Thunisoft 华宇软件 (SZSE: 300271), China’s #1 Software-Artificial Intelligence Leader in “Smart Judicial Court” – H.E.R.O. Innovators Insights from Chairman Shao Xue 邵学 | H.E.R.O. HeartWare | 25 February

What is the value of an artificial intelligence (AI) in advancing justice in the courtroom?

“‘Judge Rui’ 睿法官 uses artificial intelligence to simulate real judges’ thinking to complete a series of accompanying and precise judicial trial affairs, and supports judges to put more time and energy into the judicial trial work. For example, Judge Rui can automatically sense the judge’s behavior information, collect information in real time, grasp the habits and rules, help the judge to automatically archive the file, automatically fill in the case information, carry out the file review, sort out the focus, automatically create and generate the judgment document according to the case, give sentencing suggestions, automatically generate court trial outlines, automatically remind laws and regulations during court trials, and uses court-recognized speech recognition as if it were an online senior judge assistant. Judge Rui has won widespread recognition from users and the legal profession,” comments Shao Xue 邵学, founder and Chairman of Beijing Thunisoft 华宇软件 (SZSE: 300271).

With these intelligent support in the next-generation AI platform “Wisdom Court” 智慧法院 launched since May 2018, at least 75% of the judges’ pre-trial reading time can be reduced, and the case recommendation matching can be increased from 20% to 90%. The modification time was reduced from 56 minutes to eight minutes, and the information integrity of the trial record was increased from 30% to 100%. More than 70% of the trial text can be automatically generated and more than 80% of the sentencing accuracy analysis can be provided to the judge to increase productivity. The AI case handling system also increased the efficiency of prosecutorial handling by more than 30%. The handling time of dangerous driving cases was shortened from 1 hour to 10 minutes, and the information input volume was reduced from 4,000 words to 100 words; the handling time of theft cases was shortened to 30 minutes from 3 hours, and the amount of information input was reduced from 5,000 words to 400 words. Readers who want to learn more about the five major technological breakthrough capabilities provided by Thunisoft’s AI platform can find out more in the main story after the intro.

Thunisoft is China’s #1 software/AI leader in Smart Judicial Court 智慧法院, commanding over 50% share of the more than 3,500 courts in China of which ~1,800 are using Thunisoft’s software platform, solving the high-value problem of making judicial proceedings more efficient, handling a rising number of civil and commercial cases with the growth rate of new cases accelerating to 25% in the recent years, and relieving judges’ massive caseload. there are more than 85 million cases nationwide to be handled by judges, while there are only 120,000 judges in the country which has been reduced from 210,000 after the reform in the number of judge posts. Thunisoft has benefited from the long-term development in national judicial reform and judicial disclosure to promote the rule of law. The informatization of the court has entered a new era stage from information recording and work circulation (Stage 2.0) to the depth analysis and utilization stage based on data and knowledge towards the direction of supporting decision-making by utilizing AI and big data. The investment in the cloud transformation of government and judicial court affairs to be interconnected and interoperable nationwide will be accelerated, and the coordination of the public legal services will be promoted from top (central government) to bottom.

Each generation of Thunisoft’s court information management and AI & Big Data solution has been adopted by the Supreme People’s Court and Thunisoft leads the industry standards and maintained its #1 leadership for 11 consecutive years. The Supreme People’s Procuratorate requested that only IT developers who obtained the ‘Single Qualification of Computer Information System Integration Software Development involving State Secrets’ issued by the State Secrecy Bureau can be eligible to engage in the development and service of the application software of the procuratorate and Thunisoft is one of such rare few qualified tech companies. Customer stickiness is very strong. Once a software system has been procured in the Supreme and upper court, it will be easily rolled out at the grassroots level in the four-level court system and will not be easily replaced. Top 5 customers account for 15.3% of total sales (largest customer is Beijing Municipal High People’s Court which contributes 4.2% of sales). Thunisoft’s focus and accumulated know-how in the judicial court field has differentiated it from general AI companies such as iFlyTek (SHSE: 002230) to command market leadership as well as to attract giants Baidu, Alibaba and Tencent to forge strategic business partnerships (Alibaba in Dec 2018 and Tencent in July 2018) to develop new technology and applications, such as the Thunisoft-Tencent Micro-Court mobile electronic litigation solution 微法院 via WeChat.

“Thunisoft also powered the national promotion of the Micro Court mobile electronic litigation solution to provide better litigation support for the national courts, provide more convenient litigation services for the public, and make greater contributions to building a Wisdom Court and building a rule of law in China and achieving the last mile judicial convenience to let the masses feel the sunshine at zero distance 零距离感受阳光司法. The Thunisoft-Tencent Micro Court via WeChat has since spread all over the country in 13 provinces, including Beijing, Tianjin, Hebei, Shanxi, Gansu, Qinghai, Xinjiang, Heilongjiang, Liaoning, Inner Mongolia, Henan, Jiangxi, Yunnan. More than 500 People’s Courts have opened Micro Courts. The open and transparent judicial procedure is an important way to achieve justice. The Thunisoft-Tencent Micro Court provides a series of judicial contents such as judge documents, commutation and parole information, execution information, and court announcements. The disclosure of judicial information has effectively guaranteed the people’s right to know, participate, express and supervise. The Thunisoft-Tencent Micro Court provides basic litigation services such as mobile filing, delivery and receipt, payment, evidence exchange, online trial, contact with judges, etc. for the parties and litigants. Auxiliary functions include: litigation template writing norms, jurisdictional recommendations, litigation fee calculation tools, litigation risk assessment, legal and regulatory inquiries, intelligent assistants and other functions. Among them, the intelligent assistant Xiaoyu can provide the parties with the pre-litigation, prosecution, and post-suit full-process, personal intelligent litigation services, answering the litigant’s litigation questions through human-machine dialogue, guiding the parties to conduct pre-litigation risk assessment, and helping the parties generate complaints, etc.; and use the intelligent case-like query function to help the parties find cases that are close to their own cases and establish reasonable expectations for court decisions. Using the Thunisoft-Tencent Micro Court to conduct litigation can help alleviate the masses’ complaints, save litigation costs, and truly realize the last mile of getting through the judicial convenience,” adds Chairman Shao.

Zhou Qiang 周强, Party Secretary and President of the Supreme People’s Court and Chief Justice, stressed at the 2017 National Court Informationization Work Conference the importance of establishing the Wisdom Court provided by Thunisoft: “The Wisdom Court relies on modern artificial intelligence integrated with the judiciary to serve the people, justice, and adherence to the judicial rules and systems. Reform and technological change are combined to support judicial trials, litigation services and judicial management in a highly informatized manner to realize the organization, construction, operation and management of the People’s Courts that are fully operational online with full-scale intelligent services.” On March 12, 2017, the Fifth Plenary Session of the 12th National People’s Congress held its third plenary meeting. Zhou Qiang made a report on the work of the Supreme People’s Court, proposing that the People’s Court will speed up the construction of the Wisdom Court and strive to provide more high-quality judicial services. In May 2017, the Supreme People’s Court issued the ‘Opinions on Accelerating the Construction of Wisdom Courts’, explicitly requiring the use of big data and artificial intelligence technology to provide accurate and intelligent services on demand to promote the modernization of court trials. In April 2018, the Supreme People’s Court held the fifth cybersecurity and informationization work conference of the National Court. Zhou Qiang emphasized again that the construction of the Wisdom Court should be further promoted and the trial system and trial capacity modernized. In July 2018, the Supreme People’s Procuratorate issued the ‘Guidelines for the Wisdom Inspection of National Procuratorate (2018-2020)’, stating that the main task is to comprehensively build a smart inspection application layer ecology centered on case handling, based on safety and reliability. Wisdom Inspection supports intelligent sharing data layer ecology. In July 2018, the Ministry of Justice held a video teleconference on network security and informatization work, requiring that the system of ‘digital rule of law and smart justice’ be initially established by the end of 2019 to form a big data platform sharing and a large system of governance.

In China, government policy influence is a risk that can make or break companies. Take for instance the new policy that took effect on the week of 18 Jan 2019 in which non-bank payments companies must place 100% of their customer deposit funds under centralized, interest-free accounts as Beijing moves in to rein in financial risks. This new policy effectively means the end of the era in which  Tencent’s WeChat Pay and Alibaba’s AliPay can make handsome interest returns on client money by holding pre-paid sums from buyers for a short period of time before transferring the money to merchants and earning interest by depositing customer money into bank accounts. We are surprised that this major news and the impact on Tencent and Alibaba was not widely reported. Thunisoft has been an integral positive force and a long-term winner under the national grand strategy in promoting and advancing quality judicial and public services with important social service responsibilities.

Thunisoft also owns a 37.5% stake in Huayu Yuandian 华宇元典, a B2C SaaS (Software-as-a-Service) platform (www.chineselaw.comwww.ailaw.com.cn and legalmind.cn) for lawyers to provide data services such as legal regulations and case intelligent retrieval, judicial big data analysis, and information related to litigation. Registered lawyer users have grown steadily to over 20,000 (out of the 300,000 practicing lawyers in China), covering 31 provinces, and accounts for more than one-third of the total number of high-frequency practicing lawyers in China. More than 10,000 legal teams have conducted case management on the lawyer platform. On April 8, 2018, Thunisoft signed a Business Strategy Cooperation Agreement with Peking University Yinghua 北大英华 and purchased a 25% stake in Peking University Yinghua. The ‘Peking University Magic’ 北大法宝 database developed by Peking University Yinghua has become an excellent brand of legal information and an indispensable tool for legal workers. The users coverage include the National People‘s Congress Legal Work Committee, the State Council Legislative Affairs Office, the State Council agencies and other central institutions and corresponding local institutions, about 50% of the courts and 45% of the procuratorates in the country.

Thunisoft also utilizes the software platform and know-how accumulated in the courts and procuratorates field to expand in the judicial administration industry (e.g. jails) and enterprises. In May 2018, Thunisoft has joined hands with a number of insurance companies and launched a comprehensive online management platform for property preservation 保全通. In the initial two months since its launch in Beijing, online application for property preservation account for nearly 30%. Over 100 courts in Henan, Hubei, Anhui, Jiangsu, Yunnan and other places have officially launched, and the growth rate of users has exceeded 60%. In August 2018, Thunisoft‘s collaboration OA software subsidiary Wanhu Network (www.whir.net) joined hands with Alibaba’s enterprise communication and collaboration platform DingTalk 阿里钉钉 to introduce Medical Management Cloud 医管云 and Medical Collaboration Cloud 医共云 as part of the Alibaba DingDing-Wanhu Future Hospital 阿里钉钉-万户未来医院.

In 2016, Thunisoft expanded into food and drug safety information and inspection field by acquiring a 49% stake in Huayu Jinxin 华宇金信 for RMB 183 million (www.hangyjx.com). In Aug 2017, Thunisoft completed the acquisition of 100% equity of Lianyi Technology 联奕科技 (www.ly-sky.com) for RMB 1.488 billion to expand into the digital smart campus business. Lianyi has successfully provided information services to more than 700 colleges and universities and more than 10 million teachers and students; its market coverage is 12%, ranking top three in the market. 

Thunisoft was established in 2001 by Chairman Shao Xue who is the largest shareholder with a 19.91%, of which ~6.53% are pledged to repay the funds raised to acquire Lianyi Technology. Shao was the CEO of Ziguang Tianhua Electronics, Tsinghua Unisplendour Software Division, and Tsinghua Unisplendour Software Center during 1993-2001. In 2001, Tsinghua Unisplendour was the main sponsor in setting up Beijing Ziguang Huayu Software (renamed Thunisoft) with the original Tsinghua Unisplendour Software Center’s net assets.

On 21 Feb 2019, Thunisoft announced that its FY2018 sales increased 15.48% yoy to RMB2.7bn and net profit rose 30.66% yoy to RMB 498m with profit margin of 18.4%, ROE of 11.7% and ROA of 8.5%. New client contract value has increased 40.39% yoy to RMB3.966bn, of which sales from its legal/judicial business rose 34.63% yoy and its educational smart campus business increased 35.05% yoy. Thunisoft also reported that its year end contract value rose 53.2% yoy to RMB2.66bn, of which sales from its legal/judicial business increased 40.85% yoy and its educational smart campus business rose 96.03% yoy. Balance sheet is relatively healthy with RMB 517m in net cash (RMB522.8m in gross cash, RMB5m in debt) which is around 4% of market cap, and Thunisoft is one of the rare few China companies with little or no capital allocation to “wealth management products”, though it has RMB1.66bn in goodwill, or 32.6% of total assets, mostly from its acquisition of edutech company Lianyi.

Thus, instead of investing in the structural long-term regulatory techlash trend of anti-privacy and personal data leakage by shorting video camera surveillance/spying stocks of the dark dystopian future such as Hangzhou Hikvision, Zhejiang Dahua, Wuhan Guide Infrared etc, a better alternative is on the profitable AI innovators such as Thunisoft enabling and advancing judicial legal reform to bring about justice to serve the citizens and the legal community.

However, while we are positive on the growth prospects of Thunisoft’s core judicial court business and the smart campus business, there is one primary major risk to Thunisoft. We are very negative on its food and drug safety IT business Huayu Jinxin which we think that a goodwill impairment loss (at least RMB100m) should be recorded, or 1.7% of total assets, given its weak growth performance since being acquired in 2016. More than 10 years after the 2008 melamine milk scandal and the 2018 rabies vaccine scandal, food and drug safety problems in China remain persistent and extremely difficult to resolve and improve. As highlighted two weeks ago, having monitored Thunisoft since its 2011 listing in which share price rose around 250% to the present US$1.926bn in market value, we noted some positive change in its governance recently. On 23 Jan 2019, Thunisoft announced that it will dispose of its 48% stake in a Guangzhou IT company that is listed on the domestic NEEQ OTC board/新三板 for RMB12.32m, having first invested in the firm in July 2013. While the deal may seem small relative to its US$1.926bn market value, loan guarantees and related-party loans were made by the Beijing parent which complicated the relationship. Noteworthy also is that on 25 May 2018, Thunisoft announced plans to raise RMB1.055bn in private share placement (no more than 65m new shares, or 8.6% of total shares outstanding, to no more than 5 specific investors) to fund its new-generation Legal AI Platform construction projects. This plan was approved by the regulator on 1 Jan 2019. The approval is valid within 6 months from the date of approval of the issuance. The pending new shares placement might result in short-term volatility in the share price.

Thus far, of the 62 entrepreneurs and CEOs whom we had highlighted in our weekly research brief HeartWare, around one-third are in our focused portfolio of 40 HERO Innovators, while the rest are in our broader watchlist of 200+ stocks.

We are thankful as always to be invited by John Mihaljevic, Chairman of MOI Manual of Ideas Global, to speak at the upcoming Asian Investing Summit 2019 to take place live online on April 10-11. We look forward to sharing with the MOI community of investors about the distinctive value opportunity in a selected group of under-the-radar Asian SMID-cap exponential innovators who generate high profitability and positive free cashflow in solving high-value problems for their customers and society with a higher sense of purpose, as well as the learning insights from our investment mistakes as the world shifts structurally from Value 2.0 (the world where Charlie Munger nudged Warren Buffett from the Ben Graham-style of statistically cheap net-net asset plays in Value 1.0 towards Value 2.0 in qualitative investing in outstanding companies at reasonable prices) to Value 3.0 where disruptive innovation forces sweeping across industries create ever more “value trap” losers and a selected under-the-radar group of winners with exponential edge.

Our emotional labor of love over the past months in sharing openly our research ideas (to battle-test our ideas by critiques and avoid blindspots in investing) and setting up the proper regulated and transparent UCITS fund structure to protect investors’ interests has deepened our conviction for the positive change that we will make together with H.E.R.O. – and we are now in the final stage of giving birth at end March 2019 to H.E.R.O., the only Asia SMID-cap tech-focused fund in the industry and guarding investors’ interests in the regulated UCITS fund structure with daily NAV & daily liquidity and no exit fees.

To our interested clients who have been asking, we sincerely apologize for the prolonged labor in the birth of HERO over the past months as we have been preparing for a coordinated delivery of our whole family of Swiss fund series and HERO will also be invigorated with the healthy seed from farsighted committed long-term institutional clients to journey far to compound value for investors. Do watch out in the coming weeks for our press release on the birth and launch of H.E.R.O.

If you are not moving forward in this exponential world, you are going backwards. If you want to join us at the leading edge of opportunity, if you identify yourself in the values and bigger sense of purpose in H.E.R.O., or you wish to tell from your heart to your most important person, son, daughter, wife, husband, or best friend that you are a farsighted and thoughtful explorer in the H.E.R.O.’s Journey participating in the long-term exponential growth of a selected group of outstanding entrepreneurs, standing up for the embracement of the human spirit, please contact us via email or WhatsApp at +65 9695 1860. Thank you very much for your patience and support and we look forward to growing exponentially with you as we explore the H.E.R.O.’s Journey together. 


“We have been focusing on the information construction of courts and procuratorates for many years. We have witnessed the various stages of legal technology from IT to DT, from DT to AI era, and launched generations of products and solutions for customer needs, which has made the company achieve sustainable and steady development. Facing the arrival of the new era of AI, Thunisoft will continue to contribute to the process of building the rule of law in China. This is our responsibility and our mission. After continuous exploration and research, we finally found a path to turn legal artificial intelligence from concept to reality,” comments Shao Xue 邵学, founder and Chairman of Beijing Thunisoft 华宇软件 (SZSE: 300271).

Beijing Thunisoft 华宇软件 (SZSE: 300271) is China’s #1 software/AI leader in Smart Judicial Court 智慧法院, commanding over 50% share of the more than 3,500 courts in China of which ~1,800 are using Thunisoft’s software platform, solving the high-value problem of making judicial proceedings more efficient, handling a rising number of civil and commercial cases with the growth rate of new cases accelerating to 25% in the recent years, and relieving judges’ massive caseload. there are more than 85 million cases nationwide to be handled by judges, while there are only 120,000 judges in the country which has been reduced from 210,000 after the reform in the number of judge posts. Thunisoft has benefited from the long-term development in national judicial reform and judicial disclosure to promote the rule of law. The informatization of the court has entered a new era stage from information recording and work circulation (Stage 2.0) to the depth analysis and utilization stage based on data and knowledge towards the direction of supporting decision-making by utilizing AI and big data. The investment in the cloud transformation of government and judicial court affairs to be interconnected and interoperable nationwide will be accelerated, and the coordination of the public legal services will be promoted from top (central government) to bottom.

Each generation of Thunisoft’s court information management and AI & Big Data solution has been adopted by the Supreme People’s Court and Thunisoft leads the industry standards and maintained its #1 leadership for 11 consecutive years. The Supreme People’s Procuratorate requested that only IT developers who obtained the ‘Single Qualification of Computer Information System Integration Software Development involving State Secrets’ issued by the State Secrecy Bureau can be eligible to engage in the development and service of the application software of the procuratorate and Thunisoft is one of such rare few tech companies. Customer stickiness is very strong. Once a software system has been procured in the Supreme and upper court, it will be easily rolled out at the grassroots level in the four-level court system and will not be easily replaced. Thunisoft’s key customer group are government legal institutions, including courts, judicial administrative bodies, people’s procuratorates (76.5% of sales and 84.9% of gross profit). Top 5 customers account for 15.3% of total sales (largest customer is Beijing Municipal High People’s Court which contributes 4.2% of sales). Thunisoft’s focus and accumulated know-how in the judicial court field has differentiated it from general AI companies such as iFlyTek (SHSE: 002230) to command market leadership as well as to attract giants Baidu, Alibaba and Tencent to forge strategic business partnerships (Alibaba in Dec 2018 and Tencent in July 2018) to develop new technology and applications, such as the Thunisoft-Tencent Micro-Court mobile electronic litigation solution.

Launched in May 2018, Thunisoft’s AI platform uses artificial intelligence to simulate real judges’ thinking to complete a series of accompanying and precise judicial trial affairs, and supports judges to put more time and energy into the judicial trial work. It enables judges to complete eight legal tasks using AI and big data analysis. With these intelligent support, at least 75% of the judges’ pre-trial reading time can be reduced, and the case recommendation matching can be increased from 20% to 90%. The modification time was reduced from 56 minutes to eight minutes, and the information integrity of the trial record was increased from 30% to 100%. More than 70% of the trial text can be automatically generated and more than 80% of the sentencing accuracy analysis can be provided to the judge to increase productivity.

In addition to its latest AI platform, Thunisoft’s business collaborative service platform is used for the business needs of business units of the political and legal sectors and its information resource sharing service platform is used for sharing various units of information and data for political, legal, and government agencies, as well as large enterprises. Its products include Instant Messaging Collaboration System, a real-time communication platform; Collaborative Office System, a system for daily work of government agencies; fixed assets management system for the asset management sector, the government, and judiciary and other enterprises; Document Intelligent Editing System, a system for personnel of the law inspection, government, judicial, and other industries; Intelligent Conference Management System, which is used for meetings and conferences; TAS Middleware software, an enterprise middleware product; Transfer Exchange Management Platform to transfer multimedia entity files to the demand prototypes. Thunisoft’s business intelligence platform BI @ Report is used to build data warehouse and decision support systems, as well as for data analysis, statistics, performance evaluation, business warning, data visualization, and other applications; its data acquisition platform i @ Report is used or data reporting, summary, analysis, and other services; and its metadata management platform EsenPowerMeta is used for the full-life control of data assets (http://www.esensoft.com).

Thunisoft also owns a 37.5% stake in Huayu Yuandian 华宇元典, a B2C SaaS (Software-as-a-Service) platform (www.chineselaw.comwww.ailaw.com.cn and legalmind.cn) for lawyers to provide data services such as legal regulations and case intelligent retrieval, judicial big data analysis, and information related to litigation. Registered lawyer users have grown steadily to over 20,000 (out of the 300,000 practicing lawyers in China), covering 31 provinces, and accounts for more than one-third of the total number of high-frequency practicing lawyers in China. More than 10,000 legal teams have conducted case management on the lawyer platform. On April 8, 2018, Thunisoft signed a Business Strategy Cooperation Agreement with Peking University Yinghua 北大英华 and purchased a 25% stake in Peking University Yinghua. The ‘Peking University Magic’ 北大法宝 database developed by Peking University Yinghua has become an excellent brand of legal information and an indispensable tool for legal workers. The users coverage include the National People‘s Congress Legal Work Committee, the State Council Legislative Affairs Office, the State Council agencies and other central institutions and corresponding local institutions, about 50% of the courts and 45% of the procuratorates in the country.

Thunisoft also utilizes the software platform and know-how accumulated in the courts and procuratorates field to expand in the judicial administration industry (e.g. jails) and enterprises. In May 2018, Thunisoft has joined hands with a number of insurance companies and launched a comprehensive online management platform for property preservation 保全通. In the initial two months since its launch in Beijing, online application for property preservation account for nearly 30%. Over 100 courts in Henan, Hubei, Anhui, Jiangsu, Yunnan and other places have officially launched, and the growth rate of users has exceeded 60%. In August 2018, Thunisoft‘s collaboration OA software subsidiary Wanhu Network (www.whir.net) joined hands with Alibaba’s enterprise communication and collaboration platform DingTalk 阿里钉钉 to introduce Medical Management Cloud 医管云 and Medical Collaboration Cloud 医共云 as part of the Alibaba DingDing-Wanhu Future Hospital 阿里钉钉-万户未来医院.

In 2016, Thunisoft expanded into food and drug safety information and inspection field by acquiring a 49% stake in Huayu Jinxin 华宇金信 for RMB 183 million (www.hangyjx.com). In Aug 2017, Thunisoft completed the acquisition of 100% equity of Lianyi Technology 联奕科技 (www.ly-sky.com) for RMB 1.488 billion to expand into the digital smart campus business. Lianyi has successfully provided information services to more than 700 colleges and universities and more than 10 million teachers and students; its market coverage is 12%, ranking top three in the market. Thunisoft’s smart campus business contribute 14.3% of sales and 8.5% of gross profit; and its enterprise business account for 9.2% of sales and 8.5% of gross profit. Enterprise software account for 46.8% of overall sales, followed by system & services 38.5% and ops & maintenance 14.9%. Overall accounts receivables period is around 105 days and total receivables period is around 136 days.

Thunisoft was established in 2001 by Chairman Shao Xue who is the largest shareholder with a 19.91%, of which ~6.53% are pledged to repay the funds raised to acquire Lianyi Technology. Shao was the CEO of Ziguang Tianhua Electronics, Tsinghua Unisplendour Software Division, and Tsinghua Unisplendour Software Center during 1993-2001. In 2001, Tsinghua Unisplendour was the main sponsor in setting up Beijing Ziguang Huayu Software (renamed Thunisoft) with the original Tsinghua Unisplendour Software Center’s net assets.

On 21 Feb 2019, Thunisoft announced that its FY2018 sales increased 15.48% yoy to RMB2.7bn and net profit rose 30.66% yoy to RMB 498m with profit margin of 18.4%, ROE of 11.7% and ROA of 8.5%. New client contract value has increased 40.39% yoy to RMB3.966bn, of which sales from its legal/judicial business rose 34.63% yoy and its educational smart campus business increased 35.05% yoy. Thunisoft also reported that its year end contract value rose 53.2% yoy to RMB2.66bn, of which sales from its legal/judicial business increased 40.85% yoy and its educational smart campus business rose 96.03% yoy. Balance sheet is relatively healthy with RMB 517m in net cash (RMB522.8m in gross cash, RMB5m in debt) which is around 4% of market cap, and Thunisoft is one of the rare few China companies with little or no capital allocation to “wealth management products”, though it has RMB1.66bn in goodwill, or 32.6% of total assets, mostly from its acquisition of edutech company Lianyi.

However, while we are positive on the growth prospects of Thunisoft’s core judicial court business and the smart campus business, there is one primary major risk to Thunisoft. We are very negative on its food and drug safety IT business Huayu Jinxin which we think that a goodwill impairment loss (at least RMB100m) should be recorded, or 1.7% of total assets, given its weak growth performance since being acquired in 2016. More than 10 years after the 2008 melamine milk scandal and the 2018 rabies vaccine scandal, food and drug safety problems in China remain persistent and extremely difficult to resolve and improve. As highlighted two weeks ago, having monitored Thunisoft since its 2011 listing in which share price rose around 250% to the present US$1.926bn in market value, we noted some positive change in its governance recently. On 23 Jan 2019, Thunisoft announced that it will dispose of its 48% stake in a Guangzhou IT company that is listed on the domestic NEEQ OTC board/新三板 for RMB12.32m, having first invested in the firm in July 2013. While the deal may seem small relative to its US$1.926bn market value, loan guarantees and related-party loans were made by the Beijing parent which complicated the relationship. Noteworthy also is that on 25 May 2018, Thunisoft announced plans to raise RMB1.055bn in private share placement (no more than 65m new shares, or 8.6% of total shares outstanding, to no more than 5 specific investors) to fund its new-generation Legal AI Platform construction projects. This plan was approved by the regulator on 1 Jan 2019. The approval is valid within 6 months from the date of approval of the issuance. The pending new shares placement might result in short-term volatility in the share price.

When asked about how he came about to start Thunisoft, the challenges he faced and overcame and the breakthroughs during his early entrepreneurial period, Chairman Shao shared briefly and reflectively the story of his early entrepreneurship period and credits the achievement to his employees and customers: “I graduated from the Department of Precision Instruments of Tsinghua University in 1961 and obtained a master’s degree. After graduating, I worked in Tsinghua Ziguang Precision Optoelectronics and I rose to become an engineer at Tsinghua Unisplendour in the three years from 1990 to 1993. During 1993 to 2001, I was the general manager of Ziguang Tianhua Electronics, Tsinghua Unisplendour Software Division and Tsinghua Unisplendour Software Center. In 2001, Tsinghua Unisplendour was the main sponsor in setting up Beijing Ziguang Huayu Software (renamed Thunisoft) with the original Tsinghua Unisplendour Software Center’s net assets. My life trajectory has also changed from here and I became the general manager of Huayu Software. In 2003, I concurrently served as the chairman of Huayu Software.”

“After 22 hard and happy years, Thunisoft has grown from one person to more than 5,000 today. Since 1996 with the pioneering provision of information services for Haidian District People’s Court, Thunisoft has grown to become the leader of this procuratorate market in the field of legal technology today. Thunisoft solved the problem of court informationization from scratch through the court information management system. After that, Thunisoft realized streamlined trial management through the digital court system. In the big data era, Thunisoft helped in the construction and completion of the big data management and service platform of the Supreme People’s Court and improved the management efficiency of cases. In December 2016, the Beijing Higher People’s Court launched ‘Judge Wisdom’ 睿法官, our intelligent research and judgment system, which is deeply integrated with the court trial work and the judge’s day-to-day handling procedures.”

“Thunisoft can achieve such developments over the years because our employees insist on creating customer value first and also the stringent requirements demanded by our industry customers. We have 3,500 legal and technical service staff, and 80% of the 3,500 are technical engineers who have long been researching and developing legal science and technology, and 20% are business engineers with legal professional qualifications and legal practice experience. The deep integration of the two types of people who understand technology and understand business is the source of continuous innovation of Thunisoft’s legal technology services. Therefore, half of Thunisoft’s success is credited to our innovative employees, and the other half comes from our most lovely customers. We all come from ordinary families. Although we are ordinary, we have ideals and feelings. Although we are ordinary, the cause we are engaged in is great. Our ordinary people hope to achieve great ideals through great cause.”

We were curious about the judicial court IT industry dynamics and the impact on Thunisoft. Chairman Shao elaborated at length: “The information transformation of the court has a profound industry background. The continuous advancement of the judicial process, the trial-centered reform of the legal system, etc, have put forward new requirements for the workings of the court. In the past five years, a total of around 86 million cases have been concluded nationwide, and the growth rate of new cases has accelerated to 25% in the past two years with growing awareness of citizen’s rights protection. In contrast to the growing demand, legal talent is in short supply. According to statistics, there are more than 85 million cases nationwide to be handled by judges, while there are only 120,000 judges in the country which has been reduced from 210,000 after the reform in the number of judge posts. One result of this lack of talent is that the judge’s work pressure is enormous. The average number of cases per judge increased by nearly three times since 2008.”

“In 2015, the Supreme People’s Court issued a reform of the case review system into a case registration system. In cases that should be accepted according to law, it is necessary to establish a case and have a lawsuit to protect the parties’ right to appeal. After the reform of the case registration system, the acceptance cases of the Supreme People’s Court and the local people’s courts showed rapid growth. Therefore, the court’s work of reducing burdens and increasing efficiency is an urgent and necessary matter.”

“The isolation of the court data needs to be resolved. The current judicial statistical reporting system is still developed more than a decade ago, and even with occasional patch upgrades, the old framework continues. The monthly judicial statistics report is summarized step by step through the process of ‘Basic People’s Court (at county level) → Intermediate Court → High Court → Supreme Court’, but the case information management system between the four levels of courts is relatively closed. There is lack of data sharing and integration and it is difficult to achieve interconnection and interoperability, causing the information of various courts to sleep as an information island.”

“Only through the data circulation channels between the information systems within the court and between the courts can the data energy of more than 3,500 courts, 350,000 court staff, and tens of millions of cases per year can be fully released, and the advantage that comes from interconnection can be transformed to deliver ‘smart’ results. Am optimistic point is that the court’s data quality is very high based on more than 20 years of informatization accumulation. The process data, evidence data, document data, and archive data are very complete. This is a very valuable point and provides a prerequisite for subsequent work in the application of AI.”

“The informatization of the court has entered a new era, and the government cloud platform integrates existing data islands. In the cloud service model, data centers, platforms, and business applications are highly centralized, enabling unified management and unified services. It can avoid duplicate investment and waste of resources, and can break the original information islands and achieve data intercommunication. At the same time, through the planning and coordination of cloud service providers, a large number of applications and services can be put in the cloud and accelerate the process of application development.”

“It is not difficult to see from these pain points that the legal industry informationization has stepped out of the stage of information recording and work circulation (Stage 2.0) and is gradually shifting to the depth analysis and utilization stage based on data and knowledge towards the direction of supporting analysis and decision-making. However, traditional information technology cannot be solved by solving these problems. It must rely on legal knowledge and next-generation information technology such as artificial intelligence and big data.”

“The continued modernization of the court will be promoted around the four aspects: intelligent trial, efficient execution, automated management, and quality service, including forming a full-service Internet litigation, full-process trial execution elements, and providing users with an all-round integrated judicial trial information resource service on demand, as well as a Wisdom Court 智慧法院 that supports decision.

“In recent years, there have been few new entrants in the industry due to industry license restrictions and system stability considerations. The Supreme People’s Procuratorate requested that only IT developers who obtained the ‘Single Qualification of Computer Information System Integration Software Development involving State Secrets’ issued by the State Secrecy Bureau can be eligible to engage in the development and service of the application software of the procuratorate.”

“The transformation of government affairs into the cloud and the need for interconnected intelligent courts and judicial system nationwide has widened the competitive gap in the industry. After AI enters the legal and judicial industry, if you can’t cultivate a business that understands business, understands data, and understands customers’ habits, it will not work and you will be subverted by AI companies. The legal and judicial industry is an industry with a very high professional threshold. Thus, even if you have AI technology and capabilities, if you do not have many years of business accumulation in the legal industry, it is impossible to achieve the true landing of AI capabilities.”

“In the knowledge-centered artificial intelligence era, Thunisoft works towards building an ecosystem of legal technology services. Thunisoft now has a team of more than 50 former judges, former prosecutors and lawyers. In the past, we mainly provided services for courts and procuratorates. What we are going to do now is to build an ecosystem of legal technology services. We hope that this ecosystem will provide more services after it is built. Thunisoft jointly established the Legal Big Data Research Center and the Future Government Research Center together with Tsinghua University School of Law and the School of Public Administration.”

“Together with Tsinghua University and Huawei, we created the ‘National Data and Governance Alliance’, and we also carried out various projects with Peking University Law School. We hope to integrate the strengths and resources of relevant organizations to make data circulation, data sharing and data application more efficient. With the application of the court scene as the core, artificial intelligence applications will be created to provide a comprehensive range of intelligent applications for judges, prosecutors, lawyers, corporate legal workers, for the political and legal committee, the supervision committee, the judicial administration and the legislative body.”

What is the impact on the central government’s policy influence to accelerate iT investments in the legal court industry on Thunisoft? Chairman Shao shared patiently: “In recent years, guided by the modernization of the national governance system and governance capacity, the party and the state have continued to deepen the reform of the judicial system, promote the rule of law, and promote scientific legislation, strict law enforcement, fair justice. Under the national grand strategy, the development of legal services has become more vigorous and prosperous. With the background of important social service responsibilities, our judicial court and procuratorate customers are increasingly motivated and capable to invest more in business governance, business processing and data applications. Thunisoft has benefited from the long-term development in national judicial reform and judicial disclosure since our founding. Customer stickiness is very strong. Once a system has been procured in the upper court, it will be easily rolled out at the grassroots level and will not be easily replaced. Government policy guides the wave of judicial informationization in each generation.”

“As early as May 1996, the Supreme People’s Court held the ‘National Court Communication and Computer Work Conference’ in Jiangsu, which kicked off the national computer network construction. The Supreme Court held a national informationization work conference in Shandong in 2002 to establish a leading group for information construction. The Fourth Plenary Session of the 18th CPC Central Committee clearly clarified the core of governing the country according to law, which made the informationization of the court into a general stage of promotion during 2002-2012, and the popularization of the Court 1.0 was successfully completed.”

“Beginning in 2012, the Supreme Court has held a national court informationization conference every year to clarify the guiding ideology and tasks of the informationization work of the People’s Court. “In 2013, the Supreme People’s Court introduced the five-year plan for informatization construction for the first time and accelerated the construction, which made the informatization rate of the High Court reach 100%, and the Intermediate and grassroots courts reached 95% and 90%. By 2015, Court Informationization 2.0, characterized by ‘interconnection’, was successfully completed.”
“Thunisoft’s products were first adopted by the Supreme People’s Court from the general promotion stage of the Court Informationization 2.0 during 2002 to 2012 and the current Court 3.0 period of ‘Wisdom Court’. Each generation of Thunisoft’s court solution has been adopted by the Supreme People’s Court and Thunisoft leads the industry standards and maintained its #1 leadership for 11 consecutive years.”

“Zhou Qiang, Party Secretary and President of the Supreme People’s Court and Chief Justice, stressed at the 2017 National Court Informationization Work Conference the importance of establishing the Wisdom Court: ‘The Wisdom Court relies on modern artificial intelligence integrated with the judiciary to serve the people, justice, and adherence to the judicial rules and systems. Reform and technological change are combined to support judicial trials, litigation services and judicial management in a highly informatized manner to realize the organization, construction, operation and management of the People’s Courts that are fully operational online with full-scale intelligent services.”

“2017 is the year of judicial reform in China. It is also the second year of the 13th Five-Year Plan of the courts, procuratorates, and judicial administrations. The demand for informationization in various organs of politics and law is very strong. On March 12, 2017, the Fifth Plenary Session of the 12th National People’s Congress held its third plenary meeting. Zhou Qiang made a report on the work of the Supreme People’s Court, proposing that the People’s Court will speed up the construction of the Wisdom Court and strive to provide more high-quality judicial services. In May 2017, the Supreme People’s Court issued the ‘Opinions on Accelerating the Construction of Wisdom Courts’, explicitly requiring the use of big data and artificial intelligence technology to provide accurate and intelligent services on demand to promote the modernization of court trials. By the end of 2020, the National Procuratorate Data Center will be established and a large database of quarantine data will be established. The main work of the national procuratorial organs will be run on the ‘six major platforms’. According to the construction path of the four levels of courts from Supreme Court – the High Court – the Intermediate Court to the grassroots court, a large-scale construction boom is expected. The goal of the Wisdom Court refers to the organization, construction, operation and management of the People’s Courts that rely on modern artificial intelligence to support judicial trials, litigation services and judicial management in a highly information-based manner, in order to realize full-service online processing, full-process legal disclosure, and all-round intelligent services.”

“Based on the meeting of the 13th National People’s Congress in March 2018, the State Council re-established the Ministry of Justice and integrated the duties of the Ministry of Justice and the Legislative Affairs Office of the State Council as a department of the State Council. The Ministry of Supervision and the National Bureau of Corruption Prevention are merged into the newly formed National Supervision Committee. The investment in informationization of public law inspection will be accelerated, and the coordination of the public security will be promoted from top (central government) to bottom. The information island of the public security system will be broken, the public security system will be integrated with the legal system, and information sharing will directly improve the efficiency and accuracy in handling the case.”

“In April 2018, the Supreme People’s Court held the fifth cybersecurity and informationization work conference of the National Court. Dean Zhou Qiang emphasized again that the construction of the Wisdom Court should be further promoted and the trial system and trial capacity modernized. In July 2018, the Supreme People’s Procuratorate issued the ‘Guidelines for the Wisdom Inspection of National Procuratorate (2018-2020)’, stating that the main task is to comprehensively build a smart inspection application layer ecology centered on case handling, based on safety and reliability. Wisdom Inspection supports intelligent sharing data layer ecology. In July 2018, the Ministry of Justice held a video teleconference on network security and informatization work, requiring that the system of ‘digital rule of law and smart justice’ be initially established by the end of 2019 to form a big data platform sharing and a large system of governance.”

Chairman Shao also shared in great detail on Thunisoft’s Wisdom Court AI Platform that is comprised of Ruiyuan 睿元 (data management capabilities), Ruihe 睿核 (knowledge management capabilities) and Zhihe 智核 (legal AI capabilities), as well as the five technological breakthroughs: “On 23 May 2018, Thunisoft launched version 1.0 of our Wisdom Court 智慧法院 AI Platform, a new generation of intelligent court application system integrating artificial intelligence and big data analysis. In April 2018 in the fifth Cybersecurity and Informationization Work Conference of the National Court held in Shijiazhuang City, Hebei Province. Dr. Sun Fuhui, deputy director of the Information Center of the Supreme People‘s Court, said that one of the main things the meeting did was to promote Thunisoft’s ‘Wisdom Court’ from initial formation to comprehensive construction and leap forward to implement a new generation of intelligent court application system deeply integrated with judicial laws and court trials.”

“The overall architecture of Thunisoft‘s new generation of intelligent court application system can be summarized as ‘1871’, which consists of ‘one assistant, eight legal court scenes, seven legal court services, one platform’. The artificial intelligence court platform is the cornerstone and core of Thunisoft’s entire ‘Wisdom Court’. It consists of three parts: Ruiyuan 睿元 (data management capabilities), Ruihe 睿核 (knowledge management capabilities) and Zhihe 智核 (legal AI capabilities).”

“Ruiyuan is a big data management platform for the entire process of data generation, production, collection, processing, transmission, aggregation, storage and application of the various types of documents, evidence, files, archives, trials as well as management data such as judicial management and cadre personnel. Its core capabilities include data storage capabilities, data governance capabilities, data sharing and exchange capabilities, and data application capabilities.”

“Ruihe is an artificial intelligence cognitive platform that provides legal cognition based on legal knowledge maps. It has four abilities, legal concept cognition, legal subject analysis, legal relationship screening and legal knowledge retrieval and push. The first ability is the ability to transform our natural language to a legal concept. The second solution is our subjective analysis, like the analysis of the parties, the analysis of the judge. The third is extracting the case from the elements. The fourth is a legal search based on factors. Zhihe is an artificial intelligence perception platform based on machine learning, speech recognition, image recognition, etc, based on judicial working scenarios, and is not the general AI. It is divided into four areas: interactive, image, voice and video capabilities.”

“Supported by Ruiyuan, Thunisoft has built a cross-level, cross-regional, cross-system, cross-departmental, and cross-business big data management and service platform for the Supreme Court and gathered 140 million case data of national courts and 70 million judge document data for the People’s Court and become the world’s largest library of trial information resources. Thunisoft’s voice recognition technology has also been integrated into the court’s 13 work scenarios. Thunisoft has also built a provincial big data platform for 23 provincial courts across the country and has built more than 5,000 science and technology courts for national courts, generating more than 20,000 hours of trial audio and video data every day.”

“‘Judge Rui’ 睿法官, created by Thunisoft and the Beijing Court, uses artificial intelligence to simulate real judges’ thinking to complete a series of accompanying and precise judicial trial affairs, and supports judges to put more time and energy into the judicial trial work. For example, Judge Rui can automatically sense the judge’s behavior information, collect information in real time, grasp the habits and rules, help the judge to automatically archive the file, automatically fill in the case information, carry out the file review, sort out the focus, automatically create and generate the judgment document according to the case, give sentencing suggestions, automatically generate court trial outlines, automatically remind laws and regulations during court trials, and uses court-recognized speech recognition as if it were an online senior judge assistant. Judge Rui has won widespread recognition from users and the legal profession.”

“Thunisoft will accelerate the modularization of various applications for the four-level of courts nationwide. Based on the artificial intelligence platform, Thunisoft integrates seven legal court services, including electronic files, clerical services, evidence analysis, etc, to realize eight legal court scenes in smart filing, smart judgment, smart court, smart execution, smart review, smart collaboration, electronic litigation, and smart judicial management. Finally, smart interaction in AI voice dialogue and text communication based on AI natural language processing can be conducted our Xiaoyu AI Assistant 小宇智能助手 behavioral awareness AI technology. Based on the work activities of the eight major work scenarios of the court, Thunisoft identified 187 intelligent application points, including automatic complaints. Using these intelligent technologies can alleviate the daily repetitive work of judges and allow judges to put the value of time and knowledge into the trial work.”

“Thunisoft’s AI platform provides five major technological breakthrough capabilities: (1) legal knowledge map construction; (2) electronic file identification and information extraction technology; (3) judicial audio and video mining and analysis technology; (4) judicial big data fusion based on master data; and (5) legal big data mapping and image recognition technology. Breakthroughs in these key technologies have driven the legal AI platform to transform data, knowledge and general AI capabilities into intelligent services on legal application scenarios. Thunisoft combines big data and artificial intelligence to provide services from multiple perspectives such as cognition and perception.”

“In the first technological breakthrough capabilities, the construction technique of knowledge maps, there are two ways to construct a knowledge map. One is learning, which requires a large amount of sample input. The actual situation of the court may not meet this requirement. We adopted the second method, which is ‘manual annotation + machine learning’. ‘Judge Rui’ 睿法官 and ‘Xiao Du’ 晓督 are all relying on the search ability of the knowledge map. Using knowledge map technology, Ruihe establishes the dynamic relationship between laws, regulations, facts and evidence through natural language processing and machine learning, allowing the machine to acquire legal cognition ability and realize ‘big data + cognitive technology’. It allows the automatic identification of the facts of the case and the judgment of controversial points, and when combined with the study of a large number of documents, helps the judge to write a complete judgment.”

“Let’s look at the next, electronic file identification and information extraction technology. It uses artificial intelligence deep learning technology to analyze the material of the electronic file, and to identify the type of material and the content of the material. This technology relies heavily on image recognition and OCR techniques. Through continuous polishing, it has been able to identify more than 1,000 kinds of legal materials, supports 78 types of handwriting, and combined with the ability to carry out key information extraction of 50 types of key file materials. At present, it has provided application support for multiple work scenarios, such as automatic file classification, automatic case information backfilling, intelligent analysis of criminal litigation evidence, accurate push of case regulations, intelligent writing of judge documents, etc. At the beginning of the application, the automatic attribution was not so high, and the recognition rate was increased from 60% to 90% through deep learning in the Shanxi court for more than two months. Therefore, we must continue to polish the actual application scenarios in order to use the technology well.”

“The third technology is the audio and video information mining technology in the judicial industry. This image recognition technology and speech recognition technology use the conversations and court documents produced during the trial to analyze. We have developed an automatic inspection system for the trial management department. In the actual application scenario, we have compiled 30 inspection rules.”

“The fourth technology is a legal big data fusion technology based on master data. This technology is to link the legal data related to the court according to different dimensions and subjects. Thunisoft’s business covers the entire judicial industry, and integrates data from courts, procuratorates, lawyers, etc. and it can also access external real-time data interfaces, including the three types of data interfaces of the Supreme Court, household registration information of the public security and marriage information of the civil affairs bureau. We can use party information, such as historical information and credit information, which can be used to identify the risks in cases, and can greatly reduce the amount of information entered by judges.“

“The last technology is our legal big data mapping technique. This technology mainly provides a means of directly reflecting the characteristics of the legal subject. It relies on big data to classify cases, parties, judges, personnel, and property through label models, and finally displays them in portraits. At present, we have realized the portrait of the judge, the portrait of the case, and the portrait of the party. For example, in the case portrait, the judge is given a detailed understanding of the characteristics of the case. The scene of the application of the party’s portrait is quite typical. When we input the information of the party, we know his or her characteristics, whether there are special risks and other problems in history. The portrait of the judge is mainly used in the performance file, and we present the comprehensive performance information of a judge in an intuitive way.”

“With these intelligent support, at least 75% of the judges’ pre-trial reading time can be reduced, and the case recommendation matching can be increased from 20% to 90%. The modification time was reduced from 56 minutes to eight minutes, and the information integrity of the trial record was increased from 30% to 100%. More than 70% of the trial text can be automatically generated and more than 80% of the sentencing accuracy analysis can be provided to the judge to increase productivity.”

“We also have facial recognition capabilities which can provide face detection, live recognition, automatic face capture, face comparison, face search, etc., and is applicable to various work scenarios, such as visitor registration, automatic terminal login, robot guidance, court verification, audit committee and inspection committee registration.”

“In the past, the judges mainly conducted subjective judgments by browsing the documents and understanding the case. The most fundamental purpose of the simplification and sorting of cases is to achieve ‘simple case fast review, complex case fine review’ 简案快审、繁案精审. Based on this consideration, the new ‘smart simplification and sorting’ 智慧繁简分流 has been optimized from two aspects: On the one hand, the 100 sorting rules are solidified to bring the standards for the complicated and simple cases to be consistent and to avoid subjective judgment. On the other hand, structural improvement are realized, such as the number of subjects, the amount of evidence and the characteristics of information, such as the case, the intelligent collection of litigation requests, to reduce more than 70% of the judges’ judgment work in sorting cases.”

“The Wisdom Court automatically supervises the five stages, 25 nodes and 125 risk points of the trial process, and carries out automatic intelligent inspection on information entry, data quality, complete process, complete data, and legal procedures, and improves the trial management of process nodes, including supporting whether to make the final ruling, whether to make restrictions. It has solved the bottleneck problem of trial management that required a large amount of manpower and was difficult to comprehensively check in the past, reduced the risk of trial, and realized ‘one-click management’, which provided a strong technical guarantee for the trial management and judicial disclosure of the court. The comprehensive application of the intelligent trial inspection, risk prevention and control system effectively promoted the standardization of the trial work of the court, improved the efficiency of trial management, improved the quality of trial data, helped discover potential hidden dangers affecting judicial justice and solve the problem of ‘different judgments in the same case’, and play a positive role in promoting the standards of judging and safeguarding judicial justice.”

“The Wisdom Inspection intelligent evidence review technology can effectively assist the prosecutor. Based on the image recognition capability of the legal AI platform, we have developed an automated review technique for unstructured evidence, which can help prosecutors to automatically review or troubleshoot these evidences. At the trial, the system automatically establishes an evidence timeline.”

“The evidence is arranged into a picture, and the evidence picture can be quickly located according to the process of evidence verification, so that judges, prosecutors and parties can significantly improve the efficiency of court appearance during the trial. For instance, after Zhejiang Jianggan District Procuratorate applied our intelligent case handling system, the efficiency of prosecutorial handling has increased by more than 30%. The handling time of dangerous driving cases was shortened from 1 hour to 10 minutes, and the information input volume was reduced from 4,000 words to 100 words; the handling time of theft cases was shortened to 30 minutes from 3 hours, and the amount of information input was reduced from 5,000 words to 400 words.”

“Thunisoft has also developed an AI platform for collaborative law enforcement, intelligently assists in handling cases, further enhancing the unified coordination and intelligence level of political and law across departments. The platform realizes information exchange in case handling, and records the whole process of the case data, and intelligently analyzes the changing trend of criminal cases and the geographical distribution of the persons involved, and accurately predicts risks.”

“Thunisoft also supports the People’s Court to build an all-in-one litigation service machine to provide a full range of services for all types of litigation participants. These include building convenient applications on the Internet, providing various self-service terminals, litigation service robots, and material transfer cabinets to optimize the litigant experience of the parties. On this all-in-one machine, not only can the parties set up online cases, contact judges online, do cross-domain filing, etc., but it can also provide intelligent applications such as litigation risk assessment and intelligent complaints generation to reduce the people’s complaints.”

“The next generation of intelligent complaints system can provide self-generating services for complaints. The interactive question-and-answer method can help the parties to generate simple and well-organized complaints. The generated complaints can be directly printed, signed and submitted to the court filing window. The litigation risk assessment also collects the specific case of the parties in an interactive question and answer mode, gives risk reminders and rationalization proposals, and generates a litigation risk assessment report. According to the facts of the case, the parties are guided to choose reasonable channels of rights protection for dispute resolution in five aspects: risk, family, reputation, time and economy.”

Chairman Shao went on to comment about the Thunisoft-Tencent Micro Court mobile electronic litigation solution, the establishment of the IP Court, the strategic cooperation with Alibaba in Dec 2017 and with Tencent in July 2018: “Thunisoft also powered the national promotion of the Mobile Micro Court mobile electronic litigation solution to provide better litigation support for the national courts, provide more convenient litigation services for the public, and make greater contributions to building a Wisdom Court and building a rule of law in China and achieving the last mile judicial convenience to let the masses feel the sunshine at zero distance 零距离感受阳光司法. The Thunisoft-Tencent Micro Court 微法院 via WeChat has since spread all over the country in 13 provinces, including Beijing, Tianjin, Hebei, Shanxi, Gansu, Qinghai, Xinjiang, Heilongjiang, Liaoning, Inner Mongolia, Henan, Jiangxi, Yunnan. More than 500 People’s Courts have opened Micro Courts. The open and transparent judicial procedure is an important way to achieve justice.”

“The Thunisoft-Tencent Micro Court provides a series of judicial contents such as judge documents, commutation and parole information, execution information, and court announcements. The disclosure of judicial information has effectively guaranteed the people’s right to know, participate, express and supervise. The Thunisoft-Tencent Micro Court provides basic litigation services such as mobile filing, delivery and receipt, payment, evidence exchange, online trial, contact with judges, etc. for the parties and litigants. Auxiliary functions include: litigation template writing norms, jurisdictional recommendations, litigation fee calculation tools, litigation risk assessment, legal and regulatory inquiries, intelligent assistants and other functions.”

“Among them, the intelligent assistant Xiaoyu can provide the parties with the pre-litigation, prosecution, and post-suit full-process, personal intelligent litigation services, answering the litigant’s litigation questions through human-machine dialogue, guiding the parties to conduct pre-litigation risk assessment, and helping the parties generate complaints, etc.; and use the intelligent case-like query function to help the parties find cases that are close to their own cases and establish reasonable expectations for court decisions. Using the Thunisoft-Tencent Micro Court to conduct litigation can help alleviate the masses’ complaints, save litigation costs, and truly realize the last mile of getting through the judicial convenience.”

“On 1 Jan 2019, the IP Court of the Supreme People’s Court was established in Beijing. It is an important milestone in the history of China’s intellectual property judicial protection development. It has great and far-reaching significance for accelerating the modernization process of intellectual property trial system and trial capability. Thunisoft has the honor to participate in the informationization construction of the intellectual property court, and will use this as an opportunity to continuously improve the technical level and inject more energy into the construction of the Wisdom Court in China.”

“Thunisoft also signed a strategic cooperation with Alibaba in Dec 2017 to develop applications to use in legal services, social governance and data services. The cooperation aims to improve public services with the application of new technologies in cloud computing, Big Data and AI. While Alibaba Cloud has penetrated its AI technology, especially voice technology, into more than 300 courts, it realizes that single-point speech recognition technology cannot solve the requirements in real court scenes. We agreed to jointly promote the application of new technologies in courts, people’s procuratorates, judicial institutions, food and drug safety supervision, education and other fields.”

“On 13 July 2018, Thunisoft and Tencent Cloud reached a strategic cooperation to develop products, technologies and solutions in the fields of cloud computing, big data, artificial intelligence, information security, mobile internet and other fields, including joint marketing and expansion to jointly promote the development of legal science and technology, education, government, finance, medical and other industries.”

On Thunisoft’s B2C SaaS business in Huayu Yuandian and the acquisition of 25% in Peking University Yinghua’s “Magic” database business, Chairman Shao said: “In the data business field, Thunisoft has built a business structure of ‘dual engine + industry solution’, namely the ‘intelligent data tool’ engine hosted by the subsidiary company Yixin Huachen 亿信华辰, and the ‘data and knowledge service’ engine hosted by our B2C subsidiary Huayu Yuandian 华宇元典. Thunisoft established Yixin Huachen in 2006, which is directly responsible for the current life cycle related products of big data processing, storage, application and management to greatly increase the user’s stickiness and achieve better profit growth.”

“In the legal profession, a large number of historical jurisprudence contracts, indictments, judgments, court records, legal documents, etc, needs to be studied. Thunisoft established Huayu Yuandian in July 2016 to provide lawyers and the public the Yuandian Lawyer’s Work Platform with valuable SaaS data services such as legal regulations and case intelligent retrieval, judicial big data analysis, and information related to litigation. There are nearly 300,000 practicing lawyers in China, with a total population close to 1:6,000, while the US is 1:248. Yuandian is like the lawyer’s daily workbench, where they can check the past cases of the trial court and the judge’s trial, including its appeal rate, second-instance re-review rate, second-instance retrial rate, application re-trial rate, etc., which are very important and necessary for lawyers. In October 2017, the Yuandian think tank was released, using AI technology in natural language processing, data mining, machine learning to analyze the rules of the judge and construct a knowledge map and relevant analytical model integrated with various legal documents to provide legal data services and products for prosecutors, lawyers, litigation participants, legal researchers, legislators, public and credit reporting agencies, etc.”

“Since the launch, registered lawyer users have grown steadily to over 20,000, covering 31 provinces. More than 10,000 legal teams have conducted case management on the lawyer platform, and the number exceeds that of any law firm or legal service agency. It accounts for about one-third of the total number of high-frequency practicing lawyers in the industry. Taking March 2018 as an example, there are nearly 20,000 cases on the lawyer platform, including more than 15,000 litigation cases, and the rest are non-litigation items such as corporate legal affairs. With a single case lawyer service fee of RMB 100,000, the platform data value is about RMB 2 billion.”

“On April 8, 2018, Thunisoft signed a Business Strategy Cooperation Agreement with Peking University Yinghua 北大英华 and purchased a 25% stake in Peking University Yinghua. The ‘Peking University Magic’ 北大法宝 database developed by Peking University Yinghua has become an excellent brand of legal information and an indispensable tool for legal workers. The users coverage include the National People‘s Congress Legal Work Committee, the State Council Legislative Affairs Office, the State Council agencies and other central institutions and corresponding local institutions, about 50% of the courts and 45% of the procuratorates in the country.”

“The All China Lawyers Association, the Beijing Lawyers Association, 19 provincial city-level law associations such as the Shanghai Lawyers Association provide the Magic database and online training business, with a lawyer customer coverage rate of 90%. The coverage rate of the China enterprises in the World’s Top 500 Institutions is 49%. It covers nearly 300 graduate law schools with a 66% share and a 52% share of the Project 985 and Project 211 educational institutions. In addition, Yinghua’s specialized databases Crime-Fighting Magic Weapon 刑事法宝 and IP Magic Weapon IP法宝, and other customized systems such as Contract Agreement 合同文本, Food Safety Compliance 食品安全合规, and Bank Compliance 银行合规 have a good market reputation and influence.”

Overall, Chairman Shao comments that the Wisdom Court AI business is a strong recurring revenue contributor in the years ahead: “The Wisdom Court leads the wave of judicial AI. The investment cost for each Wisdom Court is estimated to be around 10 million. The estimated revenue from the court is around RMB 15.6 billion, and RMB 9.1 billion from the procuratorate, or a total of RMB 24.7 billion. Based on 300,000 practicing lawyers, if the unit price is RMB 10,000 after the cloud service is charged, and an estimated market share of 40%, revenue can reach RMB 1.2 billion. In addition, revenue is also produced from the legal service products that will be introduced to the public in the future. Estimated revenue of the entire AI product is around 35 billion.”

On Thunisoft’s expansion into IT systems for prison management and medical management etc, Chairman Shao said: “Thunisoft makes full use of the advantages of products and solutions accumulated in the courts and procuratorates field, and utilizes software platform to realize the integration of public, inspection, law, and other departments, giving full play to resource advantages and customer advantages, and fully expanding our solutions in the judicial administration industry, including judicial prisons.”

“Thunisoft provides comprehensive information solutions for the prison industry, focusing on improving the technical support capacity of prison penal enforcement, improving the application level of information technology in prison work, and improving the overall quality of prison officers. The solution meets the relevant standards set by the Ministry of Justice and meets many of the needs of the prison industry. It consists of ten types of solutions: prison security, office management, prison management, police management, leadership decision-making, prison affairs disclosure, political and legal interconnection, IT infrastructure construction, information system security and confidentiality, and information system operation and maintenance services.”

“Thunisoft won the bid for the ‘Smart Yancheng’ 智慧燕城 Wisdom Prison Project 智慧监狱 and continued to expand the prison management and drug rehabilitation management market. With reference to the technology, experience and achievements of the pioneering fields in Wisdom Court and Wisdom Inspection, and with the company’s nationwide marketing system, we will continue to improve and promote solutions in the field of intelligent discipline inspection and supervision.”

“In May 2018, Thunisoft has joined hands with a number of insurance companies and launched a comprehensive online management platform for property preservation 保全通. In the initial two months since its launch in Beijing, online application for property preservation account for nearly 30%. Over 100 courts in Henan, Hubei, Anhui, Jiangsu, Yunnan and other places have officially launched, and the growth rate of users has exceeded 60%.”

“In August 2018, Thunisoft joined hands with Alibaba’s enterprise communication and collaboration platform DingTalk 阿里钉钉 to publish Medical Management Cloud 医管云 and Medical Collaboration Cloud 医共云. At present, the market coverage in Zhejiang, Guizhou, Ningxia and other provinces is relatively high. We  expected to reach thousands of online business customers.”
“In December 2015, Thunisoft raised 1.07 billion yuan in new shares placement, of which 280 million yuan was invested in the construction of cloud computing R&D and industrialization projects. Based on the existing universal development platform Artery, Artery Cloud IaaS (ACI), Artery Cloud PaaS (ACP) and Artery Cloud SaaS (ACS) are developed. On the basis of the government cloud platform, there are five application clouds in the trial cloud, procedural cloud, litigation service cloud, food and drug security cloud and food traceability service cloud.”

On Thunisoft’s expansion into the IT business in food safety and education through M&As, Chairman Shao explains: “Thunisoft completed the ‘Five Vertical and Four Horizontal’ cloud platform business layout in 2016. ‘Five Verticals’ refer to five sub-government sub-sectors, including (1) courts/procuratorates/judicial administration; (2) food safety; (3) education services; (4) autonomous control (100% in Wanhu Network 万户网络); and (5) pan-government and large-scale enterprises. ‘Four Horizontal’ is a general-purpose product business based on segmented industry solutions, including intelligent data software, legal data and knowledge services, collaborative office software, and cloud services.”

“In food safety, the Party Central Committee and the State Council have further reformed and improved China‘s food safety supervision system, and the state’s efforts to promote food safety have reached an unprecedented height. At the 14th meeting of the Standing Committee of the 12th National People‘s Congress, the Food Safety Law was passed and officially implemented on October 1, 2015, aiming to provide institutional guarantees for the most stringent food safety supervision. In 2016, the company acquired 49% stake in Huayu Jinxin 华宇金信 for RMB 183 million, and continued to expand business development in the field of food safety information. Huayu Jinxin was ranked as a top three vendor based on the winning bids in 2015-2016.”

“In August 2017, Thunisoft completed the acquisition of 100% equity of Lianyi Technology 联奕科技 for RMB 1.488 billion. Since its establishment in 2004, Lianyi Technology has successfully provided information planning and construction services in cloud platform for digital smart campus, educational teaching software, undergraduate education evaluation software system for more than 500 colleges and universities and covering more than 4 million college users. The market coverage is 12%, ranking top three in the market. Since our acquisition, Lianyi Technology has successfully provided information services to more than 700 colleges and universities and more than 10 million teachers and students. The overall digital smart campus solution is widely used in various schools. The construction of digital smart campuses in some of these schools, such as Sun Yat-sen University, Xi’an Jiaotong University, Shandong University, Wuhan University and Ningbo University, has become a model project for the region and the country. Lianyi Technology has actively expanded its business to the whole country and has covered 28 provinces.”

“The microservice support platform product line (LyASP) is positioned to solve the problem of university data islands and the integration of various heterogeneous data sources. It mainly includes: portal platform, service center, certification center, process affairs center, message center, big data center and other products. The Big Data Center platform is a one-stop integrated data service platform for higher education institutions and institutions that provides standard data collection, data storage, data governance, decision analysis, comprehensive reporting, predictive mining and service interfaces. Working with Alibaba Cloud and using artificial intelligence technology, Thunisoft can provide more higher value-add services for students and schools.”

“Investment in education continues to grow, and information investment is shifting from hardware to software and IT services. The sustained growth of education funding is the guarantee for the stable development of China’s education information industry. “Since the national level put forward the goal of ‘national fiscal education expenditures accounting for 4% of GDP’ in 1993, China’s fiscal education spending has grown steadily with the GDP, reaching RMB 3.89 trillion in 2016. The compound growth rate for the decade is 16%. With the continuous development of the ten-year development plan for education informatization, breakthroughs have been made in the work marked by the ‘Three Links and Two Platforms.’”

“According to statistics from the Ministry of Education, the Internet access rate of primary and secondary schools in China has reached 87%, and the penetration rate of multimedia classrooms has reached 80%. The hardware of education informationization has been basically popularized, laying a good foundation for the further development of educational informationization. With the further advancement of education informatization and the further promotion of smart campus and intelligent learning, the development of education informatization will focus on the development of basic hardware to software and IT services.”

“The education information industry customers are mostly government agencies and education systems. Project development requires strict procedures such as program review, project approval, bidding, and contract signing. With the standardization and transparency of the national bidding process management, the barrier to entry of the education information industry will become higher and higher. Companies that provide quality products and services will take the lead in market competition. after the initial construction of education informatization, it will put forward higher requirements for artificial intelligence data processing capabilities, leading to enterprises with core competitive advantages to stand out.”
“In April 2018, the Ministry of Education issued the ‘Education Informatization 2.0 Action Plan’, proposing to achieve the development goal of ‘Three Comprehensive, Two High and One Big’ by 2022, and strive to build a new model of talent cultivation under the “Internet +” condition, develop a new model of Internet-based education services, and explore a new model of education governance in the information age.”

Summing up, Chairman Shao emphasized Thunisoft’s mission in contributing to the progress of the rule of law in China through providing better scientific and technological services: “Facing the future construction of the rule of law in China, we deeply understand that the resources of legal science and technology, legal research and legal practice should be in-depth cooperation. This is also the driving force and motivation of Thunisoft. Thunisoft is both a participant in the construction of the rule of law in the country and a practitioner of legal science and technology. Over the years, we have developed together with legal science and technology and have made progress together.”

“I hope everyone can give us more opinions and suggestions and can provide more criticism and corrections. Thunisoft has continuously developed and improved through the learning from the criticism of our lovely customers, and each customer’s criticism is Thunisoft’s development power. I hope that all leaders and friends will continue to support your support and help Thunisoft to develop better. If we can make better products, we can provide better scientific and technological services to our customers for social governance and helping to govern the country according to law. I hope that we can all work together to make greater contributions to the informationization of the court and the progress of the rule of law in the country.”


Intrigued and want to read more? Download this week’s H.E.R.O. HeartWare: Weekly Asia Tech News with brief highlights of the inspiring entrepreneurial stories of tech leaders in Asia whom we have been monitoring over the past decade in our broader watchlist of over 300 listed Asian tech companies and our focused portfolio of 40 HERO Innovators who reveal their problems and successes behind building the company. Inspired by Brandon Stanton’s photo-journalistic project Humans of New York which collects and highlights the street portraits and moving stories of people on the streets around us who were doing things that changed lives and made a difference in the city but often went unnoticed, we have curated a collection of Hear the Heart of the H.E.R.O. stories on our website which we aim to update with refreshing and uplifting new stories weekly. Please check them out and give us your valuable feedback so that we can improve to make them better for you.


It started with rethinking a few questions. Question No. 1: Can the megacap tech elephants still dance? Or is this the better question: Is there an alternative and better way to capture long-term investment returns created by disruptive forces and innovation without chasing the highly popular megacap tech stocks, or falling for the “Next-Big-Thing” trap in overpaying for “growth”, or investing in the fads, me-too imitators, or even in seemingly cutting-edge technologies without the ability to monetize and generate recurring revenue with a sustainable and scalable business model? How can we distinguish between the true innovators and the swarming imitators?
 
Question No. 2: What if the “non-disruptive” group of reasonably decent quality companies with seemingly “cheap” valuations, a fertile hunting ground of value investors, all need to have their longer-term profitability and balance sheet asset value to be “reset” by deducting a substantial amount of deferred innovation-related expenses and investments every year, given that they are persistently behind the innovation cycle against the disruptors, just to stay “relevant” to survive and compete? Let’s say this invisible expense and deferred liability in the balance sheet that need to be charged amount to 20 to 30% of the revenue (or likely more), its inexactitude is hidden; its wildness lurks and lies in wait. Would you still think that they are still “cheap” in valuation?
 
Consider the déjà vu case of Kmart vs Walmart in 2000s and now Walmart vs Amazon. It is easy to forget that Kmart spent US$2 billion in 2000/01 in IT and uses the same supplier as Walmart – IBM. The tangible assets and investments are there in the balance sheet and valuations are “cheap”. Yet Kmart failed to replicate to compound value the way it did for Walmart. Now Walmart is investing billions to “catch up” and stay relevant. Key word is “relevancy” to garner valuation.
 
We now live in an exponential world, and as the Baupost chief and super value investor Seth Klarman warns, disruption is accelerating “exponentially” and value investing has evolved. The paradigm shift to avoid the cheap-gets-cheaper “value traps”, to keep staying curious & humble, and to keep learning & adapting, has never been more critical for value investors. We believe there is a structural break in data in the market’s multi-year appraisal (as opposed to “mean reversion” in valuation over a time period of 2-5 years) on the type of business models, the “exponential innovators”, that can survive, compete and thrive in this challenging exponential world we now live in. Tech-focused innovators with non-linear exponential growth potential are the most relevant multi-year investment trend and opportunity.  
 
During our value investing journey in the Asian capital jungles over the decade plus, we have observed that many entrepreneurs were successful at the beginning in growing their companies to a certain size, then growth seems to suddenly stall or even reverse, and they become misguided or even corrupted along the way in what they want out of their business and life, which led to a deteriorating tailspin, defeating the buy-and-hold strategy and giving currency to the practice of trading-in-and-out of stocks. On the other hand, there exists an exclusive, under-the-radar, group of innovators who are exceptional market leaders in their respective fields with unique scalable business models run by high-integrity, honorable and far-sighted entrepreneurs with a higher purpose in solving high-value problems for their customers and society whom we call H.E.R.O. – “Honorable. Exponential. Resilient. Organization.”, the inspiration behind the H.E.R.O Innovators Fund, (surprisingly) the only Asian SMID-cap tech-focused fund in the industry.
 
The H.E.R.O. are governed by a greater purpose in their pursuit to contribute to the welfare of people and guided by an inner compass in choosing and focusing on what they are willing to struggle for and what pains they are willing to endure, in continuing to do their quiet inner innovation work, persevering day in and day out. There’s a tendency for us to think that to be a disruptive innovator or to do anything grand, you have to have a special gift, be someone called for. We think ultimately what really matters is the resolve — to want to do it, bring the future forward by throwing yourself into it, to give your life to that which you consider important. We aim to penetrate into the deeper order that whispers beneath the surface of tech innovations and to stand on the firmer ground of experience hard won through hearing and distilling the essence of the stories of our H.E.R.O. in overcoming their struggles and in understanding the origin of their quiet life of purpose, who opened their hearts to us that resilience and innovation is an art that can be learned, which can embolden all of us with more emotional courage and wisdom to go about our own value investing journey and daily life.

As the only Asian SMID-cap tech-focused listed equities fund in the industry, we believe we are uniquely positioned as a distinctive and alternative investment strategy for both institutional and individual investors who seek to capture long-term investment returns created by disruptive forces and innovation without herding or crowding to invest in the highly popular megacap tech stocks, and also provide capital allocation benefit to investors in building optionality in their overall investment portfolio.

The H.E.R.O. HeartWare Weekly highlights interesting tech news and listed Asian emerging tech innovators with unique and scalable wide-moat business models to keep yourself well-informed about disruptive forces and innovation, new technologies and new business models coming up, and the companies that ride on and benefit from them in some of the most promising areas of the economy in Asia as part of our thought leadership for our ARCHEA Asia HERO Innovators Fund to add value to our clients and the community. Hope you find the weekly report to be useful and insightful. Please give us your candid feedback and harshest criticisms so that we can improve further to serve you better. Besides the BATTSS (Baidu, Alibaba, Tencent, TSMC, Softbank, Samsung), do also tell us which Asian tech entrepreneurs & CEOs whom you admire and respect and why – we will endeavor to do up profiles of them for sharing with the community. Thank you very much and have a beautiful week ahead.

Warm regards,
KB | kb@heroinnovator.com | WhatsApp +65 9695 1860
www.heroinnovator.com

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