The financial services company will partner with two academic institutions in one of the few filings related to its business activity since its stock crashed last July

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Key Takeaways:

• Balwang said it will collaborate with two Beijing-based scientific institutes on research in emerging areas involving data and AI agents
• The digital tax services provider has provided few updates on its business since its stock crashed more than 70% last July, just a year after its 2024 IPO

When a company announces a partnership with an academic institution, the market usually responds with a collective yawn. That was the case last Friday when Baiwang Co. Ltd. (6657.HK) said it signed a collaborative agreement with two academic institutes for joint R&D. That's not the kind of news that typically gets investors excited about a company, especially one whose stock has lost more than two-thirds of its value since its IPO less than two years ago.

The collaboration will see Baiwang work with Beijing Zhongguancun Academy and the Zhongguancun Institute of Artificial Intelligence, both located in Beijing's high-tech science district, on research in emerging areas involving data and AI agents. Such foundational work is certainly important for any company with technology at its core, which is the case for Baiwang, a provider of enterprise digitalization services, and processer of cloud-based digital tax and financial transaction data.

But the disclosure feels more like a quiet reminder to the investment community that the company still exists rather than any major news. It is Baiwang's first filing related to an actual business activity since last June, when it inked a partnership with AI company Phancy Group (6682.HK), which at that time was known as Fourth Paradigm.

Not surprisingly, Baiwang's stock barely moved the day after the latest announcement, ending the session unchanged on thin trading volume.

In layman's terms, Baiwan basically helps companies manage their electronic invoices and keep track of supply-chain settlements. Nowadays, companies offering such mundane services often feel compelled to dress up their corporate descriptions to attract investors. Leading up to its 2024 IPO, Baiwang billed itself as an innovative company behind "AI concept" products, touting that the sheer volume of financial transactions it handles could be mined using AI to deliver predictive credit analytics, digital precision marketing and fraud detection.

Investors love good tech stories like the one told by Baiwang, whose name means "100 Aspirations," reflecting the high expectations it created for itself. Long before its public debut, the company drew backing from high-profile investors like e-commerce titan Alibaba. Such big names helped Baiwang debut on Hong Kong's bourse at a premium valuation in July 2024.

For the first year of its public life, Baiwang's narrative held, at least based on its stock price. Its shares cruised comfortably, insulated by optimism that surrounded businesses with digitalization themes. But then the stock suddenly collapsed last July. The company later reported in August that it not only achieved revenue growth in the first half of last year, but also swung to a net profit from a loss. But even that didn't do much to prop up its suddenly spurned shares.

The crash was most likely caused by the expiration of a one-year lockup period for shares held by pre-IPO investors. Baiwang's one-year listing anniversary last July 8 marked a "witching hour" for the company, as a large volume of its shares that were previously locked up suddenly became available for trading. And when the dam broke, the market was flooded with shares. Trading in the stock surged, with volume on July 10 more than 36 times the figure on July 8, the last day before the lockup ended.

The selloff sent the company's stock into a freefall it has never recovered from. The shares are now down more than 70% from a peak of HK$42.45 just days before the end of the lockup. In a way, it's a no-brainer why Baiwang has fallen out of investor favor. The dumping of shares by its institutional backers represents a major lack of confidence vote in the company's future. That's left many ordinary retail investors thinking: If the big names have cashed out, then why should we stay in?

Uninspired bottom line

The underlying problem exposed by Baiwang's great July crash is a common issue for many AI-related companies that generate healthy hype but fail to translate that into equally healthy profits. This is because there is a massive chasm between developing fancy high-tech products and selling them profitably.

Baiwang is no exception, though its financial performance is improving. Its revenue increased about 11% to 729 million yuan ($107 million) last year, and its annual net loss narrowed substantially to just 10 million yuan from 203 million yuan in 2024.

Impressively, the company generated 211 million yuan in revenue last year from a new AI agent business that it only started in March that year. Starting with a virtual tax assistant, the company rolled out two other AI-powered tools that can handle data-driven marketing, risk control and strategic analysis. 

Baiwang was able to scale these new products so quickly because it used a vast amount of data it already owned and sold the products to existing customers as upgrades. The AI agents are allowing the company to phase out low-margin data-driven marketing services. But the gross profit margin for the AI agent business, at about 26%, is less than half of that for its core software-as-a-service (SaaS) operations.

This highlights margin pressures that are plaguing AI-dependent enterprises, partly because of heavy costs for high-performance software and use of the models that power AI agents. Baiwang's competitors like Chanjet Information Technology (1588.HK), which focuses heavily on cloud-based accounting SaaS for small enterprises, face a similar uphill battle trying to scale their AI agents without hurting margins.

Even after its shares crashed last year, Baiwang still trades at a relatively high – some might say realistic – price-to-sales (P/S) ratio of 3.5, ahead of the 1.4 for Chanjet.

Baiwang is doing some nice things, but it's not quite a flashy innovator that investors may have hoped for. To inject new life into its shares, it may need to announce more pragmatic business developments to show it's staying at the forefront of the fast-evolving AI curve, rather than trying to fall back on less exciting academic partnerships.

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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.