AIPC is on the rise, can the not-so-hardcore EDIANYUN catch the sky-high good news?

In recent times, a new concept of "seemingly new but not really" has swept through the entire PC market.

Over the past few years, the traditional PC industry has been shrouded in the gloom of sluggish sales. However, as we enter 2024, there is a general belief in the market that the PC market seems poised to return to a growth trajectory.

According to data from Canalys, in Q4 of 2023, the global PC market saw a 3% year-on-year increase in shipments, ending seven consecutive quarters of decline. This gradual recovery in data indicates a potential industry revival. Looking ahead, according to the latest report from QYResearch "Global Laptop Market Report 2023-2029," it is estimated that the global laptop market will reach $165.67 billion by 2029, with a compound annual growth rate (CAGR) of 3.2% in the coming years.

The optimistic expectations for the future of the commercial PC industry are largely driven by the concept of AIPC.

It is reported that with the trend of generative AI, industry giants are intensifying their efforts. AI-powered PCs are expected to ignite new hopes in the PC market and kick off the "Year of AIPC" in 2024.

For example, NVIDIA recently released the locally large-scale model application ChatWithRTX, which sets a benchmark for AIPC software and hardware definitions. Intel has also launched the AIPC Acceleration Program, aiming to achieve AI features for 100 million PCs by 2025 and is about to release its first AIPC chip. Qualcomm has released the next-generation PC flagship platform Snapdragon XElite, supporting models with over 13 billion parameters. Lenovo has launched the world's first AIPC, supporting the operation of personal large-scale models.

Given this background, as a major participant in the Chinese commercial PC market, Yidian Cloud (02416) will undoubtedly benefit from the industry's recovery and the development dividends brought by new technologies.

This positive development is clearly reflected in its stock price. On February 22, Yidian Cloud's stock price began a violent surge, rising by over 30% at one point during the day, ultimately closing up by 26.89% at HKD 4.2. On the 23rd, the stock price continued to rise, closing up by 8.81% at HKD 4.57, with a total market value of HKD 26.455 billion.

(Market source: Zhitong App)

However, in terms of strength, can Yidian Cloud seize this wave of overwhelming positive news?

AIPC Rising, Riding the Wave in the Commercial PC Market

Yidian Cloud's recent skyrocketing stock price is mainly due to the favorable effects brought about by the deep development of AIPC. So, what exactly is AIPC? It is reported that in terms of shipment volume, the overall PC market shows cyclical characteristics. From 2017 to 2019, the global PC shipment volume remained stable at around 260 million units. Due to the impact of the epidemic in 2020-2021, there was an increase in demand for remote work, online entertainment, etc., leading to a rise in PC shipments. In 2021, the global PC market shipment volume increased by 15.18% year-on-year, reaching 349 million units. In 2022, influenced by global macroeconomic factors, the PC industry experienced a two-year downward adjustment.

Currently, driven by the PC replacement trend and AI integration, the global PC shipment volume is expected to accelerate, while AIPC penetration will gradually increase.

It is understood that PCs have significant advantages in scenarios, computing power, security, and more. In terms of scenarios, PCs have rich modal interaction capabilities, cover a wide range of scenarios for work, study, life, etc. AIPC can provide personalized creative services, personal assistant services, device management services, with a smooth path for commercial implementation. In terms of computing power, PCs are among the devices with the highest performance configurations owned by individuals, supporting large models at low cost and efficient response. Regarding security, PCs are important local storage terminals for individual users, where large model data does not need to be uploaded to the cloud, enabling personalized large model experiences while protecting privacy.

With PCs as the pivot, AIPC has five major features to support running large personal models. According to the "AIPC Industry White Paper," AIPC has five major features: embedding large personal models, possessing a personalized local knowledge base; having CPU, GPU, NPU local hybrid AI computing power; an open AI application ecosystem; natural language interaction capabilities; and device-level personal data and privacy protection.

(Data Source: Open Securities)

It can be seen that with the application and development of AI technology, continuous upgrades of the Windows system, and the increasing efforts of industry giants, the commercial PC market is evidently poised for a significant update cycle.

According to Canalys' forecast, by 2023, support for Windows 10 in the market is nearing its end, providing an opportunity for users to migrate to AIPC. With the increasing advantages of AI functions, commercial applications will surge, and by 2025, the shipment volume of the entire category will exceed 100 million units. By 2027, AIPC shipments will surpass 170 million units, with nearly 60% deployed in the commercial sector.

With this, for Yidian Cloud, which focuses on the commercial PC track, undoubtedly, "change is coming".

Insufficient "hard power", growth potential is questionable

For enterprises, while "change is coming" is important, "hard power" is also indispensable.

According to Zhitong App, Yidian Cloud was established in 2015. It is a technology-enabled office IT service provider that offers a one-stop office IT service to enterprise customers (mainly small and medium-sized enterprises) on a subscription basis. Its business mainly covers on-demand office IT comprehensive solutions, equipment sales, SaaS, and other office IT hosting services.

The company started with the trade of second-hand computers, originally branded as "Yidianzhu". The so-called "office IT comprehensive solution" it launched actually belongs to a leasing economy, in other words, a "computer rental".

Looking further into the business structure, the on-demand office IT comprehensive solution is the main business of Yidian Cloud. In recent years, this business accounts for over 80% of the total revenue, reaching as high as 87% in the first half of 2023. This business involves leasing computers and related office equipment to customers, helping them achieve light asset operation, and Yidian Cloud earns the price difference between the equipment and the rent.

In terms of industry prospects, with the further rise of commercial PC demand, the Chinese enterprise pay-as-you-go office IT service market where Yidian Cloud operates indeed has significant room for development.

However, in reality, Yidian Cloud is currently still trapped in the heavy asset development model, which has led to its poor fundamental performance.

According to financial report data, in the first half of 2023, the company achieved a revenue of 636 million RMB, a 3% decrease year-on-year; a loss of 882 million RMB, a 41.2% increase year-on-year; and an adjusted net profit of 28.328 million RMB, a 61.6% decrease year-on-year.

According to the company's announcement, the decrease in revenue is mainly due to the decrease in revenue from the on-demand office IT comprehensive solution. Among them, the revenue from the on-demand office IT comprehensive solution was 553 million RMB, a 5.0% decrease year-on-year, mainly due to the company lowering the subscription fees for mainstream devices to increase the number of subscribed devices based on market conditions.

While the main revenue scale shrinks and profitability declines, Yidian Cloud also shows a clear "common problem" of the heavy asset model.

In the first half of 2023, Yidian Cloud had approximately 45,000 active enterprise customers and 1.15 million devices in service. During this period, the book value of the leased computer equipment owned by Yidian Cloud was 1.369 billion RMB, accounting for over 60%. Under the heavy asset model, the equipment will continue to generate depreciation costs. While the company's revenue declined in the first half of the year, the sales cost continued to increase, also due to the increase in depreciation costs brought about by the growth in the number of devices, reaching 205 million RMB, compared to 195 million RMB in the same period last year. With the increase in depreciation costs, Yidianyun's liquidity is also relatively tight.

According to the financial report data, as of the first half of 2023, Yidianyun's total current and non-current borrowings amounted to a staggering 1.48 billion yuan, with total borrowings exceeding 1 billion yuan in recent years. The majority of these are current borrowings, reaching 1.055 billion yuan in the first half of 2023, with current liabilities at 1.594 billion yuan, making up 66% of the total.

Furthermore, the company's accounts receivable has remained high in recent years. From 2019 to the first half of 2023, accounts receivable were 91 million yuan, 112 million yuan, 195 million yuan, 214 million yuan, and 257 million yuan respectively, with a 32.34% year-on-year increase in the first half of 2023.

Perhaps due to Yidianyun's insufficient solid strength, looking at the longer term, the overall trend of its stock price has been on a downward trajectory. On May 25, 2023, Yidianyun debuted on the Hong Kong stock market at 10.19 Hong Kong dollars per share. However, as of now, the stock price has plummeted by over 50%, hitting a new low since its listing, at 2.85 Hong Kong dollars.

It is evident that for Yidianyun, whose solid strength is not strong enough, whether they can seize this wave of favorable opportunities remains a big question mark. After all, "iron must be strong to make nails," has always been more than just a saying.