Behind 1 Billion Goodwill, Huahai Chengke Makes a Bold Bet on Premiumization | Financial Report Analysis

Source: Titanium Media

As a nationally recognized specialized and innovative “Little Giant” enterprise in the field of semiconductor packaging materials, Huahai Chengke (688535.SH) reported its worst-ever net profit since listing in yesterday’s financial report. According to annual data, the company’s net profit in 2025 plummeted by 39.47% compared to 2022, nearly halving.

Perhaps anticipating growth bottlenecks in basic epoxy molding compounds, Huahai Chengke began its acquisition strategy in 2024 and in 2025 acquired Hengsuo Huawei, which holds a dominant position in the domestic automotive-grade market, leaving opportunities for the company to challenge the advanced packaging field. However, the high premium paid for acquisitions has also left Huahai Chengke with a goodwill “mine” of nearly 1 billion yuan.

Whether Huahai Chengke can reverse its profit decline and digest the high goodwill remains to be seen.

Performance Continues to Be Under Pressure: Revenue Growth but Profitability Challenges

Choice data shows that Huahai Chengke’s net profit declined year by year from 2021 to 2023. Although it slightly rebounded to 40.06 million yuan in 2024, it dropped sharply again by 39.47% in 2025, with net profit only 24.25 million yuan, nearly halving over four years.

Image source: Choice

In stark contrast to the continuous profit decline, the company’s operating revenue has steadily increased since listing. In 2023 and 2024, revenue was 283 million yuan and 332 million yuan respectively; after completing the 100% acquisition of Hengsuo Huawei in 2025, revenue saw a significant increase, reaching 458 million yuan for the year, a 38.12% year-over-year increase, with Q4 revenue surging 94.4% to 179 million yuan.

Image source: Choice

Regarding the reasons for profit decline, the company explained that it was mainly affected by employee stock incentive expenses, increased depreciation of new factories and equipment, and higher loan interest expenses. Notably, although R&D investment as a percentage of operating income increased from 7.96% in 2024 to 10.93% in 2025, the growth in R&D spending did not translate into improved profitability. Instead, increased expenses further squeezed profit margins.

From a business segment perspective, core revenue from epoxy molding compounds reached 428 million yuan in 2025, up 35.61% year-over-year, with a gross margin of 26.35%, a slight increase of 1.19 percentage points; adhesive business revenue was 28 million yuan, up 83.29%, but gross margin decreased by 3.96 percentage points to 31.09%.

Epoxy molding compounds (EMC), as a core material in semiconductor packaging, are experiencing a sustained rapid growth cycle driven by strong demand in AI computing power, advanced packaging, and new energy vehicles. Its industry role has fundamentally shifted from a supporting material that protects chips to a key “enabler” and “value creator” for advanced packaging technologies such as Chiplet, 2.5D/3D integration, and fan-out packaging. This development shows a clear trend toward high-end products, which can bring higher added value and profit margins.

Currently, in the field of advanced packaging, Huahai Chengke’s products used in QFN packaging have achieved small-batch production and sales, but products in BGA, SiP, and FOWLP/FOPLP packaging formats have not yet been industrialized. Foreign companies still dominate this market. In high-performance epoxy molding compounds, although Huahai Chengke’s product quality is comparable to foreign manufacturers, market share remains largely held by foreign firms due to multiple factors.

Considering recent net profit and gross margin performance, Huahai Chengke needs to solidify its basic business while achieving large-scale breakthroughs in high-end products to effectively support profit recovery.

Goodwill Pressure: Risks of Integration from Overpaying Acquisitions

To break through development bottlenecks, Huahai Chengke has chosen to accelerate expansion through acquisitions. In its second year listed, the company announced the acquisition of its competitor Hengsuo Huawei, valuing this company—an enterprise with over 40 years in semiconductor packaging materials and the first domestic producer of epoxy molding compounds—at 1.658 billion yuan, a valuation increase of 321.98%.

In 2025, Huahai Chengke completed the acquisition of 100% of Hengsuo Huawei. Post-merger, the company’s annual production and sales of semiconductor epoxy molding compounds exceeded 25,000 tons, securing its position as a domestic leader and ranking second globally in shipment volume. However, this acquisition also resulted in a high goodwill of 993 million yuan, accounting for 31.43% of the company’s total assets at the end of 2025, and 45.67% of the net assets attributable to shareholders. Such a high proportion of goodwill poses significant future operational risks. More concerning is that this high-premium acquisition did not include a performance compensation mechanism.

Image source: Announcement

For Huahai Chengke, acquiring Hengsuo Huawei means gaining absolute dominance in the domestic automotive-grade market—Hengsuo Huawei’s GR750X1, a high-Tg (200°C) epoxy curing system developed specifically for 1200V silicon carbide power modules, has been scaled for global top five power device manufacturers and has become one of the high-performance packaging materials for high-voltage electric drive systems. In advanced packaging, Hengsuo GR910 series products have passed assessments and are in mass supply for NAND Flash; its Korean subsidiary also has the technical capability to develop high-thermal-conductivity EMC required for HBM, with potential to enter the global AI chip supply chain.

Meanwhile, Hengsuo Huawei’s continued profitability in recent years provides a positive outlook for goodwill amortization. Data shows that from 2023 to 2025, its revenue grew modestly from 461 million yuan to 480 million yuan; net profit surged from 31.08 million yuan in 2023 to 45.68 million yuan in 2024, further rising to 58.15 million yuan in 2025. However, the growth rate of net profit slowed in 2025, and whether these positive developments can be sustained and translated into stable profits remains to be seen.

Faced with three consecutive years of declining profits and nearly 1 billion yuan in goodwill, Huahai Chengke needs to accelerate post-acquisition integration and break through high-end product market barriers. Otherwise, in an increasingly competitive industry environment, the company may fall into a dual dilemma of “revenue growth without profit growth” and “goodwill impairment.” (Text | Company Observation, Author | Cao Shengyuan, Editor | Deng Haotian)

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