Key takeaway

The company released its 2025 annual report and 1Q26 results.

Revenue in 2025 achieved relatively fast growth driven by newbusinesses, while the profit side faced short-term pressure dueto headcount increases from M&A and business integrationexpenses. The company is actively laying out its physical AIstrategy and has already implemented benchmark projects in thelow-altitude economy. It will explore more markets in the future,including embodied intelligence, intelligent driving, andspecialized sectors, with full-year related revenue expected toexceed RMB100mn. The company continues strategic M&A torefine its product matrix and industry chain presence. Headcountgrowth and business integration have led to a short-termincrease in expenses. It is expected that the acquired targets willcontribute stable profits to offset the phased expense pressure,and profitability is likely to improve gradually. The company'srevenue for 2026-2028 is expected to be

RMB590mn/RMB713mn/RMB829mn, up 26.71%/20.77%/16.34%YoY. The net profit attributable to shareholders of the parentcompany is expected to be RMB51mn/RMB69mn/RMB88mn, up50.73%/69.03%/88.14% YoY. The corresponding PE multiple is281x/207x/162x. We maintain "Buy" rating on the company.

Event

The company released its 2025 annual report and 1Q26 report.

In 2025, the company achieved revenue of RMB466mn(+22.97%), net profit attributable to shareholders of the parentcompany of RMB32mn (-24.00%), and recurring net profitattributable to shareholders of the parent company of RMB27mn(-25.47%). In 1Q26, the company achieved revenue of RMB39mn(+1.66%), net profit attributable to shareholders of the parentcompany of -RMB34mn (loss widened by 117.14% YoY), andrecurring net profit attributable to shareholders of the parentcompany of -RMB35mn (loss widened by 82.68% YoY).

Quick Take

The traditional CAE business is under short-term pressure, while new businesses such as physical AI havebecome the main growth driver. The company's revenue mix changed in 2025, with growth mainlycontributed by new businesses, while traditional simulation products faced short-term pressure. By businesssegment, the company's traditional engineering simulation software revenue was RMB198mn, down 13.35% YoY,and simulation product development revenue was RMB87mn, down 36.85% YoY, mainly due to the impact ofdownstream customer order cycles. Full-year revenue growth was mainly contributed by two areas: the physicalAI "Kaiwu" series products, which contributed a total of RMB58mn in revenue; and the newly added integratedproduction management and control solutions and industrial automation software products from the acquisitionof ForceCon, which together contributed RMB80mn in revenue. As the main business climate recovers and theintegration of new businesses is implemented, the company's revenue is expected to maintain relatively fastgrowth.

Physical AI commercialization accelerates, exploring new frontiers through DaaS and MaaS models. Thecompany has made physical AI its core strategy for future development, with the initial results of itstransformation becoming evident in 2025. In 2025, the physical AI business, represented by the "Kaiwu"platform, achieved total revenue of RMB58mn, accounting for over 10% of total revenue and exceeding theequity incentive target of RMB30mn. Leveraging its strengths in multi-disciplinary solver algorithmsaccumulated in the CAE field, the company has achieved initial commercialization breakthroughs in emergingareas such as the low-altitude economy, winning the bid for the Shaoxing low-altitude control platform projectin October 2025. Looking ahead, the company plans to evolve its physical AI business model toward Data -as-a-Service (DaaS) and Model-as-a-Service (MaaS), continuously expanding in areas such as the low-altitudeeconomy, embodied intelligence, intelligent driving, and specialized sectors, with related revenue expected toreach RMB100mn in 2026.

M&A-driven scale expansion, with rising expenses creating short-term profit pressure. The companycontinues to advance its M&A strategy, completing the acquisition of several companies in 2025, includingForceCon (60% equity stake) and Universe Kingdom (55% equity stake), effectively expanding its product matrixand industrial chain presence. M&A activity helped drive rapid revenue growth in 2025, while also leading toincreased expenses from a growing headcount and business integration, which was particularly reflected inadministrative expense (up 27.49% YoY for the full year 2025). As both the company and its acquisition targetstypically recognize the majority of their revenue in the second half of the year, the company's expense ratioduring the period rose significantly in the first quarter of 2026, putting phased pressure on profits. Lookingahead, these acquisition targets all carry clear profit requirements and are expected to contribute stable profits,offsetting the phased expense pressure from headcount growth and business integration.

Investment recommendation: The company released its 2025 annual report and 1Q26 results. Revenue in 2025achieved relatively rapid growth driven by new businesses, while the profit side faced short-term pressure dueto headcount increases from M&A and business integration expenses. The company is actively laying out itsphysical AI strategy and has already implemented benchmark projects in the low-altitude economy. It will　　explore more markets in the future, including embodied intelligence, intelligent driving, and specialized sectors,with full-year related revenue expected to exceed RMB100mn. The company continues strategic M&A to refineits product matrix and industry chain presence. Headcount growth and business integration have led to a shorttermincrease in expenses. It is expected that the acquired targets will contribute stable profits to offset thephased expense pressure, and profitability is likely to improve gradually. The company's revenue for 2026-2028is expected to be RMB590mn/713mn/829mn, up 26.71%/20.77%/16.34% YoY. The net profit attributable toshareholders of the parent company is expected to be RMB51mn/69mn/88mn, up 61.04%/36.07%/27.68% YoY.

The corresponding PE multiple is 281x/207x/162x. We maintain "Buy" rating on the company.

Risks

1) Commercialization of physics AI/CAE and civil market expansion may progress slower than expected. If thecompany's core physics simulation software and high-end simulation products encounter obstacles in marketadoption and large-scale application, or if product upgrades and penetration are affected by factors such asindustry demand and technology refresh rates, the company's revenue and profitability will be impacted. 2) Ifpost-merger integration and synergy advancement is not smooth, management and expense pressures mayincrease, potentially leading to a slower-than-expected recovery on the overall profit front. 3) The company isinvesting heavily in physics AI and improving its industrial chain layout through M&A. The significant scale ofR&D and M&A investment may affect short-term profit performance. 4) If some customers' payment collectionprogress falls short of expectations, the company faces risks related to accounts receivable recovery and creditimpairment.