On December 30, 2025, Hong Kong-listed company POWER XINCHEN (01148.HK) announced a strategic acquisition plan: its indirectly wholly-owned subsidiary, Mianyang Xinchen Power Machinery Co., Ltd., will acquire a 53% equity stake in Zhonghang Lantian Equipment Manufacturing Co., Ltd. for up to 147 million yuan, followed by an additional capital injection of $5 million (approximately 36 million yuan) after the equity transfer is completed, bringing the total consideration to approximately 183 million yuan. Upon completion of the transaction, POWER XINCHEN will hold a total of about 60% of Zhonghang Lantian, making the target company its indirect non-wholly-owned subsidiary.
The financial performance of Zhonghang Lantian has raised market concerns. According to the announcement, the company reported consecutive losses in 2023 and 2024, with net losses after tax reaching 18.872 million yuan and 23.413 million yuan, respectively. Although its net asset value was approximately 170 million yuan at the end of 2024, the persistent losses highlight doubts about its operational capabilities. More notably, the transaction does not include any performance commitment agreements, meaning the original shareholder, Shanxi Lantian Industrial Group, is not required to guarantee Zhonghang Lantian's future profitability, leaving POWER XINCHEN solely responsible for turning the target company around.
Market analysts view this move as a departure from the conventional risk control logic typically seen in mergers and acquisitions by listed companies. Ordinarily, acquirers would require sellers to provide commitments regarding the target's future performance to mitigate acquisition risks. The asymmetric arrangement in this transaction structure may reflect POWER XINCHEN's urgent strategic intent to expand into the non-road vehicle market, but it also exposes potential risks from underestimating the difficulties of integration.
POWER XINCHEN's core business is the R&D and manufacturing of passenger car and light commercial vehicle engines; this acquisition aims to break through existing business bottlenecks. Zhonghang Lantian's business covers the manufacturing of special equipment, mining machinery, industrial robots, and intelligent material handling equipment, offering product lines that complement those of POWER XINCHEN. The company explicitly stated in the announcement that the acquisition will help "expand product supply capabilities for the special vehicle and non-road vehicle markets" and achieve cost savings through the integration of administrative, R&D, and procurement functions.
From an industry perspective, this merger aligns with POWER XINCHEN's long-term strategy of transitioning towards new energy power systems. In recent years, as growth in the traditional engine market has slowed, POWER XINCHEN has actively expanded into the non-road machinery power sector. Zhonghang Lantian's accumulated expertise in specialized vehicle chassis technology (including experience in manufacturing new energy heavy-duty trucks and special vehicles) can provide ready-made technology and channels. Furthermore, the collaboration is viewed by local governments as a model project for "Sichuan-Shanxi industrial synergy," with the Jinzhong Municipal Government explicitly expressing support during the signing ceremony, which is expected to facilitate integration with policy conveniences.
In the long term, the transaction faces three major challenges: First is the pressure to turn a profit. Zhonghang Lantian needs to achieve rapid business breakthroughs in a sluggish equipment manufacturing market, while POWER XINCHEN's own profit scale is limited, creating uncertainty about its ability to provide continuous financial support. Although POWER XINCHEN's revenue increased by 13.88% and 7.06% year-on-year in 2024 and the first half of 2025, respectively, its net profit decreased by 7.06% and 25.46% during the same periods, with net profit margins of only 0.63% and 0.59%.
Second is the integration risk. The significant geographical distance (between Sichuan and Shanxi) and distinct corporate cultures pose high management synergy difficulties. Third is the industry cycle. Demand for special vehicles and mining machinery is closely tied to the macroeconomic cycle; if downstream investment slows, the release of synergistic effects may fall short of expectations.
According to the announcement, the transaction is subject to several preconditions, including the completion of due diligence, internal approvals, and the release of asset pledges on the target company, with a final deadline of June 30, 2026. POWER XINCHEN plans to convene an extraordinary general meeting of shareholders to review the matter. If the transaction is successful, the original shareholder, Shanxi Lantian Industrial Group, will retain a 40% stake in Zhonghang Lantian and has committed not to engage in competing businesses for five years post-transaction.
POWER XINCHEN's acquisition of Zhonghang Lantian represents a strategic gamble centered on business diversification and regional synergy. If the integration succeeds, POWER XINCHEN could leverage Zhonghang Lantian's manufacturing capabilities and customer network to unlock a second growth curve; if it fails, the ongoing losses of the target company could drag down overall performance. In the absence of performance guarantees, POWER XINCHEN's management capabilities and risk control proficiency will face a severe test.