Shanghai Shunho New Materials Technology Co.,Ltd. recently announced its plan to issue H-shares and list on the main board of the Hong Kong Stock Exchange.

On the same day as announcing its Hong Kong IPO plan, Shanghai Shunho New Materials released its 2025 interim report, showing declines in both revenue and non-recurring net profit attributable to shareholders for the first half of the year. Since 2019, the company's revenue has failed to surpass its 2018 peak, maintaining an overall significant downward trend. The company's net profit attributable to shareholders peaked at 229 million yuan in 2013, followed by substantial declines and frequent losses.

Starting from 2018, Shanghai Shunho New Materials has reduced its workforce for seven consecutive years. By the end of 2024, the company's total workforce of 1,116 employees was nearly halved compared to 2,121 employees at the end of 2017. Against the backdrop of persistently weak performance, continuous layoffs, and adequate cash reserves, the necessity of Shanghai Shunho New Materials' Hong Kong IPO remains questionable. Particularly noteworthy is that the company is currently under investigation for suspected corporate bribery crimes, raising questions about whether the effectiveness of the company's compliance and internal controls can gain approval from China's securities regulator and the Hong Kong Stock Exchange.

**Poor Performance and Frequent Losses Due to Problematic Acquisitions**

According to public information, Shanghai Shunho New Materials operates four main business segments: research, development, production and sales of specialty environmental paper; research, development, production and sales of printing products; deep processing and application scenario development of industrial hemp; and research, development, production and sales of new tobacco products.

The company's development can be traced back to 2004, originally known as Shanghai Lvxin. The company completed its shareholding reform in 2009 and went public on the Shenzhen Stock Exchange in 2011. In 2013, the company's net profit attributable to shareholders reached its historical peak. In 2018, the company's revenue hit its historical high. In 2019, the company's subsidiary Nanlvxin obtained the "Yunnan Province Industrial Hemp Planting License," causing the company's stock price to soar to a peak of 23.77 yuan per share in April 2019, followed by a continuous decline.

From 2013 to 2024, Shanghai Shunho New Materials achieved revenues of 1.862 billion yuan, 1.945 billion yuan, 1.856 billion yuan, 1.872 billion yuan, 1.949 billion yuan, 2.055 billion yuan, 1.734 billion yuan, 1.599 billion yuan, 1.55 billion yuan, 1.411 billion yuan, 1.425 billion yuan, and 1.518 billion yuan respectively. Net profits attributable to shareholders were 229 million yuan, -51 million yuan, 143 million yuan, 98 million yuan, 103 million yuan, 101 million yuan, -198 million yuan, 8 million yuan, -28 million yuan, -60 million yuan, 28 million yuan, and 45 million yuan respectively.

Clearly, Shanghai Shunho New Materials' revenue has been in an overall declining trend in recent years. While some years showed growth, the increases were modest and failed to break through the 2018 peak of 2.055 billion yuan, with the most recent five years failing to exceed 1.6 billion yuan. The company's net profit has not only declined significantly overall but has also frequently posted losses, such as in 2014, 2019, 2021, and 2022.

The company's 2014 loss stemmed from its 2013 acquisition of Zhejiang Demei Color Printing Co., Ltd. In June 2013, the company acquired a 60% stake in Zhejiang Demei for 73.8 million yuan, becoming its controlling shareholder. Just one year later, due to Zhejiang Demei's management team illegally extracting over 400 million yuan from the company, Zhejiang Demei's operating conditions severely deteriorated. Shanghai Shunho New Materials fully provisioned for potential guarantee losses related to Zhejiang Demei in 2014, resulting in a loss of 51 million yuan.

In 2019, Shanghai Shunho New Materials posted a loss of 189 million yuan. The company indicated it expected to provision approximately 312 million yuan for goodwill impairment related to Fujian Taixing Special Paper Co., Ltd. and Yunnan Yuxi Printing Co., Ltd. Notably, both Fujian Taixing and Yuxi Printing were also acquired by Shanghai Shunho New Materials in 2014, demonstrating the company's pattern of problematic acquisitions.

In 2021, the company shifted from profit to loss, attributing this to significant increases in raw material prices and rising sales and management expenses for new tobacco and industrial hemp businesses. In 2022, losses deepened due to declining revenue, asset impairment provisions, and increased expenses related to new tobacco and industrial hemp businesses. In 2023 and 2024, the company returned to profitability, though net profits remained below 50 million yuan.

In the first half of 2025, Shanghai Shunho New Materials' revenue and non-recurring net profit attributable to shareholders were 620 million yuan and 29 million yuan respectively, declining 12.19% and 6.24% year-over-year.

**Seven Consecutive Years of Layoffs with Nearly 50% Reduction Despite Adequate Cash Position**

Starting from 2018, Shanghai Shunho New Materials has experienced not only significant revenue decline but also continuous workforce reduction.

According to Wind data, the company's total workforce at year-end from 2017 to 2024 was 2,121, 1,924, 1,902, 1,768, 1,460, 1,263, 1,195, and 1,116 employees respectively. The company has reduced its workforce every year since 2018. By the end of 2024, the total workforce had decreased by 47.38% compared to the end of 2017, nearly halving.

Some analysts believe that employees are among a company's most core resources, and continuous layoffs indicate the company is actively reducing labor costs, potentially reflecting declining revenue, profit contraction, or cash flow constraints, forcing cost reduction for survival. "Continuous multi-year layoffs combined with poor performance" represents a typical signal of operational deterioration, especially when layoffs accompany declining revenue, losses, core talent exodus, and strategic ambiguity, often indicating a company entering a decline cycle.

If Shanghai Shunho New Materials' workforce reduction resulted from "proactive business adjustment," it might be reasonable. However, the company's seven consecutive years of reduction, combined with the significant reduction ratio and operational weakness, hardly supports the "proactive adjustment" argument.

As of June 30, 2025, Shanghai Shunho New Materials held 796 million yuan in monetary funds and 106 million yuan in trading financial assets, totaling 902 million yuan in broad monetary funds. During the same period, the company's interest-bearing liabilities (sum of short-term borrowings, non-current liabilities due within one year, long-term borrowings, and bonds payable) totaled 178 million yuan, indicating the company has adequate cash. In the first half of 2025, the company's asset-liability ratio was 24.66%.

Against the backdrop of persistently weak performance, continuous layoffs, and adequate cash reserves, the necessity of Shanghai Shunho New Materials' Hong Kong IPO remains questionable.

**Under Investigation for Suspected Corporate Bribery Crimes, Facing Potential Regulatory Obstacles**

Shanghai Shunho New Materials' Hong Kong IPO faces another significant obstacle: the company is currently under investigation for suspected corporate bribery crimes.

On May 20, 2025, Shanghai Shunho New Materials responded on an investor relations platform regarding the investigation for suspected corporate bribery crimes, stating: "The company actively cooperates with relevant case investigations. Should there be subsequent developments, the company will promptly fulfill information disclosure requirements according to relevant regulations."

On June 2, 2023, Shanghai Shunho New Materials announced that the Chuzhou Municipal Supervision Commission decided to investigate the company for suspected corporate bribery crimes. To date, the company has not disclosed progress regarding the Chuzhou Supervision Commission's investigation, indicating the investigation remains ongoing.

Being under investigation for suspected corporate bribery crimes represents a substantial obstacle for A-share IPOs. Although Shanghai Shunho New Materials plans a Hong Kong IPO, it still requires approval from China's securities regulator and Hong Kong Stock Exchange approval, making IPO success challenging.

While Hong Kong markets are more inclusive, they remain highly concerned about compliance operations of prospective listed companies. Among the Hong Kong Stock Exchange's 2022 listing decisions, one company deemed unsuitable for listing was referred to as "Company A."

The case showed that Mr. A was Company A's executive director and chairman, as well as founder and one of the controlling shareholders. According to a court judgment issued shortly before Company A submitted its listing application, former government official Mr. X was convicted of accepting bribes from Mr. A approximately a decade earlier in exchange for assistance in applying for certain government grants for Company A. In the bribery case, Mr. A was listed as a witness in the court judgment but was neither prosecuted nor convicted. However, the court judgment indicated that Mr. X's conviction was based on accepting bribes provided by Mr. A in exchange for assistance.

The Hong Kong Stock Exchange determined that bribery constitutes a serious offense that seriously questions a director's character and integrity, as well as their ability to fulfill directorial duties honestly, in good faith, and for proper purposes. Company A and its sponsors failed to prove and convince the Stock Exchange that Mr. A met the required character and integrity standards under Main Board Rules 3.08 and 3.09.

Additionally, as Company A's controlling shareholder, Mr. A could still exert significant influence over Company A's operations and management even if he resigned from all directorial and management positions. After considering all relevant facts and circumstances, the Hong Kong Stock Exchange determined Company A was unsuitable for listing.

When prospective Hong Kong IPO companies' directors or controlling shareholders engage in bribery, the Hong Kong Stock Exchange deems them unsuitable for listing. Shanghai Shunho New Materials itself is suspected of corporate bribery crimes. Therefore, the company must obtain proof of absence of corporate bribery crimes and bribery behavior to gain market recognition.