Zephyrnet Logo

Tag: education software

5 ways to combat tech fatigue and support student success

Key points: Ask anyone involved in public education right now and you’ll hear a familiar refrain: “Too many technology tools.” Almost every K-12 district brought...

Top News

PowerSchool valued at over $3 billion in NYSE debut as shares rise

By Noor Zainab Hussain (Reuters) -Shares of PowerSchool Holdings Inc rose 2.8% in their New York Stock Exchange debut on Wednesday, giving the...

DreamBox will acquire Reading Plus as ed-tech startup expands beyond math

DreamBox Learning is expanding beyond its flagship math education software platform. The Bellevue, Wash.-based startup announced the acquisition of Reading Plus, an online...

3D-printed MyCello combines the best of acoustic and digital design

We've seen 3D printing used to create a good many musical instruments over the years, including guitars, saxophones, violins and more. The latest...

Solar-powered computers to accelerate digital literacy in Madagascar

A new partnership aims to deliver solar-powered computers to 10,000 children a year across schools in Madagascar and East Africa. The computers...

Economic Transformation Technologies Corporation (ETT) Announces…

The partnership with ETT will make Universal Tutor and BioDatAi TeleMedicine available through The Impact Network and will provide audiences...

Remote Learning Boosting Adoption of Innovative Technologies for Education 

By AI Trends Staff   With remote learning happening for students of all ages during the pandemic area, new technologies incorporating AI—including...

Seattle startup Skilljar raises $33M as pandemic sparks demand for its customer education software

The third time really has been a charm for Sandi Lin and Jason Stewart. The entrepreneurs began their startup journey in 2013 when the...

How one VC firm wound up with no-code startups as part of its investing thesis

Welcome back to The TechCrunch Exchange, a weekly startups-and-markets newsletter. It’s broadly based on the daily column that appears on Extra Crunch, but...

Incident Of The Week: Chinese Hackers Accused Of Freelancing For The Chinese Gov…

Li Xiaoyu and Dong Jiazhi, Chinese nationals who met in a Chengu, China engineering school, were indicted by the Department of Justice on...

Sentral Pay – Streamlining school finances and providing parents with simple payment solutions

Leading Australian education management software provider Sentral has released Sentral Pay to further enhance their payments offering to schools, which includes processing direct...

Dear Sophie: Can I still get a green card given COVID-19, layoffs and recent H-1B changes?

Sophie Alcorn Contributor Sophie Alcorn is the founder of Alcorn Immigration Law in Silicon Valley and 2019...

ReTech Technology

Overview

ReTech provides online learning and educational services to companies in China. They plan to raise 22.5 million through the prospectus by selling 20% of the company via the IPO, giving a total post IPO market capitalization of 112.5 million. The business has three main arms, an E-learning business where they provide training courses to businesses for staff, a newer e-training partnership area where they will partner with established education entities (they have a memorandum of understanding with Queensland TAFE) and a proposed e-course direct area where they intend to sell courses direct to companies and individuals. According to the prospectus, e-learning is a rapidly growing industry, with a growth rate of 32.9% between 2010 and 2015. While this seems high, service and knowledge based jobs are exploding in China, and online education is one of the fastest and cheapest ways to train staff. Having had the misfortune to complete a few work-mandated e-learning courses in my career myself, it’s not exactly an exciting industry, but the benefits they offer companies are clear. The prospectus lists a few of the courses which ReTech owns the intellectual property rights to and looking at names like “how to introduce the gear box” and “how to recommend vehicle insurance for clients,” you can almost imagine a bunch of bored car salesmen sitting in an office somewhere in China clicking through multiple choice questions.
The IPO funds will be used, amongst other things, to set up an office in Hong Kong. This means that unlike Tianmei, the IPO I reviewed most recently of another Chinese company, the final parent company isn’t located in Australia. While I’m no expert on Hong Kong company law, I think this is a mark against ReTech. With an Australian company, shareholders have the recourse of class actions or potential moves against the board if things go wrong. I’m not sure how easy those things would be to organize against a Honk Kong based company.

Company background

According to ReTech’s website, ReTech was originally founded as a website development company in 2000 by a guy called Ai Shugang while he was still a university student. Since then it has grown and expanded into several different technology and internet related areas. Instead of just listing as the original entity, the founders decided to create a newly incorporated company called ReTech Technology to list on the ASX. They injected their own capital into the business, and then sold/transferred significant amounts of the intellectual property and existing E-Learning contracts to the newly created company. To make things more complicated, at the same time the founders also created another company called Shanghai ReTech Information Technology (SHR) which as far as I can understand will remain wholly owned by Ai Shungang. SHR has also had a significant number of E-Learning contracts assigned to it from the original ReTech entity. SHR has signed an agreement with ReTech regarding these contracts where ReTech will provide the services on SHR’s behalf, in exchange for 95% of the resulting fees. If this all sounds a bit confusing you’re not the only one.
My concern with all of this is that ReTech is in the sort of industry where a founder siphoning off business is a major threat, meaning another business still operating owned by the original founder is a big risk. In the prospectus, ReTech list expertise and their existing client list as two of their four main competitive advantages, two things that would be easy for the founder Ai Shungang to poach to SHR. Although Ai Shungang does own a significant stake in ReTech, he owns 100% of SHR’s parent company, so the motivation for him to do this is there. The prospectus points out that both Ai Shungang and his companies have signed non-compete contracts, guaranteeing they will not operate in the same sector as ReTech, but I know how hard to enforce these contracts are in Australia, and can only imagine what the process would be like in China.  
Finding out what exactly this separate company will be doing given they have committed to not entering the online education sector proved difficult. I eventually found a legal document on ReTech’s website that states Shaghai ReTech Information Technology is going to focus on software and technology development and technical management consulting. To make things even more confusing, they also seem to be still using identical branding to ReTech, based on what I found on a management consulting website. If you trust the founders of the company, probably none of this would bother you but for me these are considerable issues.

Valuation

Before looking at any of the financial information for ReTech it is important to remember that the company was incorporated in its current form in May 2016, and the final part of the restructure was only completed in November. This means that all historical profit and loss figures are pro forma only, estimates of what the contracts, intellectual property and assets now owned by the ReTech Group earnt before the company was split. This is a massive red flag for me. I’m sceptical of pro forma figures at the best of times, and when they are used by an unknown company in a prospectus where the unadjusted figures are not even provided it’s a massive concern. To give just one example of how these figures could potentially be distorted, education software development costs could be written off as not part of the business, while the associated revenue is counted towards ReTech’s bottom line. Examining the pro forma figures doesn’t exactly assuage my concerns either. Have a look at the below table taken from the prospectus, in particular the profit before tax to revenue ratio. In 2015 off revenue of just 6.9 million the profit before tax is listed as 4.2 million, meaning for every dollar of revenue the company made 61 cents of profit. Of course, I understand that profits can be high in the technology sector, but a profit to revenue ratio of .61 is extraordinary, especially when you consider that this is a young company in a growth phase.

Most young companies with growth rates this large are running at deficits as they re-invest into the business, not earning profit margins that would be the envy of booming mining companies.


Even with these relatively major concerns put aside, the valuation appears expensive. The pro forma Net Profit after Tax for FY 2015 was only 3.6 million, which against a valuation of 112.5 million is a Price/Earnings of just over 31 (annualizing the profits from the first half of 2016 doesn’t give you much better numbers). Full year profits for FY2016 are expected to be 5.8 million, a P/E of 20, but if there is one thing I am more suspicious of than Pro forma historical accounts it’s prospectus profit forecasts, so I have little inclination to use these numbers to try and justify the valuation.

Management personnel

When I started digging around on the management personnel, one of the first things I noticed was the strong link to Investorlink, a Sydney based financial firm that seems to specialize in assisting Chinese companies list on the ASX. In addition to being the corporate advisors to this listing (for which they will be paid $380,000), Chris Ryan, an executive from Investorlink is one of the five board members of ReTech. I was already sceptical of this IPO at this stage, but this was the final nail in the coffin. Chris Ryan’s CV is like a checklist of bad Chinese IPOs. Ryan was and apparently continues to be the chairman of Chinese Waste Corporation Limited, a Chinese company that reverse listed in 2015 and was suspended from the ASX in mid-2016 for not having “sufficient operations to warrant the continued quotation.” He is currently the chairman of TTG Fintech Limited, a company that listed on the stock exchange at 60 cents in late 2012, inexplicably reached as high as 4 dollars in mid 2014, and is now trading at 7 cents and he has been on the board of ECargo Holdings, a company that listed at 40 cents in late 2014 and is now trading at 20 cents. I spent some time looking at the various Chinese IPO’s that Investorlink has advised on, and was unable to find a single IPO whose shares aren’t now trading significantly below their listing price. If ReTech are indeed a legitimate company, it’s hard to understand why they would seek to list through Investorlink given this track record.

Verdict

To put it bluntly, I wouldn’t buy shares in ReTech if I could get them half price. Everything from the odd restructure to the lack of statutory accounting figures, the high valuation and the awful track record of the Corporate Advisor makes me want to put all my money in treasury bonds and never invest in anything speculative again. Of course, it’s possible that Ai Shungang is going to turn out to be the next Mark Zuckerberg and I’m going to end up looking like an idiot (to the handful of people who read this blog at least), but that is one risk I am happy to take.

 The offer closes on the 9th March.

Latest Intelligence

spot_img
spot_img