DJI charts a risky flight path

Hong Kong

HITCHING a ride with DJI could be risky for investors. The world's top maker of unmanned aircraft for hobbyists is raising up to US$800 million at a US$15 billion valuation ahead of a flotation, Reuters reported on Thursday, citing people familiar with the matte.

Sales are soaring and DJI has a commanding market lead. But DJI could easily hit turbulence abroad.

DJI quickly rose to dominate drone sales, building on its proximity to suppliers, factories and engineers in the Southern Chinese technology hub of Shenzhen. That gives it an edge over foreign rivals like Paris-based Parrot when it comes to developing camera-equipped aerial vehicles. The company boasts more than 70 per cent of the world market, according to Skylogic data.

The privately held startup, founded by Hong Kong-educated entrepreneur Frank Wang, doesn't disclose financials. But prospective investors are being offered the chance to invest at a so-called pre-money valuation of roughly 20 times last year's earnings, according to one presentation seen by Breakingviews.

That looks cheap. Shenzhen-listed Hikvision, a US$64 billion camera and video-surveillance specialist, trades at more than 40 times expected 2017 earnings, Eikon shows. Yet a shadow looms over DJI. Of its US$2.7 billion in sales last year, about 85 perc ent were abroad, the presentation shows.

The United States probably accounts for a huge proportion.

But US President Donald Trump's administration is jumpy about Chinese threats to America's economy, technology leadership and national security - as Ant Financial, Broadcom , and Huawei have all recently discovered. Drones are particularly touchy, since they can easily capture sensitive data, like images of restricted areas. And the technology clearly has both civilian and military applications - making China's supremacy unsettling, even if DJI focuses on consumer tech for now.

Last year, the US army banned all DJI kit. DJI also had to deny separate claims from a US customs office that it might be sending back sensitive data to China.

Perhaps DJI can reassure Western authorities of its intentions and data-handling processes. Given Huawei has effectively been blocked from selling smartphones to US consumers, that might be harder than it sounds. The risk for backers is that DJI might be barred from selling drones for sensitive uses, such as in energy and infrastructure. Worse, it could even face restrictions in selling to individuals. REUTERS