Core Viewpoint - Major shareholders of Xinde New Materials (301349.SZ) have begun to reduce their holdings despite the company's seemingly strong performance in the first half of 2025, indicating underlying concerns about the sustainability of its business model and profitability [1][2]. Financial Performance - In the first half of 2025, Xinde New Materials reported revenue of 510 million yuan, a year-on-year increase of 41.31%, and a net profit attributable to shareholders of 9.81 million yuan, marking a significant turnaround from a loss of 14.16 million yuan in the same period of 2024, reflecting a growth rate of 169.28% [1][2]. - However, the company's net profit excluding non-recurring items was a loss of 3.78 million yuan, indicating that the core business has not yet achieved profitability [2]. Business Challenges - The company faces significant challenges with its core business profitability, as evidenced by a decline in revenue in 2024 to 810 million yuan, a year-on-year decrease of 15%, and a net loss of 33.04 million yuan, a decline of 180% [2]. - The financial structure is under pressure due to inventory buildup, high accounts receivable, and significant cash outflows, leading to liquidity challenges [2][3]. Inventory and Receivables - As of June 2025, Xinde New Materials had an inventory balance of 297 million yuan, a 41% increase from the end of 2024, and accounts receivable of 275 million yuan, a 65% year-on-year increase, indicating a mismatch with revenue growth [3][5]. - The increase in inventory may reflect overly optimistic market demand forecasts or slower customer pickup rates, leading to potential risks of inventory devaluation [5]. Cash Flow Issues - The company reported a negative operating cash flow of 166 million yuan in the first half of 2025, continuing a trend of cash outflows from operations in previous years, which raises concerns about its operational sustainability [7]. - The combination of inventory buildup and delayed receivables collection is straining the company's cash flow, which is critical for daily operations [7]. Profitability and Market Conditions - The gross margin of Xinde New Materials has been declining, dropping from 53% in 2020 to 11% in the first half of 2025, indicating a significant erosion of core profitability [7][9]. - The competitive landscape in the lithium battery materials sector has intensified, leading to downward pressure on prices and overall profitability, particularly affecting smaller firms like Xinde New Materials [9].