40% high profit margin, 3% low R&D: Uncovering Caike Technology's "Counterintuitive" Business Strategy | Understanding IPO

Ask AI · How can low R&D investment support the “high gross margin” myth of Caike Technology?

Source: Times Business Research Institute Author: Zeng Ruiqi

Image source: TuChong Creative

Source | Times Business Research Institute

Author | Special Correspondent Researcher Zeng Ruiqi

Edited by | Zheng Lin

Recently, Shijiazhuang Caike New Materials Technology Co., Ltd. (hereinafter referred to as “Caike Technology”) has attracted considerable attention in the IPO circle of the Beijing Stock Exchange. The company cleared the review on March 10, which should have been a cause for celebration, but there are also plenty of voices singing the opposite tune in the market, such as “performance relies on picking up leftovers, technology relies on packaging, and customers rely on luck.”

And the market’s skepticism is not without basis. Caike Technology’s performance has grown steadily over the past three years, but just before going public, it suddenly announced a “turnaround” in performance. The performance forecast information in its prospectus shows that in the first half of 2026, its revenue year-over-year change is projected to be between -11.68% and 4.62%, and its net profit year-over-year change between -14.39% and 3.97%; the maximum decline of the two could exceed 10%.

In addition, as early as the second round of regulatory questions, the regulator had asked the company about matters such as market space, the authenticity of sales, and the reasonableness and sustainability of performance growth.

So what is the “base color” of this company’s performance?

On March 26, regarding issues including performance sustainability, related-party transactions, and retrospective adjustments, Times Business Research Institute sent an email to Caike Technology and also made a phone call to inquire. On March 27, Caike Technology replied to Times Business Research Institute, stating that it should be based on the information disclosed publicly by the company.

This “cup of wine” for performance—aged fine wine, or “blended” wine?

First, judging from performance data over the years, Caike Technology indeed looks impressive. Based on data from Tonghuashun iFinD, from 2022 to 2024, the company’s revenue rose from RMB 360 million to RMB 450 million, its net profit jumped from over RMB 83 million to RMB 115 million, and its gross margin increased steadily from 30% to over 41%.

However, the performance of this “top student” may not hold up under closer scrutiny. This growth wave is more like drinking a can of “emergency energy drink”—it has a strong kick, but it’s not a long-lasting solution.

When Caike Technology responded to the regulatory inquiries, it had already laid its cards on the table. The surge in 2024 performance was mainly driven by three factors: first, German pigment giant Heubach Colour Pvt Ltd went bankrupt, creating a major gap in the supply chain, and Caike Technology “stepped in” and picked up a large number of orders; second, downstream market demand rebounded; third, because the U.S. plants of its large customer DIC Group (referring to DIC Corporation of Japan and the companies it controls) faced shortages of raw material supply, they temporarily sought Caike Technology’s help and bought a large batch of goods.

The sponsor and the auditors calculated the numbers. Just these two “heaven-sent windfalls”—“Heubach’s bankruptcy” and “DIC’s emergency purchase”—accounted for more than half of the increase in Caike Technology’s 2024 core product DMSS and DATA revenue. In other words, without these two “unexpected blessings,” its 2024 financial statements might have looked far less bright.

Could the “pies” fall every day? Obviously not. In 2025, Heubach was acquired by Indian peer Sudarshan. Although it has not yet recovered standalone production in the short term, the two companies became one, and nobody knows whether their procurement strategy will change. In addition, DIC’s plants have been repaired, and in 2025 they did not place further orders with Caike Technology. Caike Technology also acknowledged in its prospectus that it expects that in the first half of 2026, both revenue and net profit may decline, and the magnitude may be significant.

For a “new materials technology” company, relying on external “black swan” events to support performance growth is clearly not a sustainable plan.

This “wall” of technology—reinforced concrete or paper-thin?

Look at another point that is hard to make sense of: Caike Technology’s high gross margin and low R&D coexist at the same time.

As shown in Tables 3 and 4, during the reporting period, the company’s gross margin peaked at 41.27%, while its R&D expense ratio has been below 2.5% for years, whereas the average level among peers is above 4%. The company explained that this is due to its continuous optimization of existing product manufacturing processes, its technology level being at a high level in the industry, effective cost control, and high R&D efficiency.

This “scissor gap” created by “high gross margin” and “low R&D”—is it an efficiency myth, or a signal that the technology moat is not deep enough? This definitely deserves scrutiny.

In a technology-driven fine chemical industry, if there really is core technology that others cannot copy, then to maintain such a high barrier, R&D investment should logically keep up. Either it keeps pouring money into upgrading processes, or it develops the next-generation products. But Caike Technology’s approach is that R&D investment doesn’t increase much, while gross margin keeps rising. Is it the legendary “extraordinarily high human-efficiency”?

Of course, Caike Technology also has an explanation: some R&D expenditures produced sellable products, so they were carried over into costs rather than fully counted in R&D expenses. And as shown in Table 4, even if this impact is added back, the share of total R&D spending is still around 4% to 5%, not much higher than peers.

Let’s look at peer companies Bai Lianhua (603823.SH) and Qicai Chemical (300758.SZ). Both of the above companies follow a “full industrial chain” route from intermediates to pigment products. Although that approach lowers gross margins, it digs a deeper moat. Caike Technology, by contrast, chooses to focus on intermediates and earns “small-but-nimble” profits, but this also means that if downstream customers integrate upward into the upstream industrial chain, or if the industry sees cheaper new technologies, will Caike Technology’s high gross margin collapse as a result?

How stable is this “independence flag”?

Finally, there is another topic that cannot be avoided: this company has too many related-party transactions. During the reporting period, more than 20% of production costs were purchased from related parties, such as steam and wastewater treatment. And independence is a red line for IPO review—it’s also the most sensitive area for investors.

The “internal” operations behind the pricing of related-party transactions, combined with that “tailor-made” third-party report, make it hard not to wonder whether the authenticity of its costs can stand up to verification.

What is most confusing is the wastewater treatment pricing. Originally, it was priced using a “cost-plus” method. But in October 2023, it suddenly switched to being priced based on a valuation report prepared by a third-party institution called “Fengyuan Environmental Protection.” The issue is that Caike Technology itself wrote in its response to the second round of inquiries: “Fengyuan Environmental Protection has not provided similar services to any other customers besides Caike Technology.”

That is intriguing. An institution that has never provided similar wastewater pricing and estimation to other companies issues a report, and that report becomes the pricing cornerstone for tens of millions of yuan of related-party transactions? Is this credible? Is it truly an independent third party, or a third party “customized” for Caike Technology?

Subsequently, Caike Technology hired five experts from institutions including the China Chemical and Environmental Protection Association and the Solid Waste and Chemicals Administration Technical Center of the Ministry of Ecology and Environment to demonstrate this report. The conclusion was that the report was “generally reasonable.”

What is even more worrisome is that Caike Technology also, based on this new pricing, performed “retrospective adjustments” to the related-party transaction data for 2022 and 2023. If the prior pricing was fair, why make retrospective adjustments?

In response, Caike Technology explained that the adjustments were made to reflect the related-party transactions more objectively, and to eliminate the risk of利益 transfer caused by unfair pricing of related-party transactions. For each period of the reporting period, the adjusted amounts for its steam and wastewater treatment services accounted for a relatively small proportion of its procurement amounts, and there was no situation where the amounts changed greatly before and after the adjustment.

In addition, the de facto controller Ge Yi has also kept an earn-out agreement on file. If Shandong Caike New Materials Co., Ltd. (hereinafter referred to as “Shandong Caike New Materials”) fails to be listed by the end of 2026, the actual controller Ge Yi and its related parties may need to spend nearly RMB 270 million to repurchase shares. With such a large amount of money, could it be transmitted to Caike Technology through some covert channels? This is also a risk hanging over Caike Technology’s head.

Overall, for Caike Technology, both its strengths and weaknesses are laid out on the table as if they were “known facts.” Its strengths are that the industry it is in is indeed promising: high-end chemical intermediates, with downstream demand looking favorable over the long term; its customer resources are also strong—all major international players such as DIC and Sudarshan—and it has cooperated with them for more than a decade; in the short term, due to process and scale advantages, its profitability ability is indeed strong.

Its weaknesses and risks are equally conspicuous. A lot of “occasional windfall gains” are injected into its performance, and the decline in performance in 2026 is almost like a foregone conclusion; R&D investment does not match its high gross margin—how deep is the technology “moat,” and whether it’s real, needs to be questioned; the proportion of related-party transactions is high, and its pricing mechanism has also undergone internal adjustments—whether costs are truly independent needs further observation; and the debt and earn-out pressure on the de facto controller and related parties—whether it will transmit as well—is another ticking time bomb.

In essence, Caike Technology seems to bundle “short-term profit-making ability” and “long-term operating risks” within one package. From the perspective of short-term trading, its current low valuation and high profits may be attractive; but from the perspective of long-term investment, concerns about performance sustainability, the genuine “hard moat” of technology, and the independence at the level of corporate governance are difficult to ignore.

For the Beijing Stock Exchange to let it pass the review does not mean the issues above do not exist—it only places the issues under the spotlight, so that the market can digest them and price them on its own. For Caike Technology, listing may be merely changing the exam from “how to pass the review” to “how to live well in the market.” Time will gradually test how much true substance is in this “new materials technology” wine.

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