Zhenbao Technology's "Business Secrets": Engineering Plastics Gross Margin Comparable to Hermès, Overseas "Small Workshops" Become Exclusive Suppliers | Understanding IPO

Why is AI CREST a sole supplier for small companies?

Source | Times Business Research Institute

Author | Sun Huqiu

Editor | Han Xun

The most ordinary plastic, yet someone has made it into a product with luxury-level high profit margins!

On March 6th, semiconductor equipment component company Chongqing Zhenbao Technology Co., Ltd. (hereafter “Zhenbao Technology”) submitted its registration to the China Securities Regulatory Commission, just one step away from opening the door to the STAR Market.

The Times Business Research Institute found that one of Zhenbao Technology’s core businesses—engineering plastic parts—has been performing a “financial miracle”: in 2024, revenue from this segment declined, yet gross profit margin soared from 52.28% in 2023 to 72.35%, an increase of over 20 percentage points; in the first half of 2025, revenue further plummeted by 39.1%, but despite declining capacity utilization and lack of scale effects, the gross profit margin remained high at 64.09%.

Revenue continues to shrink, yet gross profit margin remains high. Without technological monopoly, scarce resources, or scale effects, and with products replaced by ceramic components by customers, how does Zhenbao Technology’s engineering plastic parts maintain an ultra-high gross profit margin of over 64%?

Revenue shrinks, but gross profit margin unusually rises

Zhenbao Technology’s engineering plastic parts mainly provide fasteners, washers, mounting bases, and other precision components for semiconductor and display panel equipment. This seemingly insignificant plastic business has diverged from the typical manufacturing pattern since 2023, performing a “financial magic” that is perplexing.

In manufacturing, a decline in revenue usually results in two outcomes: one, intensified market competition forcing price cuts, directly reducing gross profit margins; or two, shrinking sales and lower capacity utilization increase unit fixed costs, squeezing margins—both lead to margin compression, not expansion.

However, Zhenbao Technology’s plastic parts business defies this basic logic.

According to the prospectus and two rounds of inquiry responses, in 2023, the revenue from this segment was 43.33 million yuan with a gross margin of 52.28%; in 2024, revenue decreased by 4.3% to 41.45 million yuan, but gross margin jumped by 20.07 percentage points to 72.35%; in the first half of 2025, revenue further collapsed by 39.10% (annualized), to only 12.62 million yuan, yet gross margin stubbornly stayed high at 64.09%, nearly 20 percentage points higher than 2022’s 44.29%.

A comparative analysis highlights how extraordinary this data is.

Kent Co., Ltd. (301591.SZ), mainly producing engineering plastic products, has high-performance products widely used in chemical, pharmaceutical, photovoltaic, semiconductor, and environmental protection fields, similar to Zhenbao’s plastic parts business. From 2022 to mid-2025, Kent’s gross margin remained stable between 36.95% and 40.42%, even at industry-high levels, roughly half of Zhenbao’s 2024 gross margin.

Another STAR Market IPO, Shanghai Xinmi Technology Co., Ltd., specializes in semiconductor sealing rings. Its core product, etching sealing rings, reached a near-record gross margin of 65.54% in 2024, supported by “growing revenue + capacity ramp-up” scale effects. Even so, this margin was still nearly 7 percentage points lower than Zhenbao’s 72.35% in the same period.

It’s important to note: what does a gross margin over 72% mean in manufacturing? This level even surpasses luxury brands like Hermès, leaving enormous profit margins.

From a cost perspective, the core costs of engineering plastic parts include raw materials (engineering plastic pellets), labor, manufacturing expenses (depreciation + energy consumption), and R&D. Raw materials account for over 86%, and since plastic pellets are standardized industrial consumables with transparent prices and ample supply, their global prices have fluctuated minimally in recent years, making costs relatively stable. This further limits the potential for gross margin volatility.

Regarding the sharp increase in gross margin, Zhenbao’s first inquiry response explained: “The significant rise in gross margin in 2024 mainly results from the company’s enhanced self-developed and self-produced capacity, with average costs decreasing by 51.31% year-over-year.”

The first inquiry response indicated that in 2023, Zhenbao began self-developing and self-producing engineering plastic parts, with self-produced product sales costs accounting for 2.99%. In 2024, self-produced output surged, and sales costs rose to 23.21%. In the first half of 2025, sales of self-produced products continued to increase, with costs rising to 36.48%.

According to the second inquiry response, after shifting to self-production, the unit cost of this business dropped from 272.03 yuan before the transition to 111.39 yuan—a 59.05% reduction. The company attributes this to the transition from OEM procurement to self-developed production, claiming that self-production optimized the cost structure and significantly lowered costs.

From cost structure and capacity utilization perspectives, Times Business Research Institute questions the “cost reduction miracle”:

First, how much room is there for raw material cost reduction? Raw materials make up over 86% of costs, and global plastic pellet prices have been stable recently. Since self-developing started in 2023, procurement channels for raw materials haven’t changed substantially. The difference in raw material costs between 2023 and 2024 is less than 4 percentage points, suggesting limited cost savings.

Second, how significant is the impact of increased labor and manufacturing expenses? While self-production can save processing costs from suppliers, it also requires new equipment and personnel, leading to increased depreciation, wages, and energy costs. Coupled with R&D expenses during self-development, can the total cost reduction truly exceed 50%? In the first half of 2025, despite increased sales of self-produced parts and a higher self-production ratio (from 23.21% to 36.48%), gross margin actually declined from 72.35% to 64.09%. This inverse trend contradicts the company’s explanation.

Third, does the sharp decline in capacity utilization significantly increase fixed cost per unit? In the first half of 2025, revenue from this segment plummeted by 39.1%, indicating a sharp drop in sales and capacity utilization. Fixed costs like depreciation and rent are rigid; lower sales should increase per-unit fixed costs and reduce margins. Yet, the gross margin remains high at 64.09%, far above 2022’s 44.29%.

In response to inquiries about the decline in revenue and the surge in gross margin, Zhenbao explained that the increase in gross margin in 2024 was mainly driven by improved self-developed capacity reducing costs, with no significant non-recurring factors involved. The company’s cost accounting system is sound, and there’s no evidence that government subsidies, tax incentives, one-time costs, or non-recurring gains significantly affected margins.

Overseas “small workshops” operating in mystery

Besides doubts about the high gross margin, the supply chain and customer structure of Zhenbao’s plastic parts business also raise concerns.

According to the second inquiry response, CREST is a “personal company” established by a former employee of Korea’s CM TECH, with no registered capital, founded only in June 2020. The company established cooperation with Zhenbao in 2021 and became its exclusive supplier of engineering plastic parts from 2024.

Notably, CM TECH is not an ordinary company but Zhenbao’s previous core supplier of plastic parts. The second inquiry response disclosed that CM TECH is a leading Korean manufacturer with strong processing capacity and cost control, serving giants like Samsung and SK Hynix, with advanced materials, equipment, and processes—far ahead of Chinese peers.

A personal company founded just a year ago, with no registered capital or public capacity and technical qualifications, suddenly replacing industry leader CM TECH as Zhenbao’s exclusive supplier raises questions about the reasonableness of this substitution. It also implies that raw material procurement for Zhenbao’s plastic parts entirely depends on this “small workshop” supplier.

How can CREST, with no public capacity or technical credentials, supply high-precision semiconductor equipment plastic parts that must meet strict standards like plasma corrosion resistance and insulation? There are almost no similar “personal company” suppliers in the industry. Where do its technology and capacity come from? How can a personal company with no registered capital surpass top-tier industry brands serving global semiconductor giants in technology and capacity?

Even more suspicious is the fairness of procurement pricing. As an overseas small supplier, CREST has no public financial data or market quotes. Zhenbao claims to use “cost-plus + negotiation” pricing but has not disclosed the markup rate or provided prices at which CREST sells to other customers, making it impossible to verify the fairness of pricing.

Furthermore, the second inquiry response revealed that the industry’s third-party agencies did not conduct on-site visits to CREST’s Korean production site or verify the match between bank transactions and Zhenbao’s procurement amounts. The fairness review appears superficial.

Given the abnormal surge in gross margin in 2024, a new suspicion arises: Could this small company, established by a former employee of CM TECH, have become a non-related related-party transaction vehicle by quickly replacing the industry’s top supplier as the exclusive supplier, without public credentials, market pricing references, or capacity support? Is it possible that it artificially lowered costs through fictitious low-price procurement, transferring benefits to the company and inflating gross profit margins to beautify financial data?

Beyond supply chain anomalies, client changes further deepen the suspicion—why did cooperation with core clients suddenly change after the gross margin soared? Why are high-margin orders not sustained?

The second inquiry response shows that Zhenbao’s plastic parts business is extremely dependent on a few clients. In 2024, five clients contributed 98.02% of revenue, with Client 4 alone accounting for 75.85% (about 31.43 million yuan). The other four clients’ transactions were all below 5 million yuan. The stability of revenue relies heavily on a small number of customers.

Strangely, as a core high-margin business, in the first half of 2025, revenue from this segment fell by 39.10% (annualized). The main reason is a sharp drop in sales to Client 4 and Client 2. For example, transactions with Client 4 fell to 7.98 million yuan, a 49.22% decrease year-over-year, indicating a “cliff-like” contraction of key cooperation.

Regarding the reasons for the large order cuts from these two major clients, Zhenbao explained in the second inquiry response that “the client shortened its safety inventory cycle from one year to three months” and “product iteration led to ceramic replacement of plastic parts.”

Times Business Research Institute believes that, from a business logic perspective, if the customer is an independent third party, high-margin customized orders usually lead to ongoing cooperation or bulk procurement, creating a win-win situation. However, Zhenbao’s pattern of “one-time high-margin orders + sudden order cuts” clearly violates this logic, lacking reasonableness and continuity. It’s possible that related parties temporarily placed orders to boost revenue—using short-term orders to inflate gross margins and beautify financials, then terminating cooperation.

In response, Zhenbao told Times Business Research Institute that its main customers for engineering plastic parts are independent third parties like Client 4 and Client 3. Pricing is based on cost-plus, considering procurement scale and strategic cooperation, and is deemed fair. The company states it is expanding new clients, developing high-value-added products, deepening customer cooperation, and optimizing costs to maintain competitiveness. With increasing demand for semiconductor equipment parts driven by domestic substitution, this business has a clear recovery foundation.

(Full text 4080 words)

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