Hong Kong-listed Feiyu issues profit warnings as more Chinese tech start-ups run into trouble

PUBLISHED : Tuesday, 05 July, 2016, 9:57pm
UPDATED : Tuesday, 05 July, 2016, 11:01pm

A Chinese tech start-up listed in Hong Kong released a profit warning on Monday, joining a wave of once-promising mainland internet and tech start-ups that have faced difficulties in their operations recently.

Feiyu Technology International Company, a Chinese mobile and web games developer, informed its shareholders and potential investors on its website that it may record a net loss of approximately 75 million to 85 million yuan for the six months ended June 30, 2016 under the International Financial Reporting Standards as compared to a net profit of 92 million yuan for the corresponding period in 2015.

Following the announcement, Feiyu’s share price dropped from HK$1.63 in early trading on Monday to HK$1.4 on Tuesday afternoon.

Feiyu went public in Hong Kong in December 2014, one year after it was set up in Xiamen in Fujian province, on the back of its success in developing several popular mobile games, including Carrot Fantasy.

In its statement, Feiyu explained that the expected net loss was due to the delay in launching key new games and a decrease in revenue of the group’s existing games as they reached mature stages of their product life cycles, as well as a significant increase in administrative expenses and research and development costs.

Last year, Feiyu saw annual revenue of 322 million yuan with net profit of 200 million yuan, according to mainland media.

The company expected to launch six new games this year but so far has only launched one game on the Tencent platform, released on June 13.

Meanwhile, ShenqiBuy.com, another high-profile e-commerce company founded by 17-year-old Wang Kaixin, China’s youngest internet tycoon, reportedly laid off half of its employees and moved the office, mainland media reports have said since Monday.

ShenqiBuy, or MagicBuy in English, targeted the post-1995 generation of young Chinese and has attracted huge attention across the country since it was set up last year by a 17-year-old high school dropout.

In January this year, Wang successfully landed 20 million yuan in A round fundraising from several domestic investors only three months after the launch of her app, and after appearing on the Beijing TV programme I am Unicorn, which helps start-ups lure venture capital.

However, the Chinese public has begun to have doubts about Shenqibuy since May when international monthly magazine GQ revealed that the company was faking the number of users and average daily orders.

As of February, more than 800 mainland Chinese online to offline (O2O) companies that landed A Series financing in 2014 had burned through their investments and had been shuttered, according to the government-run Guangzhou Daily.