The automotive steering system manufacturer Zhejiang Shibao has released its first-quarter report. Although revenue has increased, profits have declined, leading investors to vote with their feet.
<h4>Key Points:</h4>
<ul>
<li>First-quarter operating cash flow fell by more than 85% year-on-year</li>
<li>The controlling shareholder suddenly announced a plan to reduce its holdings of A shares by 3%</li>
</ul>
Liu Zhiheng
Among mainland companies listed on both A and H shares, the one with the largest long-term price discrepancy is Zhejiang Shibao Co., Ltd. (1057.HK, 002703.SZ), which engages in the research, development, manufacturing, and sales of automotive steering gears. The company's stock price often fluctuates unpredictably. Recently, it announced its first-quarter performance for 2026, which brought a small shock to investors, causing the stock price to drop by 7.1% immediately.
Even more concerning, the night after the quarterly report was released, the company suddenly announced that its controlling shareholder, Zhejiang Shibao Holdings Group (referred to as Shibao Holdings), would reduce its holdings of Zhejiang Shibao A shares by up to 3%, involving 24.679 million shares, due to the shareholder's own funding needs. The day after the announcement, the already weak stock price fell further, plunging by 12.4% that day.
It is worth noting that at the end of last year, the government announced the first batch of L3-level autonomous driving intelligent connected vehicles for access and road testing, which made Zhejiang Shibao highly regarded in the market, and its stock price rose. By the end of March, when last year's performance was announced, profits had increased by 21% year-on-year. With a series of positive news, investors were filled with expectations for the company's stock price, unaware that the company's recent actions caught them off guard.
In the first quarter of this year, Zhejiang Shibao's revenue was 753 million yuan, an increase of 4.88% year-on-year, but the net profit attributable to the parent company fell by 14.1% to 41.87 million yuan. Even after excluding non-recurring gains and losses, the net profit still declined by 13.1% to 38.88 million yuan.
<h4>Increased Revenue but Decreased Profit</h4>
The company stated that the increase in sales and research and development expenses was due to the expansion into new markets and strengthening of technological reserves. During the period, management expenses rose by 12.4% year-on-year to 36.26 million yuan, research and development expenses reached 52.668 million yuan, an increase of nearly 39.7% year-on-year, and sales expenses surged by 41% to 17.467 million yuan.
Zhejiang Shibao also added: &#34;During the period, the production and sales of the Chinese automotive industry declined year-on-year; however, the sales of some of the company's major customers increased against the trend, driving stable growth in the sales of the company's steering system products.&#34;
This explanation did not reassure investors; rather, it conveyed two messages. First, it clearly informed everyone that the sales volume of the Chinese automotive industry is declining. It is important to understand that even if Zhejiang Shibao benefited from increased sales from some customers in the first quarter, as a major automotive parts supplier, if the overall environment declines, the company may not be affected in the short term, but it will be difficult to remain unaffected in the long term.
The second message is that although sales increased during the period, profits declined, meaning that while the business has grown, profits have decreased. A clear reason for this is rising costs, leading to a decline in gross profit. From the first-quarter performance, the company was unable to pass on costs to customers and is more likely to have to lower prices to gain sales due to intense market competition
<h4>Operating Cash Flow Plummets</h4>
Upon further analysis, what confuses many investors is that the net cash flow from operating activities is only 10.696 million yuan, compared to 75.91 million yuan in the same period last year, a year-on-year drop of nearly 86%.
Why has there been such a significant discrepancy in operating cash flow in just one year? The company merely stated, “This is due to a decrease in cash received from sales of goods during the period.”
This answer is certainly unsatisfactory for the market; the company only mentioned a decrease in cash income without explaining the reasons for the substantial decline. Is it due to a sharp drop in product prices? Or is it because they need to provide customers with longer payment terms?
Ironically, accounts receivable during the period fell by nearly 19% year-on-year. Could it be that the company is receiving less cash because it is bartering with customers? Or has it turned into bad debts? Furthermore, how much risk does the decrease in cash income pose to the company? Will the situation improve in the future?
There are a lot of questions, but the company has not provided a satisfactory answer.
Will Major Shareholders Reduce Holdings Again?
The current situation is even worse, as the controlling shareholder is reducing their stake due to a need for funds, raising further market suspicion. Although the company stated that for shares reduced through block trades or competitive bidding, the lock-up periods for the transferees are 6 months and 3 months respectively, after the lock-up period, the transferees have the opportunity to reduce their holdings at any time, which negatively impacts the stability of the stock price.
The announcement further emphasizes that Shibao Holdings and Zhang Shiquan, Zhang Baoyi, Tang Haohan, Zhang Lanjun, and Zhang Shizhong, at the time of the company's listing, promised not to transfer their holdings for 3 years from the date of listing.
However, it should be noted that the commitment from that year also stated that after 3 years, Shibao Holdings and Zhang Shiquan have the right to reduce their holdings by no more than 25% each year, and after leaving their positions, they will only refrain from transferring company shares for six months.
In other words, after this reduction of 3% of shares, they still have the right to sell up to 22% of shares within the year, and investors continue to face the risk of further reductions; let’s not forget that the shareholders have been very straightforward: “We need funds for turnover,” but how significant is this need? The major shareholder has not disclosed that to you

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Zhejiang Shibao released its first quarter performance for 2026. Although revenue increased by 4.88% year-on-year to 753 million yuan, net profit attributable to the parent company fell by 14.1% to 41.87 million yuan. The company experienced an increase in sales and management expenses due to the expansion into new markets and increased R&D costs. The controlling shareholder announced plans to reduce its stake by up to 3%, leading to a decline in stock prices and a strong reaction from investors. Overall, the decline in sales in China's automotive industry has put pressure on the company

BambooWorks

Operating cash flow plummets, shareholders suddenly reduce holdings, what problems has Zhejiang Shibao encountered?