Upward Revaluation Rationalized By Superior Asset-Light Coworking Space Management Model

NEW YORK, Nov. 3, 2021 /PRNewswire/ -- Ucommune (Nasdaq: UK) is an asset-light operator that focuses on providing operation custody, operation management and output services for other asset owners, where the proportion of projects managed under the light-asset model is expected to reach 75% by 2022 from ~50% in 2020.  Specifically, Ucommune's asset-light business contracted 154 venues in 52 cities, with a management area of approximately 439,000 square meters as of June 30, 2021, increased by respective 141%, 63% and 98% year-over-year from a year ago.

Bridging the Valuation Gap – Ucommune and its competitors

UK's revenues have been growing at a much faster pace than its competitors (public companies), more than tripled from ~USD 70 million in 2018 to $211 million in 2021, according to Capital IQ. On the back of steady recovery of China's economic conditions shaking off the adverse impact of Covid, Ucommune's looking to realize positive revenue growth this year. 

With more and more companies electing to extend the work-from-home practices coming out of Covid pandemic, corporations are increasingly resorting to coworking space to cut costs of office rentals while improving work efficiency.  And with a differentiated, yet better asset-light operating and managing business model, UK shares is expected to warrant an upward revaluation from the current trough level, to be more in line with other co-working space operators. 

As of Oct. 29, 2021, the current market competitor has a market capitalization of ~US$8 billion, valuing the firm at a P/S ratio of ~3X over its 2021 estimated revenue of ~US$2.65 billion, based on its SEC filings, compared to a P/S ratio of ~0.4X for Ucommune. The market value of UK is expected to be higher than 4 billion yuan (by applying ~3X of estimated 2021 revenue of 1.35bn yuan), or more than 8X from today's market capitalization of ~$80 million.

With asset-light model Ucommunce is able to free up operating cash flow to scale business more efficiently, while avoiding asset value volatilities, for the following reasons:

• Higher capital efficiency. Due to the small investment in the early stage, Ucommune's asset-light projects are expected to be more profitable, evidenced by the company's narrowing operating losses. Specifically, UK's net loss narrowed by 37% year-on-year in 2020.
• Greater business scalability. The current market competitor's number of communities dropped 10% to 763 in 38 countries from the end of 2020.  On the contrary, UK has been in a state of rapid expansion transitioning into the light-asset model.  As of June 30, 2021, Ucommune had 282 venues in 87 cities, an increase of 21% compared to the end of 2020.
• Stronger operational capabilities leading to higher occupancy rates.  Ucommune's occupancy rate was 79% in the first half of 2021, up from 77% in 2020. UK is able to maintain a high occupancy rate owing to the rapid growth of its asset-light projects, and the recognition of its strong operating capabilities.

Furthermore, UK has a strategic domestic focus, making it easier to standardize and reproduce. UK's communities footprints started with the comprehensive first- and second-tier cities in China, while trickling down to also cover the third- and fourth-tier cities.  Though Ucommune's main focus is on China's domestic markets, it is also making initial entrance into the international market, through the join hands with Australia's Hexa Group to co-develop "Hexa Space-Ucommune" light-asset project, according to the company's press release on Oct. 18.

The advantage of asset-light model is gradually gaining recognition by other coworking space operators. UK has built a business model integrating asset-light, SaaS, and enterprise services.  Key customer customization (such as for Alibaba, Meituan, 360 and Zhongwang Group, etc. in major cities) and digital transformation and upgrade (such as holding e-commerce qualifications, self-developed APP, SaaS systems, smart hardware including face recognition and cloud printing, and "speed reading network" for the real estate brokers) have completed and already demonstrated noticeable results. 

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SOURCE Ucommune International Ltd.