Fengmao Co., Ltd. Responds to Inquiry Letter: Procurement from Middle East Major Customers Declined Sharply by Nearly 80% in First Three Quarters of 2025, Dragging Down Performance; Added 38 Overseas Customers to Offset Risks

The Daily Economic News Reporter | Zhang Baolian
The Daily Economic News Editor | Zhang Yiming

On the evening of March 13, Fengmao Co., Ltd. (SZ301459, stock price 39.00 RMB, market value 4.061 billion RMB) announced the reply to the inquiry letter regarding the application for the issuance of convertible corporate bonds to unspecified targets.

It is reported that the company plans to raise no more than 608 million RMB through the issuance of convertible bonds, which will be used for the first phase of the intelligent chassis thermal control system production base, an annual output of 8 million sets of automotive hoses, and to supplement working capital, further expanding into the new energy vehicle parts sector.

The company responded to key issues raised by the Shenzhen Stock Exchange, including fluctuations in overseas customers, phased declines in performance and gross profit margin, as well as the necessity and reasonableness of this fundraising project.

Fengmao Co., Ltd. specializes in the research, production, and sales of precision rubber components, covering fields such as transmission systems, fluid pipelines, sealing systems, and air suspension systems, with a high proportion of overseas sales.

The announcement shows that from January to September 2025, Fengmao’s net profit attributable to the parent after deducting non-recurring gains and losses decreased by 36.81% year-on-year, and gross profit margin fell from 31.56% in the same period last year to 26.26%, indicating phased fluctuations in performance and profitability.

It is introduced that the main reason for the performance change is the decline in revenue from some high-margin overseas vehicle supporting customers, especially the core customer in the Middle East, Khaled Al Hashemi Gen.Trdg.L.L.C., whose procurement volume changed significantly. The announcement states that this customer’s procurement in the first three quarters of 2025 was only 11.56 million RMB, compared to 49.65 million RMB in the same period in 2024, a decrease of 76.7%.

Fengmao further explained that the decline in customer revenue is mainly affected by two factors: first, the escalation of geopolitical conflicts and regional economic downturns in the Middle East, leading to decreased downstream vehicle production and directly reducing procurement demand; second, the customer has built its own transmission belt production line to promote localized production, thereby reducing external procurement scale.

Beyond the Middle East, some vehicle supporting customers in Russia and Europe are also affected by geopolitical conflicts, inflation, and weakening demand, leading to decreased procurement volumes and further dragging down the company’s overall revenue and gross profit levels.

Regarding the sustainability of these impacts, the company stated that the affected overseas vehicle supporting customer revenues have now fallen to relatively low levels. As geopolitical conflicts ease and the automotive industry gradually recovers, there is potential for demand to rebound.

To hedge against risks from fluctuations in a single regional market, the company added 38 new overseas customers in Brazil, Italy, the UK, and other regions from January to September 2025, generating revenue of 50.15 million RMB during this period. Meanwhile, by leveraging stable demand from the automotive aftermarket, accelerating expansion into non-automotive fields, and continuously optimizing product structure, the company aims to mitigate operational pressures caused by overseas market volatility.

The company also responded to inquiries about the reasons for multiple changes to the previous fundraising projects and the necessity and reasonableness of this project.

It is understood that the company has changed the use of 60 million RMB of funds raised for the previous “Tensioner Expansion Project” twice, ultimately adjusting to the “Smart Chassis Thermal Control System Production Base (Phase I)” project.

The explanation given is that the original project’s market demand and expansion did not meet expectations, and the development of new energy vehicles has driven increased demand for precision rubber components. The issuer plans to establish new production bases for automotive thermal management systems, air suspension systems, and sealing systems in early 2025. Due to land shortages in Yuyao initially, the site was planned in Jiaxing; later, with active coordination from the local governments of Ningbo and Yuyao, relevant land in Yuyao was secured in July 2025.

Regarding the reasonableness of the new capacity scale and potential overcapacity risks, the company stated that as the previous project gradually comes into production, the capacity utilization rate of transmission system components related to the previous fundraising remains saturated, and the sales and production of related transmission belts and tensioners are maintained at high levels. Therefore, there is no risk of overcapacity for the previous project.

Additionally, in response to questions about why the company is building new factories despite having idle properties for leasing, the company explained that the owned properties are small in area, and their registered purpose is commercial, which is not suitable for manufacturing industrial products. Therefore, the new factory construction for this fundraising project is necessary.

Cover image source: Daily Economic News Media Library