is the assessed price lower than the current market price? The third party's evaluation report in the announcement was made at the end of 2020, and there is some delay. In fact, Youzan Technology has a market price. More than half of its shares have already been listed. It is the core asset of China Youzan, the listed entity, and its valuation changes every trading day. In particular, since this year, not only has China been praised, but the value of the entire Hong Kong stock SaaS sector has been further favored by the market, so it is normal for the market price of praise to be higher than the assessed price of a third party last year.

As can be seen from above,Third-party evaluation prices are only indicative and have no operational significance. In the process of China's privatization of Youzan and the listing of Youzan Technology's main board, the interests of small to medium shareholders were not diluted. For investors who are optimistic about the long-term value of Youzan technology, there is no need for difficult or complicated operations; it would be nice if they continued to hold and enjoy the growth dividends of investing in Youzan Technology.

3. Listed entities focus on SaaS business, and switching to motherboards is expected to be a valuation catalyst

According to the company, Youzan Technology mainly provides various cloud business services to merchants through its subscription solutions and merchant solutions. Youzan Technology Group has effectively solved the pain points of merchants running online businesses and used its deep insight into China's new retail model to lead the merchant business to success.

With the increasing penetration rate of mobile internet in China, the rapid development of the online retail market, the increasing consumption potential of Chinese residents, the emergence of huge digital demand in the market, and the booming development of decentralized e-commerce, Youzan Technology is expected to continue to achieve high growth, and there are huge prospects for future development. Youzan Technology is on a SaaS circuit with long slopes and heavy snow, and has established a leading market position in the industry, with long-term investment opportunities. Although the exact listing date of Youzan Technology is yet to be determined, China Youzan has already disclosed the proposed transaction and the procedures for Youzan Technology's listing.

After passing this transaction, shareholders of the No Interest Plan will hold 39.56% of Youzan Technology's shares. After listing on the main board, Youzan Technology will not include payment services, and the business structure of listed companies will be simplified to focus on SaaS business. Since the company has the ability to generate far more revenue from the total assets of the SaaS business than from payments and other business assets, focusing on the SaaS business is beneficial for the company to make better use and manage its financial resources.

(Changes in Youzan Technology's equity before and after the transaction was completed)

It is worth noting that the switch to the motherboard,focusSaaSThe business is expected to be a catalyst for Youzan Technology's valuation.On the one hand, after switching to the main board, Youzan Technology is expected to enter Hong Kong Stock Connect in the future, and the company's investor base is expected to expand further, leading to a liquidity premium. On the other hand, Youzan Technology is a genuine SaaS target that is scarce in the market. Although Hong Kong stocks also have some other SaaS concept stocks, Youzan Technology's SaaS business is the purest. In the future, the company's performance and valuation will be entirely driven by the SaaS business, which can directly benchmark the US stock Shopify. Currently, Shopify's PS is 55 times higher, and the total market capitalization has exceeded 160 billion US dollars. Overall, I am optimistic about the long-term growth potential of Youzan Technology and wait for the roses of time to blossom.