Zhenjiang Co., Ltd. Responds to the Shanghai Stock Exchange Inquiry Regarding the Sale of Overseas Subsidiary Discloses Customer Suppliers and Loss Reasons

Jiangsu Zhenjiang New Energy Equipment Co., Ltd. (Stock code: 603507, stock abbreviation: Zhenjiang Shares) announced on March 26th that it has provided a detailed response to the inquiry letter from the Shanghai Stock Exchange regarding the company’s sale of overseas subsidiaries. The announcement disclosed key information such as the operating status of the target company, the performance of the transaction counterparty, valuation and pricing, and performance commitment arrangements.

The announcement shows that the overseas subsidiary proposed to be sold by Zhenjiang Shares is the main entity implementing the non-public offering project “Construction of the U.S. Photovoltaic Support Components Production Line” in 2022. The project is scheduled to be completed by June 2024, with a total raised fund of 133 million yuan invested. The target company is projected to achieve revenues of $15.3845 million and $33.6313 million in 2024 and 2025 respectively, with net profits of -$3.1844 million and -$1.5065 million, remaining in a loss for two consecutive years.

Regarding the inquiry about the customer and supplier situation of the target company, Zhenjiang Shares disclosed that the main customers are leading global companies in the photovoltaic tracking support industry, including Nextracker LLC, GameChange Solar, and Array Technologies. In 2024, these three customers contributed 98.96% of the target company’s revenue; in 2025, the customer structure changed, with Array Technologies’ sales accounting for 93.09%, mainly due to deepened cooperation and expanded order scale. As for suppliers, the top five suppliers accounted for 94.82% and 96.70% of procurement in 2024 and 2025 respectively, mainly purchasing raw materials such as steel coils, and there are no related-party relationships with major customers or suppliers.

Regarding the reasons for the target company’s continued losses, Zhenjiang Shares explained that it is mainly due to the project being in the capacity ramp-up period after completion (2024 capacity utilization rate of 17.86%, 2025 of 19.16%), U.S. policy uncertainties leading to shrinking downstream customer orders, and high fixed costs such as depreciation of fixed assets, which have not yet reflected economies of scale. Compared with U.S. subsidiaries in the same industry, the loss situation of the target company is considered reasonable and not solely due to poor management.

As for the performance of the transaction counterparty Zetwerk, the announcement pointed out that although this Indian company, planning an IPO, incurred losses in 2023-2024, its business scale has continued to expand, with a total equity financing of $775 million, and current funds are sufficient to cover the transaction price. Zetwerk plans to submit an IPO prospectus draft in 2026, aiming to raise $750 million, providing assurance for the payment of the transaction amount. Although there are some differences in their business, both operate in high-end equipment manufacturing, with clear business synergy.

The transaction price will be paid in three installments, totaling $21.15 million, over a period of three years. Zhenjiang Shares stated that this arrangement mainly aligns with the IPO progress of the counterparty and the performance commitment, which is consistent with industry practices. The transaction agreement also includes comprehensive performance guarantee and breach of contract clauses, such as the seller’s right to request the return of shares if payment is overdue. The company reminds that there are risks of non-fulfillment of the counterparty’s business expectations, IPO progress delays, and failure to meet performance commitments, which could affect the recovery of funds.

Regarding valuation and pricing, the target company’s equity value based on asset-based valuation is estimated at $23.7068 million, adjusted to $21.1068 million after considering expected losses in the first quarter of 2026. The deal includes a three-year performance commitment, requiring the target company to achieve a cumulative after-tax net profit of $10.7 million; otherwise, the company will compensate the counterparty with a retention amount of $5.5 million. Zhenjiang Shares stated that the performance commitment arrangement mainly results from the loss of tax benefits due to U.S. legislation, requiring the target company to achieve sustainable profitability under the buyer’s management.

The announcement also clarified that after the completion of this transaction, the target company will no longer be consolidated into the company’s financial statements, with the deconsolidation date set as the delivery date of March 31, 2026, in accordance with relevant accounting standards on the transfer of control.

Zhenjiang Shares indicated that the sale of the target company is a response to changes in the U.S. regulatory environment, aiming to optimize asset structure and focus on core business development. The sponsor believes that the company’s previous adjustments to the fundraising project and this sale are both reasonable.

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