By YU Hao

On November 28, artificial intelligence company SenseTime issued a statement on the Hong Kong Stock Exchange regarding the short-selling report by Grizzly Research LLC. 

Grizzly's report accused SenseTime of fabricating revenue to inflate growth in its core facial recognition business. The report cited two legal cases, suggesting that Sense Time engaged in circular trading to falsify revenue.

SenseTime has called the report baseless and misleading, displaying a fundamental lack of understanding of the business model and financial structure. The board is reviewing the allegations and considering appropriate action. 

One case involved a contractual dispute between SenseTime and Jingyida Technology. Grizzly believes the court documents show circular trading. The other case was a contractual dispute between New Zealand company Sucitong and Sichuan Changhong Jiahua Information Products Co., Ltd. The report described the case as a closed-loop circular trade.

The report also presented declining revenue data year-over-year for SenseTime's two major business segments, Smart Business and Smart City, along with the proportion of revenue from government contracts. 

Regarding trade receivables, as of December 31, 2022, SenseTime's total trade receivables amounted to 7.8 billion yuan (US$1.1 billion). As of June 30 this year, the total trade receivables stood at 7.73 billion yuan, with the proportion of impairment provisions to total trade receivables increasing from 33.1 percent to 37.8 percent. Grizzly Research LLC viewed this increase in impairment provisions as a concerning signal.

In response, SenseTime stated, "The company is aware of the report, and its content consists of patched-together old information, including numerous false statements and a misinterpretation of the company's business."