CHENQI TECH (09680) "going in reverse": after half a year of listing, the stock has fallen by more than 70%, with both A and B round investors and cornerstone investors being trapped.

CHENQI TECH (09680), known as the "first stock of Robotaxi", is losing its halo, and the continued downward stock performance reflects the capital market's view on it. On July 12, 2024, CHENQI TECH successfully listed on the Hong Kong Stock Exchange. After breaking on its first day of trading, its stock price dropped nearly 60% in just 10 trading days. Later, due to the popularity of Roborun and Tesla's Robotaxi, CHENQI TECH's stock price doubled in three trading days, reaching a high of 33 Hong Kong dollars, close to the IPO price of 35 Hong Kong dollars. However, CHENQI TECH has never reached that 35 Hong Kong dollar mark. After fluctuating at a high level for several trading days, it started a new round of downward trend. By January 14, CHENQI TECH's intraday low had dropped to 10.02 Hong Kong dollars, representing a maximum decline of 71.37% from the IPO price in just six months. This means that at 10.02 Hong Kong dollars, investors in the founding round have incurred slight losses, while investors in the A and B rounds have been deeply trapped, and cornerstone investors have seen their capital reduced to less than 30% in just over half a year. It is worth noting that on January 10 of this year, CHENQI TECH's controlling shareholders and several other shareholders saw the lifting of restrictions on the sale of shares, but due to limited liquidity, this has become a distant hope. In the nine trading days leading up to January 14, CHENQI TECH's total trading volume was only 1.3564 million Hong Kong dollars, with an average daily trading volume of only 150,000 Hong Kong dollars. With such limited liquidity, even if shareholders wanted to sell their stocks to stop the bleeding, they could not support the selling of stocks. Investors cannot help but wonder, how did CHENQI TECH end up in such a dire situation? All three rounds of investment introduced have incurred losses In fact, during the IPO stage, CHENQI TECH's performance was lackluster. According to the distribution results announcement, CHENQI TECH issued approximately 30 million shares at its IPO, accounting for 14.7% of the issued shares after listing. CHENQI TECH planned to issue about 3 million shares in the public offering, accounting for about 10%; and 27.043 million shares were issued under international placement, accounting for about 90%. From the proportion of the expected issue, CHENQI TECH did not want new investors to have too many chips in their hands, and this plan was achieved because the public offering was not fully subscribed. Data shows that the subscription rate for the public offering of CHENQI TECH was only 0.6 times, with the sentiment of new investors in the primary market being relatively low. Therefore, the actual shares subscribed for the public offering were only 1.803 million shares, accounting for about 6.01% of the total shares issued. Since the public offering was not fully subscribed, some shares were recalled and placed under the international placement. The final number of shares sold in the international placement was 28.205 million, accounting for about 93.99% of the total shares issued. It is worth noting that in its international placement, CHENQI TECH introduced four well-known cornerstone investors, including GAC Group, Voyager (Didi Autonomous Driving), and WeRide. They subscribed for 35.2%, 22.09%, and 14.72% of CHENQI TECH shares at the IPO price of 35 Hong Kong dollars, respectively. The total subscription by cornerstone investors accounted for a high proportion of 77.06% of the total shares issued. GAC Group, a current shareholder of CHENQI TECH, and Voyager, a close associate of current shareholders, clearly have confidence in CHENQI TECH's future development. But even after most of the shares were subscribed by the four major cornerstone investors, CHENQI TECH's international placement was only oversubscribed by 1.17 times. Since cornerstone investors have a one-year lock-up period, they can start selling their shares on July 10, 2025. Therefore, in the first six months after CHENQI TECH went public, the available floating shares in the market were only about 1.803 million shares from the public offering and about 5.079 million shares not subscribed by cornerstone investors under the international placement, totaling 6.881 million shares, accounting for on... (continued in next comment)Outside, CHENQI TECH will have restrictions on the shares held by up to 30 shareholders introduced during multiple rounds of financing lifted on January 10th. These 30 shareholders collectively hold 54.76% of CHENQI TECH's shares. Among them, Tencent Mobility Limited, a subsidiary of Tencent, holds the largest stake at 15.87%, while the remaining 29 shareholders hold stakes of less than 5% each.Obviously, the pressure of lifting the ban on CHENQI TECH is relatively high, after all, the shareholders are numerous and their holdings are quite scattered. However, the fact that the stock price of CHENQI TECH has dropped to its current level has led to significant unrealized losses for investors. In addition, the lack of liquidity cannot support further reduction in holdings. Therefore, the risk of reducing holdings is not easy to materialize until the stock price of CHENQI TECH rises significantly. Continued losses are difficult to resolve, and financial pressure continues to intensify. From a fundamental perspective, the biggest problem facing CHENQI TECH is the continued significant losses. Data shows that from 2021 to 2023, CHENQI TECH's revenues were 1.012 billion, 1.25 billion, and 1.814 billion RMB respectively, with a compound annual growth rate of about 33.8% over the three years, achieving continuous rapid growth in revenue. However, in terms of profitability, CHENQI TECH reported adjusted net losses of 669 million, 531 million, and 541 million RMB from 2021 to 2023, with corresponding net loss rates of 66.11%, 42.48%, and 29.82% respectively. Although there is a clear downward trend in the net loss rate, the absolute value of the net loss is still significant, totaling 1.741 billion RMB over the three years. The continued rapid growth in revenue and the significant decrease in the adjusted net loss rate are directly related to CHENQI TECH's integration of third-party travel service platforms on its platform. There are two obvious advantages to integrating third-party travel service platforms: it can more efficiently match drivers and passengers, effectively reducing customer wait times, increasing acceptance rates and customer experience, thereby attracting and accumulating more users. Secondly, it can effectively reduce the service costs of the platform, thereby increasing the platform's profitability. Data shows that from 2021 to 2023, the transaction volume of orders placed by CHENQI TECH on third-party travel service platforms accounted for 16.0%, 28.7%, and 59.6% of the total transaction volume of the company's ride-hailing services, with the proportion of third-party transactions reaching sixty percent. After the significant increase in the proportion of third-party transactions, CHENQI TECH's gross profit margin from travel services was -24.2%, -12.2%, and -9.3% from 2021 to 2023, indicating a gradual improvement in the profitability of travel services, coupled with the increase in technical services, fleet sales, and maintenance services, which have improved the company's overall profitability margin to -7% in 2023. In the first half of 2024, the increase in order volume drove a growth of 11.1% in travel service revenue, coupled with the continuous increase in technical services, fleet sales, and maintenance services, resulting in total revenue for CHENQI TECH for the reporting period of 1.037 billion RMB, a year-on-year increase of 13.6%, maintaining continuous growth on the revenue side. During the reporting period, the overall gross profit margin of the company improved to -3.1%, an increase of 4.6 percentage points compared to the same period in 2023, mainly due to the gross profit margin of travel services improving from -9.8% in the same period of 2023 to -4.6%. CHENQI TECH stated that the improvement in the gross profit margin of travel services is due to the reduction in rewards provided to customers and drivers, as well as the decrease in management fees paid to fleet partners. It is believed that there may be relatively limited room for further significant decline in the gross margin of travel services. In the current economic environment, there has been a significant increase in ride-hailing drivers, providing feasibility for reducing driver rewards. However, the ride-hailing industry is highly competitive and may not have the possibility to continuously reduce customer and driver rewards. Furthermore, even if travel services achieve a gross profit, CHENQI TECH is still far from breaking even. By observing the company's past expense outlays, sales and marketing expenses, general and administrative expenses, and research and development expenses all total more than 400 million RMB, which may indicate that in the next year or two, CHENQI TECH will continue to incur losses. As of June 30, 2024, CHENQI TECH's cash and cash equivalents totaled 373 million RMB, a reduction of nearly 40% from about 613 million RMB at the end of 2023. Looking at the level of available cash, CHENQI TECH does not have much time left, and it needs to start addressing its financing issue. The most valuable aspect of CHENQI TECH is its layout in the Robotaxi sector. From entering the autonomous driving market in 2021 through cooperation with partners, by 2023, CHENQI TECH had become the first domestic travel service platform to demonstrate operations with a self-developed Robotaxi fleet. As of December 31, 2023, CHENQI TECH's Robotaxi service had operated for a total of 20,080 hours, covering 545 sites, and completing approximately 451,000 kilometers of safe trial operation. As of the same date, a total of 281 vehicles were integrated into its Robotaxi operating technology platform. However, for the Robotaxi industry, the commercialization inflection point has arrived, but there may be a lack of a significant breakthrough in the short term. After all, ride-hailing services provide a large number of employment opportunities, and to avoid impacting employment levels, the government will also be relatively cautious in promoting the commercialization of Robotaxi services. CHENQI TECH also stated in its prospectus that regardless of whether the company's Robotaxi services can be commercialized, the company will not be able to achieve a balance of income and expenses in 2024, 2025, 2026, and 2027. In conclusion, with only 3.37% of CHENQI TECH's shares circulating on the market, while the stock price has dropped significantly, this is directly related to the continued difficulty in resolving losses. The rapid depletion of available cash will continue to increase financial pressure, and the lifting of restrictions on the sale of shares will become the biggest negative factor for future stock price increases. However, it cannot be denied that as a pure-play Robotaxi company, CHENQI TECH has great potential in the sector.Subject, once Robotaxi becomes a hot topic again, there is also a likelihood of speculative trading for CHENQI TECH, whose valuation bubble has already been somewhat cleared.I couldn't sleep last night.