Shangshui Intelligence, a Shenzhen-based company specializing in lithium battery slurry equipment, has officially received approval for its IPO review, scheduled for December 16 on the ChiNext board. The company, which failed to list on the STAR Market a year ago, has seen an unusually fast approval process this time—just under six months from application to review.
**1. Overwhelming Dependence on BYD** Shangshui Intelligence claims a 60% market share in lithium battery slurry equipment, but its reliance on a single client, BYD, is alarming. From 2022 to 2024, revenue from BYD surged from 49.04% to 65.78%, with BYD contributing 66.67% of gross profit in 2024. The relationship deepened in 2022 when BYD acquired a 7.69% stake in Shangshui at a valuation of ¥500 million, raising concerns about fair transactions. Comparatively, peers like Xian Dao Intelligent and Win Hi Tech reported much lower top-five client concentration (34.6% and 37.8%, respectively).
**2. Profit Volatility and Tax-Driven Earnings** The company’s net profit swung wildly—a 139% surge in 2023 followed by a 34.9% drop in 2024. Notably, 30.53% of 2023 profits came from tax incentives, not core operations. Despite an industry-wide price war, Shangshui maintained abnormally high gross margins (48–57%) while inventory turnover lagged at 0.37x versus the industry’s 2.47x, triggering 24 financial risk alerts.
**3. Founder Exodus and Governance Issues** Two of three founders exited in 2020, citing pessimism about the company’s prospects. Eight key executives, including directors and a CFO, left between 2020–2022. Founder Yan Yongjun even refused interviews with underwriters. Meanwhile, controlling shareholder Jin Xudong received ¥4.06 million in directed dividends to repay personal loans from the company, raising governance red flags.
**4. Valuation Spikes and Questionable Exits** BYD’s October 2022 investment valued Shangshui at ¥500 million, but a month later, Jin sold shares at a ¥1.2 billion valuation—a 2.4x jump. State-backed investors like Hunan Gaoke exited at ¥512 million, while Jin later offloaded stakes at higher valuations, fueling fairness concerns.
**5. Underwriter’s Track Record and Shrinking Fundraising** Lead underwriter Minsheng Securities has seen three of six sponsored new-energy firms post post-IPO earnings declines. Shangshui’s fundraising target plunged from ¥1 billion (STAR Market) to ¥587 million (ChiNext), with a key project’s budget halved. Despite holding ¥417 million in cash, the firm paid ¥20.1 million in dividends in 2024 while seeking ¥150 million for working capital—a contradictory move.
**6. Weak R&D and Patent Risks** R&D spending dropped from 13.65% (2020) to under 10% (2024). Three patents faced invalidation challenges, including a core slurry-mixing technology. As rivals pivot to dry-electrode tech, Shangshui’s innovation pace lags behind industry leaders.
**Conclusion** BYD’s 2022 bet on Shangshui’s “globally pioneering” slurry tech now faces scrutiny. Beyond its BYD ties, the IPO raises questions about sustainable profitability, governance, and valuation integrity. Investors must weigh whether Shangshui’s technological edge can outlast its operational and financial risks.
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