Net profit declines by nearly 40%, and the 1 billion expansion faces funding pressure; Sains' dual-core business strategy faces challenges

Securities Star Xia Fenglin

Recently, Sense (688480.SH) released its 2025 performance forecast, showing that while the company’s operating revenue increased, net profit attributable to shareholders and non-recurring net profit declined year-over-year. This is the first time since its listing on the STAR Market in 2022 that the company has experienced an annual negative profit growth, contrasting sharply with the impressive doubling of net profit in 2024.

Securities Star notes that as a leading company in the heavy metal pollution prevention and control sector on the STAR Market, Sense has been continuously shifting its strategic focus. The company has explicitly proposed building a dual-core development pattern of “Mining & Metallurgy Environmental Protection + New Materials,” attempting to break through the profit ceiling of traditional environmental protection businesses. Around these two main sectors, the company is accelerating the development of new business segments and pushing forward projects with a total investment of nearly 1 billion yuan. However, under the pressure of performance and the lower-than-expected returns from earlier IPO fundraising projects, whether the company’s ambitious strategic layout can be successfully converted into growth momentum remains to be seen by the market.

Multiple factors lead to nearly 40% decline in net profit

The 2025 performance forecast shows a “revenue growth but profit decline” trend, breaking the company’s previous profit growth rhythm since listing. Data indicates that total operating revenue for the year was 1.251 billion yuan, up 34.93% year-over-year; net profit attributable to shareholders was 110 million yuan, down 39.15% YoY; non-recurring net profit decreased by 9.08% YoY; basic earnings per share fell by 39.27%; and weighted average return on equity dropped by 8.14 percentage points.

The profit decline is not accidental. On the surface, it appears to be caused by a non-recurring factor: the high investment income from acquisitions in the previous year. In 2024, the company acquired a 61% stake in Fujian Zijin Mineral Processing Chemicals Co., Ltd. (later renamed Fujian Longli Chemical). The fair value remeasurement of the original 39% stake generated an investment income of 58.97 million yuan, significantly boosting net profit to 181 million yuan that year. In 2025, this non-recurring income disappeared, directly lowering the profit base.

A deeper analysis of financial data shows that the weakening profitability of the company’s main business cannot be ignored. In 2024, the acquisition of the 61% stake in Fujian Zijin Mineral Processing Chemicals (later renamed Fujian Longli Chemical) and the remeasurement of the 39% stake at fair value generated 58.97 million yuan in investment income, leading to a net profit of 181 million yuan. In 2025, this non-recurring income vanished, directly reducing the profit base.

However, it is important to note that the decline in gross profit margin and rising costs indicate a weakening of the profitability of the main business. In 2025, the company’s operating costs increased by 18.01% YoY, a growth rate lower than revenue but higher than profit growth, resulting in a 4.09 percentage point decrease in gross profit margin. This reflects increased cost pressures from business expansion. Core businesses such as environmental engineering and chemical sales are affected by raw material price fluctuations and intensified market competition, leading to continued narrowing of profit margins.

Even more concerning is the deterioration in profit quality. The company’s high revenue growth largely depends on market expansion and overseas business deployment, but overseas operations have inherent limitations. The performance forecast clearly states that overseas business faces long account receivable cycles, complex credit environments, and low collection efficiency. In 2025, some customers switched from cash payments to electronic debt certificates, leading to increased bad debt provisions and directly impacting current profits, becoming one of the main reasons for the net profit decline in 2025. In the first three quarters of 2025, accounts receivable reached 565 million yuan, a 23.78% increase YoY, indicating significant collection pressure.

Additionally, the restricted stock incentive plan launched in September 2025 has added burdens to the profit statement. The company granted 4.771 million restricted shares to 183 incentive recipients at a grant price of 19.26 yuan per share, and the associated stock-based compensation became an important factor dragging down net profit.

Nearly 1 billion yuan expansion faces funding gap; new businesses not yet profitable at scale

In the heavy metal pollution prevention and control sector, most projects are engineering-based, which generally involve long cycles, slow cash flow, and volatile profits. With increasing entry of small and medium-sized environmental protection companies, industry competition has become more intense. Market competition is gradually shifting from technology-driven to price-driven, further squeezing profit margins. As a result, the company’s core business of comprehensive solutions for heavy metal pollution control has been shrinking in recent years, which is also a key reason for the company’s strategic transformation.

Faced with sluggish growth and narrowing profit margins in traditional environmental protection businesses, Sense has actively promoted a “Mining & Metallurgy Environmental Protection + New Materials” dual-core development strategy in recent years. The company is accelerating the layout of new materials such as copper extractants, high-purity sodium sulfide, strategic metal rhenium, and molybdenum processing, aiming to create a second growth curve. However, 2025 operational data shows that despite increased investment in transformation, new businesses have not yet achieved scale benefits.

In terms of capacity expansion, the wholly owned subsidiary Fujian Longli Chemical has completed capacity upgrades for copper extractants and is now producing 7,000 tons annually. It is also planning to add another 5,000 tons, with an investment of 178 million yuan. Meanwhile, the company plans to build a 60,000-ton-per-year high-purity sodium sulfide project in two phases, with a total investment of about 210 million yuan, and a partner contributing 73.5 million yuan. Additionally, the company plans to invest 600 million yuan to build a 100,000-ton-per-year high-efficiency flotation reagent project, with 67 million yuan of IPO oversubscription funds allocated. The three projects together amount to approximately 988 million yuan.

To fund these projects, Sense plans to raise 565 million yuan through convertible bonds, with 485 million yuan directly used for project construction and 80 million yuan for working capital. If the bonds are successfully issued, the company will need to raise an additional approximately 362.5 million yuan on its own to cover the total investment. As of the third quarter of 2025, the company’s cash and cash equivalents stood at only 233 million yuan, indicating a significant funding gap.

Meanwhile, the new business segments are still in the cultivation stage. Although the rhenium recovery project has been completed and is producing, it has not yet contributed stable profits; the molybdenum processing business is still in the early stages. Sense admits that before the rhenium business becomes profitable, the new business segments will continue to exert pressure on the company’s cash flow and profitability in the short term.

Looking at cash flow, in the first three quarters of 2025, the net cash flow from operating activities was only 36.94 million yuan, significantly lower than the revenue scale; net cash flow from investing activities was -124 million yuan, reflecting ongoing capital expenditures and investments in new businesses that are continuously consuming the company’s liquidity.

Additionally, although the IPO fundraising project “Construction of a complete set of environmental protection equipment production base by Changsha Sense Environmental Engineering Technology Co., Ltd.” was completed in June 2024, in the first half of 2025, it only generated output value of 21.88 million yuan, below the expected annual revenue level from the feasibility study. The actual benefits of the project are significantly below expectations, adding uncertainty to the company’s overall funds and performance.

Currently, the company is in a painful transition period, facing not only weakened main business profitability and declining profit quality but also project investment pressures and a still-developing new business sector. Whether Sense can successfully address its funding gap, accelerate project implementation, and achieve scale profitability remains to be seen through future performance.