Huaming Power Equipment Files for Hong Kong IPO for the Second Time: Hidden Concerns Behind the Dividend Frenzy

Huaming Energy

On March 6, domestic power equipment leader Huaming Equipment (002270.SZ) officially submitted an H-share listing application to the Main Board of the Hong Kong Stock Exchange. The joint sponsors are Morgan Stanley and Haitong International. This marks their second attempt to list on the “A+H” dual-capital platform after their initial application in August 2025 failed. As the only Chinese manufacturer among the top three in the global transformer tap changer market, Huaming Equipment’s IPO in Hong Kong has attracted significant market attention. However, ongoing high dividend payouts prior to the listing, along with underlying questions about financing rationality and operational risks, have become focal points for market scrutiny.

Three years of distributing 97.8% of net profit, nearly 1 billion yuan cashed out by the actual controller before the IPO

The financial data disclosed in the prospectus clearly outlines Huaming Equipment’s dividend history before the IPO: from 2023 to 2025, the company achieved net profits attributable to shareholders of 551 million yuan, 620 million yuan, and 720 million yuan respectively, totaling 1.891 billion yuan over three years. During the same period, total cash dividends amounted to 1.849 billion yuan, accounting for 97.8% of the net profits, nearly distributing all operating income over three years.

Looking at a longer timeline, this high dividend payout ratio has persisted for years. According to annual reports from A-shares, from 2022 to 2025, Huaming Equipment achieved cumulative net profits attributable to shareholders exceeding 2.225 billion yuan, with total dividends surpassing 2.27 billion yuan. The four-year dividend payout rate reached 102%, with 2022 and 2023 dividend rates at 139.63% and 135.49% respectively, significantly exceeding the net profit for those years.

Accompanying these large dividends is substantial cashing out by the actual controller’s family. As of the signing date of the prospectus, Xiao Riming, Xiao Yi, and Xiao Shen, through their subsidiaries, held a combined 43.53% stake in Huaming Equipment. Based on this shareholding, approximately over 800 million yuan of the 2.27 billion yuan in dividends from 2022 to 2025 directly flowed into the Xiao family’s hands.

It is noteworthy that while large dividends transfer benefits to the controlling family, Huaming Equipment’s financial leverage has continued to rise. Data shows that from 2023 to 2025, total liabilities increased from 1.276 billion yuan to 2.036 billion yuan, with the asset-liability ratio rising sharply from 25.6% to 39.1%. During the same period, interest-bearing debt grew from 526 million yuan to 700 million yuan.

On one hand, the controlling family locks in returns early through dividends; on the other, the company’s rising debt levels have prompted questions about the necessity of this IPO for fundraising.

In response to these concerns, Huaming Equipment stated that the recent cash dividends align with the company’s shareholder return plan and are a concrete implementation of regulatory encouragement for listed companies to distribute cash dividends. The 39.1% asset-liability ratio remains within a prudent range for the power equipment manufacturing industry. The primary purpose of Hong Kong fundraising is to support the company’s globalization strategy.

Second IPO attempt: sustainability of performance and multiple risks remain

Beyond the core disputes over dividends and financing, Huaming Equipment faces multiple potential risks related to operational quality, business growth, and industry cycles. These risks directly influence the prospects of this IPO and its long-term investment value.

First, there is pressure on operating cash flow and high accounts receivable risk. The prospectus shows that in 2025, net cash flow from operating activities was 604 million yuan, a significant decrease of 32.1% from 889 million yuan in 2024. Operating cash flow can no longer cover net profit. Meanwhile, as of the end of 2025, Huaming Equipment’s trade receivables and notes receivable totaled 1.256 billion yuan, accounting for 24.1% of total assets, nearly 1.75 times the net profit for 2025. Notably, the photovoltaic power station construction business, which saw a sharp 89.9% revenue decline in 2025, recorded a gross margin of -28%, indicating substantial gross loss. Related receivables were written off as bad debt, further increasing asset impairment risks.

Second, there are concerns about the growth ceiling of core business and uncertainties in overseas expansion. The company’s main revenue source, power equipment, grew at a CAGR of 13.9% from 2023 to 2025. Domestic growth has slowed due to steady grid investment, and future performance relies heavily on overseas markets. Data shows overseas revenue increased from 274 million yuan in 2023 to 479 million yuan in 2025, with a three-year CAGR of 32.1%, accounting for 19.9% of total revenue.

However, in the global tap changer market, the top three manufacturers hold 82.5% of the market share. Huaming Equipment faces fierce competition from international giants like Germany’s MR. R&D investment from 2023 to 2025 accounted for only 3.5%-4.0% of revenue, raising questions about whether continued technological investment can sustain overseas growth. Additionally, risks such as geopolitical conflicts, trade barriers, and underwhelming localization efforts pose further challenges.

Third, systemic risks from industry policies and cyclical fluctuations. Huaming Equipment’s performance heavily depends on global and domestic grid investment and energy transition policies. Any slowdown in domestic grid investment, reduced policy support for overseas energy transition, or lower-than-expected new energy installations could directly impact demand for tap changer products, affecting performance.

It is also important to note that this is Huaming Equipment’s second application to the Hong Kong Stock Exchange. Its initial application in August 2025 was automatically invalidated after failing to pass review within six months. For this second attempt, stricter scrutiny from HKEX regarding large pre-IPO dividends and financing rationality, combined with multiple performance concerns, make Huaming Equipment’s “A+H” listing path uncertain.