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On June 28, BAIWANG CO., LTD. ("Baiwang Cloud" for short) from Beijing submitted a prospectus to the Hong Kong Stock Exchange, intending to list on the Hong Kong Main Board. This is the first time for the company to submit a listing application, and the sole sponsor is Haitong International.
Source: Prospectus
Previously, Baiwangyun had entered into a mentoring agreement with China Securities Investment Securities on January 7, 2021 in preparation for the A-share listing. However, in view of the overall A-share approval process, listing guidance will be suspended in September 2021.
Now, Baiwangyun is aiming at the Hong Kong stock market as its financing target. Is it an aspiration to win when the time is ripe, or a risky gamble in search of opportunities?
Favored by giants, Baiwang Cloud continues to raise funds
Founded in 2015, Baiwang Cloud is a comprehensive enterprise digital solution provider, focusing on processing various transaction documents, including but not limited to invoices, receipts, documents and other accounting documents, through the self-developed intelligent business platform - Baiwang Cloud platform to provide digital and data-driven intelligent solutions for finance and taxation.
According to the prospectus, Baiwangyun currently has two major businesses:
(1) Financial and taxation digital solutions delivered by cloud and local deployment applications , including electronic bill compliance management, intelligent financial and tax management, and intelligent supply chain collaboration solutions. Collect recurring subscription fees and usage fees for cloud-based digital solutions for finance and taxation; collect software license fees, one-time implementation fees and annual maintenance fees for locally deployed digital solutions for finance and taxation to generate revenue.
(2) Data-driven intelligent solutions , including digital precision marketing services and intelligent risk control services. Revenue is generated by charging sales fees, usage fees and annual subscription fees for data-driven intelligent solutions.
Source: Prospectus
In terms of customers, Baiwang Cloud seized the market opportunity of digital transactions of enterprises and attracted a large number of KA customers, including some of the largest domestic commercial banks, insurance companies, Internet service companies and leading enterprise groups in other industries.
In 2022, Baiwang Cloud will serve about 344 KA customers with its financial and taxation digital solutions, including ICBC, China Life, Wal-Mart, Midea, Real Kung Fu and other industry leaders, about 15,000 mid-market customers and about 17 million non-paying users; using data-driven intelligent solutions, Baiwang Cloud will serve 101 customers and complete about 13 million requests for business operation reports, of which about 1.6 million companies will be included in the submitted business operation reports .
Source: Prospectus
As of December 31, 2022, the revenue retention rate of KA customers of the cloud finance and taxation digital solution reached a high level of 104.4%, which also reflects the strong stickiness of Baiwang Cloud customers.
Source: Prospectus
Stepping on the "Internet + Taxation" track of high prosperity, Baiwangyun is also favored by capital. According to data from Tianyancha, Baiwangyun has completed 6 rounds of financing so far:
In May 2015, the year of its establishment, Baiwangyun completed the angel round of financing;
In October 2016, Baiwangyun received investment from Darin;
In March 2019, Baiwangyun received round A financing led by Alibaba, with a financing amount of 517 million yuan;
In August of the same year, Baiwangyun completed the B-round financing of about 500 million yuan. This round of financing was led by Shenzhen Venture Capital, Oriental Fortune and the National Small and Medium-sized Enterprise Fund;
In March 2021, Baiwangyun completed the C round of financing. This round of financing was led by Xingyuan Innovation Capital, with an amount of hundreds of millions of RMB;
In June 2021, Jiuzhao Investment, Shanghai Volkswagen and Fosun Investment completed a new round of pre-IPO equity investment of 500 million yuan in Baiwangyun, further expanding the shareholder lineup.
According to the prospectus, before the IPO, Alibaba held 11.87% of the shares and was the second largest shareholder of Baiwangyun; Fosun International held 5.31% of the shares and was the sixth largest shareholder of Baiwangyun.
It can be seen that since its establishment, Baiwangyun’s financing process has been relatively smooth, and it can obtain a new round of financing every 2-3 years, which provides a solid financial foundation for its future development and also reflects the market’s recognition of its prospects.
Next, combined with financial data, let's take a look at the development prospects of Baiwangyun.
The accumulated losses in the past three years are nearly 1 billion. Is it difficult to make the contribution proportional to the return?
According to the prospectus, Baiwangyun’s revenue in 2020, 2021 and 2022 will be approximately RMB 291 million, RMB 454 million and RMB 526 million, respectively. From the perspective of revenue changes, revenue in 2021 will increase by 55.9% year-on-year, and revenue in 2022 will increase by 15.9% year-on-year.
From the perspective of revenue composition, in 2022, fiscal and taxation digital solutions will achieve revenue of 158 million yuan, accounting for 30.1%; data-driven smart solutions revenue will be 264 million yuan, accounting for 50.1%, of which, digital precision marketing service revenue will be 170 million yuan, accounting for 32.4%, intelligent risk control service revenue will be 93 million yuan, accounting for 17.7%; local deployment of fiscal and taxation digital solutions revenue will be 93 million yuan, accounting for 17.8%.
Source: Prospectus
From the perspective of revenue composition changes, the proportion of fiscal and taxation digital solutions in total revenue will drop from 42.7% in 2020 to 30.1% in 2022; the proportion of locally deployed fiscal and taxation digital solutions in total revenue will drop from 33.3% in the same period to 17.8%.
During the same period, the proportion of data-driven intelligent solutions in total revenue increased significantly from 21.6% to 50.1%. Among them, the proportion of digital precision marketing services in total revenue has increased significantly from 9.6% to 32.4%, and the proportion of intelligent risk control services in total revenue has increased from 12% to 17.7%.
From the above data, it can be seen that Baiwang Cloud’s revenue growth is still relatively strong, which is mainly due to the gradual shift of business focus to data-driven intelligent solutions, and has achieved outstanding results on this road. Digital precision marketing services seem to be expected to become an important driving force for future business growth.
However, the gross profit margin of Baiwangyun is not very stable. Increase from 46.1% in 2020 to 47.6% in 2021, and then drop sharply to 40.8% in 2022, a decrease of 6.8 percentage points. Among them, the gross profit margin of data-driven intelligent solutions fluctuates greatly, from 37.3% in 2020 to 50.9% in 2021, and then dropped by 17.4 percentage points to 33.5% in 2022. This is also an indicator that fluctuates greatly in the prospectus and deserves attention.
Source: Prospectus
From the perspective of net profit, from 2020 to 2022, Baiwangyun has been in a state of loss, with net losses of 389 million yuan, 448 million yuan, and 156 million yuan respectively, with a cumulative loss of nearly 1 billion yuan in three years.
From the perspective of the three major expenses, from 2020 to 2022, the proportion of Baiwangyun's research and development expenses will drop from 39.2% to 27.4%; the proportion of distribution and sales expenses will drop from 26.8% to 18.8%; the proportion of administrative expenses will drop from 19.2% to 14%.
The total proportion of the three major expenses in revenue will drop from 85.2% in 2020 to 60.2% in 2022.
However, although the proportion of R&D investment has declined, the amount of investment has steadily increased year by year, and we can still perceive Baiwang Cloud's determination to embrace digital technology.
Under the circumstances of three-year revenue growth, fluctuating gross profit margin, and net profit loss, Baiwang Cloud's total cost of sales has also soared. In 2022, Baiwangyun's sales cost will increase from 157 million yuan to 311 million yuan, an increase of 98.6%, nearly doubling.
Of the 311 million yuan in sales costs, 154 million yuan in referral fees (fees paid to marketing agents for digital precision marketing services) accounted for the largest proportion, reaching 49.3%, an increase of 139.2% over 2021.
It is not difficult to explain that even in the case of stable revenue growth, the gross profit margin is unstable or even declining.
Source: Prospectus
It is reported that Baiwangyun's digital precision marketing service mainly relies on marketing agents to promote financial products to potential customers. In 2022, the company will have as many as 500 marketing agents.
Baiwangyun stated in the prospectus that it has incurred net losses in the past three years, mainly due to the huge referral fees paid to marketing agents for the company's digital precision marketing services, as well as staff costs to support the company's expanding business operations.
The year-by-year increase in research and development expenses and high referral fees have made Baiwangyun still suffer from losses even with revenue growth.
Finally, let's take a look at Baiwangyun's cash flow. According to the data in the prospectus, Baiwangyun’s net cash used in operating activities in the past three years has been negative, which were -0.8 billion yuan, -0.14 billion yuan, and -0.64 billion yuan; the net cash used for investment activities was -209 million yuan, -190 million yuan, and -189 million yuan.
Under the combined influence of the two indicators, Baiwangyun’s year-end cash and cash equivalents have dropped from 505 million yuan in 2021 to 237 million yuan in 2022, a drop of 53.07%. Although Baiwangyun claims that its working capital is sufficient, its cash reserve of 237 million yuan may only be enough to maintain the status quo.
Source: Prospectus
Based on the above financial data, it can be seen that Baiwang Cloud intends to shift its business focus to data-driven intelligent solutions. In the process, although the results are gratifying, it also puts forward new requirements for Baiwang Cloud's big data analysis and AI technology capabilities. The continuous investment in research and development expenses and high sales costs may turn the project from a "driving force" for enterprise development into a "resistance" for scale upgrades.
Opportunities and challenges coexist in the fiscal and taxation SaaS market under the explosive growth
At present, my country's fiscal and taxation-related digital transaction market is entering a period of accelerated growth, and related business services have ushered in explosive growth.
In the traditional fiscal and taxation industry, the fiscal and taxation service process is often divided into several different links, which are lengthy and complicated. With the continuous innovation of technology and the continuous acceleration of digitalization in recent years, fiscal and taxation services have been transformed from manual and small third-party companies to large-scale and intelligent ones.
According to the Frost & Sullivan report, in the overall fiscal and taxation-related transaction digitization market, China's cloud-based fiscal and taxation-related transaction digitization market share continues to increase, from 18.9% in 2018 to 40.7% in 2022. It is estimated that by 2027, the market share will reach 66.8%. This trend is driven by the market's increased demand for improved operational efficiency and increased acceptance of cloud-based solutions.
Source: Prospectus
The "2022 China Finance and Taxation SaaS Industry White Paper" shows that my country's current finance and taxation SaaS is in the transition process from the most basic stage of improving the efficiency of fiscal and taxation processing to the stage of online fiscal and taxation data analysis, that is, it is currently developing towards the comprehensive onlineization of fiscal and taxation data and the realization of accurate and comprehensive data analysis.
According to CIC’s calculations, the market size of China’s finance and taxation SaaS industry will reach nearly 10 billion yuan in 2021, and is expected to exceed 30 billion yuan in 2026, with a compound annual growth rate of 25.9%. China's taxation SaaS industry is expected to maintain rapid growth, and the future market space is broad.
From this point of view, Baiwangyun is stepping on this market outlet. However, there are many and diverse players on the track. In the long run, the competitive pressure of Baiwangyun is not small.
Source: CIC Consulting
The industry white paper shows that among the classification and representative players of China’s fiscal and taxation SaaS industry, invoice SaaS manufacturers are represented by Baiwangyun, Nuonuo, and Gaodeng Technology, and settlement SaaS manufacturers are represented by Huilianyi and Fenbeitong. For the small and medium-sized enterprise customer base, some enterprises demand integrated process services covering bookkeeping, voucher generation, document review, and report generation. In this series of financial SaaS fields, representatives of major manufacturers include Taxyou (603171.SH), Kingdee International (0268.HK), and UFIDA (600588.SH).
Source: CIC Consulting
It can be seen that listed companies such as tax friends (603171.SH), Kingdee International (0268.HK), and UFIDA (600588.SH) serve a wide range of service areas and cover a full range of businesses. They can realize the integration of business, finance and tax integration processes through full module coverage.
According to public data, in 2022, Taxyou (603171.SH) will achieve revenue of 1.698 billion yuan, a year-on-year increase of 5.8%; research and development expenses will be 431 million yuan, a year-on-year increase of 13.9%.
Kingdee International (0268.HK) had a revenue of 4.866 billion yuan, a year-on-year increase of 16.57%; R&D investment was 1.458 billion yuan, a year-on-year increase of 15.7%.
Yonyou Network (600588.SH) has a revenue of 9.26 billion yuan and a research and development investment of 2.92 billion yuan, a year-on-year increase of 24.5%.
From the perspective of revenue scale, although Baiwangyun is backed by giants such as Alibaba, there is still a certain order of magnitude gap with the first echelon players on the track. Moreover, when it comes to R&D investment, we can also see the fierce market competition, and leading manufacturers continue to increase R&D investment in order to seize the market first.
Let’s take a look at Huisuan, which is in the same echelon as Baiwangyun.
On June 30, Huisuanlu followed Baiwangyun's pace and formally submitted a prospectus to the Hong Kong Stock Exchange, intending to list on the main board, with CITIC Securities acting as the sole sponsor.
According to the prospectus, from 2020 to 2022, the revenue of Huisuan Accounting will be 275 million, 347 million and 516 million yuan respectively, and the net losses during the corresponding periods will be 299 million, 683 million and 506 million yuan respectively, with a cumulative loss of nearly 1.5 billion in three years.
Source: Huisuan Accounting Prospectus
In terms of overall data, Baiwang Cloud and Huisuan are relatively close in terms of revenue scale. At the same time, Huisuan also faces the problems of sales cost, R&D investment increasing year by year, and net profit loss year after year.
In terms of revenue composition, Huisuan’s revenue from SaaS-based solutions (providing financial and taxation solutions) from 2020 to 2022 is 250 million yuan, 309 million yuan, and 453 million yuan respectively, accounting for 90.9%, 89%, and 87.7% of revenue, respectively, nearly 90%. That is to say, there is a problem of unifying the income and deposit of Huisuan Accounting.
Source: Huisuan Accounting Prospectus
However, Huisuanlu is also looking for new business growth points. From 2020 to 2022, business services (consulting services and matchmaking and drainage services, covering industrial and commercial registration, etc.) will account for 9.1%, 11.0%, and 12.3% of revenue, respectively, and the proportion of contribution will increase year by year.
Through comparison with the first echelon players in China and Huisuan, which has a similar scale, it is not difficult to see that whether it is a leading company or a follow-up competitor, ensuring technological innovation and product upgrading is the key to gaining a lasting advantage in market competition.
Although my country's digital market for cloud finance and tax related transactions has good development prospects, the threshold is not low. Participants need to be equipped with more advanced technologies to ensure the safety and reliability of product functions, thereby realizing one-stop service capabilities. Therefore, this is also a high-cost business.
Although the revenue of Baiwang Cloud's data-driven intelligent solutions business is growing rapidly, it will account for half of the revenue in 2022. However, the business referral fee is high, and the cost of sales continues to increase, resulting in large fluctuations in gross profit margins. There is still a long way to go to turn losses into profits.
In this regard, Baiwangyun stated in the prospectus that the company may continue to generate net losses, net current liabilities and net cash used in operating activities in the foreseeable future, which may expose the company to liquidity risks. As for the way to make profits, Baiwang Cloud stated that it will promote continuous growth in revenue, retain existing KA customers and expand customer base, optimize operations and improve economies of scale and cost-effectiveness.
This sprint to the IPO on the Hong Kong Stock Exchange is more like a risky move by Baiwangyun to solve the financial pressure. Facing major competitors on the track, if Baiwangyun wants to gain a firm foothold in the market, it must not only continue to strengthen its own core competitiveness, but also make further efforts in cost management and explore new profit models.
Text: Sanja / Data Ape
