Sinovation's AI solutions business completes $151m HK IPO

The company sold 44.74m shares at HKD 26.3 apiece. The stock closed at HKD 19.60 on January 27, down 25% on the IPO price, giving AInnovation a market capitalisation of around HKD 11bn.

Prior to the offering, Sinovation held a 30% stake, according to a prospectus. SoftBank Vision Fund 2, which led a Series D in December 2020, owned 7.12%, while China International Capital Corporation (CICC) - lead investor in the Series C six months earlier - had 16.7%. The size of the rounds was not disclosed, but AInnovation achieved unicorn status on closing the Series C.

AVCJ Research has records of three earlier funding events: a CNY 100m (USD 15.7m) angel round in 2018 and a CNY 400m Series A in 2019, led by Chengwei Capital and CICC, respectively; and then a CNY 400m Series B towards the end of 2019 from CAS Star Venture Incubator, an investor supported by the Chinese Academy of Sciences.

AInnovation develops proprietary computer vision and machine learning AI technologies for the manufacturing and financial service sectors. Frost & Sullivan estimates the company is China's third-largest enterprise AI solution provider with a 0.3% market share in 2020. There were 1,500 players nationwide, but only nine had proprietary deep learning platforms.

Most of AInnovation's customers are system integrators. Revenue rose from CNY 37.2m in 2018 to CNY 229.1m in 2019 and further increased to CNY 462.3m in 2020. In the first nine months of 2021, revenue came to CNY 553m, up 86% year-on-year.

The company is still loss-making, largely because of high administrative and R&D costs. Its net loss jumped from CNY 71.2m in 2018 to CNY 248.4m in 2019 and CNY 360.6m in 2020. In the first nine months of 2021, the loss was CNY 438m.

Gross margins have also fallen substantially - from 62.9% in 2018 to 31.3% in 2019 and 29.1% in 2020. This was blamed on a shift from pure software solutions to software plus hardware and intense price competition.

Global AI-related spending went from USD 59.3bn in 2016 to USD 233.5bn in 2020, according to Frost & Sullivan. By 2025, it is expected to be USD 769.7 bn. China’s AI market was worth approximately CNY 185.8bn in 2020 and it is tipped to hit CNY 1.05trn, which equates to a 20.9% global share.

However, the industry has seen considerable regulatory uncertainty. In the past year, China has passed The Data Security Law and The Personal Information Protection Law, which set hurdles for data collection in AI.

In addition, cyber security review measures come into effect next month. Internet platform operators that possess the personal data of over one million users must apply for a review by the Cyber Security Review Office prior to pursuing an overseas listing.

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• Topics
• Greater China
• IPO
• Technology
• China
• artificial intelligence
• Sinovation Ventures
• CICC
• Softbank