The stock price continues to fall. The Hong Kong stock “AIGC First Stock” went out and asked (02438) “doesn't match its name”?

Zhitongcaijing · 07/22/2024 14:25

Since its listing, the Hong Kong stock “AIGC First Stock” has shown a strong “contrast” to the outside world when it went out to ask (02438).

Prior to the listing, it was highly sought after by the market. The public sale received 117.39 times the subscription, and the international sale received 1.58 times the subscription. The rest of the over 100 times subscription all showed the market's expectations for it. After the listing, it “fell out of sight”. Not only did the opening price fall by more than 21% from the issue price, and the closing price ended with a 3% drop, but since listing, its stock price had already “dropped”, falling by more than 50%.

On July 19, it was remarkable that the stock price fell sharply by more than 10 points at the end of trading. By the end of the session, its stock price had fallen 7.01% to HK$1.46. Its stock price turned green again on July 22, and the decline was even worse at noon. By the close of trading, its stock price had fallen 2.05% to HK$1.43, with a total market value of HK$2,148 billion.

From over 100 times the subscription, to the breakdown of the listing, to the collapse of more than 50%, there is no doubt that investors in the secondary market have a strong contrast in their attitudes about going out and asking questions.

Everyone probably knows that considering a company's investment value is nothing more than starting from multiple dimensions such as the company's profitability and industry competitiveness. Today, the market chose to “vote with your feet” after going out and asking about the listing. This clearly reveals a change in the mentality of investors who are “not satisfied” with it.

Therefore, what is the reason that prompted investors to change their attitude about going out and asking questions?

Profitability is “questionable” and cash flow is becoming increasingly tight

Judging from performance, going out and asking about volatile fundamentals and tight cash flow may be one of the reasons why it is difficult to convince investors.

I learned that Zhitong Finance App, founded in 2012, is a company that provides AI-generated content (AIGC) solutions, AI enterprise solutions, smart devices and accessories with generative AI and voice interaction technology as the core. Since entering the Hong Kong stock market on April 24, 2024, it has successfully taken the title of “AIGC First Share” in Hong Kong stocks.

However, although it is easy to win the title of “AIGC First Share”, the strength of “AIGC First Share” is not easy to achieve.

According to reports, when it was established in 2012, Go Out and Ask mainly used voice search software. For example, the first smartwatch TicWatch was released in 2015, and the overseas version of TicWatch was released in 2016. Over the next few years, the company turned its focus on smart hardware, making it easy to shut down all businesses other than smartwatches and smart vehicles in 2019.

Since 2020, the main revenue force for going out and asking questions has changed from smart hardware to software solutions. At the time, when the “big model wave” was just around the corner, I went out and asked about UCLAI, which had already been developed, but due to the problem of “how commercialization can be implemented,” the focus of research was gradually shifted to AIGC, which was the launch of the AI dubbing assistant “Magic Sound Workshop” and the AI digital human “Wonderful Yuan”.

In 2023, the big model wave officially arrived. Go out and ask about the “sequence monkeys” that launched an upgraded version of UCLAI based on previous advantages. The model not only has general language abilities such as logic, reasoning, and conversation, but can also simultaneously support different tasks such as text generation, image generation, 3D content generation, speech generation, and speech recognition. It's called “if you come early, it's better to be smart”. Since then, going out and asking has become “one of the earliest AI companies to enter the big model in China.”

However, the fluctuating shift in business has also prompted people to go out and hand over a relatively volatile “financial report card.”

According to financial data, from 2021 to 2023, the company achieved revenue of 398 million yuan, 500 million yuan, and 507 million yuan respectively. Then, as revenue grew year by year, the company's loss “hole” was getting bigger and bigger. During the period, the annual losses were 276 million yuan, 670 million yuan, and 803 million yuan respectively.

In 2022, Go Out and Ask recorded an adjusted net profit of 108 million yuan, turning a loss into a profit, but in 2023, adjusted net profit slipped back to 18 million yuan, a drop of 83.5%. This fluctuating performance also highlights concerns about the sustainability of its profitability.

The performance of continuous losses may be related to rising R&D expenses and sales and marketing expenses: from 2021 to 2023, R&D expenses when going out to ask about it increased year by year, amounting to $92 million, $119 million, and $155 million, respectively. Sales and marketing expenses also continued to rise during the same period. In 2023, sales and marketing expenses for going out to inquire were 151 million yuan, an increase of 55.67% over the previous year.

At a time when self-hematopoietic capacity is insufficient, the cash flow when going out to ask is also tight: by the end of 2023, the company's cash and cash equivalents were only 144 million yuan, while current liabilities reached 4,517 billion yuan, and net current assets were -4121 billion yuan. The pressure to repay debts should not be underestimated.

So far, it can be seen that judging from the performance, going out and asking about the stock price has fluctuated and declined since listing, which is not unrelated to its “poor” fundamentals.

“Inadequate”, barriers to competition need to be strengthened

If we can't find out the real strength of our current profitability, we may be able to support its investment value from indicators such as the competitiveness of its industry.

According to the Insight Consulting Report, Go Out and Ask is one of Asia's earliest and largest revenue-focused artificial intelligence companies focusing on generative AI. In 2020, when you go out and ask questions, the first AIGC dubbing platform “Magic Sound Workshop” was launched using self-developed AI technology, which became the first commercial application of AIGC technology in China.

In 2022, the release of ChatGPT brought about an explosion in the global AIGC industry, and AI became a popular circuit receiving capital attention. With strong capital support, the domestic AI industry has also entered the “fast track”.

According to Insight Consulting, in terms of revenue, the size of China's AI market has increased from RMB 56 billion in 2018 to RMB 194.2 billion in 2022. The compound annual growth rate from 2018 to 2022 is 36.5%. It is expected to reach RMB 644.8 billion in 2027, and the CAGR from 2022 to 2027 is 27.1%.

The industry is full of imagination, which does not mean that there is no competitive pressure to enter the market early and go out to ask questions.

According to Insight Consulting data, in 2022, outbound questioning accounted for only 0.3% of China's overall AI market; in the field of voice and NLP software, it had a market share of 1.4%, ranking third, and the entire industry was scattered and fiercely competitive.

In addition, although going out to seize some opportunities, its market influence and popularity currently lags far behind the industry's leading players. According to the QuestMobile report, Douyin “Doubin”, Baidu's “Wenxin Song”, Kunlun World Wide “Tiangong”, Dot Matrix “Company-AI Painting”, and iFLYTEK's “iFLY Spark” ranked in the top five. The monthly active users were 17.57 million, 12.13 million, 8.01 million, and 643 million, 5.58 million; while the number of monthly active users who went out to ask about the AIGC business was 2 million.

However, it is worth noting that in addition to facing intense competitive pressure, the competitive barriers to going out and asking questions are not strong enough.

According to reports, the current revenue of Go Out and Ask currently consists mainly of AI software solutions and smart devices and other accessories. In 2023, the two will account for 67.7% and 32.3% of revenue, respectively. Among them, the company's AI software solutions are also divided into AIGC solutions and AI enterprise solutions. During the same period, the two accounted for 23.2% and 44.5% of revenue, respectively.

Looking at the breakdown, AI software solutions can provide C-side content creators with AIGC full-stack solutions, including the AI dubbing assistant “Magic Sound Workshop” and the overseas version of “DuDub”, the AI digital human “Wonderful Yuan” that provides virtual live streaming, and the short video AI generation platform “Yuanchuang Island”; it can also provide AI software solutions for B-side customers (automotive, finance, TMT and other industries), or “Wonderful Question”, to provide AI voice interaction solutions for in-vehicle and AI anti-fraud. As well as scenarios such as intelligent customer service.

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(Picture source: Go out and ask about the prospectus)

Judging from the revenue structure, the AIGC solution (23.2%) is still not really effective when you go out and ask, and AI enterprise solutions are still the majority of the company's revenue.

However, it is worth noting that AI enterprise solutions that go out and ask questions face the risk of “losing major customers.”

According to the prospectus, automobile subsidiary A is the largest customer in the enterprise business in recent years, contributing 42.6% and 27.4% of revenue in the past two years, respectively. According to reports, the Go Out and Ask Auto Company A business has a gross profit margin of over 90%. The reason for the high gross margin is that its sales are essentially intellectual property transfers, and the final delivery of the project was completed in June 2023. This means that there is a great deal of uncertainty about the revenue and gross profit of the subsequent maintenance of the enterprise-side business when you go out and ask.

In addition to B-side not being firmly bound to more customers and accumulating more corporate data, C-side customers have also shown obvious bottlenecks in slowing growth.

According to relevant data, since 2020, more than 10 million AIGC solution users have been recorded worldwide when going out and asking. For the year ended December 31, 2021, 2022, and 2023, the company's AIGC platform recorded about 1.5 million, 3.0 million and 4.0 million users respectively. Although the user base is impressive, the growth rate of registered users is gradually slowing down.

In addition to poor fundamental performance, hematopoietic capacity is also beginning to be stretched. Combined with the factors that the industry's competitive barriers are not strong enough, investors are obviously not unreasonable to be concerned about it.