Sou Hu Cai Jing·2025-08-03 16:19Core Viewpoint - Guangzhou Huigu New Materials Technology Co., Ltd. (Huigu New Materials) has seen its net profit increase more than fourfold over two years, but its IPO application was subjected to regulatory scrutiny just five days after acceptance, raising concerns about the company's financial health and operational risks [1][3]. Financial Performance - Huigu New Materials reported operating revenues of 664 million yuan, 717 million yuan, and 817 million yuan for the years 2022 to 2024, with non-recurring net profits of 26.84 million yuan, 96.01 million yuan, and 142 million yuan respectively, indicating explosive profit growth [9]. - The company's revenue compound annual growth rate (CAGR) from 2022 to 2024 is only slightly above 10%, with over 60% of its revenue being accounts receivable, suggesting potential cash flow issues [3][11]. Product Pricing and Market Dynamics - The average selling prices of Huigu's main products have been declining, with the company opting for a strategy of increasing sales volume at the expense of price, which raises concerns about the sustainability of revenue growth [10][11]. - The company’s main products are used in various sectors including home appliances, packaging, new energy, and electronics, but the declining prices indicate a response to cost-cutting demands within the industry [9][10]. Regulatory and Safety Concerns - Huigu New Materials has a history of safety issues, including a major accident in 2019 that resulted in two fatalities, leading to the swift dissolution of the involved subsidiary [13][15]. - The company has faced scrutiny regarding its operational safety and management practices, which could impact its reputation and regulatory standing [12][14]. Capital Structure and Funding - The company plans to use nearly 30% of its IPO proceeds (250 million yuan) to supplement working capital, despite having a cash balance of 231 million yuan and a low debt ratio [17][19]. - Huigu New Materials has engaged in related-party transactions, including purchasing real estate from its actual controller, raising questions about its financial management and the necessity of additional funding [20][21]. Investment and Valuation - Huigu New Materials' valuation has significantly increased, with a post-money valuation of approximately 1.138 billion yuan before the IPO application, and a projected valuation of 3.6 billion yuan post-IPO [4][9]. - The investment from CITIC Securities has doubled in value, and the firm has secured favorable terms that protect its investment, indicating a strong financial backing for the IPO process [4][5].