Text: Flying Snow
Source: Bowang Finance
"We constantly reflect on our own problems and problems, and can boldly and quickly change these problems", when talking about Neusoft more than 30 years to live to this day, Liu Jiren, founder and chairman of Neusoft Group, once summed up the "methodology".
"We like to start the layout before every opportunity is coming", Liu Jiren also said with emotion along the way, from software outsourcing and IT solutions to medical equipment manufacturing, software education, intelligent networked vehicle solutions and the health ecosystem.
However, the "giant" Neusoft Group, which gallops around the world, has helplessly shown a trend of "weak growth". Each of the golden tracks it is involved in has problems such as its own combat effectiveness is not strong enough, and various subdivisions have also focused on players with more core competitiveness, which makes Neusoft Group face severe challenges like encirclement and suppression from all sides.
The 2023 annual performance forecast released by Neusoft Group also reminded that the net profit attributable to the parent company in 2023 is expected to be between 72 million yuan and 86 million yuan, and the non-net profit is expected to be between 115 million yuan and 140 million yuan. In 2022, its net profit attributable to the parent company and non-net profit will be net losses of 343 million yuan and 530 million yuan respectively.
Source: Neusoft Group's 2023 annual performance forecast
Turning losses into profits, but deducting non-net profits, may still be in a loss-making trend, which actually shows that Neusoft Group urgently needs to improve its profitability. So, the first loss of listing in the year of establishment, and now it is in the predicament of "weak growth" before the arrival of the year of confusion, I can't help but ask, can Neusoft be "hard" again?
01
Radical spin-off to create an IPO cluster Can Neusoft's capital bureau usher in a grand slam?
In Liu's words, Neusoft "will further build a cluster of listed companies, and on this basis, make good use of the capital market and build a new ecology for enterprise development." This may be the confidence of its continuous spin-off of Neusoft's business and the acceleration of the IPO of the divested assets.
At present, Neusoft Group has won three listed companies, except for Neusoft Group and Neusoft Education, which was listed on the Hong Kong Stock Exchange in September 2020, the latest "achievement" is Neusoft Xikang, which was listed on the main board of the Stock Exchange on September 28, 2023 after four submissions.
And what Liu Jiren really thinks about and has the greatest hope for is Neusoft Medical. Liu Jiren once said, "Neusoft Group is very optimistic about the development opportunities in the field of healthcare, and will continue to increase investment in the field of health care, and become a promoter of digital technology to promote the transformation of the medical industry." ”
Source: Neusoft Group's official website
In order to promote the listing of Neusoft Medical, Neusoft Group did not hesitate to gamble in the way of "performance betting". In 2014, when Neusoft Group spun off Neusoft Medical, it announced the "Announcement on the Introduction of Investors by Subsidiaries". According to the announcement, if Neusoft Medical fails to achieve listing within 6 years from the second delivery date, the investor can fulfill the repurchase obligation according to the agreement and must repurchase the equity at one time. The repurchase obligation will be jointly undertaken by Neusoft Group or Neusoft Holdings and its designated third party.
Attached to this is a paper VAM agreement. The agreement requires Neusoft Medical and Neusoft Xikang to go public within six years after the signing of the second closing date. If it fails to be listed, the investor can request Neusoft to repurchase the equity at a compound interest rate of 8% per annum according to the agreement. The second closing was completed in September 2016, and the six-year performance bet actually expired in September 2022.
However, on September 2 of that year, Neusoft Group stated on the investor interactive platform that Neusoft Medical had cancelled all the relevant VAM clauses as early as early 2019 when it carried out the shareholding system restructuring. At present, Neusoft does not have any repurchase obligations.
Founded in 1991, Neusoft Group currently covers many fields such as smart city, medical and health, intelligent car interconnection, enterprise digital transformation, and international software services.
It is worth noting that Neusoft's customers, in addition to enterprises, are government and public hospitals (public institutions). According to the data, as of the first half of 2022, in terms of "smart healthcare" informatization construction, Neusoft Group has served more than 600 tertiary hospital customers, more than 2,700 medical institution customers, and more than 50,000 primary medical and health institutions, and has undertaken the national informatization construction of more than 30 provinces and cities.
In a statement released by Neusoft Group, it was mentioned that "the Neusoft nucleic acid detection system has been deployed in more than 120 cities in 17 provinces in China, including Beijing, Shanghai, Chongqing, Tianjin and other megacities with large populations, and has tested more than 14 billion people." "There are a total of 293 prefecture-level cities in the mainland, and Neusoft alone accounts for nearly half of the market share, is it suspected of being close to monopoly? And how is this near-monopoly "superpower" cultivated?
In this regard, to a certain extent, it can be understood that Neusoft's performance mainly depends on the maintenance of relationships in toBtoG. Theoretically, ToB is a business for government and enterprise customers, which usually includes ToG, and ToG is a special business derived from ToB. The enterprises for the government or related institutions, mainly according to the annual government investment budget, and then do a series of information projects, is regarded as "index-driven, for the sake of doing the project to do the project". Therefore, ToG is not oriented to a relatively level playing field like ToB, but such projects are mostly procured by the government through outsourcing.
According to the "2023 China Digital Government Application Development Research Report" released by CCID Consulting, Neusoft's "Digital Government Software and Application Services" market competitiveness continues to lead the country, and ranks first in the leadership quadrant in the fields of human resources and social security and medical insurance for three consecutive years.
Source: CCID Consultants
Some people in the industry pointed out with a little ridicule that in the field of medical informatization, enterprises expand their business without looking at technology or service...... , then, what will be seen or do not need to be picked.
It is worth noting that Neusoft Medical's profits have long relied on government subsidies. According to its prospectus, as of the end of 2019, the end of 2020, the end of 2021, and June 30, 2022, the revenue from government subsidies recognized by Neusoft Medical during the period was 22.04 million yuan, 57.21 million yuan, 44.81 million yuan, and 28.84 million yuan, respectively, and as of June 30, 2022, the unrecognized government subsidy income was 301 million yuan.
Source: Neusoft Medical Prospectus
Intriguingly, its prospectus also disclosed that on March 18, 2019, Neusoft Medical declared a cash dividend of RMB 201 million to shareholders, and paid dividends in 2020. This can be understood as that in 2019 and 2020, Neusoft Medical received a government subsidy of 260 million yuan, but distributed 80% to shareholders.
In this regard, the "Financial Health" team of "Caijing" even issued an article questioning: What are the chances of Neusoft Medical's "Four Wars" IPO winning without government subsidies? A set of data cited by it shows that in 2019, 2020, and 2021, Neusoft Medical received government subsidies of 46.705 million yuan, 98.092 million yuan, and 87.22 million yuan respectively. In the same period, Neusoft Medical's profits were 82.04 million yuan, 92.758 million yuan and 297 million yuan respectively. "In other words, if there is no subsidy, there may be a loss in 2020. ”
Since the divestment of the education sector in 2011, the uncontrollable spin-off action is not only the three-year effort from 2014 to 2017, but also the rapid independence of Neusoft Medical, Neusoft Xikang and Neusoft Wanghai by means of capital increase and equity transfer. The latter, as the largest hospital ERP software (HERP) supplier in China under Neusoft, Wanghai Kang Reliance is also on the way to IPO. In addition, Neusoft Reach, which was established in 2015, will no longer be included in the consolidated financial statements of Neusoft Group after receiving 650 million yuan of financing in 2021. As a new subsidiary of Neusoft that is committed to providing next-generation automotive platforms and key technologies, or is it born for listing?
Some industry insiders believe that one A-share + three Hong Kong stocks + one science and technology innovation board may be the real "grand slam" goal behind the "IPO cluster ecology" in Liu Jiren's mouth.
However, under the capital operation such as spin-off subsidiaries, it is difficult to hide the fact that the profitability of Neusoft's main business is "weak". In terms of financial data, only taking the net profit after deducting non-profits as an example, its net profit margin in 2021 was about 0.4%, and in 2019 and 2020, it was negative. Leaving aside the comparison between Neusoft Healthcare, which is highly dependent on government subsidies, and its peers, we will only compare it with Thundertech, which has seized the automotive intelligent network solution, whose net profit margin in 2021 is as high as 13.4%. Intelligent vehicle solutions are also one of the four main business segments of Neusoft Group.
Another industry insider pointed out that the founders of the spin-off subsidiaries of Neusoft Group have relatively high shareholding ratios, and the role of management equity incentives may not be achieved. So, when will the "IPO cluster effect" that Liu Jiren is looking forward to show its power? If it is not able to achieve a "grand slam" for a long time, can it be understood that it is just a "loneliness"?
After all, it is an indisputable fact that the subsidiaries that have been spun off have performed poorly in their respective fields, lagging behind their peers, and lack sufficient competitiveness, which naturally doubles the pressure on Neusoft Group in the capital market.
02
Layout of multiple golden tracks However, all major tracks are facing severe challenges
As a behemoth, Neusoft Group's business coverage is beyond imagination, not only involved in education, telecommunications, electric power, finance, manufacturing, medical and other fields, but also as many as 207 specific business directions so far.
However, after the first loss in 27 years of listing, and the trend after the spin-off of the two companies was less than expected. As the first listed software company in China, it also left a "negative score" in the public eye during the three-year special period...... All kinds of internal and external reasons make people question how much follow-up growth power does Neusoft Group, which was started by the "outsourcing king", have?
Combing its financial data in the past five years, the growth rate of Neusoft Group's "heart" - medical and health business is only 1.8%. Most of the other major business sectors are showing "fatigue" such as decline or even stagnation. The only smart car interconnection business that has achieved significant growth, although the growth rate has reached 25.5%, the gross profit margin is only around 20%. Compared with the big health sector, the reality that the profit margin of more than 38% is difficult to grow significantly also further shows that "weak growth" has gradually become the "new normal" of Neusoft Group.
Even Neusoft Xikang, which was successfully listed, had an issue price of HK$4.76 and raised HK$555 million. However, the opening price was HK$3.69, down more than 20% from the issue price, and the closing price was HK$2.72, down 42.86% from the issue price, and the company's market capitalization was HK$2.29 billion based on the closing price. The reason for this is not unrelated to the fact that it has been in a state of loss in recent years. According to the prospectus of Neusoft Xikang, its revenue in 2020, 2021 and 2022 will be 503 million yuan, 614 million yuan and 687 million yuan respectively, and the operating loss will be 156 million yuan, 254 million yuan and 195 million yuan respectively, and the losses during the period will be 200 million yuan, 295 million yuan and 243 million yuan respectively.
Source: Neusoft Xikang prospectus
There is a contrast to know the gap. In the past few years, the major sectors of Neusoft are located, and there have been new "kings and hegemons" in many subdivisions, which has made Neusoft "full" in various sectors.
For example, in the field of intelligent connected vehicles, although at the third quarter of 2023 results briefing, Neusoft Group pointed out that it continues to receive fixed-point orders from many car manufacturers, and the on-board front-loading fixed-point orders in hand are mainly intelligent cockpit and other products, including in-vehicle infotainment systems, intelligent cockpit domain controllers, and augmented reality head-up display systems AR-HUD, etc.
However, judging from the business performance of Neusoft Reach, a subsidiary of Neusoft Reach, which focuses on battery management systems and data platforms in the new energy vehicle sector, it has been in a state of net loss all year round, and the loss is more than 200 million. Compared with Thunderda, which focuses on intelligent vehicle solutions, the latter's profit margin on automotive software development and technical services alone is 50.9%.
As for the subdivided vertical businesses such as autonomous driving that Neusoft Group often talks about, at present, not only small and medium-sized intelligent driving companies such as DJI Automotive and Momo Mobility are competing for food with low-cost software and hardware integrated solutions.
Moreover, in the face of Huawei's strong attack on the dark horse in the automotive field, in-depth empowerment of new energy vehicle companies such as Cialis and even BAIC Blue Valley, and the great success of intelligent car models such as Wenjie, Neusoft Yuan's proud intelligent driving, intelligent cabin, AR-HUD and other technologies are obviously insignificant, all of which bring a sense of crisis to Neusoft's automotive business.
Source: Internet
What's more, now is also the era of the explosion of full-stack self-development by many car companies, and there will be fewer and fewer car manufacturers that will choose third-party solutions in the future.
How to face this challenge of severe market share dilution, Neusoft needs to give an answer.
In the medical field, on the eve of the IPO, Neusoft Medical's direct competitor United Imaging Medical landed on the Science and Technology Innovation Board in one fell swoop, becoming the second medical device company in the A-share market with a market value of more than 100 billion, second only to Mindray Medical, another medical device leader.
At that time, Neusoft Group was obviously in a hurry. Regardless of the high-end brand image forged by Neusoft Medical over the past years, Neusoft Medical shouted the slogan of "998,000, CT to take home" in order to compete for share. As a result, the price of CT in the Chinese market has also been pulled below one million yuan.
However, the "price reduction promotion" did not let Neusoft Medical pick the fruits of victory. According to the data of "Financial Health", Neusoft Medical's revenue in 2021 will be 2.8 billion yuan, less than 40% of United Imaging Medical's, and its profit will be 297 million yuan, which is only a fraction of the latter's 1.4 billion yuan.
In fact, in the entire medical and health field, companies such as Weining Health and Chuangye Huikang have also achieved more significant revenue growth than Neusoft Medical, and their gross profit margin has also fallen off Neusoft.
03
After the first loss, the performance in 2023 may not be optimistic, and the intelligent strategy can rewrite the situation of "weak growth"?
On April 16 last year, as China's first listed software leader, Neusoft Group ushered in the first loss in 27 years since its listing, and its gross profit margin hit a record low. According to its disclosed annual report, its net profit attributable to the parent company recorded the first loss on the market.
Source: Wind
Neusoft Group said that in the past year, the company faced the impact of many external uncertainties such as downward pressure on the economy and two-way fluctuations in exchange rates, especially the impact of the fourth quarter, which seriously dragged down the pace of Neusoft's business and projects, and the company's performance did not achieve the expected results.
Of course, the losses did not dampen Neusoft's confidence. On the contrary, it said that as artificial intelligence technologies such as ChatGPT and Baidu Wenxin Yiyan are changing the way people communicate with the digital space, the way they create digital content, and the way they acquire knowledge, AI has finally ushered in a new stage of popularization and wide application.
Based on this, on March 11 this year, Neusoft Group held a strategic press conference, announcing that it would fully launch the solution intelligence strategy, focusing on business areas such as smart city, medical health, intelligent vehicle interconnection and enterprise digital transformation, and creating AI-empowered solutions, data-valued solutions and service-oriented solutions.
Source: Neusoft Group's official account
At this press conference, Neusoft specifically mentioned the change in customers' demand for solutions. In the past, it wanted to achieve the accurate operation of its system processes, but now it is more important to focus on intelligence and data value creation. And the enterprises represented by Neusoft have to think about where the future is.
In order to grow towards intelligence, Neusoft even did not hesitate to carry out significant organizational structure adjustments, through all-round changes in functional organization, R&D system, sales system, software production system, leadership, professional division of labor and collaboration, etc., to strengthen internal strategic management, and comprehensively improve the efficiency of software development, in an attempt to enhance the company's business innovation and sustainable development capabilities, more in line with the development of the market, and closer relationship with customers.
However, to what extent can the "intelligent strategy" change the "growth fatigue" of Neusoft Group? Even if the solutions are completely redone with intelligence, how likely is it that Neusoft Group will enjoy the dividends of change in the new era in the era when AI technology is king?
Of course, this depends on whether Neusoft Group has enough leading technical strength to lead the era of artificial intelligence. As the core competitiveness of the enterprise, the technical strength can be judged from the index of R&D investment, which can not only show the company's attention to technology R&D, but also estimate the company's real technical strength.
Given that technical strength is a cumulative process, it may be more telling to compare the R&D investment data of the first two years. Taking the data in the 2022 semi-annual report as an example, during the reporting period, Neusoft Group's R&D expenses were 338 million yuan, accounting for about 10% of sales, while China Software's R&D expenses in the same period were 972 million yuan, accounting for 27% of sales, and iFLYTEK's R&D expenses were 1.439 billion yuan, accounting for 17.9% of turnover. It is not difficult to see that Neusoft Group's R&D investment is significantly lower than that of high-quality targets in the same industry.
Source: Neusoft Group announcement
Or in order to boost capital confidence, on January 24, Neusoft Group disclosed a repurchase plan. According to the announcement, in order to maintain the company's value and shareholders' equity, Neusoft Group intends to repurchase through its own funds, with a repurchase amount of 100 million yuan ~ 200 million yuan, and the repurchase price does not exceed 12 yuan per share, and all the repurchased shares will be cancelled after the repurchase is completed.
The background is that the share price of Neusoft Group has been declining since reaching a high of 13.57 yuan per share in April last year. Since December last year, the decline has intensified, hitting a record low of 6.28 yuan per share.
The implementation of the buyback plan can be described as "second-fast". As of January 31, Neusoft Group has repurchased a total of 13,099,900 shares through centralized bidding, accounting for 1.0796% of the company's total share capital, with the highest and lowest transaction prices per share of 8.52 yuan and 7.61 yuan respectively, and the total amount of funds paid is 107.41 million yuan (excluding stamp duty, commissions and other transaction costs).
Source: Neusoft Group's stock price trend during the buyback
However, the capital market did not buy this rapid repurchase. Except for the day after the disclosure of the repurchase plan, the stock price of Neusoft Group rose 7.9%, and the following seven trading days have been down, with a cumulative decline of more than 27%.
It seems that it may not be easy for the former "Big Mac" to "harden" from "weakness".