Executive Summary / Key Takeaways

• YSX Tech. Co., Ltd. ($YSXT) is a specialized business solutions provider in China's auto insurance aftermarket, leveraging its "Drivers Suite" technology to offer value-added services, software development, and customized solutions to insurance companies and brokerages.
• The company demonstrated robust top-line growth in fiscal year 2025, with total revenue increasing by 22% to $71.45 million, primarily driven by a significant 39.10% surge in its core auto insurance aftermarket value-added services segment.
• Despite strong revenue growth, profitability margins experienced a slight contraction in fiscal year 2025, with gross margin decreasing to 10.30% due to a shift towards higher-cost, lower-margin service mixes and increased operating expenses.
• YSXT faces intense competition from larger, more established players in the Chinese auto services market, necessitating continuous investment in its technical capabilities and strategic geographic expansion to maintain its competitive edge.
• Significant operational and regulatory risks persist, including customer and vendor concentration, geographic market dependence, and uncertainties surrounding China's evolving regulatory landscape and the company's Variable Interest Entity (VIE) structure.

Introduction: Setting the Scene for YSX Tech's Growth Engine

YSX Tech. Co., Ltd. ($YSXT) operates at the nexus of China's burgeoning auto insurance and aftermarket services sectors, providing comprehensive business solutions to a discerning clientele primarily composed of insurance companies and brokerages. The company's journey began with the establishment of its operational entities, such as Guangzhou Xihang Information Technology Co., Ltd. in 2011 and Xinjiang Yishengxin Network Technology Co. Ltd. in 2015, laying the groundwork for its current specialized offerings. This historical foundation in technology, coupled with deep industry knowledge, has enabled YSXT to carve out a niche in a highly competitive and rapidly evolving market.

The Chinese auto insurance market, the largest passenger vehicle market globally, presents substantial opportunities for aftermarket value-added services. In 2022, auto insurance premiums reached approximately $12.06 billion (RMB867 billion), marking a 5.60% increase from the previous year and constituting 54.66% of total property insurance premiums. This robust market growth forms a critical tailwind for YSXT's business model. The company's overarching strategy centers on becoming a one-stop service provider, pursuing organic growth, exploring strategic acquisitions and partnerships, expanding into new geographic markets, attracting and retaining talent, and continuously investing in its technological capabilities.

Technological Foundation: The "Drivers Suite" Advantage

A cornerstone of YSXT's operational efficiency and competitive differentiation is its proprietary "Drivers Suite" system. This in-house developed application streamlines the entire process of auto insurance aftermarket value-added services, from initial service order issuance by insurance partners to vendor selection, service code distribution, and final settlement verification. The system significantly enhances service quality and improves the overall efficiency of the service delivery process.

YSXT's commitment to technological innovation is further evidenced by its dedicated in-house technical team of eight full-time employees, each possessing extensive experience in technology and system development, alongside in-depth knowledge of the insurance industry. This team oversees the ongoing development and maintenance of these critical internal systems and applications. The strategic intent behind these investments is to maintain and accelerate YSX Operating Companies' technical capabilities, which are foundational to its competitive moat. While specific quantifiable performance metrics for "Drivers Suite" were not detailed, its role in facilitating efficient, high-volume service delivery directly contributes to YSXT's ability to manage increased service contracts and volumes, thereby impacting revenue growth and operational scalability.

Strategic Pillars and Competitive Stance

YSXT's strategic positioning is built upon several key pillars. Its in-depth cooperation with insurance companies and brokerages, including prominent players like PICC, Ping An (PNGAY), CPIC (CHPXF), and CUIG, allows for customized service solutions. The company's diversified service portfolio, encompassing auto insurance aftermarket services, software development, and other scenario-based customized services, aims to meet a broad spectrum of client needs. Furthermore, an experienced management team with extensive backgrounds in the insurance and financial industries, coupled with a rich network of third-party vendors, provides valuable resources for delivering tailored business solutions.

The competitive landscape in China's insurance service industry is intense and dynamic. YSXT competes on factors such as brand recognition, value for money, user experience, customer services, reputation, and talent. While many competitors, including established players like Autohome Inc. (ATHM), DiDi Global Inc. (DIDI), and BYD Company Limited (BYDDY), may possess greater financial and marketing resources or longer operating histories, YSXT differentiates itself through its integrated service model and strong technical capabilities. For instance, YSXT's emphasis on value-added insurance services and customized IT solutions provides a unique value proposition, potentially offering superior customization for insurance partners compared to more generalized platforms. However, YSXT, being a newer entity, may face challenges in brand recognition and overall scale compared to these larger rivals.

Financial Performance: A Deep Dive into Recent Results

YSXT's financial performance in fiscal year 2025 reflects a company in a growth phase, expanding its market presence and service offerings. Total revenue for the fiscal year ended March 31, 2025, surged by 22% to $71.45 million, up from $58.55 million in fiscal year 2024. This growth builds on a solid 18.90% increase from fiscal year 2023 to fiscal year 2024.

Revenue Dynamics and Segment Contributions

The primary driver of this top-line expansion was the Auto Insurance Aftermarket Value-added Services segment, which generated $63.40 million in revenue in fiscal year 2025, representing 88.70% of total revenue. This segment experienced a robust 39.10% increase from $45.56 million in fiscal year 2024. The growth was fueled by securing more service contracts from insurance companies and brokerages, leading to a 24.60% increase in total service volume (approximately 0.93 million service calls) from fiscal year 2024 to fiscal year 2025. Additionally, the average price charged for these services increased by approximately $1.40, or 11.70%, due to a shift in service mix. Notably, in fiscal year 2025, YSXT observed a shift towards more vehicle driving risk screening, safety inspection, and designated driver/rescue services, with a corresponding decrease in vehicle maintenance-related services, driven by increased contracts from insurance brokerages. Revenue from related party customers within this segment constituted a significant 27.80% of total revenue in fiscal year 2025, up from 20.40% in fiscal year 2024.

Conversely, the Other Scenario-based Customized Services segment saw a decrease in revenue by 36.80% to $7.44 million in fiscal year 2025 from $11.76 million in fiscal year 2024. This decline was primarily attributed to a 40.30% decrease in the average service price, as insurance companies and brokerages reduced their marketing campaigns in the latter half of fiscal year 2025. The Software Development and Information Technology Services segment also experienced a revenue contraction of 49.50% to $0.62 million in fiscal year 2025, mainly due to a 57.10% decrease in the number of customers, from seven to three.

Geographically, YSXT's revenue remains highly concentrated, with 98.80% of its total revenue in fiscal year 2025 generated from Guangdong Province. Customer concentration is also a notable factor, as four customers individually accounted for more than 10% of total revenue in fiscal year 2025, collectively representing 88.90% of the total.

Profitability and Margin Pressures

Despite strong revenue growth, YSXT's profitability metrics showed some pressure. Gross profit increased by 6.10% to $7.39 million in fiscal year 2025. However, the gross margin decreased by 1.60 percentage points to 10.30% in fiscal year 2025, down from 11.90% in fiscal year 2024 and 14.50% in fiscal year 2023. This margin contraction is primarily attributable to a shift in service mix towards value-added services with higher associated costs and lower margins.

Operating expenses increased by 31.90% to $2.59 million in fiscal year 2025. General and administrative expenses saw a substantial rise of 37.60% to $2.23 million, driven by increased professional and consulting fees related to business strategy and the company's IPO, as well as higher salaries for administrative staff and an increase in expected credit loss expense. Research and development expenses also increased by 4.40% to $240,052, reflecting ongoing investments in technical capabilities. As a result of these factors, net income for fiscal year 2025 decreased by 11.90% to $4.02 million from $4.57 million in fiscal year 2024. The TTM net profit margin stands at 5.63%.

Liquidity and Capital Allocation

As of March 31, 2025, YSXT reported a cash balance of $7.11 million and a healthy working capital balance of approximately $28.50 million. The company's Initial Public Offering (IPO) in December 2024 generated net proceeds of approximately $5 million, which have been allocated towards business expansion, product research and development, team building, and general corporate purposes. Total debt stood at $6.15 million as of March 31, 2025.

Management has indicated that current cash, operating cash flows, and bank borrowings are expected to be sufficient to meet working capital needs for the next 12 months. However, it is important to note that a significant portion of the YSX PRC entities' paid-in capital ($11.30 million) and statutory reserve ($0.91 million) is restricted and cannot be freely transferred to the parent company, impacting dividend distribution capabilities. The company currently intends to retain future earnings for business expansion rather than paying cash dividends.

Outlook and Growth Trajectory: Expanding Horizons

YSXT's forward strategy is centered on strengthening its market position and expanding its geographical footprint. The company plans to achieve this through organic growth, and by exploring horizontal or vertical acquisitions and strategic partnerships. A key initiative involves penetrating new geographic markets beyond its current strongholds in Guangdong and Xinjiang Provinces. Since 2021, YSX Operating Companies have been cooperating with local business partners in Yunnan, Guizhou, and Sichuan Provinces, a strategy designed to minimize initial capital outlay while accessing broader customer bases.

The company is committed to continuous investment in its in-house technical capabilities, recognizing their historical contribution to growth and their importance for future competitiveness. This includes recruiting qualified professionals and enhancing existing applications. Management anticipates that these expansion and investment initiatives will lead to increased costs of revenue, general and administrative expenses, and research and development expenses in the foreseeable future. A positive development for the outlook is the expected renewal of Xihang's High and New Technology Enterprise (HNTE) certificate by the end of August 2025, which will allow it to maintain a preferential income tax rate of 15%.

Key Risks and Challenges: Navigating a Complex Environment

YSXT operates in a dynamic environment fraught with several significant risks. The company's dependence on a few large customers is a material concentration risk, with four customers accounting for over 10% of total revenue in fiscal year 2025. Similarly, vendor concentration is a concern, as four collaborating vendors made up 69.70% of total procurement costs in the same period. This reliance on a limited number of key partners could negatively impact business and operations if relationships deteriorate or terms become unfavorable.

Geographic concentration is another vulnerability, with nearly all revenue (99.90% in fiscal year 2025) originating from Guangdong and Xinjiang Provinces. While Guangdong is a leading insurance market, over-reliance on these regions exposes YSXT to localized economic downturns or policy changes. The company also faces credit risks from customers, typically granting 30-to-90-day credit periods, and its outstanding accounts receivable are not covered by collateral or credit insurance.

Regulatory uncertainties in China pose a substantial risk. The Chinese government exerts significant influence over business conduct, and changes in laws or interpretations, particularly concerning the Variable Interest Entity (VIE) structure, could lead to severe penalties, restructuring requirements, or even render the company's Class A Ordinary Shares worthless. The contractual arrangements underlying the VIE structure have not been tested in a Chinese court of law, adding to this uncertainty. Furthermore, the Holding Foreign Companies Accountable Act (HFCAA) in the U.S. presents a delisting risk if the company's auditor cannot be fully inspected by the PCAOB.

Internally, YSXT has identified material weaknesses in its internal control over financial reporting, including a lack of qualified accounting staff with U.S. GAAP knowledge and formal internal control procedures. While remedial measures are underway, failure to effectively address these weaknesses could impact financial reporting accuracy and investor confidence. The dual-class share structure, which concentrates voting control with Chairman Jie Xiao (approximately 56.50% of voting rights), also presents a potential conflict of interest with other shareholders.

Conclusion: Investment Thesis Reaffirmed

YSX Tech. Co., Ltd. presents an intriguing investment case, characterized by its strong growth in China's expanding auto insurance aftermarket services sector. The company's core investment thesis is underpinned by its specialized business solutions, deep industry expertise, and the operational efficiencies derived from its proprietary "Drivers Suite" technology. The robust revenue growth in fiscal year 2025, particularly within its primary segment, demonstrates effective execution of its strategy to capture market share and expand service volume.

While YSXT operates in a highly competitive landscape with formidable rivals, its integrated service model and customer-centric approach provide a distinct competitive advantage, allowing for customized solutions that resonate with major insurance partners. The strategic roadmap for geographic expansion and continuous investment in technological capabilities further supports a positive long-term outlook. However, investors must carefully consider the inherent risks, particularly the regulatory complexities in China, concentration risks related to customers and vendors, and the ongoing efforts to strengthen internal controls. YSXT's ability to successfully navigate these challenges while leveraging its technological edge and expanding market presence will be crucial in realizing its full potential and sustaining its growth trajectory in the dynamic Chinese market.