British drama The Undeclared War fictionalises what might happen when an unfriendly nation – in this case Russia – launches a cyber attack on the country’s infrastructure. In episode one, a rogue hacker called the Jolly Roger retaliates by turning the lights on and off in Vladimir Putin’s office. But the British prime minister is reluctant to allow the boffins at the UK’s security intelligence service to take digital control of Putin’s jet, after someone tells him that the Russians might do the same when he is flying on official business.
Such is the fear of cyber attack in our digitally connected age. So it was perhaps unsurprising when US security hawks first raised national security concerns about Chinese tech firm Tuya last September. Tuya, which is listed on the New York Stock Exchange (NYSE), provides an Internet of Things (IoT) platform for individuals and businesses wanting to connect across multiple devices, or create IoT networks of their own. It offers services to companies in the retail, hotel, telecom and energy sectors that want to digitise their products, including connectivity hardware and app development.
Led by Marco Rubio, one of China’s loudest critics in Washington, the senators wrote a letter to the Federal government urging it to place Tuya under Executive Order 14032. This prohibits US persons from buying or selling shares in a company classified as a non-SDN Chinese Military-Industrial Complex Company. “Cyber and national security experts have already raised significant concerns about Tuya’s lack of protections over users’ data,” they warned. “However, there is also a more basic reality that, as a PRC [People’s Republic of China] company, Tuya is obligated to comply with CCP [Chinese Communist Party] orders including requests to share American and other users’ data with the Chinese government.”
Tuya responded quickly, saying that it works with customers around the world to develop smart devices and platforms. Privacy and data security is a top priority, it added, highlighting how data is ringfenced by market, including in the US.
Founded by two former Alibaba executives in 2014, Tuya has built up a largely international business. Sales in Europe accounted for just over a third of its revenues for the 2021 financial year, followed by the US on 24% and China just 17%. As of December, the company had connected 388 million devices across 200 countries, working with 4,100 brands including Amazon, Costco, Home Depot and Walmart.
To date, Rubio and his colleagues have not been successful in their pleas to the Biden administration. But Tuya has hedged its bets by undertaking an IPO on the Hong Kong Stock Exchange. Much has changed since it listed on the NYSE in March of last year.
Fears about the forcible delisting of Chinese companies that refuse to open their books to American auditors have not gone away in the absence of a deal between regulators from the two countries. The bottom has also fallen out of much of the internet and tech sector, with share prices plunging deep into bear market territory.
In 2021, Tuya held the unfortunate distinction of being the world’s third worst performing IPO (for raisings of more than $1 billion). However, at least that meant it was fortunate enough to raise its initial IPO funds near the peak of the bull market ($915 million on an ADR price of $21, above its $17 to $20 marketed range). The deal included Tencent and Hillhouse Capital as investors.
By the end of December last year, the ADRs were trading nearer $6 and they have continued sliding over the course of 2022. When Tuya completed its dual listing in Hong Kong earlier this month, they were at $2.56. The IPO was a small one, raising just HK$141 million ($18 million). The shares were priced below the bottom end of the range at HK$19.30.
Where does the stock price go from here? Some analysts think the answer should be up, given that the company’s US market capitalisation of $1.2 billion is close to its net cash position. They also believe there is likely to be a bigger push from Tuya to capture more customers in China, which will also drive sales. In a recent earnings call, the company’s management sounded a bullish note, highlighting predictions that the global IoT market of hardware, software and services will grow from $659 million in 2019 to $1.13 trillion in 2024.
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