Lvkong Transmission Still Underperforming with Decreasing R&D Expense Ratio: The Top Two Customers Are Still Shareholders, and They Have Been Fined Multiple Times for Violations

Harbor Business Watch by Shi Zifu

In mid-December 2025, Suzhou Green Control Transmission Technology Co., Ltd. (hereinafter referred to as Green Control Transmission) submitted its application to the ChiNext Board, with China International Capital Corporation serving as the sponsor.

On March 12, the Shenzhen Stock Exchange official website showed that the company disclosed its first round of inquiry responses, covering 12 major issues. On March 23, the company updated its prospectus.

This is not Green Control Transmission’s first IPO. In December 2022, the company sought to list on the Sci-Tech Innovation Board under the fourth set of listing standards. After entering the inquiry stage, in March 2023, the company chose to proactively withdraw its application, citing considerations of its own business and future development. Is Green Control Transmission ready to make a comeback?

1

2024 turns losses into profits, with negative undistributed profits

Tianyancha shows that Green Control Transmission was established in 2011. The company is an innovative leading enterprise focused on power transmission systems for new energy commercial vehicles, based on technological innovation related to electric drive systems, providing customers with electric drive systems, components, and related technical development and services.

It is understood that electric drive systems are the power source and core key components for new energy vehicles and non-road mobile machinery, including motors, automatic transmissions, various controllers, and electric drive axles.

Green Control Transmission’s main products are divided into pure electric drive systems and hybrid drive systems. From 2022 to 2024 and January-June 2025 (hereinafter referred to as the reporting period), the company’s revenue from electric drive systems was 635 million yuan, 676 million yuan, 1.166 billion yuan, and 1.135 billion yuan, accounting for 92.05%, 91.19%, 90.91%, and 95.49% of the respective period’s revenue, highlighting its core business.

In addition to electric drive systems, other revenue sources include components and accessories, technology development and services, and other products, which constitute a smaller proportion during the period.

During the reporting period, sales volume of electric drive systems grew rapidly, with sales of 21,991 units, 24,872 units, 42,486 units, and 40,183 units respectively, with unit prices of 28,900 yuan/unit, 27,200 yuan/unit, 27,400 yuan/unit, and 28,200 yuan/unit.

Notably, in 2024 and January-June 2025, sales volume of electric drive systems increased significantly. Meanwhile, unit prices fluctuated with changes of -5.88%, 0.74%, and 2.92% in 2023, 2024, and the first half of 2025.

Regarding sales channels, during the period, Green Control Transmission adopted a direct sales model to customers. For some clients, sales were made via consignment, where the company shipped products to designated warehouses based on client instructions, and clients took actual delivery as needed.

During the period, revenue from consignment sales of electric drive systems was 375 million yuan, 451 million yuan, 771 million yuan, and 813 million yuan, increasing each period. The company stated that this was mainly due to rapid growth in consignment revenue from clients such as XCMG Group, Sany Group, Dongfeng Motor, among others.

Overall revenue performance during the period saw the company achieve revenues of 712 million yuan, 770 million yuan, 1.328 billion yuan, and 1.219 billion yuan, with net profits of -99.43 million yuan, -12.33 million yuan, 48.04 million yuan, and 68.30 million yuan, respectively. After deducting non-recurring gains and losses, net profit attributable to parent was -101 million yuan, -39.56 million yuan, 40.46 million yuan, and 61.73 million yuan. The company recorded net losses in 2022 and 2023, turning profitable in 2024.

It is worth noting that in its profit composition, the company also benefited from certain government subsidies. During the periods, government grants recognized in profit or loss were 5.54 million yuan, 10 million yuan, 9.83 million yuan, and 5.35 million yuan, accounting for -5.50%, -25.28%, 24.29%, and 8.66% of net profit attributable to parent after non-recurring items.

If future government subsidy policies are canceled or adjusted unfavorably, it could negatively impact the company’s operating performance and profitability.

Over the past three fiscal years, due to continuous negative undistributed profits, the company has not distributed dividends or profits. As of the end of June 2025, the undistributed profit was -203 million yuan. The company stated that the timing of turning undistributed profits positive remains uncertain, posing a risk that cash dividends or profit distributions may not be possible for some time.

In 2025, the company’s operating revenue is projected to be 3.354 billion yuan, with a net profit (before and after non-recurring items) of at least 141 million yuan. As of the end of 2025, the undistributed profit remains negative at -118 million yuan.

Regarding gross profit margin, during the period, Green Control Transmission’s comprehensive gross margin was 7.13%, 16.77%, 19.78%, and 19.38%, showing a fluctuating upward trend.

2

Top five customers account for 60%, with the top two still being shareholders

Due to high market concentration in the downstream automotive industry, Green Control Transmission’s customer concentration is also high. During the period, sales to five major customers totaled 478 million yuan, 486 million yuan, 825 million yuan, and 731 million yuan, representing 67.12%, 63.04%, 62.11%, and 59.95% of the company’s revenue in each period.

Key downstream clients include XCMG Group, Sany Group, Dongfeng Motor, Xiamen King Long, and BAIC Foton, which significantly influence business operations. Among them, XCMG and Sany have become important customers.

During the period, sales to Sany Group were 197 million yuan, 173 million yuan, 257 million yuan, and 175 million yuan, accounting for 27.64%, 22.5%, 19.37%, and 14.38% of revenue; sales to XCMG were 134 million yuan, 169 million yuan, 299 million yuan, and 238 million yuan, accounting for 18.79%, 21.9%, 22.5%, and 19.56%. By 2024, these two clients contributed over 40% of Green Control Transmission’s revenue.

Zhang Xiaorong, President of Deep Technology Research Institute, commented: Over-reliance on major clients poses three operational risks: first, weak bargaining power, vulnerable to profit squeeze from “annual reduction” clauses; second, high accounts receivable leading to cash flow pressure; third, performance tied to a single customer, which could cause significant impact if cooperation changes or downstream demand fluctuates.

However, the company stated in its inquiry response that in the second half of 2025, it expanded its customer base with 42 new clients with signed orders, and obtained 98 new orders totaling over 120 million yuan, demonstrating ongoing capacity to develop new clients and orders. Additionally, cooperation with existing clients deepened, with 3,621 new orders in the second half of 2025, expected to generate over 2.6 billion yuan in sales.

It is noteworthy that Sany Group and XCMG are not only core customers but also indirect shareholders of the company. This has raised concerns about the fairness of related-party transactions.

As of the date of the prospectus, Sany Heavy Industry holds 1.89% of the company’s shares; XCMG Group, through Minpu Yunsheng and Xuzhou Yunxiang, holds about 1.8%.

In 2025, the top five customers accounted for 59.10% of revenue, with sales to XCMG and Sany Group accounting for 21.84% and 10.99%, respectively.

3

Cash outflows persist, with weaker debt-paying ability than peers

Despite high customer concentration, receivables from downstream clients have increased.

At each period-end, accounts receivable on the books were 269 million yuan, 404 million yuan, 518 million yuan, and 833 million yuan, representing 20.53%, 26.78%, 25.09%, and 27.13% of total assets; balances were 331 million yuan, 458 million yuan, 583 million yuan, and 928 million yuan, with receivables accounting for 46.47%, 59.42%, 43.9%, and 38.07% of revenue in each period.

During the same periods, due to some clients’ delayed payments, the company made provisions for bad debts, with amounts of 62.48 million yuan, 53.78 million yuan, 64.65 million yuan, and 94.80 million yuan. Accounts receivable turnover rates were 2.34, 1.95, 2.55, and 3.23 times per year (annualized).

In 2025, accounts receivable on the books totaled 1.484 billion yuan, accounting for 48.16% of revenue.

Similarly, inventory also ties up significant funds. At each period-end, inventory on the books was 244 million yuan, 270 million yuan, 399 million yuan, and 613 million yuan, representing 18.64%, 17.90%, 19.31%, and 19.96% of total assets; balances were 284 million yuan, 324 million yuan, 441 million yuan, and 662 million yuan; inventory provisions were 40.73 million yuan, 54.47 million yuan, 42.60 million yuan, and 48.17 million yuan.

Inventory turnover rates were 2.36, 2.11, 2.78, and 3.56 times per year (annualized).

Due to increases in accounts receivable and inventory, the company’s cash flow has been consistently negative.

As of each period-end, net cash flow from operating activities was -297 million yuan, 5.20 million yuan, -185 million yuan, and -616 million yuan, totaling -538 million yuan over the period.

The company explained that in 2022, net cash flow from operating activities was 19.8 million yuan less than net profit, mainly due to decreases in accounts payable and notes payable. In 2023, cash flow from operations exceeded net profit by 17.53 million yuan, mainly due to increases in operating payables. In 2024 and the first half of 2025, cash flows were lower than net profits by 233 million yuan and 130 million yuan, mainly because of increases in accounts receivable, inventory, and other operating assets and liabilities, offsetting some of the positive effects.

In its inquiry response, the company reiterated that fluctuations and negative cash flows in operating activities during the period were mainly due to strategic working capital investments to support rapid sales growth, including stocking raw materials to hedge price volatility and increased accounts receivable and inventory due to business expansion, consistent with its high-growth stage.

In 2025, net cash flow from operating activities was -175 million yuan, with total cash flow from operating activities over the period of -354 million yuan.

At each period-end, Green Control Transmission’s short-term borrowings were 390 million yuan, 420 million yuan, 579 million yuan, and 587 million yuan. Meanwhile, cash and cash equivalents at period-end were 27.34 million yuan, 47.45 million yuan, 109 million yuan, and 289 million yuan, indicating a significant short-term liquidity gap.

On debt-paying ability: At each period-end, the company’s asset-liability ratio (consolidated) was 69.54%, 74.78%, 75.88%, and 73.41%; current ratio was 0.94x, 0.97x, 1.06x, and 1.08x; quick ratio was 0.61x, 0.68x, 0.75x, and 0.77x. By 2025, the asset-liability ratio rose to 79.78%, with current ratio at 1.02x and quick ratio at 0.77x.

Compared to industry peers, whose average asset-liability ratios were 57.71%, 59.15%, 66.05%, and 66.88%, and current ratios of 1.46x, 1.29x, 1.19x, and 1.17x, Green Control Transmission’s higher leverage indicates less favorable financial structure, mainly due to the company’s lack of equity financing on the capital markets. As of June 2025, the company’s asset-liability ratio decreased slightly after a new round of financing.

Additionally, its current and quick ratios are slightly below industry averages. The company stated that proceeds from this offering will improve these ratios and enhance short-term liquidity.

4

Decreasing R&D expense ratio, weaker than peers, with repeated violations and penalties

For this IPO, Green Control Transmission plans to raise 1.58 billion yuan, with 1.38 billion yuan allocated to a project producing 100,000 sets of new energy medium- and heavy-duty commercial vehicle electric drive systems annually, and 200 million yuan for R&D center construction.

Given its pursuit of Sci-Tech Innovation Board listing, the company’s R&D attributes have attracted attention. During the period, R&D expenses were 55.34 million yuan, 47.67 million yuan, 76.85 million yuan, and 50.42 million yuan, accounting for 7.77%, 6.19%, 5.79%, and 4.14% of revenue, with a declining R&D expense ratio. In 2025, the ratio further decreased to 3.59%.

The prospectus discloses that the average R&D expense ratio of comparable companies during the period was 10.26%, 8.28%, 6.04%, and 5.98%. Among them, Jingjin Electric’s R&D ratio was notably higher. Excluding Jingjin Electric, the average R&D ratio of peers was 7.60%, 6.47%, 5.55%, and 6.50%.

As of June 2025, among Green Control Transmission’s 1,397 employees, PhDs accounted for 0.21%, master’s degree holders 4.51%, undergraduates 24.98%, and the highest proportion, 70.29%, held college or lower degrees.

Furthermore, since nearly 90% of the raised funds are used for capacity expansion, at each period-end, the company’s capacity utilization rates were 76.7%, 54.06%, 90.03%, and 120.20%, indicating a need for further capacity growth.

As of the signing date of the prospectus, the company’s controlling shareholder and actual controller is Li Lei. Li Lei directly owns 125 million shares, representing 32.23% of the pre-issue share capital; through Wujiang Qiandian Investment Management Co., Ltd., he indirectly controls 44.19 million shares, or 11.41%; Li Lei’s total control is 169 million shares, or 43.64% of the pre-issue share capital.

In terms of internal control and compliance, in 2022, Green Control Transmission had related-party loans due to tight capital turnover. The actual controller Li Lei lent 29.7 million yuan; Wujiang Qiandian Investment Management lent 6.9 million yuan. These loans were repaid by June 2022.

In 2022, Lu Tingke and others borrowed funds from the company, mainly for personal housing, totaling 154,300 yuan, and were repaid by June 2022.

On January 7, 2022, the Suzhou Industrial Park Environmental Protection Bureau issued an administrative penalty decision, fining Green Control New Energy 30,000 yuan for operating paint dipping processes without fully enclosed equipment.

On January 12, 2022, the Suzhou Industrial Park Fire Brigade issued a penalty of 30,000 yuan for illegal construction used as a warehouse in the east workshop of Plant No. 1, Green Control New Energy.

On March 1, 2022, the same fire brigade issued a penalty of 15,000 yuan for continued illegal construction in the east workshop of Plant No. 1, which had not been rectified after re-inspection on January 13, 2022, and fire hazards remained.

On October 28, 2022, Jiangling Street Office of Wujiang District People’s Government fined Green Control Transmission 6,000 yuan for failure to renew special operation welding and cutting work permits.

On January 3, 2025, the Suzhou Industrial Park Environmental Protection Bureau fined Green Control New Energy 33,280 yuan for discharging volatile organic compounds without proper pollution control measures during production activities.

(Produced by Harbor Finance)