New SORL’s IPO plows into winter for China auto stocks

The provider of commercial vehicle parts and services has filed to list in Hong Kong, boasting average annual profit growth approaching 800% over the past three years

Key Takeaways:

• New SORL Auto Parts has filed for a Hong Kong IPO, reporting rapid profit growth that is largely the result of reduced sales expenses
• The commercial vehicle parts and services provider faces fierce competition in a highly fragmented market where leading companies command less than 1% share

By Cheng Shui Tong

Hong Kong’s benchmark Hang Seng Index has been on a losing streak lately, even as IPOs continue to boom. Commercial vehicle parts and services provider Zhejiang New SORL Auto Parts Co. Ltd. is driving head-on into that bifurcated mix, submitting its IPO application late last month. As the leader of its industry, the company looks quite strong in terms of overall financial performance over the last three years.

Soaring profits

New SORL’s net profit has soared over that period, jumping from just 870,000 yuan ($130,000) in 2023 to 42.51 million yuan in 2024, rising further still to 70.18 million yuan last year, representing eye-popping average annual growth of nearly 800%, albeit from a low base. The company’s balance sheet improved in tandem, with total current liabilities falling steadily from 796 million yuan at the end of 2023 to 520 million yuan by April this year. Over the same period, its net current assets rose from 637 million yuan to 952 million yuan.

New SORL operates in a market that’s growing steadily, if slowly. The global commercial vehicle services market where it does business reached 3.29 trillion yuan in revenue last year, and is expected to average 3% annual growth to reach 3.83 trillion yuan by 2030. China’s slice of that market was worth 758 billion yuan, and it is expected to grow by a slightly faster 3.7% annually to 908.5 billion yuan over that time, according to third-party market data in the company’s preliminary prospectus filed on June 26.

As a commercial vehicle parts and services provider, New SORL is plugged into a network of over 3,800 upstream component manufacturers and more than 222,000 downstream end customers. It ranks first among commercial vehicle service providers in China, with 265 stores at the end of last year throughout most of China. The company also operates overseas, with a sales network covering 100 countries and regions. It services its store network with 241 warehouses across China.

As China’s largest company in its field, New SORL enjoys economies of scale. Its highly digitalized operational infrastructure and extensive supply chain network allow it to provide distribution, technical support and after-sales services more efficiently, enabling door-to-door delivery services in as fast as 30 minutes and no longer than 48 hours. The company is developing a massive 18,667-square-meter parts center in Shanghai as its global supply chain hub, which should increase its efficiency further still.

Auto parts capital

New SORL harkens from the city of Ruian in East China’s Zhejiang province, often called the country’s “capital of auto and motorcycle parts.” As early as the 1960s, local farmers were already using simple tools to set up workshops in their homes to make auto and motorcycle parts. The industry evolved from there with the introduction of modern manufacturing equipment that enabled mass production, laying the groundwork for the city we see today with over 4,000 auto parts enterprises.

New SORL grew up in that environment. Founder Zhang Xiaoping, now 63, graduated from Zhejiang Radio and Television University, now Zhejiang Open University, in 1986, and has over 40 years of experience in the auto parts industry. He joined New SORL’s predecessor, Ruian Hongqi Auto Parts Factory, as factory manager in 1988. The current company was established in 2016, and completed its national network coverage and launched an overseas business five years later.

New SORL is banking on its high profit growth and industry-leading status to draw investors to its listing. Yet its roadmap, while broadly positive, is also pockmarked with some less obvious concerns about its future.

Leading that list is the source of its skyrocketing profits, which isn’t from an explosive surge in revenue and instead relies on falling expenses. Most notably, the company’s selling and distribution expenses decreased from 300 million yuan in 2023 to 266 million yuan in 2024, and further dropped by 26% to 196 million yuan in 2025. In that process, selling and distribution expenses fell from 11.2% of revenue in 2023 to 7.8% last year, as the company streamlined and improved its sales division.

But such efficiency gains can only go so far without substantial growth in its core business to maintain its profit momentum.

Such growth is absent from New SORL’s top line, which has stalled in the last two years. Its revenue rose by just 1.5% in 2024, before slipping into reverse with a 7.8% decline last year, largely the result of weakness in overseas markets. As that happened, the company’s gross profit margin also slipped, falling from 16.5% in 2023 to 16% the next year, and easing further to 15.8% in 2025.

The company ranks first nationwide in both commercial vehicle service revenue and store count. But even so, its share of the 700 billion yuan market, based on its latest revenue, is still minuscule, at just 0.2%. The top five companies collectively control less than 1% of the market as well, reflecting an extremely fragmented situation with fierce competition that’s likely to further pressure New SORL’s margins.

Sluggish auto sector

This type of fractured landscape with thousands of small companies means that relatively few have attained the mass to go public. Some auto-related listed peers include Zhongsheng (0881.HK) and Harmony Auto (3836.HK), but both are primarily engaged in auto trading, with after-sales services as an auxiliary business. Shares of both companies also currently trade relatively low compared with past levels.

That’s not surprising, since China’s auto sector has slowed considerably in recent years after notching breakneck growth in the 2010s, affected by factors such as weak consumption and overcapacity. That’s put pressure on most auto-related stocks, many of those down 20% to 30% or more over the past month, as new car sales plunged around 20% in the first five months of the year.

New SORL’s listing as an automotive services provider is relatively new for Hong Kong, whose stocks from that sector are mostly actual automakers. On the plus side, the current sluggish market may make car owners delay replacing their vehicles, boosting demand for maintenance services and spare parts replacement that are New SORL’s focus. But the broader picture of a weak auto market, combined with investor focus on AI and other tech stocks, could translate to relatively weak demand for the company’s stock.

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