Hong Kong-listed electronics manufacturer Pantronics Holdings Limited (1161.HK, “Pantronics”), acquired by Huobi Group last August, changed its name to Huobi Technology Holdings Limited (Huobi Tech) on November 1, 2019. The name change will better reflect its future business development.
Huobi Tech has been eye-catching in the past year due to its blockchain concept. This time, Gelonghui had an exclusive interview with the company’s executive director and CFO to talk about its current situation and future business plan.
Q1: Why did Huobi Tech acquire Patronics to get listed?
Chris: Most companies will seek to go public, which is the traditional financing channel, once reaching a certain level. At the same time, public companies have high requirements for enterprise management, compliance, disclosure, etc. A well-established company structure, rules, and regulations will attract not only many global high-end talents but also right to the brand building.
Public companies need to be more disciplined, maintain transparency for finance, shareholder structure, and executive team. Directly speaking, it will improve corporate governance and is beneficial to the company’s long-term development.
From the perspective of the capital market, a listed company always relates to a good brand and reputation. It is not only conducive to our business diversification, reducing risks and improving the long-term return of shareholders, but also beneficial to our external financing to expand the original business and develop new compliant blockchain business.
We obtained the status of the listed company as the group’s flagship with the fastest speed by merger and acquisition. Our other friends in this industry, such as Grandsores Tech and BC Tech, also complete their M&A by the same form.
Q2: At present, SFC and SEHK hold a strict regulation on shell companies and their business. Companies cannot change the original main business within three years. Also, there are strict restrictions on M&A business within the period to prevent RTO reverse M&A, what do you think of these restrictions?
Chris: We attach great importance to compliance. There are many professionals in the team, including lawyers, accountants, CFA, FRM, barristers, as well as the Asia Pacific compliance director of the former major financial institution. We put compliance first. All M&A projects need to pass a series of reviews and must meet the compliance requirements of listing regulations.
For businesses that grow naturally, we generally proactively approach to the regulators and seek for good communication.
Q3: Huobi Tech recently announced the annual report, which recorded a loss for the year of 2019. The revenue of the original business decreased, while the income of blockchain and related business accounted for a limited proportion, and the cash flow of the whole year was negative. May I know the reason?
Chris: our original business was the manufacture of hydraulic and electronic parts, but the tax problem caused by the trade war between China and the United States was affected. Fortunately, our biggest customer in the United States, most of the goods were exempted from the tariff, while the gross profit improves due to the effective cost control. And overall loss, mainly due to one-time tax expenses. Despite this, the company recorded a profit.
We completed the acquisition of Win Techno Inc. in Japan last July. It still at the beginning stage, mainly provides cloud services and data center services for blockchain-related companies and will also offer other customized services in the future. The business gross profit margin far exceeds the original primary business gross profit margin. While the financial report as of the end of September just represented a small portion of its revenue due to the limited acquisition time.
Regarding the company’s financial situation, the company’s financial reserves are very abundant. Up to now, we have an interest-free loan from our controlling shareholders and the group. It represents their commitment and determination. We are confident to continuously develop both the original and new business with current cash and bank balances over $550 million and the bank credit.
Q4: What do you think of business development in 2019?
Chris: For the original business, the company has completed the factory relocation and replacement of automated production equipment. The costs of production reduced, and production efficiency increased accordingly. I believe these positive factors will be reflected in future financial performance.
For the new business, we have also completed the acquisition of the blockchain enterprise to provide cloud services and data center services.
What’s more encouraging is that our management team of internationalization, specialization, financialization, and technology. Members are experts in blockchain, compliance supervision, network security, fintech, financial management, capital market, and other fields, which can ensure the effective implementation of the company’s business strategy.
Q5: Recently, the company announced that the joint secretary Mr. Liu Xi resigned as the joint company secretary. Could you share some details about that?
Chris: I have known Liu Xi for more than ten years, and we have worked together for many years as of right partners. It should be noted that he just resigned as the co-director secretary. He is still working at Huobi Tech and will continue responsible for corporate finance, M&A, and board operations. It was a misunderstanding that he was resigned.
Q6: Could you share with us the future development plan of Huobi Tech? Are there any plans to inject group trading businesses such as Japan licensed exchanges into listed companies?
Chris: Welcome to check our annual report for the listed company published before on the HKEX website or the company website. The chairman’s statement shows Mr. Li Lin’s thoughts on business development.
I want to take this opportunity to emphasize that in the coming year, on the premise of continuing to promote the development of the original business, we will also make good use of the loan, take the listed company as the primary operating body to cultivate and develop the blockchain business.
We hope to explore potential business opportunities by utilizing the technical experience and expertise accumulated by controlling shareholders in blockchain technology, fintech and other fields in the direction. We also do not exclude the acquisition of the controlling shareholder’s licensed and compliant exchange business using M&A, provided that the business is compliant and meets the requirements of the securities regulatory commission and the stock exchange. The merger is subject to the listed company’s ordinance.
Q7. How do you think about the share price?
Chris: We believe the share price reflects the fundamental value of our business in the long-run. Thus, as the management of the company, we should lay more emphasis on business development and compliance. Instead of creating short-term hype, we would like to focus on the long-term value creation by exploring business diversification, focusing on blockchain technology development, and utilizing the resource of our parent company.
Corporate and business development and transformation take time to become noticeable. Therefore, we strive our best to make it happen.
I believe our professional team is capable of implementing the vision of the company and thus creating long-term value for our shareholders.
Q8. HKSFC adopts a new approach to virtual asset trading platforms in November 2019. Does Huobi Tech have any plans for that?
Chris: One of the goals we are working on is to strategize the international financial market, to leverage licensed financial institutions, and to build up new generation financial infrastructure for the virtual assets industry based on blockchain technology.