Humanoid Robot Maker Ubtech Limbers Up for IPO

Key Takeaways:

• Ubtech has been a pioneer in humanoid robotics, but several tech giants have now stepped into the market
• The company has yet to break even and looks set to stay in the red for some time, despite achieving mass production of its robots

By Molly Wen

A few years ago, one of the most popular variety shows on Chinese TV featured a dance troupe performing eye-popping moves. Nothing unusual there, except that the dancers included six humanoid robots.

Four years after making a splash at the “Spring Festival Gala” with its rhythmic robots, Ubtech Robotics Corp Ltd. is seeking to wow investors with a listing on the Hong Kong Stock Exchange.

The robotics unicorn filed a preliminary prospectus last Tuesday, eyeing a slot on the main board.

In robotics, the challenge of creating androids that can maintain their balance and coordinate their limbs is much tougher than making quadruped or spider robots with multiple legs. But the potential payoff is also greater, as robots with the mobility and dexterity of humans can be deployed in social care and other settings.

Founded in 2012, Ubtech develops and sells humanoid robots, with more than 1,500 patents related to robotics and artificial intelligence by end of last year. Ubtech is the first company in China to mass produce small humanoid robots, according to a research report cited in the prospectus.

Ubtech completed several financing rounds before filing for a Hong Kong IPO, raising its capital to 31.2 billion yuan ($4.6 billion) after the last fund-raising in November 2022. In that round, Puyang Financial Holding subscribed for 2.045 million ordinary shares at 78.88 yuan per share. Ubtech founder and CEO James Zhou and his associates held a controlling 53.98% stake in the robotics firm, while Shenzhen Evolution Investment had 10%, Tencent Holdings (0700.HK) 6.48% and QM25 Fund, managed by Qiming Venture Partners, held 5.98% of the company shares.

As a star unicorn, Ubtech had tried to list on the A-share market, but without success. In 2019, it signed an agreement for IPO guidance from CICC and made a counseling filing with the Shenzhen branch of the China Securities Regulatory Commission. The following year, Ubtech enlisted CICC and Minsheng Securities to help with an A-share listing, but CICC withdrew in January 2021 and the contract with Minsheng Securities ended a few months later.

Mass producing robots

The robotics market has been in the investment spotlight since several humanoid models made by big-name tech companies made their debuts last year.

“CyrberOne”, a robot from Xiaomi Corp. (1810.HK) with a height of 1.77 meters, waddled onto the stage holding a flower at a launch event in August 2022. Last October, “Optimus” from Tesla Inc. TSLA made a grand entrance, touted as a potential worker in hazardous settings or a helper in the home to cook, mow the lawn, care for the elderly or even act as a human companion.

However, the humanoid robots made by Tesla and Xiaomi do not come cheap. CyrberOne costs up to 700,000 yuan to manufacture and has not reached the mass production stage. Ubtech, with years of experience under its belt, is already mass producing robots for the education and logistics industries, as well as toy robots for consumers.

While industrial robots are widely used, humanoid robots have so far been deployed mainly in the classroom. Ubtech earnings data cited in the prospectus show revenue rose 5% to 529 million yuan in the first nine months of 2022, with nearly 68% percent – or 358 million yuan – coming from smart educational robots. Robots for the logistics industry accounted for 9.6% of revenues, while other sector-tailored robots contributed 4.3%. Robots for the consumer market and other smart hardware devices made up 16.4% of overall revenues.

Ubtech’s educational robots are mostly used to teach STEAM subjects – science, technology, engineering, the arts and math – in schools, colleges and universities. Its products include robot hardware and software services customized for education, as well as AI tutorials and robot teaching kits.

But the company’s ambitions do not stop there. Since the second half of last year, it has been targeting other markets such as elderly care and recreation to broaden its revenue streams.

Downward slope for gross margin 

Ubtech has more than 30 products on the market and revenues have been growing steadily in recent years, but high expenses are pushing the company deeper into the red.

In 2020 it posted revenues of 740 million yuan but made a loss of 707 million yuan. The following year revenues rose to 817 million yuan, but Ubtech logged a 918 million yuan loss. In the first nine months of last year, the loss swelled 28% to 778 million yuan from the year-earlier period.

Ubtech has burned through cash to promote its humanoid robots. In the first nine months of last year, expenses for sales and marketing accounted for nearly 46% of revenue for the period, while R&D expenses shot up to around 61% of revenue. With general administrative expenses to contend with as well, the company has been struggling to make ends meet.

Therefore, the robotics unicorn will likely be mired in net losses for some time. It will have to work on widening the uses of its robots, capturing economies of scale and bringing costs under control in order to turn a profit.

Moreover, a downward trend in gross margin is ringing alarm bells. In 2020 gross margin stood at 44.7%. failing to 31.3% in 2021 and 30.7% for the first nine months of 2022.

Fierce competition in the smart-home arena has forced Ubtech to cut prices for its consumer-level robots to boost sales and clear stale inventory. As a result, the business even logged a gross loss ratio of 26.4% in 2021.

Ubtech has not yet passed the listing hearing in its bid to become the first humanoid robotics specialist on either the A-share or Hong Kong stock markets.

The lack of direct peers makes it hard to pin down comparative valuations. But its valuation after the last round of financing was 31.2 billion yuan, slightly higher than surgery robotics company Shanghai MicroPort MedBot (2252.HK) at 28 billion yuan, and far above valuations of around 6 billion yuan for OrbusNeich Medical Group (6929.HK) and Tinavi Medical Technologies (688277.SH).

Humanoid robotics is an emerging industry that could hold real promise for the future, but the business present-day profit model is unclear.  It remains to be seen whether investors will be willing to pay a premium for a piece of the humanoid robotics action.