ZhongAn Xinkex's excessively high related-party transactions: Persistent negative cash flow raises doubts about operational independence

$Zhongan Information Technology (Shenzhen) Co., Ltd.* (811047.HK)$

Recently, ZhongAn Xinkex (Shenzhen) Co., Ltd. (hereinafter referred to as ZhongAn Xinkex), an enterprise-level AI solutions provider under the 'ZhongAn Group,' has continued its push for a Hong Kong IPO. The joint sponsors are ICBC International and Guolian Securities International.

On March 20, the CSRC updated the 'Record-filing Status Table for Overseas Issuance and Listing of Securities by Domestic Enterprises (Initial Public Offering and Full Circulation),' with ZhongAn Xinkex listed among companies required to provide supplementary filing materials. Regulatory authorities requested ZhongAn Xinkex to explain core issues such as equity changes, employee stock ownership plans and equity incentives, prohibited scenarios for overseas issuance and listing, this issuance and listing, and 'full circulation.' They also requested lawyers to verify and issue clear legal opinions.

Despite steady growth in fundamental performance, ZhongAn Xintech still faces numerous underlying concerns. Not only did the company's accounts receivable turnover days significantly slow down during the period, but several related-party transactions with ZhongAn Group have also raised external concerns about the independence of the company's own operations.

Gross margin increased substantially, while cost expenditures also rose

According to the prospectus and Tianyancha, ZhongAn Xintech is an enterprise-level AI solutions provider specializing in intelligent marketing and intelligent operations solutions. Based on data from Frost & Sullivan, as of 2024 revenue calculations, the company ranks fourth among providers of enterprise-level AI solutions equipped with vertical large model capabilities in China.

During the historical performance period, ZhongAn Xintech generated revenue in China through fees charged for intelligent marketing and intelligent operations solutions.

From 2023 to 2024 and January to September 2025 (hereinafter referred to as the reporting period), the company's revenue from intelligent marketing solutions was RMB 152 million, RMB 171 million, and RMB 147 million, accounting for 67.4%, 55.6%, and 50.5% of revenue for the respective periods, showing a decline in revenue share.

Meanwhile, intelligent operations solutions generated revenue of RMB 73.659 million, RMB 137 million, and RMB 144 million, accounting for 32.6%, 44.4%, and 49.5% of revenue for the respective periods.

In terms of gross margin, in 2024, the gross margin of intelligent marketing increased from 4.6% in 2023 to 25.1%, mainly due to ZhongAn Xintech enhancing customers' internal marketing capabilities, which significantly reduced customers' reliance on third-party marketing services, resulting in decreased digital communication service fees paid to major telecom companies. During the same period, the gross margin of intelligent operations solutions fell from 32.5% in 2023 to 29.9%.

During the reporting period, ZhongAn Xintech's gross margins were 13.7%, 27.2%, and 40.8%, increasing by 27.1 percentage points over three years. For each period, the gross margins of intelligent marketing were 4.6%, 25.1%, and 46.1%, while the gross margins of intelligent operations were 32.5%, 29.9%, and 35.3%.

Despite a surge in gross margin, various expenses at ZhongAn Xintech are also 'skyrocketing.'

During the reporting period, ZhongAn Xintech achieved operating revenues of RMB 226 million, RMB 309 million, and RMB 290 million, with net profits of RMB 10.082 million, RMB 33.231 million, and RMB 31.655 million, and net profit margins of 4.5%, 10.8%, and 10.9%, respectively.

During the reporting periods, the company's sales expenses were RMB 7.21 million, RMB 26.15 million, and RMB 153.83 million, accounting for 0.3%, 0.8%, and 5.3% of the revenue in the same periods respectively; general and administrative expenses were RMB 8.942 million, RMB 14.364 million, and RMB 13.161 million, representing 3.96%, 4.6%, and 4.5% of the total revenue during the same periods; research and development expenses were RMB 10.918 million, RMB 26.791 million, and RMB 59.71 million, accounting for 4.8%, 8.7%, and 20.6% of the total revenue during the same periods respectively.

From January to September 2025, ZhongAn Online's R&D expenses increased from RMB 12.6 million in the same period in 2024 to RMB 59.7 million, a year-on-year increase of 373.81%, primarily due to the company hiring more R&D personnel to enhance various functions of XK-QianAI and further develop QianNexus.

Cash flow turned from positive to negative, with accounts receivable surging and turnover slowing down.

While profits have been growing steadily, they have also been eroded due to increases in various expense outlays at ZhongAn Online.

At the end of each reporting period, the net cash flow generated from the company’s operating activities was RMB 4.717 million, -RMB 28.053 million, and -RMB 60.276 million. From 2024 to September 2025, the company recorded negative cash flow which continued to expand. The company stated that this was mainly due to the significant increase in working capital requirements as a result of the expansion in operational scale, particularly with respect to trade receivables and contract fulfillment costs. The net cash outflow from operating activities may adversely affect the company's liquidity position, reduce financial flexibility, and limit its ability to obtain additional bank loans, potentially having a negative impact on the implementation of future business plans.

Zhou Di, an expert in the National Science and Technology Experts Database of the Ministry of Science and Technology and a senior engineer, said: This is not an isolated case in the enterprise-level AI track but rather the result of the combined effects of the industry's development phase and business model. This deviation fundamentally stems from three structural contradictions: First, the mismatch between the business model and cost structure—AI solutions require substantial upfront R&D investment and high computing power costs, while corporate clients have long payment cycles, often opting for project-based or installment payments, leading to asynchronous revenue recognition and cash recovery. Second, the sharp rise in accounts receivable—with most downstream clients being financial institutions, payment terms are generally lengthy, further exacerbating cash flow pressures. Third, the imbalance between scale expansion and profitability timing—as companies continue to aggressively invest in sales and R&D to capture market share, expense growth has outpaced revenue growth, creating a paradox where 'the larger the scale, the tighter the cash flow.'

At the end of each reporting period, ZhongAn Online's trade receivables were RMB 72.349 million, RMB 153 million, and RMB 172 million, with trade receivables turnover days being 71 days, 134 days, and 153 days respectively.

In 2024, ZhongAn Online’s accounts receivable turnover days increased significantly compared to 2023, mainly due to the temporary disruption in invoice arrangements caused by the company relocating its registered address from Shanghai to Shenzhen. As of the end of September 2025, the trade receivables turnover days further increased to 153 days, primarily because the company's transition to a joint-stock company in the first half of 2025 once again disrupted the invoicing process, resulting in delayed collection of trade receivables from customers.

As of the end of each reporting period, ZhongAn Online’s cash and cash equivalents were RMB 42.776 million, RMB 208 million, and RMB 233 million respectively.

In terms of solvency, at the end of each reporting period, ZhongAn Online’s current ratios were 1.36, 2.34, and 3.11. Calculations show that the company’s asset-liability ratios for each period were 67.77%, 82.73%, and 30.37% respectively.

Deeply tied to ZhongAn Group, related-party transactions remain persistently high

ZhongAn Xintech’s downstream clients mainly include leading financial institutions and technology companies. The company also noted that a small number of clients contribute the majority of its revenue, indicating a significant concentration of clients. During the reporting period, sales from the top five clients accounted for 74.7%, 62.7%, and 47.4% of total revenue respectively.

On the other hand, ZhongAn Xintech’s suppliers mainly consist of digital telecom service providers and technical service providers. At the end of each reporting period, purchases from the top five suppliers accounted for 73.2%, 74.7%, and 42.5% of total procurement, while purchases from the largest supplier accounted for 18.7%, 43.2%, and 12.1% of total procurement respectively.

This filing with the Hong Kong Stock Exchange has raised questions about ZhongAn Xintech’s deep ties to ZhongAn Group, making the independence of its own business operations the biggest challenge for its IPO.

It is reported that ZhongAn Group includes ZhongAn Online (06060.HK), ZhongAn Technology, and other subsidiaries of ZhongAn Online. ZhongAn Online is an insurance group established in Shanghai, China, in 2013, mainly engaged in internet-related insurance services including property insurance, cargo insurance, liability insurance, credit guarantee insurance, auto insurance, short-term health and accident insurance, as well as related reinsurance and insurance information services. ZhongAn Technology is a member company of ZhongAn Group, primarily providing routine IT services to the group.

During the performance record period, ZhongAn Xintech's sales to ZhongAn Group mainly consisted of enterprise-level AI solutions sold to ZhongAn Group for its internal use, as well as sales made in collaboration with ZhongAn Technology to final independent clients. Through this model, the company gained substantial revenue from ZhongAn Group during the performance record period. Due to its longer operating history, ZhongAn Technology entered into relevant contracts with the final independent clients.

Between 2023 and 2024, with the improvement in technological capabilities, ZhongAn Xintech participated in more AI solution projects, which increased the revenue generated from ZhongAn Group.

In September 2024, ZhongAn Technology decided to stop offering AI solutions to third-party clients. Afterward, third-party clients requiring new services signed engagement agreements directly with ZhongAn Xintech. As part of these arrangements, ZhongAn Technology transferred certain client contracts it had signed to ZhongAn Xintech (transferred client contracts).

Regarding certain other contracts (non-transferred arrangements), due to the upcoming expiration of the relevant contract periods or the complexity of modifying internal procurement procedures, clients preferred not to change contracting parties. The company expects that upon completion of the remaining terms under the non-transferred arrangements, if it decides to continue serving the relevant clients, it will enter into new contracts directly with them.

Looking at the financial data, at the end of each reporting period, ZhongAn Xintech's revenue from its largest client, ZhongAn Group, was RMB 100 million, RMB 138 million, and RMB 67 million, accounting for 44.4%, 44.6%, and 23.0% of total revenue respectively. In 2024, ZhongAn Group became ZhongAn Xintech’s largest supplier, with procurement amounting to RMB 85.092 million, representing 43.2% of total procurement for that year.

In the period from January to September 2024 and 2025, ZhongAn Xinke achieved sales revenue of RMB 57.818 million and RMB 54.010 million, respectively, from final independent clients who cooperated with ZhongAn Group.

In 2023-2024, ZhongAn Xinke purchased work-in-progress from ZhongAn Group for RMB 9.161 million and RMB 85.092 million, respectively.

As of the end of each reporting period, the transaction amounts for ZhongAn Xinke providing enterprise-level AI solutions services to ZhongAn Technology and its associates were RMB 101 million, RMB 196 million, and RMB 128 million, respectively; purchases of insurance products from ZhongAn Online amounted to RMB 42,000, RMB 82,000, and RMB 8,000, respectively.

By the end of 2025, according to the cooperation framework agreement, the suggested annual caps for transactions in 2026-2028 are as follows: the upper limits for ZhongAn Xinke providing enterprise-level AI solutions services to ZhongAn Technology and its associates are RMB 165 million, RMB 166 million, and RMB 174 million, respectively; the upper limits for purchasing insurance products from ZhongAn Online are RMB 1.741 million, RMB 2.264 million, and RMB 2.942 million, respectively.

ZhongAn Xinke also mentioned in the prospectus the overlap of its own customers and suppliers. During the performance record period, the company's overlapping customers and suppliers mainly included: ZhongAn Group, one of the top five clients in 2023-2024, was also one of the top five suppliers for the company in 2024; Supplier F, a telecommunications service provider, was one of the top five suppliers for the company in 2024 and also a client during the same period.

At the end of each reporting period, ZhongAn Xinke's sales amounts to overlapping customers and suppliers were RMB 102 million, RMB 147 million, and RMB 3.211 million, accounting for 45.2%, 47.7%, and 1.1% of the total revenue for the respective periods; procurement amounts from overlapping customers and suppliers were RMB 9.296 million, RMB 99.991 million, and RMB 2.585 million, accounting for 4.8%, 44.8%, and 1.5% of the total procurement amount, respectively.

From an industry perspective, enterprise-level AI solution providers generally face three major pain points: insufficient standardization, low customer willingness to pay, and high computing power costs. Under project-based delivery models, there are many customization requirements and low reuse rates, making it difficult to achieve economies of scale; customers' understanding of AI value is still in the cultivation phase, with limited payment capabilities; meanwhile, the computing power cost for AI model training and inference grows linearly with usage, which traditional subscription models struggle to cover. Additionally, as a spin-off from the ZhongAn group, ZhongAn Xinke's high proportion of related-party transactions raises significant concerns about its independence and ability to sustain operations, further affecting cash flow stability.Zhou Di stated.

In terms of equity structure, as of the last practicable date, approximately 38.93% of ZhongAn Xinke’s issued shares were held by ZhongXing YouMi, and approximately 35.49% were held by ZhongAn Technology, indicating a relatively concentrated equity structure.

On the eve of this IPO, on December 17, 2025, three apps under ZhongAn Online, a related party of ZhongAn Xinke—“ZhongAn Home,” “Return Freight Insurance Claims,” and “ZhongAn Enterprise Protection”—were named and notified by the Shanghai Communications Administration for illegal collection and use of personal information.

Black Cat Complaints shows that as of April 29, there were a total of 17,420 complaints with the search keyword 'ZhongAn Insurance'. Consumer complaints include issues such as disputes over charges and authorization, claims disputes, misleading sales and promotions, debt collection and service problems, difficulties in policy cancellation and refunds, and disputes over renewals and contracts.

On April 29, a consumer complaint stated: I previously borrowed 46,000 yuan from ZhongAn Loan, of which 30,000 yuan has been repaid. The 30,000 yuan principal, including interest and guarantee fees, amounted to a total repayment of 36,000 yuan. The guarantee fee was charged by Shanghai ZhongAn Insurance. After calculation, the annualized rate reached 40%, far exceeding the legal standard, qualifying it as usury. I contacted ZhongAn Loan customer service, and they claimed the interest was legal. The consumer believes: Shanghai ZhongAn Insurance colluded with ZhongAn Loan to illegally charge high-interest fees. Now, I demand that Shanghai ZhongAn Insurance, which collected the guarantee fee, refund all guarantee fees at 150 yuan per installment for a total of 36 months, amounting to 5,400 yuan, with a minimum refund of 4,500 yuan. Additionally, for the remaining 16,000 yuan not yet repaid, I request a reduction of excessive charges by 1,500 yuan.

On April 28, another consumer complaint stated: I have multiple loans through Yipay’s Sweet Orange loan service. During the borrowing process, I was forcibly bundled with ZhongAn Insurance; without purchasing insurance, I could not obtain the loan. Furthermore, I was charged exorbitant premiums, resulting in an annualized IRR exceeding 40%, seriously violating legal regulations. In some loan contracts, the combined rate plus insurance usage cost is clearly marked as 20.12%. However, ZhongAn Insurance disregarded the contract terms and still charged me high premiums, causing the annualized rate to exceed 40%. This action is suspected of contractual fraud, deceiving me into paying excessive premiums, and unlawfully forcing insurance binding. I now demand a full refund of all my premiums.

In this IPO, ZhongAn Xintech plans to use the raised funds primarily to further enhance R&D capabilities, sales and marketing initiatives, investment and acquisition activities, working capital, and general corporate purposes. (Produced by Harbor Finance)

Harbor Business Observer, reporter Zifu Shi

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