Ask AI · What lessons lie behind subsidiary Xitu Technology’s shift from strategic focus to risk exposure?

Source｜Phoenix Net Finance “Company Research Institute”

Overnight, “China’s No. 1 mattress stock,” Xi Linmen, was pushed into the spotlight by its own “insider.”

On March 27, Xi Linmen (SH603008) issued an announcement that shocked the market: the company found that funds in a bank account held by its controlled subsidiary, Xitu Technology Co., Ltd., were illegally transferred out, totaling as much as 100 million yuan.

To prevent the spread of risk, the company had no choice but to urgently impose protective freezes on multiple bank accounts under its control, involving about 900 million yuan. A cumulative amount of more than 1 billion yuan is implicated, accounting for 26.54% of the company’s most recently audited net assets, and as much as 42.69% of its monetary funds.

This “insider case” not only revealed major internal management gaps within the company, but also immediately drew swift intervention from regulators. For this industry leader with more than 5,000 offline specialty stores and operations covering more than 70 countries and regions, this sudden “home-invader” incident is undoubtedly a heavy warning.

Image source: announcement screenshot

01 It’s hard to guard against insiders; emergency bleeding control

Xi Linmen was founded in 1996. Its business includes designing, developing, manufacturing, and selling premium deep-sleep products centered on mattresses. Its main products include mattresses, beds, sofas, and other supporting bedroom and living-room furniture, widely used in homes, hotels, apartments, and various commercial scenarios.

The company’s founder and chairman is Chen A’yu. In 1984, inspired by the Mexican film “Xezania,” Chen A’yu, then only 22 years old, used 1,000 yuan to start a mattress workshop of just a few dozen square meters, marking the beginning of his entrepreneurial journey.

Image source: online

Public information shows that Xi Linmen listed on the Shanghai Stock Exchange in 2012 and is known as “China’s No. 1 mattress stock.”

According to the announcement released by Xi Linmen, the illegally transferred funds occurred in a general account opened by its subsidiary, Xitu Technology, at the Hangzhou branch of Industrial and Commercial Bank of China (ICBC). After an initial investigation, the company believes the relevant personnel allegedly used their positions to illegally divert company funds.

100 million yuan is not a small amount. The illegal transfer of this money exposed Xi Linmen’s huge vulnerability in how it manages and controls funds at its subsidiaries. Under layers of risk controls, somehow someone was able to “move away the huge sum” without anyone noticing.

After the incident, Xi Linmen moved quickly. The announcement states that, to further prevent risks to the safety of funds and to protect the funds of the listed company, on March 26 the company formally applied to the public security authorities for filing an investigation. This means the individuals involved may face criminal liability.

As of the date of the announcement, Xi Linmen’s controlled subsidiaries have three bank accounts under frozen status, with the amount in the frozen accounts totaling more than 900 million yuan. The frozen funds are stored respectively in: a general account of Hangzhou Xiyue Furniture Sales Co., Ltd. at the Hangzhou Dongxin Sub-branch of Citibank; a general account of Hangzhou Xiyue Furniture Sales Co., Ltd. at the Hangzhou Xihu Sub-branch of Citibank; and a general account of Shaoxing Xinxiy Furniture Sales Co., Ltd. at the Hangzhou Qiantang Sub-branch of Citibank.

Adding the 100 million yuan that has already been transferred out, the total fund size reaches 1 billion yuan—accounting for more than 40% of the company’s monetary funds from the most recently audited period. Given such a major internal control crisis and unusual fund movement, it is impossible that regulators would overlook it.

On the evening of the 27th, the Shanghai Stock Exchange promptly issued a regulatory work letter regarding the transfer and freezing of the company’s account funds. The parties involved in this regulatory letter can be described as “everybody in one net”—not only the listed company itself, but also explicitly including the company’s directors and senior management, as well as the controlling shareholder and the actual controller.

Next, regulators will most likely require the company to explain in detail the effectiveness of its internal control system, the specific process of the fund transfer, and how the responsible parties managed to bypass layered risk controls to siphon off such a large amount of money.

Image source: Xi Linmen

02 Revenue up, profit not up; high-ratio pledges add concerns

This “insider incident,” no doubt, is a test of the company’s cash flow. From financial figures, Xi Linmen was already under some pressure.

The 2025 third-quarter report shows that profit stalling became the most prominent signal for the period. During the reporting period, Xi Linmen’s operating revenue stayed slightly higher, but profits fell year over year. In the third quarter, total profit was 140 million yuan, down 8.50% year over year; net profit attributable to shareholders of the listed company was 133 million yuan, down 6.10% year over year; and net profit after deducting non-recurring gains and losses was 134 million yuan, down 6.16% year over year.

Image source: financial report

In fact, in recent years Xi Linmen had at one point tried to boost brand exposure through hot-broadcast dramas and variety shows. The company briefly crossed into the film and television industry. In 2015, Xi Linmen spent 720 million yuan to acquire Greentown Culture Media, renaming it Shengxi Huashi. In that year’s financial report, the net profit contributed by that film and television business was about one-third of Xi Linmen’s total profit.

However, the film and television business continued to incur losses afterward. In its 2020 performance report, Xi Linmen said it would divest the film and television business and refocus on its core furniture business, bringing its cross-industry attempt to an end.

After a full return to its core business, Xi Linmen’s performance still showed a pattern of “revenue growth without profit growth.” Between 2020 and 2024, the company’s revenue scale kept expanding, rising steadily from 5.62B yuan to 8.73B yuan. Meanwhile, parent company net profit swung sharply. Over the five years, it was 313 million yuan, 559 million yuan, 238 million yuan, 429 million yuan, and 322 million yuan, respectively. The growth bottleneck became a blade hanging over the company’s head.

In addition, the recent pledge situation of the company’s controlling shareholder has also drawn market attention.

According to an announcement in January 2026, the controlling shareholder of Xi Linmen and its parties acting in concert had a relatively high pledge ratio. In total, they pledged 59.01% of their total shareholdings, representing 21.46% of the company’s total share capital.

What is even more worrying is that within the next six months, 283 million yuan of pledged financing is due to mature, and within one year, another 200 million yuan is due to mature.

In its latest announcement, Xi Linmen frankly stated that this matter may have some adverse impact on the short-term normal use and operation of funds by its controlled subsidiaries. However, the company emphasized that after considering the cash flow situation comprehensively, it will not temporarily create a major adverse impact on the company’s overall production and operations.

But the market is clearly taking a cautious view—after the announcement was released, the company’s share price came under pressure. The exposure of this insider incident has undoubtedly further amplified external concerns about the company’s internal control system and governance level.

03 Yesterday’s “star of hope,” now turned into a bleeding point

The company involved in this incident, Xitu Technology, had once been a strategic piece that Xi Linmen placed high hopes on.

Rewind to December 2020. Xi Linmen’s board of directors unanimously passed a proposal to invest 50 million yuan to establish a wholly owned subsidiary, Xitu Technology.

At the time, Xi Linmen assigned this new company a clear strategic mission: to be responsible for developing and expanding business in the hotel channel. The company then believed this would help further expand the hotel channel, cultivate new profit growth points, and at the same time increase brand visibility and reputation through the hotel channel.

However, the once highly anticipated subsidiary now causes the listed company to suffer enormous losses due to severe internal management loopholes.

From the carrier of a strategic mission to the trigger point for major risks, Xitu Technology’s “turn of events” has undoubtedly served as a wake-up call to Xi Linmen’s management.

The core issue revealed by this insider case is whether, when a company actively expands new business and establishes new subsidiaries, it simultaneously builds an internal control system and a fund supervision mechanism that match them. Otherwise, strategic expansion may transform into a risk exposure.

Can the final 100 million yuan be recovered? How will the internal control vulnerabilities be repaired? When facing regulators’ questions, what answer will Xi Linmen provide? Everything still awaits time to provide the answer.