Taoping Inc.

TAOP Details

Taoping Inc. (NASDAQ: TAOP) is a Chinese blockchain technology and cloud-based platform provider for smart city Internet of Things (IoT), digital advertising delivery, and other internet-based distribution systems. TAOP has two business segments: 1) Cloud-Based Technology (CBT) services for the private sector, and 2) Traditional Information Technology (TIT), offering Digital Public Security Technology (DPST) and Multi-screen Digital Display Systems (MDDS) services to the public sector. By purchasing Antminers, a general-purpose server, in FY21, TAOP expanded its activities to digital assets and blockchain enterprises.

Acquiring Ethereum Mining Machines: TAOP signed a non-binding Memorandum of Understanding (MoU), on August 11, 2021, with Dennver Group Holdings Limited to buy Ethereum mining machines with a total hash rate of 500 Giga Hashes per second (GH/s).

Signed Planned Contracts: On August 6, 2021, TAOP signed a Letter of Intent (LOI) with stockholders of Yunnan Taoping, a leading provider of new media platforms in Yunnan province, to raise its stake to at least 51%. TAOP previously announced a strategic partnership with blockchain solutions provider Shenzhen IntelStrat Technology Co., Ltd. on July 30, 2021.

TAOP had signed another LOI on July 28, 2021, with the shareholders of Zhenjiang Taoping IoT Technology Limited, a prominent supplier of new media platforms in Zhenjiang province, to acquire majority ownership in Zhenjiang Taoping.

FY20 Results: The company reported a 19.78% decline in total revenues to USD 11.06 million in FY20 (ended December 31, 2020) compared to USD 13.79 million in FY19, primarily due to unfavorable macro environment and slowdown of the out-of-home income advertising market in FY20. In addition, the company reported an increase in net losses to USD 18.33 million in FY20 vs. USD 3.59 million in FY19. As of December 31, 2020, the company's cash balance stood at USD 0.88 million, with a total debt of USD 7.39 million.

Key Risks: The Chinese authorities' recent crackdown on its US-listed businesses and the consequential possibility of tougher rules could dent the company's operations. This is after the passage of a bill in the US that could lead to the delisting of some Chinese companies from the country's exchanges (in case the US authorities are unable to satisfactorily audit the company for three consecutive years). These constitute significant political and regulatory risks for the firm.

Further, TAOP's top five customers accounted for 25% and 24% of the total revenues in FY20 and FY19, respectively. Such excessive reliance on a few key clients might harm the company's financial operations and cash flows.

Outlook: Revenues are expected to be in the range of USD 40 - 50 million in FY21, with an operating income of about USD 8 - 10 million. This includes contributions from Taoping's New Media, Render Lake and new revenue streams established in FY21.

TAOP Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: TAOP's share price fell 54.83% in the past six months and is currently leaning towards the lower-band of the 52-week range of USD 2.40 to USD 16.86. Daily, lower highs and lower lows are visible in price action. The stock is decisively trading below its 50 and 200 DMA levels, and its 14-day RSI Index stood at 41.88 with low weekly volumes, all of which indicates the stock is in a bear grip with a weak structure. It is trading decisively below 26 days exponential moving average and is in a falling channel.

Considering the company's technical indicators, new revenue streams, newly signed contracts, China's crackdown, and other associated risks, we recommend a "Sell" rating on the stock at the current price of USD 3.18, up 6% as of August 20, 2021, 2:11 PM ET.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.

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