Driven by the combined force of signing a cooperation agreement with a total value of 1 billion yuan and being included in the Hang Seng Composite Index, Jingtai Technology (02228.HK) saw its market value reach 51.6 billion Hong Kong dollars at the close on September 5th, surging by 149.5% in just 7 trading days.

On September 9th, the company's stock price fell by 15.61% throughout the day, but its market value still stood at a high of 43.6 billion Hong Kong dollars. According to the closing data on the 9th, Jingtai Technology's price-to-book ratio reached as high as 9.66 times, ranking 66th among more than 2,600 Hong Kong-listed companies, while its mid-year profit ranking was at 2,504th.

On one hand, the 1 billion yuan strategic cooperation agreement signed with the Xiechen Group is expected to bring an average annual revenue of 200 million yuan to the company, which is already twice its revenue in the first half of the year, significantly increasing Jingtai Technology's revenue scale, and the market has responded accordingly; on the other hand, the AI pharmaceutical business model still needs to be verified, and there is still considerable uncertainty about the future development of this track.

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As the first AI pharmaceutical company listed on the Hong Kong stock market in China, what is the fundamental situation of Jingtai Technology? Can it support the current valuation of around 50 billion Hong Kong dollars?

The uncertainty of revenue growth remains high.

According to the announcement, Jingtai Technology achieved a business income of 103 million yuan in the first half of the year, a year-on-year increase of 28%. Among them, due to the first-time receipt of milestone payments and the increase in the number of customers and billable projects, the company's drug discovery solutions business achieved a revenue of 60.85 million yuan in the first half of the year, a year-on-year increase of 69%, which is the main reason for the increase in revenue.

Despite the rapid growth in revenue, it is still relatively small compared to cost expenditure. During the reporting period, the company's total cost expenditure exceeded 1.3 billion yuan. Even after deducting a series of impacts brought by the IPO, the main cost expenditure still exceeded 300 million yuan. Among them, apart from a 18% decrease in R&D expenditure due to a reduction in the number of employees, there were no signs of a downward trend in other items.

Affected by this, Jingtai Technology lost 1.238 billion yuan in the first half of the year, and the net loss after adjustment (measured by non-IFRS) was 251 million yuan, a nearly 30% reduction in losses compared to the same period last year.

The main reason for the final reduction in losses is due to some non-recurring gains and losses.

During the reporting period, Jingtai Technology confirmed a government subsidy income of 42.4 million yuan, a year-on-year increase of 447.6%. In addition, due to a reduction in net foreign exchange losses and a decrease in the loss of fair value of financial assets, the company's other net losses during the reporting period decreased by 97.2% year-on-year, saving 96.3 million yuan.From the perspective of revenue characteristics, Jintai Technology's revenue is mainly recognized at a certain point in time, and the proportion of businesses that can sustainably contribute to revenue is less than 25%. This is due to the particularity of drug research and development, where companies generally receive service fee income after submitting research results to customers. However, with the continuous increase in the difficulty of drug discovery, there is a trend for the research cycle of individual projects to be further extended.

It is worth noting that there is significant fluctuation in the company's major customer orders. In combination with this mid-year report and the previously disclosed listing announcement, from 2021 to the present, the customers contributing more than 10% of the revenue have been different each year, and the scale of revenue recognition shows a clear difference.

At present, Jintai Technology is still in the early stage of business development, and the effectiveness of drug discovery services based on AI technology still needs further verification. Therefore, the business scale and the number of projects are relatively limited, and there is still some uncertainty in the growth of revenue, and it is also difficult to avoid significant fluctuations in revenue and performance.

What is the substance of the "1 billion yuan" strategic cooperation?

Jintai Technology disclosed its semi-annual report for 2024 on August 28, and it was also from that date that the company's stock price began to rise. In this semi-annual report, Jintai Technology disclosed that it signed a five-year strategic cooperation agreement with Xiecheng Group at the end of August, with a total of about 1 billion yuan.

The announcement stated that the two parties will jointly develop artificial intelligence large models and robotic automation systems in the field of new energy materials. Jintai Technology will provide customized services for the research and development of new energy materials by leveraging its advantages in AI and automation technology, and Xiecheng is expected to pay more than $135 million (about 1 billion yuan) for the research and development service fee.

Relative to Jintai Technology's current revenue and expenditure level, the service fee income of 1 billion yuan can obviously promote the company's rapid revenue growth and even turn around the performance, which is indeed sufficient to stimulate market sentiment.

However, it is worth noting that the details of this cooperation have not been officially disclosed, and the service fee of $135 million (about 1 billion yuan) is just "Xiecheng Group is expected to pay". Whether this fee amount is stipulated in the agreement, the specific payment method, and the payment time, etc., have not been mentioned. The First Financial Daily inquired about the above issues to Jintai Technology, but as of the time of publication, no reply has been received.

Jintai Technology may have expansion plans in vertical fields such as new energy and new materials. In 2022, Jintai Technology launched the UpChemist.AI platform through a joint venture, aiming to use the company's capabilities in quantum computing, artificial intelligence, and intelligent automation to accelerate the expansion of its business into fields such as new energy and new materials.

Compared with biomedical research and development, the research and development cycle of new energy materials empowered by AI technology is shorter, and the probability of the company achieving significant technological breakthroughs is higher. However, facing a high-tech enterprise that is still in a loss-making state and has a low probability of turning around in the short term, a vague piece of good news is worth investors' consideration. Whether Jintai Technology's future development potential can support the current market value of nearly 50 billion Hong Kong dollars also needs deep thought.