Credit：TMTPost

BEIJING, November 29 (TMTPOST) – The U.S. short-selling institution Grizzly Research LLC released a short-selling report on SenseTime (0020.HK) on Tuesday morning’s trading session.

The report cited multiple news screenshots and lawsuits, accusing SenseTime of falsifying revenue. SenseTime responded to this report on Tuesday afternoon, saying that the content of the report is a patchwork of old information, including numerous false statements and misunderstandings of the company's business. The company has issued an announcement regarding this report.

SenseTime said that the company's board of directors is reviewing these accusations and considering actions to protect the interests of all shareholders.

The Grizzly report focuses on topics such as inflated revenue and the problematic balance sheet. Grizzly claims that SenseTime inflates its revenue. The report quotes the CEO of financial media Capital Watch, arguing that SenseTime invests in third-party companies to receive equivalent revenue without actually delivering products.

The report cites data from a U.S. organization, claiming that 40% of SenseTime's revenue comes from government contracts, and with local governments' main source of revenue sharply reduced, the company’s receivables may never be recovered.

The report says that as of December 31, 2022, SenseTime’s total accounts receivable was 7.8 billion yuan, with no significant improvement in the first half of 2023. However, the company's impairment provision is set at 2.58 billion yuan, accounting for approximately 33.1% of the total accounts receivable. As of June 2023, the impairment provision has increased by 13% compared to six months ago.

In addition, the report also says that over the past few months, major shareholders of SenseTime, including the company's controlling owner Tang Xiao’ou and Alibaba, have been reducing their holdings. Alibaba has sold all its shares in the company.

"We believe that SenseTime is operating a fundamentally dead-end facial recognition software business, coupled with some additional AI R&D projects that have almost no chance of achieving scalable profits in the future," the Grizzly report says.

After the report was released, SenseTime's Hong Kong stock price immediately fell by 9.7%, marking the largest decline since April this year. The decline narrowed later in the day. At the close of the day, SenseTime's stock price fell by 4.86% to HKD 1.37 (approximately US$ 0.18) per share, with a market value of HKD 45.85 billion (approximately US$ 5.88 billion).

Founded in 2014, SenseTime is a leading AI software company in China, with business covering four major sectors: smart business, smart city, smart life, and intelligent automobiles. On December 30, 2021, it successfully listed on the main board of the Hong Kong Stock Exchange.

SenseTime's stock price had experienced a significant drop after the expiration of the lock-up period. On June 29, 2022, Sensetime's pre-public offering lock-up period for investors and cornerstone investors expired. On June 30 and July 4, 2022, the company’s stock fell for two consecutive trading days, dropping below the IPO price for the first time. Before the opening on June 30, SenseTime voluntarily disclosed that members of the company's management had postponed the sale of SenseTime shares until the end of the year but failed to prevent a sharp drop in the stock price.

The latest financial report shows that in the first half of 2023, SenseTime's revenue reached 1.43 billion yuan, a year-on-year increase of 1.3%; the net loss was 3.14 billion yuan, narrowing by 2% compared to the same period last year. After adjustment, the net loss narrowed by 6.7% to 2.39 billion yuan; the gross profit margin was 45.3%, compared to 66% in the same period last year, a year-on-year decrease of 20.7 percentage points. Xu Li, Chairman and CEO of SenseTime Group, said that in the first half of 2023, SenseTime launched China's first large language model with comprehensive capabilities beyond GPT-3.5-turbo, achieving a 670.4% increase in revenue related to generative AI.

Compared to well-known short-selling institutions like Muddy Waters, Grizzly is considered a newcomer in the short-selling field.

According to the official website, Grizzly is committed to providing differentiated research insights for listed companies through in-depth due diligence. In February 2020, Siegfried G. Eggert founded it and served as the CEO. Eggert himself graduated with a bachelor's degree in International business from the University of Groningen in the Netherlands and a master's degree in finance from the University of Rochester. He had previously worked as an analyst at the short-selling institution GeoInvesting LLC and as an assistant analyst at Forensic Economics Inc.

In the past two years, Grizzly has shorted several Chinese concept stocks and listed companies, including WUBA.US, PDD Holdings Inc., and NIO. For example, Grizzly claimed that PDD Holdings Inc. is a dying fraudulent company, and its shopping application Temu is a cleverly disguised spyware, posing an urgent security threat to U.S. national interests.

This time, Grizzly is targeting SenseTime. "Sensetime's financial data already supports the conclusion that its AI technology lacks the ability to generate scalable revenue," said Grizzly in its report.

As of the time of writing, SenseTime's stock price has accumulated a decline of 37.44% since the beginning of 2023.

(This article was originally published on the TMTPOST App. Author: Lin Zhijia; Editor: Ma Jinnan)