Kehua Holdings' discounted fundraising of 326 million yuan raises questions, with core business pressure, governance transformation, and the necessity of funds being threefold concerns

Whale News, February 25 — On February 25, Kehua Holdings Co., Ltd. (603161) released the “2025 Annual Private Placement A-Share Offering Prospectus (Draft for Submission),” proposing to issue 30 million shares at 10.87 yuan per share to Lu Hongping and others, raising no more than 326 million yuan, all of which will be used to supplement working capital. The issuance still requires approval from the Shanghai Stock Exchange and registration with the China Securities Regulatory Commission, with warnings about ten risks including new energy vehicle substitution, international trade frictions, and declining performance.

The new actual controller is raising 326 million yuan at a 28.77% discount, resulting in unilateral dilution of minority shareholders’ rights.

This private placement is not an isolated event but a rapid capital move following a change in control. In August 2025, former actual controllers Chen Hongmin and their concerted parties signed two share transfer agreements with Lu Hongping and others, simultaneously signing a voting rights waiver agreement; the first transfer was completed in September 2025, and the second in January 2026. After the transaction, Lu Hongping and others’ combined shareholding increased to 34.73%, becoming the new controlling shareholders and actual controllers. Notably, the subscribers for this private placement are highly overlapping with the new actual controllers, and the offering price of 10.87 yuan per share was at a 28.77% discount to the closing price of 15.12 yuan on August 15, 2025, the day the company announced the control change plan, and at a 22.68% discount to the block trade price of 14.06 yuan on February 6, 2026. In the absence of third-party inquiry mechanisms, other strategic investors, or market-based participation, this pricing arrangement, while compliant with regulatory requirements of “not less than 80% of the average price of the 20 trading days before the pricing reference date,” is difficult for the market to fully recognize as fair, objectively diluting the rights of existing minority shareholders.

Cash on hand of 342 million yuan still to be raised, with accounts receivable of 1.098 billion yuan and inventory of 857 million yuan with no clear resolution path

The purpose of the private placement being “all used to supplement working capital” raises doubts about the true need for funds and their effective use. As of September 30, 2025, the company’s cash balance was 342 million yuan, short-term loans totaled 211 million yuan, with a current ratio of 1.32 and a quick ratio of 0.91, and a debt-to-asset ratio of 52.37%. From a static financial perspective, the company is not in an obvious liquidity crisis. However, during the reporting period, net cash flow from operating activities fluctuated downward: 217 million yuan in 2022, 158 million yuan in 2023, 124 million yuan in 2024, and 83 million yuan from January to September 2025. The decline in cash flow is not due to shrinking revenue—revenue for January-September 2025 reached 1.666 billion yuan—but results from narrowing gross profit margins and extended collection cycles. The company admits that the main reason for declining performance is “increasing market competition, leading to a decrease in the average selling price of main products” to maintain market share. Under this circumstance, using the 326 million yuan raised funds solely for “liquidity support” neither corresponds to specific business expansion plans nor explains how it will address structural issues such as high accounts receivable (value of 1.098 billion yuan as of September 2025) and inventory backlog (value of 857 million yuan), appearing more as a low-cost funding channel for the new actual controllers rather than a solution to operational pain points.

57.74% dependence of turbine housing products on overseas markets, with Mexico imposing tariffs and accelerated electric vehicle substitution

It is worth noting that this private placement sharply contrasts with the systemic risks faced by the company’s main business. Kehua’s core products—turbine housings and intermediate housings—are highly dependent on supporting fuel vehicles and hybrid models, while new energy vehicle technology routes are rapidly diverging. Although the company claims “hybrid vehicles still have demand for turbochargers,” it is now industry consensus that pure electric vehicles do not require turbochargers. From January to September 2025, overseas sales revenue was 957 million yuan, accounting for 57.74% of main business revenue, with key export markets such as the US and Mexico already imposing tariffs. Mexico will impose additional tariffs on imports from China and other non-free trade agreement countries starting January 2026. The company’s foreign clients mainly include multinational Tier 1 suppliers like Garrett and BorgWarner, which themselves face pressures from global supply chain restructuring. Under these circumstances, the company did not allocate the raised funds toward technological R&D upgrades or capacity restructuring but instead chose to use the private placement as a liquidity “backstop,” which is a passive response to the pressures of industry transformation.

R&D investment has been below industry average for three consecutive years

Furthermore, the company’s governance structure has not stabilized after the change in control. The new actual controllers, Lu Hongping and others, lack backgrounds in the automotive parts industry; their experience is concentrated in electronics, technology, and investment management. Although Tuhan is currently the chairman of Kehua Holdings, his previous roles were mainly in sales and executive positions, lacking experience in managing large manufacturing enterprises. In recent years, R&D expenditure has consistently accounted for about 3% of revenue. In January-September 2025, R&D expenses were 47 million yuan, only 2.82% of the current period’s revenue, far below the industry average of comparable companies. In the context of rapid technological iteration and increasing material and process requirements, relying solely on “additional funds” cannot build a true competitive barrier.