Nazhen Technology Submits Second Application to Hong Kong Stock Exchange "Trading Price for Volume" Questions Product Competitiveness Related-Party Transactions Draw Scrutiny While Owing Social Security Payments, Company Distributes Large Dividends

Issuer: Sina Finance Listed Company Research Institute

Author: Guangxin

On March 5, 2026, Nazhen Technology submitted a new listing application to the Hong Kong Stock Exchange. This is its second attempt after the previous application filed on August 25, 2025, expired. The joint sponsors are Citibank and CITIC Securities.

Currently, Hisense Group Holdings directly or indirectly through its subsidiary Century Jinlong owns approximately 48.61% of Nazhen Technology’s shares, making it the company’s controlling shareholder. If successfully listed, Nazhen Technology will become the sixth company in the “Hisense system” to go public, after Hisense Visual, Hisense Home Appliances, San Electric Holdings, Qianzhao Optoelectronics, and Colin Electric.

Additionally, Chunhua Capital holds 16.48% of the shares, Archcom LLC holds 4.51%, and Xiamen State-owned Assets Supervision and Administration Commission holds 3.06%. Based on the investment of 330 million yuan for a 3.06% stake by Xiamen SASAC, Nazhen Technology’s valuation is approximately 10.784 billion yuan, reaching unicorn status.

High Revenue Growth with a Compound Annual Growth Rate Over 40%, Profit Fluctuations Showing a V-Shaped Curve

Founded in 2003, Nazhen Technology is a global provider of optical communication and optical connection products, dedicated to the research, manufacturing, and sales of optical modules, optical chips, and optical network terminals.

In 2024, based on global optical module revenue, Nazhen Technology holds a 2.9% market share, ranking fifth among all professional optical module manufacturers worldwide; in China, it accounts for 7.2% of the optical module market, ranking third globally.

From 2023 to 2025 (the “Reporting Period”), the company’s revenue grew rapidly from 4.239 billion yuan to 8.355 billion yuan, with a three-year compound growth rate of 40%.

This high revenue growth was mainly driven by increased sales of data communication optical modules. Since 2024, as the industry’s inventory reduction cycle gradually ended and demand from AI and cloud computing surged, the company’s data communication optical module revenue increased from 1.056 billion yuan in 2023 to 5.469 billion yuan in 2025, with revenue share rising from 24.9% to 65.5%, becoming the main revenue driver.

However, the company’s profitability has shown significant volatility. During the reporting period, net profits attributable to shareholders were 216 million yuan, 89 million yuan, and 876 million yuan, with net profit margins of 5.08%, 1.76%, and 10.44%, respectively. Notably, the 2025 net profit includes a 353 million yuan gain from the sale of a joint venture; excluding this, the profit for that year was approximately 519 million yuan.

From a gross margin perspective, the gross margins during the period were 20.62%, 17.36%, and 20.02%, also showing a “V” shape.

It is worth noting that the gross margin of the largest segment—data communication optical modules—has been declining, with margins of 28.9%, 25.2%, and 24.4%. The 2025 rebound was mainly due to a significant improvement in the gross margin of telecom optical modules.

Chart: Gross margin performance of various business segments (Source: Prospectus)

Nazhen Technology states that the decline in gross margin for data communication optical modules is mainly due to the company adopting competitive pricing in China to gain market share, and fixed costs increasing with capacity expansion.

This gross margin performance of Nazhen Technology still lags behind leading domestic optical module manufacturers. For comparison, Zhongji Xuchuang’s optical transceiver modules have maintained gross margins above 30%, and XinYisheng’s point-to-point optical modules have seen gradually rising margins, reaching 47.48% in the first half of 2025.

Does this mean that Nazhen Technology’s current product competitiveness is insufficient to establish a profit moat? And can the current “price-to-volume” strategy support the company’s long-term development? These questions warrant cautious consideration.

Overlap Between Customers and Suppliers, Large Dividends Despite Social Security Arrears

Another controversial issue for Nazhen Technology is the overlap between its suppliers and customers.

From the revenue side, during the reporting period, seven, four, and five suppliers or their related parties were also customers of the company, respectively. The total revenue from these suppliers or related parties accounted for 50.6%, 15.0%, and 49.3% of the company’s total revenue.

From the procurement side, during the same period, three, four, and two customers or their related parties were also suppliers to the company. The revenue from these customers or related parties accounted for 12.0%, 22.3%, and 4.6% of the company’s total procurement.

Notably, among these overlapping customer-supplier relationships is the company’s controlling shareholder—Hisense Group. During the reporting period, Hisense Group consistently ranked among the top five suppliers, being the first, second, and fourth largest supplier in each period, with procurement amounts accounting for 6.9%, 5.9%, and 3.3%, respectively. In 2023 and 2024, Hisense Group was a overlapping customer-supplier, but in 2025, it was no longer.

Nazhen Technology explains that there is no mutual purchase and sale of the same products with Hisense Group, and the procurement and sales are not interdependent. The pricing terms are roughly the same as those with independent third parties. Frost & Sullivan also notes that such overlaps are common in the industry.

This customer-supplier overlap essentially reflects the synergy of group resources. However, during the Hong Kong listing review process, it could be viewed as a potential issue affecting business independence, transaction fairness, and pricing transparency, attracting regulatory and market attention.

Additionally, due to recent profit fluctuations, the company’s operating cash flow has experienced large swings. During the period, cash flows from operating activities were 799 million yuan, -616 million yuan, and 1.388 billion yuan, respectively.

Despite the cash outflow in 2024, Nazhen Technology did not tighten its purse strings. The company has consistently paid large dividends during the period, with annual dividends of 259 million yuan, 124 million yuan, and 51.3 million yuan, totaling over 434 million yuan in three years.

While generously rewarding shareholders, the company also faces issues with social security and housing fund compliance. The prospectus discloses that during the reporting period, the company failed to pay full social security and housing provident fund contributions for some employees, with arrears of approximately 9.6 million yuan, 10.9 million yuan, and 12.6 million yuan each year, totaling 33.1 million yuan over three years. If authorities order back payments, the company could face late fees or fines.

Generally, a company that pays generous dividends while owing social security and housing fund contributions and raising funds through an IPO may raise concerns about corporate culture and financial management. How the company will resolve these issues in the future, and how the market and regulators will respond, remains to be seen.