New Stock Preview | The New Journey of German Style: Annual revenue of 500 million, loss of 200 million, AIoT halo cannot escape strategic losses

As is well known, digitization and intelligence are key directions for the future development of the industry. At the national level, multiple policies have been continuously introduced to promote the deep integration of industrial Internet and the real economy, with the goal of achieving "intelligent manufacturing" and digital upgrading of industries. And the industrial Internet, as its core application area, is currently benefiting greatly from this round of industry development dividends. According to data from the Ministry of Industry and Information Technology and other institutions, the scale of China's industrial Internet industry has exceeded one trillion yuan, and it is expected to maintain high double-digit growth on an annual basis in the coming years. At this time, a "hidden champion" company that has long been focused on the AIoT (Artificial Intelligence of Things) field has entered the public eye due to its active pursuit of a Hong Kong IPO. On November 14, Beijing Defengxinzhencheng Technology Co., Ltd. (hereinafter referred to as "Defengxinzhencheng") officially submitted its application for listing on the main board of the Hong Kong Stock Exchange, with SUNNY FORTUNE as the exclusive sponsor. The company is a developer of industrial AIoT production optimization software solutions that has long served large state-owned enterprises such as State Grid and major oil companies. According to a Frost & Sullivan report, based on revenue for the 2024 fiscal year, the company is the fifth largest independent professional AIoT service provider in China, with a market share of approximately 1.8%, and the third largest independent professional AIoT service provider in the Chinese energy industry, with a market share of approximately 9.9%. However, hidden beneath the industry development dividends and strong market position is the company's perennial performance of "increasing revenue without increasing profit." It can be seen that this IPO is not only a key step for Defengxinzhencheng to seek "better growth," but also provides a sample for the integration of industrial Internet with the capital market. Exploring sustainable commercial paths within the limited market space has become a core issue facing the company. Having both soft and hard strengths, yet stuck in a strategic loss "vicious circle" In the blue ocean market of AIoT industrial applications, Defengxinzhencheng undoubtedly has certain "soft power" and "hard power." In terms of soft power, the company ranks fifth among independent AIoT platform service providers, and third in the energy industry AIoT platform; in terms of customer resources, the company has a high-quality customer base, serving over 600 state-owned enterprise projects, including State Grid, Southern Power Grid, the three major oil giants, tobacco monopolies, and other industry leaders. In addition, the industry coverage is also extensive, including energy, manufacturing, public utilities, transportation, data centers, and other fields. In terms of hard power, the company's self-developed platform Delt@AIoT has a complete technical stack (device layer, edge computing, PaaS, SaaS), which can support rapid customization development. At the same time, the company's core technology also integrates AI, IoT, and big data technologies to provide customers with real-time insights and optimization decisions, highlighting its technical capabilities. Under the influence of the above "soft power" and "hard power," Defengxinzhencheng has clearly formed a strong brand effect, laying a solid foundation for rapid growth performance. According to the prospectus data, in recent years, Defengxinzhencheng's revenue has grown rapidly: revenue in 2022, 2023 and 2024 were RMB 313 million, RMB 442 million, and RMB 525 million, respectively, showing significant growth. In the first half of 2025, the company's revenue continued to grow year-on-year by 38.8% to RMB 159 million. Looking at the product structure, AIoT solutions are the core source of revenue for the company, with revenue of RMB 150 million in the first half of the year, a year-on-year growth of 39.8%, accounting for a high percentage of 93.9%; AIoT services and AIoT products also show a certain growth trend, but revenue shares are small, at 5% and 1.1%, respectively, and have not yet formed a large-scale effect. However, despite the strong growth momentum of Defengxinzhencheng's AIoT business, the company is still in a loss-making situation. According to the prospectus, in the 2022 fiscal year, 2023 fiscal year, 2024 fiscal year, and the first half of 2025, Defengxinzhencheng's profit was -165 million yuan, -297 million yuan, -228 million yuan, and -39.28 million yuan, respectively. Over the course of three and a half years, the company accumulated losses of 729 million yuan (narrowed year over year). This may be related to the company's strategic investments and market expansion. On one hand, as a technology company, continuous high-intensity research and development investment is necessary. These expenses will directly affect the current profits, and when the income does not cover them, it will result in a decline in profits. On the other hand, as a growth company, in order to quickly acquire customers and expand its scale, the company may adopt aggressive pricing strategies, such as lowering product/service prices or providing substantial discounts, leading to a decrease in gross profit margin. This can be seen from specific financial data performance. Due to the high proportion of products with low unit prices and gross profit margins, the company's overall gross profit margin is not high, even though it increased from 22% in 2022 to 26% in the first half of 2025, it is still far below the general level of 35%-60% in the software industry. In addition, Defengxinzhencheng's high research and development investment is also a major reason for lowering the company's overall gross profit margin, with research and development expenses reaching 68.43 million yuan in 2024, accounting for 19.92% of revenue, far exceeding the industry average. Under the impact of perennial losses, Defengxinzhencheng's cash flow situation is also poor: as of June 30, 2025, the net cash used in operating activities was 36.8 million yuan, and the cash and cash equivalents held were only 43.99 million yuan, which is a key reason for the company to "replenish blood" in Hong Kong. Based on the above, it can be seen that Defengxinzhencheng's "increased revenue without increased profit" is a typical characteristic of high-investment, high-growth technology enterprises in the development stage, where the company's research and development and sales investments are huge, and the economies of scale have not been fully realized. Of course, for companies in such a "new journey," this is a necessary strategic and stage presence, meaning the company is exchanging short-term profits for long-term market space, technological barriers, and customer base. Taking a seat in the "digital economy" first class, will the strong be the king? The core track of "Defengxinzhencheng" is the industrial Internet, which is the core pillar of the "Made in China 2025" and "digital economy" strategies. Benefiting from multiple structural positive factors, the Chinese AIoT market has grown rapidly in recent years. According to Frost & Sullivan, the size of the Chinese AIoT market has grown from about 54.1 billion yuan in 2020 to about 111.9 billion yuan in 2024 and is expected to reach about 220.9 billion yuan by 2029. This growth is mainly driven by policy support, the increasing demand for digital transformation in manufacturing, and the widespread application of 5G and AI technologies. In addition, due to the low industry penetration rate, the potential is considerable - compared to the traditional consumer Internet, the penetration rate of the industrial Internet is still low, especially in the vast number of small and medium-sized manufacturing enterprises, which means the market is far from saturated and has a high ceiling. In this regard, in areas where Defengxinzhencheng has focused on such as energy, electricity, tobacco, and high-end manufacturing, the demand for digital transformation is urgent, customer payment capability is strong, and it is a visible high-value area. Take the energy AIoT industry as an example, given the high level of digitization in the energy industry and the widespread deployment of sensors, AIoT applications in this field have made significant progress. The market size of energy industry AIoT solutions increased from about 1.8 billion yuan in 2020 to about 3.7 billion yuan in 2024, with a compound annual growth rate of 19.7%; it is expected to reach about 7.7 billion yuan by 2029, corresponding to a compound annual growth rate of 15.7% from 2024 to 2029. However, the industry competition landscape is also fragmented and intense. Specifically, with rapid technological iterations and customer differentiation, international software companies have long dominated this market. In the domestic market, according to Frost & Sullivan's report, there are currently over 1,000 different sizes of AIoT solution providers with different field expertise and industry focus in China, with no single industry participant dominating the market. In this context, Defengxinzhencheng stated its advantages in the prospectus, pointing out that the company has a good track record of providing customized and specific AIoT solution products and AIoT deployments to leading Chinese state-owned enterprises (especially in the energy industry), which may enable the company to stand out in the industry and seize new market opportunities for significant business growth. This is also the main investment highlight of Defengxinzhencheng - first, in its segmented field, Defeng can be seen as a "hidden champion." If it can solve the profitability issue, it will be the first to benefit from the industry's value reassessment amid explosive growth; second, industrial Internet is a long-term and certain theme, and once the company takes a seat in the "digital economy" first class, it can seize the dividends of national industrial upgrading. In summary, it is easy to see that Defengxinzhencheng is on a golden track supported by national strategies, with a vast market space and in a high-growth period. This is the fundamental investment value of the company. If it can solve the profitability issue, with its technological accumulation and high-quality customer resources, Defengxinzhencheng is expected to occupy a more advantageous position in the blue ocean market of AIoT industrial applications, and its growth prospects are more objective.