Nuobikan races toward Hong Kong IPO, aiming to tap AI exuberance

The software company is the latest hoping to cash in on the recent AI craze to draw investors to its listing plan

Key Takeaways:

• Nuobikan has filed a renewed application for a Hong Kong IPO, reporting profits for the last three years
• The maker of AI software has posted strong revenue growth over the last three years, but its receivables and bad debt are also rising quickly

By Lau Chi Hang

Tech celebrity and Xiaomi founder and CEO Lei Jun once famously said that “When standing at the mouth of a wind tunnel, even pigs can fly.” Companies with any sort of artificial intelligence (AI) ambitions – real or otherwise – have taken that axiom to heart lately, with many flying to Hong Kong to wow investors hungry for the latest AI story.

Seizing on that wave, Nuobikan Artificial Intelligence Technology (Chengdu) Co. Ltd. renewed its application for a Hong Kong IPO earlier this month, after an original filing for the plan last year lapsed after six months.

The company provides integrated software and hardware solutions adopting comprehensive AI industry models. Its business portfolio consists of three parts, namely, AI+ transportation, involving rail transport, urban transportation and airports; AI+ energy, involving power and chemicals; and AI+ urban management, involving the management of industrial parks, school campuses and local communities.

The company’s self-developed NBK-INTARI AI Platform allows customers from the transportation, energy and urban management sectors to more efficiently perform functions like intelligent monitoring, inspection and maintenance. It generates revenue from the platform, as well as from AI industry models and AI+ solutions.

The NBK-INTARI AI Platform is at the base of its business, containing underlying general technologies that can generate different AI industry models. An AI industry model is an aggregate algorithm created from business data and industry insights, designed to address specific challenges for a single business scenario. AI+ solutions are designed to satisfy client needs across complex and multidimensional business contexts.

Steady growth

Nuobikan has been growing steadily over the last three years, from 253 million yuan ($35 million) in revenue in 2022 to 403 million yuan last year. Its AI+ transportation business was its biggest breadwinner, accounting for 52% of revenue last year. Its profits have also grown steadily over the period, rising from 63.16 million yuan in 2022 to 115 million yuan last year.

Without a doubt, the company’s biggest selling point is its status as an AI company that is actually profitable, in sharp contrast to most AI peers, such as Fourth Paradigm (6682.HK), that are still losing money. Not only is it profitable, but Nuobikan’s ability to notch profit growth in the 30% to 40% range over the last two years also looks impressive.

Seventh in its industry

Despite its solid revenue growth and profitability, Nuobikan isn’t exactly a leader in its space. Rail transportation is at the core of its AI+ transportation business, making it the company’s crown jewel. According to third-party data in Nuobikan’s latest listing document, its AI+ monitoring solutions, a component of its AI+ transportation segment, ranked seventh in China in 2023 in terms of revenue, falling short of the top five that is generally considered a cutoff for any industry’s top echelon.

Neither is Nuobikan a top player in its AI+ energy business, where the five leading companies control about a fifth of the market, or the more fragmented AI+ urban management sector, where the top five account for around 10% market.

Low-profile founder

A key to any AI company is its technology, with biographies of its founder and top executive team often offering clues on that score. Nuobikan was founded in 2015 by Liao Yu, who, according to the listing document, accumulated wide-ranging experience working in the information technology and AI sectors before striking out on his own. Among other things, his resume includes stints at some software development companies dating back to 2007.

Other Hong Kong-listed AI companies are often helmed by superstars such as Tang Xiao’ou the late founder of SenseTime (0020.HK); Li Zexiang, founder of autonomous driving company CiDi; and Dai Wenyuan, CEO of Fourth Paradigm. By comparison, Nuobikan’s Liao has more modest roots and his team’s technological capabilities are largely a question mark for many potential investors.

Mid-sized player

Nuobikan is a decidedly mid-tier player in the broader AI space, with revenue well behind some of the biggest names. Its revenue last year was just one-ninth of SenseTime’s 3.77 billion yuan, and one-thirteenth of Fourth Paradigm’s 5.26 billion yuan. That larger pair are still unprofitable, but are starting to see their losses narrow as they gain economies of scale with their expanding business. Fourth Paradigm, in particular, is just inches away from breaking even and will achieve a major milestone among China’s AI majors if and when it finally turns profitable.

While Nuobikan is notable for its profits, one potential red flag is the company’s steadily rising receivables over the past three years, with the figure rising from 176 million yuan in 2022 to 474 million yuan last year. Its bad debt grew at a similar rate, from 21.76 million yuan to 65.17 million yuan over that time. And its turnover days also rose from 192 days to 352 days last year, showing it’s facing growing problems selling its products and collecting payment once it does make some sales.

SenseTime currently trades at a price-to-sales (P/S) ratio of 14.4 times, well ahead of Fourth Paradigm’s much smaller 3.7 times. Nuobikan is much smaller than the two and was valued at 2.1 billion yuan after its fourth financing round, giving it a P/S ratio of about 5.2, based on its revenue last year. The company’s biggest selling point is its profitability, though that’s countered by growing bad debt. Given the growing number of AI plays in the market, many much larger, the company may have difficulty distinguishing itself if and when it finally launches its listing and solicits money from Hong Kong investors.

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