"Golden Certificate Research" Northern Capital Center Yige/Author Lianzhen Yingwei/Risk Control

As the main battlefield serving innovative small and medium-sized enterprises, as of November 18, 2024, since the opening of the Beijing Stock Exchange, there have been over 250 listed companies, with high-tech enterprises accounting for over 90%. Beijing Kunlun Unicom Technology Development Co., Ltd., which is "in line" for listing, also has two wholly-owned subsidiaries that are high-tech enterprises.

Behind the rush to go public, Kunlun Unicom's operating revenue growth slowed down in 2023, and its gross margin has been lower than the industry average for the past three years, with a possible market share of less than 0.1%. Moreover, under the light asset operation model, Kunlun Unicom plans to purchase real estate with the funds raised from this IPO, and there may be overlap between the construction contents of the two fund-raising projects.

I. ROE after deducting non-recurring profits and losses declines, and gross margin is lower than the industry average, with a possible market share of less than 0.1%

Market share is a reflection of a company's competitiveness. In contrast, compared with 2022, Kunlun Unicom's revenue growth slowed down in 2023, and its gross margin has been lower than the industry average for the past three years.

1.1 In 2023, the year-on-year growth rate of operating revenue fell to a single digit

According to the prospectus signed on June 20, 2023 (hereinafter referred to as the "Prospectus signed on June 20, 2023"), the prospectus signed on June 23, 2024 (hereinafter referred to as the "Prospectus signed on June 23, 2024"), the 2019 annual report, and the 2024 interim report, Kunlun Unicom's operating revenues for 2019-2023 and January-June 2024 were 1.209 billion yuan, 1.325 billion yuan, 1.651 billion yuan, 2.067 billion yuan, 2.134 billion yuan, and 922 million yuan, respectively.

Over the same period, Kunlun Unicom's net profits were 62.342 million yuan, 74.7309 million yuan, 78.2583 million yuan, 89.8694 million yuan, 102.2814 million yuan, and 49.035 million yuan, respectively.

After calculation by the "Golden Certificate Research" Northern Capital Center, Kunlun Unicom's revenue growth rates for 2020-2023 were 9.59%, 24.58%, 25.22%, and 3.26%, respectively. Over the same period, Kunlun Unicom's net profit growth rates were 19.87%, 4.72%, 14.84%, and 13.81%, respectively.

It is not difficult to see that in 2023, Kunlun Unicom's year-on-year revenue growth rate fell to a single digit.

In addition, Kunlun Unicom's gross margin is lower than the industry average of its comparable peers.

1.2 ROE after deducting non-recurring profits and losses declined year by year from 2021 to 2023, and the gross margin is lower than the industry average

According to the Prospectus signed on June 23, 2024, Kunlun Unicom's return on equity after deducting non-recurring profits and losses (hereinafter referred to as "ROE after deduction") for 2021-2023 were 38.79%, 30.61%, and 25.46%, respectively.

From 2021 to 2023, Kunlun Unicom's gross margins were 15.32%, 13.36%, and 14.06%, respectively, while the industry average gross margins of its comparable peers over the same period were 16.01%, 17.4%, and 17.87%, respectively.

It is worth noting that Kunlun Unicom's market share may be less than 0.1%.

1.3 Domestic software industry revenue growth exceeded 12% since 2019, and Kunlun Unicom's market share may have been 0.02% from 2021 to 2023

According to the Prospectus signed on June 23, 2024, Kunlun Unicom is classified in the software and information technology services industry (hereinafter referred to as the "software industry").

From 2021 to 2023, Kunlun Unicom's domestic revenues were 1.651 billion yuan, 1.995 billion yuan, and 1.99 billion yuan, respectively. Over the same period, Kunlun Unicom's domestic revenues accounted for 100%, 96.53%, and 93.24% of its main business revenues for the respective periods.

According to public information released by the Ministry of Industry and Information Technology on January 25, 2024, from 2019 to 2023, the cumulative software business revenues of domestic software enterprises above a certain size were 7.21 trillion yuan, 8.16 trillion yuan, 9.33 trillion yuan, 10.78 trillion yuan, and 12.33 trillion yuan, respectively, with year-on-year growth rates of 16.4%, 13.2%, 17.1%, 12.9%, and 13.4%, respectively.

After calculation by the "Golden Certificate Research" Northern Capital Center, if market share is expressed as the proportion of a company's revenue to the software business revenue of domestic software enterprises above a certain size, Kunlun Unicom's operating revenues accounted for 0.02% of the domestic software industry's business revenues from 2021 to 2023.

From the above situations, it can be seen that Kunlun Unicom's operating revenue growth slowed down in 2023. From 2021 to 2023, Kunlun Unicom's ROE after deduction declined year by year, and its gross margin was lower than the industry average. In addition, Kunlun Unicom belongs to the software industry. Behind the growth trend of the software industry, Kunlun Unicom's market share may be less than 0.1%.

II. Light Asset Operation Model but Raising Funds to Purchase Real Estate, Overlapping Construction Contents Between Two Fund-raising Projects

Fund-raising projects are regarded as the driving force for a company's future performance growth. In contrast, as a light asset enterprise, Kunlun Unicom plans to purchase real estate exceeding 4,000 square meters. On the other hand, there may be similarities in some construction contents between Kunlun Unicom's two construction projects.

2.1 The construction projects and corresponding fund-raising amounts in the previous and current IPO applications are the same

According to the Prospectus signed on June 20, 2023, when Kunlun Unicom submitted its application materials to the Shanghai Stock Exchange, the funds raised were used for the "Business Expansion and Service System Construction Project" (hereinafter referred to as the "Business Expansion Project"), the "Intelligent Operation and Maintenance Platform Upgrade Project" (hereinafter referred to as the "Intelligent Operation and Maintenance Project"), the "R&D Center Construction Project" (hereinafter referred to as the "R&D Center Project"), and the "Supplementary Working Capital Project", with a total planned fund-raising amount of 538 million yuan.

The investment amounts and planned fund-raising amounts for the "Business Expansion Project", "Intelligent Operation and Maintenance Project", and "R&D Center Project" were the same, at 27,200 yuan, 100 million yuan, 86 million yuan, and 80 million yuan, respectively, with project registration numbers of 2202-310105-04-04-756738, 2202-310105-04-04-676086, and 2202-310105-04-04-628562, respectively.

The Prospectus signed on June 23, 2024 shows that Kunlun Unicom plans to raise 458 million yuan for its IPO on the Beijing Stock Exchange, which will be invested in the "Business Expansion Project", "Intelligent Operation and Maintenance Project", and "R&D Center Project", with investment amounts of 27,200 yuan, 100 million yuan, and 86 million yuan, respectively, and project registration numbers of 2202-310105-04-04-756738, 2202-310105-04-04-676086, and 2202-310105-04-04-628562, respectively.

By comparison, it can be seen that except for the "Supplementary Working Capital Project", Kunlun Unicom's fund-raising projects and planned fund-raising amounts for this IPO application on the Beijing Stock Exchange are the same as those for its previous application on the Shanghai Stock Exchange.

It is worth noting that Kunlun Unicom is a light asset enterprise, and it plans to purchase real estate exceeding 4,000 square meters with the funds raised this time.

2.2 Described as a light asset enterprise with leased real estate exceeding 7,000 square meters, the fund-raising projects plan to purchase a total of 4,730 square meters of real estate

According to the "Response to the Inquiry Letter on the Application Documents for the Initial Public Offering of Shares by Beijing Kunlun Unicom Technology Development Co., Ltd. and Its Listing on the Shanghai Stock Exchange's Main Board" signed on October 20, 2023 (hereinafter referred to as the "First-round Inquiry Response for the Shanghai Stock Exchange"), the Shanghai Stock Exchange required Kunlun Unicom to explain the match between its fixed asset scale and business nature. In response, Kunlun Unicom stated that it operates with light assets and does not own any real estate. Kunlun Unicom claimed that the scale of its fixed assets is reasonable and matches the characteristics of its business operations.

According to the Prospectus signed on June 23, 2024, as of the signing date, Kunlun Unicom and its subsidiary Beijing Zisheng Information System Co., Ltd. (hereinafter referred to as "Beijing Zisheng") leased real estate with a construction area of 2,236.65 square meters and 1,498.07 square meters, respectively, from the lessor Beijing Daxin Commercial Development Co., Ltd. (hereinafter referred to as "Daxin Commercial").

In addition, Kunlun Unicom's subsidiary Shanghai Kunlian Digital Technology Co., Ltd. (hereinafter referred to as "Kunlian Digital") leased real estate with a construction area of 500.4 square meters and 1,436.28 square meters for office use from the lessor Dazhong Real Estate (Shanghai) Co., Ltd. Additionally, Kunlian Digital leased real estate with a construction area of 110.17 square meters, 77.5 square meters, 157.92 square meters, and 527.92 square meters from Nanjing Jingchuang Business Service Co., Ltd., Huang Haisheng, Hangzhou Ceyu Real Estate Agency Co., Ltd., and Suzhou Industrial Park Nisheng Commercial Management Co., Ltd., respectively.

Besides, Kunlun Unicom's subsidiary Unicom (Shenzhen) Technology Co., Ltd. (hereinafter referred to as "Shenzhen Kunlun Technology") leased real estate with a construction area of 705 square meters from the lessor Shenzhen Sanhang Marine Technology Co., Ltd.

It should be noted that the "Business Expansion Project", "Intelligent Operation and Maintenance Project", and "R&D Center Project" plan to purchase sites in Shanghai, Minhang District, Shanghai, and Changning District, Shanghai, with construction areas of 2,600 square meters, 1,230 square meters, and 900 square meters, respectively.

After calculation by the "Golden Certificate Research" Northern Capital Center, as of June 23, 2024, the total leased real estate area of Kunlun Unicom and its subsidiaries was 7,249.91 square meters. In addition, the total construction area of office buildings planned to be purchased with the funds raised this time is 4,730 square meters.

Moreover, according to the "Inquiry Letter on the Application Documents for the Public Offering of Shares by Beijing Kunlun Unicom Technology Development Co., Ltd. and Its Listing on the Beijing Stock Exchange" issued by the Beijing Stock Exchange on July 26, 2024 (hereinafter referred to as the "First-round Inquiry Letter for the Beijing Stock Exchange"), a total of 367.208 million yuan is planned to be invested in construction engineering fees and other construction-related expenses for this fund-raising, and a total of 51.718 million yuan is planned to be invested in equipment and software purchase fees.

In other words, Kunlun Unicom claims to operate with light assets. Under this model, the fund-raising projects for this IPO plan to purchase real estate in Shanghai.

2.3 The connections and differences between the fund-raising projects were inquired about, and there may be overlap between the construction contents of the R&D Center Project and the Intelligent Operation and Maintenance Project

According to the First-round Inquiry Response for the Shanghai Stock Exchange, the Shanghai Stock Exchange inquired about the differences in the implementation contents of Kunlun Unicom's various fund-raising projects. In response, Kunlun Unicom stated that the "Intelligent Operation and Maintenance Project" belongs to the expansion and upgrade of its existing business, while the "R&D Center Project" belongs to the enhancement of its R&D capabilities based on its existing business.

According to the First-round Inquiry Letter for the Beijing Stock Exchange, the Beijing Stock Exchange inquired about the connections and differences between Kunlun Unicom's "Intelligent Operation and Maintenance Project" and "R&D Center Project".

According to the official website of the Beijing Stock Exchange, as of the inquiry date of November 26, 2024, Kunlun Unicom has not yet responded to the First-round Inquiry Letter for the Beijing Stock Exchange.

However, through comparative analysis, there may be overlap between the construction contents of Kunlun Unicom's "R&D Center Project" and "Intelligent Operation and Maintenance Project".

According to the First-round Inquiry Response for the Shanghai Stock Exchange, Kunlun Unicom made a detailed comparison of its fund-raising projects. The main construction content of the "Intelligent Operation and Maintenance Project" is to add automated processing modules to provide users with a comprehensive automated operation and maintenance platform that is visual, auditable, and easy to operate.

In addition, the main construction content of Kunlun Unicom's "R&D Center Project" is to use big data technology for data collection and processing, respond to threat data, and ensure the security of customers' data and information.

In other words, the construction content of the "R&D Center Project" involves data collection, processing, and security issues.

According to information from the National Standards Full-text Disclosure System, on September 7, 2023, the State Administration for Market Regulation and the Standardization Administration of the People's Republic of China issued the current national standard GB/T 43208.1-2023, "Information Technology Service - Intelligent Operation and Maintenance - Part 1: General Requirements" (hereinafter referred to as the "General Requirements for Intelligent Operation and Maintenance").

In the general requirements for intelligent operation and maintenance, the intelligent operation and maintenance framework includes three major capability domains: data management, analysis and decision-making, and automatic control. The data management capability domain includes data collection, data processing, and data storage.

To summarize, Kunlun Unicom's R&D Center Project involves the collection and processing of big data, and the intelligent operation and maintenance framework in the general requirements for intelligent operation and maintenance also includes data management. Based on this situation, there may be overlap between some of the construction contents of the R&D Center Project and the Intelligent Operation and Maintenance Project. On the other hand, under the light asset operation model, Kunlun Unicom has leased a total of over 7,000 square meters of real estate, but it plans to purchase a total of over 4,700 square meters of real estate in Shanghai for this IPO.