In recent developments, one of the leading giants in wind power gearbox technology, Delijia Transmission Technology Co., Ltd., based in Jiangsu, has embarked on a significant journey to list on the Shanghai Stock Exchange's main boardThe initial public offering (IPO) application has received approval, with Huatai United Securities designated as the sponsorThe company aims to raise an impressive 1.88 billion RMB, which will primarily fund projects focused on large-scale onshore and offshore wind power gearboxes.

Delijia, established just in 2017, has already achieved substantial market penetration in the wind power gearbox sector, securing second place in China and third globally in 2023, according to industry statisticsHowever, the company's journey to the stock market is not without its challengesIssues concerning over-reliance on a handful of major clients, below-average R&D expenditure, and a concerning decline in gross profit margins are potential risks that investors need to consider.

Addressing concerns over a slowdown in revenue growth in 2023, Delijia's management reassured stakeholders, citing a general upward trend in sales

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They emphasized that fluctuations in growth across different periods were a normal aspect of business operations without any underlying special issues.

The company specializes in high-speed, heavy-load precision gear transmission, primarily serving the wind turbine sectorIts flagship product is the wind power main gearbox, which has established Delijia as a competitive player in the renewable energy landscapeDespite being a relatively young company, Delijia's market share in the wind power gearbox niche is impressiveResearch by QY Research indicates that the firm holds a 20.68% market share in China and a 12.77% share globally.

A significant factor in Delijia's rapid growth can be traced back to the robust support from its major stakeholdersThe company's chairman and general manager, Liu Jianguo, alongside his wife, Secretary of the Board and Vice General Manager, Kong Jinfeng, both have notable histories with Nanjing High Precise Gear Co., Ltd

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This influential background is perhaps a cornerstone of Delijia's swift ascent within the industry.

As of the latest disclosures, Liu and Kong combined control nearly 42% of Delijia's shares, solidifying their status as actual controllers of the companyThe major shareholders also include SANY Heavy Energy, which holds 28%, and Everbright Energy’s subsidiary, Binjing Investment, with a 15.27% stakeBoth SANY and Everbright are acknowledged leaders within the wind turbine manufacturing sector in China, further amplifying Delijia's market influence.

However, the company's dependency on a small circle of customers has raised eyebrows within the industryFrom 2021 through mid-2024, sales to the top five clients constituted an astounding percentage of Delijia's revenues—over 91% in all mentioned years, with 97.89% in the first half of 2024 aloneThis illustrates a heavy reliance on a few entities, making Delijia vulnerable to shifts in those relationships.

In terms of performance metrics, Delijia's major clients are primarily domestic wind power firms

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Company representatives argue that this concentration is a natural outcome of their product's primary application within a highly consolidated marketNotably, a substantial proportion of their sales emanate from affiliated parties such as SANY Heavy Energy and Everbright Energy.

However, while these figures showcase impressive sales, they also spotlight a growing issue: the decline in revenue contributions from their top clientsData indicate a sharp drop in sales from Everbright Energy, Delijia's largest customer in prior yearsIn 2021, sales to this company accounted for 50.76% of total revenue, but this figure fell to around 25% in subsequent yearsAs competitors like Everbright begin to independently produce gearboxes, it poses a substantial threat to Delijia’s market share.

Amidst shrinking profit margins stemming from pressures to reduce costs, Delijia's operational efficiencies are under scrutiny

Analysis from Huajin Securities suggests that, as the industry strives to lower unit costs for wind turbine components, the gearbox—one of the most critical parts—faces similar pressures to adapt and innovate.

The operational metrics for Delijia demonstrate vulnerability; their capacity utilization rates dropped significantly in 2024, falling to 83.59% from over 91% in previous yearsFurthermore, while the company's R&D expenditures have increased, the percentage of revenue allocated to research and development remains concerningly low compared to industry benchmarks.

Between 2021 and mid-2024, Delijia's R&D spending only constituted between 1.4% and 3.72% of their revenue, considerably lower than the average rates for comparable companies, which are around 5% and increasingThis disparity raises questions about the company's long-term viability and competitiveness if industry standards are to be met.

As China heightens its commitment to renewable energy and aims for net-zero emissions, the global wind power gearbox market is projected for significant growth, anticipated to reach $8.8 billion by 2030. Delijia seeks to capitalize on this trend, entering international markets and bolstering its service capabilities to accommodate overseas operations

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In 2023, the company began exporting gearboxes to fulfill increasing global demands while ensuring robust after-sales support.

This strategic expansion not only aims to keep pace with rising market needs but is also essential for fortifying Delijia's standing in an increasingly competitive landscapeAs part of its growth strategy, upcoming projects will likely see enhancements in production capacity, better technical competencies, and efforts to adhere to the evolution of wind turbine design.

Despite the many promising prospects lying ahead, the company must also confront significant challenges tied to its supply chain and integration of core componentsFor example, Delijia faces dependency on foreign manufacturers for essential parts such as bearingsHistorically, these overseas suppliers have a wealth of experience and advanced technology compared to Chinese manufacturers, posing a hurdle for Delijia's initiatives for self-sufficiency in production.

Looking forward, the company plans to leverage the funds raised from its IPO to invest in its growth initiatives while continuing to navigate an evolving market landscape