Chunguang Group's IPO is set for a critical evaluation. The listing review committee has scheduled its fifth meeting of 2026 for February 5th to deliberate on Chunguang Group's initial public offering.
The company aims to raise 751 million yuan through this GEM listing attempt, with 584 million yuan allocated to an intelligent power supply magnetic material project, 67.33 million yuan for upgrading its R&D center, and 99 million yuan to supplement working capital.
Questions arise regarding the authenticity of its earnings, highlighted by a sharp increase in receivables and a relatively low provision ratio for inventory depreciation. Chunguang Group primarily engages in the R&D, production, and sales of soft ferrite magnetic powder, and has expanded along the industrial chain to produce soft ferrite cores, electronic components, and power supplies. Its products are mainly used in new energy vehicles and charging piles, smart homes and appliances, communication power supplies and equipment, green lighting, photovoltaic energy storage, the Internet of Things, and medical fields.
From 2023 to 2025, the company's operating revenues were 930 million yuan, 1.077 billion yuan, and 1.154 billion yuan, with year-on-year changes of -8.42%, 15.81%, and 7.23% respectively. Net profits were 87.0332 million yuan, 98.8897 million yuan, and 124 million yuan, changing by 12.83%, 13.62%, and 25.62% year-on-year. This indicates fluctuating revenue growth, with a noticeable slowdown in 2025.
The quality of Chunguang Group's profits requires improvement. Over the last three full reporting periods, net cash flow from operating activities was 31.3694 million yuan, 28.6492 million yuan, and 119 million yuan, with year-on-year changes of -8.67% and 315.88%. The ratio of cash received from selling goods and providing services to operating revenue was 0.51, 0.47, and 0.53 respectively, with the net cash flow ratio consistently below 1.
Weak profitability may reflect the company's limited bargaining power within its industry. The soft ferrite magnetic powder business is its core operation, accounting for over 80% of revenue. During the reporting periods, sales revenue from this segment was 836.8572 million yuan, 756.0926 million yuan, 881.5933 million yuan, and 446.2925 million yuan, constituting 83.15%, 81.89%, 82.30%, and 82.18% of main business revenue respectively.
The competitive landscape of China's soft magnetic materials industry is relatively fragmented. According to statistics from the Magnetic Materials Branch of the China Electronic Materials Industry Association, as of December 2024, only 11.20% of soft magnetic enterprises had registered capital exceeding 10 million yuan, and a mere 0.16% had over 300 employees enrolled in social insurance. These manufacturers typically operate only a few core production lines, sourcing magnetic powder externally and competing mainly on low prices, resulting in limited production scale, low product value-added, weak bargaining power with upstream and downstream partners, and poor risk resistance.
It is noteworthy that the company has chosen the first set of listing standards for its GEM application, which imposes specific requirements and constraints on both profitability and growth. However, the company's provision ratio for bad debts is lower than its peers, and the high pre-IPO earnings growth is accompanied by a sharp increase in accounts receivable.
Firstly, the shift from negative growth in 2023 to positive growth in 2024, just before the IPO, coincides with a significant surge in receivables. Wind data shows the company's revenue growth was -8.42% in 2023 but surged to 15.81% in 2024. Notably, the growth rate of accounts receivable in 2024 reached 30.48%, significantly outpacing revenue growth.
It was also observed that Jiangsu Baici Electronics Co., Ltd. became a new top-five customer in 2024, contributing revenue of 30.9651 million yuan, accounting for 2.88% of sales. This customer was established on March 31, 2020, began cooperating with Chunguang Group in 2022, and rose to become a top-five client in 2024. Chunguang Group's accounts receivable balance from this customer in 2024 was 13.4959 million yuan, representing a substantial 44% of its sales to them during that period.
This raises the question of whether the company relaxed its sales credit policies to boost performance ahead of the listing attempt. It should be added that while the growth rate of its accounts receivable in 2024 was significantly different from peers, the ratio of receivables to revenue was relatively lower than the industry average.
Secondly, the company's provision ratios for inventory depreciation are lower than industry peers. In the most recent full fiscal year, accounts receivable constituted 22.44% of total assets, and inventory constituted 15.49%. The company's inventory primarily consists of raw materials and finished goods. The book balance of inventory at the end of each period from 2022 to 2024 was 164.1607 million yuan, 205.7038 million yuan, and 205.8370 million yuan, with raw materials accounting for 55.83%, 48.20%, and 52.92%, and finished goods for 31.10%, 44.45%, and 38.14% respectively. The provision ratios for inventory depreciation at each period-end were 5.70%, 6.38%, and 5.78%, with provision ratios for raw materials at 1.39%, 2.21%, and 2.23%. In comparison, the average provision ratios for comparable companies were 3.97%, 4.18%, and 6.33% respectively.
It is important to note that Chunguang Group selected the first listing standard, which requires positive net profits in the two most recent years, a cumulative net profit of no less than 100 million yuan, and a net profit of no less than 60 million yuan in the most recent year. For 2023 and 2024, the company's net profit attributable to the parent company's owners (calculated based on the lower of pre- and post-extraordinary items) was 85.1458 million yuan and 92.7571 million yuan respectively, thus meeting the aforementioned criteria.
Doubts persist regarding the necessity of the fundraising for capacity expansion, with concerns about the absorption of the new production. Chunguang Group's production capacity for soft ferrite magnetic powder was 82,500 tons, 92,400 tons, and 107,100 tons for 2022-2024, with an annualized capacity of 109,300 tons for the first half of 2025. The proposed fundraising projects are concentrated on magnetic powder and power supply products, planning to add 75,000 tons of new magnetic powder capacity, which is approximately 70% of the existing capacity.
Does such aggressive expansion raise concerns about capacity utilization? From the demand perspective, while industry sales volume is rising, the total sales value is shrinking, suggesting a contracting market ceiling. According to the Magnetic Materials Branch of the China Electronic Materials Industry Association, the sales volume of soft ferrite in China from 2020 to 2024 was 415,000 tons, 460,000 tons, 482,000 tons, 480,000 tons, and 506,000 tons, with a compound annual growth rate of 5.08%. However, the sales value for the same periods was 8.28 billion yuan, 11.22 billion yuan, 10.652 billion yuan, 9.072 billion yuan, and 9.159 billion yuan. This indicates that while sales volume increased, the sales value decreased, potentially signaling a shrinking market potential.
From the supply side, planned capacity additions appear to potentially exceed sales demand. The soft magnetic materials sector has many sub-categories, primarily including ferrite soft magnetic materials, metal soft magnetic materials, and others. Global ferrite soft magnetic production capacity is concentrated in China and Japan, with China leading in output volume and Japan in technological advancement. According to a report from the Guanyan Report Network titled "Analysis of the Development Status and Investment Prospects of China's Soft Magnetic Materials Industry (2023-2030)", China's annual soft ferrite production capacity exceeds 500,000 tons, with over 230 domestic manufacturers engaged in production as of 2020. Furthermore, based on publicly disclosed information, newly planned capacity additions for soft ferrite materials exceed 140,000 tons.
This leads to the question: could such large-scale expansion lead to oversupply, and how will the company manage to utilize this new capacity? It is noteworthy that Chunguang Group's gross profit margin is lower than the industry average, and the average selling price of its soft ferrite magnetic powder shows a declining trend. The average price dropped from 10,900 yuan per ton in 2022 to 9,200 yuan per ton in 2023, a decrease of 15.63%, and further declined to 8,700 yuan per ton in 2024, a drop of 5.62%.
With a gross margin below the industry average and a general downtrend in average selling prices, does this suggest the company is already engaged in a price war to gain market share? During the reporting period, Chunguang Group's magnetic powder sales volume continued to grow, and its market share increased from 10.66% in 2022 to 12.80% in 2024 (based on soft magnetic materials caliber).
It should be pointed out that regulators have repeatedly questioned the company about its capacity utilization plans. The company has acknowledged that after the raised fund projects are completed and reach production capacity, it will significantly expand its core product output. However, due to the relatively large scale of the magnetic powder capacity expansion and the time required for project construction and commissioning, if significant adverse changes occur in downstream industry policies or market demand, or if the company's product sales growth falls short of expectations, there is a risk that the newly added capacity from the fundraising projects may not be absorbed in a timely manner, which could adversely affect the projected benefits of these projects.
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