NewTimeSpace | Profit growth fails to prop up market price: AUX ELECTRIC (02580.HK) has traded more than 20% below its IPO price since listing

The debut price marked the peak; despite several attempts to rally, the stock has failed to break through its initial offering price.

AUX Electric has been volatile for over four months since listing on September 2. After opening lower on its first trading day, the stock has seen several failed rally attempts and remains in a post-IPO decline.

Post-IPO Decline Exceeds 20%, Cornerstone Investors Subscribed for Nearly HK$1 Billion

Public information shows that AUX Electric is one of the world's top five air conditioning providers, integrating design, R&D, production, sales, and service of both residential and central air conditioning systems. The company's air conditioning business covers over 150 countries and regions worldwide.

According to Frost & Sullivan data, in 2024, by sales volume, AUX Electric ranked as the world's fifth-largest air conditioning provider with a market share of 7.1%.

From the placement perspective, the IPO involved a global offering of approximately 238 million shares, representing 15% of total shares post-issuance, at HK$17.42 per share. The total fundraising amounted to approximately HK$4.15 billion, with net proceeds of approximately HK$3.994 billion.

For this offering, the public tranche was oversubscribed by 557.2 times, while the international placing tranche was oversubscribed by 8.3 times. Additionally, the company introduced five cornerstone investors who collectively subscribed for US$124.3 million (approximately HK$974 million) worth of offer shares, representing approximately 3.52% of total shares following the global offering.

Following its listing, the company has not received favorable treatment from capital markets.

NewTimeSpace News learned that on the listing date of September 2, 2025, the stock opened directly below its IPO price, closing at HK$16.48 on the day, down 5.4%. To date, the company remains in a post-IPO decline. Regarding the green shoe option, the company allocated approximately HK$623 million for stabilization, with China International Capital Corporation serving as the stabilization agent.

At the close on January 26, 2026, the stock was quoted at HK$13.60 per share. Since listing through January 26, 2026, the company has cumulatively declined 21.93% compared to its offering price.

Earnings Growth Slows, Gross Margin Lags Behind Peers

Financial reports show that net profit was RMB 2.487 billion in 2023, up 72.49% year-over-year; RMB 2.910 billion in 2024, up 17.03% year-over-year; and RMB 1.873 billion in attributable profit for the first half of 2025, up 5.09% year-over-year.

In recent years, although net profit has maintained a growth trend, the pace of profit growth has clearly decelerated.

Examining the performance, residential air conditioning represents the company's core business, contributing nearly 90% of revenue. In the first half of 2025, the company achieved revenue of RMB 17.915 billion, up 17.3% year-over-year. Among this, wall-mounted units, floor-standing units, and portable air conditioners combined accounted for 89.19%.

By regional breakdown, overseas markets have driven solid profit growth. In the first half of 2025, revenue from domestic and international markets was RMB 9.246 billion and RMB 10.839 billion respectively, representing year-over-year growth of 5.8% and 28%.

However, it should be noted that while export business has driven revenue growth, it has simultaneously dragged down gross margin performance.

The company's overseas business primarily operates on an original design manufacturer basis, a model that diminishes brand premium capabilities and carries relatively lower gross margins. As the proportion of low-margin sales increases, the company's overall gross margin has consequently declined.

Data shows that in the first half of 2025, sales gross margin was 19.5%, down 1.6 percentage points year-over-year. Compared to peers, the company's gross margin significantly trails Gree Electric's 28.49% and Midea Group's 25.62%.

Domestic Market Share Squeezed, Pre-IPO Dividends Exceed IPO Proceeds

Low pricing has long been the company's core advantage, but this advantage is being eroded.

NewTimeSpace News learned that with major manufacturers including Xiaomi, Midea's Welling, Haier, and TCL entering the mid-to-low-end market, competition in China's domestic air conditioning market has intensified. Particularly, the rise of Xiaomi Air Conditioning has encroached on the living space of traditional air conditioning enterprises.

According to All View Cloud data, China's air conditioning market sales volume reached 38.45 million units in the first half of 2025, with sales value of RMB 126.3 billion, both achieving double-digit growth. Compared to the company's double-digit growth in overseas markets, the company failed to outperform the industry's overall growth rate in the domestic market.

Facing an increasingly competitive domestic landscape, turnover in Mainland China was RMB 15.079 billion in 2024, with sales volume share declining to 50.67%. In the first half of 2025, Mainland China revenue share further contracted to 46%.

All View Cloud data shows that in 2024, the company held 7.35% share in China's online air conditioning market, ranking fifth in the industry behind Midea, Gree, Xiaomi, and Welling.

By the first half of 2025, both market share and ranking had declined. The top five brands by domestic online sales volume were Midea, Gree, Xiaomi, Welling, and Haier, with market share falling to 6.55% and ranking dropping to seventh place.

NewTimeSpace News learned that despite facing intensifying competition and pressure domestically, the company was not conservative regarding dividends prior to listing. In 2024, the company declared and paid approximately RMB 3.794 billion in dividends to then-shareholders, representing 55.47% of combined net profit for the three-year period from 2022 to 2024.

It is worth noting that net proceeds from this listing amounted to only approximately HK$3.994 billion, less than the amount distributed in 2024 dividends.

NewTimeSpace News learned that as of the prospectus signing date, Zheng Jianjiang controlled approximately 96.36% of voting rights through entities under his control. Based on shareholding proportions, the controlling shareholder Zheng's family could obtain approximately RMB 3.655 billion through this dividend distribution.

Notably, under these substantial dividend payouts, the company's cash flow levels have consistently declined. Net cash flow from operating activities fell from RMB 4.004 billion in 2022 to RMB 2.518 billion in 2024, and further declined to RMB 580 million as of March 31, 2025.

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