A Super Unicorn with $5 Billion in Funding is Going Public

Source: ChinaVenture

Four months ago, Ai Yu, CEO of Terminus, made a bold statement, saying, "There may soon be good news announced." Half a month ago, that "good news" finally surfaced: another round of financing had been completed, and today an even "better" piece of news follows- Terminus is going public.

According to reports from Investment China, on September 25, "Chongqing Terminus Smart Technology Co., Ltd." submitted its prospectus to the Hong Kong Stock Exchange. Sources familiar with the investment banking process have indicated that the pre-IPO market value may exceed HKD 35 billion.

The revelation from half a month ago disclosed that this financing is part of a new round following the completion of a HKD 2 billion Series D financing in April. The investor is the publicly listed company Microware Group, which invested HKD 50 million. Notably, the price at which Microware is investing in Terminus is HKD 20 per share, valuing the company at approximately HKD 21 billion. The prospectus shows that this financing price is actually the same as that of the Series D financing that started in May 2022, and the recent completion may lead to a significant increase in valuation at the time of filing.

The reason investors are paying attention to the IPO is, of course, that it is the primary exit channel for domestic VC/PE firms. By going public, they can gauge the current temperature of the secondary market and assess the final pricing of the company, which reflects market recognition of the industry and sector. Most importantly, these performances can help adjust both their expectations and those of their bosses. It can be said that the IPO serves as a more sensitive "barometer" than the performance of secondary market indices.

As is customary, let's first discuss how the main investors will be rewarded if Terminus successfully goes public. It is estimated that some institutions could achieve returns exceeding 80 times their investment.

An Investment Return of 80 Times

Since its establishment in 2015, Terminus has completed nine rounds of financing, attracting investments from VC/PE firms, strategic investors, financial investment companies, individuals, and those in artificial intelligence, including Everbright, CITIC's industrial capital, iFlytek, JD.com, Gemdale Corporation, Zoomlion, Shenzhen Futian, Nanchang Wanglong, Xuzhou Zhenxin, and Yuyao Yangming. The total financing amount has exceeded RMB 5 billion.

After nine years of entrepreneurship, Terminus has leveraged capital in one hand and AI in the other. Aside from encountering some challenges during the pandemic, its development has generally been smooth. Notably, one of its key angel round institutional investors, Guangkong Hexie, is worth mentioning.

Guangkong Hexie holds an 11.93% stake in Terminus. Based on a post-IPO market valuation of HKD 35 billion, the value of these shares will exceed HKD 4.17 billion, representing a return of over 80 times compared to its investment of more than RMB 46 million during the angel round.

What about the returns for "other investors"?

For example, SenseTime invested RMB 100 million in Terminus during the B1 round in 2017, which accounted for a 3% pre-IPO shareholding. Based on the valuation of HKD 21 billion for Terminus in the Series D round, the shares held by SenseTime before the IPO would be worth approximately RMB 630 million. Using a pre-IPO market valuation of HKD 35 billion, the estimated value of the shares is expected to be HKD 1.05 billion, potentially realizing a return of over nine times.

Additionally, JD.com led the Series C-1 financing for Terminus. At that time, the JD Group invested a total of RMB 300 million in Terminus, accounting for a 3.07% pre-IPO shareholding. Based on a pre-IPO market valuation of HKD 35 billion, the value of its shares is expected to exceed HKD 1.07 billion, potentially achieving a return of over three times.

Expected to Achieve a U-Shaped Recovery

According to China Insights Consultancy, in terms of revenue, Terminus is the fifth-largest AIoT solution provider based on operating systems in China. The top four are two state-owned telecommunications companies, Huawei, and Alibaba. The prospectus shows that during the reporting period (2021, 2022, 2023), TERMINUS's operating revenues were RMB 1.206 billion, RMB 738 million, and RMB 1.006 billion, respectively.

It is evident that Terminus 's revenue remained in the RMB 1 billion range during the reporting period, indicating that the company faced significant challenges over these three years, especially in 2022 when the pandemic delayed product deliveries, leading to a noticeable decline in revenue. However, entering 2024, from the perspectives of "reducing losses," "current orders," and "overseas expansion," Terminus is expected to shape a "U-shaped" curve and return to a growth trajectory.

During the reporting period, Terminus reported losses of RMB 2.828 billion, RMB 2.387 billion, and RMB 802 million, respectively. Like most IPO companies supported by VCs, these losses primarily reflect the fair value losses of preferred shares, which do not impact the company's actual operations. Adjusted net losses for 2021 to 2023 were RMB 639 million, RMB 983 million, and RMB 600 million, respectively, showing a clear trend of narrowing losses except for the impact of the pandemic in 2022.

If reducing losses indicates an improvement in Terminus's operational quality, then having a backlog of orders amounting to RMB 2 billion provides a solid foundation for the company to present better results this year. This RMB 2 billion figure is more than double the average annual revenue of Terminus during the reporting period. To achieve rapid growth, the company must enhance its delivery capacity and speed.

Currently, Terminus is focused on four key areas: AI industrial digitalization, AI smart cities, AI smart living, and AI smart energy. Among these, AI industrial digitalization and AI smart cities have consistently been the main sources of revenue for the company. In 2022, their respective contributions to total revenue were 64% and 20.7%; in 2023, they were 62% and 22.3%. Furthermore, in 2023, revenues from AI industrial digitalization and AI smart cities grew by 32% and 47%, respectively, compared to the same period last year. At the same time, the AI smart energy sector saw a year-on-year revenue increase of 151%.

In terms of overseas expansion, the prospectus indicates that Terminus is "the first in the Asian AIoT industry to conduct international expansion." Terminus has established an international headquarters in the UAE, led by Chief Scientist Dr. Shao Ling. As of the end of the first quarter of this year, Terminus's AIoT products have been adopted by overseas clients from the United Arab Emirates, Qatar, Singapore, Australia, and Zimbabwe, including Mubadala's technology platform Injazat and Singapore's Punggol Digital District.

The prospectus shows that part of the funds raised from the IPO will be used to expand its overseas presence, highlighting TERMINUS's emphasis on international expansion. Previously, Terminus stated that based on the overseas business headquarters established in Dubai, the company plans to strategically expand into key overseas markets in the Middle East, Southeast Asia, and Australia.

Hitting a Trillion-Dollar Track

Overall, Terminus's financial data may not be particularly outstanding, but the prospectus is well-structured, clearly disclosing all necessary information. However, I am curious about why Terminus feels the need to emphasize that it is "the fifth-largest operating system-based AIoT solution provider in China"?

After reviewing the prospectus, my conclusion is that there is indeed a necessity. The prospectus states that Terminus positions itself as "a pioneer and leader in China's public domain AIoT industry," with its primary product, the AIoT operating system TacOS, providing a full stack of AIoT products (software, hardware, services) to enterprises and public managers.

AIoT, which stands for AI + IoT (Artificial Intelligence Internet of Things), is currently rapidly integrating with large models to promote better implementation of these models in various scenarios. According to China Insights Consultancy, the revenue from China's AIoT market is expected to grow from RMB 821 billion in 2023 to RMB 1.393 trillion in 2028, with a compound annual growth rate (CAGR) of 11.1%. Among this, the market size of public domain AIoT is projected to increase from RMB 408 billion in 2023 to RMB 744 billion in 2028, with a CAGR of 12.8%.

From 2015 to 2016: During the AIoT 1.0 era at its inception, Terminus built intelligent infrastructure for customers.

From 2016 to 2019: The company developed end-to-end solutions for personal scenarios in the AIoT 2.0 era.

From 2020 to 2022: Terminus launched the smart city operating system and initiated multiple AI CITY projects.

From 2023 to the present: Leveraging large model capabilities and TacOS, the company has entered the AIoT 4.0 era.

With a market scale expected to reach trillions, even the seemingly niche category of "operating system-based AIoT solution providers" represents a significant market, and competition is bound to be fierce. It is no wonder that the second risk warning in the prospectus mentions "intense competition in China's public domain AIoT industry." For a company to survive and thrive, it must possess irreplaceable advantages and resources in terms of products, industries, and scenarios.

As mentioned earlier, Terminus currently focuses on four major AIoT application scenarios: "AI industrial digitalization," "AI smart cities," "AI smart living," and "AI smart energy," which accounted for 62%, 22.3%, 7.6%, and 8.1% of revenue in 2023, respectively. Supporting these four scenarios is TERMINUS's core product-the TacOS operating system.

According to China Insights Consultancy, TacOS is one of the earliest public domain AIoT operating systems in Asia to support all-scenario applications in public domain spaces. "TacOS uses a layered design, allowing for deployment as an integrated platform or flexible modular deployment of subsystems, achieving scalable implementation of the platform. The overall technical architecture of TacOS consists of five layers: intelligent computing IoT, global digitization, general intelligent agents, all-scenario applications, and developer platforms.

As of the first quarter of 2024, Terminus's products, including TacOS, have been deployed by over 800 customers across 150 cities worldwide, with several benchmark projects, such as the 2020 Dubai Expo, Shenzhen Qianhai Urban Smart Brain, Longxin General Green Intelligent Computing Body, and the Smart Community in Shanghai's Xuhui District.

However, to be honest, from a public market perspective, TacOS still seems too abstract. Describing AI + IoT is quite complex and may be difficult for the C segment to perceive. Therefore, another challenge Terminus faces is how to help public market investors better understand its products and value. If we had to find an intuitive benchmark, we might say that TERMINUS is like Tesla in the fields of smart cities, smart living, and smart energy. This analogy is not just in name; upon closer examination, AI can be likened to Tesla's FSD intelligent driving brain, while IoT is responsible for perceiving the surrounding environment and collecting vast amounts of data, which continuously feeds back into and upgrades the AI, forming a self-iterative ecosystem when combined with other modules.

Additionally, benefiting from the massive amounts of data used to train its AI, Tesla continues to expand its product matrix. Beyond cars, it has ventured into large models, embodied intelligent robots, brain-computer interfaces, and more-no one can define the boundaries of Musk's ambitions. Reflecting on Terminus's earlier launch of the Titan series intelligent robots, which provided services such as reception, information inquiries, transportation, and delivery to over 12.5 million visitors during the Dubai Expo, it seems likely that Terminus will develop more products directly aimed at the C segment in the future. This would not only better leverage the advantages of AI + IoT but also allow investors to more easily perceive the value of Terminus.

Public link

Please use the above public link if you want to share this noodl on another website.