Shanghai Sanmao recently received a regulatory inquiry letter from the Shanghai Stock Exchange regarding its 2025 annual report. The inquiry focuses on issues such as the trade business accounting for over 70% of revenue, a gross margin of about 2.02%, and inventory near zero. The company responded that all trade is conducted by its wholly owned subsidiary Sanjin Company, using a make-to-order customized model with no owned warehouses. The goods turnover cycle is mostly within 10 days, with direct shipment upon completion, leaving only a small amount of processing auxiliary materials at year-end. Zero inventory is consistent with the characteristics of the asset-light foreign trade industry. Regarding upstream and downstream parties, the company disclosed that its top ten overseas customers and domestic suppliers are all unrelated parties. New customers and suppliers stem from the expansion of fabric processing demand in Southeast Asia, and all post-period payments have been settled. For revenue recognition, the company uses the gross method for unrelated customers, with 1.175 billion yuan recognized under the gross method in 2025, accounting for 99.69% of the total. Orders with suspected related-party relationships are accounted for using the net method. The company recognizes revenue at the point of risk transfer when obtaining export customs declaration documents, and export revenue is largely consistent with customs declaration and tax refund amounts.
Shanghai Sanmao Enterprise Group Co Ltd AShanghai Stock Exchange inquiry letter regarding low gross margin and trade business model