Recently, Ultrapower (300002.SZ) has revealed the specifics of its latest share repurchase initiative. Over the past three months, the company has bought back over 46 million shares through centralized bidding, amounting to a total of RMB 375 million. However, this move has not significantly boosted the company's stock price. As of the market close on October 10th, the stock price has plummeted by over 40% from its peak for the year to date.

Securities Star has observed that behind the sluggish stock price performance, Ultrapower has been grappling with sustained performance pressures for the past two years. Last year, the company's long-standing streak of "revenue and profit growth" came to an end, with both revenue and profitability experiencing declines. In the first half of this year, although revenue increased by more than 20% year-on-year, this growth was largely attributed to a low base effect.

Profitability continued to deteriorate compared to the same period last year, with the rate of decline accelerating. From a core business standpoint, the gaming segment, which is Ultrapower's mainstay, failed to reverse its revenue decline in the first half of the year. Meanwhile, the second-largest business segment, AI applications and cloud services, saw a significant revenue increase year-on-year, but this was accompanied by a substantial rise in operating costs. Consequently, the company's overall gross margin dropped by nearly 16 percentage points year-on-year in the first half.

01. Stock Price Tumbles Over 40% from Year-to-Date High

Recently, Ultrapower (300002.SZ) has disclosed the implementation details of its share repurchases. The repurchase period spanned from July 2nd to September 24th. By September 25th, the company had repurchased a cumulative total of 46,492,500 shares through centralized bidding, representing 2.36% of the company's current total share capital. The highest transaction price for the repurchase was RMB 8.54 per share, and the lowest was RMB 7.62 per share, with a total repurchase amount of RMB 375 million (excluding transaction fees). All shares repurchased in this round will be sold via centralized bidding transactions twelve months after the announcement's disclosure, and any unsold shares will be canceled following relevant procedures.

Rewinding to June of this year, Ultrapower announced that, in light of the continuous decline in its stock price and the fact that the closing price on June 23rd had fallen below 50% of the highest closing price in the past year, the company's Chairman and President, Mao David, proposed that the company repurchase shares using its own funds to protect investor rights and boost investor confidence. That same month, the company's board of directors approved the proposal.

Ultrapower's disclosed repurchase plan aimed to bolster investor confidence and facilitate a reasonable return of the company's stock price to its intrinsic value. The repurchase price was capped at RMB 12 per share, with a total repurchase amount ranging from no less than RMB 300 million to no more than RMB 600 million (inclusive). However, somewhat ironically, by the time Ultrapower's repurchase plan was fully executed, the company's stock price was still hovering around RMB 8 per share, showing little change from the price level at the time of the repurchase plan's disclosure.

This indicates that the repurchase did not provide substantial support for the company's stock price. There was also a significant gap between the highest transaction price in this repurchase and the upper limit set in the plan. In fact, Ultrapower's stock price has been underperforming for an extended period. Ultrapower went public in 2009, with its stock price closing at RMB 102.9 on its debut day, marking a 77% increase and making it the first "RMB 100 stock" on the ChiNext board. Subsequently, the stock price continued to rise, peaking at RMB 235.95 in April 2010.

However, since then, the stock price has been on a downward trajectory. Over the past year, Ultrapower's stock price has exhibited a significant downward trend amid fluctuations, falling to RMB 7.01 (closing price) in June this year, a near three-year low. As of the market close on October 10th, the stock price was RMB 7.9, down 43% from its year-to-date high in January and significantly lower than its historical peak.

Securities Star has noted that in response to Ultrapower's persistently sluggish stock price performance, investors have repeatedly voiced their doubts on interactive platforms. For instance, in May this year, an investor inquired whether the weak stock price was related to the company's operational fundamentals. In response, Ultrapower stated that its operations were normal, its fundamentals were robust, and there were no undisclosed risk factors. Investors were advised to view short-term fluctuations in the company's stock price rationally.

02. "Revenue Growth Without Profit Expansion" in the First Half, Core Gaming Business Under Pressure

In its early days as a publicly traded company, Ultrapower was primarily involved in IT operation and maintenance management, as well as the development and operation of mobile internet products. It later gradually shifted its main businesses to gaming and software and information technology services. Last year, the gaming business accounted for nearly 70% of revenue. Securities Star has observed that before 2025, Ultrapower had been experiencing continuous revenue and profitability growth. However, this trend was disrupted last year.

Last year, the company's revenue decreased by 9.79% year-on-year, with net profit attributable to shareholders and net profit after deducting non-recurring items decreasing by 43.86% and 28.48%, respectively. The direct cause of the profit pressure was the combination of declining revenue and persistently high operating costs. In the first half of this year, Ultrapower achieved revenue of RMB 2.045 billion, a 20.45% increase year-on-year; however, net profit attributable to shareholders was RMB 382 million, a 25.03% decrease year-on-year; net profit after deducting non-recurring items was RMB 366 million, a 25.08% decrease year-on-year.

While the revenue increase in the first half of the year appears significant, it was largely influenced by a low base. In the same period last year, the company's revenue decreased by 12.05% year-on-year, which amplified the revenue increase this time. At the profit level, net profit attributable to shareholders and net profit after deducting non-recurring items both continued to decline from the same period last year, with the rate of decline widening for both.

Securities Star has observed that in the first half of this year, Ultrapower's operating costs surged by 68.27% year-on-year, leading to a significant year-on-year decline in gross profit. Additionally, the company's credit impairment losses turned from positive to negative year-on-year, combined with a substantial decrease in other income and investment income, further eroding profits.

From a core business perspective, AI applications and cloud services are Ultrapower's second-largest source of revenue. In the first half of the year, revenue from this business surged by 166% year-on-year to RMB 1.421 billion, with its revenue share jumping from 19.9% in the same period last year to 43.93%. However, due to a significant increase in costs for outsourced cloud resources and AI services, operating costs for this business rose sharply in the first half, with its gross margin declining by 5.85 percentage points year-on-year to just 7.28%.

The gaming business achieved revenue of RMB 1.668 billion in the first half of this year, a 17.73% decrease year-on-year, with the rate of decline widening from 16.41% in the same period last year. The revenue share of this business dropped significantly from 75.53% in the same period last year to 51.58%. Although its gross margin was as high as 76.34%, its revenue has declined by more than 30% compared to the historical high in the first half of 2024. Securities Star has noted that over 90% of Ultrapower's gaming business revenue comes from two main mobile games.

However, these two games have been online for many years and have entered a plateau phase, compounded by increased market competition, resulting in consecutive quarterly declines in their recharge revenue. Without effective succession from new games, the revenue from this business remains under sustained pressure. In the first half of this year, Ultrapower's overall gross margin was 43.88%, a year-on-year decrease of nearly 16 percentage points. Looking at a longer timeframe, its gross margin has declined year-on-year in three consecutive interim reports. (This article was first published by Securities Star, Author | Liu Haohao)

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