Bairong - What to do with the stock ?

The stock has been VERY weak so far in 2026.

Three reasons: 1) It is seen as a software internet stock - can AI disrupt the business ? 2) Chinese govt cracking down domestic money trading in HK/overseas, and 3) Chinese govt cracking down on online lending.

Reason 1/2 were really about market sentiment. Reason 3 was the hammer.

Now a rant. The new regulation on online lending was just irrational. After the previous intervention, online loans were capped at 24%.. Then despite a sluggish economy, govt saw the wisdom to cap lending rate at 21%. Maybe someone in Beijing thought 24% was unconscionable (taking advantage of the borrowers)...... BUT the end result of the the 21% cap is banks and lenders simply decide to stop lending to folks whose credit profile doesn't justify lending to them at 21%.

Now turning to Bairong, it is actually one of the pioneers in China working on machine learning. Over the years, it has amassed a massive database/signals on Chinese consumers. It has pulled all sorts of signals into its database. For instance, if a consumer frequents gambling websites on his phone, Bairong algo will reject his loan application. Bairong's model is the leading risk assessment model that banks turn to in China. It is a great business (almost like a toll road).... Every time its partner banks look to make a loan, Bairong would charge a fee for its credit assessment/API call.

The next part of the business is its Business-as-a-Service division. With BaaS, Bairong would use a "voice robot" to call customers on behalf of the banks to see if it can: i) reactivate dormant credit card users, ii) make more loans etc etc.... The problem was BaaS mostly worked with the smaller lenders who lend at high interests....

Following implementation of the latest online lending regulation, banks are making less loans so less API calls on Bairong's risk assessment model. Its BaaS division was hammered (down almost 60-70% yoy). Overall, sales dropped 43% yoy in 1H 26.

In addition, as it was pivoting to AI, it stepped up R&D investments. Net 1H 26 result was ugly... Lost Rmb300M in 1H (vs. profit Rmb200M in 1H 25).

What does the future hold ?

1. 2026/2027 will remain difficult unless Beijing relents on the interest rate cap.

2. The traditional business will remain under pressure.

3. BUT Bairong is building its Act 2 in AI. My view is it is one of the potentiallittle rising "stars" in AI in China. Why do I say that ? It has its own LLM model. Again, it is important to distinguish its model vs. say Deepseek or Kimi or Qwen. Bairong's model is designed for specific use cases in different industries i.e. it is not aiming to be the next Anthropic.. On top of its LLM model, it is building its numerous Agents (automating various corporate functions e.g. recruiting/legal/accounting/call centre etc etc). Further layer on top is its Voice Agent technology... It has been doing cold calling for years (technologically much easier).. With AI, its VoiceBots can handle incoming calls (where context of the call is much more complex). An anecdote is its VoiceGPT technology is probably the best in China. Remember its heritage lies in the finance industry.... It has already figured out all these enterprise grade hurdles and now it is targeting new industries with less stringent requirements (e.g. delivery, e-commerce).

4. AI will lead to new business model (and potentially more lucrative). Specifically, Bairong plans to charge a "wage" for its agent for the human staff it displace. Say a person in a call center is paid Rmb6000 a month. Bairong plans to charge Rmb3000 for the same workload/calls per month.

5. There is no guarantee that it can make the transformation but its market potential is now significantly much larger (expanding from working with banks to working with many different industries). In addition, its TAM is no longer limited by the size of the IT budget but its TAM is now part of total enterprise operating expense in China in its targeted industry such as logistic, wealth management, travel, telecoms, e-commerce etc etc. Just think of any industries with a large volume of inbound calls e.g. where is my delivery, my internet broadband is stuffed, I have problem with my flight booking, I want to make a claim on my insurance etc etc....

6. Think management is switched on. Felix (CEO) is entrepreneurial, ambitious with a tech background. Bairong Version 1 was a very good Chinese fintech/software company (until the recent online lending crackdown). Bairong Version 2 actually saw the significance of AI earlier than most. It started laying the ground work as early as 2024.

The following article is worth a read... Note the example about the old lady with an express delivery company.

https://baijiahao.baidu.com/s?id=1875903321431686278&wfr=spider&for=pc

Stock has been very weak.. MV is now just under HK$2bn vs. cash/investments of Rmb2.7bn. In 2026, it is expected to lose Rmb500M or so... Losses will narrow next year.... It has the runway while it waits to grow its new AI business.

Just think of it as an AI start up trading at less than its cash. It has the track record to serve many demanding bank customers... It has the foresight to invest in AI/voice agents ahead of many..... The online lending crackdown was unfortunate but it forced Bairong to pivot and push harder into a much larger opportunity of displacing human staff (in call centre in particular). Sentiment is rock bottom. The moment folks start to believe it can successfully transform into an AI company, it will re-rate (a lot).

Think I will hold the pre-existing position. If new money, wait for more proof of execution (when losses narrow next year).