Guoxia Technology (02655.HK) surged on its first day of listing, yet why has its gross profit margin been steadily declining?

ZC Asia has learnt that energy storage system solutions provider Guoxia Technology (02655.HK) officially listed on the Main Board of the Hong Kong Stock Exchange today. Its first-day share performance proved exceptionally robust: opening at HK$38, it surged 89.1% above its HK$20.10 issue price. Intraday trading peaked at HK$49.30 before closing at HK$43.80, securing a 117.9% gain.

(Image source: Snowball)

Financial Performance

Guoxia Technology's revenue growth has been nothing short of explosive. From 2022 to 2024, the company's revenue surged from RMB 142 million to RMB 1.026 billion, representing a compound annual growth rate (CAGR) of 168.9%.

This momentum continued into the first half of 2025, with revenue reaching RMB 691 million – a staggering 663% year-on-year increase. The company's market standing has simultaneously surged; industry reports indicate it has become the world's eighth-largest Chinese energy storage system supplier in 2024.

However, this steep growth curve masks a dramatic shift in the company's business focus. Its revenue structure is rapidly shifting from European-oriented residential energy storage towards large-scale energy storage systems focused on the domestic Chinese market.

Guoxia Technology's comprehensive gross profit margin has experienced a near halving: declining from 25.1% in 2022 to 15.1% in 2024, and further bottoming out at 12.5% in the first half of 2025.

The net profit margin has contracted sharply from 17.1% in 2022 to 0.8% in the first half of 2025, with profit margins squeezed to an extremely narrow range.

The core driver of this profit decline lies in the transformation of the business structure. The large-scale energy storage systems (LESS) segment, facing exceptionally fierce competition, exhibits significantly lower gross margins than residential energy storage. Yet, LESS revenue share has surged from 12.2% in 2022 to 74.2% in the first half of 2025.

Customer Vulnerabilities

Guoxia Technology faces the latent risk of ‘major customer dependency’. In the first half of 2025, revenue from its largest client, Zhongxin Innovation, accounted for a substantial 41.7%.

Complicating matters further, Zhongxin Innovation holds multiple roles: it is not only the company's largest client but also a key supplier and shareholder. This deeply intertwined relationship has raised market concerns regarding business independence, fair pricing practices, and risk concentration.

The Hong Kong Securities and Futures Commission (SFC) specifically scrutinised this issue during its review, requiring the company to justify the valuation of new shareholders (including Zhongxin Innovation).

Cash Pressure

Guoxia Technology, amid its rapid expansion, faces significant cash flow pressures. Trade receivables have ballooned from RMB 41.59 million at the end of 2022 to RMB 952 million by June 2025.

The days sales outstanding (DSO) also extended substantially from 56.7 days to 198 days, indicating a marked slowdown in collection efficiency. This directly resulted in the company's operating cash flow turning negative, with a net outflow of RMB 205 million in the first half of 2025.

Concurrently, the company's leverage ratio (total debt/shareholders' equity) remained persistently elevated, standing at 128.8% as of the first half of 2025. Such high financial leverage may exacerbate operational risks during industry downturns.

Regarding research and development expenditure, Guoxia Technology appears comparatively underfunded relative to its peers. In the first half of 2025, its R&D expenditure accounted for merely 2.4% of total revenue.

Compared to listed companies in the A-share energy storage sector, this proportion is significantly below the industry median of 5.23%. For a technology company positioning ‘AI-powered internet energy storage’ and ‘robotic security’ as its future strategic directions, whether its current R&D intensity can sustain technological leadership and long-term competitiveness remains to be seen.

Disclaimer: The content herein is for reference only and does not constitute any form of investment advice. Should any information contained herein prove inaccurate, incomplete, or potentially misleading, please refer to the company's official announcements. Market risks exist; investment requires caution.