Four-year cumulative dividend payout rate exceeds 102%. After the actual controller received nearly 1 billion yuan in cash, Huaming Equipment plans to raise funds in Hong Kong.

On February 27, Power Equipment Company Huaming Equipment disclosed its 2025 annual report. Against the backdrop of continuous growth in overseas business revenue, Huaming Equipment achieved simultaneous increases in both revenue and profit.

Although the company’s performance is quite impressive, Huaming Equipment’s domestic market revenue has rarely declined. With domestic revenue growth slowing, Huaming Equipment is stepping up its overseas market expansion.

On March 6, Huaming Equipment submitted a prospectus to the Hong Kong Stock Exchange, planning to raise funds and list in Hong Kong. This IPO aims to expand the overseas sales network and further open up international markets.

Interestingly, Huaming Equipment itself is not short of cash; it holds over 83 million USD in cash and equivalents. Additionally, over the past four years, Huaming Equipment has used all its profits for dividends.

Previously, the company’s board also applied to the general meeting of shareholders for a simplified issuance of up to 300 million RMB or no more than 20% of the latest year’s net assets to specific investors.

While paying large dividends and planning to raise funds, in a market where over 400 companies are waiting for review at the Hong Kong Stock Exchange, can Huaming Equipment successfully list and secure financing?

1

Domestic revenue growth slows,

plans to raise funds in Hong Kong,

accelerates overseas expansion

Driven by the continued boom of AI, the performance of power equipment companies has been outstanding. As a leading enterprise in power transformer tap changers, Huaming Equipment achieved both revenue and profit growth in 2025.

Data shows that in 2025, Huaming Equipment’s operating revenue reached 2.427 billion RMB, a year-on-year increase of 4.5%, with net profit attributable to shareholders of 710 million RMB, up 15.54% year-on-year.

Huaming Equipment is mainly engaged in the sale of power equipment. In 2025, revenue from power equipment was 2.102 billion RMB, accounting for 86.63% of the company’s total revenue.

Its main products are tap changers, including on-load tap changers and no-excitation tap changers. Based on revenue, in 2024, Huaming Equipment was the largest domestic and the second-largest global manufacturer of tap changers.

In 2025, domestic revenue from Huaming Equipment was 1.948 billion RMB, down 3.33% from 2.015 billion RMB in 2024. The company explained that the decline was due to a decrease in power engineering business revenue.

Huaming Equipment’s power engineering business mainly focuses on EPC contracting, design, construction, and operation services for new energy power stations, including photovoltaic plant EPC services and operation & maintenance services.

In 2025, revenue from power engineering was 29 million RMB, down from 287 million RMB in 2024. The significant drop in this segment contributed to the decline in domestic revenue.

Regarding the decline in power engineering revenue, Huaming Equipment told “Bullet Finance” that to focus on core business, the company is gradually reducing and ultimately exiting the power engineering sector.

However, excluding the impact of power engineering, domestic revenue from power equipment—mainly tap changers—also showed less-than-ideal growth.

In the latest investor relations update, Huaming Equipment admitted that it holds a very high market share in the domestic tap changer market, with limited room for further growth.

Regarding future prospects in the domestic market, Huaming Equipment stated that according to data from Frost & Sullivan, in 2024, the company ranked first in China’s tap changer market by sales, holding about 80% of the domestic market share. Frost & Sullivan predicts that the market size in China will grow from 2.879 billion RMB in 2025 to 3.789 billion RMB in 2030, with a compound annual growth rate of approximately 5.6% from 2025 to 2030.

In this context, Huaming Equipment is also vigorously expanding overseas. In August 2025, the company set up assembly and testing factories in Indonesia and Turkey, with the Indonesian factory officially starting production in August 2025. Additionally, the company has established offices in France, Italy, and other European countries, and enhanced its Singapore team to build a comprehensive “production-sales-service” overseas network.

Due to continuous overseas investment, Huaming Equipment’s international business revenue surged. In 2025, international revenue reached 479 million RMB, a year-on-year increase of over 55%. As a result, Huaming Equipment plans to raise funds in Hong Kong to expand its overseas operations.

Although international revenue is growing rapidly, the gross profit margin of Huaming Equipment’s international business declined by 6.75% in 2025.

In response, “Bullet Finance” attempted to understand the reasons behind the decline in overseas gross profit margin.

Huaming Equipment explained that this is due to changes in revenue structure. The company’s CNC equipment exports in 2025 reached 1.12 billion RMB, up 229.8%, increasing its proportion of international revenue. However, since this segment has a lower gross margin than power equipment, it led to an overall decrease in overseas gross profit margin.

2

“Clear-out dividends” followed by fundraising, controlling shareholders

accumulated 1 billion RMB in dividends

Due to strong profit performance and regulatory encouragement of dividends, Huaming Equipment has used nearly all its profits for dividends in recent years.

From 2022 to 2025, the company achieved a total net profit attributable to shareholders of over 2.225 billion RMB, and paid dividends totaling over 2.27 billion RMB, with a payout ratio exceeding 102% over four years.

Especially in 2022 and 2023, despite net profits attributable to shareholders of only 359 million RMB and 542 million RMB respectively, dividends paid were 502 million RMB and 735 million RMB, with payout ratios of 139.63% and 135.49%.

Thanks to continuous large dividends, the company’s actual controllers—Xiao Riming, Xiao Yi, and Xiao Shen—have benefited immensely.

Annual reports show that Xiao Riming, Xiao Yi, and Xiao Shen, through their subsidiaries, hold a combined 43.53% stake in Huaming Equipment. This means that nearly 1 billion RMB of the 2.27 billion RMB dividends from 2022 to 2025 went into the pockets of the three controlling shareholders.

In the context of large dividends, Huaming Equipment has frequently raised funds in the capital markets. In March 2022, the company issued a private placement of 500 million RMB, mainly to repay interest-bearing debt and supplement working capital. After raising 500 million RMB, Huaming Equipment also paid dividends of 502 million RMB in 2022.

Huaming Equipment stated that high dividends reflect the company’s high-quality profitability and stable cash flow. In recent years, as profitability has continued to improve, the company has adhered to shareholder return as a key operational goal, sharing its results through cash dividends, which aligns with its established shareholder return policy. The company will continue to strive to create higher value and provide stable dividend returns to shareholders.

On February 27, 2026, the company announced that the board proposed to the shareholders’ meeting to authorize the board to issue up to 300 million RMB or no more than 20% of the latest year’s net assets in a simplified manner to specific investors.

On March 6, Huaming Equipment again submitted a prospectus to the Hong Kong Stock Exchange, planning to list and raise funds in Hong Kong. During investor relations interactions, Huaming Equipment stated that future plans include increasing overseas investment, requiring an internationalized financing platform.

As of December 31, 2025, the company held 83.44 million USD (about 5.87 billion RMB), which is Huaming Equipment’s largest foreign currency holding.

Currently, Huaming Equipment has ample cash and equivalents. Whether it needs to go public in Hong Kong to raise funds for overseas expansion remains to be seen.

Due to high US dollar interest rates, in 2025, Huaming Equipment’s interest income was 30.82 million RMB, generating 26.09 million RMB in financial expenses income, which somewhat boosted profits.

Besides the large foreign currency holdings, Huaming Equipment also has several hundred million RMB in deposits, totaling foreign currency and RMB deposits of 1.292 billion RMB.

With such substantial cash reserves, Huaming Equipment has not used these funds to repay loans but instead has used a large portion for dividends. As profits continue, interest-bearing liabilities have increased rather than decreased. As of December 31, 2025, Huaming Equipment’s interest-bearing debt was about 700 million RMB, up from 526 million RMB at the end of 2022.

Recent investor Q&A confirmed that Huaming Equipment recognizes the financing function of the capital markets, and the company has benefited from financing to develop to its current scale.

However, given the company’s stable profitability, it is worth questioning whether it is appropriate to both pay out profits as dividends—mostly to controlling shareholders—and continuously seek capital market funding.

Huaming Equipment responded that high dividends reflect the company’s high-quality profitability and stable cash flow. The company has consistently aimed to share its operational results with shareholders through cash dividends, aligning with its shareholder return policy.

3

Employee equity incentives with unrealized gains exceeding 300 million RMB, including the CEO’s equity

Unrealized income equivalent to ten years’ salary

As the company continues to grow, Huaming Equipment has not forgotten its employees. In April 2025, the company launched an equity incentive plan.

Under this plan, Huaming Equipment intends to grant up to 15 million shares to no more than 350 employees, sourced from the company’s share buybacks on the secondary market. The initial grant was 13.65 million shares, with 1.35 million shares reserved.

Subsequently, Huaming Equipment spent 220.7 million RMB to repurchase 13.82 million shares at an average price of about 15.97 RMB per share. On August 12, 2025, the company completed the first share grant, awarding 13.57 million shares to 271 employees at a price of 7.05 RMB per share.

This grant price was 50% of the company’s average stock price over the 20 trading days before the employee share plan announcement, which was 7.27 RMB. Due to Huaming Equipment’s 2024 dividends, the grant price was adjusted to 7.05 RMB.

Thanks to a market rebound, Huaming Equipment’s stock price continued to rise, reaching 30.12 RMB per share as of March 17. If no further unlocking occurs, the unrealized gains for the 271 employees would exceed 300 million RMB.

Among them, nine senior executives and directors received 2.22 million shares, with unrealized gains exceeding 51 million RMB if not considering unlocking. The gains from stock holdings for senior management are equivalent to their total salary over several years.

For example, the company’s CEO Yang Jianqin received 370,100 shares in this incentive. As of now, her unrealized gains exceed 8 million RMB. Her annual salary in 2025 was only 938,800 RMB, so this equity incentive’s gains are roughly equivalent to ten years’ worth of salary.

In fact, the unlocking conditions set by Huaming Equipment are not difficult to meet. The plan is divided into three phases, with unlock ratios of 40%, 30%, and 30%. The first unlock condition is triggered if the company’s net profit reaches 652 million RMB in 2025.

Notably, Huaming Equipment’s net profit attributable to shareholders in 2024 already reached 614 million RMB, meaning that a roughly 6.2% increase in net profit would meet the initial trigger. In 2025, net profit is expected to reach 710 million RMB.

The second unlock condition requires a cumulative net profit of 1.382 billion RMB in 2025 and 2026, meaning that if the company achieves just 672 million RMB in 2026, the second unlock can be triggered. The third unlock condition is based on cumulative net profit from 2025 to 2027 reaching 2.2 billion RMB.

Driven by AI, overseas demand for power equipment is extremely strong. For example, in transformers, China’s exports in 2025 reached 64.6 billion RMB, up nearly 36%. This surge has contributed to over 55% growth in Huaming Equipment’s international revenue in 2025.

Given such robust downstream demand, the question arises: are Huaming Equipment’s stock incentive unlock conditions too lenient? “Bullet Finance” attempted to get clarification from Huaming Equipment.

Huaming Equipment stated that assessment targets need to consider both overseas and domestic market demand, as well as multiple complex factors such as global geopolitical uncertainties, the adjustment period for local production capacity overseas, and exchange rate fluctuations. The company emphasized that the goals set in the 2025 employee stock plan are very cautious and objective.

In the context of slowing domestic growth, Huaming Equipment is intensifying overseas expansion, with international revenue soaring. Therefore, the company plans to list in Hong Kong to further increase overseas investment. However, with many IPOs awaiting review in Hong Kong, whether Huaming Equipment can quickly pass the review and seize the AI-driven opportunities remains to be seen. “Bullet Finance” will continue to monitor.

Images in the article from: Setu.com, based on VRF protocol.