New Stock Outlook | With the support of more than ten state-owned shareholders, can the merger and acquisition growth story of Tiandi HeXing earn market approval?

Since 2016, the field of industrial safety in China has experienced rapid development driven by regulations and technology. On one hand, the Cybersecurity Law and the Security Level Protection 2.0 have made industrial control security mandatory compliance, accelerating product deployment. On the other hand, the integration of industrial internet and smart manufacturing has expanded the attack surface, prompting the shift from single point defense to systematic and deep defense. These two trends have together propelled the comprehensive growth of the industry. Benefiting from this industry trend, TIANIANDIHEXING and XING have already begun to impact the capital market as industry leaders. On January 30th, Beijing TIANIANDIHEXING Technology Co., Ltd. submitted an application for an IPO to the Hong Kong Stock Exchange, with China Securities Co., Ltd. International and Orient International acting as joint sponsors. According to a report by Frost & Sullivan, TIANIANDIHEXING is expected to rank first in the Chinese industrial cyber security market by 2024 in terms of market share, with an overall market share of approximately 6.7%, particularly holding a market share of about 8.4% in the energy sector of the Chinese industrial cyber security market. In terms of performance, although TIANIANDIHEXING achieved significant revenue growth from 474 million yuan to 727 million yuan between 2023 and 2024, its profitability indicators did not improve synchronously. Adjusted net profit actually decreased from 70.235 million yuan to 55.403 million yuan during the same period, showing a dilemma of "increased revenue without increased profit". By the third quarter of 2025, TIANIANDIHEXING's revenue was 439 million yuan, a year-on-year increase of 22.19%, and the adjusted net profit turned from a loss to a profit of 4.153 million yuan, whereas in the same period of 2024, it was a loss of 34.537 million yuan. Despite having a leading market share and experiencing large profit fluctuations, the market is forced to examine the sustainability behind TIANIANDIHEXING's high growth story, which has become the biggest suspense for whether TIANIANDIHEXING can obtain the desired valuation in its IPO. Embarking on a new stage of internal growth and mergers and acquisitions, with a lineup of shareholders from state-owned backgrounds. The development journey of TIANIANDIHEXING began in 2007, initially focusing on the promotion and application services in the power industry, accumulating industry knowledge and customer resources over time. Around 2013, as the interconnectedness of industrial infrastructure increased, the cybersecurity risks became more evident, leading the company to pay systematic attention to industrial control information security and establish a strategic direction toward transitioning from technology services to a professional security product provider. 2014 marked a crucial turning point for the company. TIANIANDIHEXING successfully undertook the first batch of industrial control security pilot demonstration projects by the National Energy Administration, and based on practical experience in real industrial scenarios, officially launched the first generation of industrial control security products, signaling the company's entry into industrial cyber security. Over the following three years, TIANIANDIHEXING focused resources on the power industry, serving large power groups such as State Grid, Huaneng, and Datang, accumulating rich benchmark cases and establishing a leading position in power industry control security. After establishing a foothold in the power industry, TIANIANDIHEXING began to horizontally expand mature solutions to other critical infrastructure sectors such as petroleum, rail transit, and smart manufacturing, achieving a cross-industry layout starting from 2018. By 2022, TIANIANDIHEXING reached an important technological milestoneobtaining the IEC62443 International Industrial Security Standard certification, becoming the world's first industrial cyber security enterprise to receive this certification. This not only demonstrates its solid technical capabilities but also lays a solid foundation for entering the international market in the future. Market recognition is reflected in specific projects and client structures. Since its establishment, TIANIANDIHEXING has provided solutions for over 6000 projects, covering key industries such as power, petrochemicals, and rail transit, with over 200 application scenarios. Its clients are highly concentrated in large state-owned enterprises, with over 50% being core central enterprises supervised by the State-owned Assets Supervision and Administration Commission of the State Council. From 2023 to the third quarter of 2025, the revenue from state-owned enterprises or state-controlled enterprises continued to rise, reaching 69.3%, 69.7%, and 80.8% respectively, forming a solid foundation for the company's revenue. While continuing to deepen its core business of industrial cyber security, TIANIANDIHEXING entered a new stage of strategic mergers and acquisitions in 2024. The company strategically acquired Beijing BIKE, entering the field of energy digitization solutions successfully, extending its security capabilities to intelligent operation and maintenance. In 2025, the company completed the acquisition of Haibo Electric, gaining complete backup power supply solution capabilities and further expanding its product and service boundaries in the energy and power market. This series of acquisitions signifies TIANIANDIHEXING's transition from internal growth to a new phase of simultaneous internal and external growth, enabling the company to provide industrial cyber security solutions, energy digitization solutions, and backup power supply solutions to its clients. For TIANIANDIHEXING to expand successfully from being a leader in the field of industrial cyber security to include energy digitization and backup power supply, it has received robust support from various capital sources. According to the prospectus, before its IPO, TIANIANDIHEXING had completed a total of six rounds of financing from Series A to E+, forming a luxurious shareholder system. Prior to the IPO, the company had over ten shareholders with state-owned backgrounds, providing not only financial support but also bringing deep industry resources and credit endorsements. Among them, Beijing Jingguanguan held 9.5% of the shares, Beijing Centergate Technologies and Jingdezhen Beichao each held 3.04%, Shanghai State Power Investment held 2.97%, China Power Fund held 2.2%, and Longyan Xinda held 1.13%. At the same time, several industrial capital entities have also become important shareholders, helping TIANIANDIHEXING integrate industrial cyber security solutions deeply into various industrial scenarios and build a close industrial ecosystem. For example, Qingdao CHAPTER holds 3.03%, Nanjing Nangang (representing Nanjing Iron and Steel Group) holds 1.46%, Shanghai Wangsu and Hubei Wangsu (representing Wangsu Science & Technology) collectively hold approximately 1.9%, and Fosun Chongqing (representing Fosun Group) holds 1.46%. It is worth noting that the diversified shareholder structure not only promotes the company's industrial development but also could potentially put pressure on the company's stock price once the lock-up period is lifted after the IPO. After TIANIANDIHEXING's E+ round of financing in December 2025, its post-investment valuation reached approximately 3 billion yuan. This valuation level will likely be a significant reference point for evaluating the IPO pricing in the capital market. Accounts receivable continuously increasing, whether the acquired assets can become a new support pillar remains to be seen. The development trajectory of the business is just one aspect of showing TIANIANDIHEXING's growth path, and looking at the financial data reveals the real operating picture of the company. According to the prospectus, the continuous growth of TIANIANDIHEXING's revenue in 2024 and the first three quarters of 2025 was primarily due to two reasons. Firstly, the internal growth of the industrial cyber security sector continued, with revenue growth rates of 35.9% and 16.6% in 2024 and the first three quarters of 2025, respectively. Secondly, the consolidation of revenue related to the energy digitization acquired through mergers, with contributions of 11.4% and 4.6% in 2024 and the first three quarters of 2025, respectively. The dilemma of "increased revenue without increased profit" that TIANIANDIHEXING faced in 2024 was mainly due to a significant decline in gross profit margin. Data shows that TIANIANDIHEXING's gross profit margin was 50.4% in 2024, decreasing by over 10 percentage points from 60.9% in 2023. The company explained that this was mainly due to the strategic acceptance of a new large enterprise user during the reporting period, with relatively high hardware and software sales costs for two new projects. Additionally, the contribution of the energy digitization solution business line in 2024 had a relatively low gross profit margin, thus lowering the overall gross profit margin. By the first three quarters of 2025, with TIANIANDIHEXING's gross profit margin stabilizing and increasing from 47.8% to 48.6%, along with the reduction in operating expenses from 60% to 45%, the company achieved a return to profit and growth trajectory. Although the "dilemma" in TIANIANDIHEXING's profit and loss statement was caused by non-recurring factors from strategically bringing in a large client, investors who shift their focus to the cash flow statement and balance sheet can clearly see the potential challenges the company faces in its business operations. According to the prospectus, TIANIANDIHEXING's net cash outflow from operating activities has continued, with net outflows of 83.52 million, 91.634 million, and 159 million yuan from 2023 to the first three quarters of 2025, respectively. The continuous net outflow of cash from operating activities is mainly due to the persistently high trade receivables. The trade receivables of TIANIANDIHEXING from 2023 to the first three quarters of 2025 were approximately 640 million, 904 million, and 1.037 billion yuan, accounting for 66.6%, 65.9%, and 65.1% of current assets, respectively. Furthermore, the turnover days of trade receivables during the same period were 414 days, 389 days, and 597 days, indicating slow collection of sales revenue and a large amount of funds being held by customers. If major clients encounter payment difficulties, the company may face bad debt risks. Additionally, the continued increase in customer concentration is a challenge that TIANIANDIHEXING needs to confront. In the first three quarters of 2023 to 2025, the revenue from the top five clients accounted for 20%, 29.1%, and 39.7% respectively for TIANIANDIHEXING, with the revenue from the largest client accounting for 5.1%, 13.5%, and 24.5% respectively, showing continued concentration on a single major client. This dependence may weaken the company's bargaining power with a few large clients, potentially increasing the risk of performance fluctuations. Moreover, at the current stage, a key determinant of TIANIANDIHEXING's valuation upon listing will be whether the company can successfully integrate acquired assets and effectively unleash their potential for growth. TIANIANDIHEXING completed the acquisitions of Beijing BIKE (energy digitization) and Haibo Electric (backup power supply) in a relatively short period, aiming to expand its business footprint. However, from the current financial performance, the new business's contribution to revenue is still weak, and post-acquisition integration faces real challenges, including corporate culture integration, technology platform integration, and sales team collaboration. The uncertainty remains as to whether the company can effectively leverage its deep state-owned and industrial shareholder resources, seamlessly enter its existing industrial cyber security client system, and generate synergies.