Capital Surplus and Potential Conflict with Controlling Shareholder: A Case Study of Joint Power

This article is authorized by 《China Commercial》

Author: Zheng Yungang

Editor: Wang Cheng

As early as 2009, Hubei Technology (300124) established its own new energy department, mainly providing electric motor controllers for Geely Panda cars. After several years of accumulation, Hubei Technology cooperated with multiple clients in the automotive electric motor controller direction and further refined its technology development.

In 2016, Hubei Technology invested RMB 200 million to set up Suzhou Hubei Joint Power Systems Co., Ltd. (hereinafter referred to as "Joint Power"). In the near years of market boom and policy support, Joint Power's development trend has been rapid, with a net profit of RMB 9.36 billion in 2024.

Capital Surplus and Potential Conflict with Controlling Shareholder

Joint Power is a company that provides smart electric motor solutions for the automotive industry, responsible for Hubei Technology's entire group of new energy automobile electric drive systems & power systems business.

In 2021, Hubei Technology increased its investment in Joint Power by RMB 18 billion, with a total registered capital of RMB 20 billion. In 2022, considering the actual financial needs of Joint Power, Hubei Technology further adjusted its actual investment amount to RMB 28 billion, with an increase of RMB 10 billion in surplus capital.

According to the prospectus, in 2021 and 2022, Joint Power achieved revenue of RMB 29.03 billion and RMB 50.27 billion, respectively, with a net loss of RMB 2.5 billion and RMB 1.8 billion, respectively. In 2022, Joint Power's revenue grew by 73.2%, while its net loss narrowed.

As of the end of 2022, Joint Power had accumulated a net loss of RMB 42.85 billion.

In 2023 and 2024, Joint Power's revenue reached RMB 93.65 billion and RMB 161.78 billion, respectively, with a net profit of RMB 1.86 billion and RMB 9.36 billion, respectively.

What is intriguing is that the prospectus shows that Joint Power's undistributed profits at the end of 2023 were RMB 36.91 billion, which is far higher than the net loss achieved in the same year. This has raised concerns about the potential conflict between Joint Power and its controlling shareholder.

The audit report shows that Joint Power performed a share-based reform in 2023, with a capital surplus of RMB 61.18 billion reduced to undistributed profits.

According to the "Company Law", a company's capital surplus can be used to offset losses, but according to the relevant notice issued by the Ministry of Finance, "the use of accumulated surpluses to offset losses shall not exceed the net loss for that year."

Joint Power's actual undistributed profits were RMB 42.85 billion in 2022, and its capital surplus was reduced by RMB 61.18 billion in 2023. This has raised concerns about whether Joint Power's operation is in compliance with the law.

(Screenshot from Hubei Technology's 2022 report on non-operating funds and other related transactions)