The half year is approaching, and the Hong Kong stock IPO market is hot. On the 30th day alone, 12 IPO companies submitted a list. Judging from the performance of the secondary market in the first half of the year, AI is unquestionably the hottest sector. Out of these 12 IPOs, SATP Holding Inc. (HPE) is an AI-related company, with CITIC Securities as its sole sponsor. So what about its texture?

Luxurious shareholder lineup, losses all year round

According to the Zhitong Finance App, Huipan, founded in 2015 as a fiscal and taxation solution provider, can now provide AI-enabled fiscal and taxation solutions including accounting, invoicing, tax compliance, and comprehensive financial management. Simply put, it helps micro, small and medium-sized enterprises on three levels: efficient management, fine management, and fiscal and tax compliance.

Based on total revenue in 2020, 2021 and 2022, Hewlett Packard is the largest provider of fiscal and taxation solutions for micro, small and medium-sized enterprises in China, with a market share of nearly four times that of the second-largest participant in 2022. According to the same source, in 2022, the company directly served the largest number of SME customers in China's SME fiscal and taxation solutions industry. The company's core business is to rely on its self-developed SATP system to solve fiscal and taxation issues for micro, small and medium-sized enterprises. The number of micro, small and medium-sized enterprises served by the company's SATP system reached 711,300. In 2022, the company's customer retention rate reached 84.9%, and the net revenue retention rate was 112.1%. According to Frost & Sullivan, this level is far higher than 60% to 70% of the industry.

As the largest provider of fiscal and taxation solutions for micro, small and medium-sized enterprises in China, Huipan has received multiple financing since its establishment. Among them, 260 million yuan of C financing was completed in September 2018, 166 million yuan of C-1 financing in June 2020, 260 million yuan of C-2 financing in the same period, and 80 million US dollars in Series D financing in April 2021.

Shareholders include well-known institutions such as IDG Capital, Clean Ginkgo, Tongdu Capital, Xiaomi, 51 Credit Card, Gaocheng Capital, Sunshine Life, and Tencent.

The largest provider of fiscal and taxation solutions for micro, small and medium-sized enterprises in China, plus a luxurious shareholder lineup, is undoubtedly a bonus for Hewlett Packard accounts. However, its performance has not been ideal.

The app learned that for the years ending 2020, 2021, and December 31, 2022, Hewlett Packard's revenue was 275 million yuan, 347 million yuan and 516 million yuan respectively (same unit), with a compound annual growth rate of 36.9%. The company's gross margins were 44.5%, 49.4% and 52.0%, respectively. The company's adjusted net losses were a loss of 140 million yuan, a loss of 394 million yuan, and a loss of 301 million yuan, respectively.

According to the prospectus, during the track record period, personnel expenses were the largest component of the company's operating expenses. In 2020, 2021 and 2022, labor costs accounted for 47.4%, 39.9% and 38.8% of the company's total revenue, respectively. The company's total personnel expenses (including sales and marketing expenses, general and administrative expenses, and personnel expenses recorded in R&D expenses) accounted for 73.6%, 135.6%, and 87.9% of the company's revenue, respectively. High personnel expenses also cause the company to lose money all year round.

Therefore, the company strives to carry out transformative technological innovations, such as AI technology, cloud computing, and big data analysis. Having such advanced technology enables companies to improve the efficiency of SaaS-based solutions by optimizing task processing algorithms and improving parallel processing mechanisms, thereby providing repeatable services with minimal human intervention, thereby reducing service labor costs.

However, judging from the company's sensitivity analysis of labor costs, reducing labor costs by 15% in operating expenses can only release a profit of 29.992 million yuan.

Personnel expenses for sales and marketing expenses, general and administrative expenses, and R&D expenses were reduced by 15%, and profits of only 68.08 million yuan could be released. Compared to the adjusted annual loss of 301 million yuan in 2022, this is not enough to make the company profitable at times.

According to the business method, it can be divided into a direct management model and an authorized model. From 2020 to 2022, the company's direct management model generated revenue of $186 million, $243 million and $394 million respectively, accounting for 67.4%, 70.1% and 76.3% of total revenue respectively. As of the last practical date, the company's direct service network has expanded to 92 service outlets in 46 cities in China.

Looking at it this way, although Hewlett Packard is a leading provider of fiscal and taxation solutions for micro, small and medium-sized enterprises in China, the company has continued to lose money in recent years due to excessive sales costs, and there is still a long way to go to get out of the loss situation.

The industry is fragmented, competitive and has a high penetration rate

From an industry perspective, since about 80% of China's micro, small and medium-sized enterprises do not have relatively comprehensive internal finance and tax functions, leading fiscal and taxation solution providers have begun to provide advanced solutions such as improving financial management and reducing operating costs. Therefore, these micro, small and medium-sized enterprises rely on third-party fiscal and taxation solution providers to help micro, small and medium-sized enterprises complete financial tasks such as bookkeeping and tax reporting, as well as business administration services. It is easy to see that this industry has great market potential.

Thanks to the huge number of micro, small and medium-sized enterprises, the fiscal and taxation solutions industry for micro, small and medium-sized enterprises has also grown dramatically. The market size has increased from 56.7 billion yuan in 2017 to 111.2 billion yuan in 2022, with a compound annual growth rate of 14.4%. Sullivan expects China's SME fiscal and taxation solutions industry to reach 186.6 billion yuan in 2027, with a compound annual growth rate of 10.9% from 2022 to 2027.

SaaS systems have played an important role in the transformation from traditional paper accounting to digital accounting in the fiscal and taxation solution industry for micro, small and medium-sized enterprises in China. This transformation has increased efficiency and productivity while reducing the risk of errors and fraud. SaaS-based solutions are cost-effective and efficient, enabling solution providers to more accurately manage corporate finances and eliminate the need for expensive IT infrastructure and professionals. The market size of SaaS-based solutions in China's SME fiscal and taxation solutions industry increased from 36.9 billion yuan in 2017 to 85.1 billion yuan in 2022, with a compound annual growth rate of 18.2%. The penetration rate of SaaS-based solutions in 2022 is 76.5%. With the continuous development of big data and artificial intelligence, and the increasing demand for efficient and automated solutions, the market size of SaaS-based solutions in China's SME fiscal and taxation solutions industry is expected to reach 156.8 billion yuan in 2027, with an estimated compound annual growth rate of 13.0%.

Although the market space is not small, due to the low entry threshold, the fiscal and taxation solutions industry for micro, small and medium-sized enterprises in China is highly scattered, with about 80,000 companies. According to the prospectus, in 2022, the top five companies in the fiscal and taxation solutions industry for micro, small and medium-sized enterprises in China will account for about 0.84% of the total market size, with total revenue of 900 million yuan. Meanwhile, during the same period, Hewlett-Packard's revenue was 520 million yuan, ranking first among all market participants. It was close to four times the size of the second-largest market participants, accounting for 0.5% of the total revenue of China's micro, small and medium-sized enterprises in the fiscal and taxation solutions industry.

Seen from this perspective, although the market potential of this industry is not small, the market entry threshold is not high, the industry is very scattered, and the penetration rate is extremely high. This may also be one of the reasons why Huidan accounts are not profitable all year round. In addition, the company's business and growth largely depend on customers renewing their subscription agreements with the company. Any decline in the number of company customer renewals may adversely affect future business performance.

Overall, despite the aura of industry leaders and many well-known institutions on the Hewlett-Packard account, intense competition and an industry that is too scattered and has a high penetration rate have caused it to increase revenue without increasing profits all year round. In this kind of industry, it is only possible to turn losses into profits by expanding market share and improving one's own competitiveness. Hewlett-Packard also stated in its prospectus that the company's net IPO capital will be mainly used to expand business, increase market penetration, explore strategic partnerships with leading companies in diversified industries; at the same time, enhance technical capabilities and optimize fiscal and taxation solutions. So can the Hewlett-Packard account do what you want? Let's wait and see.