China's third largest ride-hailing operator CaoCao is looking to list in Hong Kong amid fierce competition in the mainland market.
Backed by automotive giant Geely, CaoCao is said to be looking at raising a few hundred million US dollars.
China's mobility market is the largest in the world and is expected to be worth 81 trillion yuan (HK$87.28 trillion) in 2024 but ride-hailing operators face high operating costs and intense competition in a homogeneous market.
Since the launch of ride-hailing pioneer Yidao Yongche in 2010, giants from the internet to the automotive industry have entered the market.
Uber, too, entered China, but the world's biggest ride-hailing firm failed to turn a profit and exited the mainland in 2017.
Though CaoCao ranks third in China's ride-hailing market, it is significantly behind Didi, which corners more than 70 percent of the market compared to CaoCao's 12.2 percent share.
CaoCao differentiates itself through better pricing and customized chauffeur services.
Its chauffeur services run on its own vehicles with skilled, trained drivers and the fleet of 31,000 customized cars made by Geely is the largest in the mainland.
Last year, it launched an electric car brand boasting low operating costs and a long service life, and unveiled its inaugural model, the CaoCao 60.
However, vehicle manufacturing and sales is in its early stages and last year the business only contributed 1.1 percent to its revenue, with ride-hailing remaining the primary revenue pillar, representing over 96 percent of the total.
These initiatives also reflect CaoCao's dependence on Geely, which has an 84 percent stake in the operator.
CaoCao still faces an uphill battle to break into profit and has had to rely heavily on borrowing to sustain its operations. While revenue rose 40 percent over two years to 10.67 billion yuan in 2023, it still posted a significant loss of 1.98 billion yuan.
In 2023, its net liabilities rose 18 percent to 5.2 billion yuan from the previous year. In 2022, this figure had surged by 46 percent compared to the previous year.
It had negative cash flows of 1.5 billion yuan in 2021 and 1.1 billion yuan in 2022, before turning positive by 136 million yuan in 2023.
Although CaoCao says the funds raised from its IPO will be used to enhance its technology and services, the cash crunch might also be one of the reasons why it is opting for an IPO.
CaoCao's strategy for growth relies heavily on Geely's support to reduce operating costs.
The two customized vehicle models are estimated to reduce total cost of ownership by 32 to 40 percent compared to standard electric vehicles.
Nevertheless, there have been signs of improvement: its loss in 2023 was 35 percent less than the 3 billion yuan loss in 2021, while its revenue growth also increased from 7 percent in 2022 to nearly 40 percent in 2023.
Furthermore, the company's gross profit margin turned positive last year, from -4.4 percent in 2022 to 5.8 percent in 2023.
Despite Cao Cao's strategy yielding some success, the company still needs to prove its potential to the capital market amid fierce competition and profitability challenges.
IPO AMBITIONS: CaoCao ranks third in China's ride-hailing market.
