Lu master submitted 360 prospectus to HKEx, holding over 41% stake.

Lu master submitted 360 prospectus to HKEx, holding over 41% stake.

Beijing News (Reporter Liang Chen) September 11, the Hong Kong Stock Exchange last night disclosed 360 Lu Master Holdings Limited filed for listing. Unlike many recent loss making companies, Lu has been profitable for three and a half years. Reporters noted that the company has a close relationship with 360.

Prospectus disclosed that Lu master's main operation company, Chengdu Chi Lu, was founded in November 2014. Prior to that, Lu's software business was a branch of Qihoo technology. The listed entity, Master Lu 360 Holdings Limited, was established in February 2018, registered in the Cayman Islands, mainly engaged in investment holding.

Software product "Master Lu" is a special PC and smartphones to provide hardware and system evaluation and monitoring software. The Master Lu PC version was launched in 2007 and expanded to mobile phones later. The company uses user traffic to cash in through advertising and games and expands through electronic device sales.

According to the prospectus, in June 2018, the number of monthly active users of Master Lu's products was 97.5 million, including 82.3 million for utility software and 15.2 million for game libraries.

2018 increased overseas earnings, electronic equipment sales margin low

According to the financial situation, in 2015, 2016 and 2017, Master Lu's revenue was 29.59 million yuan, 69.81 million yuan and 122.6 million yuan, respectively; his net profit was 10.72 million yuan, 31.761 million yuan and 56.667 million yuan, respectively.

In the first half of 2018, its revenue was about 169 million 700 thousand yuan, and its net profit was about 38 million 247 thousand yuan. The company started generating foreign income in the first half of 2018, accounting for about 5.8%.

In the first half of 2018, advertising revenue accounted for 50.0% of total revenue, online gaming revenue for 11.4% and electronic equipment sales for 43.7%. In January 2015, Master Lu began selling smart accessories; in August 2017, he began selling selected, tested and certified used and original smartphones.

The company expects that electronic equipment sales will become one of the main source of revenue for the company. However, in the first half of 2018, the cost of the business accounted for 77.6% of total sales and service costs. Online traffic is 22.3%, and advertising and promotion account for 19.2%.

Qihoo technology is a big customer but revenue gap in 2016.

The prospectus disclosed that the company had 120 outstanding contracts at the final feasible date, including 27 online advertising contracts, 82 online game contracts and 10 certified second-hand and original smartphone sales contracts.

It is reported that Qihu Technology and Songheng Network are the company's two largest customers, as of June 30, 2018, revenue from these two companies accounted for 15.8% and 6.3% of total revenue respectively. Through multiple penetration, the two companies currently hold shares of Lu master. Among them, Qihoo technology is a wholly owned subsidiary of 360 technology.

It is worth mentioning that there were no gains from Qihoo Technologies during the prospectus disclosure period in 2016, which accounted for 14.5% of total earnings in 2015 and 37.0% in 2017. In 2015, there was no income generated by Song Heng network, which accounted for 12.9% of total revenue in 2016 and 33.9% in 2017. In the first six months of 2017, the two major customers accounted for 79.5% of the total revenue of the company.

Mr Lu predicts that much of the future earnings will still come from Qihoo technology. The two sides have signed a 360 Navigation Alliance Service Agreement, which directs the home page of the user browser to hao. 360. cn and, in rare cases, to other websites. On June 30, 2018, Master Lu acted as an agent for 10.0% of the total traffic to the site. In addition, Master Lu provides banners on the software for Qihoo Technologies, which pay for their products based on user traffic.

Not only that, from the list of suppliers, there are also a number of companies related to Qihoo technology. According to the prospectus, Qihoo Technologies provides a server lease for Master Lu, and detects Master Lu's software and collects leaked information. Previously, as a department of Qihoo technology, the latter stores all the operation data of Lu master.

Financing schemes for research and development, increasing government subsidies

According to the prospectus, the company plans to use financing to enhance R&D capabilities, including hiring experts, expanding R&D teams and purchasing technical and intellectual property rights. Specific plans include improving products, setting up electronic equipment laboratories such as optics, acoustics and VR technology, purchasing equipment and testing equipment, publishing large data and supervisory authority. According to the platform, as well as customized products such as overseas markets.

From 2015 to 2017, the company's R&D costs were 9.6 million yuan, 13.1 million yuan and 16.8 million yuan, respectively. R & D cost in the first half of 2018 was 11 million 400 thousand yuan, an increase of 52% over the same period last year.

In addition, the financing will be used for product promotion and marketing, optimization of second-hand and original smartphone e-commerce platform, cash or cash combined with equity strategic investment and acquisition, as well as operating funds and general purposes.

Prospectus disclosed that Lu master began to receive government subsidy income in 2016. The income was 775,000 yuan in 2016, 2,422,000 yuan in 2017 and 1,407,000 yuan in the first half of 2018. Government subsidies are generally tax rebates, rental subsidies and corporate effectiveness awards.

Prospectus ignores the history of Lu's master

According to public information, Master Lu, originally known as "Z Weapon", was founded by Lu Jin, who had launched a far-reaching "Windows optimization master, known as the first person to optimize China". He launched free software in the second half of 2008, and developed to tens of millions of users over the past year. But Lu Jin had found it difficult to develop further by personal and team effort.

In September 2010, Lu Jin and Lu master joined the 360 free software take-off plan. The plan was announced in January 2010 by 360 Chairman Zhou Hongzhen and Sequoia China Partner Shen Nanpeng and Highland Capital Partner Xu Hongchuan to invest 1 billion yuan over the next few years to help small and medium-sized companies and individuals in the field of free software take off through investment, incubation, cooperation and acquisition. .

Lu brocade left Lu master in 2011, and Lu master was run by a department manager of 360. In June 2014, Zhou Hongyi was able to take over field Master Lu. At the time of the takeover, the number of daily users of the software had fallen to half as the PC market had begun to slide.

Fieldwork in Leijun's Jinshan, was persuaded by Zhou Hongyi to start a business, after two years of video player sold to 360, began in 360 responsible for the development of boot assistant, 360 desktop, 360 Wifi and almost all important products. The field once described itself as a brick, "wherever you need to move."

However, the prospectus does not disclose these histories, but from the November 2014 establishment of Chengdu Qilu began to disclose. The company was founded with a 48.6% stake in Qihoo Technologies, 36.4% in Qiying Technologies and 15% in Fieldwork. Industrial and commercial data show that through equity penetration, Qiying Technology for Qihu Technology wholly owned, and Qihu Technology for 360 technology wholly owned.

After that, the shares were transferred several times. Before the reorganization in August 2018, Qihu Technologies held 49% of the shares. Qihu Technologies was the controlling shareholder, with 26% in the field and 25% in the Songheng network. The prospectus disclosed that under the agreement, Qihoo Technology commissioned Fieldwork to exercise all its rights as a shareholder, including voting rights, starting on December 29, 2016.

There is potential competition with the largest shareholder 360 after restructuring.

After the restructuring, Chengsheng, wholly owned by 360 Technologies, held 41.37%, Sunchang International, indirectly wholly owned by Songheng Network, held 23.64%, and Master, wholly owned by Fieldland, held 26.67%.

In addition, Master Lu CTO He Shiwei holds about 3.37% of the shares through Hung Meng Investment, Block Capital (wholly owned by Chengdu Qilu shareholder Huang Xiaohong), Lima High Tech, an independent portfolio registered in the Cayman Islands, holds about 0.70% and Templar (wholly owned by Wang Shanshan, a private friend of the field). About 0.25% stake.

According to the prospectus, 360 Technologies is wholly owned by 360, while 360 Technologies is controlled by Chi Shin Cheng (48.74%) and Zhou Hongyi (12.14%). Therefore, 360 technology, 360, Qi Xin Zhi Cheng and Zhou Hongyi are regarded as a group of controlling shareholders. Because of the above agreement, ultimately, field and master holdings are the actual controllers of listed companies.

However, the prospectus also revealed that there was potential competition between Lu master and 360 business level. Master Lu pays attention to hardware conditions, while 360 software provided by 360 focuses on Internet and computer security. The prospectus holds that from the user's point of view, Master Lu software and 360 software are not competitive and compatible.

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