As the clock ticks down on the validity of its financial statements, Nuwa Technology (暖哇科技) finds itself in a precarious race against time for its Hong Kong IPO. Having submitted its application to the Hong Kong Stock Exchange (HKEX) on December 15, the company has yet to pass the critical hearing stage. Meanwhile, its prospectus and the underlying financial data, which forms the bedrock of its valuation story, are rapidly approaching their expiry, leaving the firm with a narrowing window to secure a listing. This high-stakes sprint to go public has thrust founder, Chairman, and CEO Lu Min (卢旻) and his company’s controversial financials into the spotlight, revealing a complex narrative of rapid growth shadowed by significant liabilities and strategic vulnerabilities.
Decoding the Financial Enigma: Paper Losses vs. Operational Reality
Nuwa Tech confidently claims to be “the largest independent AI technology company in China’s health insurance industry with full-stack risk analysis capabilities.” Its revenue trajectory seems to support this assertion, boasting a staggering 65.5% CAGR from 2022 to 2024, with revenue hitting 944 million yuan ($130 million) last year.
However, this top-line growth is starkly contrasted by a cumulative net loss of 718 million yuan ($99 million) over the past three and a half years. This figure has fueled headlines questioning the firm’s viability. Yet, a deeper dive reveals a critical accounting nuance that underpins this apparent contradiction.
The Phantom Loss: Unpacking “Fair Value Change Losses”
The staggering losses are primarily attributable to a non-cash accounting entry: “Fair value change losses on financial liabilities.” This is not an operational burn rate but a bookkeeping artifact related to the company’s pre-IPO fundraising.
– Convertible Redeemable Preferred Shares: Prior to listing, funds raised through instruments like convertible redeemable preferred shares are classified as financial liabilities on the balance sheet, not equity.
– Valuation Hikes Create Paper Losses: As the company raises capital at progressively higher valuations in subsequent funding rounds, the fair value of these liabilities increases. This increase is recorded as a loss on the income statement, despite no actual cash leaving the company.
– The IPO Fix: Upon a successful listing, these preferred shares automatically convert to ordinary equity. The liability is wiped off the balance sheet, and the associated fair value losses cease. As Nuwa Tech states in its prospectus, this will lead to a “positive net asset value.”
This mechanism also explains the company’s current state of negative equity, or being “balance-sheet insolvent.” As of June 30, 2025, financial liabilities carried at fair value stood at 1.346 billion yuan ($185 million), predominantly from 1.198 billion yuan ($165 million) in convertible preferred shares. Post-IPO, this structural overhang disappears.
Adjusted Profitability: A Glimmer of Underlying Health
When these non-cash, pre-IPO accounting distortions are removed, a different picture of Nuwa Tech’s core operations emerges. On an adjusted basis (non-IFRS), the company turned profitable in 2023 with 18.5 million yuan ($2.5 million) and increased that to 57.5 million yuan ($7.9 million) in 2024. The adjusted net profit margin has stabilized between 5-6%, suggesting its core insurance technology solutions business can indeed be sustainably profitable.
Core Business Metrics Under Pressure: The毛利率 (Gross Margin) Squeeze
While adjusted profits offer optimism, trends in the company’s毛利率 (gross margin) present a tangible operational challenge. After peaking at 58.3% in 2023, the overall gross margin fell sharply to 49.8% in 2024, recovering only slightly to 51.0% in H1 2025.
This pressure is most acute in its flagship segment, AI Underwriting Solutions, which contributes nearly 75% of revenue. While revenue for this segment soared, its gross margin plummeted from 69.1% in 2022 to 53.3% in 2024. Its secondary business, AI Claims Solutions, operates at an even lower margin, below 35%.
Pricing Power and Client Concentration
Nuwa Tech attributes this margin compression to a fundamental market reality: weak bargaining power against large insurance clients. These clients, which account for a significant portion of revenue, persistently demand more favorable pricing, better commercial terms, or additional features. The company candidly admits in its filing that if it cannot offset rate reductions or cost increases through higher sales volumes or operational efficiencies, its financial performance will suffer.
This dynamic is intrinsically linked to its client concentration. Despite a gradual decline, revenue from the top five customers still constituted 73.6% of total revenue in H1 2025. This lack of diversification limits pricing flexibility and exposes the company to significant client-specific risks.
The ZhongAn Online Trifecta: A Double-Edged Sword
The most glaring aspect of this client concentration is Nuwa Tech’s deep, multifaceted relationship with ZhongAn Online P&C Insurance Co., Ltd. (众安在线财产保险股份有限公司). This connection represents a core risk and a central point of scrutiny for the HKEX.
ZhongAn is not just a major client; it holds a triple role that creates a complex web of dependencies:
– Major Shareholder: ZhongAn is the joint-largest shareholder in Nuwa Tech, holding a 31.65% stake, equal to that of founder Lu Min (卢旻).
– Largest Customer: From 2022 to H1 2025, ZhongAn contributed between 78.7% and 45.2% of Nuwa Tech’s total revenue. In the first half of 2025, this dependency crept back up to nearly 50%.
– Key Supplier: ZhongAn also supplies Nuwa Tech with basic communication services like telecom, voice, and SMS.
Independence and Long-Term Strategy in Question
Nuwa Tech frames this relationship as “commercially reciprocal” and “strategically synergistic,” emphasizing its compliance and necessity. However, for regulators and potential investors, it raises red flags about the company’s true independence, arm’s-length transactions, and its ability to scale beyond a single, controlling anchor client.
The challenge for Nuwa Tech’s冲刺港股IPO (sprint for a Hong Kong IPO) is twofold: it must convincingly address HKEX concerns about related-party transactions and governance, while also articulating a credible path to diversifying its revenue base to assure investors of its long-term standalone value proposition.
Technology Strategy: Building on Open-Source Foundations
As an AI company claiming market leadership, Nuwa Tech’s technological underpinnings have also come under the microscope. The company’s development utilizes open-source large language models (LLMs) like Qwen2.5 and DeepSeek-V3 as foundational components for its systems.
Nuwa Tech argues that these open-source tools are used only for basic service support and that its core competitive advantage lies in its proprietary algorithms, insurance domain data, and full-stack solution integration. It contends that leveraging open-source models improves development efficiency and lowers costs.
Acknowledged Risks in the Open-Source Approach
Nevertheless, the prospectus openly details the associated risks, which investors must weigh:
– Competitive Erosion: The open nature of the software could allow competitors to develop similar products, potentially diluting Nuwa Tech’s market edge.
– Legal & Compliance Threats: Errors in the open-source code or failure to comply with complex licensing terms could lead to infringement claims, litigation, and operational disruption.
– Evolving Regulatory Landscape: Nuwa Tech handles sensitive medical and personal data, making it subject to China’s stringent Personal Information Protection Law (PIPL) (个人信息保护法). The company admits that regulations around data protection and AI application are continuously evolving, and new laws “may be promulgated… causing our operations or technology to become non-compliant,” leading to ongoing compliance cost and uncertainty.
This reliance on external, non-proprietary core AI models, while pragmatic, challenges the narrative of an unscalable technological moat, a key consideration for tech IPO valuations.
The Final Hurdle: A Tightening HKEX Regulatory Gauntlet
Perhaps the most formidable challenge facing Nuwa Tech’s冲刺港股IPO is timing coupled with a shifting regulatory landscape. The HKEX and the Securities and Futures Commission (SFC) have recently sent a joint letter to sponsors (investment banks), expressing concerns over declining quality in new listing applications and highlighting specific non-compliant behaviors.
This signals a clear intent to tighten scrutiny and raise the bar for approvals. The HKEX stated its commitment to ensuring “the vetting of new listing applications is conducted in a timely yet rigorous manner” to maintain Hong Kong’s status as a leading global listing venue. For more on recent HKEX regulatory guidance, you can refer to their official announcements.
The Race Against the Expiry Clock
For Nuwa Tech, this regulatory toughening coincides precisely with the impending expiry of the financial data in its application. The company has roughly three months to navigate the hearing process, answer pointed questions from regulators on its related-party dealings, financial structure, and business model sustainability, and secure a listing approval.
Failure to list before its financials expire would necessitate a withdrawal and re-filing with updated numbers—a costly and reputationally damaging delay. The current environment makes a swift, smooth passage through the vetting process less certain than it might have been just months ago.
Nuwa Tech’s IPO Crossroads: A Calculated Gamble for Investors
Nuwa Technology’s journey to the public markets encapsulates the modern tech startup dilemma: blistering growth achieved through strategic partnerships, yet accompanied by deep dependencies and complex financial engineering. The headline-grabbing “7 billion yuan loss” and negative equity are largely pre-IPO accounting phenomena set to resolve upon listing. The more substantive issues lie in the declining gross margins, the profound reliance on ZhongAn Online, and the use of open-source AI infrastructure.
CEO Lu Min’s (卢旻) extensive experience in insurance technology is a significant asset, but his company now faces its ultimate test. The冲刺港股IPO (sprint for a Hong Kong IPO) is not just about raising capital; it is a credibility exercise before global institutional investors and a stringent regulator. Success hinges on convincing the market that Nuwa Tech is more than just a captive tech arm of a major insurer and that it possesses a durable, scalable, and independent business model.
For investors, the upcoming weeks will be critical. Scrutinize the details of the hearing responses, any updated prospectus filings, and the final offering terms. The key metrics to watch post-listing will be client diversification progress, stabilization of gross margins, and the trajectory of genuine, IFRS-reported net income once the pre-IPO financial noise clears. In a tightening IPO market, Nuwa Tech’s story must be exceptionally clear to succeed.