Preview of new stocks | Profitable and hidden worries coexist, how is the investment value of "invisible champion" Cararo?

On April 24, 2026, Cararo (China) Transmission System Co., Ltd. (hereinafter referred to as "Cararo") filed an application to the Hong Kong Stock Exchange, with the exclusive sponsor being Agricultural Bank International. This core component manufacturer, with nearly a hundred years of Italian technical heritage, rooted and operating in China, is trying to tell a value story of an "invisible champion" in the Hong Kong stock market. However, upon opening the prospectus, a seemingly contradictory set of financial signals emerge: revenue growth is nearly stagnant, but net profit is increasing against the trend; large dividends are being paid out while fundraising for capacity expansion is underway; agricultural machinery revenue continues to decline, while construction machinery is leading growth. So, under the policy wind of "Agricultural Machinery Modernization during the 15th Five-Year Plan", is Cararo really a precision transmission device that Beijing Zhidemai Technology admires, or a traditional manufacturer facing structural bottlenecks? Operational Performance: Profit breakthrough in declining revenue and the dividend myth According to GMTEight, Cararo China is the core operating entity of the Italian Cararo Group (a nearly century-old off-highway transmission giant) in China, established in 2004, primarily focusing on axle, gearbox, and integrated transmission systems, providing "power heart" core components for off-highway scenarios such as construction machinery, agricultural machinery, and material handling. It is a specialized new enterprise in Qingdao, ranking in the top three in the domestic market for excavators, aerial work platforms, heavy-duty tractors, and other niche areas. In terms of performance, Cararo China has shown a significant "scissor difference" feature in revenue and net profit over the past three years - revenue growth is almost stagnant, but net profit is increasing. From 2023 to 2025, Cararo achieved revenues of 736 million, 870 million, and 874 million yuan, with the year-on-year growth rate plummeting from 18.2% to 0.5%. Beneath the surface growth lies a profound structural adjustment: revenue from construction machinery jumped from 377 million to 607 million yuan, with the proportion increasing from 51.2% to 69.4%; while revenue from agricultural machinery dropped from 271 million to 220 million yuan, a cumulative decrease of 18.6% over two years. Axle products were outstanding, contributing 770 million yuan in 2025, accounting for 88.1% of total revenue. This structural evolution signifies that Cararo's growth narrative is transitioning from a dual-drive of agricultural machinery and construction machinery to a single-leg jump in construction machinery. The decline in agricultural machinery revenue is mainly due to short-term pressure in the agricultural machinery market, prompting the company to prioritize resources towards the more profitable construction machinery sector. As revenue growth slows, Cararo's profits are strengthening. From 2023 to 2025, net profit increased from 70.4 million to 120 million yuan, with a compound annual growth rate of 31%; EBITDA adjusted for 109 million to 174 million yuan, with a compound annual growth rate of 26.4%. Of particular note is the leap in gross profit margin - from 12.8% to 18.2%, a cumulative increase of 5.4 percentage points over three years. Looking through the prospectus, the answer to Cararo's significantly improved profitability lies primarily in its purchasing structure. During the reporting period, the proportion of purchasing costs to revenue decreased from 67.8% to 62.2%, and the localization rate of procurement increased from 78.9% to 84.1%. Cararo successfully transformed cost advantages into profit elasticity by accelerating domestic substitution and optimizing the supplier system. It is worth noting that while Cararo China's strong net profit growth demonstrates its profit elasticity, there is still a significant "myth" hidden in its operational performance. As disclosed in the prospectus, the company distributed dividends of 53.8 million yuan in 2023, 63.9 million yuan in 2024, and did not distribute dividends in 2025. However, the board of directors recommended distributing final dividends of 95.44 million yuan and 106 million yuan for the 2024 and 2025 financial years - the cumulative recommended dividend amount over three years far exceeded the net profit for the same period. At the same time, the proceeds from the IPO are clearly designated for capacity expansion, automation lines, research and development, and acquisitions. On one hand, seeking funding from the financial markets, and on the other hand, generously distributing dividends to major shareholders - in Cararo's IPO narrative, this seemingly contradictory scene clearly warrants scrutiny: from a rational perspective, it is common practice for mature manufacturing companies to distribute dividends before listing to optimize capital structure, and to invest funds raised post-listing into new projects. However, the scale of the dividends this time is equivalent to the total net profit of the company in the past two years, which may still require Cararo to provide a clearer explanation. Industry Situation: A steadily expanding market worth a trillion, hidden champions also face hidden risks It is reported that non-road machinery transmission systems, as core chassis components of construction machinery and agricultural machinery, directly determine the reliability, durability, and operational efficiency of the entire machine, serving as the "hard core" of equipment manufacturing. From the perspective of market size, the Chinese non-road machinery transmission track is steadily growing into a trillion-yuan blue ocean. The total market size in 2025 was approximately 105.5 billion yuan, with the advancement in construction machinery upgrades, modernization of agricultural machinery, and the popularity of new equipment such as aerial work platforms, it is expected to increase to 150.7 billion yuan by 2030, with a compound annual growth rate of 7.1% from 2026 to 2030. In specific sub-fields, the market size for engineering transmission systems and machinery in the Chinese loader industry is expected to reach 7.6 billion yuan by 2030, the market size for engineering transmission systems and machinery in the Chinese crane industry is expected to reach 3.9 billion yuan by 2030, and the market size for engineering transmission systems and machinery in the MEWP industry is expected to reach 1 billion yuan by 2030. Currently, the industry competition landscape mainly shows a clear feature of "foreign domination of the high-end, and domestic breakthrough in the low-end". Foreign players such as Cararo, ZF, and Dana dominate the high-end market with technological barriers, while domestic companies such as Hangchi, Guangxi Liugong Machinery Transmission, and Lovol Transmission rapidly seize market share in the mid-to-low end with a cost advantage, priced 20%-30% lower than foreign competitors. Specifically, in the intense market competition, Cararo China mainly relies on two major competitive advantages to maintain a leading position in the niche track. On one hand, backed by nearly a century of experience in designing and manufacturing off-road transmission systems from the Italian Cararo Group, Cararo China holds core technological barriers in thermal efficiency, durability, among others. According to Frost & Sullivan data, in 2025, Cararo China's market share in the excavator transmission system market reached 50.6%, ranking first nationwide; second in the market for transmission systems of high-altitude work platforms (MEWP); and third in the market for transmission systems of heavy-duty tractors above 200HP, with a market share of 16.5%, demonstrating strong dominance in niche segments. However, it is important to note that behind the glamorous leading position, Cararo China also faces challenges such as customer concentration and lag in electrification, becoming crucial bottlenecks hindering long-term development. As disclosed in the prospectus, in 2025, the revenue from the top five customers accounted for 68.4%, with the first largest customer being the parent company, Cararo Group, accounting for 26.3% of revenue. Historical data shows that in 2024, the revenue from the top five customers accounted for as high as 73.7%, and the loss of customers or orders could have a significant impact on the company's revenue. At the same time, over the past three years, the company has had to pay royalties to the group of 3.3%, 4.1%, and 4.9%, raising doubts about the fairness of related party transactions and the risk of profit diversion. Furthermore, in the wave of electrification in the industry, Cararo China's core products are still primarily traditional mechanical transmissions, with a lag in the layout of electric drive axles and control systems, and insufficient investment compared to competitors such as ZF and Dana, falling behind by 2-3 years. The company currently has no mature all-electric transmission platform, with hybrid products only in small-scale trial production, missing out on the order dividend from new energy major OEMs. The lack of R&D investment is a core reason, with R&D expenses in 2025 amounting to less than 50 million yuan, accounting for less than 4% of revenue, far below the levels of leading domestic companies at 6%-8%. In conclusion, the IPO of Cararo China represents the convergence of a century-old technical heritage and the value of Chinese manufacturing. In the short term, there are challenges such as the decline in agricultural machinery, customer concentration, and the dividend myth to be addressed; but in the long term, the trillion-dollar track, niche leader barriers, and profit resilience constitute the core investment value. Essentially, it is a hidden champion target with low volatility, high barriers, and steady cash flow, worth tracking by investors from a long-term perspective.