Canaan Technology Financial Report Analysis: How Do Mining Companies Respond to Market Cycle Fluctuations?

1. Analysis of Per Share Indicators

From the perspective of basic earnings per share, Canaan Technology reported losses in 2019. This may have been due to intense market competition and sales not meeting expectations, leading to a decline in gross margin. At the same time, the company may have made large-scale R&D investments or capital expenditures, which did not yield profits in the short term. The losses in 2020 were reduced, mainly due to the cost control measures and operational efficiency optimization implemented by the company.

In 2021, Canaan Technology achieved profit growth, which was closely related to the rise of the Bitcoin market. The market conditions drove an increase in mining machine sales and prices, boosting the company's revenue and profits. In addition, the new products or services launched by the company gained market recognition, which also increased profit sources. In 2022, profits further increased, mainly due to the continuous growth in market demand and the effectiveness of earlier R&D investments, as well as successful new product and technology innovations. However, in 2023, the company experienced losses again, mainly due to fluctuations in the Bitcoin market leading to a decline in sales performance, coupled with some non-recurring expenses or risk factors.

In terms of net asset per share, there has been a fluctuation trend from 2019 to 2023:

• In 2019, it was 1.49 yuan, reflecting that the company is in a growth stage with limited asset scale.
• In 2020, it surged to 25.46 yuan, indicating that the company achieved significant profits or underwent major asset expansion.
• In 2021, it slightly decreased to 20.13 yuan, but still maintained a high level.
• In 2022, it significantly dropped to 2.79 yuan, possibly influenced by the fluctuation in the Bitcoin market.
• In 2023, it slightly rebounded to 4.42 yuan, but still remains below the levels of previous years.

Overall, Canaan Technology has experienced fluctuations in profitability and asset scale over the past few years, and its performance is closely related to the fluctuations in the Bitcoin market.

2. Operational Capability Analysis

Canaan Technology's operational performance in 2020, 2022, and 2023 was relatively weak, primarily due to these years coinciding with the Bitcoin bear market, which led to sluggish demand for mining machines and slow inventory turnover.

However, compared to 2020, the company's operating performance improved in 2022 and 2023, mainly due to the following strategies:

1. Technological innovation drives improvements in mining, adapting to changes in the regulatory environment.
2. Optimize fundraising and cash flow management to enhance financial flexibility.
3. Diversified mining layout and increased uptime to achieve growth in cryptocurrency assets.

3. Profitability Analysis

Return on equity:

• In 2019, it was -221.58%, reflecting the company's severe losses.
• Improved to -38.23% in 2020, but still a negative value.
• Rose significantly to 102.81% in 2021, indicating a substantial improvement in profitability.
• The decline again from 2022 to 2023 has turned negative, indicating that profitability has been hampered once more.

The trend of the net profit margin is basically consistent with the return on net assets. In 2023, sales revenue is insufficient to cover costs and expenses, and there is an urgent need for improvement.

The sales gross margin rose from a negative value in 2019 to 57.17% in 2021, and then gradually declined and turned negative again, reflecting the fluctuation in the company's operating conditions.

Overall, the profitability of Canaan Technology has fluctuated significantly over the past few years, influenced by market conditions and operational strategies. The company needs to further optimize its management practices to improve profitability and capital utilization efficiency.

4. Financial Indicator Analysis

The asset-liability structure and liquidity indicators of Canaan Technology have shown the following changes in recent years:

• The asset-liability ratio shows an upward trend, reaching 58.26% in 2020 and 38.59% in 2023.
• The liquidity ratio has declined overall, dropping to 1.70 in 2023, indicating weakened short-term solvency.
• The quick ratio is also showing a downward trend, with a value of 1.32 in 2023, indicating increased short-term debt repayment pressure.
• The equity multiplier has experienced fluctuations, reaching a peak of 2.40 in 2020, and then declining, reflecting changes in the company's level of debt financing.
• The proportion of current assets to total assets has overall decreased, with 73.72% in 2023, which may indicate that more funds are being directed towards non-current assets.
• The proportion of current liabilities to total liabilities fluctuated, at 93.17% in 2023, indicating significant short-term debt pressure.

These indicators show that the overall debt repayment capability of Canaan Technologies is on a downward trend, mainly due to the increase in the debt-to-asset ratio, as well as the decline in the current ratio and quick ratio, and the decrease in the proportion of current assets. The company needs to further optimize its asset-liability structure and improve its liquidity level to ensure the robustness of its debt repayment capability.

5. Comprehensive Conclusion

Canaan Technology has experienced market fluctuations and challenges over the past five years, particularly facing a significant decline in revenue and profits in 2022 and 2023. However, the company has responded to these challenges with a series of proactive measures, and there are signs of improvement in its financial performance in 2023:

1. Enhance ASIC chip design capabilities and expand business in the AI field.
2. Strategically enter the Bitcoin mining business as a second growth engine.
3. Improve production capacity to ensure high quality, high yield, and stable production.
4. Change the reporting currency to US dollars to reflect the global business development strategy.
5. Achieve breakthroughs in key technology areas and accumulate valuable technical experience.
6. Plan to expand the customer base by launching more products and solutions.

Through these initiatives, Canaan Technology has achieved significant results in terms of technological capability, market expansion, and operational optimization, laying a foundation for future development. Looking ahead, the company will continue to focus on market changes, maintain competitiveness, and adopt proactive development strategies to achieve long-term growth.