In-Depth Analysis of the Drivers Behind the Decline in Zhongwu High-Tech's Period Expense Ratio

Based on the financial data and research materials I have collected, below is an in-depth analysis report on the drivers behind the decline in Zhongwu High-Tech’s period expense ratio.

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According to public financial data, Zhongwu High-Tech (000657.SZ) has seen a continuous downward trend in its period expense ratio in recent years, with specific changes as follows:

Expense Item	2021	2023	2024Q1	2024 First Three Quarters	2025 First Three Quarters
Selling Expense Ratio	3.11%	3.20%	2.96%	3.11%	2.79%
General and Administrative Expense Ratio	4.70%	4.66%	3.89%	4.12%	4.25%
R&D Expense Ratio	-	4.06%	3.74%	4.03%	4.37%
Financial Expense Ratio	-	0.39%	0.73%	0.66%	0.40%
Total Period Expense Ratio	~12.5%	~12.31%	~11.32%	~11.92%	~11.81%

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As one of the first pilot enterprises in the

, Zhongwu High-Tech has seized the opportunity of reform, and solidly advanced lean management work in accordance with the design concept of , continuously improving the level of management leanization [4].

• Significant Increase in Per Capita Output
  : In 2021, per capita output reached RMB 1.668 million, a year-on-year increase of 22.31% [5]
• Continuous Improvement in Management Efficiency
  : The general and administrative expense ratio has decreased by a cumulative
  2.07 percentage points
  since 2016, while the selling expense ratio has dropped by a cumulative
  2.95 percentage points
  [5]

The company is accelerating the transition from traditional manufacturing to

development:

• Zhuzhou Cemented Carbide Group’s intelligent tungsten carbide powder production line has been continuously improved [4]
• Jinzhou Company’s Phase III Automation Project (Kunshan Branch) was successfully put into operation [4]
• Lean management has achieved process optimization and improved resource allocation efficiency

As the tungsten industry operation and management platform under China Minmetals Corporation, the company has improved management efficiency through the optimization of its governance structure, reducing unnecessary management levels and redundant expenditures.

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The company continues to promote lean operation strategies, optimize sales network layout and channel management, and improve sales efficiency:

• The selling expense ratio dropped from 3.11% in 2021 to 2.79% in the first three quarters of 2025
  , a cumulative decrease of
  0.32 percentage points
  [2][3]

By focusing on high-quality and strategic customers, the company has increased customer concentration and service efficiency, reducing unit selling expenses.

The company uses digital means to optimize marketing channels, reduce traditional marketing costs, and improve the efficiency of selling expense utilization.

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According to the 2023 semi-annual report data,

, mainly due to [4].

The company continues to optimize its liability structure, with

, and financing costs falling year-on-year, resulting in reduced interest expenses [1].

• Net cash flow from operating activities has continuously improved
• Cash flow management for investment activities has become more prudent
• The structure of cash flow from financing activities has been optimized

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Although the R&D expense ratio has remained relatively stable (4.03% in the first three quarters of 2024, 4.37% in the first three quarters of 2025), the

:

• R&D expenses in 2023 reached RMB 517 million, a year-on-year increase of 24.57% [1]
• R&D expenses in the first three quarters of 2024 were RMB 413 million, a year-on-year increase of 19.05% [1]
• R&D expenses in the first three quarters of 2025 were RMB 557 million, a year-on-year increase of 12.73% [3]

The moderate increase in the R&D expense ratio reflects the company’s strategic layout of

[1], enhancing product added value and core competitiveness through continuous technological innovation.

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• “Double Hundred Action” Pilot Enterprise
  : As a benchmark for state-owned enterprise reform, the company is at the forefront of institutional and mechanism innovation
• “Building a World-Class Demonstration Enterprise of ‘Specialized, Sophisticated, Unique, and New’”
  : Zhuzhou Cemented Carbide Group was selected as a demonstration enterprise by the State-Owned Assets Supervision and Administration Commission of the State Council [4]
• Value Creation Initiative
  : Seizing the opportunity of reform to promote the improvement of management efficiency

As the tungsten industry platform under China Minmetals Corporation, the company manages and operates a complete tungsten industrial chain integrating

[4]. Through industrial chain integration, it has achieved collaborative optimization of procurement, production, and sales links, reducing overall operating costs.

As the company’s business scale continues to expand (operating revenue reached RMB 14.743 billion in 2024, a year-on-year increase of 7.80%), the

has become increasingly evident, driving down the expense ratio [6].

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Indicator	2023	2024	2025 First Three Quarters
Gross Margin	16.87%	22.07%	21.83%
Net Margin	4.61%	7.01%	7.30%

• Remarkable Results of Expense Control
  : Period expense ratio continues to decline
• Steady Increase in R&D Investment
  : Supports long-term sustainable development
• Continuous Improvement in Operating Quality and Efficiency
  : ROE increased from 10.74% in 2021 to approximately 18% in the first three quarters of 2025 [5][6]

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The decline in Zhongwu High-Tech’s period expense ratio is the result of

operating improvements, with the main drivers including:

1. In-depth Implementation of Lean Management System
   : Continuously optimize management processes through the “Four Leans” concept
2. Intelligent Transformation and Upgrading
   : Intelligent production lines and automation projects improve operational efficiency
3. Deepening of State-Owned Enterprise Reforms
   : Institutional and mechanism innovations unlock management dividends
4. Industrial Chain Synergies
   : Integrated layout reduces overall operating costs
5. Optimization of Financial Structure
   : Improvement in liability structure and decrease in financing costs

Looking ahead, as the company continues to advance

, (such as Shizhuyuan Company and Yuanjing Tungsten Industry), and further leverages the synergies of the tungsten industrial chain, the company’s expense ratio is expected to continue its optimization trend, and its profitability is expected to keep improving.

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[0] Gildata API - Zhongwu High-Tech Company Profile and Financial Data (https://www.gildata.com.cn)

[1] Guoyuan Securities - Zhongwu High-Tech (000657): From Mining to Intelligent Manufacturing: Reshaping the Competitiveness of the Entire Tungsten Industrial Chain (https://pdf.dfcfw.com/pdf/H3_AP202405061632492620_1.pdf)

[2] Guoyuan Securities - Commentary on Zhongwu High-Tech’s 2025 Third Quarter Report (https://finance.sina.com.cn/roll/2025-11-10/doc-infwwvuv1552886.shtml)

[3] Huayuan Securities - In-Depth Research Report on Zhongwu High-Tech (000657.SZ) (https://pdf.dfcfw.com/pdf/H3_AP202510311772600517_1.pdf)

[4] Zhongwu High-Tech Materials Co., Ltd. 2023 Semi-Annual Report (http://static.cninfo.com.cn/finalpage/2023-08-23/1217606837.PDF)

[5] Guojin Securities - Zhongwu High-Tech (000657.SZ): A Leading Integrated Tool Enterprise in the Industrial Chain, Unlocking Performance Elasticity Through Reform (https://pdf.dfcfw.com/pdf/H3_AP202205301568776762_1.pdf)

[6] Huafu Securities - In-Depth Research on Zhongwu High-Tech (000657.SZ) (https://pdf.dfcfw.com/pdf/H301_AP202308221595469344_1.pdf)