Business Overview and History

Senmiao Technology Limited (NASDAQ:AIHS) is a financing and servicing company focused on the online ride-hailing industry in China. The company has also operated its own online ride-hailing platform, providing a platform for qualified ride-hailing drivers to serve customers in several cities across the country. Senmiao's journey has been marked by both challenges and opportunities as it navigates the dynamic landscape of China's ride-hailing market.

Senmiao was incorporated in the State of Nevada in June 2017 and has since established a presence in the Chinese market through its wholly-owned subsidiary, Chengdu Corenel Technology Co., Ltd., and majority-owned subsidiaries, Chengdu Jiekai Technology Ltd. and Hunan Ruixi Financial Leasing Co., Ltd. The company's core business operations have evolved over time, initially focusing on automobile transaction and related services, including automobile operating leases, monthly service commissions, automobile financing, and new energy vehicle (NEV) leasing and purchase services.

Senmiao began generating revenue from its automobile transaction and related services business in November 2018, following the acquisition of Hunan Ruixi. Since then, the company has facilitated financing for 312 automobiles with a total value of approximately $5.3 million, sold 1,520 automobiles with a total value of approximately $14.5 million, and delivered 1,980 automobiles under operating leases and 182 automobiles under financing leases to customers.

In October 2020, Senmiao expanded its offerings by launching its own online ride-hailing platform, Xixingtianxia, operated by its wholly-owned subsidiary, Hunan Xixingtianxia Technology Co., Ltd. (XXTX). This platform enabled qualified ride-hailing drivers to provide application-based transportation services in several cities across China. However, due to the fierce competition in the online ride-hailing industry and recurring losses, Senmiao made the strategic decision to exit this business segment.

On August 20, 2024, the company completed the divestiture of its 100% equity interest in XXTX to Jiangsu Yuelaiyuexing Technology Co., Ltd., effectively discontinuing its online ride-hailing platform services. This move was driven by the company's focus on optimizing its operations and resources to better serve the evolving needs of the ride-hailing industry in China.

Throughout its history, Senmiao has faced various challenges, including managing the high turnover rate of its short-term car rentals, collecting receivables on a timely basis, and dealing with defaults. The company has also had to navigate the increasingly competitive online ride-hailing industry in China, which has faced saturation and regulatory changes. Despite these challenges, Senmiao Technology has continued to focus on its automobile transaction and related services business, which has remained the core of its operations.

Financial Performance and Ratios

Senmiao's financial performance has been impacted by its strategic shift and the challenges faced in the ride-hailing market. For the nine months ended December 31, 2024, the company reported a net loss of $1.56 million, a significant improvement from the $2.15 million net loss reported in the same period of the prior year. This reduction in net loss was primarily due to a decrease in operating expenses, as the company continued to streamline its operations and control costs.

For the most recent quarter, Senmiao reported revenue of $919,836 and a net loss of $565,315. The company's operating cash flow (OCF) for the quarter was $429,534, while free cash flow (FCF) stood at $427,927. It's important to note that year-over-year growth calculations are not available due to the lack of prior quarter data.

Liquidity

The company's liquidity position remains a concern, with a working capital deficit of approximately $3.4 million as of December 31, 2024. Senmiao's current ratio stood at 0.36, indicating potential challenges in meeting its short-term obligations. The quick ratio also stood at 0.36, suggesting limited immediate liquidity. The company's cash and cash equivalents totaled $949,220 as of December 31, 2024, up from $737,720 as of March 31, 2024.

Senmiao's gross profit margin for the nine months ended December 31, 2024, was 20.7%, slightly lower than the 21.3% reported in the same period of the prior year. The company's operating profit margin was -82.8% for the nine-month period, an improvement from the -81.2% reported in the same period of the prior year.

The company's debt-to-equity ratio stands at -0.33, reflecting a negative equity position. This underscores the financial challenges Senmiao faces and the importance of addressing its capital structure.

Risks and Challenges

Senmiao's business operations are subject to various risks and challenges, including:

1. Intense competition in the online ride-hailing industry: The Chinese ride-hailing market has become highly competitive, with the emergence of numerous platforms and the entry of well-funded players. This has put pressure on Senmiao's ability to maintain its market share and profitability.

2. Regulatory uncertainty: The online ride-hailing industry in China is subject to evolving government regulations, which can have a significant impact on the company's operations and compliance requirements.

3. Dependence on key business partners: Senmiao's success is partly dependent on its ability to maintain strong relationships with its strategic partners, such as online ride-hailing platforms and automobile manufacturers.

4. Liquidity and capital needs: The company's capital-intensive business model and recurring losses have raised concerns about its ability to meet its financial obligations and fund future growth initiatives.

Recent Developments and Outlook

In September 2022 and March 2023, Senmiao entered into two separate automobile purchase agreements to acquire a total of 150 vehicles. As of December 31, 2024, the company has made prepayments of $632,940 towards the remaining purchase of these vehicles, which it expects to complete by March 31, 2025.

The company's management has acknowledged the substantial doubt about its ability to continue as a going concern, citing the net loss, accumulated deficit, working capital deficit, and purchase commitments. To address these challenges, Senmiao is actively pursuing various measures, including seeking equity financing, exploring other sources of financing, and securing financial support and credit guarantee commitments from related parties.

Automobile Transaction and Related Services

Senmiao's primary business focus is its automobile transaction and related services segment, which accounted for approximately 82.1% of the company's total revenue during the nine months ended December 31, 2024. This segment includes several key components:

1. Operating Lease Revenues from Automobile Rentals: During the nine months ended December 31, 2024, Senmiao leased approximately 704 automobiles with an average monthly rental income of $409 per automobile. This resulted in rental revenues of $2.09 million, including $11,750 from its equity investee company Jinkailong. Operating lease revenues were the largest contributor to the segment, accounting for 82.1% of its total.

2. Service Fees from New Energy Vehicle (NEV) Leasing: The company generated $142,750 in service fees from NEV leasing during the nine-month period.

3. Monthly Services Commissions: Senmiao earned $100,690 in monthly services commissions by providing management and related services to other online ride-hailing platforms it cooperates with.

4. Financing Revenues: The company recognized $72,700 in financing revenues from an average of 45 automobiles under financing leases.

5. Service Fees from Automobile Purchase Services: Senmiao earned $29,860 in service fees from providing various services to customers purchasing automobiles.

6. Other Revenues: The company generated $110,740 in other revenues, including maintenance fees charged to customers and revenues from selling automobiles.

This diversified revenue stream within the automobile transaction and related services segment demonstrates Senmiao's ability to leverage its expertise and provide a comprehensive suite of services to its customers in the ride-hailing industry.

Conclusion

Senmiao Technology has navigated a challenging period in the Chinese ride-hailing industry, marked by fierce competition, regulatory changes, and liquidity concerns. The company's decision to exit its online ride-hailing platform services reflects its efforts to optimize its operations and focus on its core automobile transaction and related services business. As Senmiao continues to adapt to the evolving market landscape, its ability to secure the necessary financing and maintain strong partnerships will be crucial in determining its long-term success. Investors should closely monitor the company's progress in addressing its liquidity issues and its strategy to capitalize on opportunities in the Chinese ride-hailing ecosystem.

The company's focus on diversifying its revenue streams within the automobile transaction and related services segment demonstrates its commitment to adapting to market demands. However, the negative equity position, as reflected in the debt-to-equity ratio of -0.33, underscores the financial challenges Senmiao faces. The company's ability to improve its liquidity position, manage its debt, and return to profitability will be critical factors in its future performance and attractiveness to investors.