Huasheng Co., Ltd. has made new progress in its cross-industry restructuring plan.

Recently, the company disclosed several key announcements, including a full update of its major asset restructuring application materials and the approval of a proposal to expand its business scope to include computing power and big data, alongside a revision of its corporate charter. Does this series of moves indicate the initial formation of its dual-core business model of "textiles + intelligent computing"?

However, the feasibility and necessity of this cross-industry dual-core model have been questioned by regulators.

Is this a genuine transformation or a capital channel for the listed platform?

The main business of Hunan Huasheng Co.,Ltd. is the research, design, production, and sales of yarn, fabric, printing, dyeing, garments, and home textiles, with products primarily sold to overseas markets.

In recent years, the textile and apparel industry has faced pressure on profitability and increased operational challenges due to multiple factors, including a slowdown in macroeconomic growth, weak domestic and international consumer demand, intensified competition, and rising costs of raw materials and labor. In fact, Huasheng's profit quality has been poor, with recurring net losses for several years.

Firstly, from the perspective of the core businesses, the gap between them is significant, and whether successful integration can be achieved is a critical question for the company.

Prior to this transaction, the listed company's main operations were in research, design, production, and sales of yarn, fabric, printing, dyeing, garments, and home textiles, focusing on bast fiber products. Upon completion of the deal, Yixin Technology will become a controlling subsidiary of the listed company, marking a strategic expansion from traditional manufacturing into the digital infrastructure services sector. This will present challenges in management, including organizational structure, internal controls, and talent acquisition.

Regulators have required the company to explain the integration and control measures and their expected implementation timeline concerning organizational structure, core business, key personnel, and R&D, production, and sales post-acquisition, to analyze whether effective control can be achieved.

The company stated that after the transaction, it will appropriately optimize and improve its management structure to meet the practical needs of operating dual-core businesses with a gradual shift in focus towards AIDC operations, emphasizing enhanced professional management and risk control capabilities for the new AIDC business.

Regarding performance assessment, the company will implement differentiated management and performance evaluation mechanisms based on the differing business models, profit cycles, and risk profiles of the two sectors. The textile and apparel business will focus on operational scale and cash flow performance, while the AIDC business will prioritize key indicators such as operational scale, net profit, utilization rate, and energy efficiency.

For strategic implementation, a phased management approach is planned. In the initial phase, while maintaining stable operations of the original textile and apparel business, the focus will be on integrating, standardizing, and expanding the AIDC business. In subsequent phases, development priorities and resource allocation will be dynamically adjusted based on the performance of each business segment, market changes, and resource allocation effectiveness, gradually forming a dual-core development pattern with AIDC as a key growth driver and textiles as a stable operation.

Secondly, both the transaction structure and the target company's own capital needs present significant challenges for the listed company.

The company plans to acquire a 97.40% stake in Shenzhen Yixin Technology Co., Ltd. for 662 million yuan through a combination of share issuance and cash payment, with additional funds to be raised.

According to an asset appraisal report dated June 30, 2025, the assessed value of 100% equity of the target company is 681 million yuan. Based on this, the parties negotiated a transaction price of 662 million yuan for the 97.40% stake. The consideration will be paid via share issuance and cash, with a total cash payment of 331 million yuan and the issuance of 62,840,756 shares to the counterparties.

Meanwhile, the target company's primary business model is self-built intelligent computing centers. Compared to leasing models, the self-built model in this industry is capital-intensive, requiring larger upfront investments in infrastructure. During the reporting periods, cash paid for the purchase and construction of fixed assets, intangible assets, and other long-term assets was 73.2247 million yuan and 79.7445 million yuan, respectively. The under-construction Zixing Intelligent Computing Center has already incurred approximately 70 million yuan in investment, with significant additional funding required later.

As of the end of the first quarter, Huasheng's cash on its books was only 83 million yuan. How will the listed company address such a massive funding requirement?

To resolve the funding issue, the company stated it will actively seek external cooperation and diversify funding sources. This means that both the listed company and the target will explore collaborations with entities such as local state-owned assets and industrial partners, promoting intelligent computing infrastructure construction through joint investments and project cooperation to reduce reliance on the listed company's own capital.

Specifically, the company will explore models where relevant industrial partners or affiliated companies participate in computing center project investments through their industrial funds, with the listed company or target company responsible for operational management under legal, compliant, market-based pricing, and standardized decision-making principles. This arrangement aims to leverage the listed company's professional capabilities in computing center construction and operation while achieving a reasonable division between investment and operation entities, thereby mitigating the financial impact of capital expenditures on the listed company.

Can this cross-industry move substantially improve the listed company's quality?

Firstly, from a financial statement perspective, incorporating the target will increase revenue but does not lead to a fundamental improvement in profitability. Pro forma revenue shows significant growth post-transaction, increasing by 32.75% in 2024 and 33.44% in 2025. However, the pro forma net loss attributable to parent company owners decreases but remains negative, with reductions of 21.22% in 2024 and 60.30% in 2025.

Secondly, the quality of the target company itself warrants observation. According to the announcement, the target is a third-party intelligent computing center service provider. From 2023 to the first half of 2025, comparable companies in the industry had higher revenue scales and average gross margins than the target.

Comparable peers have high customer concentration and primarily operate a wholesale model, allowing them to quickly achieve ideal utilization rates. In contrast, the target company has lower customer concentration and employs both wholesale and retail models, making it difficult to rapidly reach ideal utilization levels.

It is noteworthy that the quality of the target's earnings also requires scrutiny. At the end of each reporting period, the target's accounts receivable were 124 million yuan, 141 million yuan, and 178 million yuan, respectively, with a declining receivables turnover ratio that is lower than the industry average.

Furthermore, the target has experienced delays in issuing invoices, raising regulatory questions about the authenticity of related revenues.

Regarding the accuracy of revenue recognition, the company explained that the delayed invoicing amounts correspond to revenue already recognized. The AIDC service industry commonly uses a "monthly settlement, service-first, reconciliation-later" model, where services are provided first, and invoices are issued after reconciliation with clients in the following month or an agreed cycle. This industry practice creates a timing gap in the settlement process.

Concurrently, the target has delayed invoice issuance and, in practice, has declared and paid value-added tax based on the output tax corresponding to the actual invoiced revenue, not the accounting-recognized revenue amount. This has led to incomplete declaration of taxes payable. Therefore, at the end of 2023, 2024, and 2025, the target had recognized revenue per accounting standards but had not yet issued invoices to customers, with corresponding estimated unbilled revenue amounts of 49.4259 million yuan, 76.6347 million yuan, and 74.6331 million yuan, respectively.

The company asserts this situation does not affect the accuracy of revenue recognition. The target strictly follows the accrual principle, recognizing revenue based on the transfer of control of goods or fulfillment of services, not the timing of invoice issuance. The target has designed and implemented corresponding control systems, recognizing revenue and accruing output tax based on the contract price when revenue recognition criteria are met, even if invoices are not yet issued. Subsequent invoice issuance is merely a settlement document and does not affect the initial timing or amount of revenue recognition.

Be cautious about whether the profit guarantee is realistic

This acquisition includes a profit guarantee agreement. According to the performance commitment compensation agreement signed between the listed company and the commitment parties, the performance compensation assessment period spans three years: 2026, 2027, and 2028. The commitment parties promise that the target company's cumulative net profit attributable to parent company owners after deducting non-recurring gains and losses will be no less than 162 million yuan during this period.

From 2023 to 2025, Yixin Technology achieved revenues of 226 million yuan, 255 million yuan, and 266 million yuan, respectively. The growth rate was 12.83% in 2024 but slowed to 4.31% in 2025. Net profits were 5.655 million yuan, 17.0522 million yuan, and 25.9768 million yuan, respectively. Growth in 2024 was particularly notable, exceeding 200% year-on-year, while growth in 2025 moderated but still exceeded 50%. It appears the company's revenue growth is slowing, while profits have surged sharply, raising questions about the sustainability of future profitability.

It should be noted that the price-to-earnings ratio based on the commitment period for this transaction is 12.62 times, which is higher than all comparable transactions. The commitment for cumulative net profit of 162 million yuan from 2026 to 2028 is also higher than the target's historical levels.

Additionally, the target has previously failed to meet profit guarantee commitments. Historical data shows that since 2017, the company has entered into several commitment agreements with promised net profits ranging from 24 million to 65 million yuan. However, apart from barely meeting the target in 2017, it failed to fulfill commitments from 2018 to 2020.

The core reason for the historical underperformance was a strategic shift from a light-asset to a heavy-asset model, resulting in substantial upfront R&D and construction investments and temporary pressure on profits. The company states this transition is now complete, the business model has stabilized, no further large-scale strategic investments are needed, and the historical drag factors no longer exist. Furthermore, the relevant asset appraisal report for this transaction has considered the increased depreciation from capitalizing self-built data center investments into fixed assets when forecasting future performance.