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Popular optical module stock Huagong Technology files for Hong Kong Stock Exchange: Core executives involved in nearly 1 billion USD 'private arrangement'; Gross margin continuously declines alongside high accounts receivable
According to the Hong Kong Stock Exchange’s official website, Huagong Technology (SZ000988, stock price 112.30 USD, market cap 112.9 billion USD), the first listed company in China's laser industry and one of the key 'optical module' stocks in the A-share market, officially submitted its H-share IPO application documents on April 13. CITIC Securities is the sole sponsor. As a representative enterprise in the A-share market’s optical module and laser equipment sectors, driven by the industry demand for artificial intelligence computing power infrastructure, Huagong Technology’s revenue steadily grew from 10.31 billion USD in 2023 to 14.355 billion USD in 2025, with net profit increasing from 1.003 billion USD to 1.454 billion USD.
However, reporters from 'Everyday Economic News' noticed that specific operational metrics related to Huagong Technology's governance structure, asset liquidity, and capital allocation present certain objective conditions. A private transaction involving core executives, including the company chairman, amounting to 980 million USD in major shareholder shares, was explicitly labeled as a 'private arrangement' independent of Huagong Technology in the prospectus (application version, hereinafter the same). Meanwhile, despite revenue growth, the company’s gross margin has declined for three consecutive years, while accounts receivable and inventory levels have risen. Additionally, amid rising debt ratios and plans to repay debt through this IPO (Initial Public Offering), the company has maintained large cash dividend payouts for four consecutive years.
In 2021, Huazhong University of Science and Technology transferred its 19% stake in Huagong Technology to Wuhan Guoheng Technology Investment Fund Partnership (Limited Partnership) (hereinafter referred to as Guoheng Fund) for a total consideration of approximately 4.29 billion USD. This marked Huagong Technology’s completion of university-enterprise reform. The prospectus framework information shows that the general partners of Guoheng Fund include entities such as Wuhan Donghu Innovation Technology Investment Co., Ltd., while its limited partners include industrial funds with state-owned capital backgrounds, as well as platforms such as Wuhan Runjunda Enterprise Management Center (Limited Partnership), known as the 'Run System Entity.' Ma Xinqiang, Chairman, Executive Director, and General Manager of Huagong Technology, serves as the general partner of these Run System Entities, with their limited partners comprising the company’s senior management and core employees.
The prospectus disclosed that in May 2021, Runjunda reached an agreement with several limited partners of Guoheng Fund, stipulating that if Huagong Technology achieves specific operating net profit targets between 2021 and 2023, Runjunda will acquire their 980 million USD limited partner interests at par value. After the relevant performance targets were achieved, Ma Xinqiang and several employees established a new Run System Entity in June 2025 to acquire the 980 million USD limited partner interest.
Image Source: Huagong Technology Prospectus
In addition, the largest limited partner of Guoheng Fund, Wuhan Guochuang Innovation Investment Co., Ltd., has agreed that, on the premise that Huagong Technology achieves certain performance targets between 2025 and 2028, Wuhan Guochuang or its designated entity will acquire the limited partnership interests held by Runxi entities during 2026 to 2029.
Regarding the rights conversion and acquisition agreement, which involves an amount close to 1 billion yuan and is directly linked to Huagong Technology's operating net profit target, the prospectus explicitly states that these rights granted by Wuhan Guochuang to the Runxi entities are private arrangements among the limited partners of Guoheng Fund and are independent of Huagong Technology. By establishing terms at the fund level of the listed company’s controlling shareholder, the incentive and exit mechanisms for the core executives and employees of the listed company are actually operated outside the listed company system.
Image Source: Huagong Technology Prospectus
Huagong Technology dedicates a significant portion of its prospectus to depicting the promising prospects of high-growth businesses such as AI computing optical modules, intelligent sensing, and intelligent manufacturing. However, profitability quality indicators in the financial statements present another reality—behind the continuous rise in revenue, the overall gross margin, which reflects the competitiveness of the company’s core products, has experienced a three-year consecutive decline.
The financial statements show that during 2023, 2024, and 2025 (hereinafter referred to as the reporting period), Huagong Technology's overall gross margins were 22.5%, 21.5%, and 21.2%, respectively. Amid the dividend period of AI optical interconnects and the boom in computing infrastructure construction, the company failed to achieve upward breakthroughs in profit margins but instead faced continued pressure on profitability. This trend objectively confirms that the company is facing severe cost transfer pressures and ongoing price reduction demands from downstream customers amid fierce market competition.
Image Source: Huagong Technology Prospectus
Synchronously with the decline in gross margin, the company also faces increased pressure on asset liquidity—Huagong Technology’s revenue growth has largely come at the expense of accumulating huge accounts receivable. The prospectus shows that at the end of each reporting period, the net amount of the company’s receivables was 3.758 billion yuan, 4.925 billion yuan, and 4.363 billion yuan, respectively. Particularly in 2024, the scale of accounts receivable, which approached 5 billion yuan, accounted for more than 42% of the total annual revenue of 11.709 billion yuan. In terms of growth rates, the company’s revenue increased by 13.6% in 2024, while trade receivables surged by 31% during the same period.
Image Source: Huagong Technology Prospectus
An analysis of the aging structure of accounts receivable shows that although the majority of amounts are concentrated within one year, overdue risks are gradually accumulating. By the end of 2024, accounts receivable aged between one to two years reached 329 million yuan, and those aged between two to three years reached 57.96 million yuan. By the end of 2025, accounts receivable aged one to two years further increased to 374 million yuan, and those aged two to three years rose to 65.66 million yuan. The large base of accounts receivable not only increases the risk of future credit impairment losses but also directly results in a significant portion of reported revenue failing to be converted into usable funds for the enterprise.
Image source: Hua Gong Technology's prospectus
In addition to high levels of accounts receivable, the company's inventory levels are also climbing. During the reporting period, Huagong Technology's inventory balances were 1.909 billion yuan, 2.621 billion yuan, and 3.581 billion yuan respectively, with inventory turnover days reaching 98.4 days, 90.0 days, and 100.1 days respectively. Nearly 4.4 billion yuan in accounts receivable plus nearly 3.6 billion yuan in inventory means that the company has nearly 8 billion yuan in funds tied up in working capital.
Image source: Hua Gong Technology's prospectus
This imbalance in asset structure has already had a direct negative impact on the company's daily operations, as reflected in the cash flow data. In 2023, the company's net operating cash flow was 1.364 billion yuan, but by 2024, despite higher revenue, this key metric dropped to 811 million yuan. Although it rebounded to 1.235 billion yuan in 2025, the significant fluctuations in operating cash flow during the reporting period highlight ongoing challenges in stabilizing working capital management.
Image source: Hua Gong Technology's prospectus
Moreover, as a technology-driven enterprise, Huagong Technology's R&D investment intensity declined in the latest fiscal year. In 2023 and 2024, the company's R&D expenditures accounted for 7.8% and 8.5% of total revenue, respectively, but by 2025, although the absolute amount of R&D spending reached 1.092 billion yuan, its proportion of total revenue fell to 7.6%.
The reporter also noticed that while Huagong Technology is raising funds from the public market, it is simultaneously carrying out continuous and sizable cash dividends internally.
Historical financial data shows that Huagong Technology has maintained a consistent pattern of substantial dividend payouts in recent years. In March 2023, the company declared a final dividend of 101 million yuan; in March 2024, it declared a final dividend of 151 million yuan; in April 2025, it further announced a final dividend of 201 million yuan. Just before filing this prospectus, on March 24, 2026, the company once again declared a final dividend of 249 million yuan, payable by June 17, 2026. Over a span of just four years, Huagong Technology distributed over 7 billion yuan in cash dividends to existing shareholders.
Image source: Hua Gong Technology's prospectus
However, looking at the overall structure of the financial statements, this generous distribution to existing shareholders is not based on the company having absolutely abundant funds or being free of any concerns. On the contrary, Huagong Technology has been under heavy debt pressure during the performance record period. At the end of each reporting period, the scale of the company’s interest-bearing bank loans reached 2.714 billion yuan, 3.479 billion yuan, and 2.993 billion yuan, respectively. To maintain the operation of such large-scale debt, the company needs to pay high financial costs every year, with financial costs during the reporting period reaching 93.376 million yuan, 76.226 million yuan, and 79.825 million yuan, respectively.
Image source: Hua Gong Technology's prospectus
In addition, to supplement liquidity, Huagong Technology issued short-term bonds payable with a total principal amount of 1 billion yuan through placement agents in July 2025. Large-scale borrowing and bond issuance directly pushed up the company's overall financial leverage, with its debt ratio climbing from 29.7% in 2023 to 34.2% in 2024, and further rising to 36.6% in 2025.
Image source: Hua Gong Technology's prospectus
Against the backdrop of high debt and cash flow pressure, Huagong Technology clearly listed in the future plans and use of proceeds section of the prospectus that a specific proportion of the net proceeds from this Hong Kong IPO would be used to 'repay bank loans' and 'serve as working capital and for general corporate purposes'.
Regarding issues of conflict of interest and compliance related to nearly 1 billion yuan in 'personal arrangements' for the company's core executives, on the morning of April 15, a reporter sent interview questions to Huagong Technology's securities department email, but had not received a response from the company by the time of publication.
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