<div id="readability-page-1">The automotive steering systems maker’s profit fell despite growing revenue in the first quarter, prompting investors to vote with their feet <h4>Key Takeaways:</h4> <ul> <li>Zhejiang Shibao reported its operating cash flow plunged by more than 85% year-over-year in the first quarter</li> <li>The company’s major shareholder abruptly announced a plan to trim its stake by up to 3% the day after the release of its latest quarterly report</li> </ul> Lau Chi Hang Among companies that are dually traded on both China’s domestic A-share market and in Hong Kong, automotive steering systems maker Zhejiang Shibao Co. Ltd. (1057.HK; 002703.SZ) stands out for a prolonged valuation gap between its pair of listings. Its share price is notoriously volatile and unpredictable. It continued that tradition with last week’s release of its first-quarter financial results, which failed to impress investors, causing the Hong Kong-listed stock to sink by 7.1%. Making matters worse, the company abruptly announced the next day that its controlling shareholder, Zhejiang Shibao Holding Group Co. Ltd., planned to reduce its holdings in the Shenzhen-listed company by up to 3%, involving the sale of 24.7 million shares, citing its own liquidity needs. That sparked an even bigger selloff, as the battered Hong Kong stock plummeted an additional 12.4% after that announcement. It’s worth noting that late last year, when Beijing published an initial pilot list for on-road operation of Level 3 (L3) autonomous and intelligent connected vehicles, investors saw Zhejiang Shibao as well positioned to take advantage of the policy move, sending its stock price on a steady climb. The good news continued this March, when the company reported its profit rose 21% in 2025. Buoyed by those positive catalysts, the stock was on a winning streak, which made the latest announcements all the more disappointing. Zhejiang Shibao’s latest report shows it posted revenue of 753 million yuan ($110 million) in the first quarter, up 4.88% year-on-year. But its profit went into reverse, falling by 14.1% to 41.87 million yuan. Even after excluding non-recurring items, its core net profit still slipped by 13.1% to 38.88 million yuan. <h4>Top-line growth without bottom-line gains</h4> The company attributed the lack of profit growth despite rising revenue to increases in its selling and R&amp;D expenses as it explores new markets and develops new technologies to stay ahead in its field. During the quarter, its administrative expenses rose by 12.4% year-on-year to 36.26 million yuan. R&amp;D spending rose by an even larger 39.7% to 52.67 million yuan, while selling expenses also surged by 41% to 17.47 million yuan. “During the reporting period, while China’s automotive industry experienced a year-on-year decline in production and sales, sales of some of the company’s major customers bucked the trend, driving steady growth in the company’s steering system product sales,” Zhejiang Shibao said. That explanation did little to reassure investors, sending two worrisome messages instead. First, it acknowledged that auto sales in China are currently sliding. Investors must understand that even if Zhejiang Shibao temporarily benefited from rising sales among certain clients in the first quarter, its status as a major auto parts supplier means it will inevitably get caught up in the downward trend if the broader macroeconomic environment continues to deteriorate. The second message is that despite its top-line growth during the quarter, the company’s profitability worsened — meaning its margins contracted as the business scaled up. A clear culprit is rising costs that are dragging down its gross margin. Judging from its first-quarter performance, the company appears to lack the pricing power to pass elevated costs on to its customers, probably the result of fierce competition. <h4>Operating cash flow nosedives</h4> Digging deeper, what may have baffled investors the most is a steep drop in the company’s net operating cash flow. That figure stood at just 10.7 million yuan in the first quarter, down 86% from the 75.9 million yuan it logged a year earlier. The company didn’t provide much explanation for the steep drop, saying it was “mainly due to a decrease in cash received from the sale of goods.” Such a response is bound to raise more questions than it answers. Management merely stated that cash receipts dropped without explaining the root causes behind this steep decline. Did its product selling prices plummet? Or did the company have to grant extensions to customers who were having difficulty paying their bills? Somewhat unintuitively, the company’s accounts receivable for the period actually fell by nearly 19% year-on-year during the quarter, indicating it was having more success getting its customers to settle their obligations. Does that mean the company has written off some receivables as bad debt? Investors may also wonder how much risk the dwindling cash inflow poses to the company, and if there is any prospect of improvement moving forward. In the face of so many unanswered questions, the company has yet to provide a more thorough explanation. <h4>More stake-trimming ahead?</h4> Exacerbating its already touch-and-go situation is the controlling shareholder’s decision to offload stock to free up cash, a move that has only fanned market worries. The company said shares sold through block trading or centralized competitive bidding will be subject to lock-up periods of six months and three months, respectively, for the buyers. But those buyers can trim their holdings once the lockups expire, which could undermine the stock when that happens by flooding the market with shares. The announcement made a point of clarifying that upon the company’s listings, Shibao Holding and some of top managers and stakeholders committed not to sell their shares within three years. But the company has now been listed for more than a decade in both Shenzhen and Hong Kong, meaning such lockups ended long ago, which the company seems to want to emphasize to show its not breaching any previous commitments. It’s also crucial to note that the original commitment stipulated that, after the initial three years, Shibao Holding and company Chairman Zhang Shiquan would retain the right to reduce their stakes by no more than 25% in any given year. Additionally, if Zhang Shiquan leaves the company in the future, he is only restricted from selling his shares for six months after his departure. That means Shibao Holding still has the right to offload up to another 22% of its company holdings during the rest of this year, leaving investors exposed to the ongoing risk of further sell-downs if the stakeholder needs to raise more funds. After all, it was quite direct in attributing its original sell-down decision to the “need (for) funds for liquidity.” To subscribe to Bamboo Works weekly free newsletter, click here</div>

浙江世寶

浙江世寶（Zhejiang Shibao）在第一季度的營業現金流同比驟降超過 85%，儘管收入增長，導致投資者紛紛拋售。該公司的主要股東在最新季度報告發布後，突然宣佈計劃削減其持股比例最多達 3%。在中港兩地上市的公司中，浙江世寶的估值差距顯著。

Plummeting cash flow and a stake-trimming top shareholder: What’s up at Zhejiang Shibao?