The financial services provider has rebranded and pivoted toward high-tech buzzwords, but it relies on low-margin supply chain brokerage services for most of its business

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image: Bamboo Works

Key Takeaways:

• GoFintech's has agreed to buy a minority stake in Luffa AI, a decentralized messaging app operator
• The deal marks the company's latest effort to become a cutting-edge fintech business as it relies on a low-margin supply chain brokerage business for most of its revenue

GoFintech Quantum Innovation Ltd.'s (0290.HK) shares have made a quantum leap over the last six months as the company transforms by dipping its toes in a quickly expanding pool of trendy new areas from its core financial services realm. Whether the stock's spectacular ascent is justifiable is another question.

The latest toe-dipping move came last Friday, when the company said it signed a non-binding memorandum of understanding to buy a minority stake in Luffa AI Ltd. GoFintech didn't provide any price information, meaning it's likely a small deal that gives it a low-risk entry into the world of decentralized messaging technology, which is Luffa's specialty.

"The possible investment provides a unique avenue for the group to leverage its research and development achievements in quantum encryption algorithms and blockchain technologies," GoFintech said.

Under the agreement, Luffa cannot entertain any other offers for three months, and GoFintech will probably use that time to conduct due diligence. No other details were included in the announcement, but that didn't stop GoFintech's shares from rallying 13% in the following two trading days anyway. They have more than tripled this year and are up by nearly a factor of six in the past 12 months.

The Luffa deal is the latest step in GoFintech's transformation from a sleepy securities firm, previously known as China Fortune Financial Group, to an enterprise with high-tech aspirations. But the central plank of this evolution, at least so far, has centered on expansion into supply chain brokerage services that don't quite live up to the company's snazzy, buzzword-packed current name.

The company first changed its English name from China Fortune Financial to GoFintech Innovation in 2022, and last year added the word "Quantum" to get its current name. Such changes are a relatively common way for Chinese companies to attract investors, although they are often more for show and don't necessarily reflect their business.

The new supply chain brokerage business did fuel a staggering 1,887% surge in GoFintech's revenue in its fiscal year ended March 2025, followed by a 456% year-on-year jump in the following six months. But supply chain brokerage, which GoFintech started in October 2024 and now accounts for most of its revenue, is low-margin grind work that is a far cry from the types of cutting-edge fintech offerings the company aspires to. As supply chain brokerage services became GoFintech's primary revenue source, the company's gross profit margin crashed to 6.6% during the first half of its current fiscal year from 75% a year earlier.

Nonetheless, this unglamorous business is providing GoFintech with some of the capital it needs to fund its grand high-tech plans, which could help to revive its margins.

Art investment

As part of those plans, the company started an artwork investment business last year and signed 28 deals to buy HK$830 million ($106 million) worth of art, including Song dynasty ceramics, and even a Renoir painting. GoFintech can book gains if those assets rise in value, although the opposite can happen too. And in a potentially worrisome sign of things to come, the company indeed was forced to book a loss against those assets in the first half of the current fiscal year.

Yet the real end goal isn't simply flipping ancient vases for profit. GoFintech wants to use its growing art collection to fund more digital lending services built on blockchain technology. The company has laid out a vision to tokenize its art into non-fungible tokens (NFTs) and create a full platform for artwork-backed financing. It is a clever idea to unlock liquidity from illiquid assets like artwork, but it remains just an idea for now.

Then there's a big plan to develop an ecosystem for real-world asset (RWA) tokenization. First, the company would help clients turn physical assets like artworks, real estate, and even bonds, into tradeable digital tokens. Next, GoFintech would use its own funds to scoop up undervalued assets to tokenize later, hoping for a profit if and when those assets rise in value. Finally, it would let investors buy and sell their tokens like stocks on an exchange. If it works, GoFintech takes a fee at every turn. It is an ambitious, capital-intensive plan. It's also risky because the company can be left with a collection of overpriced porcelain and a handful of unused software licenses if any of the initiatives fail to gain traction.

GoFintech sought external capital to fund these projects as its own cash holdings totaled just HK$55.5 million ($7 million) at the end of last September, down more than 50% from a year earlier. Last year, it put together a deal to raise HK$1.33 billion from a new share sale. But that money didn't come easily, and GoFintech only closed the deal in March this year after extending its deadline eight times.

In fact, the company didn't even have enough money to buy art for its new artwork business, so it borrowed from a major shareholder and sought to turn the debt into equity. That contributed to the delays in the completion of the HK$1.33 billion new share sale.

All this shows that GoFintech lacks an ability to generate sufficient capital on its own to pay for its many new initiatives despite its eye-popping revenue growth that is somewhat misleading because it comes with extremely low margins.

The company's acquisition of a minority stake in CSOP Asset Management last year could provide a new profit contributor by letting it tap into a licensed asset manager with a track record in exchange-traded funds (ETFs). But that deal closed only in May 2025, and any gains from it have not been significant enough to notably improve its profitability.

All these initiatives amount to a lot of uncertainty for a stock that trades at a meteoric price-to-earnings (P/E) ratio of more than 240 – showing investors are expecting big profit growth sooner rather than later. This kind of valuation is purely speculative and leaves GoFintech with very little room for error with its many new irons in the fire. But the potential for issues with the new businesses is quite real. The art collection could lose value. The RWA platform could meet with tepid demand. And the company's core supply chain business could be hit with credit defaults.

All that may leave many scratching their heads about why GoFitech has become such an investor darling. It could also present some significant headwinds for the stock if the company's profits don't start improving notably in the next year.

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Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.