In a recent event aptly named the "Zhitong Finance Spring Strategy Conference," a gathering of professional investors and research institutions convened to engage in deep discussions with the core management team of Lianyi Rong Technology (09959). This was a momentous occasion, as Lianyi Rong is known as China’s first publicly traded and largest supply chain technology solution providerAccording to a report by Zregel Consulting, Lianyi Rong has dominated the market for four consecutive years, maintaining the top spot with a market share of 20.9% among third-party supply chain financial technology providers in China.

The company currently boasts a robust cash reserve of 5.1 billion RMB, yet its price-to-book (PB) ratio stands at a mere 0.4. This indicates a significant undervaluation of its market positionAs analysts forecast a comprehensive recovery in performance in 2024, coupled with potential mergers and acquisitions that could solidify its market leadership, the company is expected to see a strong upward trajectory in its share price.

The presentation during the roadshow was partitioned into three distinct segments

The first section had the management present an overview of Lianyi Rong's operating conditionsFollowing that, there was a deep dive into the company's standout business segments and its future growth strategyThe conclusion of the event was reserved for the management team to address the key concerns raised by investors.

One of the most prominent topics of discussion was Lianyi Rong’s proactive embrace of artificial intelligence (AI) and its integration into supply chain financial technologyThe company is navigating the complexities of integrating AI by optimizing and upgrading general models specifically for the supply chain finance sectorThis strategic move aims to foster a deeper synthesis between AI technologies and supply chain financial operations.

The presentation took into account both business and technical perspectives, elucidating how AI models empower the supply chain finance industry

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It included rich practical examples from Lianyi Rong, and it shed light on the Evolution of Supply Chain Finance GPT, its applications, and the profound influence it has exerted on the whole sectorThis examination spanned numerous relevant topics, including cash flow management, vendor financing, inventory financing, and supply chain traceability.

In its pursuit of harnessing cutting-edge technologies, Lianyi Rong is also advancing AI-driven initiatives, such as the industry’s very first automated document review platform, AI AgentBy applying deep learning and natural language processing capabilities, this platform significantly enhances the automation and accuracy of document handlingCurrently, the AI Agent has been successfully deployed across various financial institutions and recently received the 2024 "Best AI Technology" award from the Asian Banker.

Lianyi Rong's operations span four key business sectors: Core Enterprise Cloud, Financial Institution Cloud, Cross-Border Cloud, and Technology Solutions for Small and Medium Enterprises

These sectors employ innovative online, data-driven, and intelligent business models to cater to various customer groups, providing comprehensive supply chain financial technology solutions.

As of September 2023, Lianyi Rong served nearly 2,000 core enterprises, including 51 of China’s top 100 companiesFurthermore, the company has partnerships with 353 financial institutions, encompassing the top 20 commercial banks and brokers in China, and provides services to approximately 300,000 small and micro enterprisesRemarkably, Lianyi Rong’s customer retention rate remains high at 96%, indicating robust client satisfaction and loyalty.

In terms of client coverage across industries, Lianyi Rong serves clients from all 31 categories defined by Shenwan Hongyuan, with 13 industries exceeding a transaction volume of 2 billion RMBThe company has notably decreased its reliance on the real estate sector—from 40% in 2021 to just 20% in the first half of this year—by strategically focusing its efforts on elite state-owned real estate enterprises.

Analyzing Lianyi Rong’s ownership structure, Tencent is its largest stakeholder, holding approximately 15% of the shares

Additionally, management and employee stock option plans account for roughly 25% of shares, while other significant strategic and private equity shareholders include Standard Chartered Bank and CITIC Capital.

As a leading provider of supply chain financial technology solutions, Lianyi Rong focuses heavily on leveraging advanced technologies such as AI, blockchain, cloud computing, and big dataThe company utilizes a comprehensive production-finance technology platform and SaaS systems to connect core enterprise ecosystems across various industriesBy facilitating the financing of diverse types of supply chain assets, it helps reduce financing costs and implement efficiency improvements across the industry.

For instance, Lianyi Rong’s asset securitization products—AMS and ABS—employ AI technologies to analyze and compare the semantic content of various compliance documents associated with trade activities

This includes intelligent recognition, verification, and risk control, all of which elevate operational efficiencyOn average, document recognition rates via the company's AI platform are as high as 99%, with full process automation levels exceeding 95%.

Furthermore, another key product offered by the company is the blockchain electronic debt multi-tier circulation cloudThis innovative solution harnesses blockchain technology to generate immutable and traceable digital debt certificates from supplier receivables for core enterprisesSuch certificates can circulate within the supply chain ecosystem, allowing even lower-level micro-enterprises to leverage core enterprise credit for efficient and accessible financial servicesThe financing costs for suppliers utilizing this product average only 2-4%, extending the platform's reach up to 11 tiers of suppliers.

Lianyi Rong's ambitions are not confined to domestic markets

The company's internal operations primarily revolve around servicing large corporate entities via its Core Enterprise Cloud and providing solutions for financial institutions through Financial Institution Cloud, which together account for a staggering 94% of its operationsAmong these, the Core Enterprise Cloud is the most significant, with transaction volumes reaching 188.1 billion RMB in the first three quarters of the year, making up nearly 70% of the total and demonstrating an impressive 29% growth rate.

Recently, Lianyi Rong announced the acquisition of Bei Te Technology, a New Third Board-listed companyThis acquisition is set to enhance its product offerings related to cash and treasury management, integrating seamlessly into its existing service framework to create a complete intelligent production-finance treasury solution.

On the Financial Institution Cloud front, Lianyi Rong launched a new receivable ABS business in the third quarter that experienced a remarkable 325% growth in a challenging market

The company also rolled out its AI-driven platform—Fengyu Intelligent Review Platform—to several domestic and international banks, enabling smart reviews and risk assessments within their supply chain finance operations.

On the international front, revenue largely originates from its Cross-Border Cloud business, which encompasses collaborations with major platforms like Amazon, Infor, and Shopee, serving a broad spectrum of Chinese exporters and cross-border e-commerce businessesIn the first three quarters, Lianyi Rong's Cross-Border Cloud grew at an impressive rate of 67%, re-establishing its trajectory of rapid expansion.

The company is also making strides in international market penetration, having set up an international headquarters in Singapore, formed a joint venture with Standard Chartered to establish Olea, and invested in obtaining shares in digital banks like Luyou

Its goal is to branch out across Southeast and South Asia while also implementing innovative web 3.0 projects in Singapore.

The favorable policy environment has played a crucial role in fostering double-digit growth for the supply chain financial technology marketIn recent years, various governmental policies have been introduced at multiple levels, aimed at stimulating market vitalityThese policies encourage financial institutions to accelerate the digital transformation of inclusive financial services through supply chain financial technology platforms, promoting standardized and efficient financing channels for small and micro-enterprisesAdditionally, they bolster core enterprises' cooperation within their verticals and support the development of systematized digital supply chain financial products, presenting lucrative opportunities for third-party technology players in this field.

In terms of revenue generation, Lianyi Rong’s model primarily relies on charging tiered commission service fees based on the asset scale being serviced

This means that higher asset scales directly correlate with increased revenueIn the first nine months of the current year, the company serviced asset volumes reaching 270.8 billion RMB, reflecting a 17% year-on-year increaseNotably, all three segments, including multi-tier circulation cloud, ABS cloud, and Cross-Border Cloud, have reported impressive double-digit growth rates.

The continuous expansion of asset scales has also fueled revenue growthIn the first half of this year, the company recorded revenues of 413 million RMB, marking a 6% increase compared to last yearAfter experiencing temporary revenue and scale mismatches due to client and industry adjustments, Lianyi Rong has now shifted into a phase of comprehensive recovery and ascendant trends across its businessMoreover, as the product structure becomes optimized, the quality of revenue has shown noticeable improvement, with the company’s gross margin increasing by 10 percentage points to reach 70%, thus driving a 23% growth in gross profit—outpacing both revenue and scale growth.