The pandemic stalled performance growth; Kartel’s last-minute dividend payout before its IPO raised skepticism.

The author’s comparative analysis reveals that the year-on-year net profit growth rates of three comparable companies—Chunzhong Technology, Shiyuan Co., Ltd., and Appotronics—in 2019 were 34.44%, 60.41%, and 5.36%, respectively; by 2020, these figures had dropped sharply to 12.33%, 18.04%, and −38.94%, with Appotronics even reporting negative net profit growth. In fact, Kartel’s slowdown in net profit growth from 2019 to 2020 is not an isolated case but reflects broader industry conditions. As widely known, the COVID-19 pandemic—which began at the end of 2019 and escalated in early 2020—spurred the rise of the ‘stay-at-home economy,’ yet LED display control systems serve application areas such as nighttime tourism, giant-screen cinemas, security command centers, large-scale conferences, and live sports broadcasting—settings inherently involving mass gatherings. Following the outbreak, China imposed strict controls on crowd aggregation in such venues, significantly curtailing demand for LED displays. Naturally, LED display control systems—closely tied to this ecosystem—were likewise adversely affected. According to data from GGII (Gao Gong Intelligence & Consulting), China’s LED display industry had grown rapidly in previous years, expanding from RMB 3.34 billion in 2015 to RMB 6.59 billion in 2019. However, due to the pandemic, the market shrank to RMB 5.32 billion in 2020, and recovery to pre-pandemic levels is not expected before 2022. China’s LED Display Market Size, 2015–2025 (Unit: RMB billion; Source: GGII) Currently, the global pandemic remains ongoing, with over 400,000 new cases reported daily. Although domestic epidemic control in China has been effective, stringent public health measures continue—and have become institutionalized—to safeguard hard-won containment outcomes. Consequently, Kartel, whose core business centers on LED display control systems, continues to face sustained pandemic-related headwinds, rendering its profitability outlook uncertain. Last-Minute Dividend Before IPO Sparks Skepticism Against a backdrop of stagnant profits, normalized pandemic control measures, and urgent capital needs for scaling operations, Kartel chose not to retain liquidity—but instead distributed a substantial dividend. As analyzed above, Kartel’s net profit growth has stagnated in recent years. Moreover, its net cash flow from operating activities has persistently declined: RMB 3.7998 million, RMB 5.202 million, −RMB 12.3326 million, and −RMB 57.4828 million for 2018–2020 and Q1 2021, respectively—clearly indicating mounting pressure on operating cash flow. Yet puzzlingly, Kartel distributed a dividend of RMB 90.85 million in 2020—a sum exceeding its annual net profit in any of the preceding three years. Notably, Zhou Jinzhi, Kartel’s chairman, general manager, and actual controller, holds 63.09% of Kartel’s shares indirectly, making him the largest beneficiary of this payout. Immediately after this dividend distribution, Kartel launched its IPO. According to its prospectus, Kartel’s Fourth Board Meeting and its Third Extraordinary General Meeting of 2021 approved a plan to issue no more than 17 million RMB-denominated ordinary shares publicly. The proceeds—RMB 830 million—will fund three projects: expansion of LED display control systems and video processing equipment production capacity; construction of marketing, service, and product demonstration centers; and establishment of a Kartel R&D center. Additionally, RMB 150 million will be allocated to supplement working capital.

Technology-Industry-Commerce or Commerce-Industry-Technology? A soul-searching question confronting Kartel—the rising star in display control.

Notably, the ‘Framework Procurement Agreement’ signed between Kartel and Qiangli Jucolor includes a ‘minimum preferential pricing clause,’ stipulating the following: during the cooperation period, to ensure mutual market advantages and development, Kartel must guarantee priority supply to Qiangli Jucolor under equivalent commercial terms within the LED display industry; specifically, when transaction volumes and product specifications are identical, the materials supplied to Qiangli Jucolor shall be offered at the lowest preferential price. The Shenzhen Stock Exchange (SZSE) raised concerns regarding this clause in its inquiry, requesting Kartel to disclose whether its continued sales to Qiangli Jucolor depend on this minimum preferential pricing arrangement. Kartel responded that the clause resulted from commercial negotiations considering both parties’ procurement and sales scale, and offering price discounts to high-volume customers aligns with Kartel’s consistent pricing policy. Beyond the minimum preferential pricing clause, Kartel also entered into a sales rebate agreement with Qiangli Jucolor. From 2019 through the first nine months of 2021, Kartel granted sales rebates to Qiangli Jucolor amounting to RMB 1.4759 million, RMB 2.5631 million, and RMB 3.4766 million, respectively. In 2020, Kartel’s products accounted for approximately 70% of Qiangli Jucolor’s purchases in the same category—hence Kartel’s revenue growth from Qiangli Jucolor significantly outpaced its overall revenue growth. In response, the SZSE asked Kartel to explain why both minimum preferential pricing and sales rebates were simultaneously agreed upon. Kartel clarified in its inquiry reply that these two commercial arrangements are not mutually exclusive: sales rebates help achieve targeted product promotion, and also support downstream customer payment assurance. At the end of each reporting period, the concentration ratio of accounts receivable from Kartel’s top five customers stood at 63.51%, 61.26%, 73.37%, and 70.20%, respectively; the book values of accounts receivable totaled RMB 50.4917 million, RMB 85.7769 million, RMB 124.2 million, and RMB 139.3 million, while bad debt provisions amounted to RMB 2.9527 million, RMB 4.7513 million, RMB 6.8733 million, and RMB 8.0067 million, respectively. Notably, accounts receivable from Qiangli Jucolor alone surged from RMB 21.1268 million in 2019 to RMB 63.2184 million in 2020, then declined slightly to RMB 52.9604 million in the first nine months of 2021—representing 23.34%, 48.24%, and 35.96% of total accounts receivable, respectively. Precise Timing by the Sponsor; Timely Reinforcement via Customer Procurement Framework Based on Kartel’s prospectus, inquiry responses, corporate website, and publicly available information from TianYanCha, Quanheng Finance compiled a timeline of key events involving Kartel’s founders and major shareholder-related matters—including Beijing Tonger Technology Co., Ltd. (‘Tonger Tech’). Among these entities, Zhongjin Zhide—a grandchild company of China International Capital Corporation (CICC)—was deregistered on February 21, 2022; Zhongjin Qichen is a fund in which CICC holds a minor equity stake. Zhongjin Qizhi is a fund managed by Zhongjin Private Equity Investment Management Co., Ltd.—a wholly owned subsidiary of CICC, the IPO sponsor. Furthermore, Zhongjin Qizhi (Shanghai) Equity Investment Management Co., Ltd., the general partner of Zhongjin Qizhi, is ultimately controlled by CICC—the IPO sponsor.

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