[HK IPO] The fastest-growing consumer electronics ODM leader—Huaqin Technology—is also about to list

Huaqin Technology:

Expected to launch its IPO two days later than Shenghong Technology, a company with exceptionally obvious pros and cons (Sig New Energy should start bookbuilding tomorrow).

Strengths:

1. 2025 revenue was 171.4 billion yuan, a year-on-year increase of 56.5%, 45 percentage points higher than the industry average (11.5%). Net profit was 4.1 billion yuan, a year-on-year increase of 39.5%, 25.5 percentage points higher than the industry average (14%). Its performance growth is at the T0 level within the industry.

2. Despite extremely rapid performance growth, its valuation is relatively low within the industry. The current A-share PE is 22.8x, PS is 0.5x, lower than most comparable peers.

3. Among the two pillar businesses of mobile terminals and data centers, the mobile terminal business grew 57% year-on-year. In 2024, Huaqin's global consumer electronics ODM market share was 22.5%, ranking first globally for many consecutive years.

4. Six major product categories—mobile phones, tablets, laptops, AIoT, servers, and automotive electronics—share supply chains, R&D systems, and manufacturing capacity, achieving cross-category cost optimization and resource allocation. It has achieved coverage of leading smartphone brands like Samsung, Huawei, Xiaomi, OPPO, and vivo. Cooperation with major clients has mostly exceeded ten years (limited to the mobile terminal business), indicating strong client stickiness.

5. The data center business grew 52% year-on-year in 2025, entering the ranks of China's first-tier data center manufacturers (5th in national market share). Clients include first-tier cloud providers like Tencent, Alibaba, Baidu, and ByteDance. It has grown from a second growth curve to a pillar of performance in terms of scale.

Risks:

1. Net profit margin and gross profit margin are lower than peers, see the table below.

Among them, Wingtech's semiconductor business has boosted its gross profit margin. In comparison, the company's profit margin is lower than Luxshare Precision's and slightly higher than Longcheer Technology's. Luxshare and Huaqin have similar revenue scales (Longcheer's scale is smaller), with similar PEs (around 22x), but Huaqin's PS is only about half of Luxshare's.

Furthermore, the company's gross profit margin and net profit margin have first risen and then fallen over the past three years, getting lower each year.

2. High debt. There is 14.0 billion yuan in monetary funds on the books, but 14.42 billion yuan in short-term loans and 4.75 billion yuan in long-term loans. The asset-liability ratio is 72.6%, which is relatively high within the industry. Since 2018, the company has continuously borrowed new debt to repay old debt, with net inflows of financing cash flow for 8 consecutive years, indicating the company is in urgent need of funds and relies on external financing.

3. Despite this, Huaqin's dividends are very generous. From 2023 to 2025, the company paid dividends of 0.87 billion, 0.91 billion, and 1.21 billion yuan, representing 25-30% of the annual net profit. The controlling shareholder group holds about 43.4% of the shares.

Major shareholders are cashing out, and employee shareholding platforms are not far behind. On the eve of the Hong Kong listing, from August to September 2025, five employee shareholding platforms, including Hainan Qinyuan, cashed out a cumulative total of 3.5 billion yuan.

4. In 2025, operating cash flow was -220 million yuan, marking the first net outflow since 2019. However, I personally believe this might not be a big issue. The company's inventory turnover days in 2025 were 30.1 days, an increase of 1.2 days year-on-year, while accounts receivable turnover days were 63.7 days, a decrease of 2.6 days year-on-year.

The deterioration in the company's operating cash flow is mainly due to a significant drop of 12.3 days in trade payables turnover days. Unlike receivables, accounts receivable carry the risk of default impairment. Although a decrease in payables indicates greater short-term payment pressure for the company, paying more now means paying less in the future. As long as the cash flow doesn't break, the impact on revenue quality is limited.

Summary:

In summary, the company's advantages lie in high growth and relatively low valuation, but it also has many issues: high debt, low profit margins, and substantial dividends. The overall situation is highly comparable to Longcheer Technology, but its growth far exceeds Longcheer's. Longcheer's current discount rate is 45%, and the target discount rate for this company should be around 30-40% (provided the A-share market doesn't surge significantly in the next two days).

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