Alibaba, Tencent Among Early Backers For Yunji's Hong Kong IPO Amid China's Hospitality Robotic Boom

Digitization of China's hospitality sector is boosting demand for related robots, providing fertile ground for the company's products

Key Takeaways:

• Yunji Technology has filed to list in Hong Kong, reporting its revenue grew nearly 70% last year
• The maker of robots for the hospitality sector boasts a star-studded list of early investors, including tech giants Alibaba and Tencent

Robotic stocks are on a roll these days, fueled in part by hype from the likes of Nvidia's celebrity CEO Jensen Huang, who has hailed the dawning of a new robotic era at several recent events. Concurrently fueling the craze are real-world developments like the imminent launch of Tesla's humanoid robot.

The robotic frenzy has helped to boost names like Dobot Corp. (2432.HK), whose shares have been on a roll since the start of the year. Now, Beijing Yunji Technology Co. Ltd., which specializes in robots for the hospitality sector, is hoping to cash in on the craze with its own filing for a Hong Kong listing earlier this month.

The company is a relative old timer in the robotic space, established in 2014 by the trio of Hu Haijun, Hu Quan and Wu Minghui with a focus on robotics, according to its listing document. Like many private Chinese companies, Yunji is also a family affair, with Hu Haijun's wife, Zhi Tao, as its chairman. The company's robots cover a wide range of application scenarios, including hotels, medical institutions, factories and communities, with a primary focus on hospitality.

China's hospitality robotic-based AI agent market is expanding rapidly, doubling from 1.5 billion yuan ($207 million) in revenue in 2019 to 3 billion yuan in 2023, representing 18.7% annual growth, according to third-party data in the listing document. Rapid advances in AI are expected to improve the functionality and scalability of robotics, further boosting the hospitality robotic-based AI agent market to 9.7 billion yuan by 2028.

Hospitality robot market leader

Yunji's specialty is service-oriented robots that do repetitive and labor-intensive work, with hospitality as its most important focus. Such robots currently account for 83% of the company's revenue, and can carry out a huge variety of tasks, from room service delivery to cleaning duties, such as vacuuming hallways or cleaning public areas. They can also assist with functions like guest reception and navigation by providing directions to rooms and restaurants. They can even offer check-in and check-out services, enhancing convenience for guests.

The potential market for such products is huge in a Chinese hospitality industry with hotel chains operating about 90,600 properties containing 16.5 million guest rooms at the end of 2023. The industry is currently undergoing a rapid digital transformation with aims of enhancing guest experience, improving operating efficiency and reducing costs. Over half of the hotels in China currently plan to invest more in robotics technologies. That's left Yunji in a sweet spot not just at home but also globally, thanks to its position as industry leader with 9% of the worldwide market for hospitality robots.

A-list of backers

The industry's strong prospects have attracted a wide range of investors to Yunji over its eight financing rounds since its inception. Those include investment companies affiliated with tech giants like e-commerce giant Alibaba, gaming leader Tencent, PC giant Lenovo and top online travel agent Trip.com. The company's major institutional investors include Qiming Venture, Citic Securities and China Everbright Group, all aiming for a piece of the action.

The company derives its revenue from two primary sources. The larger of those, robots and functional kits, provided 77.2% of Yunji's revenue last year, while the remaining 22.8% came from AI-driven robotic fundamental services. Under its robots and functional kits business, the company either collects one-time payments for products or obtains recurring fees under rental arrangements. Its AI digitalization systems provide fundamental services from the company's AI-driven robots for subscription or one-off service fees.

The company generated 245 million yuan in revenue last year, up by an impressive 68.6% from 2023. Even more impressive, its gross margin for the year jumped by 16.5 percentage points to 43.5%, producing a 170% surge in gross profit to 106 million yuan. But heavy spending on R&D, sales and marketing ultimately dragged Yunji into the red, though its loss last year narrowed by 30% to 185 million yuan.

Express delivery expansion

In search of new frontiers, Yunji is going beyond its initial focus on hospitality into other areas, including collaborations with food delivery and express delivery companies. It's working on integrating robotics into distribution and delivery systems, with a particular interest in entrusting robots with last-mile delivery tasks, sparing human couriers from things like long elevator waits.

Falling production costs are another potential catalyst driving Yunji from the red to the black. As more robotic parts and components are sourced locally and the technology matures, prices for main control boards have fallen from between 1,800 and 2,500 yuan in 2021 to just 1,000 yuan to 1,800 yuan last year. Electric motor prices declined from between 400 yuan and 800 yuan to just 250 yuan and 500 yuan during that period. The company is likely to achieve further improvements to its gross margins as its economies of scale grow with more applications, aided by more localized component production.

But Yunji's performance is also affected by seasonal factors. Its current reliance on the hospitality industry means it tends to see business peaks around major tourism periods like the National Day holiday in October, and the end-of-year period around Christmas and New Year's Day. That means the company tends to report better revenue in the second half of the year.

There's also the issue of competition, as deep-pocketed players start to notice the market's big potential, especially with the rise of AI. Large global tech names like Amazon (AMZN.US), Tesla (TSLA.US) and Nvidia (NVDA.US) are committing significant resources to developing the space, as is South Korea's Hyundai Motor, with its acquisition of Boston Dynamics in 2020.

A look at some listed robotic stocks in Hong Kong shows they trade at high multiples. Ubtech Robotics (9880.HK) trades at a price-to-sales (P/S) ratio of 40, while Dobot is even higher at 87 times. If Yunji targets a value somewhere in that range, perhaps around 50 times, it could hold out strong appeal to new investors, who might also be attracted by the company's strong lineup of heavyweight early backers.