Back on the road again

As the new year dawns, investors will be awaiting eagerly to see if Lalatech, the parent of on-demand logistics and delivery platform Lalamove, goes ahead with a mega Hong Kong initial public offering after applying to list for a fourth time amid improved market sentiment.

The company, which operates under the Huolala brand in mainland China, submitted its listing application in October, following previous attempts in April this year as well as November and March of 2023, after shifting its US$1 billion (HK$7.8 billion) listing plan from the US to Hong Kong in 2021.

Founded in Hong Kong in 2013, Lalatech mainly operates as a marketplace, especially in intra-city freight markets, connecting merchants with carriers through an asset-light business model, meaning it does not own the vehicles used by carriers.

Entering China and other markets in 2014, the company now is the world's largest logistics transaction platform by closed-loop freight gross transaction value or GTV in the first half of this year, with a market share of 53.9 percent, according to its preliminary prospectus, citing data from consultancy Frost & Sullivan.

Mainland power

Lalatech facilitated about 338 million orders with a freight GTV of US$4.6 billion in the first six months of the year. It had an average of 15.2 million monthly active merchants and 1.4 million monthly active carriers on its platform during this period.

Despite its global presence in over 400 cities across 11 markets, over 90 percent of Lalatech's revenue still comes from mainland China.

Its revenue grew 18 percent in the first half of 2024 to US$709 million, building on a 28.8 percent increase to US$1.3 billion for the full year in 2023.

It has turned profitable after years of losses, which swung to a net profit of US$972.7 million in 2023, followed by a US$183.7 million net profit in the first half of 2024.

The company attributed its profitability to an improved hybrid monetization model for its freight platform services, which accounted for 61.8 percent of its revenue in the first half of 2024.

Initially reliant on carrier membership fees for revenue, Lalatech introduced commission fees in 2018 as its carrier base expanded.

In Shenzhen, for example, it offers three membership tiers for carriers operating specific vehicle types. First-tier members, paying 239 yuan per month, enjoy a reduced commission rate of 14 percent compared to the 18 percent rate for non-members. The second tier, with a 539 yuan monthly fee, faces an 11 percent commission rate, while third-tier members, paying 789 yuan per month, see their rate drop to 8 percent.

This hybrid monetization model has helped drive profitability by converting GTV growth into revenue growth, according to the company.

Commissions as a percentage of freight platform services revenue in China increased from 11.7 percent in 2021 to 57 percent in 2023, rising further to 58.5 percent in 2024.

However, questions remain about the sustainability of its model.

Mainland regulators have summoned the company a dozen times in recent years over complaints related to payment delays for carriers, arbitrarily adjusted pricing rules, and high commission rates and membership fees, according to mainland media reports

Lalatech's other revenue streams include a range of diversified logistics services like solutions to large enterprise merchants or home-moving services, which contributed 32 percent of revenue in the first half.

The company has raised a total of US$2.66 billion in 11 financing rounds from big-name investors including Hillhouse Capital and HongShan, formerly known as Sequoia China. Other investors, such as Tencent (0700) hold small stakes.

ENTREPRENEURIAL SPIRIT

Founder and chairman Chow Shing-yuk, retains about 25 percent of Lalatech's shares along with his family trust, despite selling US$165 million worth of shares to investors in 2021 and 2022.

Born in Guangdong province, Chow moved to Hong Kong as a child.

Despite growing up in a humble wooden house as Chow recalled in an interview, he excelled academically, winning a scholarship to study in the US, where he studied economics at Stanford University.

After university, Chow joined Bain & Company as a consultant but quickly left the corporate world to pursue an unconventional path, becoming a professional Texas Hold'em poker player.

Chow was said to have amassed nearly HK$30 million in winnings during his time as a poker player, which provided part of the capital for his entrepreneurial ventures, which he described as "the biggest gamble of his life."

Lalatech also repurchased US$65.2 million worth of shares from Chow in February last year, and based on that price, the company would be valued at US$9.8 billion, according to The Standard's calculation, down from a valuation of nearly US$13 billion for its 11th financing completed in early 2022.

Whether Lalatech can maintain the latest valuation remains in doubt as peers such as GoGoX (2246) and Full Truck Alliance have both performed disappointingly after going public.

Its smaller rival GoGoX shares prices have plunged by nearly 98 percent since its IPO in June 2022, resulting in a market capitalization of HK$282.82 million, compared to over HK$10 billion before listing.

Its US-listed competitor Full Truck Alliance, which mainly focuses on inter-city freight services, also posted a 53 percent decline in prices since its listing in 2021. Full Truck's market cap now stood at US$9.3 billion.

Lalatech plans to use the proceeds from the IPO to grow its core business and expand service offerings in China, accelerate global expansion, enhance technology infrastructure, and support working capital.

Goldman Sachs, BofA Securities, and JP Morgan are joint sponsors for the proposed offering.