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Case Study: Keda Xunfei 2017 Annual Report Future Artificial Intelligence Stars Cannot Be Deviated

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At the end of April, the 2017 annual report of A-share listed companies and the first-quarter report were fully closed, followed by industry analysts' comments and performance analysis, and the exchange's annual report will also come to the fore. The regulatory authorities from the perspective of compliance and risk. The annual report of listed companies is subject to inquiries and supervision, and many “obligatory promoters” in the market have worked tirelessly from the beginning of January to the end of April. It is also valuable to conduct a comprehensive evaluation of the listed company’s annual report.

The annual report analyzes a lot of content, but it can form an analysis routine according to its own focus, which can improve efficiency. My basic routine is to look at the risk points in the annual report first, then analyze the company's overall business style and business highlights, and finally analyze the details from the financial indicators, from the big to the small, to outline the portrait. In this way, it basically has a framework concept for the situation of a listed company, and also establishes a basic information foundation for future tracking.

I have been paying attention to it, and I just saw a friend who is asking, and I will analyze the annual report of the next big news. Keda Xunfei is a state-level backbone software enterprise specializing in intelligent voice and voice technology research, software and chip product development, and voice information services. Its core technology is " speech synthesis and speech recognition technology ." I used to make a meeting record every time I opened the performance statement. I felt that I had to write it off. Later I switched to a laptop computer and the speed was improved. I felt like the securities researcher could type in it. After writing the basic content, I wrote it. . But I am still not satisfied. I want to have a software that can automatically convert voice into text. Isn't it easy? Later, I discovered the "Xunfei Input Method" app, a fist product of Keda Xunfei, which can achieve this function to some extent. After installing the app on the mobile phone and switching to the Xunfei input method, you can speak into the microphone and automatically convert it into text. The accuracy is very high, but if it is too fast, it will be slightly delayed, and it will be fast-paced for the meeting. The record was still slightly lacking and was later abandoned. After that, I began to pay attention to the University of Science and Technology, and now I have launched APPs such as intelligent translation and speech synthesis, and set foot on voice-activated smart homes (now more in China, Xiaomi) and smart cars, becoming the dominant player in the domestic intelligent voice field. In the future, its important scientific research achievements in the field of human-computer interaction will play an important role in the arrival of intelligent society.

I. Company Profile

1. Development strategy

In 1999, the University of Science and Technology News was founded by a group of college students with a strong sense of national responsibility. The Chinese voice industry took off. In 2000, it established a laboratory with the University of Science and Technology of China and the Chinese Academy of Social Sciences. In 2005, it officially established the University of Science and Technology. The Institute, which landed in the Shenzhen Stock Exchange in 2008, has become the leading player in the field of intelligent voice technology and applications in China after nearly 20 years of development.

According to the 2017 annual report of HKUST, in 2018, it continued to adhere to the three key tasks of the board of directors to seize the international leading heights with artificial intelligence core technology, while maintaining rapid growth of active users, rapid growth in sales revenue and gross profit.

According to this description, it seems that the company still has to continue to follow the path of scale expansion. At present, education products and services account for the largest proportion of revenues, followed by information engineering. Other businesses include smart city, smart hardware, smart cars and car networking and other big data-related industries. The layout is very wide, and it is hoped that they can be strung together. The industry will not be too scattered.

2. Capital operation

Based on the development strategy, the company has also frequently acquired related technology and information technology companies in recent years, and deployed smart industries through two-legged mergers and acquisitions. But I think the core is still intelligent voice and education teaching. The former is the housekeeping skill of Keda Xunfei, and it has accumulated profoundly. Education and teaching are industries that have been favored by the market for a long time. The layout of other smart products is too unfavorable. Of course, there are also Political and legal business (public security), state-owned assets or related listed companies will have some resource advantages and can do these businesses.

3. Ownership structure

HKUST does not currently have a controlling shareholder. The largest shareholder is China Mobile Communications Co., Ltd., which holds 12.90% of the shares. It is a strategic investor who participated in the subscription in the 2013 non-public offering. The actual controller of the company is Liu Qingfeng and the assets of Zhongke University. Operating limited liability company, holding 7.57% and 4.01% respectively, Liu Qingfeng is the chairman and president of the company, the founder of the company, an adjunct professor of China University of Science and Technology, and the China University of Science and Technology Asset Management Co., Ltd. is a state-owned legal person. The main body of the asset management of HKUST.

4, dividends

Since its listing in 2008, HKUST has accumulated 10 dividends, with a cumulative dividend of 815 million yuan. The dividends are consistently good, and the annual cash dividends account for more than 30% of the net profit, which is considered a conscience enterprise.


Second, risk screening

1. Key issues

Beginning on January 1, 2018, the new audit reporting standards will be fully implemented. The audit report of the financial statements of listed companies will add “key audit matters” and disclose the personalized information related to the audited projects to increase the information content of the audit reports. Relevance and improve the transparency of audit projects. Therefore, in 2017, we should pay special attention to the key items of the initial financial statements of the A-share listed company's annual report. Although this is not the current risk point, it is a risky part in the future.

The key audit matters of the 2017 annual report of the HKUST News are “goodwill impairment test” and “revenue recognition”. It is not too much, and it is understood that it is not that there is no risk if it is not listed, but these two pairs Accountants are particularly concerned this year.

Goodwill is a by-product of the company's mergers and acquisitions and is formed by the acquisition premium. In recent years, the M&A market is in full swing, largely due to the measurement of the equity method. In particular, the valuation of Internet companies that are acquired is usually several times or dozens of times of PE, but the result is that the premium part forms a large number of goodwill lying. The assets of the enterprise cannot be digested, unless the M&A project that forms goodwill is of good quality. After the acquisition, it will continue to be profitable and the future benefits can be expected. Then there is no need to make provision for impairment, so there is no need to worry too much. You can continue to operate in the body, or resell in the future to write off goodwill, you can control the risk. However, if the situation is not as optimistic as described above, like the loss caused by the gambling failure and the large amount of goodwill impairment caused by the market merger and acquisition of game Internet companies in the past few years, the greater the goodwill, the land mine will be buried.

Look at the ratio of the total assets and net assets of the company's business reputation. According to the situation of mergers and acquisitions, it is basically stable at around 10%. To be honest, it is not high. It can also indicate that there is little risk.

The goodwill of HKUST has experienced two significant growths from before and after, from less than 6 million yuan in 2012 to 1.122 billion yuan in 2017, a full increase of 18,600%.

The first growth of goodwill occurred in 2013. The company acquired Guangdong Qiming Technology Development Co., Ltd. (later renamed “Guangdong Xunfei Qiming Technology Development Co., Ltd.”), and the premium formed a goodwill of RMB 347,017,900, which was contributed by Guangdong Qiming Technology Development Co., Ltd. Revenue of 96.9 million yuan, net profit of 22.89 million yuan, to 2017, revenue of 172 million yuan, net profit of 43.84 million yuan, the performance doubled compared with the merger. The second time is 2016, the goodwill increased by 127.92%, mainly due to the merger of Anhui Xunfei Information Technology Co., Ltd., Beijing Xunfei Music Technology Co., Ltd., Shanghai Xunfei Fengxiang Network Technology Co., Ltd. under the same control. As a result of the equity, the corresponding goodwill value of 630 million yuan, including Anhui Xunfei Information Technology Co., Ltd., Beijing Xunfei Music Zhixing Software Co., Ltd. became the main subsidiary, when the annual contribution of 177 million yuan revenue, 94 million yuan net Profits, looking at the 2017 annual report, the two subsidiaries contributed 540 million yuan in revenue and 189 million yuan in net profit. Therefore, the overall M&A effect is good, and the current acquisition has a good performance, so there is no impairment risk on goodwill.

As for revenue recognition, in fact, I think this is a lot of money. It should not be a key issue. The accountant's writing method is applicable to any company.

2. R&D investment

As a technology-based enterprise based on the research and development of the most popular and cutting-edge artificial intelligence technology, the research and development investment of Science and Technology Xunfei has not been low. The proportion of operating income has been more than 20% since 2010, and there is no upper limit for R&D investment. Gree Electric is said to invest 4 billion yuan a year, less than 1% of operating income. Therefore, the research and development investment of Science and Technology Science and Technology as a technology-oriented enterprise is certainly not small, of course, it has not reached an excessive degree, because if an A-share listed company has too much R&D investment and no output in the short term, it will form a higher cost. It shows that the R&D direction of the company's positioning is not mature, but it is not conducive to the company's operation. However, the performance of HKUST’s net profit is relatively stable, but it is somewhat asymmetrical in recent years and the substantial increase in operating income.

It is worth noting that since 2015, the capitalization of the company's research and development expenses has begun to appear in large numbers and continues to rise. The annual report says that it has increased R&D investment. This is not to say that there is a problem. At the very least, this part of the capitalization technology has been developed. Entering the development stage, there is room for the company's own discretion, which requires long-term continuous attention.

In 2017, the company's R&D investment increased rapidly, mainly in the application of a large amount of investment, education, consumer business, medical, automotive, feeling a little spread.

In addition, the number of R&D personnel has increased significantly, and the company's continued expansion will affect the company's cash flow reduction. You can see that the following table “Pay to employees and cash paid for employees” has increased year by year due to the increase in employees, resulting in an increase in cash outflows. Since the net cash flow generated from operating activities in 2015 has peaked sharply, it is necessary to pay attention to the specific impact of subsequent R&D on operations.

3. Guarantee

The 2017 annual report shows that the guarantee for the subsidiary is mainly less than 200 million yuan. Compared with the cash and cash equivalents of more than 2 billion at the end of the period, the guarantee risk is controllable.

4. Litigation and contingent issues and other

The 2017 annual lawsuit and contingency issues are not available. In addition, in the analysis of the annual report, it is also necessary to pay attention to related transactions, future events on the balance sheet, commitments, and so on.


Third, the overall analysis

1. DuPont analysis

Regarding the company's business style, according to DuPont's analysis data, HKUST's debt ratio is not high, and its net profit margin is also low, preferring to rely on better asset turnover. However, it should be noted that from the DuPont analysis data of the company over the years, the indicators such as net profit of equity and net profit margin of sales have shown a downward trend year by year, while the proportion of debt is increasing, so the business style also has the potential to be converted into leverage. In addition, due to faster revenue growth, the asset turnover rate indicator showed a positive trend.

Note: The greater the equity multiplier, the greater the proportion of debt in assets and the higher the proportion of leveraged operations.


2. Cash flow statement model

From the overall cash flow statement model, Keda Xunfei is still a relatively high-quality “barbaric” listed company, and its operating cash flow remains abundant. The net cash flow from financing (especially starting in 2013) is positive, guaranteeing investment and The source of funds needed for the construction of new projects is sufficient, and the net cash flow from financing is also positive, indicating that corporate credit is good and financing ability is strong. (In 2017, interest-bearing liabilities totaled 881 million yuan, a year-on-year increase of 32%)


Therefore, from the overall situation analysis, the company is still relatively high-quality, but the pace of expansion in the past two years has accelerated, and special attention needs to be paid to the growth of interest-bearing liabilities, and whether the indicators continue to decline.


Fourth, the analysis of core financial indicators

There are many contents in the analysis of financial indicators, and only the data changes are explained here.

1. Profitability

Revenue and net profit, net operating cash flow formed a relatively obvious trend separation, revenue increased significantly year by year, but net profit trend was flat, profitability did not improve, and net cash flow from operating activities also increased. Even in 2016, there was a decline and cash back was insufficient. Checked the accounts receivable, which climbed year after year, reaching 2.55 billion yuan in 2017, and the long-term receivables formed by instalment collection and sales of goods were 536 million yuan, corresponding accounts payable exceeding 1 billion yuan, and the advance receipts were about 700 million yuan, the total is accounted for by customers. Therefore, the company continues to expand revenue, but its profit has not increased. From this perspective, HKUST should continue to increase profitability through independent innovation, rather than just expanding revenue.

2. Safety indicators

We look at the company's coverage of both current liabilities and interest-bearing liabilities.

According to the chart, the ratio has been declining year by year, and it is below 10% for the first time in 2017. The growth of current liabilities is still very large, among which other payables are 1.378 billion yuan, up 202% year-on-year, mainly due to the second phase of restricted stock in 2016. If the performance indicators are not met, it is necessary to repurchase the 850 million yuan of liabilities formed by the restricted stocks in the current period (the performance index of the 2016 restricted stock unlocking requires the return on net assets to be no less than 9%, but only 3.95% in the current year). The purchase is still on the account, indicating that the money has not yet been repurchased, and the company needs to prepare enough cash in the short term.

The coverage of cash equivalents on interest-bearing liabilities continued to decline. It was relatively high in 2012 and 2013 because the company’s interest-bearing liabilities were relatively low. In 2012, it was a long-term loan of 3 million yuan, with no short-term borrowings. In 2013, it was 6.54 million. In the short-term and long-term borrowings, there is no long-term borrowing, and the net cash equivalents of the two years are 530 million yuan and 1.75 billion yuan respectively, and the solvency is extremely strong. In 2013, as a turning point, the ratio fell from 268.25 all the way to 2.97 in 2017. Although it is more than twice as much, it is still relatively safe, but it has already reflected the company's expansion by increasing the leverage ratio.


To sum up, Keda Xunfei can be said to be a pioneer in the exploration of artificial intelligence in China, and its current technology and application achievements in intelligent speech are also very powerful in the world. However, I don’t want to see a business model that expands from a revenue perspective. For example, a company with strong cutting-edge technology research and development capabilities like Keda Xunfei is different from Internet companies in the consumer and consumer sectors such as travel and catering. The only goal is that HKUST is one of the great companies that represent China's future strength and needs to have a more strategic focus on technological innovation than a large and full-scale expansion.

I sincerely hope to see the future of HKUST, and represent China in the international artificial intelligence competition!

(Personal WeChat: cenbin-25, please contact in advance)