Independent directors frequently resign, related parties purchase at low prices, and Deshuo Technology's family business faces profit difficulties—understanding IPO

Image source: Tencent Photographers

Source | Times Business Research Institute

Author | Lu Shuo-yi

Editor | Zheng Lin

At a critical stage for the IPO, the independent director suddenly resigns—can Zhejiang Deshuo Technology Co., Ltd. (hereinafter referred to as “Deshuo Technology”), which is dominated by a single shareholder, still proceed smoothly with its listing?

According to the official website of the Beijing Stock Exchange, on March 5, 2026, Deshuo Technology passed its first filing review for its initial public offering. However, the announcement on the results of the deliberation meeting shows that the Beijing Stock Exchange’s Listing Committee not only required Deshuo Technology to explain the reasonableness of its performance growth and the stability of its operating performance, but also required it to further落实 (i.e., implement) the reasonableness of the timetable arrangements for the construction progress of the raised-money projects. At the same time, it required the sponsor to supplement its verification regarding the status of the continued existence of the legal entity qualification of Deshuo Technology’s largest customer’s end customers.

The prospectus shows that Deshuo Technology is a high-tech enterprise mainly engaged in the R&D, production, and sales of handheld electric power tools such as electric drills and electric hammers, as well as related accessories. For this IPO, the company plans to raise RMB 270 million, of which RMB 240 million will be used for the technical改造 project for adding annual production lines for 3.5 million sets of intelligent integrated tools, and RMB 30 million will be used to supplement working capital.

It should be noted that Deshuo Technology is a typical family business. Since 2022, multiple independent directors have resigned, and one of them even resigned during the critical IPO stage after the company filed for an IPO; the effectiveness of the company’s internal controls is therefore worth paying attention to. Times Business Research Institute also noted that although Deshuo Technology’s related-party purchase prices during the reporting period were lower than those of third parties, its gross margin was only barely in line with the average of comparable companies. If the company were to purchase at third-party prices, whether its gross margin can be maintained at its current level remains to be answered.

On March 4 and March 20, regarding issues such as the company’s related-party transactions, its “single-shareholder dominance,” and the frequent resignations of independent directors, Times Business Research Institute sent an email to Deshuo Technology and placed calls to inquire. However, as of the time of this release, the company has not responded.

The Li Yuehui couple and their related parties control 100%; during the reporting period, 3 independent directors resigned one after another

From the perspective of equity structure, Deshuo Technology clearly has a problem of “single shareholder dominance.”

The prospectus shows that as of the date the prospectus was signed (December 22, 2025), Li Yuehui directly holds 51.50% of the shares of Deshuo Technology. Through the employee shareholding platform, Yongkang ShuoGuo Equity Investment Partnership (Limited Partnership) (hereinafter referred to as “ShuoGuo Investment”), he indirectly controls 4.50% of the company’s shares, bringing the total control to 56.00%. Currently, Li Yuehui serves as the chairman and general manager of Deshuo Technology, and is the company’s legal representative.

At the same time, Li Yuehui’s spouse, Cao Meifen, directly holds 40.20% of the shares of Deshuo Technology and serves as a director and assistant to the general manager of Deshuo Technology. This indicates that the Li Yuehui couple together control 96.20% of the company’s shares, making them the controlling shareholders and de facto controller of the company.

Based on their backgrounds, Li Yuehui, born in 1975, is from Jinhua, Zhejiang, with a college degree. In 1994, at just 19 years old, Li Yuehui entered Yongkang Aote Motor Manufacturing Co., Ltd. (hereinafter referred to as “Aote Motor”), becoming a workshop director. In July 1999, Li Yuehui left Aote Motor, and in August of the same year, he jointly funded with Cao Meifen’s father, Cao Cunyun, to establish Yongkang Deshi Electrical Appliances Co., Ltd., which is the predecessor of Deshuo Technology.

According to Deshuo Technology’s 2025 annual review report, from 2006 to 2010, as Cao Meifen increased capital and its father conducted equity transfers, Deshuo Technology’s 100% shareholding was held by Li Yuehui and Cao Meifen.

At present, although the Li Yuehui couple’s controlling stake has decreased to 96.20%, the company has not introduced external investors, and the remaining equity is held by related parties.

The prospectus shows that, in addition to the 96.2% equity controlled by the Li Yuehui couple, the remaining 3.8% is held by Yongkang Linxi Equity Investment Partnership (Limited Partnership) (hereinafter referred to as “Linxi Investment”). Linxi Investment’s executive affairs partner, Hu Xinnian (holding 36.84% of partnership interests), is the spouse of Cao Xiaofang, who is Cao Meifen’s sister’s daughter (堂妹) . Therefore, Linxi Investment is a related party of Deshuo Technology. Moreover, 100% of Deshuo Technology’s equity is controlled by the Li Yuehui couple and their relatives, indicating a problem of single-shareholder dominance.

In the prospectus, Deshuo Technology also points out the risk of improper control by the de facto controller. From the perspective of corporate governance, independent directors play the role of “independent overseer, professional enabler, and guardian of minority shareholders.” Their essence is to balance the interests of controlling shareholders and minority shareholders, improve the company’s governance structure, prevent operational and compliance risks, and ultimately ensure the company’s long-term healthy development. However, in a company dominated by a single shareholder, independent directors may find it difficult to achieve effective checks and balances against the controlling shareholder.

Times Business Research Institute noted that since 2022, Deshuo Technology has seen multiple independent directors resign, and issues concerning the company’s internal controls and compliance are worthy of attention.

The prospectus shows that He Chengying previously served as an independent director of Deshuo Technology and resigned in April 2022. According to a publicly available transfer information document issued by Deshuo Technology on June 28, 2024, the company’s independent directors include three people: Peng Youcai, Ling Zhongliang, and Li Hao.

Based on the publicly available transfer information documents and the prospectus, Peng Youcai became an independent director of Deshuo Technology in October 2021 and resigned upon the expiration of his term in November 2024. By comparison, Ling Zhongliang has served as an independent director of Deshuo Technology continuously since November 2021 to the present.

The publicly available transfer information document shows that Peng Youcai holds titles such as senior accountant, senior management accountant, economist, registered tax consultant, certified management accountant in the United States, and international registered internal auditor. During his tenure as an independent director of Deshuo Technology, he also served as the chief financial officer of Changzhou Shichuang Energy Co., Ltd.

After Peng Youcai’s term expired and he resigned, in November 2024, Deshuo Technology elected Zhao Qiangqiang as an independent director through an extraordinary shareholders’ meeting. However, only half a year later, in June 2025—during the month when Deshuo Technology’s IPO application was accepted—Zhao Qiangqiang resigned for personal reasons.

Subsequently, Deshuo Technology elected Lu Jianbo as an independent director. Based on his background, Lu Jianbo previously served as chief financial officer of Zhejiang Zheqi Investment Holding Group Co., Ltd. from March 2025 to July 2025. From November 2025 to the present, he has served as a director, secretary of the board of directors, and vice general manager of Riri Heavy Industry Co., Ltd.

Based on his background, Lu Jianbo, like Peng Youcai, has a certain financial industry background. Behind Peng Youcai’s resignation, issues such as Deshuo Technology’s financial information disclosure and internal controls are worth paying attention to.

Related-party procurement amounts reach tens of millions; even with low-price purchasing, the gross margin remains below the industry peers’ average

From the perspective of the independent directors’ professional division of labor, the primary responsibilities of finance-related independent directors include reviewing the authenticity of financial reports and supervising financial internal controls. In terms of related-party transactions, finance-related independent directors focus on reviewing issues such as the fairness of the pricing of related-party transactions.

For Deshuo Technology, however, in each period during the reporting period (2022 to the first half of 2025), the company’s related-party procurement amounts were all at the tens of millions level, and the fairness of pricing is worth noting.

The prospectus shows that, in each period during the reporting period, the amounts of Deshuo Technology’s recurring related-party procurement were RMB 22.6149 million, RMB 28.4565 million, RMB 33.9481 million, and RMB 14.4493 million, respectively. As a proportion of the total procurement amount in the respective period, they were 4.58%, 4.84%, 4.54%, and 4.12%, respectively. The main counterparties for the related-party procurement include Wuyi County Hongming Gear Manufacturing Co., Ltd. (hereinafter referred to as “Hongming Gear”), Wuyi Bellelon Gear Manufacturing Co., Ltd. (hereinafter referred to as “Bellelon Gear”), and Wuyi County Mingsheng Industry & Trade Co., Ltd. (hereinafter referred to as “Mingsheng Industry & Trade”).

Among them, Hongming Gear and Bellelon Gear are both companies in which Cao Xiong, the wife’s younger brother of Deshuo Technology’s director Hu Xinnian, holds 49% shares and serves as a supervisor, and Cao Meifen’s younger cousin’s brother Cao Meide holds 51% equity and serves as the legal representative, executive director, and manager. Meanwhile, Mingsheng Industry & Trade is currently held 100% by Xu Liangjiang, the wife’s younger brother of Cao Meifen’s brother, Cao Shuyin.

Because related-party procurement amounts increased year by year, in the first two rounds of inquiry letters, the Beijing Stock Exchange repeatedly required Deshuo Technology to explain the fairness of the pricing of related-party procurement and whether there is a situation where related parties or related enterprises of the actual controller’s relatives advance costs and expenses on its behalf.

In the response document for the first round of inquiry, it was shown that in each period during the reporting period, for raw materials purchased by Deshuo Technology from Hongming Gear/Bellelon Gear, most pricing ranges were lower than the unit prices paid by third parties, with the highest difference rate reaching 11.56%. Compared with the transaction prices between Hongming Gear/Bellelon Gear and other counterparties, Deshuo Technology’s pricing for its transactions with them was 4% to 7% lower.

In addition, in each period during the reporting period, for raw materials and commissioned processing services purchased by Deshuo Technology from Mingsheng Industry & Trade, most of the pricing was also lower than the unit prices paid by third parties. Among them, the difference rate for raw material pricing in procurement reached the highest at 7.75%, and the difference rate for commissioned processing service pricing in procurement reached the highest at 8.75%.

Purchasing raw materials at a low price from related parties, or at least to a certain extent improving Deshuo Technology’s profitability. The prospectus shows that in each period during the reporting period, Deshuo Technology’s gross margin was 15.98%, 17.98%, 17.56%, and 18.64%, respectively, showing an overall upward trend since 2023. Coincidentally, in the first half of 2023 to 2025, Hongming Gear/Bellelon Gear were among Deshuo Technology’s top five suppliers, except that they did not enter the top five suppliers list in 2022.

Although the gross margin increased during the reporting period, Deshuo Technology only remained at the average level of comparable companies. The prospectus shows that in each period during the reporting period, the average gross margin of comparable companies was 15.49%, 17.17%, 19.15%, and 18.69%, respectively, which is basically the same as Deshuo Technology’s gross margin. Specifically, in the first half of 2024 to 2025, Deshuo Technology’s gross margin was even lower than the average of comparable companies.

What is confusing is: if the impact of purchasing at low prices from related parties and comparable related-party pricing effects is excluded, can Deshuo Technology’s gross margin still be maintained near the average level of comparable companies?

The second-round inquiry response document shows that, assuming Deshuo Technology purchases from related parties and from those comparable to related parties at market prices such as the purchase prices paid to non-related third parties, the impact on its total profit in each period during the reporting period would be -4.08% to 1.07%, -2.22% to 0.15%, -2.93% to 0.07%, and -1.63% to 0.02%, respectively.

In response, Deshuo Technology stated that, assuming the company purchases from related parties and the aforementioned comparable related parties at the purchase prices paid to non-related third parties, the overall impact on total profit is expected to be within -4.08% to 1.07%, which is relatively small.

It is worth noting that the first-round inquiry response document shows that, based on the proportion of amounts used for pricing comparisons between Deshuo Technology’s related-party transactions and third parties, in each period during the reporting period, the price comparison proportion for raw materials purchased by Deshuo Technology from Hongming Gear/Bellelon Gear was below 70%, and the price comparison proportion for raw materials purchased from Mingsheng Industry & Trade was also below 81%. The reasonableness of the pricing of products not involved in the price comparisons is therefore worth关注 (paying attention to).

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