Author|Zhang Yu
Editor|Yang Bocheng
Title Picture | Wenxin is a style
On March 22, the official website of the Hong Kong Stock Exchange showed that Black Sesame Intelligence submitted an application for listing on the main board again.
Black Sesame Intelligence is the first specialist technology company to formally submit a prospectus under the 18C Rules of the Hong Kong Stock Exchange since the entry into force of this rule. Previously, Black Sesame Intelligence had submitted a prospectus to the Hong Kong Stock Exchange on June 30, 2023, but its listing application expired in January 2024 due to the failure to pass the hearing within 6 months.
According to the prospectus, Black Sesame Intelligence is a supplier of automotive-grade intelligent vehicle computing SoC and SoC-based solutions, and its main products include autonomous driving SoC and autonomous driving software and hardware that support L2 to L3 vehicle automation.
Since its establishment in 20016, Black Sesame Intelligence has completed 10 rounds of financing, and the investor lineup can be called luxurious, covering SAIC Group, China Merchants Group, Tencent, Bosch Group, NIO Capital, Geely Holdings, etc., with a cumulative financing amount of 695 million US dollars (about 5.033 billion yuan), of which, after the last round of C+ financing transactions of 218 million US dollars, the valuation of Black Sesame Intelligence is as high as 2.218 billion US dollars (about 16.062 billion yuan).
The development of black sesame intelligence has been inseparable from the continuous blood transfusion of investment institutions, compared with the prospectus submitted before, black sesame intelligence has a relatively bright performance in many aspects such as performance, products, and commercialization, and has hit the capital market again after 3 months, and black sesame intelligence urgently needs to be listed to return to blood.
The net loss is still widening year on year
According to the prospectus, from 2021 to 2023, the total revenue of Black Sesame Intelligence will be 61 million yuan, 165 million yuan and 312 million yuan respectively.
According to the business composition, Black Sesame Intelligence's revenue mainly comes from two parts: autonomous driving products and solutions and intelligent image sister solutions, of which autonomous driving products and solutions can continue to be divided into two components: SoC-based solutions and algorithm-based solutions.
From 2021 to 2023, the revenue of autonomous driving products and solutions accounted for 56.6%, 86.0% and 88.5% of the total revenue, respectively, showing a year-on-year growth trend, while the proportion of revenue from intelligent imaging solutions fell from 43.3% to 11.5%, which means that Black Sesame Intelligence is too dependent on a single business and has insufficient anti-risk ability.
Source: Black Sesame Smart Prospectus
Although the total revenue of Black Sesame Intelligence is gradually expanding, the speed of "burning money" is also expanding simultaneously.
From 2021 to 2023, the losses attributable to equity holders of the company will be 2.357 billion yuan, 2.754 billion yuan and 4.855 billion yuan respectively, with a cumulative loss of nearly 10 billion yuan, and even the adjusted net loss will reach 614 million yuan, 700 million yuan and 1.254 billion yuan respectively. In the prospectus, Black Sesame Intelligence admitted that because it is currently in the early stage of commercialization and the SoC will only enter mass production in 2022, it is expected that it will continue to generate net losses in 2024 and 2025, and may not be able to achieve or maintain profitability subsequently.
Black Sesame Intelligence's net loss continued to expand, and the reasons roughly pointed to two aspects.
First of all, the gross profit margin of Black Sesame Intelligence showed a downward trend. From 2021 to 2023, the gross profit margin of autonomous driving products and solutions, which is the main revenue-generating business, increased from 18.6% to 21.4%, while the gross profit margin of intelligent imaging solutions decreased from 59.0% to 50.1%, due to the fact that the business involves more hardware components and the gross profit margin is generally lower.
The gross profit margin growth of the first largest business was limited, while the gross profit margin of the second largest business decreased significantly, resulting in the overall gross profit margin of Black Sesame Intelligence falling from 36.1% to 24.7%, which means that its profitability is gradually weakening. In contrast, Horizon, which is also competing for the "first share of autonomous driving chips", has a high and stable gross profit margin from 2021 to 2023, at 70.9%, 69.3% and 70.5%, respectively.
Source: Black Sesame Smart Prospectus
Secondly, the R&D expenses of Black Sesame Intelligence are huge. From 2021 to 2023, R&D expenses will continue to increase, with RMB595 million, RMB764 million and RMB1.363 billion, accounting for 78.7%, 69.4% and 74.0% of total operating expenditures, and 984.0%, 461.8% and 436.2% of total revenue, respectively. As of December 31, 2023, Black Sesame's R&D team consists of 950 members, and the R&D team accounts for 86.7% of the total number of employees.
It is worth mentioning that the autonomous driving chip industry is facing rapid technological change and rapid evolution in technological innovation, and Black Sesame Intelligence needs to invest a lot of resources in R&D to make technological progress in order to maintain innovation and competitiveness, so it is bound to continue to incur a large amount of R&D expenses in the future.
Although Black Sesame Intelligence is in the midst of huge losses, founder and CEO Shan Jizhang is full of confidence, and he revealed in April 2023, "Black Sesame Intelligence has an internal goal, which is to get $1,000 in revenue for every car with black sesame chips in the future." At the time, however, the Shan Jizhang did not say when that goal would be achieved.
Black Sesame Intelligence faces three major concerns
Although the autonomous driving industry is considered to be a golden track with a trillion-dollar output value, and Black Sesame Intelligence is also favored by investment institutions, it cannot be ignored that on the road to impact the capital market, Black Sesame Intelligence still faces many hidden worries on the road.
The first is the problem of relatively high customer concentration. From 2021 to 2023, the top five customers contributed 40.7%, 43.5% and 15.2% of total revenue, respectively, while the top five customers contributed 77.7%, 75.4% and 47.7% of total revenue, respectively. Although the proportion of the two has only decreased, for the foreseeable future, Black Sesame Intelligence's business, operating results and financial condition may continue to depend on sales to a relatively small number of customers. In the future, if the current major customers no longer purchase Black Sesame Intelligence's products or solutions, or if they purchase fewer products or solutions than in the past, it will adversely affect Black Sesame Intelligence's revenue position.
The second is the high concentration of suppliers. The main suppliers of Black Sesame Intelligence are tape-out and technical services, IP core and hardware component suppliers. From 2021 to 2023, the proportions of fees paid by Black Sesame Smart to the largest suppliers to the total procurement amount were 28.7%, 18.1% and 10.8%, respectively, and the fees paid to the top five suppliers accounted for 68.2%, 50.9% and 43.4% of the total procurement amounts, respectively.
It is worth mentioning that the stability of the supplier's operation and business strategy is beyond the control of Black Sesame Intelligence, and Black Sesame Intelligence cannot guarantee that it can maintain a stable relationship with the supplier, which in turn brings huge risks to its business activities. At the same time, highly concentrated suppliers may have stronger bargaining power, which may increase the supply price and reduce the profit margin of Black Sesame Intelligence. In addition, the high concentration of suppliers will also lead to limited innovation and reduced supply chain flexibility of Black Sesame Intelligence.
Finally, Black Sesame Intelligence's cash flow is in jeopardy. According to the prospectus, as of December 31, 2023, Black Sesame Intelligence's cash and cash equivalents were 1.298 billion yuan. According to the prospectus, assuming that the average cash burn rate in the future will be $87.9 million, which is similar to the level of cash burn in 2023, it is estimated that these funds will be able to maintain financial capacity for 15 months.
It should be pointed out that the financing of Black Sesame Intelligence stalled in 2021, and Black Sesame Intelligence has never received financing since then. If Black Sesame Intelligence is unable to raise more funds through the capital market, it means that it will be difficult to support this "unicorn" to continue to move forward with the current level of cash flow.
Black Sesame Intelligence struggled to break through
With the advancement of automotive intelligence, the industry has put forward higher requirements for the ability of autonomous driving chips to process data, and the market demand for high-computing power chips continues to expand.
According to the data, the global automotive chip market is expected to exceed 600 billion yuan by 2030, bringing significant growth opportunities to market participants. At the same time, SoCs play a vital role in ADAS automotive performance. According to Frost & Sullivan, the global ADAS SoC market is expected to reach 71.3 billion yuan by 2028, with a compound annual growth rate of 23.2% from 2022 to 2028.
Guotai Junan Securities predicts that in the next two years, mainstream autonomous driving chips will be mass-produced and delivered, and in the next five years, the competition for market share will be more intense, and domestic leading manufacturers are expected to break through.
However, for Black Sesame Intelligence, there are still some huge challenges to break through.
At present, Nvidia occupies more than 80% of the market share, and the monopoly meaning is very obvious, if Black Sesame Intelligence wants to achieve the profit target, it still needs to enter the supply chain of more manufacturers. At present, although Black Sesame Intelligence has cooperated with Geely, Dongfeng, FAW and other car companies, only large-scale in the chip industry can flatten costs and accelerate profits. At the same time, only when mass production is stable enough can we rely on more customers and further increase our market share.
In addition, the entire automotive-grade AI chip has a very long development cycle from R&D to product introduction. The design cycle takes 18-24 months, and it takes another 12-18 months to develop the system solution through the vehicle-grade certification, and the subsequent vehicle integration and testing verification will face 24-36 months, and then the final mass production deployment and iterative improvement, which will take at least 5-7 years in total. At this stage, automotive-grade chips are in the stage of rapid iteration, and it is still unknown whether Black Sesame Intelligence can seize the opportunity to catch up with competitors.
Black Sesame Intelligence has predicted that in 2025, car companies will establish a relevant supplier system, and once the automotive supply chain is stable, there will be few adjustments, and there will not be too many opportunities for new companies at that time. Therefore, it is important that we can achieve mass production and launch of vehicles by 2025. If it can be successfully listed, Black Sesame Intelligence will successfully obtain new financing, which may bring new impetus to its R&D and market expansion. However, under the background of the monopoly of giants and the pursuit of competitors, Black Sesame Intelligence needs to overcome many obstacles if it wants to break through smoothly.