Jinge New Materials' gross profit margin continues to decline: R&D expense ratio decreases, and the earn-out agreement has not been fully settled.

“Port Commercial Observation” by Shi Zifu

On March 27, the Beijing Stock Exchange will hold the 31st listing committee review meeting of 2026, during which it will review the initial public offering (IPO) of Guangdong Jinge New Materials Co., Ltd. (hereinafter referred to as Jinge New Materials).

It is understood that in June 2025, Jinge New Materials’ IPO was accepted by the Beijing Stock Exchange, with China International Capital Corporation as the sponsor. In July and December 2025, the Beijing Stock Exchange issued two rounds of inquiry letters, focusing on the company’s compliance in production and operations, the necessity of fundraising projects, the reasonableness of gross margin fluctuations, and the risk of performance decline after the reporting period.

1

Continuous Decline in Gross Margin

According to Tianyancha, Jinge New Materials was established in 2012 and is engaged in the research, development, production, and sales of functional materials. Currently, the company has a product series that includes thermal conductive powder materials, flame retardant powder materials, and wave-absorbing powder materials. Downstream customers enhance the thermal conductivity, flame retardancy, and wave absorption characteristics of their polymer materials by incorporating the company’s products, which are widely used in fields such as new energy vehicles, consumer electronics, 5G communications, and photovoltaic energy storage.

Jinge New Materials’ main products include thermal conductive powder materials, flame retardant powder materials, and wave-absorbing powder materials. From 2023 to 2025 (hereinafter referred to as the reporting period), the company’s revenue from thermal conductive powder materials was 268 million yuan, 320 million yuan, and 359 million yuan, accounting for 69.85%, 68.41%, and 67.25% of the main business revenue during the respective periods.

In 2023, Jinge New Materials’ revenue from thermal conductive powder materials declined primarily due to a decrease in revenue from related products used in the new energy vehicle sector. In 2024 and 2025, the revenue from thermal conductive powder materials increased year-on-year, mainly due to the recovery trend in the new energy vehicle and consumer electronics industries benefiting from improved industry competition and state policies to promote consumption, leading to growth in downstream demand for products.

During the reporting period, the revenue from flame retardant powder materials was 108 million yuan, 129 million yuan, and 144 million yuan, accounting for 28.2%, 27.69%, and 26.92% of the main business revenue during the respective periods.

Overall, during the reporting period, the company achieved revenue of 385 million yuan, 467 million yuan, and 534 million yuan, with net profits of 41.29 million yuan, 47.39 million yuan, and 57.48 million yuan, and net profits attributable to the parent company, after deducting non-recurring gains and losses, were 40.94 million yuan, 46.93 million yuan, and 57.71 million yuan.

In recent years, some downstream industries of the company have been impacted by changes in the external market environment and intensified internal competition, leading to significant cost pressures, which have resulted in declines in revenue, gross margins, and profit scales for some upstream material suppliers, including Jinge New Materials.

For each period of the reporting period, Jinge New Materials’ comprehensive gross margins were 25.28%, 24.24%, and 22.36%, a total decline of 2.92 percentage points over three years. In 2023-2024, the average gross margins of comparable companies in the industry were 27.66% and 26.44%, both slightly higher than the average gross margin level of Jinge New Materials during the same periods. Jinge New Materials explained this by stating that it was mainly due to certain structural differences in its products.

The company indicated that under unchanged conditions, if the unit selling price of its main products decreased by 5% during the reporting period, the operating revenue would decline by 19.23 million yuan, 23.37 million yuan, and 26.68 million yuan respectively; under unchanged conditions, if the unit selling price of its main products decreased by 5%, the company’s gross margin would decline by 3.93%, 3.98%, and 4.09% respectively.

Based on current operating conditions, Jinge New Materials expects its operating revenue for January to March 2026 to be approximately 120 million to 125 million yuan, representing a year-on-year change of approximately 2.76% to 7.04%; net profit attributable to the parent company is expected to be approximately 12 million to 13 million yuan, representing a year-on-year increase of approximately 43.45% to 55.40%; net profit attributable to the parent company after deducting non-recurring gains and losses is expected to be approximately 11.5 million to 12.5 million yuan, representing a year-on-year increase of approximately 27.48% to 38.57%.

2

R&D Investment Significantly Lower Than Peers

Although the company emphasizes its focus on R&D investment, from 2023 to 2024, its R&D expenses were significantly lower than the average level of comparable companies during the same period.

During the reporting period, Jinge New Materials’ R&D expenses were 18.64 million yuan, 20.45 million yuan, and 21.61 million yuan, accounting for 4.85%, 4.37%, and 4.05% of total revenue respectively.

In 2023-2024, the average R&D expense ratio of companies in the same industry was 6.92% and 5.97%. It is easy to see that Jinge New Materials’ R&D expense ratio is not only lower than the industry average but also shows a downward trend over the reporting period.

Another major operational risk issue may be the continuous increase in accounts receivable and inventory at Jinge New Materials.

At the end of each period in the reporting period, the book value of the company’s accounts receivable was 85.42 million yuan, 134 million yuan, and 128 million yuan, accounting for 29.88%, 41.90%, and 34.67% of current assets respectively, which is quite high; the book balance of accounts receivable was 89.98 million yuan, 141 million yuan, and 135 million yuan; and the bad debt provision for accounts receivable was 4.56 million yuan, 7.12 million yuan, and 6.91 million yuan. High accounts receivable not only occupies a large amount of working capital but also increases bad debt risk.

At the same time, the book value of the company’s inventory was 61.74 million yuan, 74.04 million yuan, and 85.17 million yuan, with book balances of 63.49 million yuan, 76.73 million yuan, and 88.33 million yuan, and inventory impairment provisions of 1.75 million yuan, 2.69 million yuan, and 3.16 million yuan.

At the end of each period in the reporting period, the net cash flow from operating activities was 34.12 million yuan, 24.48 million yuan, and 65.67 million yuan respectively.

In 2024, Jinge New Materials’ net cash flow from operating activities decreased compared to 2023, mainly due to an increase in the proportion of bill settlements, leading to reduced cash receipts, increased employee compensation expenses, and the concentrated payment of IPO intermediary service fees.

3

Overcapacity Production, Still Subject to Contingent Repurchase Terms

In terms of equity structure, as of the date of signing the prospectus, Huang Chaoliang directly held 38.80 million shares of the company, accounting for 57.96% of the total share capital, while also holding a 62.50% partnership share in Jinwo Investment and serving as the executive partner, controlling 15.26% of the company’s shares held by Jinwo Investment, thus collectively controlling 73.22% of the company’s shares and serving as the chairman and general manager of the company, making Huang Chaoliang the actual controller of the company.

For this IPO, Jinge New Materials plans to raise approximately 205 million yuan, of which 75.35 million yuan will be used for a technical transformation project to produce 30,000 tons of functional materials annually, 56.41 million yuan for the construction of a research and experimental base, 38.19 million yuan for the construction of intelligent warehousing, and 35 million yuan to supplement working capital.

Regarding capacity utilization, during the reporting period, the company’s capacity utilization rates were 138.86%, 105.57%, and 94.96% respectively. From 2023 to 2024, some of the products produced by the company experienced overproduction, with excess production rates of 38.86% and 5.57% respectively.

In the second round of inquiry letters issued by the Beijing Stock Exchange, the regulatory authorities focused on the risks and reasonableness of the fundraising project’s capacity utilization. The Beijing Stock Exchange required Jinge New Materials to quantify and explain the capacity utilization of the new 30,000 tons functional materials technical transformation project after reaching production. In conjunction with the overcapacity production situation and environmental regulatory policies during the reporting period, the company was asked to clarify whether there are risks related to environmental compliance and penalties, and whether effective measures have been taken to address the overcapacity situation.

In response, Jinge New Materials stated that as the new 30,000 tons functional materials technical transformation project gradually goes into production, the expected capacity utilization rates for the next five years (2026-2030) are 84.71%, 80.90%, 87.37%, 94.36%, and 101.91% respectively, and the expected utilization rates for the new capacity of this fundraising project are 23.97%, 33.24%, 51.88%, 72.01%, and 93.75%. Therefore, the new capacity of this fundraising project is expected to be steadily utilized.

At the end of each period in the reporting period, the balance of cash and cash equivalents at Jinge New Materials was 87.96 million yuan, 54.64 million yuan, and 93.30 million yuan, showing a recovery trend in the book funds over the past three years.

External parties have noted the related transaction issues between Jinge New Materials and its affiliate, Shengteng Trading.

It is understood that Guangzhou Shengteng Trading Co., Ltd. (hereinafter referred to as Shengteng Trading) is controlled by Huang Chaoliang’s nephew Huang Yicong and his nephew’s spouse Li Danhong, and has been deregistered in April 2024.

In 2023, Jinge New Materials procured 1.857 billion yuan from Shengteng Trading, accounting for 0.07% of the total transaction amount in the same category. At the same time, since Shengteng Trading has only sold to Jinge New Materials since its establishment, this has also attracted regulatory attention.

In the second round of inquiry letters, Jinge New Materials replied that Shengteng Trading sells exclusively to the company to protect trade secrets. To further regulate related transactions, Jinge New Materials has gradually reduced related transactions with Shengteng Trading and completely ceased these transactions in 2023. After fulfilling personnel layoffs and asset distribution, Shengteng Trading will be deregistered in 2024.

In terms of internal control, there are special investment clauses with contingent restoration conditions signed between the actual controller of Jinge New Materials and some existing shareholders in previous operations. If conditions for restoring effectiveness are triggered, the actual controller may need to perform repurchase obligations, which could lead to changes in the shareholding ratio of existing shareholders and potentially have adverse effects on the stability of the company’s control, the qualifications of related obligated entities, and other corporate governance and operational matters.

Specifically, in August 2018, Jinge Co., Ltd. increased its registered capital for the fourth time, with Yueke Investment investing in Jinge Co., Ltd. due to its optimistic outlook on its development.

On June 17, 2022, Yueke Investment, the company, and Huang Chaoliang signed a supplementary agreement regarding the equity investment agreement signed in July 2018 for Foshan Jinge New Materials Co., Ltd. The previous agreement included special investment clauses such as most-favored-nation treatment, anti-dilution rights, board nomination rights, information rights, restrictions on share transfers, repurchase rights, performance commitments and compensations, joint sale rights, preemptive subscription rights, preemptive purchase rights, preemptive liquidation rights, and rights restoration clauses.

On September 20, 2024, and June 4, 2025, Yueke Investment signed supplementary agreements regarding the dissolution of special investment clauses with the company, Huang Chaoliang, and Jinwo Investment.

In July 2022, Jinge New Materials increased its capital for the second time, with Yueke Investment and Keri Investment investing in Jinge New Materials due to their optimistic outlook on its development. On September 20, 2024, and June 4, 2025, Yueke Investment and Keri Investment signed supplementary agreements regarding the dissolution of special investment clauses with the company and Huang Chaoliang.

In December 2019, Jinge Co., Ltd. increased its registered capital for the fifth time, with Shenzhen Venture Capital, Hongtu Venture Capital, and Hongtu Junsheng investing in Jinge Co., Ltd. due to their optimistic outlook on its development. The agreement included special investment clauses such as board nomination rights, one-vote veto rights on major matters, information rights, preemptive subscription rights, preemptive transfer rights, anti-dilution rights, joint sale rights, forced sale rights, most-favored-nation treatment, related transfers, restrictions on share transfers, rights to dissolve the company, rights restoration clauses, performance compensation and commitments, repurchase rights, and preemptive liquidation rights.

On July 31, 2024, and June 6, 2025, Shenzhen Venture Capital, Hongtu Venture Capital, and Hongtu Junsheng signed supplementary agreements regarding the dissolution of special investment clauses with the company and Huang Chaoliang, Jinwo Investment, and Yueke Investment.

On April 15, 2022, Fumiao Gongchuang signed agreements with the company and Huang Chaoliang regarding capital increase and subscription for Foshan Jinge New Materials Co., Ltd., and a supplementary agreement to the aforementioned agreement, which included special investment clauses such as board nomination rights, information rights, preemptive subscription rights, preemptive transfer rights, anti-dilution rights, joint sale rights, forced sale rights, most-favored-nation treatment, related transfers, rights restoration clauses, restrictions on share transfers, rights to dissolve the company, repurchase rights, preemptive purchase rights, preemptive sale rights, preemptive liquidation rights, and prior consent rights for major matters.

On September 20, 2024, and June 9, 2025, Fumiao Gongchuang signed supplementary agreements regarding the dissolution of special investment clauses with the company and Huang Chaoliang.

On December 26, 2023, Yuecai Investment and Chuangying Jianke signed agreements with the company and Huang Chaoliang regarding capital increase and subscription for Guangdong Jinge New Materials Co., Ltd., and a supplementary agreement to the aforementioned agreement, which included special investment clauses such as repurchase rights, anti-dilution rights, preemptive subscription rights, restrictions on share transfers, preemptive transfer rights, joint sale rights, prior consent rights for major matters, information rights, forced sale rights, most-favored-nation treatment, related transfers, rights to dissolve the company, and rights restoration clauses.

On September 20, 2024, and May 20, 2025, Yuecai Investment and Chuangying Jianke signed supplementary agreements regarding the dissolution of special investment clauses with the company and Huang Chaoliang.

On August 15, 2024, Lingnan Fund signed a share transfer contract with Huang Chaoliang for Guangdong Jinge New Materials Co., Ltd., which included special investment clauses such as anti-dilution rights, joint sale rights, and rights restoration clauses.

On September 23, 2024, and June 9, 2025, Lingnan Fund signed supplementary agreements regarding the dissolution of special investment clauses with Huang Chaoliang.

Jinge New Materials stated that after the signing of the aforementioned agreements, except for the special investment clauses that will not be executed after normal completion and the restoration of effectiveness condition of some shareholders’ repurchase rights being terminated, as of the date when the issuer’s application for listing on the Beijing Stock Exchange was accepted, all other shareholders’ special investment clauses have been completely and irrevocably terminated.

Other than Lingnan Fund, Jinge New Materials’ other investors, including Yueke Investment, Shenzhen Venture Capital, and Fumiao Gongchuang, have permanently and irrevocably terminated non-repurchase clauses such as anti-dilution rights, joint sale rights, preemptive subscription rights, board nomination rights, and preemptive liquidation rights in their special investment clauses. The core repurchase rights clause’s restoration condition has been terminated, and execution has been suspended since June 25, 2025, when the company submitted its IPO application to the Beijing Stock Exchange, with an agreement that if this IPO fails (including withdrawal, rejection, expiration of materials, etc.), the repurchase clause will automatically restore effectiveness.

As of now, these repurchase clauses have not been completely cleared and will only be permanently lifted after this IPO is successfully listed. Jinge New Materials faces potential risks of triggering repurchase obligations if the IPO fails.

Wanfeng Securities investment advisor Qu Fang stated that the contingent restoration conditions associated with the IPO’s repurchase clauses will only trigger repurchase obligations if this IPO fails (including application withdrawal, review rejection, etc.) or fails to meet the agreed-upon listing deadline requirements, and will not adversely affect the substantial issuance process of this IPO. Additionally, the repurchase obligation is borne by the actual controller, and the company does not bear repurchase responsibilities, which will not create substantial obstacles to the review and issuance of this IPO. (Produced by Port Finance)