Mergers & Acquisitions

Marketing agency Shunya International buys half of Chinese live-streaming app Inke

PUBLISHED : Tuesday, 05 September, 2017, 6:36pm
UPDATED : Tuesday, 05 September, 2017, 10:54pm

A Shenzhen-listed communications agency is set to buy almost half of Beijing Milaiwu Network Technology, the owner of one of China’s most popular live-streaming platforms, in a deal worth just under 3 billion yuan (US$460 million).

Shunya International Brand Consulting (Beijing) said on Tuesday it will pay 2.89 billion yuan in cash for a 48.2 per cent stake in Beijing Milaiwu, which owns the Inke app.

The deal will make Shunya the biggest shareholder of the target company, according to a filing to the Shenzhen Stock Exchange.

Shunya, which listed in Shenzhen in February, achieved a profit of 58.7 million yuan last year. The company has sought loans from its four shareholders to complete the Inke deal, driving its debt ratio up to 76.2 per cent from 16.7 per cent. But it said it would still consider increasing its stake in Inke in the future.

Shunya, which offers a range of communication solutions, expects to build a “Live+” model through the purchase of Inke, optimising and aligning its business to live-streaming. “Inke will offer us a new type of communication solution,” said Shunya in a statement. “And we can improve Inke’s cashability at the same time.”

The deal would enable Shunya to diversify its main business, said Kuang Shi, an analyst from GF Securities.

“The acquisition of Inke will enable Shunya to operate a mobile internet business, instead of being restricted to its current service of providing communication solutions.”

Inke, an early entrant into the live-streaming sector and a popular platform among China’s film stars, has already become very profitable. Beijing Milanwu, which gets 90 per cent of its earnings from Inke, recorded a profit of 480 million yuan last year, five times than the 980,000 yuan it made in 2015. It generated profit of 240 million yuan in the most recent quarter.

The registered users of Inke had reached 164.6 million by March this year. The number of average monthly active users was 24.6 million during the period from January 2016 to March 2017.

“Live-streaming still has big growth potential as it improves our communication methods by offering videos, not just words, photos or voice,” said Wang Xiang, an analyst at Hongxin Securities in a report. “And the major players have clear access to make profits now.”

He warned of risks from China’s tightening of regulations and tough industry competition among nearly 200 operators in the country.

Goldman Sachs expects China’s video live-stream market to grow to US$15 billion in 2020 from US$2 billion in 2015.

Analysts from the investment bank noted that pressure from Chinese regulators could dampen sentiment in the sector.