The third largest Bitcoin mining machine manufacturer intends to list on the Hong Kong stock market. The mysterious Hu family emerges

Three months after being delisted from the New Third Board, Ebang International, the world's third largest Bitcoin mining machine manufacturer, launched an attack on the Hong Kong Stock Exchange. PANews found that Ebang International's net profit in fiscal 2017 was higher than that of Canaan Creative, the second largest company.

Compared with Bitcoin Mainland's Wu Jihan and Canaan Creative's Zhang Nangeng, few people know about the "hidden rich" founder of Ebang International. However, a prospectus has made the mysterious Hu family emerge.

Net profit in fiscal year 2017 exceeded Canaan Creative

Blockchain business revenue increased 30 times in two years

The prospectus submitted by Ebang International to the Hong Kong Stock Exchange on June 24 shows that it is a blockchain technology company with ASIC chip design capabilities, and its business covers the design, production and sales of blockchain processors or BPUs. According to iResearch Consulting, in 2017, Ebang's market share reached 11% in terms of sales revenue and 10.9% in terms of sold computing power, making it one of the world's three largest BPU manufacturers dedicated to Bitcoin mining.

Yibit, a subsidiary of Yibang, is selling mining machines

The prospectus shows that Yibang International's revenue from 2015 to 2017 was RMB 92.14 million, RMB 120 million, and RMB 978 million, respectively, and its net profit was RMB 24.236 million, RMB 11.141 million, and RMB 385 million, respectively.

In comparison, Canaan Creative's revenue from 2015 to 2017 was RMB 47.69 million, RMB 315.87 million, and RMB 1.308 billion, respectively, and its profits were RMB 1.511 million, RMB 52.544 million, and RMB 360 million, respectively.

Therefore, although Ebang’s revenue is not as high as Canaan Creative’s, its net profit in 2017 was more than 20 million yuan more than the latter.

The prospectus shows that in 2017, Ebang International sold a total of 158,800 BPUs with a total computing power of 1.38 million TH/S. The average selling price of BPUs sold in the year ended December 31, 2017 was RMB 649 per TH/s. Thanks to BPU sales, revenue from blockchain business increased 30 times from RMB 29.2 million in the year ended December 31, 2015 to RMB 925 million in the year ended December 31, 2017 .

It is worth mentioning that Yibang said that it attaches great importance to research and development. From 2015 to the end of 2017, the research and development expenses were approximately RMB 11.9 million, RMB 24.6 million and RMB 67.7 million respectively. Therefore, its revenue increased in 2016 but its net profit decreased compared with 2015, which may be due to the increase in research and development expenses in that year.

252 employees Hu family holding

The founder may still be a university teacher

Who is the founder of Ebang International? Compared with Bitcoin Mainland's Wu Jihan and Canaan Creative's Zhang Nangeng, the outside world knows little about the "hidden rich" founder of Ebang International, Hu Dong, and there is very little news about him. However, a prospectus has made the mysterious Hu family emerge.

The prospectus shows that Chairman Hu Dong graduated from Zhejiang University of Technology with a bachelor's degree in industrial automation in 1998 and obtained a master's degree in business administration from Zhejiang University in 2008. Hu Dong founded and served as the chairman of Zhejiang Yibang Communication Technology Co., Ltd. from January 2010 to date. Initially, it was mainly engaged in the development and sales of communication network access equipment and related equipment.

A public transfer statement of Yibang's shares released on the New Third Board on August 3, 2015 shows that Hu Dong was born in December 1973, is of Chinese nationality, has permanent residency in Australia, and has been a teacher at Zhejiang University of Technology since July 1998. So in addition to being the founder of Yibang, Hu Dong may also have another identity as a teacher.

PA News found Hu Dong's name in the faculty and staff list of the official websites of Zhejiang University of Technology's College of Computer Science and Technology and College of Software, but the specific information page could not be opened.

There are very few public reports about Hu Dong. In an interview with Caiyun Bit, Hu Dong talked about the difficulty of research and development. "Chip research and development is not easy. We have to consider power consumption, computing power, chip manufacturers, and packaging. Everyone in the Yibit team is working on a Bitcoin mining machine for the first time. Heat dissipation is the most difficult. When the chip is returned to the system, there are system heat dissipation issues. There are 7 heat sink molds alone, and countless circuit boards have been used."

In order to pave the way for listing, Zhejiang Yibang Communication Technology Co., Ltd., the domestic entity of Yibang, made intensive changes to its industrial and commercial information in May. Today, Hu Dong and the Hu family are still the largest shareholders of Yibang International. When it was delisted from the New Third Board on March 23 this year, Hu Dong and members of the Hu family held a total of 68.86% of the shares.

In order to list on the Hong Kong stock market, Yibang set up an offshore company overseas, but the major shareholders are still Hu Dong and his family.

In June 2018, Ebang International acquired an additional 48.95% stake in its subsidiary Hong Kong Bit. Zhejiang Ebang is the main subsidiary, with Hu Dong owning 73.95% of the shares.

Top Max, an overseas company, holds a 53.73% stake in Ebang International and is controlled by Hu Dong. When Hong Kong Bit was registered, it was wholly owned by Mr. Hu's father-in-law Jiang Zhengqian.

In addition, Hu Dong's wife Jiang Aiqun, father Jiang Ruhui, sister Hu Jun, and brother-in-law Qian Shubo together form the Hu family, directly or indirectly holding Yibang shares. Jiang Ruhui holds 4.95% of the shares, Top One holds 4.51% of the shares, and Qian Shubo holds 34% of the shares of the company, while Hu Dong holds 2.23%.

Hu Dong also holds 4.37% of Yibang International shares through Aureate Aries Limited, and Qian Shubo holds 2.82% of Yibang International shares through Strong 365 Limited.

The prospectus stated that as of April 30, 2018, the company employed 252 full-time employees, including 126 in R&D, 44 in production, 28 in sales and R&D, 45 in financial operations, and 9 in management.

It is worth mentioning that according to the prospectus, the salaries of Yibang's senior executives are not high. For example, in 2017, Hu Dong's salary allowances and benefits totaled 292,000 yuan, and the highest was the company's executive director Peng Chunjuan, who received only more than 460,000 yuan. In contrast, Canaan Creative's Zhang Nangeng's salary in 2017 was shown in the prospectus to be 1.13 million yuan, and the average salary in 2017 was 668,000 yuan.

Mainly sold in the country

Ebang, which started out as a communications company, has gradually developed its blockchain business, accounting for 31.7%, 42.8% and 94.6% of its total revenue in 2015-2017, with gross profit margins of 54.9%, 47.8% and 53.9% respectively.

In fact, Ebang International conducts front-end and back-end design of integrated circuit chips based on the fabless integrated circuit design business model, which is then manufactured by semiconductor manufacturing service providers including wafer foundries. However, only a few wafer foundries in the world are capable of producing high-precision silicon wafers such as blockchain ASIC chips, and the foundry production capacity is limited. All wafers for Ebang's ASIC chips are manufactured by Samsung, and it also established a cooperative relationship with TSMC in 2017.

In May 2018, Ebang International launched two new BPU models, Ebit 9.2 and Ebit 9.3, both using 10nm ASIC chips.

The official website shows that E9.3 and E9.2 are still on sale, priced at US$950 and US$1110 respectively.

The vast majority of these mining machines were sold to Chinese customers. As of the end of 2015, 2016 and 2017, 2.3%, 2.5% and 3.8% of the revenue came from the sale of blockchain and telecommunications products to overseas customers, mainly in North America and several European countries.

It is worth mentioning that with the instability of currency prices and the halving of output, mining machine manufacturers may not have an easy time in the future.

The number of bitcoins that can be obtained by solving blockchain block puzzles is halved approximately every four years, and it is estimated that they will be completely mined before 2140. In 2013, 2014 and 2015, the number of bitcoins obtained for solving each block puzzle was about 25, which was halved to 12.5 per block in 2016 and further halved to 6.25 bitcoins per block in 2020.

Based on an average rate of one block every ten minutes, the number of bitcoins available for mining between 2018 and 2020 is approximately 657,000 per year. Even though the reward halving event occurred in 2016, the price of bitcoin still rose, but it is still unclear how the market will react to the reward halving event in the future, and how the price of bitcoin and the expected economic returns of bitcoin mining will be affected.

So far, the second and third largest Bitcoin mining machine manufacturers are queuing up for listing in Hong Kong, while Bitmain, which has long been rumored to be listed in the United States, has not yet made any news. This year may be a bumper year for mining machine manufacturers.