Under the wave of AI, relevant companies have the halo of emerging technologies above their heads, and the shadow of losses under their feet. Although different companies in the industry are in different subdivision tracks, it is still difficult to move forward in the face of huge cost expenditures.
At present, there are also some AI companies that hope to take advantage of the opportunity to show their strengths on a stage that is more concerned by investors. It is reported that in the first half of 2023, there will be more than 38 AI or digital and intelligent related companies going to Hong Kong for IPO, accounting for about 40% of the IPOs of the entire Hong Kong Stock Exchange.
And if you want to have enough stage, you need to have strong strength. From the perspective of investors, the most important thing to evaluate an AI company is its profitability and corresponding long-term growth. At present, many AI companies are facing doubts from the market because they have not opened up profit margins. Of course, some companies have shown a strong possibility of making profits. However, is this kind of profit sustainable? You can find out from the case of Shengtong Technology.
Shengtong Technology, which is profitable on the surface, has not yet gotten rid of the cost shackles?
Like most AI companies, Shengtong Technology has also started the listing process, and one of the bright spots in its development is that its performance has been growing for a long time.
According to the prospectus, from 2020 to 2022, the company's operating income will be 347 million yuan, 460 million yuan, and 515 million yuan, respectively, with a compound annual growth rate of 21.8%; the adjusted net profit will be 59.805 million yuan, 62.334 million yuan, and 63.356 million yuan. The gross profit is 112 million yuan, 152 million yuan, and 201 million yuan respectively, with a compound growth rate of 34.3%, and the gross profit rate will continue to increase from 32.2% in 2020 to 39.1% in 2022, an increase of 6.9 percentage points.
One of the reasons why such a development "transcript" can be obtained is that it stepped on the track. It is understood that Shengtong Technology is mainly engaged in the field of enterprise-level full-stack interactive AI. In recent years, under the trend of intelligent transformation, as enterprises have increasingly prominent demands for cost reduction and efficiency enhancement, the related market has developed rapidly. According to the iResearch report, in 2022, the market size of my country's enterprise-level interactive artificial intelligence solutions will reach RMB 53.2 billion, and it is expected to reach RMB 189.7 billion in 2027 with a compound growth rate of 29.0%.
In the huge blue ocean market, based on the self-developed interactive artificial intelligence functional modules, Shengtong Technology realizes the large-scale deployment of interactive artificial intelligence solutions and its vertical integration in smart cities, smart transportation, smart communications, smart finance and other scenarios. applications to improve performance. Among them, smart cities accounted for the highest revenue, contributing 193 million yuan, 165 million yuan, and 159 million yuan in revenue in the past three years, accounting for 37.4%, 35.9%, and 45.8% of the total revenue, respectively.
In connection with the industry background where the commercialization of AI is still advancing and the phenomenon of burning money is very prominent, it is impressive that Shengtong Technology can achieve such development results, but if further performance analysis is carried out, Shengtong Technology may also It is not a special case of really getting rid of the profit dilemma.
Although "increasing income and increasing profits" has been realized on the surface, in fact it is still "increasing income without increasing profits". From 2020 to 2022, the adjusted net profit margins of Shengtong Technology will be 17.2%, 13.6% and 12.3%, respectively, which has fallen by 4.9 percentage points in three years. What is even more vigilant is that its cash flow continues to be negative. During the reporting period, the company recorded net cash used in operating activities of -33.409 million yuan, -75.078 million yuan, and -31.114 million yuan.
Behind it is still inseparable from the influence of the continuous increase in cost expenditure. In fact, while the current track is developing rapidly, the competition is becoming increasingly fierce. The main reason is that artificial intelligence has attracted much attention in recent years. Those who enter the game are trying to tap dividends from areas where commercial value is easier to realize, and To B is undoubtedly a good choice. This situation also means that Shengtong Technology will need to compete with more and more competitors for the market cake in the future.
Moreover, compared with the head player iFLYTEK, Shengtong Technology is still hard to match. According to the statistics of iResearch, the top five domestic full-stack interactive artificial intelligence manufacturers have a comprehensive market share of 21.7%, and Shengtong Technology ranks second with a comparable revenue of about 490 million yuan in 2022, accounting for only 2.7%. market share. However, iFLYTEK, which ranks first in market share, will have a total revenue of 18.8 billion yuan in 2022, of which the revenue of the same sector as Shengtong Technology's business will be 2.6 billion yuan. The gap between Shengtong Technology and Shengtong Technology is obviously not small.
In this case, in order to enhance its competitive advantage, Shengtong Technology has continuously increased its expenditures. During the reporting period, the company's research and development expenses were 13.72 million yuan, 36.310 million yuan, and 63.983 million yuan; sales and marketing expenses were 1.387 million yuan, 3.162 million yuan, and 7.249 million yuan; administrative and other operating expenses were 13.787 million yuan. , 24.552 million yuan and 31.486 million yuan.
Although these investments have not been "in vain", and have promoted the growth of the overall performance to a certain extent, but from the perspective of net profit margin and cash flow performance, Shengtong Technology is still "difficult" on the road to achieving long-term profitability , even though it has established its own world, its future profit prospects are still not clear. Looking at the entire industry, the case of Shengtong Technology actually reflects the crux of some superficially profitable companies in the industry. These companies are always looking for ways to make sustainable profits. So, in this process, what is the right direction? ?
How to enhance profitability sustainability, maybe take a look at HKUST Xunfei?
In fact, it is a bit harsh to require the current AI companies to maintain the stability and sustainability of their profits. The reason is also as mentioned above. In the industry that is in the stage of commercialization exploration, "bleeding" is inevitable, and the real growth potential may come from development. It can only burst out in the middle and late stages. However, for companies that are sprinting to go public, they need to be able to show more significant growth. How to not be submerged in the tide of the times needs to give the market an answer.
Returning to the development of the case of Shengtong Technology, it can be found that Shengtong Technology already has a strong first-mover advantage compared with companies that are still determining their commercialization route.
Specifically, compared with other crowded segmented tracks, the enterprise-level interactive artificial intelligence solution market that Shengtong Technology focuses on is still a blue ocean with huge room for development. According to the iResearch report, the penetration rate of enterprise-level interactive artificial intelligence solutions in my country is only 10.4% in 2022, and it is expected to increase to 15.6% in 2027, while the value in the United States has reached 16.7% in 2022. Through the deep cultivation of technology, the leading position of Shengtong Technology is prominent, and it is expected to grasp the development opportunities earlier.
And how it proves to the market that it still has greater potential to tap, maybe we can look at the industry's leading player - HKUST Xunfei.
Although it is unavoidable to be affected by some periodic factors and the performance fluctuates, HKUST Xunfei can still be regarded as a "money-making model student" in the industry. According to the performance forecast, under the premise of fully developing large models and increasing R&D investment, iFlytek will still achieve positive growth in performance in Q2 2023. It is expected to achieve operating income of about 4.9 billion yuan, an increase of about 10% year-on-year An increase of about 70%; gross profit of about 1.9 billion yuan, a year-on-year increase of about 7%, and a month-on-month increase of about 60%; net cash flow from operating activities exceeded 100 million yuan, an increase of more than 550 million yuan over the same period last year.
By combing the development history of HKUST Xunfei, we can know one of the secrets of its sustainable growth in performance, which is to build a business advantage of "rigid demand + generation difference" with multi-point blooming, and to play the scale effect. Specifically, iFLYTEK is based on advanced artificial intelligence core technology, focusing on "base business", marching into education, medical care, automobiles, cities, consumers and other fields to meet rigid needs while gradually upgrading the industry. value.
This means that for Shengtong Technology, focusing on research and development, extending from key businesses, establishing a differentiated competitive advantage, or achieving a breakthrough. At present, one of the advantages that Shengtong Technology can highlight is the standardized and one-stop artificial intelligence solution.
At present, some pain points in the industry cannot be ignored, such as data islands brought about by non-full-stack artificial intelligence solutions, which are difficult to achieve unified management, and are limited to the application layer, making it difficult to flexibly meet the business needs of users for rapid iteration.
In contrast, the full-stack artificial intelligence solution has its own basic capabilities of integrated communication technology and AI algorithms, and the ability to independently develop interactive artificial intelligence applications. It can take advantage of one-stop services, convenient application scenario expansion, and flexible delivery. To a large extent, it provides convenience for enterprise users.
Based on the full-stack business model, Shengtong Technology may be able to re-extend its business in the existing smart city, smart transportation, smart communication, smart finance and other scenarios, and dig deep into the needs of segmentation, and open up a larger market with standardized product solutions. market size and reduce marginal costs. According to the iResearch report, compared with non-standardized products, the deployment cost of purchasing standardized enterprise service solutions is roughly 15% to 30% lower.
In addition, from the perspective of the cutting-edge layout of iFLYTEK’s technology, for example, it released the “Xunfei Spark Cognitive Model” on May 6 this year, and iteratively upgraded it to help automate the workflow of enterprises. Shengtong Technology If you want to further enhance the sustainability of your business model, you need to empower it with cutting-edge technologies.
Since the beginning of this year, there have been frequent developments related to Shengtong Technology, such as inviting world-renowned computer science and technology experts to join, becoming the first batch of ecological partners of Baidu Wenxin Yiyan, etc. However, whether enterprises can enhance their hematopoietic capabilities through the above actions remains to be tested by the market. If new breakthroughs can be achieved, it may create a "new paradigm" for sustainable profitability in the AI field.
Author: Watermelon
Source: Hong Kong Stock Research Institute