Interpretation of New Stocks | Geruili: Accounts receivable account for nearly 70% of revenue. Why has a software company turned into a "heavy asset" business?

As the semiconductor industry continues to expand production and digitalization and intelligence upgrades in manufacturing processes, the demand for intelligent manufacturing software is steadily increasing. Recently, Corelli, founded in 2007, advanced further toward its Hong Kong IPO after a hearing with the Hong Kong Stock Exchange. The company primarily serves the wider semiconductor industry, including semiconductor, display panel, PCB, and photovoltaic sectors, providing intelligent manufacturing software solutions and related services. Its core products include CIM software solutions, an intelligent control digital platform, an intelligent big data engine platform, and a digitized equipment platform. In 2024, the company holds approximately an 11.7% market share in China's intelligent manufacturing software solutions market for the wider semiconductor industry, positioning it as a major industry player. After years of development, Corelli has built business relationships with over 340 clients in the wider semiconductor sector, with about 200 being semiconductor clients. In recent years, the company has experienced rapid revenue growth, with revenues of 166 million yuan, 249 million yuan, and 300 million yuan projected for 2023 to 2025, respectively. However, during the same period, the company incurred losses of 127 million yuan, 103 million yuan, and 104 million yuan, and its operating cash flow has been negative for three consecutive years. This context highlights a critical insight into Corelli: on one hand, the intelligent manufacturing market for the wider semiconductor industry has growth potential, with expanding business scale and client numbers; on the other hand, revenue growth has yet to stable profits, and pressures from R&D investments, project delivery costs, and cash flow remain significant. As industry demand continues to expand, can Corelli truly transition from "scale growth" to "profit growth"? Maintaining high revenue growth, yet the profitability quality of its core business still has room for improvement. Reportedly, Corelli operates in the broader semiconductor IMSS sector, fundamentally providing an "industrial brain" for high-end manufacturing industries such as semiconductors, display panels, PCBs, and photovoltaics. The manufacturing processes in these industries involve hundreds to thousands of precise steps, requiring real-time coordination, system stability, and precision. Corelli's solutions encompass a complete value chain from production data collection, equipment connectivity, production process management to big data analysis and AI applications. From a technological standpoint, Corelli marked a significant milestone in early 2023 by successfully delivering a domestically produced CIM system for 12-inch front-end 18nm processes that included its core manufacturing execution system, making it one of the first suppliers in China to achieve full automation in 12-inch wafer manufacturing. Before this, in 2010, the company first launched an 8-inch semiconductor manufacturing execution system. The progression from 8-inch to 12-inch and from 18nm to more advanced processes outlines a clear path of technological iteration. In terms of revenue performance, Corelli reported revenues of 165.5 million yuan in 2023, with growth projected at 50.4% to 248.9 million yuan in 2024, and further increasing to 300.3 million yuan in 2025. According to the prospectus, revenue growth primarily stems from continuous expansion into other sub-segments of the wider semiconductor field, along with increases in CIM software solutions and intelligent control digital platform revenues. Currently, CIM software solutions remain the company's primary source of revenue. From 2023 to 2025, the revenue from this business is expected to be approximately 137 million yuan, 195 million yuan, and 215 million yuan, while the proportion of total revenue from CIM decreased from 82.7% to 71.6%. Meanwhile, revenue from the intelligent control digital platform rose from 20.51 million yuan to 41.38 million yuan, and revenue from the intelligent big data engine platform surged from 217,000 yuan to 23.57 million yuan. Regarding R&D investments, from 2023 to 2025, the company's R&D expenses were 66 million yuan, 59 million yuan, and 66 million yuan, accounting for 48.5%, 43.6%, and 42.0% of operating expenses, respectively. The company has independently developed five major platforms covering production operations, integrated automation, intelligent control digital technologies, intelligent big data engines, and digitized equipment. Among these, the software modules under the CIM system constitute the companys flagship product, contributing 82.7%, 78.5%, and 71.6% of total revenue during the reporting period. In terms of market position, according to Frost & Sullivan data, Corelli ranks second in China's wider semiconductor IMSS market in terms of revenue for 2024, with a market share of about 11.7%. Additionally, it is the largest domestic provider in this field. The companys clientele spans four major sectors: semiconductors, display panels, PCBs, and photovoltaic technology, servicing 134, 147, and 198 clients from 2023 to 2025, respectively. However, beneath the glow of technological breakthroughs and market positioning, Corelli's financial fundamentals reveal characteristics that significantly diverge from traditional perceptions of "software companies." Profitability challenges and potential risks: the other side of the coin. In traditional views, software companies typically exhibit characteristics such as "high R&D, high gross margins, and decreasing marginal costs," with gross margins reaching 60% or even over 80%. However, the data revealed in Corelli's prospectus presents a stark contrast: from 2023 to 2025, the company's overall gross margins were 3.4%, 13.2%, and 14.2%, respectively. Even the core CIM business, which contributes the majority of revenue, only had gross margins of 21.9%, 23.1%, and 15.0% during the same period. The source of this low gross margin lies in the fact that the company has taken on a large number of projects characterized by "strategic pricing"to expand into new fields like PCBs and photovoltaics and establish long-term relationships with industry-leading clients, it has had to trade lower prices for market access. This is essentially the necessary cost of market exploration phase but implies that restoring profitability will require a considerable time period. In recent years, the company's revenue growth rate has slowed from 50.4% in 2024 to 20.7% in 2025, indicating a weakening growth momentum. Concurrently, the company's cumulative losses over three years have exceeded 334 million yuan, and its operating cash flow has consistently remained negative at -117 million yuan, -144 million yuan, and -113 million yuan. Reportedly, by the end of 2025, the company had cash and cash equivalents of 66 million yuan on its balance sheet; while this provides some reserve, the ongoing losses and cash consumption make the funding pressure undeniable. Moreover, there is also a risk of client concentration worth noting. From 2023 to 2025, revenue from the top five clients accounted for 54.2%, 46.7%, and 23.1%, respectively, showing a year-on-year decline. This reflects, to some extent, an expansion of the client base, but the revenue proportion from the largest client was still 20.0% and 19.8% in 2023 and 2024, respectively. Regarding client retention rates, these were 42.5% and 48.3% in 2024 and 2025, respectively, indicating that more than half of the clients each year did not continue purchasing in the following year. This reflects, to some extent, the project-based nature of IMSS businessesclients typically purchase by project rather than signing long-term contracts. Accounts receivable and contract assets have continuously risen, from 117 million yuan at the end of 2023 to 208 million yuan at the end of 2025, with their proportion of total revenue dropping from 70.9% to 69.3%, remaining at a relatively high level. Inventory and other contract costs fell sharply from 161 million yuan at the end of 2023 to 47 million yuan at the end of 2025, indicating improved project delivery efficiency. However, the high level of accounts receivable continues to exert persistent pressure on cash flow. On an industry level, the overall market size of Chinas wider semiconductor IMSS sector is only about 2.1 billion yuan in 2024, indicating that the market scale is relatively limited. Although it is expected to grow to 6.6 billion yuan by 2029, the current ceiling effect is still significant. At the same time, the global market has long been dominated by international giants like Applied Materials and Siemens, along with domestic competitors. Corelli's path to public listing is essentially a gamble on "time"whether the market is willing to grant enough time for this domestic champion in the semiconductor IMSS sector to complete the transition from technological breakthroughs to stable profitability. Under the overarching trend of domestic substitution, Corelli occupies a favorable market position. However, challenges such as low gross margins, sustained losses, and customer retention indicate that this path is likely to be much longer than anticipated.