New Stock Outlook | Backed by Huaibei Mining Holdings with annual profits of less than 0.5 billion, will Jinyan High-Tech head south to "dig for gold"?

Backed by Huaibei Mining Holdings, a high-quality coking coal producer in the East China region, Anhui Jinyan Kaolin New Materials Co., Ltd. (hereinafter referred to as "Jinyan Gaoxin"), has taken a new step in capital operation. On the evening of January 3rd, Jinyan Gaoxin officially submitted its listing application to the Hong Kong Stock Exchange Main Board. As a leading company in the Chinese coal-based kaolin industry, Jinyan Gaoxin, founded in 2012, completed its share reform in 2022 and listed on the New Third Board in the same year. It is worth mentioning that since the beginning of this year, several New Third Board companies have announced their intention to list on the Hong Kong stock market. As one of the companies aiming for a Hong Kong stock market listing, the performance of Jinyan Gaoxin is not particularly outstanding. From 2022 to September 2024, the company's revenue was 190 million yuan, 205 million yuan, and 183 million yuan; during the same period, the company's net profit was 24.423 million yuan, 43.617 million yuan, and 33.506 million yuan. Although the annual profit is far from reaching a billion, Jinyan Gaoxin can already be considered a leader in its niche field. According to Frost & Sullivan data, based on the 2023 revenue, the company is already the largest manufacturer of mullite materials for precision casting in China, with a market share of approximately 17.9%. In terms of company background, Huaibei Mining Holdings Group holds 60.13% of Jinyan Gaoxin's shares directly and indirectly through its wholly-owned subsidiary Wanhuai Investment. In 2022 and 2023, Huaibei Mining Holdings Group was also the second and third largest supplier of Jinyan Gaoxin, and their cooperation can be traced back to the establishment of Jinyan Gaoxin in 2012, indicating a strong backing from a major shareholder. Despite being in a market with a small industry scale, but with a strong major shareholder, will Jinyan Gaoxin achieve success in its capital story by moving "down south"? Looking ahead, if the attempt is successful, will Jinyan Gaoxin be able to reach new heights with the help of the Hong Kong stock market? Main products have seen fluctuations in average selling price According to the prospectus, Jinyan Gaoxin is a leading company in the Chinese coal-based kaolin industry, with integrated capabilities spanning mining, R&D, processing, production, and sales throughout the value chain. As a major producer of calcined kaolin products in China, the company's business is based on rich and high-quality coal-based kaolin mineral resources. In terms of products, Jinyan Gaoxin's main products include mullite materials for precision casting and mullite materials for refractories, which are important materials for precision casting shells and refractories. Financially, as mentioned earlier, Jinyan Gaoxin's scale is not particularly outstanding. In the full year of 2023, the company's revenue was just over 200 million yuan, while the net profit was less than 50 million yuan. Breaking down the revenue structure, the vast majority of Jinyan Gaoxin's revenue comes from mullite materials for precision casting. In 2022, this product contributed revenue of 184 million yuan, accounting for a high proportion of 96.8%; however, the following year, revenue from this product dropped to 166 million yuan, and the proportion also decreased to 81.1%. In the first 9 months of 2024, the revenue from this product was approximately 131 million yuan, accounting for about 71.5% of the total revenue. In recent years, revenue from mullite materials for refractories at Jinyan Gaoxin has been increasing steadily. In 2022, the revenue from this product was 6.173 million yuan, accounting for 3.2%; the following year, it increased to 23.522 million yuan, accounting for 11.5%. In the first 9 months of 2024, the revenue from this product reached 38.673 million yuan, accounting for 21.1%. In addition, Jinyan Gaoxin also has a small portion of revenue from coke and powder, which customers can further process according to their own needs, with this product accounting for approximately 7.4% of revenue in the first three quarters of 2024. The performance of Jinyan Gaoxin's major business revenues has shown some volatility, mainly due to changes in market sales volume and average selling price of the company's main products. From 2022 to September 2024, the sales volume of mullite materials for precision casting was 118,500 tons, 109,000 tons, and 91,700 tons, with an average selling price of 1,554 yuan/ton, 1,522 yuan/ton, and 1,426 yuan/ton, showing a significant downward trend in both volume and price. During the same period, the sales volume of mullite materials for refractories were 5,200 tons, 19,600 tons, and 38,900 tons, with an average selling price of 1,187 yuan/ton, 1,200 yuan/ton, and 994 yuan/ton. It can be seen that the increase in the scale of this business is mainly due to the steadily increasing sales volume, but the average selling price has first slightly increased and then significantly decreased during this period. In terms of profit indicators, thanks to the steady increase in overall revenue, Jinyan Gaoxin's gross profit has also increased from 2022 to September 2024, reaching 57.556 million yuan, 71.277 million yuan, and 64.958 million yuan, with corresponding gross profit margins of 30.2%, 34.8%, and 35.5%, indicating an improvement in profitability. "Down south" to continue the capital story? Following its listing on the New Third Board in 2022, Jinyan Gaoxin has officially launched its attempt to list on the Hong Kong Stock Exchange at the beginning of 2025. As mentioned earlier, Jinyan Gaoxin is not the only New Third Board company aiming to move "down south" to Hong Kong stocks. According to incomplete statistics, since 2024, there have been no less than 5 New Third Board companies announcing their intention to list in Hong Kong. It is also worth noting that before deciding to list in Hong Kong, Jinyan Gaoxin also considered listing on the Beijing Stock Exchange. In December 2022, the company signed an advisory agreement with Guoyuan and filed for listing counseling with the relevant departments. However, in the second half of 2024, Jinyan Gaoxin voluntarily terminated its A-share listing plan, and the previous advisory agreement was also terminated in September of that year. By making moves in various directions and persisting in stepping onto a larger capital stage, Jinyan Gaoxin's ambitious expansion plans may be a contributing factor. It is evident that Jinyan Gaoxin plans to further increase the production scale of its products. Currently, the company is operating a mullite material production line with an annual designed capacity of 30,000 tons. In the future, Jinyan Gaoxin plans to construct a new production line with an annual designed capacity of 40,000 tons. Additionally, in order to improve product quality and achieve process automation, the company also plans to purchase intelligent.We can provide color sorting machines and automatic color sorting machines; at the same time, the company also plans to upgrade the rotary kiln, install high-gradient magnetic separation devices, and implement various automation technologies.Although Jin Yan Gaoxin intends to "reach a higher level", the company's reserves seem to be insufficient. As of the end of September 2024, Jin Yan Gaoxin had cash and cash equivalents of 80.414 million yuan. This may mean that once the company focuses on significantly expanding capacity, the tightness of Jin Yan Gaoxin's funds will increase. However, on the other hand, even if Jin Yan Gaoxin successfully listed and expanded capacity as planned, the company's growth prospects may not necessarily be smooth sailing. According to industry data, the market size of mullite materials for precision casting in China was approximately 925 million yuan in 2023, with a compound annual growth rate of about 11.2% from 2019 to 2023. The expected CAGR for this market from now until 2028 is 8.4%, indicating a significant slowdown in potential growth. In contrast, the expected growth rate of mullite materials for refractory use is much higher over the next five years, but there are no significant highlights in absolute terms. Data shows that the market size of mullite materials for refractory use in China was 5.4 billion yuan in 2023, with an industry CAGR as low as 0.9% from 2019 to 2023, almost stagnant. The expected CAGR from 2024 to 2028 is 5.2%, slightly higher than the previous growth rate. Combining the above information, it is not difficult to see that even if Jin Yan Gaoxin successfully lands on the Hong Kong Stock Exchange, considering the growth prospects of the two main industries, it is not too imaginative. Whether Jin Yan Gaoxin can achieve satisfactory growth performance in this environment for external investors in the future may need to be marked with a big question mark. Admittedly, relying on Huaibei Mining Holdings is a "plus", but Jin Yan Gaoxin probably needs to show more highlights to impress investors.