Core Analysis: Leo Group Co.,Ltd. faces weak core business operations with persistently negative cash flows, raising concerns about earnings quality. Meanwhile, the company's actual controller is under regulatory investigation. Are Leo Group's current Hong Kong IPO planning efforts potentially misleading? Additionally, Leo Group's actual controller Wang Xiangrong recently took control of *ST Chuangxing, which faces imminent delisting risks. Under *ST Chuangxing's shell preservation pressure, Leo Group has signed related-party transactions with it - could this be assisting in shell preservation? Should investors be wary of potential risks to the listed company?
Recently, Leo Group's stock price exhibited unusual movements, with the company's stock closing prices showing cumulative deviation exceeding 20% over three consecutive trading days on August 18, 19, and 20, 2025, triggering abnormal stock price movement regulations.
Leo Group is currently planning overseas share issuance (H-shares) and listing on the Hong Kong Stock Exchange. The company states this Hong Kong listing is primarily based on global strategic positioning, enhancing overseas financing capabilities, and further improving the company's international brand image and recognition.
It should be noted that Leo Group's core business remains weak, with profitability heavily dependent on investment activities. Simultaneously, the company's actual controller faces regulatory investigation. Could Leo Group's Hong Kong IPO planning potentially be a "feint"?
**Hong Kong IPO Plans: Genuine or Misleading? Actual Controller Under Investigation, Poor Core Business Profitability**
Public records show Leo Group debuted on the Shenzhen Stock Exchange SME Board in April 2007. Until 2013, the company's main business involved industrial pump design, production, and sales, belonging to specialized equipment manufacturing. Subsequently, the company engaged in series of merger and acquisition investment activities. According to statistics, the company successively acquired partial or complete equity stakes in over twenty companies including Mankoo Advertising, Haiya Ke, Amber Communication, and Wansheng Weiye, with total transaction amounts exceeding 5 billion yuan.
Currently, the company operates two major businesses: mechanical manufacturing and digital marketing. Does Leo Group's listing align with relevant regulatory policies and compliance requirements?
On April 12, 2024, the State Council issued "Several Opinions on Strengthening Supervision, Preventing Risks, and Promoting High-Quality Development of Capital Markets." The document proposed supporting mainland industry-leading enterprises in listing in Hong Kong. The China Securities Regulatory Commission will further strengthen communication and coordination with relevant departments to support qualified mainland industry-leading enterprises in Hong Kong listing and financing.
First, concerns about the company's core business profitability quality.
From the company's revenue scale perspective, it has maintained over 20 billion yuan for multiple consecutive years, with media agency business being the largest segment. According to COMvergence data, Leo Group ranked in the second tier in 2024 with approximately 3% market share. Among these, Provincial Advertising Group maintained its leading domestic position for the fourth consecutive year with 20.64 billion yuan (+24.0% year-over-year), while Leo Group maintained second place with 16.43 billion yuan, showing almost stagnant growth, with the gap from Provincial Advertising expanding to 4.21 billion yuan.
Despite seemingly substantial revenue, actual profitability quality remains questionable. In recent years, the company's gross profit has maintained between 1.3 billion and 1.9 billion yuan. After deducting three major expenses from gross profit, the remaining amount is only between 200 million and 400 million yuan. From these data characteristics, the figures show volatility - does this indicate that the business model's profitability stability requires observation?
Examining cash flows further, the company has maintained negative cash flows for four consecutive years from 2021 to 2024. With such poor cash flows over multiple years, the authenticity of related profits may warrant observation.
Additionally, the company appears enthusiastic about stock investment. An announcement on August 8 evening showed the board approved a proposal to use no more than 3 billion yuan in proprietary funds for securities investment, covering diversified investment methods including new stock subscriptions, stock and depositary receipt investments, bond investments, and entrusted wealth management.
Second, the company's actual controller faces investigation.
On April 17, 2024 evening, Leo Group announced that Chairman Wang Xiangrong and Vice Chairman Wang Zhuangli were placed under investigation by securities regulators for suspected short-term trading violations.
Wang Xiangrong and Wang Zhuangli are brothers, both in their 50s. The investigation concerns their mother Yan Suyun's company stock trading activities. The announcement showed that on March 22 and 24, 2023, Yan Suyun purchased 484,200 Leo Group shares totaling 1.2372 million yuan, and sold the stocks on May 30, 2023, for 1.1137 million yuan. Yan Suyun's transactions constituted short-term trading, resulting in a total loss of 123,500 yuan.
Leo Group announced that after learning of this matter, the company promptly verified and understood the relevant situation, with Wang Xiangrong, Wang Zhuangli, and their mother Yan Suyun actively cooperating and proactively correcting the situation. Due to Yan Suyun's short-term trading, on August 24, 2023, Wang Xiangrong and Wang Zhuangli received warning letters from the Zhejiang Bureau of the China Securities Regulatory Commission.
Could these events potentially obstruct Hong Kong listing? According to Article 8 of the "Interim Measures for Overseas Issuance and Listing of Securities by Domestic Enterprises," entities with the following circumstances may not conduct overseas issuance and listing: (1) explicitly prohibited from listing and financing by laws, administrative regulations, or relevant national provisions; (2) determined by relevant State Council departments through legal review that overseas issuance and listing may endanger national security; (3) domestic enterprises or their controlling shareholders or actual controllers having committed criminal offenses of corruption, bribery, property misappropriation, property embezzlement, or disrupting socialist market economic order within the past 3 years; (4) domestic enterprises under legal investigation for suspected crimes or major violations with no clear conclusions; (5) controlling shareholders or shareholders controlled by controlling shareholders or actual controllers holding equity with major ownership disputes.
The announcement stated that the investigation matters are unrelated to the company, targeting Wang Xiangrong and Wang Zhuangli personally, with company operations unaffected. During the investigation period, Wang Xiangrong and Wang Zhuangli will actively cooperate with relevant regulatory work and strictly fulfill information disclosure obligations according to relevant laws, regulations, and regulatory requirements.
**Related-Party Transactions Assisting Capital Operations? Beware of Listed Company Exploitation**
Leo Group's actual controller Wang Xiangrong recently engaged with ST shell companies.
According to public information, on May 28, Hangzhou Shangcheng District People's Court publicly auctioned 67 million shares held by *ST Chuangxing's controlling shareholder Huaqiao Industry on the Taobao judicial auction platform. Two Leo Group subsidiaries acquired 42 million shares at an average price of 3.64 yuan per share, representing a 25% discount from the 4.86 yuan closing price that day. Natural persons Zhong Renzhi and Yan Yi acquired the remaining shares, with all four parties subsequently signing a "Concerted Action Agreement."
On July 16 evening, *ST Chuangxing released an equity change announcement. Leo Group, through subsidiaries Fujian Pingtan Yuanchu Investment Co., Ltd. and Wenling Lixin Machinery Co., Ltd., acquired 9.87% equity in the company for a total price of 153 million yuan, becoming *ST Chuangxing's largest shareholder.
Leo Group's actual controller Wang Xiangrong indirectly controls 9.87% of *ST Chuangxing shares through Pingtan Yuanchu and Wenling Lixin, and through concerted action parties Zhong Renzhi and Yan Yi, ultimately controls a total of 67 million shares, representing 15.75% of total share capital, becoming *ST Chuangxing's new actual controller.
On April 30, 2025, due to audited financial data triggering relevant provisions of the "Shanghai Stock Exchange Stock Listing Rules," *ST Chuangxing stock was subject to delisting risk warning. Notably, *ST Chuangxing currently has revenue below 100 million yuan and faces continuous losses. Under new delisting regulations, if the company's revenue continues below 300 million yuan and remains negative, the company may enter delisting countdown.
Under shell preservation pressure, Leo Group released a related-party transaction announcement.
On August 16, Leo Group announced signing a "Related-Party Transaction Framework Agreement." The announcement stated the company intends to sign a framework agreement with related party Shanghai Chuangxing Resource Development Co., Ltd. The company's major shareholder and actual controller Wang Xiangrong's controlled enterprise Chuangxing Resource will undertake construction and supporting projects for the company and its wholly-owned and controlled subsidiaries' factories and other projects, including but not limited to construction project contracting, engineering material procurement, processing, manufacturing, installation, and related services.
Does the company have suspicions of leveraging Leo Group to assist the actual controller in shell preservation?
Regarding this related-party transaction, Leo Group stated that the framework agreement with Chuangxing Resource can fully utilize Chuangxing Resource's advantages in construction engineering technology, meeting the company's actual needs. Transaction prices are determined fairly and reasonably based on market prices, without harming company and shareholder interests, affecting company independence, or adversely impacting current and future financial conditions and operating results. The company will not become dependent on related parties through this transaction.
Comments