Jia Nan Technology Financial Report Analysis: How Can Mining Companies Navigate Bull and Bear Cycles?
In the past few years, Canaan Technology has undergone transformative changes, navigating through the ups and downs of bull and bear markets. Meanwhile, the company's operational capabilities, profitability, and financial structure have also experienced numerous fluctuations. Behind some financial data lies Canaan Technology's resilience and adaptability in different market environments, as well as the flexible response strategies it adopted when facing challenges. This article will delve into Canaan Technology's financial performance over the past few years, exploring its growth and development amid industry volatility.
1. Earnings Per Share Indicators
In terms of basic earnings per share, Canaan Technology reported a loss in 2019, with negative earnings per share. The reasons can be summarized as follows: due to intense market competition faced by the company that year, sales fell short of expectations, leading to a decline in gross profit margin and resulting in losses. Additionally, the company made significant investments in research and development or capital expenditures that year, which did not yield profits in the short term. In 2020, losses decreased as the company implemented cost control measures, optimizing production and operational efficiency, thereby reducing losses. At the same time, sales rebounded, gross profit margins improved, and some non-recurring income emerged, helping to reduce losses.
In 2021, Canaan Technology's profitability increased, attributed to the rise in the Bitcoin market, which drove an increase in sales volume and prices of mining machines, boosting the company's revenue and profits. Moreover, the company launched new products or services that year, gaining market recognition and increasing profit sources. In 2022, the company's profits further increased as market demand continued to grow, leading to sustained profit growth. The returns on R&D investments began to show, with new products and technological innovations achieving success, driving profit growth. However, in 2023, Canaan Technology reported losses again, with negative earnings per share due to fluctuations in the Bitcoin market, leading to a decline in sales performance, reduced sales revenue, and lower gross profit margins, resulting in losses. At the same time, Canaan Technology faced some non-recurring expenses or risks, such as inventory adjustments and provisions for losses, which affected profitability.
Regarding net assets per share, let us analyze the changes in Canaan Technology's net assets per share from 2019 to 2023:
In 2019, the net assets per share were 1.49 yuan, relatively low, as the company was still in its growth stage, and its asset scale had not yet fully formed, with limited profitability. During this stage, Canaan Technology faced some challenges typical of a startup phase, requiring time to develop and scale up.
In 2020, the net assets per share rose significantly to 25.46 yuan, indicating that the company achieved substantial profits that year, with rapid expansion of its asset scale. This represented the implementation of effective profit growth strategies or some major asset acquisitions or mergers that improved the net asset level. By 2021, the net assets per share decreased to 20.13 yuan, a decline compared to the previous year, but still maintained at a high level, indicating that the company's profitability remained relatively robust. In 2022, the net assets per share dropped to 2.79 yuan. The significant decline in net assets per share may have been due to the impact of Bitcoin market fluctuations on the company's profitability, with no growth or a reduction in asset scale. The company also faced some non-recurring expenses or risks that year, such as inventory adjustments and impairment provisions, affecting the net asset level.
In 2023, the net assets per share rose to 4.42 yuan, showing some recovery but still below the levels of 2019 and 2020, indicating that the company was striving to cope with Bitcoin market fluctuations and other challenges.
Overall, Canaan Technology has experienced fluctuations in profitability and changes in asset scale over the past few years, particularly influenced by Bitcoin market volatility. The company may have adjusted its operational strategies to adapt to different market environments and challenges.
2. Operational Capability Analysis
Canaan Technology's operational capabilities were poor in 2020, 2022, and 2023, primarily due to the bear market in Bitcoin, resulting in low demand for mining machines and slow inventory turnover.
However, compared to 2020, Canaan Technology made significant progress in operations in 2022 and 2023, mainly due to: (1) technological advancements driving improvements in mining, such as the company navigating regulatory changes through technological innovation and service optimization to seek long-term success in the industry; (2) fundraising and cash flow management, as the company successfully raised funds through capital markets and optimized cash flow, enhancing its financial resilience and market responsiveness; (3) asset growth in mining, as the company achieved significant growth in cryptocurrency assets through diversified mining layouts and increased operational uptime, bringing additional revenue and asset appreciation potential.
3. Profitability Analysis
In terms of return on equity: in 2019, Canaan Technology's return on equity was -221.58%, indicating a negative return on equity, meaning the company's net profit relative to net assets was negative, reflecting significant losses. In 2020, the return on equity improved to -38.23%, still negative but an improvement compared to 2019, indicating ongoing profitability challenges. By 2021, the return on equity surged to 102.81%, reaching a high level, indicating that the company achieved good profitability that year and utilized its assets effectively. From 2022 to 2023, the return on equity gradually declined and fell back into negative territory, indicating a decline in the company's profitability.
Regarding net profit margin, its trend is generally consistent with return on equity. By 2023, the company's sales revenue was insufficient to cover costs and expenses, indicating a need for improvement in sales revenue.
In terms of gross profit margin, from 2019 to 2023, Canaan Technology's gross profit margin increased from a negative value in 2019 to 57.17% in 2021, then gradually declined and fell back into negative territory. The reasons include high initial costs, followed by good operational performance, and later, changes in sales costs and prices negatively affecting gross profit margin.
In summary, Canaan Technology's profitability has experienced significant fluctuations over the past few years, with various indicators showing volatility influenced by market conditions, operational strategies, and other factors. The company needs to further optimize its management to enhance profitability and capital utilization efficiency. Canaan Technology performed poorly in 2020 and 2023, primarily due to the bear market in Bitcoin, making operations challenging.
4. Financial Indicator Analysis
Canaan Technology has shown certain changes in its asset-liability structure and liquidity indicators over the past few years:
In terms of debt-to-asset ratio, the company's debt-to-asset ratio has fluctuated over the past five years, showing an upward trend, with relatively high ratios in 2020 and 2023 at 58.26% and 38.59%, respectively.
Regarding the current ratio, the company's current ratio has also fluctuated, showing an overall downward trend, with the lowest current ratio in 2023 at 1.70. This indicates that the company's short-term debt repayment capability is relatively weak.
Canaan Technology's quick ratio has also shown fluctuations, with a quick ratio of 1.32 in 2023, a decline compared to previous years. The quick ratio reflects the company's liquidity status after excluding inventory, and a low quick ratio suggests that the company may struggle to repay current liabilities in the short term.
The company's equity multiplier has fluctuated over the past five years, reaching a peak of 2.40 in 2020, followed by a decline. The equity multiplier reflects the leverage of the company's assets, with a higher equity multiplier indicating a greater reliance on debt financing.
The proportion of current assets to total assets has also fluctuated over the past five years, showing an overall downward trend, with 73.72% in 2023. A declining proportion of current assets may indicate that more funds are being allocated to non-current assets or investment projects.
At the same time, the proportion of current liabilities to total liabilities has also fluctuated over the past five years, with 93.17% in 2023. An increase in the proportion of current liabilities indicates that the company has a higher level of short-term debt or insufficient liquid assets to cover short-term liabilities.
Based on the changes in indicators such as debt-to-asset ratio, current ratio, and quick ratio described above, Canaan Technology's debt repayment capability shows an overall downward trend. The main reasons include: (1) rising debt-to-asset ratio, with the company's debt-to-asset ratio showing an upward trend over the past five years, particularly high in 2020 and 2023. This indicates increased pressure on the company regarding liabilities, with a higher proportion of debt relative to asset scale, which can impact repayment capability; (2) declining current ratio, with the company's current ratio also showing a downward trend, with the lowest current ratio in 2023 at 1.70, indicating relatively weak short-term repayment capability; (3) declining quick ratio, similarly, the quick ratio has shown a downward trend, with a quick ratio of 1.32 in 2023, a decline compared to previous years. The quick ratio reflects the company's liquidity status after excluding inventory, and a low quick ratio suggests difficulty in repaying current liabilities, which also affects repayment capability; (4) declining proportion of current assets to total assets, with the proportion of current assets to total assets also showing a downward trend over the past five years, which may indicate that more funds are being allocated to non-current assets or investment projects, leading to decreased liquidity and, consequently, affecting repayment capability.
In summary, Canaan Technology's debt repayment capability has shown an overall downward trend in recent years, primarily due to the combined effects of rising debt-to-asset ratio, declining current and quick ratios, and decreasing proportion of current assets. This necessitates the company to further optimize its asset-liability structure and improve liquidity levels to ensure the robustness and sustainability of its repayment capability.
Overall, in terms of revenue and profit, the company experienced growth and decline in 2020 and 2021, respectively, with a significant increase in net profit in 2021 primarily attributed to the peak of the cryptocurrency market. However, the market challenges faced in 2022 and 2023 led to a sharp decline in revenue and profit, particularly with substantial net losses in 2023, highlighting the negative impact of industry volatility on the company's profitability. In terms of sales, the decline in total sales power was mainly influenced by fluctuations in the cryptocurrency market, with a continuous market downturn at the end of 2022 leading to a significant drop in total sales power, particularly in the fourth quarter of 2022, which saw a severe decline. The company has continued to increase its investment in R&D, especially with a significant rise in R&D expenses in 2022, primarily to maintain competitiveness in new products and technologies and to respond to market changes.
5. Comprehensive Conclusion
In conclusion, Canaan Technology has experienced market fluctuations and challenges over the past five years, particularly facing significant declines in revenue and profit in 2022 and 2023. Canaan Technology has responded to industry volatility through technological innovation, R&D investment, and market expansion.
Overall, Canaan Technology's financial performance improved in 2023, primarily due to the following initiatives: 1. Canaan Technology possesses strong capabilities in ASIC chip design, successfully designing and producing high-performance Bitcoin mining machines. Additionally, the company leverages its technical expertise in ASIC design to actively expand into the AI field, providing comprehensive AI solutions that include AI chips, algorithm development and optimization, hardware modules, terminal products, and software services; 2. Through strategic partnerships with specific cryptocurrency mining sites, Canaan Technology has entered the Bitcoin mining business as a second growth engine, aiming to leverage the Bitcoin ecosystem and create synergies with Bitcoin mining machine sales. Canaan Technology continuously increases computing power and enhances mining capabilities to reduce inventory risks and improve financial and operational performance; 3. Canaan Technology has improved the assembly capabilities of Bitcoin mining machines and AI chips by combining internal and external production resources, achieving high quality, high yield, and stable production. The company has established long-term partnerships with leading global suppliers, ensuring efficient and stable production; 4. Starting from January 1, 2023, the company changed its reporting currency from RMB to USD to better reflect its global business development and future strategy. This move has made Canaan Technology's financial reports more consistent and aids in strategic advancement in global markets; 5. Canaan Technology has made breakthroughs in several technical fields, including low voltage and high power efficiency operations and high computing density, which are crucial in ASICs for blockchain and AI solutions. Furthermore, Canaan Technology holds most of the intellectual property used and has accumulated valuable technology and multiple generations of proprietary silicon data through years of ASIC design experience; 6. Canaan Technology plans to continue expanding its customer base, launching more products and solutions to increase revenue from a broader customer base, despite currently relying on a few customers for a significant portion of its revenue.
Through these initiatives, Canaan Technology has achieved significant results in enhancing technical capabilities, expanding markets, and optimizing operational and management costs, leading to more stable and robust financial performance in 2023. We believe that in the future, Canaan Technology will continue to focus on market changes, maintain competitiveness, and adopt proactive development strategies to achieve long-term growth.
