Summary of Key Points
Moore Threads, the first domestic GPU company listed on the STAR Market, has announced plans to list in Hong Kong just eight months after its initial public offering. Its semi-annual report appears to show “improved performance” – with revenue increasing by 147% and the loss attributable to the parent company narrowing – but in reality, it is still operating at a loss (a non-recurring loss of 151 million yuan). The improvement in profits is largely due to government subsidies and financial gains. Additionally, the company has been “stockpiling goods” as a result of U.S. sanctions, leading to cost increases that outpace revenue growth, rising leverage levels, and tight cash flow. Despite holding 5.6 billion yuan in cash, it is eager to list in Hong Kong due to various factors such as the pressure from A-share share restrictions, slow progress with fundraising projects, and the need for internationalization. Whether it can become the “Chinese Nvidia” depends on three critical tests: capacity delivery, ecosystem independence, and profitability of its main business.
I. The Illusion of a “Profit Turnaround” in the Semi-Annual Report: Profits Do Not Come from Chip Sales
Many people, seeing Moore Threads’ semi-annual report showing a reduced loss attributable to the parent company to 11.56 million yuan, think it is on its way to profitability – but this is just a superficial improvement.
- Revenue growth is real: Revenue increased by 147% year-on-year to 1.736 billion yuan, exceeding the entire amount of last year, indicating that more products were sold (especially in the domestic innovation market).
- However, operating losses have not improved: The net non-recurring profit after deducting various expenses is -151 million yuan, reflecting the actual financial situation.
- **The “profit turnaround” is due to “extra income”: Non-recurring gains amounted to 139 million yuan, including 88.23 million yuan in government subsidies and 59.52 million yuan from financial investments. In other words, the company’s main business is not generating enough profit; it is relying on external support and financial gains to cover its losses.
II. Costs Outpacing Revenue: Stockpiling Goods to Survive, but Profit Pressure Increases
Although more GPU chips were sold, profits did not increase because costs rose even faster.
- Cost growth nearly 100 percentage points faster than revenue: Operating costs increased by 245% year-on-year to 748 million yuan, far exceeding the 147% increase in revenue. The gross margin dropped from 69% last year to 57%, squeezing profit margins.
- Why are costs rising so quickly?
1. Rising raw material prices: GPUs rely on high-priced materials such as HBM (high-speed memory), and global supply chain fluctuations have increased the cost of these components.
2. Change in product mix: The proportion of high-end data center products has increased, but the production yield is low (only a few chips out of 100 are usable), further raising costs.
3. Stockpiling as a Survival Strategy: After being included in the U.S. embargo list, the company bought raw materials in advance to ensure supply continuity. As a result, inventory increased from 1.3 billion yuan to 3.5 billion yuan, and prepayments rose from 750 million yuan to 1.34 billion yuan, with cash now tied up in chips in warehouses and payments to suppliers.
III. Holding 5.6 Billion Yuan but Still Desiring a Hong Kong Listing? Share Restrictions and Capital Needs Are the Keys
With 5.6 billion yuan in cash (2.9 billion yuan from financial investments and 2.7 billion yuan from fundraising), why is the company eager to list in Hong Kong?
- Fundraising cannot be used freely: Only 26% of the 7.5 billion yuan raised on the STAR Market has been spent (1.98 billion yuan); the remaining funds are designated for specific purposes (such as research and development and expansion) and cannot be used to pay off debts or address share restrictions.
- A-share Share Restrictions Approaching: In December this year, 186 million restricted shares will be released (39.55% of the total equity), and shareholders may sell their stocks, requiring new funds to stabilize the market.
- Long-term Capital Needs: GPU research and development is costly, and both stockpiling and expansion require funding. Listing in Hong Kong would provide another financing channel and help attract international talent and promote internationalization (e.g., attracting overseas customers).
- Preparing for Future Risks: Fundraising projects need to be completed next year, and additional funds are needed; a H-share listing could complement these efforts.
IV. The Double-edged Sword of Stockpiling: Supply Chain Security vs. Risk of Asset Depreciation
Stockpiling is a strategy to ensure supply continuity, but it also carries risks.
- Benefits: It allows the company to avoid supply disruptions due to U.S. sanctions and secure orders from key clients in the government and finance sectors.
- Risks:
1. Asset Depreciation Risk: GPU technology evolves rapidly, and chips stockpiled today may become obsolete soon (e.g., new architectures may render old chips unusable). The company has only provided a 39.05 million yuan reserve for potential price drops (1.1% of inventory), which is insufficient; if technology changes, the inventory could become worthless.
2. Liquidity Pressure: Stockpiling consumes a large amount of cash, and the company had a net outflow of 2.17 billion yuan in operating cash flow in the first half of the year. If sales are slow or financing is difficult, it may struggle to repay debts.
V. Three Crucial Tests for Future Success: Determining if It Will Be the “Chinese Nvidia” or Just a “Concept Stock”
Whether Moore Threads can become the “Chinese Nvidia” depends on three key issues:
1. Can the 100,000-card cluster be delivered on time?: This is crucial for the data center business and reflects customer trust.
2. Can the MUSA ecosystem be self-sustaining?: Nvidia’s strength lies in its ecosystem (software and developers). If Moore Threads’ MUSA architecture can only rely on government subsidies or policies, it will not be able to gain market traction.
3. Can the main business become profitable?: Currently, profits are covered by subsidies and financial gains; in the future, it must generate enough revenue from chip sales to cover costs and become a competitive company.
The answers to these three questions will determine whether Moore Threads becomes a real leader in the industry or just another “concept stock.”
Conclusion
Moore Threads appears promising on the surface, but it faces significant internal pressures: growing revenue despite operating losses, high costs due to stockpiling, and the need for additional financing. Listing in Hong Kong is aimed at addressing short-term share restrictions and long-term capital needs. However, its success will depend on its ability to solve core issues related to technology, ecosystem development, and profitability. Investors should be cautious of the “Chinese Nvidia” hype and focus on the company’s actual financial performance and future capabilities.