Preface to Watchtower Finance: A company that has had negative operating cash flow for two consecutive years shows profits on its books; a company that claims to be technologically advanced has two founders who left because they were "not optimistic about its development." What kind of risks are hidden behind Shangshui Intelligent’s IPO prospectus?
Watchtower Finance learned that the road to listing of Shenzhen Shangshui Intelligence Co., Ltd. (hereinafter referred to as "Shangshui Intelligence") has been full of twists and turns. In June 2023, the company submitted an application to the Shanghai Stock Exchange Science and Technology Innovation Board for the first time, but voluntarily withdrew it in June 2024. In June 2025, the company changed its route to the Shenzhen Stock Exchange GEM and launched another attack.
Watchtower Finance found that in the second application, the amount of funds raised by Shangshui Intelligent was significantly reduced from 1.002 billion yuan to 587 million yuan, almost halved. What kind of change in business situation is hidden behind this drastic reduction in the amount of funds raised?
1. Hidden business risks: excessive bundling of BYD
Shangshui Intelligent was founded in 2012. It is mainly engaged in intelligent equipment business, focusing on core process links such as micro-nano powder processing and powder-liquid precision measurement.
On the surface, the company's technology is leading and it is the world's first company to create a "circulating high-efficiency pulping system". However, the lifeblood of this technology company is highly dependent on a single customer.
From 2022 to 2024, Shangshui Intelligent's sales proportion to BYD will be 49.04%, 48.39% and 65.78% respectively. That means nearly two-thirds of the company's revenue last year came from BYD.
More importantly, BYD is not only the company's largest customer, but also a shareholder holding 7.69% of the shares. This dual role makes people have to pay attention to the fairness of the transaction.
In 2022, BYD became a shareholder of the company through the transfer of old shares and capital increase. At this time, Shangshui Intelligent's sales to BYD also began to increase significantly.
2. The tortuous road to listing: the performance fluctuations behind the halved fundraising amount
Shangshui Intelligent's IPO road has been quite tortuous. The company initially applied for the Science and Technology Innovation Board in June 2023, but voluntarily withdrew its application in June 2024.
Shortly after the withdrawal, the company quickly turned to the GEM in June 2025 to launch an attack. In the second application, the amount of funds raised was significantly reduced from 1.002 billion yuan to 587 million yuan, a drop of 41%.
Behind the significant reduction in fundraising is the fluctuation in company performance. From 2022 to 2024, the company's operating income was 397 million yuan, 601 million yuan and 637 million yuan respectively, but the net profit fell from 234 million yuan to 153 million yuan, a year-on-year decrease of 34.9% in 2024.
What is more noteworthy is that the company's net cash flow from operating activities in 2023 and 2024 has been negative continuously, reaching -72.5658 million yuan and -15.3959 million yuan respectively.
With net profit exceeding 150 million yuan, operating cash flow continues to be negative. This contrast points to possible hidden dangers in the company's revenue quality and repayment ability.
3. Financial puzzle: the truth behind profit loss and soaring debt
There are many seemingly contradictory aspects in Shangshui Intelligent's financial data.
The company's gross profit margin is significantly higher than the industry average. From 2022 to 2024, the company's main business gross profit margin is 48.10%, 57.08% and 48.72% respectively, while the industry average is 34.87%, 33.26% and 32.10% respectively.
High gross profit margin should be a reflection of competitive advantage, but the company's inventory turnover rate is far lower than the industry average. In 2024, the company's inventory turnover rate will be 0.37 times, while the industry average is 1.07 times. This combination of high gross profit and low turnover often means that the company may exchange special preferential terms for high-margin orders.
Even more worrying is the change in the company's debt structure. From 2022 to 2024, the company's interest-bearing debt surged from 14.3716 million yuan to 146 million yuan, an increase of more than 9 times. Long-term debt, in particular, has soared from almost zero in 2023 to 130 million yuan in 2024.
The combination of soaring debt and persistently negative operating cash flow suggests the company faces significant financial risks.
4. The founder quits: a warning sign that he is not optimistic about the company’s future.
There are obvious hidden dangers in the corporate governance structure of Shangshui Intelligence. The actual controller Jin Xudong controls a total of 51.15% of the company's voting rights through direct and indirect methods, forming a "one-share-dominated" power structure.
What is even more concerning is the large-scale exit of the company’s founding team. Two of the three founders have exited completely. As co-founders, Yan Yongjun and Zhang Shubo chose to transfer all equity and exit the company in 2020.
In addition, in August 2022, Wu Juan, then director and general manager of Shangshui Intelligent, also chose to resign. A large-scale exit of the founder team may hint at deep governance or strategic differences in the company.
5. Hidden dangers in asset quality: high inventory and payment collection difficulties
There are obvious hidden dangers in the asset quality of Shangshui Intelligence. At the end of each reporting period, the company's inventory book value accounted for more than 45% of current assets, reaching 63.42% in the first half of 2025.
High inventory means that a large amount of funds are tied up, and at the same time, there is a risk of price decline. By the end of 2024, the company's inventory price reduction provisions had reached 37.2232 million yuan.
More importantly, most of the company's inventory consists of "issued goods," that is, equipment that has been delivered but has not been accepted by customers. In the first half of 2025, the proportion of shipped goods in inventory was as high as 68.26%.
This inventory structure means that the company has a large amount of equipment that has been delivered for use but has not yet received final acceptance from customers. Not only does it occupy a huge amount of funds, it also faces the risk of customers delaying or rejecting acceptance.
At the same time, the company's accounts receivable aging structure is deteriorating. In the first half of 2025, the proportion of accounts receivable with an aging of 2-3 years has reached 13.45%, and the proportion of accounts with an aging of more than 3 years has reached 12.66%.
The increase in long-aged accounts receivable indicates that the company's ability to collect payments is weakening and it may face greater risks of bad debts.
6. Investment projects: the gap between prospects and reality
Shangshui Intelligent's IPO fundraising projects include high-precision intelligent equipment South China headquarters manufacturing base construction projects, R&D center construction projects and supplementary working capital.
The company needs to explain the rationality and necessity of large-scale expansion of production capacity given the existing capacity utilization rate.
According to financial data, the amount of the company's projects under construction has increased abnormally. In 2024, the company's projects under construction were 190 million yuan, an increase of 1087.94% from the beginning of the period. In the first half of 2025, the projects under construction reached 325 million yuan, which far exceeded the scale of fixed assets.
Behind this abnormal change, it may mean that there are artificial adjustments in the time when the company's projects under construction are transferred to solid state, or there are flaws in project budget management.
In addition, the company plans to invest 209 million yuan in the construction of R&D centers. But in May 2025, the company appointed Zhang Qing, deputy general manager and chief technology officer.
The technical person in charge was changed on the eve of the IPO, and the person in charge had served in many companies such as Evergrande New Energy and Lixin Energy. Its stability and continuity of R&D direction are worthy of attention.
7. Fundraising doubts: doubts about the authenticity of funding needs
In Shangshui Intelligent's IPO fundraising plan, 150 million yuan will be used to supplement working capital, accounting for 25.6% of the total fundraising amount. The company explained that this was to "optimize the financial structure and enhance the company's financial strength."
However, Watchtower Finance found that the company's recent operating cash flow has continued to be negative, and the asset-liability ratio is high. From 2022 to 2024, the company's asset-liability ratio is 86.59%, 72.70%, and 68.46% respectively, which is significantly higher than the industry average of 42.89%.
However, the prospectus shows a contradictory phenomenon: while claiming that it needs to supplement working capital, the company has implemented cash dividends twice in 2022 and 2024, with a total dividend amount of 24.1571 million yuan.
An obvious logic is: since you have money to pay dividends, why do you need to raise funds from the market to supplement liquidity? This phenomenon of borrowing money with the left hand and distributing money with the right hand can hardly help but raise questions about the urgency and authenticity of fund-raising, and it is bound to become the focus of regulatory attention.
What's even more interesting is that the company's fundraising projects are exactly the same as those in the previous Science and Technology Innovation Board IPO, but the total amount of funds raised has been significantly reduced by 415 million yuan. Among them, the supplementary working capital project was reduced from 200 million yuan to 150 million yuan, the base construction project was cut from 506 million yuan to 228 million yuan, and the research and development center project was reduced from 296 million yuan to 209 million yuan.
8. Related transactions: interest arrangements behind deep bundling
The related-party transactions between Shangshui Intelligent and BYD present some characteristics worthy of attention.
Before BYD took a stake, the company's sales to BYD accounted for 31.73% and 56.48% respectively from 2020 to 2021. After BYD takes a stake, this proportion will further rise to 65.78% in 2023.
The company explained that the reason for BYD's investment was "recognition of the company's investment value" and "strengthening the synergy between the upstream and downstream of the industrial chain." However, this transaction structure in which customers first acquire shares and then increase their business share inevitably raises concerns about its commercial rationality.
In addition, about 5% of the company's revenue comes from new material preparation smart equipment, but this part of the business revenue has shrunk significantly from 11.3574 million yuan in 2022 to 2.9779 million yuan in 2024.
The business is highly concentrated on related-party transactions with a single customer, while the development of emerging business sectors is weak. This business structure may affect the company's future independent development and market competitiveness.
9. Reliance on tax incentives: the invisible pillar behind performance
Shangshui Intelligent's performance relies heavily on tax incentives. From 2022 to 2024, the tax preferential amounts enjoyed by the company are 10.9668 million yuan, 82.6287 million yuan and 27.2018 million yuan respectively, accounting for 9.82%, 30.53% and 15.86% of the total profit for the current period respectively.
In 2023, more than 30% of the company's profits will come from tax incentives, which is an unusually high proportion. This means that without the tax benefits, the company's profits in 2023 will be slashed by nearly a third.
Fluctuations in tax incentives also directly affect the stability of company performance. In 2023, the company received an immediate refund of value-added tax as high as 53.3613 million yuan, a surge of more than 50 times from 1.0648 million yuan in 2022.
But by 2024, this amount will plummet to 11.5487 million yuan. Large fluctuations in tax benefits have led to roller coaster changes in the company's net profits.
If tax incentives change in the future or the Company no longer qualifies, it will have a material adverse impact on its profitability. Watchtower Finance believes that Shangshui Intelligent's prospectus shows the image of a technology company at a crossroads: on the one hand, it has original technology and rapid growth performance; on the other hand, it cannot hide the hidden worries of being highly dependent on large customers and continuing to have negative operating cash flow.
The GEM Review Committee may pay special attention to: whether the long-term deviation between operating cash flow and net profit indicates hidden risks in revenue quality; whether reliance on BYD constitutes a major dependence; and how to protect the rights and interests of small and medium-sized shareholders under the "one-share-dominated" structure of the actual controller.
From the perspective of Watchtower Finance, the IPO process of Shangshui Intelligence is not only a test of a company's survival, but also a barometer for observing the health of companies in China's new energy industry chain.
References:
1. Official website of Shanghai Stock Exchange
2. Shenzhen Shangshui Intelligent Co., Ltd. Prospectus (Draft) (Updated on September 30, 2025)
3. Shenzhen Shangshui Intelligent Co., Ltd.'s initial public offering prospectus (application draft) on the Science and Technology Innovation Board (updated on June 30, 2023)
