In the fast-paced world of finance, even a company with rising profits can experience an unsettling decline in growth momentumSuch is the case for Shangda shares, trading under the symbol 301522.SZDespite an impressive 7% year-on-year increase in net profit attributable to shareholders for 2024, pressures from diminished demand and fierce market competition have resulted in a staggering drop in revenue growth and a nearly 3 percentage point dip in its gross profit margin.

Founded with the ambition to excel in the specialty alloy sector, Shangda shares recently made their public debut in mid-October 2024. In a recent announcement, the company revealed plans for additional investments in their IPO fundraising projects, including over 200 million yuan (approximately $30 million) allocated for upgrading existing facilities.

While Shangda reported substantial earnings of 2.508 billion yuan for 2024—a respectable increase of 23.39%, the stagnation in profit growth has raised eyebrowsThe reported net profit was noted at 162 million yuan, reflecting a nominal rise of just 7.14% compared to previous figuresThese numbers reveal a concerning trend: the company is not moving forward as vigorously as it once did.

Investigating the reasons behind this slowdown in growth, it’s worth noting Shangda's earlier financial performanceThe firm documented net profits of 107 million yuan in 2022 and 151 million yuan in 2023, translating to remarkable growth rates of 54.76% and 40.85%, respectivelyHowever, the abrupt drop to just over 7% in 2024 signals potential systemic issues within the company or the markets in which it operates.

Analysts and industry insiders are left wondering why Shangda's growth trajectory has taken such a downturnAttempts to gain further insight from the company's Securities Department have met with silence, underscoring a possible disconnect between management and stakeholders.

Shangda specializes in the research, production, and sale of high-temperature and high-performance alloys, including premium stainless steel products that find extensive applications across military and civilian sectors—ranging from aerospace to petrochemical industries

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This diverse applicability demonstrates the company's valuable role in high-end equipment manufacturing.

Nevertheless, the performance indicators for 2024 don't inspire confidenceA gross profit margin of 13.91% represents a sharp decline of 2.97 percentage points compared to the previous year, highlighting the shrinking profitability that can directly stem from reduced market demand and intense competition that characterizes the alloy industryFor context, Shangda's integrated gross profit margins for the years 2021 to 2023 stood at figures of 18.48%, 17%, and 16.88%, all trailing behind industry averages while showing a consistent decline.

The 2024 annual report indicates that high-temperature and high-performance alloys contributed 1.463 billion yuan to revenue, accounting for a little more than 58% of total salesIt’s puzzling to see that despite this segment being touted as an area of rapid growth, its revenue share has actually diminished compared to the previous year's 59.86%. Queries directed towards Shangda's management for clarification on this anomaly went unanswered, adding another layer of uncertainty.

Despite these financial hiccups, Shangda continues to explore avenues for securing investments to facilitate growth, albeit success has been elusive following their recent IPOOriginally, the company aimed to raise 1.25 billion yuan, designating over 1.052 billion yuan for creating a new facility capable of producing 8,000 tons of ultra-pure high-performance high-temperature alloys annuallyThis plan was also intended to support working capital needs with an additional 198 million yuan allocation.

However, after accounting for issuance costs, the actual net proceeds from the IPO only totaled 549 million yuan, well below expectationsTo ensure the successful execution of its IPO projects, Shangda announced a strategic pivot aimed at channeling all IPO funds into the 8,000-ton facility project.

In conjunction with their annual financial disclosure, Shangda is now planning to augment the investment allocated to its IPO fundraising projects

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This includes plans for a new 35MN forging machine, purchasing 108 mu (approximately 7.2 hectares) of land for expansion, and increased funding to expand the rolling workshopAs a result, the revised investment requirement has surged from 1.052 billion yuan to 1.35 billion yuan, accompanied by a timeline extension to complete project implementation until the end of 2027.

The company has reported that by the end of 2024, approximately 189 million yuan of the raised funds have been utilized, leaving a balance of 393 million yuan unspentFurthermore, Shangda intends to invest an additional 206 million yuan of its own and self-raised funds to upgrade its existing purification melting workshop and raw materials workshopThis includes upgrading 80,000 tons of current cast blank production from casting processes to vertical continuous casting, while maintaining the existing casting limit of 40,000 tons.

Looking to the balance sheet, Shangda's cash reserves totaled only 671 million yuan alongside short-term loans amounting to 353 million yuan as of year-end 2024, raising critical questions about the company’s liquidity situation and its capacity to fulfill its ambitious growth plans post-IPO.

In conclusion, while 2024 has brought a modest increase in net profits for Shangda, the surrounding challenges—with declining growth rates and slipping gross margins, combined with unfulfilled fundraising aspirations—cast a shadow over its futureWhether the company can navigate these turbulent waters and pivot back to a path of robust growth remains uncertain and will require decisive action and strategic foresight on the part of its leadership.

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