To The Moon

For stock investors, authoritative, professional, timely and comprehensive analyst reports help uncover potential thematic opportunities. Core view: Five-Star New Materials' revenue fell 42% over two years, and net profit attributable to parent plunged nearly 70% over the same period, with 2025 net profit tumbling nearly 50%. The company's gross margin is significantly higher than peers, yet its period expense ratio is lower than comparable companies. Even as revenue dropped for two consecutive years, the company's inventory surged nearly 80%, and the ratio of period-end order backlog to finished goods plummeted to single digits. Moreover, alongside the sharp inventory increase, the provision rate for inventory write-downs fell broadly, reaching only one-eighth of peers' level in 2025. On the cost side, the company's calcined petroleum coke procurement cost is more than 10% below the industry average, with some suppliers raising doubts. On the customer side, two companies controlled by the actual controller's distant relatives became top-five customers in the most recent year and period, yet the reasonableness and necessity of some related-party transactions remain questionable.

Revenue and Net Profit Fall for Two Straight Years, Latest Annual Profit Drop Nears the "50%" Red Line

The prospectus shows that Five-Star New Materials is engaged in the research, development, production and sale of fine-structure isostatic high-purity graphite materials and products within the specialty graphite sector, and is one of the few domestic enterprises with a full industrial chain production capability for isostatic high-purity graphite. The company's main products are fine-structure isostatic high-purity graphite materials and high-purity graphite products, primarily used as consumables or components required in downstream production processes. From 2023 to 2025, Five-Star New Materials' revenue was 1.768 billion yuan, 1.283 billion yuan and 1.024 billion yuan, changing by 39.08%, -27.44% and -20.19% year on year; net profit attributable to parent was 714 million yuan, 422 million yuan and 221 million yuan, changing by 56.35%, -40.87% and -47.61% year on year. It is not hard to see that Five-Star New Materials' revenue and net profit fell for two consecutive years, with 2025 revenue down 42.08% from 2023 and 2025 net profit down 69.05% from 2023, close to 70%. In 2025, the company's net profit decline nearly touched the "50%" psychological red line for review. Five-Star New Materials said the 2024 performance decline versus 2023 was mainly because, starting in the third quarter of 2024, the selling price of the company's high-purity graphite products fell noticeably, and sales volume also saw a phased pullback. Although the selling price of high-purity graphite materials remained basically stable in 2025, prices in the first half of 2024 were at relatively high levels, which together caused the company's 2025 operating performance to decline further year on year.

Gross Margin Significantly Higher Than Peers

Were it not for a gross margin far exceeding that of comparable companies, Five-Star New Materials' 2025 net profit decline would have exceeded 50%, and profit might even have turned negative. From 2023 to 2025 and in the first quarter of 2026, Five-Star New Materials' comprehensive gross margin was 54.78%, 52.12%, 38.48% and 37.18%, respectively; the average of comparable companies was 36.21%, 19.13%, 18.01% and 7.1%, respectively. It is not hard to see that Five-Star New Materials' 2023 gross margin was 18 percentage points above the peer average, but not yet a multiple advantage. Starting in 2024, Five-Star New Materials' gross margin was more than double the peer average, and in the first quarter of 2026 it reached more than five times. Five-Star New Materials said that in 2023, the company's comprehensive gross margin was close to that of Chengdu Carbon, mainly because both the company and Chengdu Carbon focused on isostatic high-purity graphite products with higher gross margins. In 2024, Chengdu Carbon's products were mainly graphite products, primarily used in the photovoltaic thermal field materials sector, and under the pressure of phased capacity clearing in the photovoltaic industry, product prices came under obvious pressure and gross margin fell sharply. Since the fourth quarter of 2024, the company's average unit price of high-purity graphite materials has been generally stable but below the full-year 2024 average, causing a certain decline in the 2025 gross margin and bringing it close to Chengdu Carbon's level. The company's comprehensive gross margin is higher than those of Dongfang Carbon and Ningxin New Materials mainly because: 1) different product structures and application areas; 2) the company has long been a leader in the specialty graphite sector by sales scale; 3) differences in production processes; 4) advanced processes ensure product quality and stability and can significantly save costs; 5) the company has full-process and large-scale production capacity; 6) the Yunnan region can effectively reduce energy costs. On the cost side, Five-Star New Materials' procurement cost for calcined petroleum coke is significantly lower than the market average. In 2024, the company's procurement cost for calcined petroleum coke was still 3.71% above the market price. But in the crucial year of 2025, the company's procurement cost for calcined petroleum coke was 15.25% below the market price, and in the first quarter of 2026 it was 11.87% below. Five-Star New Materials said that the calcined petroleum coke it purchases is mainly used as filler material in the graphitization process. Compared with calcined petroleum coke used as the main material, filler-grade calcined petroleum coke has lower quality requirements, so the issuer's procurement price for calcined petroleum coke during the reporting period was generally lower than the reference market price. However, the company's major calcined petroleum coke supplier, Panjin Jiatan, deserves close attention. In 2025 and January-March 2026, Five-Star New Materials purchased 68.8121 million yuan and 17.7619 million yuan of calcined petroleum coke from Panjin Jiatan, accounting for 47.41% and 38.61% of total calcined petroleum coke procurement in the respective periods, with average purchase prices of 4,291.33 yuan/ton and 4,325.39 yuan/ton, respectively, 11.64% and 16.11% below market prices. Five-Star New Materials said the main reason for the lower procurement price from Panjin Jiatan is that in 2025 and January-March 2026, affected by a recovery in production scheduling in the aluminum carbon and anode materials industries, raw petroleum coke prices rose rapidly, while downstream graphite electrode and specialty carbon enterprises had low acceptance of high-priced raw materials, causing calcined petroleum coke prices to fail to rise in tandem, forcing some calcined petroleum coke enterprises to cut output to reduce inventory and operating losses. Against this backdrop, Panjin Jiatan had already completed substantial raw material stockpiling before raw coke prices rose, giving it an obvious low-cost inventory advantage. Panjin Jiatan chose to use this cost advantage to expand sales and increase market share at prices below the market average, so its supply price to the issuer was lower than the market price in the same period. Five-Star New Materials' explanation is reasonable to a degree, but it also implies that Panjin Jiatan took on significant inventory write-down and capital occupation risks in 2025 while choosing to supply its major customer Five-Star New Materials at below-market prices. If this behavior is true, the commercial motive needs verification; if it is not entirely true, it may raise the question that costs were artificially suppressed. Another major supplier of Five-Star New Materials also raises questions. Tianjin Anbaili Technology Co., Ltd. was established on August 24, 2022, with registered capital of only 5 million yuan, and in 2024 it supplied 38.0745 million yuan to the issuer (8.76% of total procurement), becoming Five-Star New Materials' fifth-largest raw material supplier.

Period Expense Ratio Significantly Lower Than Peers

Wind shows that Five-Star New Materials' period expense ratio (the sum of selling expense ratio, administrative expense ratio, R&D expense ratio and financial expense ratio) was 7.28%, 9.57% and 11.35%, respectively, significantly lower than the peer averages of 11.9%, 17% and 25.26%. Moreover, Five-Star New Materials' three-year period expense ratio was the lowest among comparable companies. From 2023 to 2025 and in the first quarter of 2026, the average selling expense ratios of comparable companies in the same industry were 0.91%, 1.50%, 2.52% and 3.26%, respectively, while Five-Star New Materials' selling expense ratios were 0.56%, 0.65%, 0.76% and 0.47%, significantly lower than those of comparable companies in the same industry and the lowest. Five-Star New Materials said that the company has a large business scale, good and stable product quality, and a certain brand effect; most customers are long-term partners with good cooperation, existing customer maintenance costs are low, and some new customers actively seek cooperation, so the company's selling expense ratio is low. The extreme value of the selling expense ratio deserves attention. In 2025, the company's sales revenue was 1.024 billion yuan, selling expenses were only 7.7455 million yuan, and sales and service personnel numbered only 29, implying revenue per capita of 35.3 million yuan/person, a very high figure in manufacturing. As mentioned above, Five-Star New Materials' gross margin is higher than the peer average, but the company's R&D expense ratio is lower than the peer average. From 2023 to 2025 and in the first quarter of 2026, the company's R&D expense ratio was 2.86%, 4.27%, 4.15% and 4.89%, respectively, while the peer averages were 3.92%, 4.91%, 6.16% and 5.04%. Five-Star New Materials said that because the company's revenue scale is large, the extent to which revenue scale exceeds comparable companies is greater than the extent to which R&D investment exceeds comparable companies, resulting in an overall R&D expense ratio lower than the peer average.

Revenue Falls Sharply While Inventory Surges; Finished Goods Order Coverage Only 6%

Against the backdrop of two consecutive years of revenue declines in 2024 and 2025, and behind the abnormally high gross margin, Five-Star New Materials' inventory rose sharply. From the end of 2023 to the end of 2025, Five-Star New Materials' net inventory grew from 648 million yuan to 1.154 billion yuan, an increase of 78%; over the same period, operating revenue fell from 1.768 billion yuan to 1.024 billion yuan, a contraction of 42.08%. Breaking down inventory, finished goods rose from 145 million yuan at the end of 2023 to 470 million yuan, and their share of inventory rose from 21.48% to 39.54%. Finished goods are the inventory item that is hardest to monetize and most prone to write-downs, and their share doubling within two years itself carries slow-moving risk. Taking 2025 as an example, Five-Star New Materials' finished goods accounted for 39.54% of inventory, while the peer average was only 11.36%. Five-Star New Materials' finished goods order coverage ratio further confirms the slow-moving risk. From 2023 to 2025 and in the first quarter of 2026, the company's finished goods order coverage ratios were 21.54%, 14.51%, 5.73% and 4.72%, respectively, generally at low levels, mainly because the company arranges production for high-purity graphite materials through stockpiling and customers usually require short delivery times. At the end of March 2026, of 523 million yuan of finished goods, only 24.7 million yuan had corresponding orders in hand, a coverage ratio of 4.72%. In other words, 95.3% of finished goods were "no-order inventory." At the end of 2025, the finished goods order coverage ratio had already fallen to single digits, and Five-Star New Materials' explanation of "stockpiling" seems weak in the face of cold numbers. More interestingly, Five-Star New Materials' write-down provision rate is declining. The comprehensive provision rate was 3.82% at the end of 2023, 3.70% at the end of 2024, 2.95% at the end of 2025, and 3.32% at the end of March 2026. Five-Star New Materials said that the company has some semi-finished products aged more than one year, which is consistent with the company's production and operating characteristics and industry cycle, and there is no slow-moving or accumulated inventory. The company has strictly provided sufficient inventory write-downs in accordance with the Accounting Standards for Business Enterprises. Taking 2025 as an example, the inventory write-down provision ratios of comparable companies Ningxin New Materials, Chengdu Carbon and Dongfang Carbon were 33.97%, 16.04% and 21.38%, respectively, averaging 23.8%, significantly higher than Five-Star New Materials' 2.95%. In other words, Five-Star New Materials' 2025 inventory write-down provision ratio was only one-eighth of peers'. If the company's overall inventory write-down provision were raised from 2.95% to 10%, the 2025 net profit decline would directly breach the 50% psychological red line for "sustainable profitability," which is the leverage effect of this accounting estimate.

Controller's Relatives Become Top-Five Customers

In the top-five customer list for the first quarter of 2026, a new face appeared: Henan Motong Trading Co., Ltd. jumped to the fourth-largest customer with purchases of 9.9454 million yuan. Henan Motong's actual controller, Zhao Shilong, is the son of Zhao Junjie, the brother of Five-Star New Materials' actual controller Zhao Junyi. In addition, Pingdingshan Heijin New Materials (controlled by Zhao Mingxu, the son of the actual controller's spouse's brother) was the third-largest customer in 2025 and the second-largest customer in the first quarter of 2026; Baofeng County Tuobang New Materials contributed sales throughout the reporting period. During the reporting period, the company's sales to Pingdingshan Heijin New Materials were 26.9334 million yuan, 29.7571 million yuan, 34.9801 million yuan and 12.923 million yuan, respectively; sales to the three related parties Heijin New Materials (Zhao Mingxu), Henan Motong Trading (Zhao Shilong) and Baofeng County Tuobang New Materials (Zhao Feilong) totaled 28.7473 million yuan, 34.5565 million yuan, 41.5847 million yuan and 25.674 million yuan, respectively, accounting for 1.63%, 2.69%, 4.06% and 7.88% of operating revenue. Related-party sales as a share of operating revenue rose from 1.63% in 2023 to 7.88% in the first quarter of 2026, nearly quadrupling in two years and approaching 8% in the latest period. More importantly, all Heijin New Materials related parties are "traders," and all are concentrated in the electrical discharge machining/metallurgy field. Heijin New Materials "has no production or processing capability, purchases products from the company and then sells them directly or after simple external cutting to downstream customers." As a pure trading link, its value is to "help the company expand sales channels and cover more small and medium-sized customers and remote areas." But if a related-party trader can obtain almost the same price as other non-related customers (price difference rate only -0.23% to +2.71%), where does its gross profit space come from? If it relies on markup sales, why don't downstream customers purchase directly from Five-Star? This inherent contradiction in the business model is the part that most needs explanation in related-party sales.