Has Huobi’s Shift To Blockchain And Virtual Assets Widened Its Profit Margins?
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Has Huobi’s Shift To Blockchain And Virtual Assets Widened Its Profit Margins?

21st December 2021 | 4 min read

Huobi Technology Holdings Limited (1611.HK), formally known as Pantronics Holdings Limited, was listed on the Hong Kong Stock Exchange in November 2016. In the beginning, the company was engaged in the Original Equipment Manufacturing (OEM) & Electronic Manufacturing Services (EMS) of power-related and electronic products.

Image credit: Patronics

However, its deteriorating financial performance over the years forced the company to reposition in a bid to reverse its fortunes.

Image credit: Reuters

Acquisition of Win Techo

In July 2019, Huobi announced the acquisition of Win Techno Inc. for HKD 6 million (USD 770,000). The principal business of Win Techno includes the provision of data centre related services, including data storage and backup, data centre operations and maintenance.

Image credit: Huobi

Huobi cited the competitive landscape in the manufacturing industry, as well as the economic uncertainty as reasons it is rethinking its business strategies. Therefore, the company decided to proceed with the acquisition and expand its business operation into technology services.

Huobi said the acquisition would allow it to focus its resources on the development of cloud software and database services for global customers from innovative technology sectors, including blockchain, fintech and big data.

Regulatory approval

On 3 October 2020, Huobi announced that its wholly owned subsidiary, Huobi Asset Management (Hong Kong) Limited, received licenses from Hong Kong’s Securities & Futures Commission(SFC) to to provide securities advisory and asset management services to professional investors. e

The company said its long-term goal is to create an integrated financial services platform, which will offer both traditional and virtual assets.

Elaine Sun, the Compliance Director of Huobi said: “As a fully compliant trusted platform, we are confident that the Company could bridge the gap between traditional and virtual asset class investments and offer integrated solutions to our professional investors.”

Image credit: Huobi

Virtual asset funds

In April 2021, Huobi Asset officially launched four virtual asset-related funds for professional investors. The new offering includes:

  • Bitcoin (BTC) tracker fund
  • Ethereum (ETH) tracker fund
  • Multi-strategy virtual asset fund
  • Virtual asset mining-focused private equity fund

In particular, the multi-strategy virtual asset fund targets professional investors who seek returns above the passive benchmark through active trading and management while the virtual asset mining fund aims to earn a stable return through primary market investments.

Ms Gillian Wu, CEO of Huobi Asset, said, “The funds launched are intended to cater to different types of investors with different risk appetites. And we are confident about the future growth potential”.

Following up on this, Huobi also announced on 5 May 2021 that the application for registration as a Trust company by its wholly owned subsidiary, Huobi Trust Company Limited, was approved on 29 April 2021. With that, Huobi Trust will be able to provide virtual assets and traditional assets custody and trust services to the clients in the future.

Latest venture yields result

In Huobi’s 1H 2021 results, the company reported a 122% year-on-year growth in its revenue to approximately HKD 261.7 million. Meanwhile, gross profit surged by more than 500% year-on-year to HKD 134 million, and its overall gross profit margin stood at 51.2%. Its bottom line also turned positive with a profit of HKD 54.1 million, as compared to a loss of HKD 30.2 million a year earlier.

Huobi’s blockchain and virtual asset-related new business saw a higher revenue contribution to the company, accounting for 38.5% of the total revenue from just 6.5% a year earlier. The largest revenue contributor continues to be its manufacturing business, which contributes the remaining 61.5% of the company’s total revenue.

In terms of gross profit margin, Huobi’s blockchain and virtual asset-related new business saw a gross profit margin of 96.7% while the gross profit margin for its manufacturing business stood at just 22.6%.

This goes to show that Huobi is on the right track in terms of diversification into these new ventures, as the high gross profit margin helps to improve Huobi’s bottom line.

Crypto lending

One of Huobi’s latest developments is the launch of crypto lending. This service will be provided under Huobi Brokerage, a digital asset brokerage platform under the company.

Huobi’s CFO, Lily Zhang, said, “Huobi Brokerage is one of our most important business lines for crypto-asset financial services. We believe that developing new crypto asset financial services under Huobi Tech can supplement our brokerage business”.

With the growth in popularity of cryptocurrency as an alternative asset class among institutional investors and high net worth individuals in recent years, Huobi said it thinks that this lending service can play an important role in meeting their liquidity needs and improving their return on investments.

Furthermore, Huobi Brokerage can meet customer-specific lending demand through one-on-one consultation. This will be a value-adding factor in the lending business.

Concluding Thoughts

Recognising the challenges faced with its manufacturing business, Huobi has taken bold steps towards diversifying into technology services and blockchain-related ventures to reduce the company’s dependence on its manufacturing segment, which is facing huge challenges.

With the diversification, Huobi’s financial performance has improved significantly. More importantly, the company returned to profit with the help of these latest ventures. This shows the company is on the right track.

In the short run, I believe Huobi will continue to focus heavily on blockchain and cryptocurrency-related businesses as these have better gross profit margins.

More importantly, In the long term, Huobi could pivot towards an asset-light business model and the potential sale of its manufacturing business could be the turning point for Huobi to become a pure-play blockchain and cryptocurrency company.

Disclosure: The writer does not own shares of Huobi (1611.HK)

Written by Zheng Long Teo

Zheng Long is a freelance writer for Breadnews. He is constantly on the lookout for less well-known stocks that have the potential to outrun the market. During his free time, he loves his tea and enjoys console gaming.

He has prior experience working in a small investment boutique firm as an investment analyst. He started his personal investment journey from his uni days and currently holds a 5-figure portfolio under his belt.

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