IR Event: Chulinf shares continued R&D investment, focusing on edge AI applications

On 2024/10/30, Dr. Liu Jiming, Chief Scientist; Mr. Xu Ping, Board Secretary; and Ms. Zhu Shuangshuang, Corporate Affairs Representative of Chuling Shares, received a delegation from Shenzhen Youbo Capital, Hexun Investment Information, Shanghai Molex, Jiangsu Jinbailing Asset Management, Shandong Geleson, and Xinhuiyu Electromechanical for an investor visit.

During the interactive session, the research institution gained insights into Intellifusion's AI and computing power planning as well as its future business strategy (see Investor Relations announcement for details).

1. Introduction to the company's basic information by Zhu Shuangshuang, Corporate Secretary

The company listed on the ChiNext in 2011. Prior to listing, our core business focused on providing dedicated access equipment for large enterprise clients. Through continuous product iteration and upgrades, we now offer PTN/SPN sliced dedicated lines and OTN premium dedicated lines, delivering low-latency, high-reliability, and high-security network connections for government agencies and large enterprises. Following our listing, we entered the big data and intelligent applications sector. After integrating along the industry value chain, we have established three core edge computing capabilities: smart connectivity, data sensing, and AI applications. In recent years, we have concentrated on the industrial digitalization market, aiming to become China's most trusted provider of industrial digital solutions and operational services. Serving operators, large enterprises, and governments, we address three key application scenarios: edge intelligent interconnection, edge data processing, and edge AI applications.

1 Edge Intelligence Connectivity: A fully optical edge network that is visible, intelligible, secure, and intelligent. Core services include dedicated internet lines for large and medium enterprises and premium government-enterprise dedicated lines.

2 Edge Data Perception Services – Edge Computing Data Collection and Processing: The company deploys compact DPI (Deep Packet Inspection) and Security DPI devices on 5G edge clouds, business gateways, and terminal switches. After capturing, identifying, and cleaning mobile communication data, office web traffic, application/APP usage data, threat/attack data, and video content from terminals, we deliver clear, visualized intelligent applications for clients, including "Internet Behavior Management," "Network Security Detection and Protection," and "Traffic Control."

3 Edge AI Applications: Targeting the carrier market, our perceptible edge computing network offers significant technical advantages in end-to-end visibility. This segment contributes substantially to total sales within our application portfolio. Key use cases include carrier 4, 5G network performance analysis, user experience analysis, dedicated line quality monitoring (as previously mentioned), mobile satellite services, and our latest strategic focus on integrating compute resources with network operations. Our Mobile Network Business Perception Platform integrates AI analytics to enhance user experience, advance autonomous network capabilities, efficiently handle complaints, predict customer satisfaction, and deliver a truly intelligent network perception system.

Video Intelligence enables operators to manage content distribution on large-screen TVs via OTT and IPTV. Content is injected into a comprehensive video management system, delivered through CDN technology to TV terminals. User behavior analysis drives precise content targeting.

For the government and enterprise market, we focus on four key areas: 1) Agriculture and Rural Development, 2) Smart Emergency Response, 3) Smart Parks, and 4) Critical Event Scheduling.

Enterprise Market – Enterprise Intelligence: A SaaS platform built on WeCom, Feishu, or DingTalk to boost employee productivity. Powered by a data middle office and intelligent marketing, it enables digital and intelligent transformation for enterprise marketing.

Next, we introduce our management team, four R&D centers in Hangzhou, Suzhou, Chongqing, and Chengdu, and our market service advantages.

II. Dr. Liu Jiming, Chief Scientist, provides an overview of the company's strategic roadmap for cutting-edge technologies such as AI and high-performance computing.

The company has made significant investments in artificial intelligence and established a dedicated AI division across business units in 2024, actively exploring cutting-edge technologies and application scenarios. Our strategy focuses on three key AI R&D directions: leveraging technological innovation to enhance service efficiency and customer experience, and developing solutions that improve operational automation and decision support. 1) Building an intelligent platform based on large-scale operations and maintenance models; 2) Developing a semantic routing engine powered by large language models; 3) Advancing the development of AI agents.

Current Progress: Our company has launched an edge AI computing gateway, delivering cost-effective computing power and innovative solutions for SMEs across industries. We also offer an edge computing scheduling platform pre-loaded with advanced pre-trained models—including natural language processing and computer vision models—enabling enterprises to perform high-level data analysis and processing.

Specific use cases:

① ICT Infrastructure Services: Drive enterprise digital transformation and boost operational efficiency through high-efficiency, integrated networking and computing power.

2. Industry Solutions: Delivering customized edge computing services for education, healthcare, manufacturing, and smart cities to help customers optimize operations and drive innovation.

③ Managed and extension services: Create long-term value for enterprises and enhance customer loyalty through flexible module expansion and ongoing operations support.

III. Interactive Session

Q1: The company's performance has been weak over the past three years. What measures are planned to improve it?

Answer:Our company operates in an emerging industry that receives strong government support, yet we face challenges such as competition from major tech giants and a slowdown in target market demand. To address this, our first priority is to focus on core capabilities. We have consolidated all product lines into a single Marketing Center and a Service Center, with plans to integrate them into one R&D Center next year. Second, we are expanding our market reach. With over two decades of deep expertise in the carrier sector, we are leveraging our established resources in enterprise government affairs to bring our solutions to large and mid-sized enterprises. Additionally, we have formed an International Business Team to begin establishing our presence in overseas markets.

Q2: What were the financial results this year, what is the R&D status, and how many R&D personnel do you have?

Answer:The information technology innovation sector is a quintessential technology-driven industry, where technological innovation is the core driver of competitive advantage. Since its inception, our company has maintained a strategic focus on product R&D, with annual research expenditures consistently exceeding 20% of total revenue. Despite recent headwinds—marked by declining revenues over the past three years and predominantly negative profitability (Q1–Q3 this year saw revenue of 1.89 billion CNY and net losses exceeding 30 million CNY)—we remain committed to our innovation strategy. While Q4 traditionally represents peak revenue recognition, subdued market demand this year presents heightened challenges compared to prior periods. Our R&D workforce for the fiscal year stands at 500, representing approximately 55% of our total headcount. Although we have implemented organizational adjustments this year, the proportion of R&D personnel and overall investment levels will remain stable.

Q3: What are the company's detailed plans for market capitalization, and how will you effectively enhance market cap management?

Answer:Since listing, the company has placed strong emphasis on investor relations and market value management.

First, ensure high-quality disclosure and corporate governance. Beyond timeliness, accuracy, and completeness, enhance report readability to provide investors with richer company information.

Second, actively maintain communication with the market, strengthen investor relations management, and enhance the company's visibility and liquidity.

Third, effectively leverage capital market tools such as share buybacks, equity incentives, and follow-on offerings.

Fourth, we will focus on the market for industrial digitalization applications, drive our own company forward by continuing to invest in innovative areas such as AI and computing power, enhance our core competitiveness, expand our market presence, and boost performance. Ultimately, we aim to achieve dual growth in both revenue and market capitalization.

Q4: What are your plans for edge computing, and what are the revenue streams?

Answer:In the edge computing sector, our company is committed to delivering high-cost-performance computing power and innovative solutions for SMEs and various industries through our Edge AI Computing Gateway. This product integrates Fiber-to-the-Room (FTTR) technology with AI modules, meeting enterprise digital transformation needs for real-time data processing and privacy protection. By adopting an edge-cloud collaboration strategy, it deploys private large models within local networks while connecting to cloud-based public models, achieving an optimized computing architecture.

Key profit drivers include the following areas:

- ICT Infrastructure Services: Deliver efficient, integrated network and computing support to drive enterprise digital transformation and boost operational efficiency.

- Industry Solutions: Deliver customized edge computing services for education, healthcare, industrial, and smart city sectors to help customers optimize operations and drive innovation.

- Managed & Extended Services: Deliver long-term value and strengthen customer loyalty through flexible module expansion and ongoing operational support.

We will continue to deepen our collaboration with telecom operators and enterprise/government clients, driving the adoption of AI-powered digital solutions. We are committed to delivering high-quality AI compute products that enable sustainable revenue growth alongside market expansion.

Q5: What product lines does Chu Ling currently have, and which one has the highest gross margin?

Answer:The company currently offers three product lines: Edge Intelligence Connectivity, Edge Data Sensing, and Edge AI Applications. Among them, Edge Data Sensing generates the highest gross margin, featuring software products and services such as a Data Ingestion Platform, a Data Collection & Parsing Platform, and a Big Data Platform.

Q6: Are there any planned changes to the shareholder structure? Will state-owned capital be considered?

Answer:Suitable strategic investors (excluding financial investors) may be introduced. The company's core purpose is to deliver high-quality products and services to customers. Introducing state-owned capital can help expand market reach, attract premium clients, enhance profitability, improve the company's fundamentals, and ultimately increase overall corporate value.

Q7: Who are our competitors in the industry, and how should we respond given the intense domestic market competition?

Answer:Different business segments face distinct competitors. For intelligent connectivity, key rivals include ZTE, FiberHome, Risun, and Greenwave; for data perception and AI applications, companies like NSFOCUS and Hanoshen are major players. To stay ahead, the company is enhancing product value by offering integrated solutions that combine PON-SD-WAN with FTTR-B (enterprise full-optical networking) +WIFI6+MESH (wireless upgrade for full coverage), along with a platform featuring schedulability, observability, and business security. Simultaneously, we are expanding into domestic mid-to-large enterprise markets and have established an international business unit to drive our global expansion.

Q8: How does the company plan to deepen its focus on the information technology innovation sector, and what specific measures will be taken?

Answer:The Xinchuang sector faces strong future demand. With the Chinese government's support policies for the Xinchuang industry strengthening, domestic substitution is accelerating. Documents issued in 2022 mandate that central and state-owned enterprises complete their domestic Xinchuang substitution by 2027. The Xinchuang value chain spans chips, operating systems, databases, IoT, application software, and cybersecurity. Increasing demand for autonomous and controllable information technology in sectors like finance, telecommunications, and energy is further driving growth in the Xinchuang market.

Company Overview:

Chulinfo will fully deepen its focus on the domestic IT innovation sector, seizing opportunities from increased national policy support and accelerated domestic substitution. Leveraging its technical expertise in embedded operating systems, big data processing, network security DPI technologies, and emergency response systems, Chulinfo is driving high-quality development of its domestic IT business.

The following measures will be taken:

- Strengthen independent innovation and R&D: Focus on breakthroughs in key technologies for embedded operating systems, big data processing, and information security based on DPI technology to ensure product autonomy and compliance with the 2027-year domestic substitution policy requirements for central and state-owned enterprises.

- Build a collaborative ecosystem: Strengthen partnerships with upstream and downstream companies in chips, IoT, and application software to advance the domestic innovation (Xinchuang) supply chain and enable interoperability of industry standards.

- Deepen focus on key industry applications: Align with the strong demand for independent and controllable solutions in finance, telecommunications, and energy sectors by delivering tailored offerings that transform our technology and market expertise into competitive advantage.

The company will continue to drive innovation in domestic IT products, accelerate market expansion, and deliver high-quality domestic substitution solutions to customers, supporting digital economic development.