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Where is the hope that the mining machine shares will fall 4.4% on the first day of listing?

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At 09:30 on the evening of June 26, Yibang International officially landed on NASDAQ at “Yun Zhong Zhong” in Hangzhou, becoming the “second stock of mining machine” after Jiannan Yun Zhi.

Its stock symbol is EBON, to sell 19.26 million common shares at a price of $5.23 per share, with a total fund-raising size of about $100.75 million and a total market capitalization of $685 million.

After opening, the price of Yibang fell all the way, hitting as low as $3.81, and the final closing price was $5, down 4.4%. With the same day to the United States listing, the highest rise of more than 150% of another Chinese stock sound network (API) contrast fiercely.

Unlike the listing of Jiannan, the most popular “mining machine stock” in the industry at the end of last year, Yibang’s listing has not aroused much public opinion, and many views have been clearly expressed pessimistic about this mining machine stock with a price-to-earnings ratio of-14.6.

Among the head miners, the shortcomings of Yibang International are obvious: the performance of mining machines is at the bottom, the sales model of major customers is risky, and the sales network needs to be expanded. Compared with Jiannan, there is also a significant gap in the operating capacity of Yibang International in selling inventory and closing funds.

And Jiannan, mired in a swirl of public opinion and a quagmire of class action, whose market capitalization has fallen 78% from the time of listing, has also made the “mining machine stock” track itself questionable. With gross profit and net profit PE all negative, bitcoin production halved and currency prices not improving, and the argument that mining machines are a sunset industry, how to get investors to pay for the “super story” is the first problem.

However, the DapperLabs found that there are still a lot of biased analysis, misreading of data and lack of understanding of the mining machinery industry about the listing of Yibang in the media.

For example, Yibang International has a certain proportion of debt operations, but it is still within the normal range, and the customer litigation that some investors are worried about will not affect the fundamentals of Yibang International.

Therefore, in this paper, we will make a comprehensive interpretation of “Mining Machinery second share” from the aspects of data and information, business development and industry prospects.

Which of the two mining stocks is worth buying?

As the “second share of the mining machine”, people will inevitably compare it with the “first share of the mining machine” Jia Nan Yun Zhi.

Yibang International was founded in 2010, the early development and production of communication network access equipment as the industry. By the end of 2016, at the beginning of the Bitcoin bull market, the first Bitcoin miner was released into the market, about four years later than Jia Nan Yun Zhi.

The two companies are almost in step when it comes to going public. From seeking the listing of Hong Kong stocks to now landing on NASDAQ, and as a company among miners to disclose the latest performance, we can see some interesting phenomena in the horizontal comparison between the two.

Market capitalization.

Recently, the industry often uses the term “Yibang = half Jia Nan Yun Zhi” to describe the relationship between the two.

Jiannan Technology (Canaan Inc.). Listed on NASDAQ on November 20, 2019 eastern time, the offering price was US $9 per ADS (American depositary shares). The price has plunged several times and has shrunk severely, and so far the current price has fallen by more than 78% from the issue price.

In terms of total assets, Yibang International’s liabilities and shareholders’ equity total US $82 million, which is about 59% of Jiannan Yun Zhi’s total assets. The market capitalization of Jiannan Yunzhi IPO once reached US $1.4 billion, which is twice the market value of Yibang IPO.

Yibang’s market capitalization was $655 million after the first day of trading because of the shrinking market capitalization of Jiannan, which is now 2.2 times that of Jiannan.If you really want to bet on the mining machine track, compared with Buy Bond International, Jiannan Yunzhi’s current market capitalization of 300 million US dollars can be described as a “value depression”.

Business composition.

The proportion of mining machine sales and related revenue of the two miners is quite high.

According to the prospectus, over the past two years, mining machinery sales accounted for more than 99 per cent of Jiannan Yunzhi’s total revenue, while Yibang International’s share of mining machinery and accessories sales fell sharply, from 96.3 per cent in 2018 to 82.4 per cent in 2019. At the same time, the share of revenue from mining machine operation and maintenance increased significantly, from 2.6 per cent to 14.5 per cent, while the share of revenue from non-mining business (sales of telecommunications equipment) also increased slightly, from 1.2 per cent to 3.1 per cent.

Yibang International, which accounts for a relatively low share of mining machine sales, is said by some to be “less dependent on Bitcoin mining”, which is actually not true.

According to the prospectus, in 2019, Yibang International earned US $109 million from the sale of mining machines and US $15.7 million from mining machinery trusteeship and operation and maintenance, accounting for 96.9 per cent of Yibang International’s total revenue. Although it is in different links of the mining industry chain, it is deeply affected by the rise and fall of the mining industry.

Especially from last year to this year, at a time when the new and old mining machines are being replaced, there is an obvious surplus in the mine used to host the mining machine, which can hold up to four small mining machines. Therefore, Yibang International does not have much room for growth in expanding the mining machine operation and maintenance service line, and it is also unable to build a moat for the business.

Therefore, it is only a superficial statement that Yibang International’s business is more than Jiannan Yun Zhi.

Business performance.

As can be seen from the picture below, Yibang International’s sales revenue fell sharply in 2019, from catching up with Jia Nan Yun Zhi in 2018 to only half that of Jia Nan Yun Zhi.The most striking results of the two companies are gross profit (rate), net profit (rate) and year-on-year data, both of which are negative, that is, each time the two companies sell a mining machine, they declare a loss.

But it is not the same. In 2018, the net profit of Yibang International has been negative, and the gross profit is very low. Compared with Jiannan Yunzhi in the same period, we can see that the cost of sales and operating costs of Yibang International is higher.

This year, the situation began to reverse. In the case of declining revenue, Yibang International’s cost of sales and operating expenses also dropped accordingly. While Jiannan Yunzhi’s income fell by 47%, operating costs only decreased by 11.77%, while operating expenses increased by 43.57%, and the corresponding net interest rate reached an astonishing-72.7%. Therefore, the problems that Jiannan Yunzhi may have, such as improper cost control and poor management, have also been criticized.

In its prospectus, Yibang International said its net loss this year had increased by 3.5 times because of a sharp reduction in local government tax rebates.

Looking at its prospectus, Yibang International’s VAT rebate was less than $10,000 in 2019, while it reached $27.36 million in 2018, close to a loss. However, it is normal for enterprises to pay taxes, and tax incentives are short-term dividends that cannot last for a long time. Yibang International should take countermeasures as soon as possible.

Operating capacity.

The indicators that test the company’s operating ability also include inventory turnover, accounts receivable turnover and total asset turnover.

Comparing the data of Jiannan Yunzhi and Yibang International, we can see that the inventory of Jiannan Yunzhi is sold quickly, the final payment is recovered quickly, and the capital utilization rate is high, which reflects its higher status in the industrial chain and more efficient operation.Yibang International Financial report, Source: Oriental Wealth Network.Jiannan Yun Zhi Financial report, Source: Oriental Wealth Network.

Potential risk analysis, who is true and who is false?

After the listing, Jiannan Yunzhi’s first-quarter results “changed face”, coupled with the litigation storm of “financial fraud”, the share price of Jiannan has fallen to 21% of the issue price. The poor performance of Big Brother Jiannan Yun Zhi has investors worried about whether Yibang International will be even worse. Indeed, the future performance of mining machinery stocks is not optimistic in all aspects.

The most uncompetitive mining machine.As shown in the picture above, Yibang International’s Yipbit mine has the lowest computing power (the highest 44Th/s) and the highest energy consumption ratio (57W pump J, the lower the better), which is at an obvious disadvantage among head miners; its market share (5.76%) is only half that of Jiannan Yun Zhi.

Historically, the performance of wingbit miners has lagged behind head miners most of the time.The change of Mining Power consumption of five Mining Machinery Brands.

Source: official website of miners, production of: BitMEX Research, data as of June 2020.

To B sales model.

For a long time, Yibang International’s sales model is oriented to enterprise customers. According to its prospectus, Yibang International’s mining machines all adopt the direct sales model, without any distributors, agents and channels.

Interestingly, between 2018 and 2019, the top three customers contributed 34% of their revenue to Yibang International, and the top 10 customers contributed 57%.

The advantage of the model for large customers is that the cost of sales is low, but the profit is low, the degree of dependence is high, and once the customer is lost, the loss is heavy.

Debt operation.

In its updated prospectus on June 17, Yibang International raised the maximum amount to be raised from US $100 million to more than US $144 million, which was interpreted as “Yibang International is in urgent need of short-term financing.” other media cited its large-scale loans (statistically outstanding loans of US $32 million) to prove it.

But this may not be the case.

Let’s first take a look at the proportion of billions of states’ international debt operations.

According to the prospectus, as of December 31, 2019, the total debt of Yibang International reached 57.04 million, down 30% from 2018; at the same time, the asset-liability ratio reached 69.05%, up from 2018, and quite high compared with 30.12% of Jiannan Yun Zhi.

But there is no doubt that mining machine production is a heavy investment, long-term business, debt operation is inevitable.

According to the prospectus, as of December 31, 2019, Yibang International had inventories and receivables of $62.45 million, exceeding the total liabilities, and the realization cycle of accounts receivable and inventory was 50-130 days, that is, the $60 million has most likely become cash flow.

Let’s take a look at Yanan Yun Zhi before the listing. In 2018, the new loan was 276 million US dollars, and the asset-liability ratio was as high as 82.8%. After listing, at the end of 2019, the borrowing phenomenon was alleviated, and the asset-liability ratio decreased by 3% and 4%.

Being caught up in litigation is not a serious problem.

At the time of the listing, Yibang International still has a number of outstanding lawsuits. Many analysts believe that the decisions of these lawsuits will bring uncertainty to their share prices.

But the dispute does not mean that Yibang International is at a disadvantage.

Many of these disputes are lawsuits brought by customers of Yibang International over disputes over product quality, delivery and so on.

Let’s take a look at a lawsuit that has been closed. On September 3, 2018, a customer filed a civil lawsuit with the Hangzhou Intermediate people’s Court, alleging that Yibang International had (1) delayed delivery of some products in an order valued at $1.9 million in December 2017; (2) the product failed to meet the advertised performance and claimed a loss of US $7.7 million from Yibang.

On November 5, 2019, the Hangzhou Intermediate people’s Court rejected most of the plaintiffs’ requests and only ordered Ebang, Zhejiang, to pay the plaintiffs a total of $26000 in liquidated damages and logistics fees. The plaintiff’s second complaint was also dismissed.

This precisely shows that mining machine manufacturers have a greater say in the industry because of centralization and monopoly, and because mining machine products have no industry standards and no laws to follow, so it is difficult for users to protect their rights. DapperLabs once reported tens of millions of bits of mainland “problem mining machines,” and miners have not received clear legal support so far.

As a result, most of the order disputes are not enough to affect Yibang’s fundamentals.

Mining machine is already a sunset industry?

Bitcoin mining is also reaching the ceiling at a time when block production is falling and currency prices have been trading sideways for a long time but participants are constantly raising bets.

According to Frost Sullivan (Frost& Sullivan), the global market for bitcoin miners grew from 1.1 billion yuan in 2014 to 21.4 billion yuan in 2018, a compound annual growth rate of 110%. In the next five years (2023), the bitcoin mining machine market is expected to reach 31.7 billion yuan, with a compound annual growth rate of 8.2%.From a growth of 100% to a gross profit of less than 5% and a negative net profit, the “mining tycoon” manufacturers are no longer as legendary as before, and the rise of the industry still needs to observe the “currency” and “price”. But I am afraid that the long horizontal market and bear market will make investors impatient.

Yibang Development Roadmap and concept Unit.

In January 2010, Zhejiang Yibang Communication Technology Co., Ltd. was established, mainly engaged in the production and development of communication network access equipment. In 2014, it began to research and develop BPU,2015 to enter the new third board as “Zhejiang Yibang”. By the end of 2016, Yibang, which released the first bitcoin mine wing E9 + to enter the market, successfully boarded the bull market express in the currency circle, removed its cards from the new third board at the beginning of 2018, and moved to the Hong Kong stock market after restructuring. However, the application for listing was submitted twice but failed.

On April 24, 2020, Yibang International’s prospectus for listing in the United States was disclosed and updated on June 19.

DapperLabs has made comprehensive statistics on the miner concept stocks in the A-share market. Among them, Yinjiang shares (SZ300030), China Railway shares (SH603300) and Zhongying Interconnection (SZ002464) are strongly related to Yibang International.

Yinjiang shares and China Railway shares have risen gratifyingly since June, with the highest increases of 20% and 25% respectively, but they are mainly affected by the advantages of the main business.

Whether Yibang International can hand over an answer that is different from “Mining Machine first share”, the market and time will give the final result. And the time window left for another mining giant, bit Continental, which has also sought to go public several times, is not too long.