2021 revenue and adjusted net profit beat our expectations
Ainnovation Technology Group （Ainnovation） announced its 2021 results: Revenue rose 86.3% YoY to Rmb861mn, adjusted net losses totaled Rmb140mn, with an adjusted net loss rate of 16% （down 15ppt YoY）， both beating our expectations thanks to strong demand and more efficient project delivery.
Trends to watch
Growth momentum strong; revenue from customers in multiple manufacturing fields robust. Revenue from the manufacturing industry soared 132.5% YoY to Rmb449mn in 2021, thanks to the strong growth of revenue from new high-quality customers in the manufacturing industry. Multiple manufacturing businesses performed well in 2021. Revenue from automotive equipment and computer, communication, and consumer electronics （3C） grew 5889% and 142% YoY to Rmb143mn and Rmb88mn. High-quality customers accounted for Rmb799mn of revenue, up 109% YoY. The repurchase rate of high-quality customers reached 102.5% （based on value）， implying a certain level of stickiness. The firm had 42 high-quality customers as of 2021 （up 83% YoY）， with an average revenue per user of Rmb19mn （up 71% YoY）， driven by its deepening cooperation with its growing high-quality client base.
Optimized management and technology asset accumulation helping improve delivery efficiency; gross margin improving. In 2021, the firm’s gross margin （GM） rose 1.9ppt YoY to 31%, thanks to the increased proportion of the high-GM manufacturing business. Gross profit increased 98.5% YoY to Rmb267mn thanks to economies of scale, more standardized products and solutions, and higher delivery efficiency thanks to its technology platform. In 2021, R&D expenses grew 81% YoY to Rmb328mn. The firm had 634 AI patents （invention patents accounted for over 90%） as of 2021. It continues investing in AI technology R&D to cement its competitive advantage.
Demand from manufacturing visibly strong; the firm targets high-quality clients. PwC expects AI to contribute around 26% of China’s GDP in 2030. After exploring a range of vertical fields, including AI-empowered retail and insurance, Ainnovation is focusing on the large manufacturing industry and is building relationships with high-quality clients across different subsegments. In our view, the firm has resolved multiple problems in the manufacturing industry, including a low digitalization level, numerous application scenarios, and high technical barriers. Supported by its AI platform, the firm provides efficient full-stack solutions to clients.
Financials and valuation
As multiple businesses in the downstream industries were robust and the firm’s revenue showed a strong growth momentum, we lift our 2022 and 2023 revenue forecasts 7.0% and 4.5% to Rmb1.5bn and Rmb2.4bn. Given the macro environment and COVID-19, we lower our adjusted attributable net profit forecasts to -Rmb187mn and -Rmb134mn from -Rmb135mn and -Rmb106mn.We believe the firm’s strong technology and high-quality clients build its competitive advantage. We maintain OUTPERFORM and lift our TP 40% to HK$21 （6.6x 2022e P/S or 4.2x 2023e P/S）， offering 31% upside. The stock is trading at 5x 2022e P/S or 3.2x 2023e P/S.
Risks
Intensifying market competition; continued losses of business; loss of key clients; failure to catch up with technology evolution.