New Stock Analysis | Saimu Technology: Loss of about RMB 4.6 million in the first half of the year, anxiety of ICV testing track leader fully revealed.

So far this year, the pace of listing of intelligent driving companies has accelerated. Under the overall trend of the industry listing, SauMu Technology, which has submitted four applications, has also obtained approval from the Hong Kong Stock Exchange. According to the prospectus, the company is a Chinese technology company focusing on innovation in intelligent connected vehicles (ICV) simulation technology, mainly engaged in the design and research and development of ICV simulation testing products and providing related testing, verification, and evaluation solutions. According to Frost & Sullivan's data, based on 2023 revenue calculations, the company is the largest market participant in the Chinese ICV testing, verification, and evaluation solutions industry, with a market share of approximately 5.3%. It is also the largest market participant in the Chinese ICV simulation testing software and platform market, with a market share of around 5.9% based on 2023 revenue calculations. The company is also one of the few market participants in China that can provide a one-stop ICV testing, verification, and evaluation solution. As a leader in the domestic ICV simulation testing software and platform market, what is the business potential of SauMu Technology? Losses in the first half of the year, growth concerns emerge Public information shows that ICV refers to vehicles equipped with new generation advanced onboard sensors, controllers, brakes, and other devices, integrating advanced communication and network technology to exchange and share information with different elements such as people, vehicles, roads, and clouds (V2X). ICV also includes perceiving complex environments, intelligent decision-making, cooperative control, and other features, aiming for "safe, efficient, comfortable, energy-efficient" driving, and ultimately achieving fully autonomous driving operations. According to Frost & Sullivan's data, ICV can be applied to traditional fossil fuel vehicles and electric vehicles, and SauMu Technology's ICV testing, verification, and evaluation products and services are targeted at both forms of ICV. In 2021, SauMu Technology successfully launched China's first cloud-based ICV simulation testing platform in collaboration with related customers. This platform enables cloud-based deployment with full-stack capabilities from safety analysis to simulation testing, significantly enhancing testing efficiency. According to Frost & Sullivan's data, this makes it the world's first ICV simulation testing, verification, and evaluation tool chain to receive the highest level of functional safety certification. Currently, SauMu Technology's core technologies include Sim Pro, a self-developed and commercially launched ICV simulation testing, verification, and evaluation tool chain in 2018, as well as FuSa and SOTIF analysis tools Safety Pro developed for ICV in 2021. The majority of the company's products and services are developed fully or partially based on Sim Pro and Safety Pro, with Sim Pro focusing on testing autonomous driving solutions at L3 and above levels. However, the current domestic autonomous driving technology is still in the L2 mass production stage, and the market still needs to be cultivated. The penetration rate of ICV at L3 and above levels in China remains relatively low, and due to the absence of laws and regulations regarding market access, it has not reached the market deployment stage and can only operate in specific scenarios for testing and demonstration. The prospectus discloses that L3 level ICV is expected to be sold in China in the second half of 2025, with sales estimated at approximately 7.1 million units by 2030, accounting for around 18.8% of the Chinese ICV industry market size in 2030. SauMu Technology also mentioned in the risk factors that the ICV industry and ICV testing, verification, and evaluation solutions industry are still in the early development stage and may experience unforeseen changes and uncertainties. In terms of performance, with deep cultivation in the autonomous driving industry, SauMu Technology's revenue has gradually increased. During the first half of 2021-2024 (referred to as the reporting period below), SauMu Technology's revenue reached approximately 107 million yuan, 145 million yuan, 176 million yuan, and 56 million yuan, respectively; while the net profit and comprehensive income for the same period were approximately 37.57 million yuan, 48.68 million yuan, 53.43 million yuan, and -4.599 million yuan, respectively. It is worth noting that SauMu Technology also reported losses in the first half of 2023. The company explained that for the past two years, losses occurred in the first half mainly because project deliveries and recorded revenues in the second half were generally higher than in the first half, but the revenues and income generated in the first half of 2023 and 2024 alone could not offset the costs incurred during that period. Analyzing its financial statements shows that SauMu Technology's operating costs directly affect the company's profit situation. Calculated as a percentage of total revenue, the total operating costs (including R&D expenses, sales and marketing expenses, and general administrative expenses) during the reporting period accounted for approximately 42.5%, 43.7%, 62.9%, and 110% of the company's total revenue. As of the end of each reporting period, SauMu Technology's cash and cash equivalents were 81.837 million yuan, 151 million yuan, 118 million yuan, and 34.09 million yuan, respectively. If losses continue, the company's cash flow may become "critical" or imminent. It is worth mentioning that the company's large customers for ICV simulation testing platforms and ICV data platforms usually require SauMu Technology to provide a performance guarantee amounting to 5% to 10% of the contract amount when signing contracts, as a guarantee for company performance. Therefore, the company needs to advance a large amount of funds, posing higher requirements on the company's financial situation. Heavy reliance on major customers Prospects of the ICV testing track still have potential Despite being a leading player in the domestic ICV simulation testing market, SauMu Technology does not have strong bargaining power. Reflected in its operations, SauMu Technology suffers from a heavy reliance on major customers. The company primarily provides ICV testing, verification, and evaluation solutions to state-owned enterprises, government departments, and private automotive manufacturers and technology companies, with most of its revenue coming from a limited number of customers. During the reporting period, revenue from the largest customer amounted to around 41.70 million yuan, 35.50 million yuan, 40.00 million yuan, and 16.60 million yuan, respectively, accounting for about 39%, 24.4%, 22.8%, and 29.8% of the company's total revenue. Revenue from the top five customers amounted to approximately 99.90 million yuan, 97.80 million yuan, 98.00 million yuan, and 42.30 million yuan, respectively, representing 93.4%, 67.2%, 55.8%, and 76.1% of the company's total revenue. AlthoughThe revenue contribution percentage of the above-mentioned customers has declined, but still over fifty percent of the revenue comes from the top five customers.Customers have a high dependence on the company's cash flow requirements, as there may be accumulated accounts receivables, putting pressure on the funding side. During the reporting period, the company's net trade receivables and bills receivable were 49.422 million yuan, 140 million yuan, 166 million yuan, and 150 million yuan respectively. The continued surge in accounts receivable led to a sharp decrease in the company's cash and cash equivalents. Correspondingly, the accounts receivable turnover days increased from approximately 113.2 days in the 2021 fiscal year to 317.5 days in the 2023 fiscal year, further increasing to 517.1 days in the first half of 2024, with an average period approaching a year and a half. However, in the long run, there is still growth space for the industry in which the company operates. Firstly, the penetration rate of autonomous driving continues to increase, and simulation testing technology establishes a solid safety baseline for the commercialization of autonomous driving products. With the continuous increase in the penetration rate of intelligent connected vehicles, it is expected that the demand for autonomous driving simulation testing industry will also continue to rise. According to Frost & Sullivan data, it is expected that the market size of China's ICV testing, validation, and evaluation solutions industry by revenue will increase to approximately 27.9 billion yuan by 2030, with a rapid compound annual growth rate of about 33.6% starting from 2023. In the future, with the increase in ADAS penetration rate and the commercialization of high-level autonomous driving, the market size of the ICV simulation testing industry is showing an accelerating growth trend. It is worth mentioning that the scale of ICV simulation testing tools and platforms in the segmented field accounts for more than 50% of the total market size starting in 2023, and is expected to further increase to 60% by 2030. Secondly, in terms of competitive landscape, the company is constantly exploring the application of large model technology in the field of ICV simulation testing, including simulation scenario construction, sensor modeling, automatic data standards, etc., to help the commercialization of autonomous driving. Moreover, the company is the only Chinese market participant among the top five market participants in the market in 2022, making it stronger in the domestic market competition. The market size of China's ICV simulation testing software and platform market reached about 1.7 billion yuan in 2023. By revenue, the top five market participants contributed about 25.7% of the entire market. In 2023, the company ranked first in the Chinese ICV simulation testing software and platform market, with revenue of about 101 million yuan. In conclusion, for autonomous driving companies, in the early stages, rapid growth can be achieved through deep binding with key customers. However, as the company further develops, dependence on major customers will become a major constraint on development. For example, as a leading company in the industry, the company's bargaining power is not strong, and its development is still not considered healthy. Therefore, how to balance the high concentration of customers and the supply chain risks and payment negotiation challenges brought by major customers and suppliers will be a major hurdle to overcome. Whether the company can improve its competitiveness, bind core high-quality customers, and improve its cash flow situation through the help of the capital market, also needs time to verify.