Canaan Creative intends to IPO on the Science and Technology Innovation Board, but faces three hurdles

Recently, regarding whether the company will rush to the Science and Technology Innovation Board, Zhang Nangeng, founder of Canaan Creative, the world's second largest Bitcoin mining machine manufacturer, said, "Both are possible."

Previously, Canaan Creative had tried to enter the capital market three times, submitting listing applications on the A-share market, the New Third Board, and the Hong Kong Stock Exchange, but all ended in failure. In fact, Bitmain and Ebang International, which are among the world's three largest mining machine manufacturers along with Canaan Creative, have also been rejected by the capital market.

Many investors said that the capital market values ​​high-quality mining machine companies, especially the three major mining machine manufacturers, for their technical capabilities and opportunities to indirectly invest in the digital currency market, but is also "daunted" by the many contradictions of this industry's characteristics: this industry has a strong investment cycle, it is difficult to find a suitable pricing method, the policy risks are high, and there is a lack of scenarios for the implementation of blockchain technology.

Therefore, it is very difficult for mining machine manufacturers to go public not only on the Science and Technology Innovation Board, but also in domestic and foreign capital markets.

Another challenge facing mining machine manufacturers is that the market has reached a bottleneck. The three major manufacturers have announced that they will transform and focus on AI chip research and development. Experts analyzed that mining machine manufacturers do have technical accumulation in integrated circuit design capabilities and engineering experience, but they still need to deepen their understanding in areas such as algorithm optimization.

It is difficult for mining machine manufacturers to list on the Science and Technology Innovation Board. Experts give several reasons

Will the Science and Technology Innovation Board be the final "destination" of Canaan Creative? Many investors and industry experts said that it is difficult for large mining machine manufacturers, including Canaan Creative, to be listed on the Science and Technology Innovation Board due to the strong investment cycle, difficulty in finding a suitable pricing method, high policy risks, and lack of blockchain technology landing scenarios.

Yu Jianing, president of Huobi University, said that mining machine manufacturers are IC (integrated circuit) design companies, which objectively meet the positioning of the Science and Technology Innovation Board. At the same time, from the perspective of market value and revenue data, they also meet the listing standards of the Science and Technology Innovation Board5. According to the "Hurun Greater China Unicorn Index for the Second Quarter of 2018" released by Hurun Research Institute, Bitmain, Canaan Creative and Ebang International were listed for the first time as representatives of the blockchain industry as mining machine manufacturers, among which Bitmain was valued at 70 billion yuan, Canaan Creative was valued at 20 billion yuan, and Ebang International was valued at 10 billion yuan.

After reading the Hong Kong Stock Exchange prospectuses of the three companies, it was found that in 2015, 2016 and 2017, Bitmain's revenue was 941 million yuan, 1.904 billion yuan and 17.302 billion yuan respectively; Canaan Creative's revenue was 47.69 million yuan, 315.87 million yuan and 1.308 billion yuan respectively; and Ebang International's revenue was 92 million yuan, 120 million yuan and 979 million yuan respectively.

"But in fact, the capital market's attitude towards mining machines has always been very contradictory," said Yu Jianing.

First of all, many investment institutions are "envious" of the huge returns brought by investing in digital currencies, but due to policy and other reasons, they are unable to invest directly. Investing in mining machines is equivalent to indirectly investing in the digital cryptocurrency market. As the prices of digital currencies such as Bitcoin rise, the value of mining machine companies will naturally rise.

"At the same time, high-quality mining machine manufacturers, especially the three major mining machine manufacturers, are considered to be very good IC design companies. They may also expand into other industries in the future and have market prospects," Yu Jianing added.

However, he believes that there are two reasons why the capital market is "daunted." The first is that mining machines are cyclical investments that will fluctuate with the price of digital assets, which will be reflected in the stock price, which is likely to fluctuate greatly. It is difficult for the traditional capital market to make value judgments.

Second, the mining machine industry is characterized by the fact that most of its revenue is not in legal currency, but in digital assets such as Bitcoin. The pricing system of such assets is more special. It is currently difficult to find a good pricing method to reflect it in the company's valuation calculations and balance sheets. This will cause different investors to have different understandings of the business value, which will increase the corresponding investment risks.

Wen Huasheng, an investor in the technology field at Fortune Ventures, told reporters that he was more worried about the "policy red line." In his opinion, although mining will not directly issue coins, "at least it will help the companies that issue coins, and it will help their currencies replace the national legal tender, which is difficult to get national support."

"Even if blockchain technology is applied to other industries, regulators may worry that it will focus on Bitcoin after it is listed on the (Science and Technology Innovation Board)," Wen Huasheng speculated.

Bu Rixin, partner of Essence Capital, also said that it is difficult for mining machine manufacturers to list on the Science and Technology Innovation Board not only now but also in the future. The reason he gave is that the main source of income for these companies is mining machine sales, mining pool joint operation, mining field services, self-operated mining and other businesses, but there is still a lack of actual blockchain application. "I think they tend to speculate on concepts," Bu Rixin said.

It is difficult for mining machines to be listed in domestic and foreign capital markets. The three major manufacturers have all been rejected.

Not only is it difficult for mining machine manufacturers to be listed on the Science and Technology Innovation Board, but it is also difficult in domestic and international capital markets.

"I don't comment on IPOs, I'm not allowed to comment, I think there are possibilities," Zhang Nangeng responded on May 18 when asked whether he would consider the Science and Technology Innovation Board. However, after the A-shares, the New Third Board, and the Hong Kong Stock Exchange successively closed the IPO doors to Canaan Creative, there are really not many "possibilities" left in the capital market.

In June 2016, after successfully developing 28-nanometer and 16-nanometer chips, Canaan Creative targeted the A-share market and attempted to become the first blockchain stock. Public information shows that at that time, A-share listed company Luyitong announced that it planned to acquire 100% of Canaan Creative's shares for 3.06 billion yuan, but was questioned by the Shenzhen Stock Exchange for several times due to suspicion of "backdoor listing" and the existence of a gambling agreement. Three months after receiving two consecutive inquiry letters, Luyitong announced the termination of the acquisition due to changes in the securities market environment.

In August 2017, Canaan Creative applied for listing on the New Third Board (National Equities Exchange and Quotations), but received three rounds of feedback and inquiries from the National Equities Exchange and Quotations and securities firms, asking it to explain its business logic, sustainable operation issues, etc., and ultimately failed to achieve a listing.

In May 2018, the company "charged" towards the Hong Kong Stock Exchange again. The official website of the Hong Kong Stock Exchange shows that its fundraising target is about US$400 million.

In fact, Bitmain and Ebang International both applied for listing on the Hong Kong stock market last year. In February 2018, Ebang International announced that it planned to go public in Hong Kong. As a company listed on the New Third Board, Ebang International was delisted from the New Third Board on March 23, 2018, and formally submitted its IPO prospectus to the Hong Kong Stock Exchange in June of that year. In September of the same year, Bitmain went public in Hong Kong.

However, none of the three companies passed the Hong Kong Stock Exchange's listing hearing.

In response to the rejection of the Hong Kong IPO of three mining machine manufacturers, Hong Kong Stock Exchange Chairman Charles Li responded at the World Economic Forum in Davos in January this year that they did not meet the core principle of "listing suitability" of the Hong Kong Stock Exchange. Whether it is the mining machine business that previously attracted money or the AI ​​business that they want to transform, the three cryptocurrency mining machine manufacturers cannot meet the "listing suitability" requirement.

Can it shift to overseas markets? Past cases show that there is still little hope.

As early as the end of 2017, Asiff Hirji, president of the US digital currency exchange giant Coinbase, revealed his intention to go public. However, in November last year, in response to rumors that Coinbase planned to apply for an IPO in the United States, Coinbase's chief operating officer responded to Bloomberg that "Coinbase will not conduct an IPO in the short term."

Similarly, Bitfury, a mining machine manufacturer, had planned to apply for an IPO this year. However, it completed a round of financing in November last year, and its chief operating officer John Mercurio publicly stated that a final decision on whether to conduct an IPO has not yet been made.

Galaxy Digital Holdings successfully went public through a backdoor listing, but its stock price plummeted by 20% shortly after its listing. The Canadian securities regulator once requested that the stock be suspended from trading during the trading session, requiring the company to clarify whether there was any undisclosed information.

Bitcoin is recovering and mining machines are popular again, but mining machine manufacturers are facing bottlenecks in their development

The rise in Bitcoin prices has also stimulated the recovery of the mining industry, and the mining machines that were once "unsalable" have become popular again. The most obvious change is the rising prices of second-hand mining machines.

The reporter checked the prices of some second-hand mining machines on Huosu Bitcoin Mining Machine Trading Network and found that compared with January and February this year, the prices of some second-hand mining machines have slightly increased. For example, the second-hand Bitmain Antminer S9 is currently priced at 1,200-1,600 yuan, while in February this year, the price of the same model was 780-1,000 yuan. The second-hand Canaan Creative Avalon A851 is currently priced at 880-1,060 yuan, and at the beginning of this year, the price was 770-1,050 yuan.

However, in the eyes of the three major miners, even if the current market rebounds, getting rid of dependence on mining machines is a direction that must be considered, and they need to find new growth points. In fact, the three companies have successively stated that they will carry out strategic transformation and focus on the research and development of AI chips.

While responding to whether the company will be listed on the Science and Technology Innovation Board, Zhang Nangeng also announced the company's goals, planning to achieve a 1:1 ratio of revenue between the company's mining machines and AI businesses in three years. The original mining machine department has been renamed the High-Performance Computing Department.

He introduced that the company's first artificial intelligence chip was conceived in 2016, released on September 6, 2018, and is expected to start mass production in Q3 this year. Currently, Canaan's AI chips have been used in fields such as smart access control.

A month ago, Ruan Shenyong, president of Bitmain’s AI product line, publicly stated that this year is the first year for the AI ​​chip to be put into use, “We made money last year, but the specific figures are not convenient to disclose.” It is reported that Bitmain’s first application scenario is security monitoring.

At the end of last year, Ebang International completed preliminary feasibility studies for three AI chip development projects, namely smart home systems, smart health terminals and servers, and smart automated farming systems. The first AI chip for these purposes is expected to be completed in the second half of 2019.

Regarding the strategic adjustments of the three major mining machine manufacturers, Yu Jianing analyzed that it is mainly because compared with the bull market of mining machines from mid-2017 to mid-2018, the current mining machine industry is still in a bottleneck period.

He analyzed that, first of all, although the price of Bitcoin continues to rise, most people's judgment on the market is that funds have not yet entered the so-called "fast bull" stage, and the entire market is still gradually recovering.

More importantly, it is difficult to achieve a major breakthrough in technology in the short term, and competition is becoming increasingly fierce. Previously, major mining machine manufacturers have continuously increased their research and development efforts, and technology has rapidly advanced. From the mass production of 28nm chips to the mass production of 16nm chip products, and then to the 7nm chip production of manufacturers such as Bitmain and Canaan Creative, both in terms of energy consumption and computing power, "mining" has become more affordable.

"But 7nm itself has begun to approach the limits of electronics, and it is difficult to achieve a breakthrough as quickly as before. At the same time, with the entry of companies such as Samsung into the encryption chip market, competition in this field has become increasingly fierce," said Yu Jianing.

Yu Jianing analyzed that the reason why the three major manufacturers chose AI chips as a breakthrough direction is that the algorithms of dedicated chips in artificial intelligence chips are similar to mining algorithms. At the same time, the three major manufacturers' years of technological accumulation have enabled them to have strong integrated circuit design capabilities and engineering experience, so the transformation also makes sense.

However, Wen Huasheng said that in general, in terms of chip thresholds, the AI ​​technology threshold is higher. Compared with mining machine chips that focus on hardware, AI emphasizes the combination of software and hardware. Therefore, the transformation of mining machine manufacturers will not happen overnight.

In his opinion, mining machines are mainly concerned with computing power, which is "equivalent to having a skill." However, there are many types of AI chips, which emphasize the process of deep learning and content mining. Therefore, mining machine manufacturers still need time to improve their understanding of algorithm optimization and other fields.

Beijing News reporter Zhang Shuxin Editor Yue Caizhou Proofread by Li Lijun