Daotong Technology's Rapid Growth and the Cracks in Financial Reports? Significant Differences Between Parent and Subsidiary Companies — Why Is the CFO Frequently Resigning?

Published by: Sina Finance Listed Company Research Institute

By / Xiachong Studio

Key takeaway: In 2025, Dootong Technology’s performance can be described as excellent—both revenue and net profit increased significantly. However, this high-growth performance has shown “cracks.” The main manifestations are differences between the consolidated figures and the standalone financial statements. First, there is a huge gap between the consolidated net profit margin and the standalone subsidiaries’ reports. Second, there is also a massive difference between changes in the consolidated gross margin and the standalone parent-company reports. At this point, what we are curious about is whether there is some financial engineering behind the differences in the company’s financial statements. And what kind of signals could be reflected by the frequent departures of the company’s financial controller?

Recently, Dootong Technology released its 2025 financial report, with both revenue and net profit rising year over year.

The 2025 annual report shows that the company’s operating revenue was 4.833 billion yuan, up 23%; net profit attributable to shareholders was 936 million yuan, up 46%; and non-recurring items net profit attributable to shareholders was 869 million yuan, up 61%.

With such impressive performance, however, we find that there is a large discrepancy between the standalone financial statements of the parent company and the consolidated level.

Cracks in the reports under high growth? Big differences between parent and subsidiaries

According to publicly available information, Dootong Technology is an automotive electronics company whose main businesses include comprehensive automotive diagnostics and testing. Its main products cover comprehensive automotive diagnostics, TPMS (tire pressure monitoring system), ADAS intelligent testing and calibration, and related software cloud services, and it has also entered the new energy charging services segment.

In 2025, Dootong Technology’s performance was indeed impressive, with high growth in revenue and net profit. However, this high-growth performance also shows “cracks,” mainly reflected in differences between the consolidated figures and the standalone statements.

First, the consolidated net profit margin and the standalone subsidiary reports differ greatly.

Data from the past three years show that at the consolidated level, the company’s net profit margin has continued to rise, reaching as high as 18.43% in 2025.

However, in 2025, Dootong Technology generated nearly 5 billion yuan in revenue and nearly 1 billion yuan in profit. An important subsidiary contributed only one company’s profit—Dootong New York. The data show that this company contributed revenue of 1.94 billion yuan, while its net profit was only 56.64 million yuan.Based on this calculation, the subsidiary’s net profit margin is only 3%, which is significantly different from the consolidated net profit margin of nearly 20%.

Source: 2025 annual report

According to relevant regulations of the China Securities Regulatory Commission and the stock exchanges, listed companies have clear disclosure requirements in their annual reports regarding their major controlling and non-controlling invested companies. That is, the annual report should disclose the status of subsidiaries and investees whose impact on the company’s net profit is 10% or more, as well as information such as the business nature, main products or services, registered capital, total assets, net assets, net profit, etc. of the major controlling subsidiaries. In other words, Dootong Technology’s major profit contribution comes only from Dootong New York. Notably, the important subsidiaries that contribute profit also show volatility: in 2025 it was Dootong New York, while in 2024 it was Dootong California.

Source: 2024 annual report

Second, changes in the consolidated gross margin differ greatly from the standalone parent-company statements.

Judging by its gross margin performance, Dootong Technology’s gross margin is relatively stable, staying between 55% and 56%. By contrast, at the standalone parent company level, Dootong Technology’s gross margin not only differs significantly from the consolidated level, but also shows huge volatility. From 2023 to 2025, the parent company’s gross margin was 13%, 27%, and 42%, respectively.

At this point, we have two major questions. First, why does the company’s net profit margin differ dramatically between the consolidated level and its subsidiaries? Second, why does the company’s consolidated gross margin differ so much from the parent company’s standalone financial statements, and why did the parent company’s gross margin surge sharply again in 2025?

Are there any financial statement tricks? The financial controller leaves frequently—company data deviate from peers

Regarding the above questions, industry insiders say that the core reason for the data discrepancy is the elimination of internal transactions. When subsidiaries sell goods or provide services to each other, revenue and costs are generated on their respective financial statements, forming profits. But when preparing consolidated financial statements, these internal transactions are fully eliminated—revenue and costs decrease at the same time—yet the group’s actual costs and expenses do not increase. Essentially, the standalone statements reflect profit from a single link, while consolidation views the whole picture from start to finish and represents the final real profitability.

What is particularly puzzling is why the difference between the standalone and consolidated levels is so huge. What is the mystery behind it?

Industry insiders further point out that when a company involves overseas business, it is necessary to consider whether related parties might conduct overall tax planning through a payment/transfer arrangement structure. For example, by compressing profits in the production stage and inflating profits in the sales stage, taxable income is transferred from high-tax-rate regions to low-tax-rate regions.

We note that 98% of Dootong Technology’s business is overseas, while domestic revenue accounts for only about 2%. The company states that for a long time it has mainly sold products to overseas customers, and therefore there is a degree of risk that depends on the North American market. At present, the company’s overseas sales have covered more than 120 countries and regions worldwide. It has established overseas branches in major regions such as North America and Europe, and it also has production bases in Vietnam and the United States.

Dootong Technology states that its products are mainly exported. After being produced domestically and in Vietnam, the products are generally shipped to overseas subsidiary warehouses in the United States, Europe, and so on by sea freight. We note that in Dootong Technology’s sales process, Dootong Technology establishes sales platforms overseas. Shipments are typically sent from Dootong Technology or Dootong Vietnam to key overseas trading companies in the United States, Europe, Japan, Mexico, and elsewhere, which manage overseas inventory centrally. Then overseas subsidiaries sell to local customers. When Dootong Technology sets up the trading company Dootong New York, it serves as a sales platform company established in North America, mainly responsible for sales business in the North America region. Its main suppliers include Dootong Technology and Dootong Vietnam, among other companies within the consolidated scope of Dootong Technology.

According to incomplete publicly available statistics, the standard tax rates in Asia’s major economies (China, Vietnam, Singapore) range from 17% to 25%, but they all provide significant preferential treatment for small and medium-sized enterprises, high-tech enterprises, or specific industries. Hong Kong and Ireland are known for standard tax rates as low as 16.5% and 12.5%, respectively. The U.S. corporate income tax system still mainly relies on federal tax, maintaining 21% of pre-tax income as the federal tax basis. It should be emphasized that, in addition to federal tax, each state has significant differences in corporate income tax. For example, California is 8.84%, Illinois is 9.5%, and New York is 7.25%, while for most enterprises, Texas and Florida do not impose corporate income tax (but impose other types such as margin tax). Some states such as New Hampshire and Tennessee, although nominally having no corporate tax.

At this point, we are left wondering whether Dootong Technology could potentially compress profits in regions with heavier tax burdens and let the profits settle in regions with lighter tax burdens.

It is important to be alert to the fact that if the consolidated net profit margin continues to be abnormally higher than all subsidiaries’ net profit margins, it may indicate inflated revenue or hidden costs at the parent-company level (such as expenses that should be accrued at the parent being transferred to subsidiaries). If a subsidiary’s net profit margin is close to zero or negative while the consolidated net profit margin is high, it is necessary to verify whether transfer pricing is overly aggressive, which could trigger risks of special tax adjustments.

Industry insiders further add that China’s tax authorities (the State Taxation Administration) have the right to make special tax adjustments to related-party transactions that do not comply with the independent transaction principle, with a lookback period of up to 10 years. If it is found that the parent company sells goods to overseas subsidiaries at an excessively low price, tax authorities may increase the parent company’s sales revenue (collecting additional corporate income tax), along with late payment surcharges and interest ranging from 5% to 10%. If an overseas trading company is deemed to be a conduit company without substantive operations (such as being registered in BVI only, with no actual office personnel, no inventory management, and no local employees), China’s tax authorities may disregard its legal form and treat its profit as directly distributed, then levy taxes accordingly.

Whether Dootong Technology has the above issues is not yet known. What is especially puzzling is why the company’s parent-company gross margin in 2025 increased sharply.

On December 19, 2025, Dootong Technology submitted its prospectus to the Hong Kong Stock Exchange for the first time, planning to raise funds through a secondary listing on the Hong Kong Main Board. Industry insiders further note that multinational companies using transfer pricing to conduct tax planning is in itself legal. However, if it is determined not to comply with the independent transaction principle, and it faces special tax adjustments (back taxes plus late payment surcharges), or if the prospectus is not sufficiently disclosed, it will directly constitute a substantial obstacle to listing in Hong Kong.

Regulators emphasize that the parent company’s individual financial statements should be used as the basis for distribution, and they recommend applying the principle of using the lower of the consolidated and the parent-company statements. We note that the company’s cash dividend payout ratio in 2025 was relatively large. In 2025, the cash dividend amount was 716 million yuan, and the dividend payout ratio was nearly 80%. With such a high proportion of dividends, the actual controller Li Hongjing may be the biggest beneficiary, with a shareholding ratio of nearly 40%.

Whether there are problems with the company’s relevant financial data is not yet known, but we note that the company’s financial data differ from those of its peers, and that the company’s financial controller has left the position extremely frequently.

Compared with peers, Dootong Technology’s gross margin level is far higher than that of its peers. Using 2024 full-year annual report data as an example, the gross margins of YuanZheng Technology, BaoLun Technology, and WanTong ZhiKong are 47.56%, 25.05%, and 34.54%, respectively. The average gross margin of the three companies is 35.72%, while Dootong Technology’s gross margin is as high as 55.31%, far above the industry average.

The company’s financial controller has changed too frequently in recent years. Over the past four years, Dootong Technology has frequently changed its financial controller. After Wang Yong resigned in August 2021, Fang Wenbin took over. In April 2023, Fang Wenbin resigned and Tian Shuang succeeded him. That same year in September, Tian Shuang resigned again and Fan Ying took over. In September 2024, Fan Ying also resigned for personal reasons. Currently, the chairman and general manager Li Hongjing is acting in that role. The company states that all handover matters were properly completed and did not affect daily operations.

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