Trading stocks is better with Jinqilin analysts' reports, which are authoritative, professional, timely, and comprehensive, helping you uncover potential thematic opportunities!

Shanghai Guao Electronic Technology Co., Ltd. (300551.SZ) has filed a lawsuit against the parties involved in its past acquisition of Donggao Technology Development Co., Ltd. (referred to as "Donggao Technology") after failing to meet performance promises for three consecutive years. Despite two letters urging responses that went unanswered, the company has sought legal redress.

Recently, Shanghai Guao announced that it, as the plaintiff, has taken Dongfang Gaosheng Technology Co., Ltd. (referred to as "Dongfang Gaosheng"), Shanghai Muyu Enterprise Management Center (Limited Partnership) (referred to as "Shanghai Muyu"), and related responsible individuals Hu Chongchong and He Jianghua to court, demanding a total compensation of 61.4093 million yuan for performance-related shortfalls.

This dispute stems from Shanghai Guao's acquisition of a 51% stake in Donggao Technology from Dongfang Gaosheng and Shanghai Muyu in December 2021, during which the seller made performance commitments in the equity transfer agreement, which Donggao Technology subsequently failed to fulfill.

As a manufacturer of financial equipment, Shanghai Guao is facing multiple challenges, including the arrest of its actual controller and consecutive years of losses. In its quest for breakthroughs, the company has made several attempts to enter hot sectors in recent years, including the metaverse, photovoltaics, semiconductors, and, this year, artificial intelligence; however, these forays have yet to yield significant results.

When inquiring about the impact of this compensation pursuit on the company's performance and its strategies for reversing losses, employees from Shanghai Guao's securities department stated that further announcements would be forthcoming.

Donggao Technology has struggled to acquire new clients, achieving a mere 22.8% completion rate for its performance commitments. Established as a veteran investment advisory agency, Donggao Technology was one of the first to receive qualification from the China Securities Regulatory Commission for securities investment consulting, providing personal investors with education, information, strategies, and tools.

In December 2021, Shanghai Guao acquired 51% of Donggao Technology for 188 million yuan, agreeing to a three-year performance commitment with a net profit of no less than 126 million yuan (with stipulated profits of no less than 36 million yuan, 40 million yuan, and 50 million yuan for the years 2022, 2023, and 2024, respectively). However, under Shanghai Guao's ownership, Donggao Technology has faced heavy regulatory penalties that have restricted its business operations.

In November 2023, Donggao Technology was ordered by the Guangdong Securities Regulatory Bureau to suspend acquiring new clients for six months due to issues like improper management of stock pools and lack of compliance in live promotions. In June 2024, it was once again penalized with a six-month client acquisition suspension due to violations during the initial suspension period.

Additionally, Donggao Technology received a warning letter from the Beijing Securities Regulatory Bureau in April 2022 for failing to effectively regulate its business promotions. To exacerbate the situation, a compliance crisis triggered a chain reaction, leading to a fine of 20,000 yuan from the Human Resources Bureau of Panyu District, Guangzhou, for failing to pay 1.15 million yuan in April wages for 99 employees and 1.73 million yuan for May wages for 131 employees.

Amidst these repeated penalties, Donggao Technology has failed to meet its performance commitments for three consecutive years. From 2022 to 2024, it reported net profits of 13.45 million yuan, 6.5 million yuan, and 8.77 million yuan respectively, culminating in a dismal performance completion rate of only 22.80%.

When asked on October 16 whether Donggao Technology has resumed normal salary payments for its staff or restored client acquisition, the company declined to provide an interview after confirming the reporter's identity. An employee from Shanghai Guao confirmed that as of now, Donggao Technology has not resumed acquiring new clients.

Regarding the ongoing lawsuit, Shanghai Guao stated that as the case has yet to be heard, it is currently unable to assess the impact of this announcement on both current and future profits.

The actual controller's legal troubles have compounded the company's struggles. In March 2024, Chen Chongjun, the actual controller of Shanghai Guao, received a warning from the Shanghai Securities Regulatory Bureau for illegal share reduction. On April 25 of the same year, Shanghai Guao announced that Chen was criminally detained by the Qingdao Public Security Bureau for allegedly manipulating the stock market.

He was formally arrested on May 24, 2024. A partner at Shanghai Shan Law Firm, Chen Zheng, noted that due to the complexity of the case, police may legally extend detention and investigation periods.

Shanghai Guao has repeatedly stated in announcements that Chen no longer serves as the company's director, supervisor, or senior manager, asserting that his arrest will not significantly impact the company's daily operations. However, due to multiple civil loan disputes, Chen's shares have been judicially frozen and are subject to phased auction.

According to data from the choice financial terminal, since the first quarter of 2017, Chen has initiated a process of pledging shares for liquidity. By August 2018, the pledge ratio of his shares had reached 92.30%. In a response to the Shenzhen Stock Exchange on August 3, 2023, Chen disclosed that from July 2021 to June 2023, he pledged equity to 25 different entities, raising approximately 900 million yuan, primarily for repaying debts and paying intermediary fees.

Most of these pledges incurred interest rates between 12% to 15%, with several pledges containing warning and liquidation lines ranging from 3.6 yuan/share to 9.7 yuan/share.

Since May 2022, Chen's shares have progressively faced judicial freezes and seizures, resulting in multiple auctions. As of October 9 this year, his ownership percentage in Shanghai Guao had dropped to 19.91%, a significant decline from 38.92% when the company first went public.

In an announcement on October 9, Shanghai Guao stated that currently, all shares held by Chen are either pledged or frozen. If shares that have been judicially frozen are forcibly disposed of, it would affect Chen's position as the controlling shareholder and actual controller.

Facing ongoing losses, Shanghai Guao has made several attempts to transition into popular sectors. As one of the earliest suppliers dedicated to the research, manufacturing, sales, and service of financial equipment products in China, the company has seen profitability decline in recent years due to shrinking demand for cash handling equipment and impairment losses on long-term equity investments in Newcun Technology (Wuhan) Co., Ltd.

From 2022 to 2024, Shanghai Guao reported revenues of 525 million yuan, 568 million yuan, and 298 million yuan, while its net profits were -61.80 million yuan, -80.90 million yuan, and -351 million yuan, accumulating a net loss of approximately 500 million yuan over three years. In the first half of 2025, the company posted a net loss of 113 million yuan, with revenue dropping by 50.40% year-on-year to 72.2008 million yuan due to the sale of a 2% stake in Donggao Technology.

Throughout its continuous performance decline, Shanghai Guao attempted multiple cross-industry transformations, which also attracted regulatory scrutiny. In December 2022, the company announced plans to use its own funds to acquire an 18.38% stake in intelligent equipment manufacturing company Changzhou Bitai Technology Co., Ltd. However, due to issues with audit and assessment reports, the acquisition was ultimately dissolved in November 2023 through a settlement agreement.

Shanghai Guao revealed in its 2022 annual report that it is committed to the research and application of digital human technology, focusing on integrating digital human capabilities into the financial sector, from video content production of twin digital humans to interactive communication via AI digital humans.

In April 2023, the company invested 5.1 million yuan to establish a joint venture with Yunnan Yunshi Industrial Co., Ltd., focused on EPC construction projects related to photovoltaics and charging piles in the context of modern agriculture, as well as industry chain investment and mergers guided by market-oriented objectives.

In August 2023, Shanghai Guao attempted to enter the semiconductor sector by injecting 370 million yuan into Shanghai Haoyuan Ancient Information Management Partnership (Limited Partnership) for equity investment in Newcun Technology. The company's product chips serve as new storage chips for server hardware configurations.

However, after Shanghai Guao acquired equity in Newcun Technology, the latter's performance has been disappointing, recording losses of 43.1717 million yuan and 429 million yuan in 2023 and 2024, respectively.

This year, as the artificial intelligence sector flourished, Shanghai Guao ventured into this field by establishing a wholly-owned subsidiary, Shanghai Shuyu Ruipu Technology Co., Ltd., on April 10, focusing on R&D of intelligent robots, development of artificial intelligence application software, and sales of artificial intelligence hardware.

Despite numerous attempts at cross-industry transformation, Shanghai Guao has yet to escape from its loss-laden predicament, and its future development presents multiple challenges.