As the “strongest new stock” with the highest increase on the first day in nearly a year, why is Jingwei Tiandi, which is highly sought after by the market?
Speaking of the Hong Kong stocks that have received the most attention in the Hong Kong stock market recently, Jingwei Tiandi (02477) can be said to be the first to bear the brunt.
On the first day of listing, Jingwei Tiandi announced HK$1.77, 77% higher than the offering price. Since then, the stock price has risen repeatedly, repeatedly reaching new highs, and at one point it rose more than 169%. By the close, the stock had surged 164% to HK$2.64, trading 279.33,800 shares throughout the day, with a turnover of HK$54.875 million. The day after listing, the company's stock price once again recorded an increase of 39.02%. As of the close of trading on January 16, the company closed at HK$3.57, a cumulative increase of more than 257% from the beginning of the listing.
This makes people curious. As the “strongest new stock” with the highest increase on the first day in nearly a year, why is Jingwei Tiandi, which is highly sought after by the market?
Net profit fluctuates, cash flow fluctuates, and fundamental risks are high
According to the Zhitong Finance App, Jingwei Tiandi was founded in 2003 and is a network support and information and communication technology (ICT) integrated service provider for China Telecom. At the beginning of its establishment, the company mainly developed and provided telecommunication network performance analysis systems for Xiaolingtong Systems (PHS), then gradually expanded its business scope to provide telecommunication network support services, ICT integration services, and network-related software development services.
Judging from revenue performance, Jingwei Tiandi's revenue has shown a steady upward trend in recent years. In 2020, 2021, 2022 and the first half of 2023, the company achieved revenue of 196 million yuan (RMB, same below), 203 million yuan, 227 million yuan and 114 million yuan respectively, and revenue increased year by year.
By business, telecommunication network support services are the company's main business, including wireless telecommunication network optimization services and telecommunication network infrastructure maintenance and engineering services. Taking the first half of 2023 as an example, the company's telecommunications network support service business achieved revenue of 61.1113 million yuan (RMB, same below), accounting for 53.7%; the company's second-largest business, the ICT integrated services business, achieved revenue of 35.55 million yuan, accounting for 31.2%. In addition, telecommunication network-related software development is the company's third largest business, mainly including two sub-businesses: software sales and software development services. The business achieved revenue of 1717.5 yuan during the business period, accounting for 15.1%.
However, the Zhitong Finance App notes that due to industry practices, the time difference between the initial prepaid cost of some businesses and receipt of customer payments will cause a cash flow mismatch. As a result, the ICT integrated service business, which accounts for more than 30% of revenue, will pose a certain liquidity risk to the company. During the reporting period, the company's initial project costs (excluding employee costs) accounted for an average percentage of 58.9%, 55.7%, 70.6%, and 64.0% of the contract value awarded for its ICT integration projects involving initial project costs, respectively. It can be seen from this that the initial project cost accounts for a large share of the value of the awarded contract, and the relevant share continued to rise during the reporting period. Therefore, the company must reserve a large amount of upfront capital, especially for ICT integration projects. It is also worth mentioning that the average time difference between these capital expenses and the first recovery of customer payments is about five months, while it takes longer to reach balance of payments, which may damage the company's working capital situation.
It should be noted that in recent years, the company's cash flow performance has fluctuated greatly. During the reporting period, the company's net cash proceeds from operating activities were RMB 13.232 million, RMB 25.19 million, RMB 16.962 million and RMB 6.501 million, respectively.
Furthermore, although revenue continues to grow, the company's profit performance continues to be weak, and it has been in the dilemma of “increasing revenue without increasing profit” for many years. In 2020, 2021 and 2022, the company's net profit was 29.66 million yuan, 25.524 million yuan, 24.259 million yuan, and 14.658 million yuan respectively, and profit performance fluctuated. In response, the company explained that fluctuations in the company's net profit were mainly due to rising subcontract costs, materials, supplies and other project costs.
Industry growth is slowing down, and major customer dependency is difficult to resolve
To make matters worse, Jingwei Tiandi is still facing the dilemma of slowing down the growth rate of the industry.
Take China's wireless telecommunication network optimization service market as an example. As telecom network users' demand for high-quality mobile network quality increases day by day, telecom operators are investing heavily in improving network speed and stability. Their market size (based on revenue generated from providing wireless telecommunication network optimization services) expanded from 9.1 billion yuan in 2018 to 12.2 billion yuan in 2022, with a compound annual growth rate of 7.4%.
However, technological advances have led to increasingly structured services, and the size of the wireless telecommunication network optimization service market has shown a trend of slowing growth, and this trend will continue in the future. According to the Insights Report, China's wireless telecommunication network optimization service market size (in terms of revenue) is expected to reach 15.5 billion yuan in 2027, or 4.9% CAGR from 2022 to 2027.
At the same time as the growth rate of the racetrack is slowing down, the competitive landscape of the industry is also scattered. According to Insight Report data, the top five network optimization service providers in 2022 accounted for about 24.3% of the market share in terms of revenue. As for Jingwei Tiandi specifically, in 2022, the company's revenue from wireless telecommunication network optimization services was 102 million yuan, with a market share of only 0.8%. However, in the other major market that the company focuses on — the telecommunication network infrastructure maintenance and engineering services market, the company's market share is only 0.01%. It can be seen that in a relatively fragmented industry market, the competitiveness of Jingwei Tiandi, which has been deeply involved in the industry for 20 years, still needs to be strengthened.
In addition to this, under the “big water, small fish” pattern of the industry, the “little brothers” of the industry represented by Jingwei Tiandi also relied on a small number of customers during business development.
The Zhitong Finance App notes that the company's revenue mainly comes from non-recurring projects, services and purchase orders, and obtains business through public invitations initiated by potential customers to submit tenders or provide private quotations upon request. The company's customers during the period mainly included telecom operators, telecommunication network and telecommunication equipment manufacturers, telecommunication network and technical service providers and general contractors. During the reporting period, the company had a total of 65, 81, 78 and 64 customers respectively. During the above period, the company's revenue from the five major customers was approximately RMB 117 million, RMB 124 million, RMB 116 million and RMB 53.3 million, accounting for about 59.6%, 61.0%, 51.0% and 46.8% of total revenue respectively. Among them, the largest customer accounted for about 21.2%, 24.0%, 23.8% and 22.6% of total revenue for the same year, respectively.
The company stated in the risk factors that currently the company has not entered into any long-term service agreements with major customers. If the customer's business relationship with the main customer deteriorates or is terminated due to any adverse development of the customer's business or any other reason, the company's business, financial situation, operating performance and prospects may be significantly adversely affected.
As can be seen, since its establishment in 2003, Jingwei Tiandi has evolved from a single telecom network performance analysis software developer to a Chinese telecommunications network support and information and communication technology (ICT) integrated service provider. However, due to various factors such as dependence on major customers and a slowdown in industry growth, the company's growth is also facing various “problems.” In addition to the difficult situation of performance fluctuations, its growth prospects are not likely to support the company's rising stock price.
In the stock market, some companies clearly cannot reach such high prices, but their “value” skyrocketed several times in a short period of time. These individual stocks, which are not controlled by fundamentals and have abnormal trends, are regarded by the market as “monster stocks.” Generally speaking, due to their characteristics such as small market capitalization, low circulation market, and unpopular business, they have become popular targets of various investors and institutions, thus attracting the attention of many investors.
In comparison, Jingwei Tiandi apparently also conforms to the characteristics of a “monster stock”. By the close of trading on the 16th, its stock price was HK$357, with a market value of less than HK$2 billion. This means that even with the popularity of the “new infrastructure” industry, Jingwei Tiandi is still a “monster stock” with a high investment risk in the market, and investors need to operate carefully.