Changyu Precision Sealing Technology Co., Ltd. responded to the Beijing Stock Exchange's first-round inquiry on September 14. The company's origins trace back to 1998, but its earlier industrial foundation, the Laiyang Hydraulic Sealing Parts Factory, was absorbed in 1998 with its net assets credited to capital reserves "without an appraisal by an appraisal institution."

Between 2000 and 2008, founding shareholders Du Pu and Du Sheng entrusted 11 individuals to hold 15.303 million yuan in capital contributions on their behalf, including dealers and direct relatives such as Du Fuguang, Shi Fangfang, and Zhang Xiangeng. The company cited a goal of "creating a relatively dispersed shareholding market image," though both founders were already registered shareholders, leaving the rationale logically inconsistent. As of the prospectus signing date, Du Sheng, Du Fuguang, Du Fuhong, and Zhang Rihuan collectively controlled 95.38% of voting rights, with a unanimous action agreement stipulating that "Du Sheng's opinion prevails" in disputes, yet no breach clauses were established.

On the compliance front, the actual controller and six core employees borrowed a total of 22.14 million yuan under "renovation loans" and "furniture purchases" to fund share subscriptions. In a 37 million yuan round-tripping scheme, one 10 million yuan transfer returned only 8 million yuan, leaving a 2 million yuan discrepancy unexplained. Customs-related declaration errors drew fines twice, and a shell company wholly owned by the actual controller's nephew was not recognized as a related party based on the rationale that "a nephew does not constitute a close family member."

Financially, revenue grew at a three-year compound annual rate of 34.46%, yet the industry's average annual growth was merely 1.7%. Revenue from new energy vehicle electrical connection components surged from 48.77 million yuan to 131 million yuan, while gross margin plummeted from 25.27% to 7.69%. The subsidiary Qingdao Changyu's net assets deteriorated from 22.1994 million yuan to just 436,200 yuan, with persistently negative gross margins on sales to Changan Automobile. Operating cash flow for 2025 jumped from 33.26 million yuan to 85.99 million yuan, but purchases increased by 107 million yuan while cash payments decreased by 119 million yuan, driven by a rise in bill endorsement ratios from 42.18% to 68.17%. Post-period inventory conversion dropped from 92.10% to 71.16%, accounts receivable expanded from 87.49 million yuan to 161.19 million yuan, and the cash collection ratio fell from 71.84% to 57.89%. Notably, Liaocheng Xinghua, a round-tripping channel, also served as a top-five supplier and the largest accounts payable counterparty, while over 200 cells in a supplier price comparison table were covered with asterisks.

Unappraised Asset Consolidation, Renovation Loans for Shares, and Family Voting Power Above 95%

Changyu Precision's predecessor was established by Du Sheng in November 1998 as Shandong Laiyang Changyu Sealing Products Co., Ltd. However, its deeper industrial roots trace back to the Laiyang Xingmao Plastics Factory founded in 1988 and the Laiyang Hydraulic Sealing Parts Factory established in 1993, both of which Du Sheng led. In 1998, the company absorbed the privately-owned hydraulic sealing parts factory, crediting its net assets to capital reserves. The factory's initial contributions were based on the book value of its predecessor collective enterprise's net assets, "without appraisal by an appraisal institution."

In December 2020, Changyu Precision completed its shareholding reform, converting net assets of approximately 153.8 million yuan into 45.4701 million shares, and received a business license from the Yantai Administrative Approval Service Bureau, raising registered capital to 48.6151 million yuan. Post-reform, Changyu Technology Group held 45.25%, Du Sheng directly held 21.11%, Du Fuguang 11.59%, Beigi Fund 9.83%, Du Fuhong 7.73%, and Zhang Rihuan 4.49%.

In January 2022, Beigi Fund transferred 2.2351 million yuan of registered capital to Jinan Qiaomeng for 18.75 million yuan, priced at approximately 8.38 yuan per share. That same month, the employee stock platform Changyu Partnership subscribed for 3.145 million yuan in new registered capital for 8.806 million yuan, with Kong Decheng and Li Li each contributing 1.9096 million yuan, and Lv Tongce and Ma Chiyuan each contributing 1.274 million yuan.

The company also has an eight-year history of entrusted shareholding. From 2000 to 2008, founding shareholders Du Pu and Du Sheng entrusted 11 individuals to hold 15.303 million yuan in contributions, including three dealers and eight relatives. The company explained this as "creating an image of relatively dispersed shareholding." Among the nominees were direct relatives like Du Fuguang (Du Pu's son), Shi Fangfang (daughter-in-law), and Zhang Xiangeng (son-in-law). As of the prospectus date, Du Sheng, Du Fuguang, Du Fuhong, and Zhang Rihuan collectively controlled 95.38% of voting rights. Zhang Rihuan is Du Sheng's spouse (with a 22-year age gap), while Du Fuguang and Du Fuhong are his nephew and niece. Their unanimous action agreement stipulates that "Du Sheng's opinion prevails" in disputes, effective until five years after listing.

Du Sheng, now 75, has served as chairman since December 2020. Zhang Rihuan, with a middle school education, previously worked at the hydraulic sealing parts factory and currently serves as a director of the company, a supervisor of Qingdao Changyu, and a supervisor of Changyu Technology Group.

During the reporting period, several compliance issues emerged. In February 2023, the company was fined 3,384 yuan by Huangdao Customs for a 32,500 yuan tax underpayment due to inconsistent import equipment declaration methods. In May 2025, it faced another fine of 15,000 yuan from Rizhao Customs for tariff classification errors resulting in a 46,200 yuan underpayment. More concerning is the 37 million yuan round-tripping arrangement completed through three suppliers in 2023, where a 10 million yuan transfer returned only 8 million yuan, leaving the 2 million yuan discrepancy unaddressed in the inquiry response.

Additionally, Du Fuguang and Zhang Rihuan borrowed 9 million yuan and 8 million yuan from Laiyang Rural Commercial Bank under "decoration material purchases" and "housing renovation" purposes, respectively, which were actually used to acquire Beigi Fund's equity. Six core employees also borrowed a combined 5.14 million yuan under renovation loan pretexts to participate in equity incentives. These eight loans totaled 22.14 million yuan, with systematic deviations between contracted purposes and actual fund flows, which the company classified as "general compliance flaws."

Regarding related party recognition, Laiyang Shunfei Industry and Trade Development Co., Ltd., wholly owned by Du Sheng's nephew Du Fuzhen, was established in December 2023 with 3 million yuan in registered capital, no operations, and no revenue. The company declined to classify it as a related party, arguing that "a nephew does not qualify as a close family member."

NEV Business Wipes Out Net Assets, Bill Endorsements Prop Up Cash Flow "Surge"

Changyu Precision specializes in rubber sealing products (rotary oil seals, reciprocating oil seals, etc.) and new energy vehicle high-voltage connectors. Revenue for 2023 to 2025 stood at 335 million yuan, 443 million yuan, and 606 million yuan, respectively, reflecting a 34.46% compound annual growth rate. Non-GAAP net profit attributable to shareholders was 29.8285 million yuan, 44.7282 million yuan, and 69.4695 million yuan. While revenue growth outpaced the peer average of 15.25% and 10.24%, the global automotive rubber sealing industry's compound annual growth rate was just 1.7%.

From an audit perspective, the most alarming issue is the financial anomaly in the company's "second growth curve." Revenue from new energy vehicle electrical connection components surged from 48.77 million yuan to 131 million yuan, but gross margin collapsed from 25.27% to 7.69%, a 17.58 percentage point decline over two years. Revenue share rose from 14.68% to 22.87%, yet gross profit share fell from 11.32% to 5.90%; revenue contribution expanded while profit contribution shrank.

The subsidiary Qingdao Changyu's financials are even more concerning: from 2023 to 2025, owner's equity plunged from 22.1994 million yuan to 436,200 yuan, with cumulative losses of approximately 21.76 million yuan over three years and a net loss of 15.3517 million yuan in 2025 alone. A company with annual revenue exceeding 200 million yuan now holds net assets of just 436,200 yuan. The company disclosed that gross margins on new energy products sold to Changan Automobile "remain persistently negative," with that customer contributing 42.8911 million yuan in revenue in 2025 while operating at a loss. The company acknowledged that margin improvements in 2024 and 2025 "primarily resulted from a price compensation agreement signed with Changan Automobile."

On cash flow, net operating cash flow for 2025 surged from 33.2636 million yuan to 85.9921 million yuan, appearing exceptionally healthy on the surface. However, the source of this "improvement" is troubling: total pre-tax purchases rose from 246.54 million yuan to 353.27 million yuan (an increase of approximately 107 million yuan), yet cash paid for goods plummeted from 172.81 million yuan to 53.84 million yuan, a decline of about 119 million yuan. Purchases increased by 100 million yuan while cash payments decreased by 100 million yuan—this two-way swing created roughly 200 million yuan in cash flow "improvement," not from operational efficiency gains but from structural payment method changes. The company disclosed that bill endorsement payments rose from 42.18% to 68.17% in 2025, with bill endorsement transfers expanding from 196 million yuan to 401 million yuan, while bill discounting increased from 34.61 million yuan to 97.52 million yuan. Cash flow improvements derived from "delaying supplier payments" and "increasing bill discount financing" were booked under "net operating cash flow."

Working capital quality remains weak. Inventory book balance rose from 92.98 million yuan to 179.64 million yuan, with inventory turnover hovering between 2.62 and 2.74. More critically, the post-period conversion ratio of finished goods fell: at the end of 2023, 27.79 million yuan in inventory converted at 92.10%; at end-2024, 38.33 million yuan converted at 88.16%; and at end-2025, 47.04 million yuan converted at just 71.16%. This means nearly 30% of finished goods in the warehouse at end-2025 remained unsold six months later, signaling a significant slowdown in actual inventory realization. Meanwhile, accounts receivable climbed from 87.49 million yuan to 161.19 million yuan, with receivable turnover dropping from 4.42 to 4.08. The cash collection ratio declined from 71.84% to 57.89%.

Notably, R&D data discrepancies emerged. The application disclosed R&D headcounts of 97, 114, and 151, while the inquiry response cited 106, 112, and 151, with a nine-person gap at end-2023 left unexplained.

Regarding related transactions, Runfuxiang Group, controlled by Du Jie (the actual controller's brother), generated 622 million yuan in revenue and approximately 74 million yuan in net profit in 2025, outperforming Changyu Precision, with overlapping customers and suppliers between the two entities. More strikingly, Liaocheng Xinghua Automotive Parts Co., Ltd., which served as the round-tripping channel, is simultaneously a top-five supplier, the largest accounts payable counterparty (balance of 26.72 million yuan, representing 20.46% of total accounts payable), and a supplier to Runfuxiang. Its actual controller, Liu Ziying, began buying Changyu Precision shares through the secondary market in June 2025, holding 0.0186%. Additionally, core pricing comparison data for overlapping suppliers was largely exempted from disclosure, with over 200 unit price cells replaced by asterisks.