"Contract Manufacturing King" Huaxin Technology Makes a Second Attempt at the Hong Kong Stock Exchange: Under a trillion-yuan revenue, operating capital is under pressure; the listed entity invests heavily in industry chain equity stakes; one of the controlling shareholders pledges over 20 million shares to seek external financing.

Ask AI · What funding contradictions exist between the controlling shareholder’s pledged shares and the company’s massive equity investments?

Everyday Finance reporter: Cai Ding    Everyday Finance editor: Xu Shaohang

According to the official website of the Hong Kong Stock Exchange, Hua Qin Tech (SH603296, share price 89.35 yuan, market cap 90.756 billion yuan), an A-share listed company known as the “king of contract manufacturing,” submitted its listing application documents to the Hong Kong Stock Exchange again on March 23 (Monday). The prospectus (draft version, the same below) shows that from 2023 to 2025 (hereinafter “the reporting period”), Hua Qin Tech’s revenue showed a rapid growth trend, and in 2025 revenue even reached a record high of 171.437 billion yuan. However, after sorting through Hua Qin Tech’s prospectus, reporters from The Daily Economic News (hereinafter “Daily Economic News reporter”) found that amid this fast-paced expansion, the company still faces structural concerns.

First, behind its revenue of over 100 billion yuan lies a “buy-sell model” in which large customers overlap with major suppliers. This model directly causes the company’s overall gross margin to decline for three consecutive years. Second, according to the prospectus, Hua Qin Tech’s net cash flow from operating activities turned negative in 2025; yet against this backdrop, the company rolled out a dividend plan of more than 1.2 billion yuan on the eve of its listing in Hong Kong. In addition, at the level of listed companies, the situation in which dense equity investment spending on external parties runs in parallel with financing secured by pledged shares from members of the controlling shareholder group creates a complex contradiction between the company’s true cash sufficiency and its capital-operation needs.

Operating cash flow turns from positive to negative; more than 1.2 billion yuan dividend plan disclosed before filing

From 2023 to 2025, Hua Qin Tech’s revenue was 85.338 billion yuan, 109.878 billion yuan, and 171.437 billion yuan, respectively; meanwhile, profits for the period were 2.657 billion yuan, 2.916 billion yuan, and 4.132 billion yuan, respectively. However, in sharp contrast to the continued expansion of its revenue and profit scale, its net cash flow from operating activities shows a downward trend.

Image source: Hua Qin Tech’s prospectus

In 2023, the company’s net cash generated from operating activities was 3.85 billion yuan; by 2024, this figure dropped to 1.376 billion yuan; and in 2025, the company’s net operating cash flow turned negative to -223 million yuan, indicating that operating cash inflows could not cover the consumption of daily working capital. Hua Qin Tech explained that this is mainly attributable to concentrated working capital needs and a high inventory level, to cope with the rapid growth of its business during the period.

Image source: Hua Qin Tech’s prospectus

In addition, during the reporting period, the company’s accounts receivable and inventory kept increasing, occupying the company’s working capital. During the reporting period, the company’s total trade receivables and notes receivable were 14.418 billion yuan, 25.507 billion yuan, and 34.369 billion yuan. In the same period, inventory also rose from 4.344 billion yuan at the end of 2023 to 11.476 billion yuan at the end of 2024, and further climbed to 14.624 billion yuan at the end of 2025.

Image source: Hua Qin Tech’s prospectus

Image source: Hua Qin Tech’s prospectus

Working capital turnover efficiency indicators also confirm this trend of a large amount of working capital being tied up: Hua Qin Tech’s inventory turnover days increased from 25.3 days in 2023 to 30.1 days in 2025; the turnover days for trade receivables and notes receivable increased from 61.5 days in 2023 to 63.7 days in 2025.

Image source: Hua Qin Tech’s prospectus

Image source: Hua Qin Tech’s prospectus

A higher inventory level not only ties up substantial funds, but also brings real risks of asset impairment. During the reporting period, the company recorded inventory impairment losses of 199 million yuan, 122 million yuan, and 195 million yuan, respectively.

However, against the backdrop that its own core business cash flow turned from positive to negative and it was consuming funds severely for day-to-day operations, Hua Qin Tech nevertheless declared a dividend of more than 1.2 billion yuan on the eve of its listing in Hong Kong. The prospectus discloses that in March 2026, the company declared dividends for the year ended 2025, with a total amount of 1.216 billion yuan, which will be settled in June 2026. Throughout the entire reporting period, the company’s cash dividend payout remained high. In 2023 and 2024, the company declared final dividends of 869 million yuan and 912 million yuan, respectively.

Image source: Hua Qin Tech’s prospectus

While maintaining a relatively high proportion of cash dividends, Hua Qin Tech plans to use part of the proceeds from this Hong Kong stock listing for working capital and general corporate purposes.

The top customer is also the largest supplier; the “buy-sell model” pushes revenue up but cannot hide gross margin falling below 8%

Behind the growth in revenue scale, Hua Qin Tech’s overall profitability quality continues to decline. The prospectus shows that during the reporting period, the company’s overall gross margins were 10.9%, 9%, and 7.7%, respectively, showing a year-by-year downward trend.

Image source: Hua Qin Tech’s prospectus

As the company’s strategic starting point and fundamental business—the mobile terminal business—its gross margin fell from 14.4% in 2023 to 9.7% in 2024, and further dropped to 9% in 2025. At the same time, the promising emerging business segments were also not spared: the gross margin of its AIoT products continued to decline from 20.9% in 2023 to 10.9% in 2025, and the gross margin of its innovative business also fell from 18.1% in 2023 to 13.8% in 2025.

The prospectus reveals the core business model characteristics behind the overall pressure on Hua Qin Tech’s gross margin—namely the highly overlapping phenomenon between large customers and major suppliers. Hua Qin Tech uses a “buy-sell model” extensively in its business. Under this model, the company purchases certain raw materials and components from customers and pays for them; then after completing manufacturing, it sells the finished products to the same customer. Ultimately, the selling price includes the costs of the raw materials and components originally purchased from that customer. Although the company states in the prospectus that this model helps obtain materials that meet customers’ technical specifications and quality standards in a timely manner, and helps customers better respond to price fluctuations, from a financial substance and supply-chain positioning perspective, this model results in the company largely taking on the role of material pass-through and sourcing on behalf of others.

During the reporting period, the company’s top five customers and top five suppliers had a high degree of overlap. Taking 2025 as an example, customer B was also the company’s largest supplier (supplier A). Data show that in 2025, the company’s sales to customer B reached 25.506 billion yuan, accounting for 14.9% of total revenue for the period; meanwhile, the company’s purchases from this customer (supplier A) also reached 18.892 billion yuan, accounting for 12.1% of total purchases for the period. Similar situations also occurred with its second-largest customer (customer A, i.e., supplier B). In 2025, the company’s sales to customer A were 21.643 billion yuan, accounting for 12.6% of total revenue; the corresponding purchases were as high as 7.737 billion yuan, accounting for 5% of total purchases.

Image source: Hua Qin Tech’s prospectus

The Daily Economic News reporter noted that this “procurement-and-sales integration” structure is not unique in Hua Qin Tech’s core business landscape, but rather a common norm.

In 2025, Hua Qin Tech’s third-largest customer G (i.e., supplier F) contributed revenue of 18.132 billion yuan, while the company also purchased as much as 12.227 billion yuan of structural materials and packaging materials from it…

It can be seen that among the top five customers in 2025, four also appeared in the list of the top five suppliers, and multiple companies’ procurement-and-sales transaction amounts reached the 100 million yuan-plus or even 10 billion yuan-plus range. This means that out of Hua Qin Tech’s enormous revenue scale of 171.437 billion yuan in 2025, hundreds of millions (in yuan) were supported by certain large customers providing materials, and then those materials were circulated back to those customers through complete finished products. A business model that relies on overlapping customers to circulate materials bidirectionally reflects the current state of bargaining power of contract manufacturers within the industry chain.

Investment of tens of billions to subscribe for peer equity; one of the controlling shareholders pledged 20.4 million shares for trust financing

The Daily Economic News reporter also noticed that while seeking to expand financing channels by pursuing a listing in Hong Kong, Hua Qin Tech’s external investment actions were relatively frequent in minority equity stakes in the industry chain and non-core business areas. The prospectus discloses that the company used internal resources to allocate large amounts of cash to equity investments and acquisitions targeting various industry projects. In July 2025, the company entered into an agreement to acquire 6% equity interest in Crystal Integration (SH688249). The consideration for this transaction was as high as approximately 2.393 billion yuan, and it was announced as completed in August 2025.

Since late 2025, the pace of the company’s external investments in the industry chain has further accelerated. The prospectus shows that as a cornerstone investor, Hua Qin Tech successively subscribed to H-share equity in multiple peer listed companies. Specifically, the company subscribed for 2.2271 million H shares of chip design company Hua Hao Group (HK00501), with consideration of approximately 30 million US dollars, representing about 0.18% of Hua Hao’s equity after the investment was completed; it also subscribed for 1.4409 million H shares of Zhaoyi Innovation (HK03986), with consideration of the same amount of approximately 30 million US dollars, representing about 0.21% of its equity; and it subscribed for 729.5 thousand H shares of Raydium Technology (HK06809), with consideration of approximately 10 million US dollars, representing about 0.06% of its equity.

Image source: Hua Qin Tech’s prospectus

Those external investment plans, which often involve tens of millions of yuan or even tens of billions of yuan, are clearly funded from the company’s internal resources.

While the listed entity conducted external investments intensively, members of Hua Qin Tech’s controlling shareholder group also obtained external debt financing. The prospectus shows that as of the time of filing, Shanghai Haixian Information Technology Co., Ltd. (hereinafter “Shanghai Haixian”), a member of the controlling shareholder group, pledged 20.4 million A-share shares of the company (approximately 2.01% of the company’s total issued shares) to an independent third party, Xizang Trust Co., Ltd. (hereinafter “Xizang Trust”), as collateral to guarantee liability for debt repayment. According to the equity structure disclosure, Shanghai Haixian is ultimately controlled by Qiu Wensheng, the company’s founder, chairman, and general manager, whose main business is investment management.

The prospectus further discloses the specific terms of the share pledge and default disposal. The pledge is expected to expire on April 22, 2026. The scope of the pledge guarantee includes all debt repayment liabilities, including principal, interest, penalties, and related expenses. The terms expressly stipulate that unless Xizang Trust gives prior written consent, such shares may not be transferred. More importantly, if a default occurs, additional collateral must be provided; otherwise, Xizang Trust may forcibly enforce the pledge.

Regarding questions about the reasonableness of, on the one hand, the company still announcing a dividend plan of more than 1.2 billion yuan despite its operating cash flow turning negative, and on the other hand, conducting external investments totaling tens of billions of yuan while members of the controlling shareholder group obtained external debt financing, at noon on March 24, the Daily Economic News reporter sent interview questions via the Shanghai headquarters email address provided on Hua Qin Tech’s investor relations and official website, but as of the time of this report, the company had not replied.

Daily Economic News