The eighteen-year curse of non-GAAP losses remains unbroken, Huasheng Corporation ventures into the computing power sector, while the target company previously defaulted on its betting agreement.

Securities Star Wu Fan

With the disclosure of the 2025 annual report, Huasheng Co., Ltd. (600156.SH) once again presented investors with a less-than-impressive performance report. In 2025, the company achieved revenue of 797 million yuan, a slight increase of 2.5% year-over-year; thanks to a gain of 22.27 million yuan from the sale of its shares in Xiangcai Securities, Huasheng’s net profit attributable to shareholders still recorded a loss of 35.22 million yuan, but it was less than the loss in the same period last year. Excluding non-recurring gains and losses, the company’s net profit after deducting non-recurring items was a loss of 72.47 million yuan, down 18.05% year-over-year.

Behind this awkward performance report lies Huasheng’s long-standing core business difficulties spanning eighteen years. Since 2008, the company’s net profit excluding non-recurring items has been in continuous loss, with accumulated losses being substantial. During this period, the company’s revenue has also fluctuated significantly, generally showing a shrinking trend. To improve performance and cultivate a second growth curve, this old state-owned enterprise, originally rooted in ramie fiber business, is seeking to transform and upgrade through the acquisition of computing power company Yixin Technology. However, Securities Star notes that the target company has a history of multiple unfulfilled performance commitments, and with the current tight financial situation of the listed company, whether it can effectively support the future development of the target remains to be seen.

Low Gross Margin, Chronic Loss in Core Business

Huasheng’s main business involves spinning, weaving, dyeing, garment manufacturing, and home textile product research, design, and sales, primarily targeting overseas markets. Looking at the company’s financial data over the years, in 2008, its net profit attributable to shareholders after deducting non-recurring items was a loss of 15.51 million yuan. Since then, losses in its core business have become the norm. By 2025, excluding non-recurring gains and losses, Huasheng had not achieved profitability in its main operations for 18 consecutive years.

One reason for the persistent pressure on its core business is the deep crisis in its traditional textile industry. Securities Star found that although the company owns several brands such as “Shu Song,” “Dongting,” and “DT Ramie Yarn” in fabric, its second-largest revenue-generating textile manufacturing segment has consistently low gross margins, often in the single digits. From 2020 to 2022, the gross margins of its textile business were -3.27%, -22.79%, and -22.81%, respectively, indicating severe losses.

In 2022, Huasheng ceased production at Dongma, a company with an annual loss of about 50 million yuan. The following year, the gross margin of its textile business recovered to 7.92%. However, since this segment mainly involves brand processing and low-value-added products, lacking pricing power and independent brand premium, the margin recovery is limited, making it difficult to fundamentally reverse the ongoing losses in its core business. By 2025, the gross margin from textile manufacturing was 7.22%.

Although textile trading is the company’s largest revenue source, its profitability is even weaker. Over the past decade, the highest profit margin in this segment was less than 7% in 2023; by 2025, this figure had fallen further to just 2.84%.

From an industry perspective, in recent years, the overall profitability of the textile and apparel industry has been squeezed due to macroeconomic slowdown, weak domestic and international consumer demand, intensified industry competition, and rising raw material and labor costs. Additionally, since the company’s products are mainly exported, they are also affected by international tariffs and supply chain adjustments. Fluctuations in product demand have put significant operational pressure on the company’s textile trade business.

Funding Pressure from Self-Built Model

With its core business struggling to turn around, finding a second growth curve has shifted from an “option” to a “must-answer question.” Huasheng has turned its attention to one of the hottest sectors today—computing power. According to the “Acquisition Report (Revised Draft)” released by Huasheng in March this year, the company plans to acquire 97.40% of Yixin Technology through a combination of issuing shares and investing 331 million yuan, and raise an additional 662 million yuan. Yixin’s main business includes AIDC integrated services and providing intelligent computing center solutions, covering server hosting, heat management system design for data centers, and development of heat management equipment.

From the target asset perspective, Yixin Technology is indeed attractive. Securities Star notes that its self-built Shenzhen Baiwangxin Intelligent Computing Center has a low PUE value of 1.21 and has been awarded as a “National Green Data Center,” indicating certain technological barriers in energy-saving. Huasheng clearly hopes to leverage this acquisition to leap from traditional textile manufacturing into the promising field of digital infrastructure, aiming for business transformation and enhanced profitability.

However, this cross-industry move also carries significant risks.

The foremost concern is the listed company’s own financial pressure. Yixin Technology’s business model mainly relies on self-built data centers. Compared to leasing models, self-building requires larger upfront investments, and project development is heavily influenced by funding. Besides the already completed data centers, the construction of two additional centers in Zixing and Haikou still requires substantial capital. As of the end of 2025, Huasheng’s cash holdings were 125 million yuan; as of mid-2025, Yixin’s cash was only 27 million yuan. With limited cash resources, how Huasheng will support the continuous expansion of the target company is a real challenge.

Huasheng responded to recent inquiries from the stock exchange, stating that it will rely on the target company’s own accumulation, introduce external cooperation, and invest in phases to support the construction of its intelligent computing centers at a manageable pace, thereby achieving business transformation.

It is also important to note that the performance commitment party in this transaction has set a performance guarantee: Yixin Technology must achieve a cumulative net profit after deducting non-recurring items attributable to shareholders of 162 million yuan from 2026 to 2028. Securities Star notes that the company has a history of multiple unfulfilled performance commitments. Since 2017, it has made several performance promises, with net profit targets ranging from 24 million to 65 million yuan. Except for 2017, when the target was barely met, the commitments from 2018 to 2020 were not fulfilled. The target company explained that the underperformance was mainly due to large investments in transforming into self-built data centers, high depreciation of fixed assets, and erosion of profits.

In 2025, Yixin Technology achieved revenues of 274 million yuan and net profit attributable to shareholders of 26.25 million yuan. Huasheng also issued risk warnings, noting that if future industry competition intensifies, leading to a decline in prices for the target’s main products and services, or if the utilization rate of new data center cabinets does not meet expectations, the gross margin of its main business could decline, adversely affecting its operating performance.