Senfeng Laser Faces a Triple Bind: Net Profit Continues to Decline, Heavy Marketing and Light R&D, Controlling Shareholders' Debt from Earn-out Agreement Looms Large | IPO Watch

On August 7, Jinan Senfeng Laser Technology Co., Ltd. (hereinafter referred to as 'Senfeng Laser') will attend its IPO review meeting on the Beijing Stock Exchange, planning to issue no more than 19 million shares to the public.

The author notes that during the reporting period, Senfeng Laser’s revenue fluctuated while net profit declined consecutively. Additionally, although the company's gross margin has consistently exceeded industry peers, its R&D expense ratio has steadily decreased year-over-year, significantly lagging behind the industry average, while its sales expense ratio substantially outpaced peers—indicating a clear tilt of resources toward marketing. The business logic of sustaining high gross margins with low R&D investment warrants reasonable clarification. On the funding front, Senfeng Laser maintains ample cash reserves and implemented a large cash dividend shortly before filing for its IPO. The dividend amount alone could cover the RMB 30 million working capital requirement outlined in this fundraising plan. This 'large dividend first, then raise funds for working capital' arrangement has sparked debate over the necessity of the proposed fundraising projects and has drawn inquiries from the Beijing Stock Exchange. Moreover, the controlling shareholders—a married couple—still owe RMB 25 million in pending payments under an earn-out agreement, raising market speculation over whether the recent special dividend is linked to their debt repayment obligations.

Senfeng Laser is a provider of intelligent manufacturing solutions for laser processing, primarily engaged in the research and development, production, sales, and service of laser processing equipment and intelligent manufacturing production lines. Its main products include laser cutting equipment, laser welding equipment, laser cladding equipment, and other processing machinery.

From 2023 to 2025 (hereinafter referred to as the 'Reporting Period'), Senfeng Laser reported revenues of RMB 1.33 billion, RMB 1.296 billion, and RMB 1.467 billion, respectively, and net profits of RMB 111.2596 million, RMB 102.8117 million, and RMB 98.9276 million, respectively. This indicates that while the company’s revenue has fluctuated, its net profit has shown a continuous downward trend. Despite not yet being listed, the company’s financial performance has already shown signs of deterioration, raising market concerns about its long-term growth prospects.

In terms of business structure, the company’s revenue primarily comes from laser processing equipment, intelligent manufacturing production lines, and laser cladding services. Among these, laser processing equipment serves as the core pillar. During the Reporting Period, sales from this segment amounted to RMB 1.174 billion, RMB 1.047 billion, and RMB 1.07 billion, accounting for 91.23%, 86.05%, and 81.23% of total core business revenue in each respective year.

From a profitability standpoint, Senfeng Laser’s gross margin performance has been impressive. The company recorded gross margins of 30.29%, 31.55%, and 31.12% during the Reporting Period. In comparison, the average gross margins of peer companies were 30.05%, 26.29%, and 25.83% over the same periods. Senfeng Laser has consistently outperformed the industry average, with its 2025 gross margin exceeding the peer average by 5.29 percentage points.

However, behind this high gross margin lies notably weak R&D investment. During the Reporting Period, Senfeng Laser’s R&D expense ratios stood at 5.65%, 4.98%, and 4.69%, showing a declining trend year-over-year. In contrast, the average R&D expense ratios of peer companies were 9.5%, 9.42%, and 9.68%. The company’s R&D intensity has remained significantly below the industry average throughout the period.low R&D, high gross marginoperating model, which contrasts sharply with the prevailing industry logic in laser equipment—where technological innovation typically drives product premium pricing. The company must provide a clear and reasonable explanation for the underlying drivers of its high gross margins.

In terms of resource allocation, the company has clearly prioritized its sales function. During the Reporting Period, Senfeng Laser’s sales expenses totaled RMB 163.8973 million, RMB 166.7222 million, and RMB 193.4658 million, amounting to RMB 524.0853 million over three years. In contrast, its R&D expenses were RMB 75.0934 million, RMB 64.5522 million, and RMB 68.8595 million, totaling RMB 208.5051 million—meaning sales expenditures over the past three years were 2.51 times higher than R&D spending. Meanwhile, during the same period, the company’s sales expense ratios stood at 12.33%, 12.86%, and 13.17%, far exceeding the peer average of 6.43%, 4.86%, and 4.93%, highlighting a pronounced emphasis on marketing.

Senfeng Laser is seeking to raise RMB 351.644 million through its Beijing Stock Exchange IPO, with proceeds allocated to the following projects: Phase II of the Full-Industry-Chain Intelligent Manufacturing Project for Laser Processing Equipment, the National Marketing Network Construction Project, and Working Capital Supplement. Details are as follows:

The reasonableness and necessity of allocating RMB 30 million to supplement working capital warrants scrutiny. According to available data, as of the end of 2023, 2024, and 2025, Senfeng Laser’s cash and cash equivalents stood at RMB 3,701.408 million, RMB 4,285.224 million, and RMB 3,882.873 million, respectively, while its short-term borrowings were RMB 500.37 million, RMB 485.122 million, and RMB 686.971 million, respectively. The company’s cash reserves are sufficient to cover its short-term debt, indicating relatively ample internal liquidity.

Meanwhile, Senfeng Laser distributed cash dividends totaling RMB 499.89 million in 2025—a sum that alone could fully cover the proposed RMB 300 million IPO proceeds earmarked for working capital supplementation. This situation—large-scale dividend payouts followed by plans to raise funds through an IPO to replenish working capital—raises questions. Given the company’s robust cash position and the timing of such a substantial dividend just prior to its IPO filing, the rationale and necessity of using raised funds for working capital require further clarification from the company.

In light of this, the Beijing Stock Exchange has also requested that Senfeng Laser explain the necessity of using raised funds for contingency reserves, initial working capital, and supplementary working capital, taking into account its debt-to-asset ratio, working capital turnover, earnings trends, and cash dividends paid during the reporting period.

Notably, this large cash dividend during Senfeng Laser’s IPO application phase may be linked to debt obligations of its controlling shareholders. As of the date of the prospectus signing, Li Fengxi and Li Lei jointly held 61.7% of Senfeng Laser’s shares directly and are the company’s controlling shareholders. In December 2018, Dongxing Boyuan acquired 466,551 shares of Senfeng Laser through a capital increase and entered into special investment agreements with the company, its controlling shareholders, and other shareholders, including performance commitments and share repurchase clauses. Dongxing Boyuan fully exited its stake in December 2020.

In June 2023, Dongxing Boyuan entered into a 'Confirmation Agreement on Equity Matters of Jinan Senfeng Laser Technology Co., Ltd.' (hereinafter referred to as the 'Confirmation Agreement') with Li Fengxi, Li Lei, and Senfeng Laser, confirming that all special investment agreements had been fully and irrevocably terminated. The agreement stipulated that the company’s controlling shareholders would pay Dongxing Boyuan RMB 35 million. As of the date of the initial inquiry response, the controlling shareholders had already paid RMB 10 million as scheduled, with the remaining RMB 25 million due upon the company’s initial public offering on either the Shanghai or Shenzhen Stock Exchange.

In response, Senfeng Laser stated that, as of the prospectus signing date, apart from their equity holdings in the company, Li Fengxi and Li Lei hold sufficient liquid assets, including cash, bank wealth management products, real estate, and vehicles. The controlling shareholders currently have no material overdue debts and are not involved in any litigation or lending disputes arising from personal liabilities. Going forward, they intend to rely primarily on personal assets and accumulated income to service the aforementioned debt obligations. Although the controlling shareholders possess adequate repayment capacity, should their financial condition materially deteriorate in the future, they could face short-term risks of payment delays or default.

It is worth noting that Li Fengxi and Li Lei jointly hold 61.7% of Senfeng Laser’s shares directly. Based on this proportion, RMB 308.432 million of the company’s 2025 cash dividend of RMB 499.89 million flowed directly to them. Against the backdrop of the controlling shareholders’ outstanding RMB 25 million payment obligation, market participants are closely watching whether this pre-IPO dividend payout is linked to their debt repayment needs—a question that urgently requires a detailed and reasonable explanation from Senfeng Laser. (By Company Observer, Author: Deng Haotian, Editor: Cao Shengyuan)

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