Recently, Yonyou Network (600588.SH) held a semi-annual performance briefing for 2024, addressing some issues of concern to investors.

However, facing the company's significant asset impairment and a situation where revenue increases without a corresponding rise in profits, Yonyou Network's stock price has remained sluggish, with the company's stock price halved since 2024.

To boost market confidence, Yonyou Network has made many efforts, and in July of this year, the company released the "2024 Annual 'Improve Quality and Efficiency, Focus on Returns' Action Plan".

In August, shortly after the completion of the company's previous share repurchase, the controlling shareholder, Beijing Yonyou Software Co., Ltd. (hereinafter referred to as "Beijing Yonyou"), proposed to repurchase the company's shares once again.

This time, Yonyou Network plans to repurchase 50 million to 100 million yuan of the company's shares for equity incentives or employee stock ownership plans.

It should be noted that due to the continued sluggishness of the company's stock price, the pledge risk of Yonyou Network's controlling shareholder, Beijing Yonyou, and its concert parties is increasing.

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At the beginning of 2024, 19.39% of the shares held by Beijing Yonyou and its concert parties were pledged, and by September 19, 29.14% of the equity held by Beijing Yonyou and its concert parties were pledged.

With the company's revenue increasing without a corresponding increase in profits and the stock price remaining sluggish, how will Yonyou Network control the pledge risk of the controlling shareholders?

Yonyou Network, a global leader in enterprise cloud services and software providers, has always focused on the application and service fields of information technology in enterprises and public organizations, and is committed to promoting business and social progress with creativity and technology.

Since its establishment, the company has made significant contributions to the paperless office reform of domestic enterprises.

Starting with financial software, Yonyou Network can now provide enterprises with a public cloud service package that integrates "platform, finance, human resources, marketing, procurement, supply chain, manufacturing, assets, projects, and collaboration" to support the global operation of enterprises and social business.

The company's main customers are large and medium-sized enterprises in the medical, tobacco, and financial sectors, in addition to government-related business.

It is worth mentioning that while Yonyou Network is steadily expanding its business scope, internet giants such as Tencent and Alibaba have also entered the SaaS (Software as a Service) field.

Alibaba's DingTalk, which was launched as a test version in 2014, has been updated to the seventh generation, and in September 2024, DingTalk also released a series of new products and features based on "low-code + AI" and "multi-dimensional tables + AI".

By the end of 2023, the number of DingTalk users reached 700 million, the number of paid enterprises reached 120,000, and the daily active users (DAU) of paid software broke through 28 million.

Tencent's WeChat Work, which was launched in version 1.0 in 2016, has also been updated to the fourth generation.

In April 2024, according to the official microblog of Tencent Cloud, WeChat Work has been connected to Tencent's Hunyuan large model.

WeChat Work has now covered more than 50 industries including retail, education, finance, manufacturing, the internet, and medical care, and is continuously providing intelligent solutions to various industries.

It should be noted that WeChat Work can also connect to third-party services and is interoperable with Tencent's WeChat, increasing the efficiency of information response.

After the entry of giants, the competitive pressure on Yonyou Network has increased sharply, and the company's period cost rate has shown a clear upward trend.

In 2021, the proportion of Yonyou Network's sales expenses in the company's total revenue was only 22.7%, and by the first half of 2024, the company's sales expense rate had risen to 30.04%; Yonyou Network's R&D expense rate also increased from 16.9% in 2021 to 27.95% in the first half of 2024.

While the company's sales expense rate and R&D expense rate continue to rise, Yonyou Network's sales gross margin has decreased from 61.25% in 2021 to 52.55% in the first half of 2024.

Under this situation, although Yonyou Network's revenue has shown a clear upward trend from 2021 to the present, the net profit attributable to the parent company has been declining.

In 2023, Yonyou Network even had a loss of 967 million yuan; before that, Yonyou Network had been profitable for more than ten years.

In the first half of 2024, although the company's losses narrowed, the enterprise still had a loss of 794 million yuan.

In order to break the internal volume, Yonyou Network is actively deploying overseas, but as of the first half of 2024, the proportion of overseas revenue in the company's total revenue was only 1.65%.

And the gross margin of overseas business is 36.82%, far lower than that of domestic 52.12%.

Under such circumstances, is going overseas the best choice for Yonyou Network?

In addition to the increase in the period cost rate that erodes the company's profits, the high balance of accounts receivable and notes receivable also increases the risk of Yonyou Network.

In 2021, the balance of accounts receivable and notes receivable of Yonyou Network was only 1.44 billion yuan, accounting for 16.12% of the company's revenue in that period, and by the end of 2023, the balance of accounts receivable and notes receivable of the company had reached 2.66 billion yuan, accounting for 27.15% of the company's total revenue in that period.

As of the first half of 2024, the balance of accounts receivable and notes receivable of Yonyou Network has reached 2.783 billion yuan.

The company's announcement shows that since 2022, Yonyou Network has been providing for the company's accounts receivable, contract assets, and goodwill.

Among them, in 2021, Yonyou Network accumulated a provision for asset impairment of 355 million yuan; 220 million yuan in 2022, 235 million yuan in 2023; in the first half of 2024, the company also provided for 111 million yuan of asset impairment.

On the one hand, the company faces strong competition, the gross profit margin of the enterprise declines, and the period cost rate rises, which weakens the company's profitability; on the other hand, the high balance of accounts receivable and notes receivable, and large asset impairment losses, erode the company's profits.

Under this situation, the stock price of Yonyou Network has shown a continuous downward trend since 2021, and the stock price of the company has fallen by about 80% since 2021.

Faced with the continuous decline of the company's stock price, the pledge risk of Yonyou Network's controlling shareholder, Beijing Yonyou, and its concert parties is also increasing.

At the beginning of 2021, Beijing Yonyou only pledged 12 million shares of the company, accounting for 0.37% of the company's total share capital at that time, and 1.3% of the shares held by Beijing Yonyou and its concert parties.

After several supplementary pledges, by September 19, 2024, Beijing Yonyou and its concert parties had pledged 414 million shares of the company, accounting for 12.11% of the company's total share capital at that time, and 29.14% of the shares held by Beijing Yonyou and its concert parties.

In order to boost market confidence, Yonyou Network has also made many efforts, and since 2021, Yonyou Network has completed 3 repurchases, with a total repurchase of more than 2.1 billion yuan of the company's shares.

In August 2024, shortly after the last round of repurchases, the controlling shareholder of Yonyou Network proposed to repurchase the company's shares again, with a proposed repurchase amount of 50 million to 100 million yuan.

In addition, in July 2024, Yonyou Network also released the "2024 Annual 'Improve Quality and Efficiency, Focus on Returns' Action Plan", explaining from the perspective of focusing on the main business, valuing investor returns, strengthening investor communication, and strengthening risk management, how the company will enhance enterprise value in the future.

However, in the face of the company's continuous losses and the stock price hitting a new low since 2018, besides repurchasing, what other substantive actions does Yonyou Network take to boost market confidence and alleviate the pledge risk of the actual controller?