51WORLD is a leading digital twin and simulation platform company in China. In 1H26, revenue increased 129.8% YoY to RMB 123.7mn, driving a 25.5% narrowing in net loss to RMB70.1mn. We believe the new L3 approval rules should support continued growth in automotive simulation demand, while its collaboration with NVIDIA’s Physical AI ecosystem provides further growth opportunities in robotics and other emerging applications.

51Sim (Synthetic Data & Simulation Platform) – The Core Growth Engine: 51Sim delivered revenue of RMB51.2mn in 1H26, up 549% YoY, with its revenue contribution rising from 15% to 41%, making it the company’s core growth engine. 51Sim provides simulation testing and synthetic data solutions for autonomous driving and embodied AI, essentially creating high-fidelity “virtual training grounds” for AI training, testing and validation at lower real-world costs. The company leads China’s end-to-end advanced autonomous driving simulation and data platform market with a 53.5% share, covering 55% of the world’s top 20 passenger vehicle OEMs and 60% of China’s top 20, while working with all six national-level testing institutions. Growth was mainly driven by the rollout of L3 mass-production approval, which accelerated demand for simulation validation and synthetic data. The company is also extending these capabilities into embodied AI and broader Physical AI applications, opening up further growth opportunities.

51Aes (Digital Twin Platform) – A Stable Business Base: 51Aes’s revenue stood at RMB72.3mn in 1H26, up 65% YoY and accounting for 58% of total revenue, remaining the company’s largest business. It provides digital twin solutions for smart cities, water management, industrials and energy, replicating physical cities, factories and infrastructure in virtual environments with real-time data for monitoring, simulation and operational optimization. For some projects, the company also acts as a system integrator, procuring third-party hardware such as servers and sensors for turnkey delivery, making 51Aes a combination of software platform and project-based solutions instead of a pure software business. The company continues to upgrade its AES digital twin development platform and WDP application development platform, while using AI to improve technology reuse and reduce customized development, which should enhance delivery efficiency, lower costs and support margin improvement in the future.

51Earth (Digital Earth Platform)–A Long-Term Platform Opportunity: 51Earth generated only RMB0.1mn in revenue in 1H26, down 95.1% YoY and accounting for less than 0.1% of total revenue, mainly due to declining demand for traditional 3D applications such as virtual exhibitions, online conferences and digital displays. Hence, the company is shifting 51Earth from project-based services toward a platform model, opening its accumulated 3D scenes, digital assets and development tools to third-party developers to build digital worlds and applications more efficiently. It has launched tools including Builder and Dev Kit, while exploring 3D content applications such as See3 and Short3A. However, the platform remains at an early stage of ecosystem development and commercialization, with future growth depending on developer adoption and the ability to generate recurring platform revenue.

Strong Revenue Growth Narrows Losses: GPM rose 3.7 ppts YoY to 44.8%, driven by an improved revenue mix with a higher contribution from high-margin 51Sim projects, alongside greater reuse of standardized solutions and existing technologies. OPEX increased 22.5% YoY due to an 80% increase in R&D expenses, but strong revenue growth of 129.8% lowered the OPEX ratio from 205% to 109%. As a result, net loss narrowed 25.5% YoY from RMB94.1mn to RMB70.1mn, with net loss margin improving from 174.7% to 56.6%. The balance sheet remained solid with net cash of RMB345mn. Given its government and large-enterprise customer base and project-based delivery model, trade receivables remained relatively high, although they declined from RMB250mn at end-2025 to RMB220mn, with 74.4% aged within one year, indicating improved collections. Contract liabilities increased 69.7% from end-2025 to RMB49.6mn, providing some support for future revenue recognition.

Our views: The company delivered a strong 1H26 performance, with growth shifting from traditional digital twin projects toward AI simulation and synthetic data led by 51Sim. 51Aes remains the business foundation, with historical projects building reusable scene assets, technologies and industry expertise. Despite a fragmented market, the company leads China with 4% market share. Frost & Sullivan expects China’s digital twin design and operational optimization market to grow at a 32% CAGR in 2024-29E to RMB30bn. The shift from customized projects toward software and standardized solutions should improve revenue stability, delivery efficiency and scalability.

We expect 51Sim to be the key growth driver as L3 mass-production approval and rising advanced autonomous driving penetration are making simulation an increasingly important validation tool, improving demand visibility. With its leading market position, customer base and scene data, 51Sim should benefit from both industry growth and market share gains. Physical AI provides the next growth opportunity. As robotics adoption increases, limited real-world data and high testing costs should drive demand for simulation and synthetic data, enabling the company to extend its autonomous-driving capabilities into embodied AI. Its collaboration with NVIDIA should further support product development and expansion into broader Physical AI applications.

Overall, the company is well positioned to benefit from the continued development of L3, robotics and Physical AI. The counter is trading at 70x FY27E P/S. (Research Department)