The third largest company, Yibang, went public at a low price, and investors were not willing to pay for the mining machine model

Text: Haining

Editor: Duxiu

On June 26, Eastern Time, the third largest mining machine manufacturer Ebang International was officially listed on the Nasdaq with an issue price of US$5.23. However, Ebang International's stock price fell below the issue price as soon as it opened, with an opening price of US$4.60 and a low of US$3.81, a 27.15% plunge compared to the issue price.

Ebang International is the second listed mining machine company after Canaan Creative. However, Ebang International, which is burdened with huge losses and involved in many disputes, is not favored by investors. In addition, the price of coins fluctuates, the overall market is down, and the mining machine market is also very quiet and sluggish. Ebang International's broken issue price is an example.

Burdened with huge debts and entangled in disputes

Despite knocking on the door of Nasdaq, Yibang International's operating conditions are worrying.

According to its prospectus submitted to the U.S. Securities and Exchange Commission (SEC), as of December 31, 2019, Yibang International's full-year revenue in 2019 was US$109 million, a year-on-year decline of 65.83% from US$319 million in 2018.

In addition to the decline in revenue, Yibang International is also facing huge losses. The prospectus shows that as of December 31, 2019, Yibang International's net loss in 2019 reached US$41.073 million, compared with US$11.814 million in 2018, and the loss doubled sharply in one year, about 3.48 times.

Yibang International's losses continue. Its first quarter 2020 financial results show that as of March 31, 2020, the net loss reached US$2.5 million, far higher than the US$600,000 loss in the first quarter of 2019.

On the one hand, Ebang International's revenue is deeply related to the Bitcoin market. In the past two years, the price of Bitcoin has fluctuated greatly, and miners have difficulty predicting the income from mining. Especially since the Bitcoin halving this year, the gap between mining input and income has become even greater. Many mining pools have also closed down, and many miners have been squeezed out.

On the other hand, the decline in Yibang International's performance may be attributed to its own poor management. Its prospectus also disclosed that Yibang International is involved in multiple contract disputes.

Tianyancha data shows that Zhejiang Yibang has been involved in 13 contract disputes. Among them, in December 2019, Cailiang Technology, a subsidiary of Shenzhen Stock Exchange-listed Zhongying Internet, submitted a criminal report to the Beijing Chaoyang Public Security Bureau, claiming that Zhejiang Yibang and Yunnan Yibang were suspected of contract fraud in a transaction contract dispute with it, and the case was subsequently filed for investigation.

A bigger case that Yibang was involved in was that in December 2018, it was reported by the victims that it had huge financial transactions with Yindou.com, the protagonist of the P2P fraud case.

Due to the combination of various factors, the prospects of Yibang International are not optimistic.

Many industry insiders said that this year not only is the cryptocurrency market sluggish, the mining machine industry has also been hit hard. Coupled with the epidemic and the decline in the credit of Chinese stocks in the U.S. capital market, it is not a good opportunity for Yibang International to go public. However, they are eager to go public. It is speculated that the reason behind this may be that Yibang really needs money.

The business model of mining machines is in doubt after repeated knocks on the door

Ebang International does have an urgent need for funds, especially after the September 4th Incident in 2017, when its domestic mining machine sales business was greatly impacted by policies.

In 2017, after reaching its peak, Yibang International's performance began to decline at a halving rate. According to the prospectus submitted by Yibang International to the Hong Kong Stock Exchange, its full-year revenue in 2017 was 977 million, while in its prospectus submitted to the SEC, it was 319 million in 2018 and 109 million in 2019.

In February 2018, Yibang International applied to terminate its listing on the New Third Board in China, and began its long journey to an overseas listing. It took Yibang International two years from the time it attempted to go public to the time it rang the bell.

In June 2018, Ebang International submitted its first listing application to the Hong Kong Stock Exchange. However, the application was halted by the Hong Kong Stock Exchange in December of that year due to suspected involvement in illegal fund-raising. Subsequently, Ebang International submitted its application to the Hong Kong Stock Exchange again and was rejected for the second time in June 2019.

In response to this, Hong Kong Exchanges and Clearing Limited (HKEX) Chairman Li Xiaojia responded at the 2019 Davos World Forum that three mining machine manufacturers, including Bitmain and Ebang International, did not meet the core principle of "listing suitability" of the HKEX.

When explaining "listing adaptability", Li Xiaojia said, "Is the business model introduced by the proposed listed company to investors suitable for listing? For example, in the past, it made billions of dollars through business A, but suddenly said that it would do business B in the future, but there is no performance yet. Or the business model of B is better, then I think the business model of A that you used for listing is not sustainable. In addition, if the regulators did not care before, but later began to care, then can you still do this business and make this money?"

It is difficult to have a business model in the mining machine industry.

Firstly, mining machine manufacturers such as Ebang International are mainly engaged in the sales of mining machines and do not have the core production capabilities of chips. They mainly design chips and then hand them over to cooperative suppliers for production, which is very passive.

Secondly, the sales of mining machines depend on the digital currency market. When the price of the currency is high, miners flock to it, and when the price of the currency is low, miners abandon it.

Furthermore, a large number of customers of mining machine manufacturers such as Ebang International are still in China, and under the high-pressure policies in the country, the mining machine industry can be said to be struggling to survive in the cracks.

Amid the turmoil of Chinese concept stocks, the future of Ebang is worrying

Obviously, Ebang International, whose more than 99% of revenue comes from mining machines, cannot obtain recognition from the Hong Kong Stock Exchange, even though it positions itself as a technology company with strong ASIC chip design capabilities in its prospectus.

After being rejected twice by the Hong Kong Stock Exchange, Ebang International turned to the Nasdaq market with a lower threshold. However, the first day of the offering price fell below the issue price, which showed that Ebang International's business model was not recognized by the capital market, even in the Nasdaq market with a lower threshold.

In addition to doubts about its own model, the current market conditions are also extremely unfavorable to Ebang. The Luckin Coffee financial fraud scandal caused a sharp drop in the credit of Chinese concept stocks in the US stock market, which can be said to be a lot of obstacles for companies like Ebang that do not have advantages in profitability and business models.

In addition, Ebang International did not tell the story of AI and chips in its prospectus, but mentioned its overseas digital currency exchanges, which made its business model look very simple and showed its urgency to turn over funds through listing. In addition, the current domestic policy environment makes Ebang International unpopular with investors.

An unnamed securities analyst told Zinc Finance that Ebang International's stock price may continue to fall and its market value will continue to shrink. On the one hand, the policy is unclear and the mining machine market is sluggish and chaotic. More importantly, in the eagerness to raise funds, Ebang International positioned itself as selling mining machines and did not even have a good AI story.