After the U.S. stock market on May 16, Satoshi Chain Group (ICG. US) released its first earnings report card for 2024.
In the first quarter of this year, the revenue of Satoshi Chain Group (hereinafter referred to as ICG) was 24.3 million yuan, and the gross profit reached 9.009 million yuan. ASIC chip sales reached 494235 units in the first quarter, an increase of more than 16.8% quarter-on-quarter.
Although ICG's business situation has not fully recovered, objectively speaking, compared with Canaan Technology, Ebang International and other players in the same industry, ICG's market impact is still relatively small, and there are even many praiseworthy places.
In terms of revenue, the first quarter will only decrease by 6.8% compared with the same period in 2023, and if the one-time sales revenue of 1.2 million yuan in Q1 of 2023 is excluded, the quarterly revenue is almost the same as before.
This means that ICG's ASIC chip sales revenue is stable, and it can maintain a stable sales volume and average selling price. Looking back at many consecutive quarters, we can also see that ASIC chip sales have ushered in a rapid rebound after bottoming out, and the sales volume in the latest quarter has continued to grow.
Looking ahead, what are the likely catalysts for the market to drive surprises in ICG's performance? What are the value growth points that need to be paid attention to in the long run?
Why is the follow-up of ICG so certain?
The demand of downstream miners for mining machines and ASIC chips is highly correlated with the market of cryptocurrencies such as flatbread. From the fourth quarter of 2023, the strong price of flatbread will drive the overall demand to increase, and ICG's chip sales will be "taken away".
From the perspective of Mara, a flatbread mining company, in the latest disclosed first-quarter financial report, Mara's hash rate has reached 27.8 EH/s, an increase of 142% compared with the hash rate in Q1 of 2023. And according to the previous plan, Mara will continue to expand, and the hash rate will be increased to at least 35 EH/s in 2024, which means that the demand for mining machines and ASIC chips from mainstream mining companies will not decrease in the short term.
On this basis, it is more necessary to pay attention to the fact that the value of cryptocurrencies dominated by large pies will probably be a high probability event after the currency value continues to rise, which will eventually drive the strong demand for mining machines and ASIC chips.
Why is this judgment?
If you take a closer look at the rise of this round of pie, you will find that it is relatively similar to the trend of gold. Before this year's all-time highs, both flatbread and gold prices as a whole maintained an upward trend, and after each hitting their all-time highs, they are now entering a correction phase, waiting to re-choose the direction of the breakout.
The reason why they are so similar is that in the recent external environment, they all have strong defensive or hedging value.
Both flatbread and gold are rare assets, and the supply of gold is limited by the resources mined, while the total supply of flatbread is fixed at 21 million. Combined with the general economic laws given by Merrill Lynch's investment clock, it can be found that when economic growth is weak, it is better to be defensive, and in terms of investment choices, cash is king, and commodities are secondary.
But another noticeable change in recent years is that global markets have less trust in the dollar, so more money will pour into the pie and gold to avoid risk, which makes them more scarce in the market. This explains why the price of the pie and gold went up together and rose so fast.
In the past few months, the timing of interest rate cuts has been uncertain, and the market is looking forward to the Fed's interest rate cut "landing", and the April CPI data released a few days ago shows that US inflation is cooling again, and the expectation of a rate cut in September has been extremely strong. In the long run, then, the defensive value of the pie and gold may soon return.
Therefore, whether it is the growth prospects of the industry or the defensive value of cryptocurrencies in the future macro environment, they have basically "set the tone" for the rising demand for upstream mining machines and ASIC chips, which also provides sufficient support for ICG's subsequent performance.
And the author believes that this support may be stronger than expected.
The liquidity brought by the launch of the Flatbread Spot ETF and the subsequent launch of spot trading on the Flatbread by CME Group have led to an influx of retailers, institutional investors, and banks into the large digital asset market in various forms.
Mainstream mining companies and miners will definitely predict this change, and then actively expand computing power to mine, which will ultimately increase the demand for upstream manufacturers such as ICG, and upstream manufacturers will benefit in the long run.
What are the new value points to focus on?
Judging from the first quarter report of this year, it will also be found that the role of ICG in the industry has been further upgraded, and there are more possibilities for future performance growth.
On the one hand, ICG purchased the cryptocurrency ETH as a long-term asset reserve, and as of the end of March this year, the fair value of this part of the asset reached 23.6 million yuan. In the long term, the upward trend of cryptocurrencies remains unchanged, and there is enough certainty in this segment of income to give high growth expectations.
On the other hand, ICG's 12nm process ASIC chips began mass production, which were used in the latest production and sales of Goldshell brand series mining machines. This means that in the short term, it can be expected that higher performance mining rigs will attract more miners to buy, which will further boost sales.
At the same time, it can be seen that jumping from 22nm chips to 12nm chips, ICG, as a chip design company known for its high tape-out rate, has shown technical strength that has been able to achieve a rapid leap in the process and apply this latest chip to the core "zone" of non-mainstream coins.
Then the next point to watch is that ICG is gradually going to mass produce advanced ASIC chips of 10nm, 8nm and even 6nm.
In the past, ICG's 22nm chips were able to compete with Bitmain's more advanced 7nm products in terms of performance, power consumption and other key indicators. It can be expected that ICG's advanced process chips will have extremely powerful performance in the future, so as to enter the mainstream mining coin market with higher computing power requirements and power consumption requirements.
This is why there has been such a significant change in R&D expenses in the first quarter of this year, with R&D expenses increasing by 357% year-on-year to 36.5 million yuan, and nearly 30 million yuan more in the first quarter for chip tape-out and related personnel expenses.
Because as the manufacturing process becomes more and more advanced, the cost of design and tape-out often increases exponentially. If the one-time cost of chip tape-out is ignored, ICG can still continue the positive profit of the previous quarter at the operating level in the first quarter.
Looking forward to the future, the "halving" of the pie will bring halving the income, doubling the mining cost, and the difficulty of mining will become higher and higher, and such more efficient and advanced chips will become more and more competitive in the future. As can be seen from the figure below, the mining difficulty has been rising in recent years, but the overall computing power of the whole network has maintained a growth trend.
In other words, manufacturers such as ICG that can provide advanced computing power will become more and more competitive in the market, and under the survival of the fittest, resources with high computing power will become more and more concentrated in the future.
At present, the sales volume of ICG has recovered to the level of early 2023, and with the mass production of new products in the first quarter of this year, the follow-up sales are expected to break through a new high again. At the same time, with the rise of currency prices, higher demand for computing power in the future will bring about an increase in the price of mining machines, and ICG will have greater profit margins in addition to sales growth!
From the perspective of the industry, ICG may be taking a road of industrial integration, from algorithm-chip design-product-application scenario services, and finally creating a complete industrial ecology. The immediate benefit of this is that the cryptocurrency market is booming, and the gains made by ICG from it will undoubtedly be multiplied! Then doubling the market value of ICG is not a difficult task!
Recently, the price of the pie has entered a period of adjustment, and from the perspective of price and market value changes, it has become very obvious who is "swimming naked" between ICG and other competitors.
ICG's share price fell back to the starting point of the rally at the end of last year and is currently gaining momentum, while Canaan's share price fell below $1 in April this year, hitting a record low. As Canaan's market share continues to decline, the underperforming mining machines face poor sales and asset impairment, which also leads to a lack of sufficient cash flow to maintain operations, so the decline in its market value has become a predictable outcome.
For ICG, as of the end of March 24, the company's book cash was 666 million yuan, and the capital reserves are quite abundant. Coupled with the current stable sales of ASIC chips and more industrial layouts, ICG has gained more growth opportunities, and the "dilemma reversal" should come soon.