Key Takeaways:
- Leading 3D printing equipment maker UnionTech has raised a modest $28.8 million in its latest funding, as it expands into businesses across the 3D printing value chain
- The company will need to expand its market presence into more industries and improve its technology as it enters its next development phase ahead of a planned IPO,
By Trevor Mo
After years of remaining mostly in the “gee whiz” realm, 3D printing has gained some momentum lately for its role in helping to produce lifesaving medical goods that are often scarce due to supply chain disruptions in the Covid era. But despite attracting attention for its precision and use in building everything from high-tech molds to homes, the technology has yet to truly take off.
One of China’s leaders at the edge of the nascent wave is Shanghai Union Technology Co. Ltd. (UnionTech), which last Friday announced its latest fundraising from a group of investors led by Goldstone Investment, a subsidiary of leading Chinese brokerage Citic Securities. Other contributors were mostly mid-sized domestic names like Oriza FOFs, stated-backed Cash Capital, Dragonrise Capital and Mount Morning Capital.
Reflecting the difficulties the company and broader industry are facing, UnionTech only raised 200 million yuan ($28.8 million), hardly an eye-popping amount for a leader with more than two decades of history. The latest investment comes after UnionTech raised a similar $30 million last December to complete its series D funding.
The company declined to give a valuation from the latest funding. But the relatively small amount, combined with lack of disclosure of its latest valuation, implies UnionTech has yet to make it into the “unicorn club” that refers to startups worth $1 billion or more.
Founded in 2000, UnionTech was previously listed on China’s over-the-counter (OTC) style National Equities Exchange and Quotations (NEEQ) board. But it announced plans to delist in early 2019, joining a wave of firms that found their shares languished in the market due to thin trading.
The company staged a high-profile event later that year saying it was seeking a new IPO, sparking speculation that it planned to list on the then-new STAR Market for fast-growing startups in Shanghai. UnionTech touted its latest fundraising last week as “pre-IPO,” but stopped short of offering any details regarding a specific new listing plan.
The company is most likely to list on one of China’s domestic A-shares markets, since most of its investors are from China. But overseas listings in Hong Kong or the U.S. could also be options, given that many of its investors also manage dollar-denominated funds.
We’ll look more closely at the company’s major businesses and analyze what challenges it faces in the second half of this space. But first we’ll step back and look at the 3D printing technology more generally and its development in China.
Also known as additive manufacturing, 3D printing is the process that makes 3D digital models into real objects. Such printers allow products to be designed on a computer screens and then “printed” as solid objects by building up materials layer by layer. The technology is ideal for making prototypes since changes are more easily made by tweaking software – compared to traditional methods that involve resetting bulky machinery and tools in a factory. The technology also makes less waste, and allows for better customization and production flexibility.
Government support
Beijing has long promoted the technology as a way to improve the country’s manufacturing competitiveness, designating its development as a priority in a 2015 planning document. China’s 3D printing industry has grown rapidly over the past few years, with the market expected to reach 34.8 billion yuan this year, up from 9.6 billion yuan in 2017, according to recent research from the Ministry of Industry and Information Technology.
The 3D printing industry is made up of four submarkets, namely, materials, equipment, software and services. Services and equipment are the two largest contributors, accounting for roughly 50% and 30%, respectively, of the industry’s global output in 2019, according to statistics from research firm SmartTech Analysis.
UnionTech is currently the top player in China’s 3D printing equipment market with 16.4% share, according to local research group AskCI. The other four of the top five players are all foreign, comprising Stratesys, EOS, GE(NYSE:GE) and 3D Systems (NYSE:DDD), with combined share of 45.9%. UnionTech’s closest domestic peers are Farsoon Technologies and Bright Laser Technologies (688333.SH), with smaller 6.6% and 4.9% shares, respectively.
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UnionTech reported revenues of 162 million yuan and 249 million yuan in 2016 and 2017, respectively, according to data from previous reports to the NEEQ. It reported net profits of 2.4 million yuan and 7 million yuan for those two years. Financial data for subsequent years was not available.
But the company said in an announcement early this year that “it has maintained rapid growth for nearly a decade with an average annual revenue growth rate of more than 50%”. A simple 50% growth rate each year would give the company about 1.3 billion yuan in revenue last year, a figure that looks solid but isn’t an amount that might attract more attention from emerging industry investors that like to see even higher growth rates.
As part of its broader growth strategy, UnionTech has sought to expand its businesses across the value chain of the 3D printing industry in recent years, aiming to position itself as a service provider to the entire ecosystem. One focus area in such an ecosystem is materials. Last July, UnionTech signed an agreement with German chemical provider Evonik Industries to establish a joint laboratory as part of the pair’s broader effort to explore the Chinese market.
Despite its progress to date, UnionTech will face some major challenges as it seeks to move to the next level. For starters, 3D printed products remain a niche market despite the hype, with the technology only finding strong customers in certain industries like aerospace, defense, and medical. Thus, it should come as no surprise that UnionTech derives a large share of its revenues from companies that make prototype products for other industrial firms, rather than the types of mass market products that can generate big revenue.
That doesn’t mean UnionTech hasn’t tried to tap the mass market, as the company has also sought to sell its products directly to industrial users in various sectors over the years, especially in the medical and footwear sectors.
At the same time, competition is becoming more intense. The company said in its 2018 half-year report that it expected more rivals would enter the space and increased competition would drive down its profit margin. In the same report, the company reckoned that while it has made some breakthroughs, its technology is still behind that of international peers.
At the end of the day, UnionTech’s success will depend on the development of the general market and whether it can improve its technologies. General manager Ma Jingsong seems self-assured, saying the industry has reached a tipping point. Perhaps that’s true, though the muted size of its fundraising to date seems to imply that investors have yet to buy into that story.
