Core Viewpoint - AUX Electric Co., Ltd. has submitted a second listing application to the Hong Kong Stock Exchange, following its initial submission on January 15, 2023, aiming to become a publicly listed company in Hong Kong [1] Financial Performance - AUX's projected revenue for 2024 is approximately 29.8 billion RMB, with a compound annual growth rate (CAGR) of 23.4% from 2022 to 2024 [1] - The company's revenues for 2022, 2023, and 2024 are 19.528 billion RMB, 24.832 billion RMB, and 29.759 billion RMB respectively, with gross profits of 4.15 billion RMB, 5.422 billion RMB, and 6.24 billion RMB [1] - Net profits for the same years are 1.441 billion RMB, 2.487 billion RMB, and 2.91 billion RMB [1] - AUX is the fifth largest air conditioner supplier globally in 2024, holding a market share of 7.1% [1] Market Position and Competition - AUX's revenue primarily comes from household and central air conditioning, with household air conditioning accounting for 88.5%, 87.3%, and 87.1% of total revenue from 2022 to 2024 [2] - The sales volume of household air conditioners is projected to increase from 10.2 million units in 2022 to 17.1 million units in 2024, despite a decline in average selling prices [2] - AUX's low-price strategy, which once helped it gain market share, is becoming less effective due to intensified competition in the air conditioning market, particularly from major players like Gree and Midea [3] Historical Context and Listing Attempts - AUX has been attempting to go public for several years, having previously been approved for listing on the New Third Board in 2016 but withdrew a year later [4] - The company has undergone business restructuring and sought A-share listing guidance, completing this process in mid-2023 before shifting focus to a Hong Kong listing [4]

Core Viewpoint - Aux Electric Co., Ltd. (AUX) is preparing for an IPO on the Hong Kong Stock Exchange after several previous attempts to go public, facing challenges such as slowing growth, high debt levels, and governance issues related to concentrated ownership and related-party transactions [1][3][22]. Company Overview - AUX was established in 1994 and is a specialized air conditioning provider, integrating design, R&D, production, sales, and service [4]. - According to a report by Frost & Sullivan, AUX is the fifth largest air conditioning company globally by sales volume, with a market share of 7.1% in 2024 [4]. Financial Performance - AUX's revenue from 2022 to 2024 was reported as follows: 195.28 billion RMB, 248.32 billion RMB, and 297.59 billion RMB, with year-on-year growth rates of 27.2% and 19.8% for 2023 and 2024, respectively [7]. - Net profit for the same period was 14.42 billion RMB, 24.87 billion RMB, and 29.1 billion RMB, with growth rates of 72.5% and 17.0% for 2023 and 2024 [7]. - The company's gross profit margins were relatively low, at 21.3%, 21.8%, and 21.0% from 2022 to 2024, compared to competitors like Gree and Midea [9]. Debt and Governance - AUX's debt levels are high, with asset-liability ratios of 88.3%, 78.8%, 84.1%, and 82.5% from 2022 to 2025 [11]. - The ownership structure is highly concentrated, with AUX Holdings controlling 96.36% of the voting rights, raising concerns about governance and potential conflicts of interest [12][15]. Market Position and Competition - AUX's revenue sources are heavily reliant on air conditioning, with 98.2% of revenue coming from this segment, indicating a lack of diversification [9]. - The company faces significant competition from Gree, which has previously accused AUX of producing substandard products, highlighting ongoing legal disputes and competitive tensions [17][18]. International Expansion - AUX's overseas revenue accounted for 57.1% in Q1 2025, with efforts to expand into markets like Thailand and Japan [19]. - However, over 80% of its international revenue comes from ODM (Original Design Manufacturer) business, which limits brand value and profitability [20]. IPO Significance - The upcoming IPO represents a critical opportunity for AUX to address its financial challenges and improve its market position, but it must navigate issues related to growth slowdown, low profit margins, and governance risks [22].

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Group 1 - The new regulation effective from March 31, 2023, requires domestic companies to obtain a "filing notice" from the China Securities Regulatory Commission (CSRC) before listing in Hong Kong [1] - Aux Electric Co., Ltd. has received the filing notice for its overseas issuance and listing, allowing it to proceed with its plans [2][3] - The company plans to issue up to 517,500,000 ordinary shares for overseas listing on the Hong Kong Stock Exchange [3] Group 2 - Aux Electric has over 30 years of experience in the air conditioning industry, providing a range of products including household and central air conditioning systems [4] - The company operates in over 150 countries and regions, focusing on energy efficiency, comfort, health, and intelligence in its product offerings [4] - According to Frost & Sullivan, Aux Electric is the fifth largest air conditioning provider globally by sales volume, with a market share of 7.1% in 2024 [4] Group 3 - Aux Electric submitted its prospectus to the Hong Kong Stock Exchange on January 16, 2025, with China International Capital Corporation (CICC) as the sole sponsor [5]

Group 1 - Chinese assets are experiencing a resurgence, with NIO and Li Auto rising nearly 7% as foreign investment increases in A-shares [2] - The Invesco Global Sovereign Asset Management Research indicates a noticeable recovery in interest from international investment institutions towards the Chinese market, managing approximately $27 trillion in assets [2] - Several foreign institutions express optimism about Chinese assets due to the stable economic performance, policy benefits, and improved corporate earnings outlook [2] Group 2 - The U.S. House of Representatives has advanced cryptocurrency legislation, supported by President Trump, which has led to significant stock price increases for companies in the crypto sector [3] - Blue Ocean Interactive surged over 45% after announcing the establishment of LK Crypto, focusing on mainstream crypto asset management and RWA [3] - Hong Kong is actively developing stablecoin products, creating a dual regulatory framework that connects the U.S. dollar stablecoin with the mainland [3] Group 3 - The Hong Kong IPO market is witnessing a surge, with a significant increase in financing amounts, reflecting global capital's confidence in China's industrial upgrade and consumption potential [7] - On July 9, the Hong Kong Stock Exchange saw five companies queueing for listing in a single day, raising over 10 billion HKD [7] Group 4 - The domestic consumption and investment policies are being emphasized by the Chinese government to strengthen the domestic circulation [5][6] - Analysts highlight the urgency and necessity of promoting consumption as a core strategy for economic growth [6] Group 5 - The A-share market has seen an increase in financing balance for eight consecutive days, totaling an increase of 44.038 billion CNY, indicating positive market sentiment [10] - Analysts suggest that the current macro environment and market risk appetite signal potential for further market growth [10] Group 6 - The number of private equity MOM products registered this year has reached a new high, with 43 products registered by July 15, surpassing the total for the past nine years [14] - This trend indicates a strong interest in the MOM fund model, which allows for diversified asset management [14] Group 7 - The beverage brand Wahaha is facing a decline in sales following a family dispute involving its chairman, which has raised concerns among distributors [16] - The internal family conflict could potentially disrupt the competitive landscape of the Chinese beverage industry [16] Group 8 - The domestic electric vehicle market is seeing significant growth, with L2-level assisted driving penetration exceeding 50% [18] - The heavy truck sales in the first half of the year have increased by approximately 7%, with new energy heavy trucks being a major highlight [18] Group 9 - The stock market is experiencing fluctuations, with the Shanghai Composite Index slightly declining by 0.03% to 3503.78 points [19] - The Hong Kong market is also showing mixed performance, with the Hang Seng Index and the Hang Seng Tech Index experiencing slight declines and gains, respectively [19] Group 10 - The U.S. stock market has seen gains driven by positive economic data and corporate earnings reports, with the S&P 500 rising by 0.45% [20] - Approximately 88% of S&P 500 companies that have reported earnings exceeded analyst expectations, boosting investor confidence [20] Group 11 - Several foreign investment banks have expressed positive views on the Chinese market, with Citigroup raising its ratings for Chinese and Korean markets to "overweight" [21] - Citigroup projects the Hang Seng Index to reach 25,000 points by the end of the year and the CSI 300 Index to reach 4,200 points [21] Group 12 - The stock market's investment logic is shifting towards cash flow analysis in a low-interest-rate environment, with a focus on high-dividend and strong cash flow companies [22] - Analysts are optimistic about sectors such as automotive, electronics, and traditional high-growth areas like AI and pharmaceuticals [22]

Group 1: Investment Opportunities - Vili Zhibo-B (HK02617) has launched its IPO with a subscription rate of approximately 178.91 times on the first day, indicating strong investor confidence in its prospects [1] - Aux Group has refiled its listing application with the Hong Kong Stock Exchange, aiming to enhance brand influence and expand into international markets [2] - Fourth Paradigm (HK06682) plans to place 25.9 million shares at a subscription price of HKD 50.50 per share, raising approximately HKD 1.306 billion for investment in emerging fields like AI and blockchain [3] - October Rice Field (HK09676) expects an adjusted net profit of at least HKD 283 million for the six months ending June 30, 2025, representing a growth of no less than 90% year-on-year due to product innovation and improved sales channels [4] Group 2: Market Performance - The Hang Seng Index closed at 24,498.95, down 0.08% on July 17 [5] - The Hang Seng Tech Index increased by 0.56% to 5,448.85 [5] - The National Enterprises Index fell by 0.09% to 8,853.10 [5]

Core Viewpoint - Aokai Electric Co., Ltd. (Aokai) has submitted a second listing application to the Hong Kong Stock Exchange, following an initial submission in January 2023, indicating its ongoing efforts to access capital markets despite previous setbacks in A-share listings [1] Group 1: Company Overview - Aokai was established in 1994 and specializes in the design, research and development, production, sales, and service of high-quality household and central air conditioning systems [1] - According to Frost & Sullivan, Aokai is the fifth largest air conditioning provider globally by sales volume, with a market share of 7.1% in 2024 [1] Group 2: Financial Performance - Aokai has demonstrated strong revenue and net profit growth from 2022 to 2024, with revenues of RMB 19.53 billion, RMB 24.83 billion, and RMB 29.76 billion, reflecting year-on-year growth rates of 27.2% and 19.8% for 2023 and 2024, respectively [2] - Net profits for the same period were RMB 1.44 billion, RMB 2.49 billion, and RMB 2.91 billion, with significant growth of 72.5% and 17.0% in 2023 and 2024 [2] Group 3: Market Position and Growth - Aokai's sales volume is projected to grow at a compound annual growth rate (CAGR) of 30.0% from 2022 to 2024, significantly outpacing the global air conditioning market's CAGR of 4.6% during the same period [1] - By 2024, Aokai is expected to hold a 25.7% market share in the Chinese household air conditioning market, making it the leading brand in this segment [1] Group 4: International Sales and Profitability - Aokai's overseas sales have shown remarkable growth, with revenues of RMB 83.86 billion, RMB 104.12 billion, and RMB 146.81 billion from 2022 to 2024, representing 42.9%, 41.9%, and 49.3% of total revenue, respectively [5][6] - The company's gross profit margin has fluctuated, recorded at 21.3%, 21.8%, and 21.0% from 2022 to 2024, which is lower than competitors Gree (30.2% in 2024) and Midea (28.6%) [6] Group 5: Corporate Governance and Financial Health - Aokai's ownership structure is highly concentrated, with the Zheng family controlling approximately 96.36% of voting rights, indicating a family-controlled enterprise [7] - The company has a high debt level, with debt-to-asset ratios of 88.3%, 78.8%, 84.1%, and 82.5% from 2022 to 2025 [8] - In 2024, Aokai distributed a one-time dividend of RMB 3.794 billion to shareholders, which accounted for 55% of the net profit over the past three years, raising concerns about "blood-sucking dividends" [9]

Core Insights - The air conditioning market in Northeast China is experiencing unprecedented demand, with sales in Heilongjiang and Jilin provinces showing significant year-on-year growth rates of 817.68% and 438% respectively during late June to early July [1][4] - Major companies like Midea and TCL are mobilizing engineers from various regions to meet the surge in installation orders, with Midea dispatching over 700 engineers and TCL sending more than 650 engineers to support the Northeast [1][2] Group 1: Market Dynamics - The Northeast region has seen air conditioning orders maintain a daily growth rate exceeding ten times for over ten consecutive days, a phenomenon not observed in other regions [2][3] - TCL reported that its daily sales in the Northeast during the peak period increased by over ten times compared to the same period in 2024, with sales reaching 14 times and 15 times on specific days [1][2] Group 2: Installation Challenges - The installation of air conditioning units in Northeast China faces unique challenges due to the thick walls of local buildings, which can be 70 to 120 centimeters thick, compared to about 30 centimeters in Zhengzhou [2][3] - The time required for installation has increased significantly, with engineers needing 2 to 4 hours to drill through the thick walls, compared to 30 minutes to 1 hour in southern regions [3][4] Group 3: Weather Impact - An unusual heatwave has hit the Northeast, with temperatures exceeding 30°C starting from June 24, which is earlier and more intense than typical for the region [4][5] - The high temperatures have led to a substantial increase in air conditioning sales, contrasting with the stable performance seen in southern cities during promotional periods [4][5] Group 4: Market Penetration - Historically, the Northeast has not been a major market for air conditioning, with ownership rates significantly lower than in provinces like Jiangsu and Zhejiang [5] - As of the end of 2023, the average number of air conditioning units per hundred households in Heilongjiang was only 15.6, indicating substantial room for growth in this market [5]

Core Viewpoint - AUX Electric, one of the top five air conditioning providers globally, is attracting market attention with its recent IPO in Hong Kong, as detailed in its prospectus [1]. Business Model - The company employs a multi-brand strategy covering diverse markets, integrating design, R&D, production, sales, and service for both household and central air conditioning, operating in over 150 countries [2]. - The global air conditioning market is projected to reach RMB 1,312.8 billion by 2024, with AUX Electric holding a 7.1% market share as the fifth largest provider by volume [2]. Revenue Situation - AUX Electric has shown significant revenue growth, with a 27.2% increase from 2022 to 2023 and a projected 19.8% growth from 2023 to 2024. For the three months ending March 31, 2025, revenue is expected to grow by 27.0% compared to the same period in 2024 [4]. Net Profit - The net profit increased by 72.5% from 2022 to 2023, but the growth rate slowed to 17.0% from 2023 to 2024. For the three months ending March 31, 2025, net profit is expected to grow by 23.0% compared to the same period in 2024 [5]. Profitability Ratios - The gross margin has remained relatively stable around 21%, while the net margin peaked at 10.0% in 2023 before experiencing slight fluctuations [6]. Revenue Composition - Overseas revenue accounted for 57.1% of total revenue for the three months ending March 31, 2025, reflecting the company's global strategy to establish production bases and sales companies abroad [8]. Customer Concentration - The revenue concentration from the top five customers has remained low, with a stable share of around 17.5% to 18.9% from 2022 to 2025, indicating a lower risk from customer concentration [12]. Supplier Concentration - The procurement from the top five suppliers has shown relative stability, with their share of total operating costs fluctuating between 26.6% and 33.3% from 2022 to 2025 [13]. Management Team - The management team has extensive industry experience, although details regarding compensation and incentive mechanisms are not fully disclosed, which may impact long-term company performance [15].

Summary of Conference Call Records Company and Industry - The discussion revolves around the air conditioning industry and a specific company involved in this sector Key Points and Arguments 1. The headquarters has set conservative growth targets for various regions, aiming for price stability while ensuring task completion, indicating a focus on profit recovery this year [1] 2. The company's strategy involves reducing incentives for distributors, leading to decreased enthusiasm for inventory purchases, yet maintaining a double-digit growth target for the year [2] 3. The target for inventory turnover is set at 5%, with a noted increase in inventory levels due to promotional activities in March and April, followed by a decrease in May [3] 4. The company anticipates a sales growth rate of 10% to 15% for the upcoming year, despite potential slowdowns in inventory turnover [4] 5. Current sales figures show a growth of approximately 17%, with the market still in a pre-explosion phase, indicating that full market potential has yet to be realized [5] 6. The product range is categorized into three segments: low-end, mid-range, and high-end, with low-end products accounting for about 20% of sales [6] 7. Mid-range products are performing well due to favorable government subsidies, with a significant increase in sales observed [7] 8. The company is concerned about the overall budget for the year, which has not seen significant growth compared to last year, despite an increase in product categories [8] 9. There are expectations for a nationwide review of budget allocations, with concerns about the adequacy of funds for promotional activities [9] 10. The company is facing challenges with inventory management and potential issues with subsidy fraud, necessitating a reevaluation of budget allocations [10] 11. Profit recovery is expected to come from channel reforms and logistics improvements, with an estimated recovery of 3 to 5 percentage points in profit margins [11][12] 12. The company plans to streamline its product offerings to reduce energy consumption and improve efficiency [12] 13. The air conditioning market is currently under pressure due to low demand in the real estate sector, impacting overall sales [17] Other Important but Possibly Overlooked Content - The company is implementing a digital transformation strategy, focusing on cloud-based management systems to enhance operational efficiency [14] - The pricing strategy is at its lowest due to competitive pressures, with costs reaching their limits, indicating a challenging environment for future price adjustments [15][16] - The company is cautious about the future of the air conditioning market, particularly in light of government policies and budget constraints affecting consumer purchasing power [17]