On the evening of June 28th, Shenzhen Stock Exchange issued a notice deciding to delist *Beijing Zuojiang Technology.

The reason is that the company's net income in 2023 is negative, revenue is less than 100 million, and there is an audit report that cannot express an opinion, which violates the delisting rules.

Last year, this company rose from less than 100 yuan to nearly 30 yuan, and its market value exceeded 30 billion yuan by boasting about its similarity to NVIDIA's DPU. This created the myth of the 'most expensive ST stock' in history. Unexpectedly, it was left with only 700 million yuan in less than a year and fell into financial fraud. The beautiful expectations of past investors turned out to be deception.

01 Riding on Nvidia

Founded in 2007, Beijing Zuojiang Technology initially focused on the design, production, and sales of software and hardware platforms related to information security and network security chips. It was listed on the Growth Enterprise Market in 2019.

The company's stock price began to rise at the end of April 2022, experiencing two waves of rises.

The first rise was from the end of April to December, following the resonance repair of the chip sector's rise. However, despite the sector's downturn in August, Beijing Zuojiang Technology remained on an independent upward trend.

The reason is that at that time, Beijing Zuojiang Technology had already publicly disclosed the development and trial production of a DPU (Programmable Data Processing Chip), causing considerable excitement and positive public opinion.

DPU is a specialized processor constructed around data. In NVIDIA's 2020 DPU product strategy, it is positioned as the 'third main chip' for data centers after CPU and GPU, with the purpose of offloading loads that CPU processing is inefficient at and GPU processing is not capable of to the specialized DPU to enhance the overall efficiency of the system and reduce overall costs.

DPU White Paper

To develop this chip, the company introduced investment partners by increasing equity and expanding capital, increasing R&D investment, completing design work in 2021, and officially releasing its first Hammerhead NE6000 chip in December 2022. They claim it is the first completely domestically produced and independently controllable DPU chip.

By constantly releasing progress reports, Beijing Zuojiang Technology became the 'holy grail' of domestic chip substitution. From May to December 2022, the company's stock price increased cumulatively by 242.33%.

Beijing Zuojiang Technology replied in its 2022 annual report inquiry letter that the NE6000 was designed to compete with the previous generation of NVIDIA's Bluefield2 DPU, which laid the foundation for the second round of hype in 2023.

Thanks to the progress of artificial intelligence applications, computing power remains a scarce resource, and NVIDIA's GPUs are almost monopolizing AI training with rapidly growing scale and training costs.

The usefulness of DPU lies in releasing computing power space and reducing data center energy consumption.

Just as GPU chips are the brain of graphics cards, DPU chips are the brain of intelligent network cards. With DPU, servers can process data directly on the network card hardware and deliver it to the final consumer application without CPU intervention and multiple accesses to memory and peripherals. This is a dual release of computing chip computing power and energy cost.

According to institutional estimates, if each server is equipped with 1.5 DPUs, 15.66 million new servers will be added in 2023, and the corresponding market space will be about 164.5 billion yuan, with more room for the number of equipped DPUs to increase in the future. This will create a scenario where CPU, GPU, and DPU are all used as the computing engine of data centers.

This description directly became the catalytic agent for Beijing Zuojiang Technology's performance reversal. So, riding the wave of artificial intelligence, it successfully packaged itself into a DPU core target. From January to July of last year, the stock price doubled again.

From April 27, 2022 to July 17, 2023, the highest point of the stock price, the stock price rose from about 35 yuan per share to the highest of 299.8 yuan per share, an increase of up to 773.75%.

02 Brokerage fined for pumping stocks

But if ST is not added, the understanding of Zuojiang will be incomplete.

As the most expensive ST stock in history, 2023 is also Zuojiang's way of safeguarding itself.

Last year, when there was hype about AI, it received a delisting warning. On January 31, February 25, and March 25, 2023, Zuojiang issued three consecutive announcements warning of the risk of its stock trading being delisted. On May 4th, the stock abbreviation was changed to "*ST Zuojiang".

The quality of the company itself is not good, and performance has been declining since it went public. In the past two years, net income has been continuously loss-making. Betting on the reversal of such a company is actually very risky.

Even so, there are brokerage firms who are willing to endorse it despite the risks.

Generally speaking, brokerage firms will not write in-depth research reports for stocks with ST risks, which is not difficult to understand. Unless a customer wishes to buy the stock and commissions the brokerage firm to write the report.

In April last year, in order to recommend Zuojiang's stock, a brokerage firm issued a "Zuojiang Technology: The Bright Pearl of the Computing Field, DPU Surges with the Trend" in-depth report. Six months later, it received a warning letter from the regulatory authority as a result.

The reason for the warning is that the analysis conclusion of the relevant research report published by the brokerage firm is not based on sufficient evidence and not prudent, and fails to fully disclose the investment risks. The company did not strictly review the research report quality, and the above behavior constitutes a violation of regulations.

But what is confusing is, given that Zuojiang's poor performance was already apparent and delisting warnings were already reminding investors of risks, what level of certainty made the brokerage firm willing to actively take a bullish view on it?

In fact, the logic of the report was based more on the industry level narrative, which is nothing more than that the development prospects are good, the ceiling is high, and therefore the in-place companies in the industry will inevitably benefit. Zuojiang has funds injected, R&D investment, and chip packaging is also done well.

The greatest discrepancy with reality is that the conclusion given by the report for Zuojiang's 2023 performance outlook is expected to be "fully repaired", which is still based on the premise of a loss of 147 million yuan in the previous year.

From the perspective of the report's exposition, there is simply no hint of such an outcome.

Until December last year, Zuojiang had never disclosed the actual sales of DPU chips in a timely manner. Communicating with a listed company should be more convenient for brokerage firms than ordinary investors, and even if they cannot find out about the company's fraudulent behavior, they should still do their due diligence to protect investors from falling into this pit. Unexpectedly, even the most basic verification obligation was not fulfilled.

This report had a push effect on the rise of the *ST Zuojiang stock price, and three months later the market cap of Zuojiang reached its highest point.

It wasn't until the end of last year that Zuojiang's true colors were finally revealed.

Akcome New Energy Technology was established in 2006, headquartered in Hangzhou, Zhejiang Province. The company was originally engaged in PV aluminum frame and PV power station construction and operation, and was listed in 2011. In 2016, the company's business layout extended to battery components, and its production capacity began to accumulate, making it a well-known component supplier in the industry.

In early December last year, the company received a notice of investigation issued by the China Securities Regulatory Commission for suspected violations of the disclosure of information. Two months later, the CSRC's announcement showed that after preliminary investigation, the financial information disclosed by Zuojiang Technology in 2023 was seriously untrue and involved material financial fraud.

The release of these two pieces of information ultimately squeezed the bubble of Zuojiang, and the stock price of the company began a huge decline.

As always, the routine of 03.

Looking back on Zuojiang's road to turnaround, it's really all hot air, full of water, and riddled with suspicions.

Last year, the Shenzhen Stock Exchange issued an inquiry letter requesting the company to disclose its specific income situation, but Zuojiang repeatedly postponed its reply and did not indicate until December 12th last year that the sales revenue of DPU chips in the first three quarters of 2023 was achieved except for sales of 4 million 10,000 yuan to Beijing Haotian Xuhui Technology Co., Ltd. by the "NE6000" series DPU chips.

In this contract, Haotian Xuhui is not an end user, but a distributor that sells chips to Beijing Juxian Technology and Trading Co. according to the accountants who verified it, there were 370 chips stored in the warehouse that Juxian Technology purchased, and only 10 were used for research and development.

There is another incredible income, which is a contract of 51 million yuan signed with Xuhui Technology and Zhongyuan Timespace disclosed by the company in June 2023. Whether this income is confirmed or not is crucial to Zuojiang Baoke.

Akcome New Energy Technology was established in 2006, headquartered in Hangzhou, Zhejiang Province. The company was originally engaged in PV aluminum frame and PV power station construction and operation, and was listed in 2011. In 2016, the company's business layout extended to battery components, and its production capacity began to accumulate, making it a well-known component supplier in the industry.

This procurement contract clearly states that Xuhui Technology will purchase 20,000 sets of 2*25G network cards from Zuojian Shaoguan for 51 million yuan. In the reply to the third quarter report inquiry letter last year, the company stated that it had delivered according to regulations and signed, but the income had not yet been confirmed.

However, after communicating with Zhongyuan Timespace, except for some test products, the server network card delivery acceptance cannot be completed in Qingyang project in 2023, and the corresponding income cannot be confirmed in 2023. A journalist visited the project site- Zhongyuan Timespace Big Data Cloud Center and found that the project site, which cost more than 1 billion yuan to invest, was overgrown with weeds and there was no sign of construction.

Furthermore, although Zuojian's performance has been declining, its inventory and accounts receivable have been steadily increasing, and the amount has expanded 20 times since 2014. However, the cash received from selling goods or providing services has been lower than the revenue in that year for a long time.

One by one, abnormal data inevitably makes people suspect that the company’s 219 million yuan and 63% growth in 2019, which happened to be the year of the company’s listing, constitutes suspicion of beautifying financial data.

Even more coincidentally, before the ruling was issued on January 30th of this year, the company's longstanding CFO had already applied to resign.

Compared to the highest point in July last year, the stock price has fallen by 97%. As of the last trading day before the suspension, Zuojian Technology's stock price was only 6.94 yuan, with a total market value of 708 million yuan and 12,000 shareholders.

But when Zuojian's stock price turned from high to low in October last year, the number of shareholders increased by more than 13,000, and it is difficult to escape the fate of deep loss.

The most expensive ST stock in history has become a laughingstock.

In 23, the company's overall sales volume was 18,000 kiloliters, +28.10% year-on-year, significant growth. Product structure, 10-30 billion yuan products operating income of 401/1288/60 million yuan respectively.