What are the points worth noting in the Jianan Zhizhi prospectus?

Author | Qin Xiaofeng

Produced | Odaily Planet Daily

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According to Coindesk, Canaan Creative, the world's second-largest miner bitcoin manufacturer, officially submitted its initial public offering to the Securities and Exchange Commission (SEC) on October 28, local time.

The instructions show that the company intends to list on the NASDAQ under the ticker symbol CAN and set aside $400 million in funding. The final fundraising amount, valuation and price per share are not yet determined.

According to Cointelegraph, in July of this year, Jia Nan Zhi Zhi submitted an application for IPO draft to US regulators, raising funds of 200 million US dollars. In May 2018, Jia Nan Zhi Zhi tried to go public in Hong Kong, but he did not do so. At that time, people familiar with the matter said that Jianan Zhizhi’s proposed fundraising scale was $1 billion.

AB share model

In the application, Jia Nan said: According to the applicable US Federal Securities Law, we are an “emerging growth company” that meets the requirements for lowering the reporting requirements of listed companies.

(Odaily Planet Daily Note: "Emerging Growth Companies" companies require annual total revenues of less than $1.07 billion, and reports on relevant information can be reduced as required.)

The IPO underwriters include: Credit Suisse, Citigroup, China Renaissance, China Merchants Bank, Huatai Securities, Tiger Securities, and Galaxy Digital.

Jianan Zhizhi’s IPO to the US will adopt a dual-equity structure of Class A common shares and Class B common shares. Class A common shares and Class B common stock holders enjoy the same rights except for voting rights and conversion rights. Each Class A common share has one vote, while Class B common shares enjoy 15 votes. Class B common shares can be converted into Class A common shares at any time, while Class A ordinary shares cannot be converted into Class B common shares. In the absence of over-allocation, Chairman and CEO Zhang Nanyu owns all Class B common stock. However, the specific proportion of Class B common stock in total share capital and voting rights is not disclosed in the prospectus.

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In addition, the prospectus disclosed that the main body of the company that Jianan Zhizhi went to the US was Jianan Technology. The prospectus shows that "Jianan Technology" is a company incorporated in the Cayman Islands with an exempted company. The company's affairs are governed by the memorandum and articles of association, as well as the amended Cayman Islands company law and the general laws of the Cayman Islands.

Declining income

According to the prospectus, the total income of Jianan Zhizhi increased from 1.381 billion yuan in 2017 to 2,705.3 million yuan ($394.1 million) in 2018, an increase of 106.8%. During the same period, its net profit fell by 67.4%, from 375.8 million yuan to 122.4 million yuan (17.8 million US dollars).

In the six months ended June 30, 2018, Jianan Zhizhi’s total income was 1.947 billion yuan; but in the six months ended June 30, 2019, Jianan’s total income was only It was 288.8 million yuan ($42.1 million), a decrease of 85.2%.

In the six months ended June 30, 2018, Jianan Zhizhi's net income was 216.8 million yuan, adjusted net income was 226 million yuan; for the six months ended June 30, 2019, its net loss was It was 303.09 billion yuan ($48.2 million) and the adjusted net loss was 109.9 million yuan ($16 million).

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In the application, Jia Nan Zhizhi also explained the reason for the decrease in income: Bitcoin prices will directly affect the market demand and price of Bitcoin mining machines. “The fall in bitcoin prices in 2018 also led customers who purchased our bitcoin mining products by credit to be less willing to pay.”

Bitcoin prices fell sharply in 2018, and remained relatively low by the end of the first quarter of 2019; and bitcoin prices have rebounded to some extent since the second quarter of 2019. “We expect operating results to improve with the recovery of bitcoin prices in the second quarter of 2019.”

The main source of income is also disclosed in the prospectus. “In 2017, 2018 and the six months ended June 30, 2019, our Bitcoin mining machines and other Bitcoin mining machine parts and accessories accounted for 99.6% of our revenue, 99.7% and 99.4%. If the market for Bitcoin miners no longer exists or is significantly reduced, our Bitcoin miners will suffer significant sales losses, order cancellations or customer churn."

Among them, Chinese users are the main customers of mining machines. In 2017, 2018 and the six months ended June 30, 2019, revenue from Chinese customers accounted for 91.5%, 76.1% and 87.9% of Jianan's total revenue, respectively.

“Most of our revenue comes from sales to Chinese customers. Any adverse developments in China's regulatory environment can have a negative impact on our business.”

In the prospectus, Jia Nan Zhizhi also disclosed research and development investment in technology. In 2017, the annual R&D investment was 25.1 million yuan; in 2018, the annual investment was 9.6 million yuan, a drop of 60%; in the first half of 2019, it was 4.8 million yuan, which was the same as last year.

According to the prospectus, the company's AI related products realized RMB 500,000 in revenue in the first half of this year, and the income of AI products in the second half of 2018 was RMB 300,000. Prior to this, such products have been produced without income. Jia Nan Zhi Zhi announced to the outside world in 2016 that the company is developing edge computing chips based on artificial intelligence.

In addition, Jia Nan Zhizhi also announced the sales and price of its various batches of mining machines. Among them, the latest Aaulon A10 series released in March this year, as of the end of June this year, sales of 490 units. The mining price is 7038 yuan, the cost is 5640 yuan; the rated power can reach 31TH/s, and the energy consumption ratio is 56W/T (the lowest power consumption can reach 50W/T).

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Mining machinery companies get together

In 2016, Jianan Zhizhi plans to acquire the 100% equity of the company through the A-share listed company Luyitong (13.900, 0.10, 0.72%) and launch it on the Shenzhen Stock Exchange. Even though the Shenzhen Stock Exchange sent a letter to ask many times, the listing plan of Jianan Zhizhi was temporarily suspended.

In August 2017, Jia Nan Yu Zhi applied for the listing of the new three board. After three rounds of inquiries, I still failed to get listed. In May 2018, Jia Nan Yu Zhi officially submitted a prospectus application to the Hong Kong Stock Exchange, intending to list on the Main Board of Hong Kong in the form of red chips. However, after six months, the official website of the Hong Kong Stock Exchange classified Jia Nan’s listing application as “invalid”, and the listing plan was once again stranded.

In June and September of the same year, Yibang International and Bitian China submitted IPO prospectus to the Hong Kong Stock Exchange, but they failed to get what they wanted.

There are many reasons for hindering the listing of mining companies, but the most fundamental is the volatility of the encryption market and the uncertainty of the policy.

At present, China's attitude toward cryptocurrency is still conservative, and the main customer base of the three major mining machine manufacturers is Chinese users. Once the policy announces a total ban on trading mining, the blow to mining companies will be devastating.

In addition, fluctuations in the encryption market will also affect the demand for mining machines. In the bull market in 2017, the price of mining machines was once fired to 20,000 to 30,000. However, in the bear market in 2018, the situation of mining machine sales has repeatedly appeared.

At present, the success of Jianan's smart listing is still unknown. It is expected that the final IPO time will be from November 20th to November 25th. Once the successful IPO is completed, Jianan Zhizhi will become the first successful mining company in China.

Hong Kong stock companies favor mining machine manufacturers

In the process of listing of mining machine manufacturers, some Hong Kong stock listed companies have begun to plan ahead.

On October 27, Hong Kong stock company Xiong'an Technology officially announced that since October 27, 2019, Hangzhou Xiong'an Weicheng Technology Co., Ltd., a wholly-owned subsidiary of the company, has entered into a strategic cooperation framework with Hangzhou Jianan Zhizhi Information Technology Co., Ltd. protocol. According to the agreement, both parties agree that Xiong'an Weicheng intends to purchase or distribute the blockchain equipment of no more than US$150 million to Jianan before December 31, 2020. Jianan will provide Xiongwei Weicheng with The corresponding preferential price and technical guidance.

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This morning, the Hong Kong stock listed company Madison Holdings (08057.HK) also announced that it will cooperate with Yibang.

The announcement shows that Madison Holdings and mining machine manufacturer Yibang Communications have entered into a non-legally binding memorandum of understanding regarding potential business. According to the agreement, Madison will acquire the blockchain computing equipment, cryptocurrency mining machine and computing chip with a total amount of not more than 100 million US dollars before December 31, 2020. Yibang will provide corresponding preferential prices and technical guidance; Mori will establish an investment fund to be managed by CVP Asset Management Limited, a wholly-owned subsidiary of the company, to invest in companies and projects in the blockchain industry.

Whether the advance layout of listed companies in Hong Kong stocks can pave the way for the listing of mining companies is still a question mark.