Sina and Baidu bet on it, as university digital supplier Wisdom Tree impacts the Hong Kong stock market IPO

As the operator of "Zhihuishu" and "Zhida APP", Shanghai Zoyi Ruixin Digital Technology Co., Ltd. (referred to as "Zhihuishu") recently submitted a listing prospectus to the Hong Kong Stock Exchange for a main board listing, with ICBC International as the exclusive sponsor.

The prospectus shows that as early as January 2021, Zhihuishu had started the A-share listing counseling, but terminated the listing counseling agreement with Orient Securities in April 2024 and decided to switch to a Hong Kong listing.

Zhihuishu stated: "This change is due to considering that the market reputation established by the Stock Exchange can enhance the corporate image and provide more flexibility when exploring financing opportunities in the international market."

According to Frost & Sullivan data, based on 2023 revenue, Zhihuishu is the second largest company in China's higher education digital market, with a market share of 3.4%. In the segmented higher education digital content production market, Zhihuishu is the leader with a market share of 6.2%.

Prior to this filing, Zhihuishu has completed four rounds of financing.

In its latest Series C financing round, Baidu (9888.HK) subsidiary Dazhi Bairui Xiang Venture Capital Management Co., Ltd. (referred to as "Bairui Xiang Venture Capital") subscribed to Zhihuishu's 2.04 million shares at a price of 235 million RMB, with a post-investment valuation exceeding 2.3 billion RMB.

As of now, Sina's subsidiary Jin Zhuohengbang Technology (Beijing) Co., Ltd. holds 17.89% of the shares, making it the largest external shareholder of Zhihuishu; Bairui Xiang Venture Capital holds 10.06%.

Founders Wang Hui and Ge Xin directly hold 23.92% and 14.52% of the company's shares, totaling approximately 38.44% of the issued share capital. Wang Hui's son, Wang Yunning, holds a 10.06% stake, making him one of the top three individual shareholders of Zhihuishu.

In 2023, Zhihuishu achieved a revenue of 653 million RMB, a year-on-year increase of 63.2%; and a net profit of 81 million RMB, a year-on-year increase of 237.74%, turning losses into profits.

In terms of products, digital courseware, knowledge graphs, and virtual simulation digital teaching content services contributed over 80% of Zhihuishu's revenue, accounting for 82.5% in 2023; while digital teaching environment services and products accounted for 17.4%.

Zhihuishu's main customers are from universities, with 1422 customers in 2023, mainly universities, colleges, and vocational schools. Among them, lighthouse customers (universities within the "Double First-Class" plan) reached 231, contributing 199 million RMB, accounting for 30.48% of total revenue.

These customers are characterized by stronger stickiness.

The prospectus shows that the average revenue obtained from lighthouse customers by Zhihuishu increased from 670,000 RMB in 2021 to 860,000 RMB in 2023, and the revenue retention rate of lighthouse customers increased from 89.4% in 2022 to 176.4% in 2023.

With high stickiness, Zhihuishu's sales expense ratio did not increase significantly despite revenue growth, reaching 25.68% in 2023, a decrease of 5.64 percentage points year-on-year, even lower than 0.93 percentage points compared to 2021; The management expense ratio decreased by 3.05 percentage points year-on-year to 6.8% in 2023.

Due to the fact that the majority of Zhihuishu's customers come from B-side universities, its revenue experiences significant seasonal fluctuations.

Zhihuishu stated that customers typically implement their annual procurement plans and budgets for digital teaching solutions in the first quarter of each year, and they believe this model may continue in the foreseeable future.

Another potential risk relying on B-side university customers is the high accounts receivable. From 2021 to 2023, the proportion of accounts receivable to current revenue was 41.49%, 48.25%, and 40.12% respectively.

This may indicate that Zhihuishu faces corresponding risks of impairment of accounts receivable. Its impairment of trade receivables in 2023 amounted to as high as 19.32 million yuan, accounting for approximately 23.46% of the current net profit.

In this impact on the Hong Kong IPO, Zhihuishu plans to raise funds for research and development of cutting-edge technologies such as AI; enhance customer service and support capabilities; establish a knowledge graph research center; and supplement operating funds