Saimo Tech revs up for another IPO race after two false starts

The provider of simulation testing for smart cars has refiled to list its shares in Hong Kong, but investors may be concerned about its falling profit margins

Key Takeaways:

  • The company’s profits rose 10% to around 55 million yuan last year
  • But the firm’s net profit margin has continued to decline, and receivables are piling up  

    

By Lau Chi Hang 

Companies working on autonomous driving technologies have been lining up on the IPO starting grid, eager to fill their engines with investor cash. 

From makers of scanning systems to onboard data-processing units, the businesses that are helping to put intelligent cars on the road are turning to the stock markets to fund their operations and ongoing R&D efforts.

Among them, Saimo Technology Co. Ltd. is hoping to get its Hong Kong IPO application over the finish line at the third attempt. The company, which supplies simulation and testing tools for smart car makers and safety regulators, is one of a growing number of investment options in the technology-assisted driving sector and its supply chains.

Last year iMotion Automotive Technology (1274.HK), which supplies domain controllers and other driving solutions, secured a Hong Kong listing. Laser sensor specialist Robosense Technology (2498.HK) went public in Hong Kong at the beginning of this year, while Black Sesame Intelligence, which makes computer chips for smart vehicles, has applied to list on the same market. 

Saimo Technology provides simulation and evaluation tools to ensure that the intelligent connected vehicles (ICVs) equipped with these various sensors, controllers and other devices are effective and safe.

Massive amounts of test data are needed to verify driving algorithms and technologies, which need to be fully tested from the early stages of development. Through its core products Sim Pro and Safety Pro, Saimo Technology provides simulations, stress-testing and safety assessments for producers of intelligent vehicles or relevant government departments.

Leader in the auto testing market

According to its recent filing, Saimo Technology was the biggest player by revenue last year in China’s market for ICV simulation and evaluation solutions, with a market share of around 5.3%. It was also the biggest single force in the related software and platform market, though again with just a 5.9% slice of the business.

Since its launch in 2014, the company has benefited from several fundraising rounds, with backing from heavyweight investors. These include Huawei-backed Hubble, CITIC Securities, Beijing Shunyi Investment Fund, Beijing Cornerstone and Beijing Jingwei Hengrun. The Saidi Group under China’s Ministry of Industry and Information Technology holds 28.1% of the company’s shares through Saidi Testing. Saimo Technology reached a valuation of 2.33 billion yuan ($321.8 million) shortly after its A+ round of financing in 2022.

The company’s revenues and profits both increased in the last three financial years. Revenue went from 107 million yuan in 2021 to 145 million yuan the following year and 176 million yuan in 2023. Over the same period profits came in at 37.75 million yuan, 50.33 million yuan and 55.48 million yuan, as market demand increased.

The increasing sophistication of driving technology and a growing acceptance of semi-autonomous cars in China have fueled a steady expansion of the market served by Saimo Technology.

According to Frost & Sullivan data, China’s market for testing, validation and evaluation solutions expanded from about 1.2 billion yuan in 2019 to 3.3 billion yuan in 2023, at a compound annual growth rate of about 27.8%. The report predicted the market would reach about 27.9 billion yuan in 2030, with a compound annual growth rate of 33.6% between 2024 and 2030.

Slowing profit margin

The company enjoys the backing of big-name investors and is active in a promising industry. However, its earnings record has long been a source of concern.

Over the past three years, the firm’s net profit margin has been trending downwards, from 35.1% to 33.5% and 30.4%. Saimo Technology has variously cited higher administrative expenses, rising R&D costs or impairment losses on financial assets for the decline. However, one reference in the listing application is compounding the worries: a predication that the profit margin will fall again in 2024.

Meanwhile, overall gross margin rose 5.3 percentage points to 70.9% in 2023 from a year earlier, but this masks a declining margin for its main product category: software and platforms for ICV simulations and testing. That figure has plunged from 96.7% in 2022 to just 67% last year. As a result, Saimo Technology is heavily reliant on other products or services to lift its overall gross margin.

In addition, a 20% rise in revenue last year was partly generated by government subsidies. Last year the company obtained 31.34 million yuan in subsidies, more than triple the 9.17 million yuan in 2022. However, the company stated in the IPO filing that this external source of funding is expected to shrink this year.

Mounting receivables

The company generated 50.46 million yuan in net operating cash last year but recorded an outflow of 1.81 million yuan in 2021 and 6.41 million yuan in 2022, pointing to an erratic cash position.

In the past few years, trade receivables have been ballooning, from 49.4 million yuan in 2021 to 166 million yuan last year. The turnover period for receivables during that time nearly tripled from 113.2 days to 317.5 days. To explain the figures, the company pointed to its increased revenue as well as business cycle factors, saying most projects are completed in the last quarter of the year. 

Investors will be looking to see if the company can reverse any of the negative trends for margins, subsidies and receivables, as they weigh up the competing offerings in the automotive technology sector. 

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