This article is based on publicly available information and is for informational purposes only and does not constitute any investment advice.
Produced by the company's research room
Text|Wang Yanqiang
iFLYTEK(002230. SZ) How long can the "story" of AI be told?
Following the sharp drop in net profit attributable to the parent in 2022, iFLYTEK's performance in the first half of 2023 continued to come under pressure.
According to the report, from January to June 2023, iFLYTEK achieved operating income of 7.842 billion yuan, down 2.26% year-on-year; The net profit attributable to the parent was 74 million yuan, down 73.54% from the same period last year; The net profit loss attributable to the parent after deduction was 304 million yuan, down 208.99% from the same period last year.
In this regard, iFLYTEK said that the company should put extreme pressure on the United States, firmly invest in independent and controllable core technologies and controllable industrial chains, and actively seize new historical opportunities in general artificial intelligence and increase strategic investment in general artificial intelligence cognitive large models.
Shortly after the disclosure of the report, the company issued an announcement on the reduction of the actual controller's shareholding, announcing that in July 2021, in order to consolidate the company's control, meet the working capital needs brought about by the rapid development of the company's business, and enhance the company's ability to resist risks, Chairman Liu Qingfeng raised 2.35 billion yuan through pledge financing and other means to subscribe for the company's non-public offering shares, and the above debts have matured. To this end, Chairman Liu Qingfeng needs to reduce his holdings to repay the principal of the above-mentioned loan.
However, the company's research office noted that Liu Qingfeng's reduction price this time increased by 76.21% compared with the private offering price subscribed two years ago, and the net profit from the reduction was about 1.016 billion yuan.
As of the close of trading on August 18, 2023, iFLYTEK closed at 56.68 yuan per share, with a market value of 131.3 billion yuan and a rolling price-to-earnings ratio of 368 times.
iFLYTEK's stock price trend in the past year (RMB/share)
Source: Wind
Accounts receivable continued to increase Net profit margin on sales declined
iFLYTEK is a national backbone software enterprise specializing in intelligent speech and language technology research, software and chip product development, voice information services and e-government system integration.
From 2018 to 2022, iFLYTEK achieved operating income of 7.917 billion yuan, 10.079 billion yuan, 13.025 billion yuan, 18.314 billion yuan and 18.820 billion yuan, a year-on-year increase of 45.41%, 27.30%, 29.23%, 40.61% and 2.77% respectively. The net profit attributable to the parent was 542 million yuan, 819 million yuan, 1.364 billion yuan, 1.556 billion yuan and 561 million yuan, a year-on-year increase of 24.71%, 51.12%, 66.48%, 14.13% and -63.94%.
From the above data, iFLYTEK's revenue has been growing steadily in the past five years, and although the growth rate has declined in 2022, it still achieves positive growth, while the growth rate of net profit attributable to the parent has continued to decline after reaching a new high in 2020, falling by 63.94% in 2022.
For the sharp decline in net profit in 2022, the company said in its annual report that on the one hand, due to the special social and economic environment, the progress of the company's related projects was greatly delayed, especially in the fourth quarter, more than 20 projects and more than 3 billion yuan of contract extensions. On the other hand, after being included in the US Entity List in 2019, the company was again under extreme pressure on October 7, 2022, and the process of adjustment from supply chain to related contract signing also affected the rhythm of current order signing.
Although the external environment has had a certain impact on iFLYTEK, the company's research office has noticed that the company's net profit margin on sales has been low in recent years.
From 2018 to 2022, iFLYTEK's net sales margin will be 7.81%, 9.36%, 11.07%, 8.80% and 2.65%, respectively. Except for more than 10% in 2020, the net profit margin on sales in all other years was below 10%, and it dropped to 2.65% in 2022.
iFLYTEK's net profit margin of sales in the past 5 years (100 million yuan)
Source: Wind
Corresponding to the lower net sales margin is the rising accounts receivable.
According to Wind data, from 2018 to 2022, iFLYTEK's accounts receivable will be 3.389 billion yuan, 5.087 billion yuan, 5.468 billion yuan, 7.486 billion yuan and 9.870 billion yuan, respectively, and in 2022, iFLYTEK's accounts receivable will account for 52.44% of revenue.
iFLYTEK's accounts receivable in the past 5 years (100 million yuan)
Source: Wind
In addition, the company's research office noticed that iFLYTEK's return on equity has not been high.
According to Wind data, from 2018 to 2022, iFLYTEK's return on net assets (dilution) was 6.80%, 7.17%, 10.77%, 9.28% and 3.42%, respectively. Significantly below the 15% target recommended by Warren Buffett.
iFLYTEK's return on equity in the past 5 years (%)
Source: Wind
Government subsidies are high, and the capitalization rate of R&D investment is high
Since the establishment of iFLYTEK, the proportion of government subsidies in its profit composition has been not low.
From the data of the past five years, from 2018 to 2022, the amount of government subsidies included in the current profit and loss of iFLYTEK was 276 million yuan, 412 million yuan, 426 million yuan, 439 million yuan and 473 million yuan, accounting for 50.92%, 50.31%, 31.23%, 28.21% and 84.31% of the net profit attributable to the parent in the current period, respectively.
From the above data, iFLYTEK's government subsidies accounted for 50.92% of the current profit in 2018, but with the continuous growth of net profit attributable to parents, the proportion of government subsidies is also declining, but after the net profit attributable to parents fell by 63.94% in 2022, the proportion rose to 84.31%.
In addition, for a high-tech company, R&D investment has always been an important indicator of market focus, and to some extent, it determines the future development potential of the enterprise. The R&D capitalization rate index has also become an important window for observing the profit performance of enterprises.
According to the annual report, from 2018 to 2022, iFLYTEK's R&D investment has been growing, reaching 1.773 billion yuan, 2.143 billion yuan, 2.416 billion yuan, 2.936 billion yuan and 3.355 billion yuan respectively.
However, during the same period, the capitalization rate of the company's R&D investment was 47.02%, 48.52%, 42.74%, 38.49% and 42.10%, respectively, which was significantly higher than the R&D capitalization rate of about 30% of technology companies.
Generally speaking, if R&D investment is expensed, R&D expenses need to be deducted when calculating net profit. And if R&D expenses are capitalized, not only will it not affect profits, but it will also increase total assets.
From the above data, although the capitalization rate of iFLYTEK's R&D investment has decreased in recent years, it has increased significantly after the decline in net profit attributable to the parent in 2022.
Deducting non-net profit loss of 304 million yuan, can Chat GPT be achieved?
According to the report, from January to June 2023, iFLYTEK achieved operating income of 7.842 billion yuan, down 2.26% year-on-year; The net profit attributable to the parent was 74 million yuan, down 73.54% from the same period last year; The net profit loss attributable to the parent after deduction was 304 million yuan, down 208.99% from the same period last year. Net margin on sales was 0.19% and return on equity (diluted) was 0.45%. Accounts receivable reached 10.875 billion yuan, which was 1.39 times of revenue.
It is worth mentioning that the non-net profit loss of 304 million yuan this time is the first time since the listing of iFLYTEK. Among the non-recurring profit and loss, investment income from holding financial assets available for sale amounted to $221 million, mainly from the sale of Cambrian (688256.SH) and Sanren Bank (605168.SH) shares, and government subsidies amounted to $221 million.
In the face of the sharp decline in the performance of the report, iFLYTEK emphasized in the half-year report that since the company released the V1.0 version and V1.5 version of the Xinghuo cognitive large model on May 6 and June 9 this year, the GMV of the company's C-end hardware reached a record high, doubling year-on-year. Taking the learning machine as an example, in May and June, the GMV of the learning machine after the blessing of the large model increased by 136% and 217% year-on-year, respectively. iFLYTEK AI hardware (AI learning, AI office, AI health) sales increased by 125% year-on-year during the "618" period.
At the same time, iFLYTEK proposed that the Spark model will achieve the goal of benchmarking Chat GPT on October 24.
However, in the investor interactive platform, some investors said that GPT5 is about to be released, and the domestic at best is close to the GPT3 level, while the Spark model may only be benchmarked GPT3.5 at the end of October. At the same time, investors are asking the soul question, when will it surpass GPT4?
In this regard, iFLYTEK did not face the problem head-on, saying that it would take one step at a time to solidly promote the upgrade and iteration milestone plan.
Previously, some institutions asked when the iFLYTEK Spark model is expected to be officially opened for commercial use. iFLYTEK only said that "the full opening of commercial time is expected, and we are confident to become the first batch of manufacturers".
According to the company's research office, at present, iFLYTEK Xinghuo, whether it is an official website, App or mini program, still needs to provide personal information and company information before it can be reviewed and used, and it is not yet fully open to the public. The number of downloads on App Treasure was only 6,150 times, and the number of downloads on the software store was only 88,000.
Looking at iFLYTEK's business layout, it covers not only traditional projects such as smart city and smart healthcare, but also new outlets, such as metaverse and autonomous driving, and the overall tonality is no different from the AI concept stocks living in the outlet.
Artificial intelligence has always been a money-burning and brain-burning track, which still has a lot of uncertainty for iFLYTEK, which itself has poor profitability.
The chairman cashed out the debt, the additional issue price was insufficient, and the average cash out price was 60%.
Shortly after iFLYTEK released its interim report, the company immediately disclosed the announcement of the reduction of the company's actual controller.
According to the announcement on August 14, Liu Qingfeng, chairman of iFLYTEK, sold a total of 39.96 million shares through block trading, involving an amount of 2.35 billion yuan, and the shareholding ratio was reduced from 7.27% to 5.54%.
iFLYTEK said that Liu Qingfeng reduced his holdings because he needed to repay the principal of the 2.35 billion yuan of debt borrowed in 2021.
It is understood that due to the fact that iFLYTEK has experienced many rounds of financing in the process of development, Liu Qingfeng, as the actual controller of the company, has a low personal shareholding ratio. At the beginning of 2021, Liu Qingfeng's total direct and indirect shareholding of the company's equity was only 6.71%, which was lower than that of China Mobile (600941. SZ) owns 11.60%.
In order to stabilize the control of the company, the members of the iFLYTEK entrepreneurial team delegated voting rights, proposal rights and nomination rights to Liu Qingfeng, making the proportion of voting rights reach 12.43%, slightly higher than China Mobile's 0.83%.
At the same time, it signed the "Concerted Action Agreement" with its shareholder China University of Science and Technology Asset Management Co., Ltd. (hereinafter referred to as "HKUST Holdings"), bringing the total equity ratio of voting rights of the actual controller to 16.17%.
However, Liu Qingfeng and HKUST faced possible policy variables at the end of 2020, with the General Office of the State Council's Guiding Opinions on the Reform of the Enterprise System of Institutions of Higher Education requiring universities to "gradually separate from their subsidiaries".
Considering that the existence of the Concerted Action Agreement faces greater uncertainty, which in turn affects the stability of the company's control, and at the same time, in order to meet the working capital needs brought about by the rapid development of the company's business and improve its ability to resist risks, iFLYTEK launched an additional issuance in 2021, and the actual controller subscribed for the company's non-public offering of shares.
At that time, the fixed issue price was 33.38 yuan per share, the number of shares issued was 76.393 million shares, and the total amount of funds raised was about 2.55 billion yuan. The target of the issue is Liu Qingfeng and Yanzhi Technology, of which Liu Qingfeng subscribed for 70,401,400 shares with a subscription amount of about 2.35 billion yuan, and Yanzhi Technology subscribed for 5,991,600 shares with a subscription amount of about 200 million yuan.
According to the announcement on August 14, Liu Qingfeng sold a total of 39.96 million shares through block trading, accounting for 56.76% of the number of shares subscribed in 2021, and the average price of the reduction was 58.82 yuan / share, an increase of 76.21% over the additional offering price in 2021, the same 39.96 million shares, the net profit of this reduction was about 1.016 billion yuan.