Xunzhong's IPO: A Gamble on Southeast Asia in a Shifting Telecom Landscape

Xunzhong Communication Technology's upcoming Hong Kong IPO, pricing at HK$368 million, arrives at a crossroads for the company. While its domestic business faces headwinds—declining revenue and a shrinking customer base—the firm is banking on Southeast Asia's booming communications market to justify its valuation. For investors, the question is whether Xunzhung's pivot to expansion outweighs its struggles in China, and whether the telecom infrastructure boom in Hong Kong and beyond can fuel its growth.

Domestic Struggles, International Ambitions

Xunzhong, ranked third in China's cloud-based communications sector by revenue, has seen its domestic business falter. Revenue fell from RMB 993.5 million in 2021 to RMB 915.6 million in 2023, with a further 20% drop in Q1 2024. Customer numbers have also dwindled, from 3,515 in 2021 to 2,437 by year-end 2023. The core CPaaS segment, which accounts for 85% of revenue, remains profitable but stagnant.

But the company is aggressively shifting focus. Proceeds from the IPO will fund minority stakes in Southeast Asian CPaaS and contact center businesses targeting firms with annual revenue of at least HK$50 million. The region's CPaaS market, projected to grow from RMB 8.4 billion to RMB 11 billion by 2028, offers a lifeline.

Valuation: Domestic Woes vs. Asian Dreams

Xunzhong's valuation hinges on two factors: its ability to execute in Southeast Asia and the current state of Hong Kong's telecom sector. The IPO aims to raise HK$368 million, but the prospectus hints at a higher potential. A key question is whether the valuation accounts for its declining domestic business or assumes Southeast Asia's growth will offset losses.

Hong Kong's Telecom Boom: Catalyst or Distraction?

Hong Kong's telecom infrastructure is undergoing a rapid transformation. The rollout of 5G, driven by spectrum reallocations and investments like HKT's 50G PON technology (offering 50Gbps speeds), has created fertile ground for cloud-based services. Average data usage per broadband subscriber hit 7,414 MB/month in 2023, underscoring demand.

While Xunzhong's listing on the Hong Kong Stock Exchange (set for July 9) positions it as a regional player, its direct ties to Hong Kong's infrastructure are limited. The real opportunity lies in Southeast Asia, where its AI-driven communications solutions could compete with giants like Alibaba Cloud and Huawei.

Risks and Rewards

The bet on Southeast Asia carries risks. Competition there is intensifying, and Xunzhong's track record—such as the canceled 2019 merger with Tatwah Smartech—raises concerns about execution. Domestically, its shrinking customer base suggests market saturation or inferior product offerings.

Yet, the IPO's dual sponsorship (DBS Asia Capital and China Securities) signals confidence in accessing both local and international capital. The company's NEEQ listing, valued at RMB 600 million in 2015, now appears undervalued compared to its Southeast Asia ambitions.

Investment Takeaways

For investors, Xunzhong presents a high-risk, high-reward proposition. The valuation must reflect not just current domestic struggles but the potential upside in Southeast Asia's growth markets. Key metrics to watch:
- Execution in Southeast Asia: Are acquisitions driving revenue growth beyond 2028 projections?
- Profitability: Can margins stay stable as the company scales?
- Competitive Position: How does Xunzhong's AI capabilities stack against regional players?

Final Analysis

Xunzhong's IPO is a vote of confidence in Asia's digital transformation, but its success depends on turning Southeast Asia into a new revenue engine while managing domestic decline. For conservative investors, the risks—execution failures, market saturation—may outweigh the reward. For those betting on telecom's next frontier, this IPO could be a gateway to a growing region. Proceed with caution, but keep an eye on Xunzhong's next moves.