Under the trend of the new round of integration of information technology and manufacturing, artificial intelligence and 5G, industrial Internet, Internet of Things, etc. are listed as new infrastructure construction, which has become the key support for China's digital transformation needs. At present, artificial intelligence has begun to enter the dividend period of explosive growth, which can truly promote the efficiency change of traditional industries, and companies that integrate artificial intelligence with thousands of industries are expected to seize industry opportunities and accelerate growth.
The author is concerned that Chuangxin Qizhi submitted an updated prospectus to the Hong Kong Stock Exchange on 3 January 2022 and soon disclosed THEPHIP on 12 January, which means that Chuangxin Qizhi has successfully passed the hearing and is further from the bell ringing on the Hong Kong Main Board. So, how do you see the investment opportunities of this AI technology company?
Focusing on "AI+manufacturing" and embracing the promising high-growth market
In general, AI solutions can be roughly divided into two categories according to the target group used: to G public service applications and to B enterprise service applications. Public services are mainly based on smart parks, smart cities and other partial security scenarios, at this stage the market has entered a relatively mature and standardized stage, while to B's enterprise service artificial intelligence solutions are more market-oriented, the demand is more diversified, is expected to continue to gain growth potential in China.
Innovation Qizhi mentioned in the prospectus that it positions itself as an enterprise-level artificial intelligence product and solution provider, focusing on the two major subdivisions of "AI +manufacturing" and "AI+finance", providing full-stack AI products and solutions, including AI platforms, algorithms, software, AI-enabled equipment and related services.
In the "AI+Manufacturing" track, Innovation Chichi continues to empower manufacturing companies through its Intelligent Manufacturing System (AIMS). The company mainly provides customers in vertical fields such as iron and steel metallurgy, energy and power, automotive equipment, OLED panel semiconductors, high-tech/3C, engineering and construction, etc.
Specifically, from the operational level, the company uses technologies such as computer vision to solve single-point technical problems on the production line; from the decision-making level, the use of data processing capabilities to provide solutions for the decision-making process in production; and from the data level, to provide a machine learning-based central control platform and intelligent analysis solutions for the management and operation of the entire industrial plant or computing center.
Figure: Innovative Qizhi intelligent manufacturing system
Source: Prospectus, compiled by GrandWay
The company's AI products and solutions for the financial services industry include intelligent data centers, intelligent infrastructure and intelligent operation and maintenance solutions, financial services intelligent hybrid cloud management solutions and data governance and applications to help financial institutions improve the reliability of infrastructure and applications, the availability and security of systems and services.
The main reason for choosing the manufacturing and financial track is the market. From the supply side, the two major tracks of "AI + manufacturing" and "AI + finance" have a high degree of digitization, the data base required by artificial intelligence is relatively easy to obtain, and it has good conditions for the development of artificial intelligence; from the demand point of view, AI solutions fully respond to the bottleneck of cost reduction and efficiency increase in traditional manufacturing, and solve the pain points of quality control and production planning decision-making difficulties; for the existence of massive unstructured data in the financial industry, AI can effectively solve the pain points of inefficient, time-consuming and laborious data processing.
The market space for AI solutions in the manufacturing and financial industry is very broad, and the overall market is in the rapid development stage of high-speed growth, and the market is already on the eve of explosive growth. According to Frost & Sullivan, the market size of artificial intelligence solutions for Manufacturing in China has reached about RMB9.1 billion in 2020 and is expected to reach about RMB64.9 billion in 2025, with a compound annual growth rate of 48.3%. In 2020, the market size of AI-based IT infrastructure solutions in China's financial services industry was RMB1.5 billion, accounting for only 2.1% of the total explorable market of about RMB72.8 billion.
Chart: Overview of China's manufacturing artificial intelligence market
Source: Frost & Sullivan, Prospectus
At present, the artificial intelligence market is still a blue ocean, and a clear competitive pattern has not yet been formed. Innovative Qizhi has a strong innovation and research strength, based on the company's own research and development of the three major platforms, to create industry-leading AI products and solutions, forming a clear competitive advantage. According to Frost & Sullivan, as of December 31, 2020, Chuangxin Qizhi is the third largest AI technology-driven solution provider in China's enterprise AI solution market and the largest AI solution provider in China's manufacturing AI solution market.
Under the mature business model, the business expands rapidly, and the scale effect promotes a significant increase in profitability
For any AI technology company, commercialization ability is a key factor to measure the development of enterprise operation, and whether it can deeply integrate application scenarios and bring value to customers is the development trend of AI technology companies.
The author believes that unlike other aspects of the aura, the hematopoietic ability of innovative qizhi may be underestimated.
At present, Innovation Qizhi is in the high-growth manufacturing and finance of the two major AI tracks, based on its own technical advantages and industry resources, the formation of a set of effective market strategies and business models.
In a nutshell, the company's marketing strategy is 1+N and 1*N. The company first creates a successful benchmarking project for AI landing in a certain scenario through lighthouse customers, and then carries out 1+N vertical expansion to encourage customers to use AI to solve problems in more scenarios; after lighthouse customers create successful cases, the company uses the reusability of technical assets, ABS and RDP to quickly replicate to more customers in the same field, thereby achieving horizontal expansion. Under the vertical and horizontal, the company has formed an efficient commercial expansion network.
The innovative and brilliant financial data also reflects the company's good commercialization ability.
In recent years, innovation Qizhi's revenue has maintained a high growth trend. From 2018 to 2020, the company's operating income was 37.21 million yuan, 229 million yuan and 462 million yuan respectively, with a compound annual growth rate of 252.5%. Rapid growth is not uncommon when the company's revenue scale is small, and what is valuable is that after the revenue has a considerable scale, Innovation Qizhi still maintains a high-speed growth pace. In the first three quarters of 2021, the revenue of Innovation Qizhi was 553 million, compared with 298 million in the first three quarters of 2020, an increase of 85.8% year-on-year.
Chart: Revenue of Innovation Qizhi
The key driving force for the company's revenue growth is the continuous expansion of the customer base and the continuous increase in customer unit prices in recent years, which is also one of the embodiments of commercialization capabilities. At present, Innovation Qizhi has provided more than 400 customers with AI-based products and solutions, the number of customers in the manufacturing industry has increased significantly from 16 in 2018 to 93 in 2020, and the number of customers in the financial industry has increased from 2 in 2018 to 18 in 2020. In 2020, the average revenue per customer in the manufacturing and financial sectors increased by 61.5% and 209.1% year-on-year, respectively. Under the rise of volume and price, the company's revenue has doubled
The company focuses on the two core tracks of "AI+manufacturing" and "AI+finance", combines technology research and development with practical application scenarios, and develops AI original technologies suitable for practical applications in the industry for practical pain points, and has formed a rich pool of technical assets. With the continuous precipitation and iteration of ABS and RDP on the AI platform, the deployment method based on the technology asset pool can ensure that the company can create deliverable solutions in the shortest time, less engineering volume and lower cost, forming a good scale effect.
At the same time, the company's revenue structure has been continuously optimized, and the more concentrated revenue structure has enjoyed obvious economies of scale. The marketing strategy adopted by the company enables the company to quickly expand the business of other customers in other scenarios and other customers in the same field after completing the benchmarking project, promote the rapid deployment of business, and form an efficient commercial network. It can also be seen from the financial report that while the business has experienced high-quality growth, the company's three rates have dropped significantly under the scale effect, and the company's operational efficiency has been significantly improved.
Figure: Innovative Qizhi THREE rates
Therefore, it is not difficult to see from the company's profitability that the company's net loss has narrowed significantly, and the loss rate has been doubled. The Company's adjusted net losses for 2018-2020 and the first three quarters of 2021 were $45.39 million, $160 million, $144 million and $81 million, respectively. At the same time, the adjusted net loss ratio has decreased year by year, from 122% in 2018 to 14.6% in the first three quarters of 2021. From a trend point of view, losses are rapidly being smoothed out by business revenue growth and cost reductions brought about by economies of scale, and conservative expectations are that the company may soon achieve full self-hematopoiesis.
Whenever a technology unicorn (especially an AI leader) goes public, there will be a group of people in the market who often question the burning money and losses. However, early technology companies are already in the early stage of investment and development, and the high amount of research and development accumulation has led to losses, which is the norm. But correspondingly, compared with the mature stage, technology companies in the growth stage, once they start to start the commercialization process, under the high profit elasticity, the profits grow rapidly, thus bringing rich returns to investors.
The author believes that Innovation Qizhi has passed the stage of high research and development dragging down financial performance (that is, the stage of burning money) and entered the growth harvest period. The high-growth track and the company's competitive advantage bring high certainty to the rapid growth of future performance, and the company's profitability is significantly improved under the scale effect, and the turnaround is close at hand!
brief summary
In general, as a domestic AI technology unicorn, Innovative Qizhi has formed an effective commercialization strategy by focusing on the "AI+ manufacturing" and "AI+ finance" tracks, and the profitability under the scale effect is beyond doubt. With the demographic dividend peaking, AI industry solutions will play an increasingly important role in the future economic development, the company as a segmentation track leader, will enjoy the industry development and policy dividends, performance is expected to be released quickly, to achieve complete self-hematopoiesis is just around the corner.