Overvalued + cornerstone unlocking, short-term impressive performance difficult to save Tianjudihe still stuck in the quagmire of breaking

Recently, there have been frequent industry policy releases related to data elements. On October 8th, the National Development and Reform Commission, the National Bureau of Statistics, and six other departments jointly issued the "Guidelines for the Construction of the National Data Standard System". On October 9th, the General Office of the CPC Central Committee and the General Office of the State Council released the "Opinions on Accelerating the Development and Utilization of Public Data Resources". These two documents can be seen as the industry's top-level design, indicating that the development of the data elements industry is expected to hit the "acceleration key".

Against this backdrop, the market has begun to explore the core targets of data elements, and Tianjudihe (02479), which went public with the title of "the first stock of data elements", has entered the investors' view.

However, the performance of Tianjudihe since its listing has been unsatisfactory, showing a huge disparity of "high opening and low closing". During the IPO stage, the new stock market clearly warmed up, with high market sentiment. As a result, Tianjudihe's public offering was oversubscribed by 618 times, and the chips were sought after by retail investors. The stock price also soared by over 40% on the first day of listing. However, in the last half hour before the close, Tianjudihe's stock price plummeted, closing down by 27.82%, directly breaking the issue price, with an intraday volatility of nearly 70%.

Although the stock price recovered slightly in the following two trading days, it did not affect Tianjudihe's downward trend. Its stock price continued to fluctuate and fall, dropping to a low of HKD 49.6 per share, a decrease of 40.48% from the issue price of HKD 83.33.

By mid-September, the Hong Kong stock market started to rise, and Tianjudihe's stock price also followed the market's upward trend, gradually rising above HKD 70, with a maximum increase of over 50%. However, it has still not been able to break free from the quagmire of breaking the issue price. Now, a new challenge lies ahead of Tianjudihe, as the 3.836 million shares subscribed by four cornerstone investors during the IPO stage will be unlocked on December 27, 2024, undoubtedly putting pressure on the company's stock price. The market is curious about the future direction of Tianjudihe's stock price under the pressure of the lock-up shares being released.

A series of measures to stabilize the stock price, yet smashed on the first day of listing

In a bear market environment, to provide a relatively comfortable exit environment for pre-IPO investors such as VC/PE and facilitate market value management, some small-cap new stocks often make some special "preparations" when they go public. This includes "beggar-style issuance" and "routine callback". "Beggar-style issuance" refers to a very low proportion of issued shares to the total share capital to achieve more effective price control; "routine callback" refers to lowering the callback ratio during oversubscription to reduce the chips in the hands of retail investors for subsequent price management Looking back at the history of new stock offerings, "distressed version issuance" and "manipulative callback" are not uncommon. Automobile Street (02443), which successfully listed on the Hong Kong stock market on May 31 this year, is a typical case of "distressed version issuance" + "manipulative callback", but it failed to prevent its stock price from "knee-cutting". In addition, Mai Fushi (02556) and Beisen Holdings (09669) both experienced "distressed version issuance", while Yisou Technology (02550) engaged in "manipulative callback". Tianjudihe, on the other hand, crossed the red line of "distressed version issuance" and carried out a "manipulative callback".

Generally speaking, most companies choose to issue 25% of their shares in a Hong Kong IPO, while less than 10% is referred to as a "distressed version" IPO. According to the prospectus, Tianjudihe issued 4.8182 million shares at the time of listing, accounting for 9.61%, slightly below 10%. In terms of callback, according to the callback mechanism, if the oversubscription is 100 times or more, it needs to be callbacked to 50%. However, in the actual allocation process, if the oversubscription in the public offering part is much higher than in the international placement part, the callback can only be up to 20% at most. This allocation method is usually referred to as "manipulative callback", with the purpose of not distributing too many chips to retail investors. Tianjudihe's public offering was oversubscribed by 602.87 times, but the international placement was only 0.99 times, undersubscribed. Therefore, after the callback, the public offering accounted for only 18.41%, with over 80% of the chips in the hands of institutional investors.

In addition to the "distressed version issuance" + "manipulative callback", in order to further stabilize the chips and boost the stock price, Tianjudihe introduced four cornerstone investors who collectively subscribed for approximately 3.836 million shares. Among them, Reynold Lemkins of Rui Kai Group subscribed for approximately 1.4062 million shares, accounting for 29.19% of the issued shares; Suzhou Industrial Park Industrial Investment Fund subscribed through Yuanfeng International Limited for 11.1323 million shares, accounting for 23.5% of the issued shares; the Overseas Investment Platform of Xuzhou Economic and Technological Development Zone Committee subscribed for approximately 0.9375 million shares, accounting for 19.46% of the issued shares; and Gold Wings subscribed for approximately 0.36 million shares, accounting for 7.47% of the issued shares.

It is worth noting that the shares subscribed by the four cornerstone investors account for a high proportion of 79.62% of the globally issued shares, while the proportion of shares in the international placement is 81.59%. This means that the vast majority of shares in the international placement were actually subscribed by the cornerstones, and less than 2% of the shares in the international placement were undersubscribed, indicating that institutional investors are not optimistic about the fundamentals of Tianjudihe Also because of this, even though only 20.38% of Tianjudihe's chips are currently available for trading, equivalent to about 1.96% of the company's total shares, Tianjudihe's stock price is still significantly breaking. As of the close on October 17th, the four cornerstone investors are still floating a loss of about 16%. The approximately 3.836 million shares held by the four cornerstone investors will be officially unlocked on December 27th. If the cornerstone investors sell shares at that time, the selling pressure will pose a significant challenge to Tianjudihe's stock price performance.

Intensified Market Competition, Revenue Growth Without Profit Growth from 2021 to 2023

From another perspective, the company's use of the "beggar version issuance" + "routine callback" method is actually a manifestation of lack of confidence in its own fundamentals. When combined with the high proportion of cornerstone investors locking up international placement chips but still subscribing insufficiently, as well as the stock breaking on the first day of listing, it may be that Tianjudihe's fundamentals are not as good as they seem. Is this the case? The answer can be found in the prospectus.

Tianjudihe is a comprehensive API data circulation service provider in China, providing standard API services and customized data management solutions to internet companies, telecom operators, tech companies, other commercial and government organizations, application developers, and tech professionals.

Since the launch of the API market in June 2011, Tianjudihe has developed over 770 proprietary APIs. By 2023, the API market had processed over 120 billion API requests. Tianjudihe's clients include well-known enterprises such as Tencent, Alibaba, Baidu, NetEase, Meituan, China Mobile, China Unicom, China Telecom, and many other internet companies, application developers, and individuals. As of December 31, 2023, the API market provided over 380 proprietary APIs to customers.

Revenue from aggregated data mainly comes from the API market, including queries, SMS notifications, recharges, and revenue from data governance solutions. Among them, API market revenue accounts for the majority, reaching as high as 77.6% in 2023, while revenue from data governance solutions accounts for 22.4%.

In terms of performance, driven by the continuous growth of API market revenue, Tianjudihe's revenue from 2021 to 2023 was 260 million, 329 million, and 441 million yuan, with a compound annual growth rate of over 30%. Clearly, the API market has become a strong driving force for Tianjudihe's revenue growth.

However, while overall revenue is growing rapidly, Tianjudihe's profitability is declining rapidly. According to the prospectus, from 2021 to 2023, Tianjudihe's gross profit margins were 34.6%, 32.7%, and 28.3%, respectively, with corresponding net profit margins of 17.7%, 12.6%, and 7.9%. The decline in net profit margin far exceeds that of gross profit margin, leading to Tianjudihe's net profit decreasing year by year despite rapid revenue growth, with net profits of 45.966 million, 41.284 million, and 35.061 million yuan from 2021 to 2023.

The main reason for the decline in gross profit margin is the intensified competition in the API market. The company can only lower prices for certain non-core customers to maintain growth. Meanwhile, the gross profit margin of data management solutions continues to decline due to increased market competition and the enhancement of standardized products, dragging down the overall gross profit margin level. After the decline in gross profit margin, operating expenses increased due to the expansion of business scale, leading to an accelerated decline in net profit margin.

In fact, the industry where TIANJUDIHE operates is a fiercely competitive and highly fragmented market. According to Frost & Sullivan data, the market share of the top five players in the comprehensive API service market in China in 2022 is less than 20%, with shares of 8.7%, 5.2%, 3.2%, 1.4%, and 1% respectively. Based on the revenue in 2022, TIANJUDIHE's share in the Chinese API market is less than 1%.

The competition in the data management solutions market is even more intense. According to Frost & Sullivan data, there are over two thousand market participants in China's data management solutions market in 2022, with the top five participants holding a market share of about 20%. Based on the revenue in 2022, TIANJUDIHE's share in this market is only 0.2%.

In such intense market competition, how can TIANJUDIHE achieve rapid growth in overall revenue? By considering the decline in gross profit margin and the concentration of company customers, perhaps we can find the answer. According to the prospectus, from 2021 to 2023, revenue from the top five customers of TIANJUDIHE accounted for 41.1%, 43.7%, and 62.3% respectively, with the revenue share of the largest customer being 11.7%, 12.4%, and 20.1% respectively. Obviously, a few customers contribute most of TIANJUDIHE's revenue. The company's over-reliance on top customers makes it difficult to raise prices and the development of new customers is also affected by intensified competition. If demand from top customers weakens or customers are lost, it will significantly impact TIANJUDIHE's business operations.

Ignoring Short-Term Impressive Performance Under Overvalued Conditions

However, in the first half of 2024, TIANJUDIHE delivered impressive mid-term financial results. During the reporting period, the company's revenue increased by 48% to approximately 259 million yuan, gross profit grew by 61.8%, and net profit after deducting listing expenses increased by 41.9%.

From a purely data perspective, this is already a very outstanding performance. However, the stock price of TIANJUDIHE did not appreciate this performance. After the release of this performance, the stock price of TIANJUDIHE continued to decline by over 25%. Why is this the case?

Zhītōng Cáijīng APP believes that there are mainly two reasons for this situation. Firstly, in a fiercely competitive industry environment, the market is somewhat desensitized to short-term performance, while still harboring doubts about whether TIANJUDIHE can sustain long-term growth.

Looking at this mid-term performance, the revenue growth is mainly attributed to the increase in API customer demand, the increase in the number of projects delivered for data management solutions services, and the increase in unit price. API revenue increased by 40.63% to 225 million yuan, while revenue from data management solution services surged by 122.7% to 33.4 million yuan. The gross profit margin did not decline during the period, increasing from 19.9% to 21.8%. TIANJUDIHE stated that the growth in gross profit margin is mainly due to the increase in the gross profit margin of query services in the API business. Some investors believe that the growth in gross profit margin may also be related to data management solutions, as this business involves customized services. If high-margin customized services are delivered in the short term, it will also boost the company's gross profit margin. Therefore, it is evident that TIANJUDIHE needs a longer period of outstanding performance to prove its strength.

Secondly, the possibility of overvaluation may be the fundamental reason why the stock price of TIANJUDIHE ignores the impressive performance. If optimistically estimating that TIANJUDIHE can maintain a 40% net profit growth rate in the second half of 2024, then the full-year net profit of TIANJUDIHE in 2024 will reach approximately 53 million Hong Kong dollars. However, TIANJUDIHE's current market value is 3.5 billion Hong Kong dollars, corresponding to a PE valuation of 66 times in 2024, indicating a significant overvaluation. From this perspective, the stock price of TIANJUDIHE may still have downward potential, and it may continue to "kill valuation" until the company's market value matches the valuation.

In conclusion, despite taking a series of measures to stabilize the stock price, TIANJUDIHE has still fallen into the embarrassing situation of breaking the issue price. This is directly related to the company's poor fundamentals and overvaluation. Subsequently, the stock price may continue to "squeeze the bubble," and the pressure from the lifting of the two-month lock-up shares may accelerate this process. Investors need to remain cautious