New Stock Interpretation | Jin Yan High-tech: Concentration Trap Behind High Growth and Trap of Exchanging Price for Volume

According to the disclosure by the Hong Kong Stock Exchange on November 17th, Jin Yan Gaoxin went through the listing hearing on the main board of the Hong Kong Stock Exchange, with Guoyuan International and CMBC Capital as joint sponsors. The prospectus shows that Jin Yan Gaoxin is one of the few companies in China specializing in coal-based kaolin, with full value chain integration capabilities from mining, research and development, processing, production to sales. This vertically integrated business model has become a key factor in the company's outstanding performance in the fierce market competition. According to a Frost & Sullivan report, based on the revenue of Chinese coal-based calcined kaolin companies in 2024, Jin Yan Gaoxin ranks fifth with a market share of 5.4%. More notably, in the sub-segment of fine casting use talc material, the company has become the industry leader - with a market share as high as 19.1% in 2024, firmly ranking first in China. Control of scarce resources lays the foundation for development Strong growth momentum coexists with financial structure concerns Jin Yan Gaoxin's product structure is mainly divided into two major categories: fine casting use talc material and refractory use talc material, which are important basic materials for fine casting shell and refractory materials. At the same time, the company also sells raw coke and raw meal, which are further processed by customers. Production capacity data confirms the company's focus and deepening in specific areas. From 2022 to 2024, the production of fine casting use talc material was 117.9 thousand tons, 114.5 thousand tons, and 105.6 thousand tons respectively; while the production of refractory use talc material rapidly increased from 5.2 thousand tons in 2022 to 25.7 thousand tons in 2024, demonstrating the positive effects of the company in product structure adjustment and market expansion. Especially in the first five months of 2025, the production of fine casting use talc material reached 84.8 thousand tons, close to 80% of the total production in 2024, indicating that the company's main business is accelerating its development. It is believed that Jin Yan Gaoxin's competitiveness is largely based on its control of scarce mineral resources. In October 2021, the company signed an asset transfer agreement with Shuoli Mining and successfully acquired the Shuoli kaolin mine. This strategic layout provides solid protection for the company's long-term stable development. According to an independent technical report, as of May 31, 2025, the estimated total mineral resources of the Shuoli kaolin mine are approximately 18,649 thousand tons, including 2,367 thousand tons of confirmed resources, 8,990 thousand tons of controlled resources, and 7,292 thousand tons of inferred resources. What's more valuable is that the estimated total ore reserves are approximately 6,062 thousand tons, including 1,093 thousand tons of confirmed reserves and 4,969 thousand tons of probable reserves. These mineral resource reserves not only ensure the stable supply of raw materials needed for the company's production, but also provide a double competitive advantage in terms of quality and cost. In the market environment with frequent fluctuations in raw material prices, control of upstream core resources provides a natural barrier for the company to resist market risks and maintain profit stability. It is worth noting that behind the impressive performance of Jin Yan Gaoxin, the sharp rise in financing costs deserves high attention. In 2024, the company's financing costs amounted to 3.709 million yuan, more than 3.5 times the 103.9 million yuan in 2022. What's even more concerning is that in the first five months of 2025, the financing costs have reached 3.192 million yuan, an increase of over 400% compared to 638,000 yuan in the same period of 2024. This abnormal change in data reflects that the company may have significantly increased interest-bearing liabilities to support business expansion, facing considerable financial pressure in the current interest rate environment. In terms of revenue composition, the company's business is highly concentrated on two core products: fine casting use talc material and refractory use talc material. The former is the company's basic foundation and traditional advantage. As of December 31, 2022, 2023, and 2024, as well as the five months ended May 31, 2024 and 2025, revenue generated from sales of fine casting use talc material and refractory use talc material accounted for approximately 100%, 92.6%, 88.9%, 96.1%, and 88.5% of total revenue respectively. Specifically, the "quantity" and "price" game for fine casting use talc material is evident. In terms of sales volume, it fluctuated from 118.5 thousand tons in 2021 to 133.1 thousand tons in 2024, showing a moderate growth trend, indicating the stability of its basic foundation. In terms of average selling price, it steadily declined from a high of 1,554 yuan/ton to 1,394 yuan/ton in 2024, especially plummeting to 1,307 yuan/ton in the first five months of 2025. This clearly indicates that even in the company's most advantageous field, it faces fierce market competition. In order to maintain and expand market share, the company has to actively or passively reduce selling prices. This directly erodes the gross profit margin of the product, challenging its position as a "profit cow." Expanding production capacity for growth The success of the "price in exchange for volume" strategy relies on a key assumption: through economies of scale, some competitors will eventually be overwhelmed, allowing the company to regain pricing power after industry reshuffling. If the competition lasts too long, or if the company's financial chain cannot support it, it may fall into the dilemma of "increasing volume without increasing profit." Therefore, Jin Yan Gaoxin is attempting to seek long-term growth by expanding its production capacity. Currently, the company is operating a refractory use talc material production line with an annual designed capacity of 30,000 tons. In the future, Jin Yan Gaoxin plans to construct a new production line with an annual designed capacity of 40,000 tons. In addition, to improve product quality and achieve production automation, the company also plans to purchase intelligent sorting machines and automatic color sorters; at the same time, the company plans to upgrade the vertical kiln, install high-gradient magnetic separation devices, and implement various automation technologies. Even if Jin Yan Gaoxin successfully goes public and expands its production capacity as planned, the companys growth prospects are not necessarily smooth. According to industry data, the market size of fine casting use talc material in China in 2023 is approximately 925 million yuan, with a compound annual growth rate of about 11.2% from 2019 to 2023, and the expected CAGR for this market from next to 2028 is 8.4%, indicating a significant slowdown in potential growth rates. The growth rate of the fine casting material track, which accounts for 90% of revenue, has shifted from 11.2% to 8.4%, and it heavily relies on cyclical industries such as automobiles and aviation. The growth potential is being constrained by the market space. In contrast, the expected growth rate of refractory use talc material is much higher than the past five years, but there are no significant highlights in absolute terms. Data shows that the market size of refractory use talc material in China in 2023 was 5.4 billion yuan, with an industry CAGR as low as 0.9% from 2019 to 2023, nearly stagnating; the expected CAGR from 2024 to 2028 is 5.2%, slightly higher than before. Even if Jin Yan Gaoxin successfully listed on the Hong Kong Stock Exchange, the growth prospects of the two main industries are not particularly promising. Standing in front of the Hong Kong Stock Exchange, Jin Yan Gaoxin holds two "trump cards" of scarce mineral resources and leading position in niche markets, but it also faces a dual test of the slowing industry growth and optimizing its own financial structure. Going public is not the end, but the beginning of a more severe examination for it. Whether it can use the power of the capital market to consolidate its moat, break through the ceiling of its main business, tame high financing costs, will determine whether it will transform from a "segment champion" into a "material platform," or be trapped in the bottleneck of growth.