On the evening of July 28, Bairong Inc. (06608) issued a profit warning. On the surface, it indicates a shift 'from profit to loss'—but from the perspective of a long-term observer of Hong Kong-listed AI companies, the strategic decision-making philosophy revealed in this announcement is more noteworthy than the loss figure itself.

Where to Start

Under a traditional financial framework, when revenue declines, a company typically has two choices:

Choice A: Protect Profits — Revenue declines → Simultaneously cut costs (especially R&D and marketing) → Maintain profit figures → Produce a favorable financial report.

Choice B: Protect the Future — Revenue declines → Maintain or even increase spending (especially on R&D) → Sacrifice short-term profits → Safeguard the technological moat.

Most A-share and Hong Kong-listed companies, when facing performance pressure, instinctively choose Choice A—because it is the shortest path to satisfying stock prices, the board of directors, and management KPIs. However, Bairong chose Choice B this time.

Breaking Down Bairong's Actions

Income Statement Perspective:

• Revenue side: Revenue from some mature businesses saw a significant decline—this is the core information from the announcement.

• Gross profit side: The revenue and proportion of mature businesses, which have relatively higher gross margins, decreased—leading to a simultaneous deterioration in gross profit.

• Expense side: Selling expenses decreased significantly year-on-year, while R&D expenses increased against the trend—resulting in only a slight overall decrease in total expenses.

The combined effect of these three dimensions leads to an inevitable result: a net loss of 320-360 million yuan. This loss is not accidental; it is the inevitable outcome of a strategic transformation—the company actively chose not to take the shortcut of 'cutting R&D' to salvage profits.

Balance Sheet Perspective:

The profit warning announcement disclosed:

• Cash reserves are relatively stable;

• There is no interest-bearing debt;

• Existing cash reserves are sufficient to support ongoing operations.

This indicates that the company has the power to choose—only a company with ample cash and no debt has the confidence to choose 'protect the future' over 'protect profits.' If a company had tight cash reserves and substantial interest-bearing debt, it would be forced to cut R&D, protect profits, and prevent defaults during a period of revenue pressure. Bairong is clearly not in that situation.

Cash Flow Statement Perspective (inferred from the announcement):

• Orderly release of resources from mature businesses (communication lines, computing power, etc.)—compressing fixed costs.

• Maintaining a prudent pace of investment in new businesses—not burning cash aggressively.

• Significant decrease in selling expenses—a notable positive cash flow impact.

• Continued increase in R&D expenses—a modest negative cash flow impact.

This rhythm of tightening in one area and loosening in another reflects management's discipline in cash flow management.

Why Did the Company Choose to 'Protect the Future'?

The answer can be found in the wording of the profit warning: 'The Group is in a strategic transformation phase, driven by artificial intelligence (AI) technology to expand its customer structure into new scenarios.'

This is a strategic declaration—the company itself defines the current period as a 'strategic transformation phase.' The financial philosophy during a strategic transformation phase is 'prioritizing strategy over profits.' This is reflected in three specific aspects:

Aspect One: Uninterrupted AI R&D—Because the underlying AICC technology is the core competitive advantage for the next 3-5 years, cutting R&D now would be like crippling oneself.

Aspect Two: Orderly expansion of new businesses—Because during the reporting period, 'AICC business revenue increased significantly year-on-year,' indicating that the new business model has been initially validated and requires continued investment, but not aggressive cash burning.

Aspect Three: Continuous acquisition of benchmark clients—The announcement disclosed that 'after the reporting period, substantial progress was made in landing benchmark clients in new scenarios such as logistics,' demonstrating that the path of strategic transformation is beginning to yield results.

Is This Financial Philosophy Rare Among Chinese AI Companies?

Frankly speaking, it is very rare. Observing the financial decisions of Chinese AI listed companies over the past 24 months, most have chosen Choice A during periods of performance pressure:

• Some companies have achieved short-term profits by making one-time cost cuts through layoffs.

• Some companies have preserved short-term profits by deferring R&D projects.

• Some companies have maintained short-term profits by adjusting the timing of revenue recognition.

Choice A yields good short-term results—impressive financial numbers and stable short-term stock prices. However, the long-term cost of Choice A is high—technological lag leads to customer churn, creating a downward spiral. Bairong chose Choice B—short-term performance looks poor, but it preserves the intensity of AI R&D, the underlying AICC technology assets, and the pace of new business expansion.

A Key Signal Beyond the Financial Data

At the end of the profit warning announcement, one sentence deserves special attention: 'The Board believes that the continued deepening of the above strategic transformation and the Group's continued investment in AI technology research and development will bring benefits to the Group's long-term sustainable value growth.'

This is not a boilerplate statement—it is the Board's declared stance within the profit warning on 'continued investment in AI R&D,' indicating it is a strategic consensus. This is a set of 'ugly numbers' but a 'clear strategic choice.'

For investors, the real question to assess is not 'how much did the company lose this quarter,' but rather: can this financial philosophy of 'prioritizing strategy over profits' eventually translate into substantive performance growth in the AICC business? The signal investors can currently observe is that the new AICC business is gradually being implemented in scenarios such as logistics, brokerages, and telecom operators.

* This article is compiled based on Bairong Inc.'s profit warning announcement dated July 28, 2026, and publicly available information. It does not constitute any investment advice.