Tuya Inc recently announced that 65 Equity Partners, a wholly-owned investment platform of Temasek, acquired about 13% of Tuya Inc from NEA (Endiya Investments), a ten-year-old shareholder of Tuya Inc.

Established in 1977, NEA is a global investment company headquartered in the USA, with AUM exceeding $25 billion (as of June 30, 2024), focusing mainly on the technology and medical sectors. In its nearly 50 years of existence, NEA has realized over 700 exits, including 271 IPOs and 452 M&A exits.

After transferring about 13% of Tuya Inc's shares, NEA still retains a significant amount of equity. Carmen Chang, who has invested in well-known projects such as ByteDance and Tuya Inc, stated in the announcement that since Tuya Inc was founded in 2014, NEA has been a key stakeholder of Tuya Inc and is pleased to continue as an important shareholder of Tuya Inc.

Established in 2021, 65 Equity Partners is led by former Temasek President Tan Chong Lee as CEO. Temasek has previously invested in many outstanding companies. For the fiscal year ending March 31, 2024, Temasek's global investment portfolio reached $389 billion SGD. In recent years, its investment exposure in the Chinese market has been decreasing. According to Temasek's annual report for 2024, as of March 31, 2024, Chinese assets accounted for 19% of Temasek's investment portfolio, the first time in nearly a decade that it fell below the Americas market and significantly below the 27% of the Singapore market.

The amount involved in this trade occupies a considerable proportion in Temasek's investment portfolio. Regarding this investment, Tan Chong Lee, CEO of 65 Equity Partners, stated that this investment strategically aligns with 65 Equity Partners' mission of supporting high-quality companies seeking listing on the new exchange.

Did Temasek choose Tuya Inc. simply because Tuya Inc. is a highly globalized company that can help diversify regional risks?

I see more than that.

From Tuya Inc's Q3 financial report, one can glimpse a corner of its development blueprint.

01

Looking at Tuya from a financial perspective: Continuing achievements, steady growth.

Tuya Inc recently announced its third-quarter financial report. The company's founder and CEO, Wang Xueji, summed up the latest quarter's performance as "pragmatic." The practical strategic execution also demonstrated solid results in this quarter's financials.

Tuya Inc achieved a total revenue of $81.6 million in the third quarter of this year, a year-on-year growth of 33.6%, exceeding the market's consistent expectation of 8%+ (Bloomberg's consensus expectation before the performance release was $75.5 million for 24Q3 revenue). Third-quarter Internet of Things Platform as a Service (PaaS) revenue was $57.9 million, an increase of 26.4% from the $45.8 million in the same period last year; Software as a Service (SaaS) and other revenue was $9.9 million, an increase of 16.7% from the $8.5 million in the same period last year; Smart Solution revenue was $13.8 million, an increase of approximately 102.9% from the $6.8 million in the same period last year.

Tuya Inc's sustainable growth depends on steady customer expansion and scenario development. In Q3, Tuya Inc's customer base grew year-on-year, with more leading companies from various industries globally joining Tuya Inc's ecosystem; IoT PaaS Net Expansion Rate (DBNER) reached 124% in Q3, maintaining around 120% for three consecutive quarters, demonstrating Tuya's solid ability in retaining and growing its existing customers.

At the same time, Tuya maintained good operational leverage. Specific data can verify: Following the first-time achievement of non-GAAP operational profit in Q2, Tuya Inc continued this trend in Q3, achieving a Non-GAAP net income of $20.1 million; the Non-GAAP net profit margin increased by 8.2 percentage points year-on-year to 24.7%, successfully achieving its operational goals.

In terms of cash flow, the net cash flow from operating activities in Q3 was $23.9 million, with a total net cash balance exceeding $1 billion, reflecting the company's unique self-blood-making capabilities.

Note: The slight increase in the debt ratio at the end of September was due to Tuya Inc.'s announcement of a $33 million dividend in September 2024. Excluding this dividend provision, its asset-liability ratio remains at around 8%, which is a very excellent level.

Steady growth in revenue and profits, high customer retention and continuous growth, high net cash balance, along with good continuous contribution of positive cash flow from the main business... Against this background, Tuya Inc.'s shareholder returns are beginning to improve. This may also be one of the factors attracting Temasek to Tuya Inc.

02

Achieving win-win global layout.

As a long-term investor focused on value and risk-return, Temasek invests in sustainable growth and future development potential, rather than just short-term gains.

Temasek's direct purchase of shares from Tuya Inc.'s existing shareholder NEA demonstrates its inclination towards long-term ownership.

After the completion of the transaction, Temasek will become the second largest shareholder of Tuya Inc., reflecting not only Temasek's confidence in the company's long-term stable development, but also its willingness to grow and share risks with the company.

Tuya Inc.'s founder and CEO, Wang Xueji, stated that Temasek's investment aligns closely with Tuya Inc.'s international expansion strategy.

As a top global investment institution, Temasek holds significant influence in the global investment field. Its wholly-owned investment platform, 65 Equity Partners, is a global investment institution that focuses on identifying leading enterprises in the consumer goods, industrial, business services, medical care, and technology industries globally, with a strong focus on Southeast Asia, Europe, and the USA markets. Tuya Inc., with a global vision, focuses on the international market as its main battlefield. In recent years, Tuya Inc. has rapidly expanded in Southeast Asia, Europe, and the Middle East markets, showing strong momentum.

From a business synergy perspective, Temasek, as a strong and resourceful investor, has the ability to bring new development opportunities to Tuya Inc. 65 Equity Partners aims to collaborate with founders, leveraging its international influence to become a supportive and value-add partner, collectively creating sustainable long-term value. Tuya Inc. is expected to leverage Temasek's global network and 65 Equity Partners' industry resources to accelerate its expansion into international markets.

From an investment perspective, Temasek's support and endorsement can help Tuya attract more attention from global institutional investors. In addition, Temasek is actively supporting high-quality enterprises to list on the new exchange. If Tuya Inc. successfully lists on the new exchange, it is expected to further enhance its liquidity and stimulate market vitality.

03

Temasek focuses more on long-term trends and development potential.

Temasek's investment strategy is to capture structural trends and engage in active investments. Faced with global uncertainties, Temasek focuses on four major structural trends: the digitization process, sustainable living, future new consumption, and longer life expectancy, all of which align with Tuya's core business.

After ten years of cultivation, Tuya Inc. has become one of the world's leading third-party smart solution cloud platforms. Currently, the company's customers are spread across more than 200 countries and regions, with the number of registered developers on the developer platform exceeding 1.26 million. From smart home to smart city, from consumer electronics to industrial manufacturing, energy management, Tuya Inc. has successfully attracted numerous leading enterprises from various industries around the global market.

Currently, there is still a large room for improvement in the penetration rate of smart devices. Although the total number of consumer electronic devices in the broad sense has exceeded several billion units, only a very small number of devices in new sales have been smartified, with approximately 95% of devices still non-smart. The trend towards smartification is irreversible and will bring significant market potential.

In addition, Tuya Inc. is empowering AI capabilities to global customers, including helping customers launch application-level GenAI products, and integrating generative AI technology with the developer platform to release a new upgraded AI Agent development platform. Tuya Inc.'s unique advantage lies in its profound accumulation in application scenarios and customer cases, enabling the company to more advantageously identify and realize the application of AI technology in practical scenarios, and commercialize it. Management revealed that the company is trying out multiple scenarios to explore applications with commercialization capabilities and scaling potential.

Whether it is the heavyweight addition of powerful shareholders such as CKH Holdings, or Tuya's steady progress in business and operations, as well as the continuous improvement and innovative investment in its business structure, all convey a core signal - Tuya is ready to seize future opportunities. Therefore, in the digital economy and artificial intelligence field, Tuya Inc. is undoubtedly an attractive value proposition.

Investing in a stable growing company with excellent financial structure and active dividends is like winning match point in a game. Such companies only need a trigger point and a hitting point.

Will CKH Holdings' joining be the trigger for value reassessment? Let's witness it. (End of Full Article)