New Stock Prospectus | Force Accumulated Storage: With revenue not exceeding 700 million, how can the new force of memory chips leverage the large industry?

Driven by the dual drivers of accelerating domestic substitution and exploding demand for AI computing power in the semiconductor industry, the storage chip industry is becoming a key battleground for global tech competition. According to a report by Frost & Sullivan, the global storage chip market is expected to reach 118.97 billion yuan by 2024, with DRAM accounting for 69.79 billion yuan and 58.7% market share, firmly holding the largest share in the storage chip market. Against this backdrop, the Hong Kong stock market is poised to welcome a local player focused on niche DRAM design - Zhejiang Jihua Storage Technology Co., Ltd. (referred to as "Jihua Storage"). According to the Hong Kong Stock Exchange disclosure on May 28th, Jihua Storage has submitted its listing application to the Main Board of the Hong Kong Stock Exchange, with CITIC Securities as the sole sponsor. "Niche Little Brother" in the Global DRAM Market The prospectus shows that Jihua Storage is a high-tech enterprise focused on memory chip design and AI storage and computing solutions. In 2020, through the acquisition of Zentel Japan, the company integrated research and development resources from China and Japan, gradually becoming a leading memory chip design company in China and a supplier of AI storage and computing solutions. Its business model mainly revolves around memory chip design, packaging, and testing, with products covering memory chips, memory modules, and memory KGD wafers. Memory chips, as the core business of Jihua Storage, accounted for 70.2% to 88.2% of revenue during the period 2022-2024. The products include commercial-grade chips used in Siasun Robot & Automation, smart speakers, and consumer electronics, as well as industrial-grade chips that can adapt to extremely low-temperature industrial environments. The memory modules integrate storage chips with PCB motherboards for the high-end PC and enterprise server markets, with revenue reaching 137 million yuan in 2024, accounting for 21.3%. The KGD wafer service provides customized wafer testing services to SoC design companies, with revenue reaching 54 million yuan in 2024, accounting for 8.4%. Benefiting from the development of the global and Chinese memory chip and AI storage and computing industries in recent years, Jihua Storage's total storage capacity sold is expected to increase from about 13.8 million GB in 2022 to about 34.2 million GB in 2024, with a compound annual growth rate of 57.4%. In terms of market position, based on the 2024 revenue from niche DRAM, Jihua Storage ranks fourth among Chinese mainland companies in the global niche DRAM market, with a market share of 11.3% in the domestic market and 0.8% in the global market. Nearly 500 million yuan in cumulative losses in three years Despite benefiting from the development of the memory chip and AI storage and computing industries, Jihua Storage's performance still faces challenges. From 2022 to 2024, the company's revenue was 610 million yuan, 580 million yuan, and 646 million yuan, showing a trend of "first suppression then rise." In 2022, a global shortage of wafers led to an increase in upstream procurement costs, with wafer procurement costs reaching 444 million yuan, accounting for 71.3% of sales costs. At the same time, market price fluctuations also put pressure on the company's revenue growth, resulting in a gross loss margin of 2.1%. In terms of profitability, the company incurred losses of 139 million yuan, 244 million yuan, and 109 million yuan in 2022-2024 respectively, with a cumulative loss of nearly 500 million yuan in three years. However, after adjusting for non-operating factors such as share-based payments, the adjusted loss narrowed from 137 million yuan in 2022 to 53 million yuan in 2024, indicating that the company's core business's ability to generate revenue is gradually improving. The gross profit margin also increased from -2.1% in 2022 to 9.3% in 2024, mainly due to the recovery of memory chip prices, an increased proportion of high-margin module business, and the dilution of procurement costs under economies of scale. It is worth noting that Jihua Storage's operating cash flow has not yet turned positive and still requires financing activities to support its operations. One of the main reasons for this is the company's business dependence on a few customers. The prospectus shows that the industries in which Jihua Storage's customers operate include consumer electronics, network communication, automotive electronics, energy, and industrial control equipment. For the three years ending December 31, 2024, revenue from the top five customers was approximately 390 million yuan, 388 million yuan, and 336 million yuan respectively, accounting for approximately 64.0%, 66.8%, and 52% of total revenue for the corresponding years. This high level of customer concentration poses significant risks to the company in terms of customer bargaining power and order stability. If the major customers reduce orders or switch to other suppliers, it will have a significant impact on the company's revenue and profit. At the same time, Jihua Storage's trade receivables were 47 million yuan, 100 million yuan, and 115 million yuan, and the accounts receivable turnover days increased from 40 days to 60 days. This indicates that the company faces certain pressures in managing accounts receivable, and a longer collection period may affect the company's liquidity and increase financial risks. Global DRAM market size expected to grow steadily Despite suffering losses in the past three years, the future development prospects of Jihua Storage are still promising. Firstly, the continuous growth of the global and Chinese memory chip and AI storage and computing industries provides the company with a broad market space. According to Frost & Sullivan's forecast, the global DRAM market size is expected to grow at a compound annual growth rate of 5.1% from 2024 to 2029, while the Chinese DRAM market is projected to grow at a compound annual growth rate of 7.6%. This indicates that as market demand continues to expand, Jihua Storage is expected to achieve revenue growth by further expanding its market share. Secondly, Jihua Storage is enhancing its core competitiveness through various means. The company is developing high-bandwidth, low-power consumption, high-reliability storage solutions through continuous technological innovation to meet the demands of different industries. For example, the high-bandwidth 3D stacked memory chip technology currently being developed by the company can significantly improve data transfer rates and storage density to meet the high requirements of memory in fields such as artificial intelligence and high-performance computing. In addition, the company is continuously optimizing its business structure by expanding its product portfolio, deepening customer relationships, and enhancing its industry chain integration capabilities to further improve its market competitiveness. If Jihua Storage successfully completes its Hong Kong IPO, the funds raised will mainly be used for.Multiple directions. On the one hand, improve research and development and innovation capabilities, expand high-bandwidth storage product and memory product research and development teams, promote the research and development of cutting-edge technologies such as AI storage and computing solutions; on the other hand, use to enhance production and testing equipment and capabilities, improve production processes; at the same time, enhance global sales and marketing capabilities, expand market share; in addition, the company also plans to make strategic investments and/or acquisitions to enhance its industrial layout.LiJi Storage will also take measures to improve the company's financial situation. The company plans to improve the cash flow of its operations by strengthening inventory management, optimizing accounts receivable and accounts payable, and other methods. In conclusion, LiJi Storage, as a high-tech company focusing on memory chip design and AI storage and computing solutions, has faced losses in the past three years. However, the progress made in technology research and development, market expansion, and business structure optimization lays the foundation for future profit growth. With the continued growth of the global and Chinese memory chip and AI storage and computing industries, LiJi Storage is expected to achieve sustainable business development by further enhancing its core competitiveness and market share. However, investors should also pay attention to risk factors such as market competition, technological iteration, and macroeconomic environment in order to make prudent investment decisions.