F-1: Zhibao Tech F-1: Resale Offering, China Risks, Growth

Zhibao Technology Inc. filed an F-1 registration statement for the resale of up to 14.98 million Class A ordinary shares by Hudson Global Ventures, LLC, detailing its InsurTech business in China, recent financings, and significant regulatory risks.

Summary

• Zhibao Technology Inc. operates as a Cayman Islands holding company, conducting substantially all business through its PRC Subsidiaries (Zhibao China Group) in China.
• The company is a leading InsurTech provider specializing in digital insurance brokerage and Managing General Underwriting (MGU) services, pioneering the 2B2C (to-business-to-customer) digital embedded insurance model in China since 2020.
• Zhibao China Group has developed over 40 proprietary digital insurance solutions across various industries (e.g., travel, sports, logistics, utilities, e-commerce), cooperated with over 2,400 B channels, and secured more than 24 million end customers.
• Revenue for the fiscal year ended June 30, 2024, reached approximately RMB 183.7 million (US$25.2 million), a 29% increase from RMB 142.1 million (US$19.5 million) in FY2023.
• Net income for FY2024 was approximately RMB 13.3 million (US$1.8 million), a significant improvement from a net loss of RMB 43.1 million (US$5.9 million) in FY2023 (which would have been RMB 11.6 million / $1.6 million net income excluding one-off share-based compensation).
• Revenue for the six months ended December 31, 2024, increased by 74% to RMB 146.4 million (US$20.1 million) from RMB 84.3 million in the comparable period of 2023.
• Net loss for the six months ended December 31, 2024, was significantly reduced to approximately RMB 0.6 million (US$0.1 million) from RMB 8.5 million in the comparable period of 2023.
• Insurance brokerage services accounted for 94% of total revenues in FY2024 (up from 84% in FY2023) and 99% in H1 FY2024 (up from 89% in H1 FY2023).
• The filing relates to the resale of up to 14,985,883 Class A ordinary shares by Hudson Global Ventures, LLC, from which the company will not receive direct proceeds, but may receive up to $15.0 million from Hudson under an equity purchase agreement for future share sales.
• Zhibao China agreed to acquire a 51% equity interest in Zhonglian Jinan Insurance Brokers Co., Ltd. for RMB 25.5 million (approximately $3.5 million), payable in four installments, with a right of first refusal for an additional 34% by the end of 2027.

Sentiment

Score: 6

Explanation: The company demonstrates strong operational growth and strategic expansion, including a significant acquisition and global plans. However, these positives are heavily counterbalanced by substantial regulatory risks in China, internal control weaknesses, and significant shareholder dilution potential, creating considerable uncertainty for investors.

Positives

• Strong revenue growth: 29% increase in FY2024 to $25.2 million and a 74% increase in H1 FY2024 to $20.1 million.
• Return to net income in FY2024 ($1.8 million) and significantly reduced net loss in H1 FY2024 ($0.1 million), indicating improved financial performance.
• Pioneering and market-leading position in China's 2B2C embedded insurance business model, enabling low customer acquisition costs and high efficiency.
• Extensive and growing network of over 2,400 B channels and 24 million end customers.
• Diverse and innovative product portfolio with over 40 proprietary digital insurance solutions tailored to various industries.
• Advanced technology platform (PaaS) leveraging big data and AI for continuous solution enhancement.
• Experienced management team with over 15-30 years of expertise in the insurance industry, finance, and digital technology.
• Strategic acquisition of a 51% equity interest in Zhonglian Jinan Insurance Brokers Co., Ltd. to expand market share and product offerings.
• Plans for global expansion, including a Memorandum of Understanding (MOU) with a brokerage partner in Singapore and assessment of opportunities in U.S. and European markets.
• Incorporation and licensing of Zhibao Labuan Reinsurance to support brokerage and MGU services.

Negatives

• Significant regulatory uncertainties in China, including potential delisting risks under the HFCA Act, evolving data security laws, and new overseas listing rules, which could materially and adversely affect the business.
• Reliance on a few key insurance companies for a significant portion of revenue, with one key insurer accounting for 13% of FY2024 revenues, posing concentration risk.
• Dependence on B channels for customer acquisition; failure to acquire new ones or retain existing ones cost-effectively could materially and adversely affect business.
• Identified two material weaknesses in internal controls over financial reporting as of June 30, 2024, which could impact financial reporting accuracy and investor confidence.
• Concentrated voting power: CEO Botao Ma beneficially holds approximately 95.4% of total voting power, potentially leading to interests not aligned with other shareholders.
• Potential for substantial dilution from the exercise of outstanding warrants (2,023,713 Class A ordinary shares) and convertible notes (2,117,118 Class A ordinary shares), and future sales under the Hudson EPA (up to 14,985,883 Class A ordinary shares).
• Uncertainty regarding the completion and timeline of the CSRC filing for this offering, with potential adverse effects on future financings if not completed timely or if compliance issues arise.
• PRC Subsidiaries have 17 lease agreements that have not been registered with PRC governmental authorities, potentially leading to fines or operational disruptions.
• Historical non-compliance by PRC Subsidiaries with employee benefit plan contributions and individual income tax withholding, which could result in future penalties.
• Ongoing legal proceedings, including lawsuits for breach of contract and subrogation rights, involving significant monetary claims and frozen funds.

Risks

• Class A ordinary shares may be delisted under the HFCA Act if the PRC prevents PCAOB inspection of auditors for two consecutive years, potentially making shares worthless.
• Changes in the political and economic policies of the PRC government or in relations between China and the United States may materially and adversely affect business, financial condition, and results of operations.
• Uncertainties in the interpretation and enforcement of PRC laws and regulations could limit the legal protections available to the company and investors.
• The PRC government exerts substantial influence over business activities and may intervene or influence operations and offerings at any time, potentially causing Class A ordinary shares to decline in value or become worthless.
• Failure to protect private or sensitive information of end customers or improper handling of such information could have a material adverse effect due to greater oversight by the Cyberspace Administration of China (CAC).
• PRC regulation on loans to, and direct investment in, PRC Subsidiaries by offshore holding companies and governmental control in currency conversion may delay or prevent the use of future offering proceeds.
• The CSRC's New Overseas Listing Rules require filing for follow-on offerings, and non-compliance could lead to investigations, fines, suspension of operations, or limit future financings.
• Substantial uncertainties exist with respect to the requirements of the National Financial Regulatory Administration (NFRA) and how they may impact the viability of the current corporate structure and business operations.
• Failure to make adequate contributions to various employee benefit plans and withhold individual income tax on employees' salaries as required by PRC regulations may subject the company to penalties.
• Dependence on key insurance companies for the supply of insurance products; the loss of which could adversely affect business, financial condition, and results of operations.
• Dependence on B channels to reach end customers; failure to acquire new B channels or retain existing ones cost-effectively could materially and adversely affect business.
• Significant reliance on a third-party MGU Partner to conduct MGU services; failure to comply with relevant laws and regulations could adversely affect business.
• The innovative insurance technology and infrastructure require continuous developments and upgrades, with no assurance they will fully support the business.
• Uncertainties in the interpretation of internet information service filing requirements in China could lead to violations and harm digital insurance broker services.
• Inability to attract, incentivize, and retain talented professionals may adversely affect business, financial condition, and results of operations.
• Subject to governmental regulations and legal obligations related to privacy, information security, and data protection; security breaches or non-compliance could harm brand and business.
• Identified two material weaknesses in internal controls over financial reporting; failure to adequately remediate or maintain effective controls could affect financial reporting accuracy and investor confidence.
• The trading market for Class A ordinary shares is new, and a consistently robust and liquid trading market may not develop or be sustained over the long term.
• Nasdaq may apply additional and more stringent criteria for continued listing due to a small public offering and large insider holdings.
• CEO Botao Ma's significant influence (95.4% voting power) over corporate matters may not align with the interests of other shareholders.
• Failure to meet Nasdaq continued listing standards could result in delisting, adversely affecting liquidity and share price.
• The trading price of Class A ordinary shares may be volatile due to broad market factors, industry-specific factors, and company-specific events.
• The sale or availability for sale of substantial amounts of Class A ordinary shares could adversely affect their market price.
• Initial public offerings of companies with comparable public floats have experienced extreme volatility seemingly unrelated to underlying performance.
• No expected dividends in the foreseeable future; investors must rely on price appreciation for returns.
• Reliance on management's judgment for the use of net proceeds from future financings, which may not produce income or increase share price.
• Potential classification as a passive foreign investment company (PFIC) could lead to adverse United States federal income tax consequences for U.S. taxpayers.
• Amended and restated memorandum and articles of association contain anti-takeover provisions that could have a material adverse effect on shareholder rights.
• Controlled company status under Nasdaq Rules allows reliance on exemptions from certain corporate governance requirements, potentially affording less protection to shareholders.
• Difficulties in protecting interests and limited ability to protect rights through U.S. courts due to Cayman Islands incorporation and PRC operations.
• Inability to present proposals before annual general meetings or extraordinary general meetings not called by shareholders.
• Certain judgments obtained against the company by shareholders may not be enforceable in the Cayman Islands or China.
• Tension in international trade and rising political tension, particularly between the U.S. and China, may adversely impact business, financial condition, and results of operations.
• Risks relating to the leased properties of PRC Subsidiaries, including 17 unregistered lease agreements and lack of ownership certificates, potentially leading to fines or operational interruptions.
• Business operations are located in China, rendering the company sensitive to local conditions and changes, such as laws, economic/political environments, force majeure events, natural disasters, or mass civil movements.
• Part of services could be disrupted by network interruptions, as computer hardware and cloud computing services are primarily located in China.
• Infringement of intellectual property rights by third parties or loss of intellectual property rights may materially and adversely affect business.
• Potential intellectual property infringement claims from third parties, which may be expensive to defend and disrupt business.
• Inability to manage growth or execute strategies effectively could materially and adversely affect business and prospects.
• The wide variety of payment methods accepted subjects the company to third-party payment processing-related risks.
• Dependence on the ability to retain the core management team and other key personnel.
• Business, financial condition, and results of operations may be adversely affected by an economic downturn.
• Need for additional capital, which may not be obtainable on favorable terms or at all, potentially leading to significant dilution.
• The sale and issuance of Class A ordinary shares to Hudson will cause dilution to existing securityholders, and the resale of shares by Hudson could cause the price of shares to fall.

Future Outlook

The company plans to significantly scale its business by rapidly expanding its network of B channels, including increased cooperation with insurance companies. It intends to grow its sales force and develop more independent sales partners. A key strategy is to strengthen its 2C business by driving additional conversions from existing end customers through personalized consultations and targeted services. The company will continuously refine, upgrade, and develop new digital insurance solutions across various economic sectors and invest in R&D to enhance its PaaS with new AI and business intelligence functionalities. It aims to expand its MGU business by increasing partners to 10-15 and achieving 50% online MGU business by June 2026, while also broadening product lines. The newly incorporated Zhibao Labuan Reinsurance will support brokerage and MGU services. Furthermore, the company seeks new strategic partnerships and M&A targets, particularly those offering new B channel resources, and plans to expand its business footprint globally, starting with an MOU in Singapore and assessing opportunities in the U.S. and European markets.

Management Comments

• Our management team is passionate about innovation in providing digital insurance solutions to end customers.
• Our teams expertise in the insurance brokerage industry will help steer the Company to continuously maintain and extend our leading position in the digitalization of the insurance brokerage industry in China.
• Their influences across the market have already, and will continue to, attract more B channels and deepen relationships with existing B channels and insurance companies, all of which will sustain and accelerate the rapid-paced growth of the Company.

Industry Context

Zhibao Technology Inc. operates in China's digital insurance brokerage service industry, which is characterized as emerging, rapidly evolving, and fiercely competitive. The company positions itself as a pioneer and market leader in the 2B2C embedded insurance business model, which it believes represents the future of the insurance brokerage industry. Its strategies, such as leveraging proprietary PaaS, big data, and AI, along with expanding B channel partnerships and global reach, reflect a focus on innovation and market leadership within this specific, technology-driven niche. The industry is also subject to significant and rapidly evolving regulatory oversight in China, particularly concerning data security and overseas listings.

Comparison to Industry Standards

• The company is a pioneer and market leader in the 2B2C embedded insurance business in China, differentiating itself from industry peers who often rely on more capital-intensive direct-to-consumer advertising.
• Zhibao China Group launched the first digital insurance brokerage platform in China in 2020, indicating a first-mover advantage in platform development.
• The company's PaaS is noted as the first of its kind in China's digital insurance brokerage market, providing a unique competitive advantage in efficient solution development and delivery.

Corporate Governance

Legal Proceedings

• Zhibao China vs. Taiping General Insurance Company Limited: Lawsuit filed June 3, 2024, for breach of contract, seeking RMB 11,053,754.69 in management service fees plus penalties. Case is pending.
• Shanghai Chenxi Technology Group Co., Ltd. vs. Sunshine Insurance Brokers (Shanghai) Co., Ltd. & Zhibao China: Lawsuit filed June 28, 2024, for breach of contract, seeking RMB 14,216,437.05 in promotion service fees plus penalties. Mediation agreements reached, with Sunshine Insurance Brokers agreeing to pay RMB 13,257,049. RMB 1,335,000 of funds have been frozen.
• Guangdong Zhongkang Yongdao Insurance Brokerage Co., Ltd. vs. Sunshine Insurance Brokers & Zhibao China: Lawsuit filed June 28, 2024, for breach of contract, seeking RMB 1,418,192.63 in joint brokerage commission fees plus penalties. A counterclaim was filed by Sunshine Insurance Brokers for RMB 4,476,900. Mediation reached, with Guangdong Zhongkang to pay Sunshine Insurance Brokers RMB 38,280.60, and a freeze on RMB 1,427,881 bank deposits was lifted.
• Beijing Tiantan Puhua International Hospital vs. Taiping Property Insurance Co., Ltd. Shanghai Branch, Shanghai Jibeiji Enterprise Management Consulting Co., Ltd. & Zhibao China: Lawsuit filed June 3, 2024, regarding subrogation rights for outstanding medical expenses of RMB 1,389,590.94. Case is pending.

Related Party Transactions

• Shanghai Anyi was originally 100% controlled by Shanghai Xinhui Investment Consulting Co., Ltd., a related party controlled by CEO Mr. Botao Ma, before its equity was transferred to Zhibao China on July 12, 2016.
• Mr. Botao Ma, the Chairman and Chief Executive Officer, beneficially holds 16,816,692 Class B ordinary shares, representing approximately 95.4% of the total voting power of the company's issued and outstanding ordinary shares.
• Mavy Holdings Limited, whose director is Mr. Botao Ma, directly holds 8,932,611 Class B ordinary shares and indirectly holds 4,222,959 Class B ordinary shares through Shenbao Limited Partnership.
• Maximum Global Holdings Limited, whose ultimate beneficiary is Mr. Botao Ma through The Maximum Trust, beneficially holds 8,932,611 Class B ordinary shares via Mavy and 4,222,959 Class B ordinary shares indirectly via Shenbao.
• Shenbao Limited Partnership, in which Mavy holds approximately 99.04% equity interest, holds 4,222,959 Class B ordinary shares.
• Shanghai Xinhui Investment Consulting Co., Ltd., where Mr. Botao Ma is the majority shareholder, indirectly holds 3,661,122 Class B ordinary shares.
• Mr. Xiao Luo, the Chief Operating Officer, is the sole shareholder of Tianze Zihan Holdings Limited, which holds 156,108 Class A ordinary shares.
• Mr. Yugang Wang, the Chief Technology Officer, is the sole shareholder of ElecJoys Holdings Limited, which holds 44,601 Class A ordinary shares.

Stakeholder Impact

• Shareholders: Face potential significant dilution from future share sales under the Hudson EPA and the exercise of outstanding warrants and convertible notes. The concentrated voting power of the CEO may limit the influence of other shareholders. Delisting risk under the HFCA Act and Nasdaq rules could severely impact investment value. Returns are expected to rely solely on price appreciation as no dividends are anticipated.
• Employees: May experience increased labor costs due to PRC Labor Contract Law. The company's ability to attract and retain talented professionals is crucial for success. There is a risk of penalties for past inadequate contributions to employee benefit plans and under-withheld income tax.
• Customers (B channels and end customers): Benefit from the company's continuous development of innovative digital insurance solutions and its PaaS, aiming to provide better, more tailored services. Expansion of B channels and the 2C business aims to increase reach and convenience.
• Suppliers (Insurance Companies): The company aims to deepen relationships and increase MGU partnerships, which could lead to more business opportunities for insurance companies.
• Creditors (L1, Hudson): The Hudson EPA provides a financing facility, and L1 notes have specific repayment terms and default provisions that impact these creditors.
• Regulatory Bodies: The company is subject to extensive and evolving PRC and U.S. regulations, including cybersecurity, data protection, and overseas listing rules, requiring significant compliance efforts and posing risks of penalties or operational changes.

Next Steps

• Submit the CSRC filing in connection with this offering within three business days after its closing.
• Accelerate the expansion of B channels, including increased cooperation with insurance companies.
• Expand the sales force and develop more independent sales partners.
• Strengthen the 2C business by targeting existing customer base for additional insurance needs through personalized consultations.
• Refine, upgrade, and develop new digital insurance solutions across various economic sectors.
• Invest in research and development (R&D) to upgrade and enhance the PaaS, introducing new AI and business intelligence (BI) functionalities.
• Increase MGU partners from 10 to 15 and the proportion of MGU online business to 50% of total MGU business by June 2026.
• Expand MGU insurance products from high-end medical/long-term disability lines to mid-end medical and personal accident lines.
• Support brokerage and MGU services through the newly incorporated Zhibao Labuan Reinsurance subsidiary.
• Seek new strategic partnerships and M&A targets, especially those that can bring new B channel resources.
• Expand the business footprint outside of China, cooperating with partners in other countries (e.g., Singapore, assessing U.S./European markets).
• Remediate identified material weaknesses in internal controls over financial reporting, including hiring qualified accounting personnel, implementing control frameworks, and improving IT controls.
• Complete the acquisition of Zhonglian Jinan Insurance Brokers Co., Ltd. and register it with the relevant PRC governmental authorities.

Key Dates

Recommendation

The company demonstrates strong growth in revenue and a return to profitability, driven by an innovative 2B2C InsurTech model and strategic expansion plans, including a recent acquisition and global ambitions. However, significant regulatory uncertainties in China, including potential delisting risks and evolving data security laws, pose substantial threats. The concentrated voting power of the CEO and identified material weaknesses in internal controls also present governance concerns. While operational performance is positive, the high regulatory and governance risks warrant a cautious 'Hold' recommendation, advising investors to monitor the resolution of these uncertainties before making further investment decisions.

Keywords

InsurTech, China, digital insurance, brokerage services, MGU services, 2B2C model, embedded insurance, PaaS, AI technology, SEC filing, F-1 registration, Hudson EPA, L1 Private Placement, Zhonglian acquisition, regulatory risk, cybersecurity, data privacy, PRC laws, Nasdaq listing, share dilution, corporate governance, emerging growth company, foreign private issuer, Cayman Islands, financial performance, strategic expansion