Canaan Inc.

CAN Details

Canaan Inc. (NASDAQ: CAN) is engaged in providing supercomputing solutions with the help of its proprietary developed high-performing application-specific integrated circuit (ASIC) for Bitcoin mining and related components primarily in the People's Republic of China (PRC). In 2018, the company released the world's first 7nm ASIC chip, which provides energy-efficient computing equipment to the cryptocurrency mining industry. CAN’s American Depositary Shares (ADS) are listed and trading on the NASDAQ, with each ADS representing fifteen Class A ordinary shares.

Strategic partnership with GDA: On June 16, 2021, the company announced that it got the purchase order from Genesis Digital Assets Limited (GDA), a leading Bitcoin mining firm in developing and operating industrial Bitcoin mining data centers, for 10,000 of its A1246 and A1166Pro Bitcoin mining machines. As per the agreement, CAN will deliver the machines in the fall by June 30, 2021. The chipmaker also received the initial order of GDA for USD 93.63 million earlier in April 2021.

Q1FY21 Results: The company reported a 5.89x rise in total net revenues to RMB 402.77 million in Q1FY21 (ending March 31, 2021) compared to RMB 68.27 million in Q1FY20 (ending March 31, 2020), primarily due to a significant increase in the product revenues. The company reported a net income of RMB 1.20 million in Q1FY21 compared to the loss incurred of RMB 39.94 million in Q1FY20. As of March 31, 2021, the company stood at the cash and cash equivalents of RMB 1,337.79 million, with a total debt of RMB 32.25 million.

Key Risks: CAN’s Class B common stock has fifteen votes per share, while Class A common stock has one vote per share. This concentrates voting control with Nangeng Zhang, the Chairman and CEO of CAN, who owns 100% of the Class B common stock, representing approximately 69.50% of the aggregate voting power of the outstanding share capital as of December 31, 2020. This concentration of voting power limits the ability of other shareholders to influence corporate matters.

As the company works mostly in China, where much of the growth in Bitcoin mining has occurred, the Chinese authorities' recent crackdown and talk of tougher rules could have long-term implications for the company's capacity to produce any meaningful revenues.

In addition, prolonged frictions between the US and China, and the recent passage of a bill in the US that could lead to the delisting of some Chinese companies from the country’s exchanges (in case of the US authorities’ inability to satisfactorily audit the company for three consecutive years) expose the stock to significant political and regulatory risks. Though a solution to the standoff could be negotiated in the medium term (before the earliest delisting begins possibly in 2024), the companies that might not be able to fulfill the revised standards are at risk.’

Outlook: In comparison to Q1FY21, the Company expects yields and deliveries to grow significantly as it mass produces its next generation of Bitcoin mining devices. Further, the company acknowledges that bitcoin price trends are currently difficult to anticipate, and as a result of Bitcoin's price volatility, it is unable to provide any financial guidance.

CAN Daily Technical Chart

Stock Recommendation: CAN’s share price nosedived 66.77% over the past three months and is currently trading in the lower band of the 52-week range of USD 1.77 to USD 39.10. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is 37.21. Considering the company’s excessive reliance on Bitcoin, China’s crackdown, continued US-China frictions, and other associated risks, we recommend an "Avoid" rating on the stock at the current price of USD 7.31, down by 4.07% as of July 02, 2021 at 12:49 PM ET.

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.

BIT Mining Limited

BTCM Details

BIT Mining Limited (NYSE: BTCM) is a cryptocurrency mining firm focused on creating wealth in the cryptocurrency space. Cryptocurrency mining, mining pools, and data center activities are all part of the company's operations. BTCM has installed bitcoin mining machines, owns three hydroelectric bitcoin data centers, and runs a mining pool called BTC.com. As of April 31, 2021, BTCM has produced approximately 147 bitcoins and currently owns 489 bitcoins. BTCM’s American Depositary Shares (ADS) are listed and trading on the NYSE, with each ADS representing ten Class A ordinary shares.

Delivery of Mining Machines to Kazakhstan: BTCM announced the successful delivery of the first batch of mining devices to Kazakhstan on June 21, 2021. By June 27, 2021, the first batch of 320 mining machines is planned to get operational. By July 01, 2021, the second and third batches, totaling 2,600 mining machines, are expected to be delivered. Over the next few quarters, BTCM aims to ship its remaining mining machines to data centers in other countries.

Q1FY21 Results: The company reported a 6.38x rise in net revenues to RMB 19.55 million in Q1FY21 (ending March 31, 2021) compared to RMB 3.06 million in Q1FY20. The YoY increase in revenue is mainly attributable to the cryptocurrency business that started at the end of February 2021. The company reported a net income of RMB 12.87 million in Q1FY21 compared to the loss incurred of RMB 36.37 million in Q1FY20. As of March 31, 2021, the company’s cash balance stood at RMB 173.37 million, with a total debt of RMB 170.66 million.

Key Risks: In 2001, the company started its online lottery services and became profitable in 2007. However, the lottery business was shut down by the Chinese government in April 2015, and the company has not generated any revenue from its lottery operations since then.

Prolonged frictions between the US and China, and the recent passage of a bill in the US that could lead to the delisting of some Chinese companies from the country’s exchanges (in case of the US authorities’ inability to satisfactorily audit the company for three consecutive years) expose the stock to significant political and regulatory risks. Though a solution to the standoff could be negotiated in the medium term (before the earliest delisting begins possibly in 2024), the companies that might not be able to fulfill the revised standards are at risk.

Moreover, as the company works mostly in China, where much of the growth in Bitcoin mining has occurred, the Chinese authorities' recent crackdown and talk of tougher rules could have long-term implications on the company's capacity to generate any meaningful revenues.

Outlook: By FY21 end, BTCM aims to have deployed all of its Bitcoin and Ethereum mining machines. If this occurs, the company’s theoretical maximum total BTC hash rate capacity will rise to around 2,000 PH/s, while its theoretical maximum total ETH hash rate capacity will rise to around 4,800 GH/s.

BTCM Daily Technical Chart

Stock Recommendation: BTCM stock has nosedived by 67.89% in the past 3 months and is currently trading at the lower-band of the 52-week range of USD 2.51 to USD 35.00. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is 37.61. Considering the recent China’s crackdown on crypto-mining and the company’s excessive dependence on the same, continued US-Chine frictions and other associated risks, we recommend an "Avoid" rating on the stock at the current price of USD 7.30, down by 2.07% as of July 02, 2021 at 01:54 PM ET.

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.