New business high growth struggles to offset rising costs, Ludotech's transformation faces setbacks with widening losses

Recently, Ludao Technology (688156.SH) released its 2025 performance forecast, showing that the company’s financial situation has not improved. Not only does it continue to incur losses, but the loss amount has also further increased compared to the same period last year. This marks the second consecutive year of losses since the company first entered the red in 2024.

Securities Star notes that as an environmental technology company in a strategic transformation period, Ludao Technology is accelerating its shift from traditional inorganic solid waste treatment businesses such as river and lake sludge and engineering mud to biological fermentation products like liquor residue-based feed. However, the new business cultivated for over a decade has yet to establish stable profitability. On one side, traditional businesses are gradually shrinking; on the other, the capacity release and sales growth of new businesses have not fully offset the investment pressures. Due to factors such as declining product prices, high costs, and asset impairment provisions, the company has yet to escape the quagmire of losses. When the profit turning point will arrive remains to be seen.

High growth in new business cannot offset high investments; capacity ramp-up pressures profitability

The 2025 performance forecast shows that the company achieved operating revenue of 383 million yuan, a year-on-year increase of 37.85%, but net profit attributable to the parent was a loss of 70.3194 million yuan, further widening from a loss of 56.5515 million yuan in the same period last year, a decrease of 24.35% year-on-year. After deducting non-recurring gains and losses, net profit was a loss of 73.8883 million yuan, with basic earnings per share of -0.70 yuan, and return on net assets dropped to -8.80%, down 2.27 percentage points from the previous year.

This data continues the downward trend from 2024. In 2024, the company achieved revenue of 282 million yuan, a decrease of 19.65% year-on-year; net profit attributable to the parent was a loss of 56.9319 million yuan, a sharp decline of 311.10%. From nearly 27 million yuan profit in 2023 to a loss of over 56 million yuan in 2024, and then to a loss exceeding 70 million yuan in 2025, Ludao Technology’s profitability has plummeted within just two years.

Facing profit pressure, Ludao Technology has been expanding capacity since 2014, attempting to open new growth avenues through strategic transformation. After years of cultivation, this new business surpassed traditional operations in 2023 to become the company’s largest revenue source. In 2024, revenue from liquor residue-based biological fermentation feed reached 217 million yuan, accounting for 78.11% of total revenue, making it the core pillar. In 2025, sales of this business increased by over 50% year-on-year, directly driving the company’s overall revenue growth of 37.85%.

However, rapid growth has not been smooth sailing. In recent years, due to the continuous decline in prices of bulk feed raw materials and sluggish downstream ruminant breeding industries, the liquor residue fermentation feed business faces slower-than-expected sales growth and forced price reductions for some products, leading to sustained pressure on gross profit margins. Data shows that the gross margin of this business has fallen from 29.8% in 2023 to 14.93% in 2024, and further down to 10.21% in the first half of 2025, significantly weakening profitability.

In response to market challenges, Ludao Technology has not slowed its capacity expansion. In Q4 2024, three new biological fermentation feed factories in Zunyi, Bozhou, and Yongle were put into production. By the end of 2025, the company had built and put into operation five such factories, with a total capacity of 470,000 tons per year, and planned capacity reaching 700,000 tons per year. The liquor residue processing capacity can reach 1.84 million tons annually, continuously strengthening its scale advantage. According to disclosures, by September 2025, two new factories had achieved profitability in their product lines.

However, behind rapid growth and capacity expansion are high costs that erode profit margins. First, depreciation of fixed assets and financial expenses increased significantly. After the three new factories came online, the interest expenses related to fixed asset loans increased notably. Additionally, after subsidiaries brought in external investors, the company had to recognize interest on financial liabilities arising from buyback obligations, increasing interest expenses by about 11 million yuan in 2025. Furthermore, costs related to depreciation, property taxes, and land use taxes for the new factories and Wuhan headquarters increased by approximately 12 million yuan, continuously adding to fixed cost pressures.

Second, during the capacity ramp-up period, costs are notably higher. Initial capacity utilization rates of new factories are low, leading to higher weighted average costs. To match market prices, the company had to recognize inventory impairment provisions of about 3.2 million yuan for the new factories. Although some new factories have achieved product line profitability, from a consolidated perspective, the scale effect of liquor residue fermentation feed business has not yet fully covered the earlier investments.

Additionally, ongoing market expansion and R&D investments continue. In December 2025, the company announced plans to introduce a 117 million yuan capital increase from the Guotou Julei Fund into three subsidiaries of biological fermentation feed. By January 2026, Bozhou Ludao and Suqian Ludao had completed registration changes for the capital increase; Yongle Ludao’s capital increase is still underway. According to strategic cooperation agreements, the company commits to investing no less than 30 million yuan from 2026 to 2028 in protein feed resource R&D. In terms of R&D, the company continues to invest in frontier technologies such as synthetic biology and enzyme engineering, achieving phased results like a 200L scale fermentation pilot in 2024. However, short-term investments remain necessary, further increasing cost pressures.

Decline of traditional business leaves residual effects; impairment and receivables pressure intensify losses

While heavily focusing on new business, Ludao Technology’s traditional inorganic solid waste treatment business is accelerating its contraction. In 2024, revenue from river and lake sludge treatment services was only 10.43 million yuan, a sharp drop of 88.42% year-on-year, with gross margin decreasing by 49.67 percentage points; engineering mud treatment services earned 30.76 million yuan, down 43.66% year-on-year, with gross margin down 44.21 percentage points. The company explicitly stated it would focus on the core biological fermentation feed business and reduce investment in environmental solid waste sectors, properly disposing of related assets and equity.

The shrinking of traditional business not only creates revenue gaps but also leaves behind impairment and receivables pressures, which have significantly contributed to the widening losses in 2025. According to the forecast, the company recognized impairment losses of about 34 million yuan in total, most of which stem from traditional solid waste treatment assets.

During the reporting period, due to factors such as project acceptance audits and decreased customer payment ability, the accounts receivable and contract asset impairments increased. At the end of the period, the combined impairment losses on these assets were about 30 million yuan.

The continued drag of traditional business, coupled with high investments in new ventures, creates a “dual squeeze” that makes Ludao Technology’s transformation difficult. For a company that has reported losses for two consecutive years, the impairment and receivables pressures from traditional solid waste treatment are unlikely to be fully alleviated in the short term. Although the core new business—liquor residue fermentation feed—has achieved rapid revenue growth and capacity expansion, and efforts such as strategic investment and increased R&D are underway to support future development, market prices remain low, capacity utilization needs improvement, and scale effects are yet to be fully realized. Profit contributions will take time to build, and future performance remains subject to market observation.