New Stocks Preview | Bright performance, cash shortage, Changhong New Material to list in Hong Kong is "a mix of joy and sorrow"

Recently, Changhong New Materials Group Limited once again submitted an application for listing to the Hong Kong Stock Exchange GEM. This leading enterprise in the northeast region in the field of new heating materials, after failing in its initial application, is once again making a move towards the capital market. From a financial perspective, Changhong New Materials has shown impressive performance in recent years, with revenue and profits both experiencing significant increases. Coupled with the surge in demand for the "ice and snow economy" and "outdoor economy," the industry it operates in indeed has broad growth prospects. However, behind the glowing performance, high customer concentration, a sharp increase in accounts receivable turnover days, a drastic decline in operating cash flow, and inadequate research and development investment are multiple risks that could potentially hinder the company's future growth. Rapid Revenue and Profit Growth, C-end Distribution Accounts for Over Eighty Percent Public information shows that Changhong New Materials was established in 2017 and is a leading enterprise in the field of new heating materials in the northeast region. The company's main business can be divided into two major segments: one is direct sales of graphene heating grid cloth to industrial customers under the "Huachen" brand, and the other is the sale of graphene integrated heating products to consumers through distribution networks under brands like "Vanxi" and "Meisikang." Financial data shows that the company's performance has shown a rapid growth trend in recent years, with both revenue and profits achieving high growth rates. Specifically, the company's revenue surged from 25.548 million yuan in 2023 to 97.882 million yuan in 2024, representing a 283% year-on-year growth, further climbing to 119 million yuan in 2025. On the profit side, net profits for the years 2023 to 2025 were 6.436 million yuan, 17.110 million yuan, and 21.462 million yuan, respectively, showing a strong growth trend. At the same time, the company's gross profit margin has also shown a steady increase, reaching 39.6% in the 2024 fiscal year and further rising to 41.9% in the 2025 fiscal year, reflecting a continuous improvement in profitability. In terms of sales structure, distribution business targeting C-end consumers is the absolute main force, contributing over 83% of revenue in the 2025 fiscal year, with categories like smart thermal clothing, travel and outdoor products standing out. During the reporting period, the company's inventory management level was excellent, with inventory turnover days plunging from 45 days in 2024 to 21 days in 2025. Despite the growth in revenue, the inventory balance actually decreased from 4.2 million to 3.5 million yuan. However, behind the facade of success, financial issues are also a cause for concern. It has been noted that the company's trade accounts receivable turnover days deteriorated sharply from 28 days in the 2024 fiscal year to 92 days in the 2025 fiscal year. The company explained that this was consistent with the increase in year-end orders and the 90-day credit given to customers. At the same time, operating cash flow plummeted from a net inflow of 19.1 million yuan to only 2.1 million yuan, while net profit reached a high of 21.462 million yuan during the same period. Additionally, the company's dependence on a few major customers is too high, with the top five customers in the years 2023 and 2024 accounting for over 53% of revenue. This concentration risk places the company in a passive position in terms of bargaining power and operational stability. In terms of technological and competitive barriers, as of the end of 2024, the company had only 3 R&D personnel out of 57 employees, with no continuous research and development investment. This raises questions about how long the company's current product differentiation advantage can be maintained. Solid Industry Long-term Development Logic, Fluctuations in Raw Material Prices as Potential Risks From a long-term industry development perspective, the track in which Changhong New Materials operates does indeed have a solid growth foundation, but fluctuations in raw material prices have always posed potential risks to profitability. Heating materials can be classified into two main categories based on characteristics: traditional heating materials and new heating materials. New heating products mainly refer to equipment manufactured using new heating materials such as graphene, which can achieve efficient, safe, energy-saving, and multifunctional heating effects. In terms of market size, the overall heating materials market in China has grown from 330 billion yuan in 2020 to 461 billion yuan in 2025, with a compound annual growth rate of 6.9%. It is further expected to reach 576 billion yuan by 2030, with a compound annual growth rate of 4.6% from 2025 to 2030. The performance of the new heating materials market is even more impressive, with its scale increasing from 87 billion yuan in 2020 to 151 billion yuan in 2025, with a high compound annual growth rate of 11.8%. It is expected to climb to 221 billion yuan by 2030, with a high compound annual growth rate of 7.8% over the next five years. Changhong New Materials has experienced revenue growth in the past two years far exceeding the industry average, indicating that as a leading company in the field of new heating materials, it is benefiting from the development dividends brought by increasing industry concentration. From the perspective of market demand, the broad expansion of downstream application scenarios has laid a solid foundation for the overall market growth. Whether it's electric heating blankets in home life, heat packs and far-infrared devices in therapy and healthcare, or winter sports clothing, sleeping bags, and camping tents in outdoor travel, new heating materials meet people's essential needs for warmth and safety in cold environments. With the trend of an aging population, consumer demand for warming and health-care products is increasing, giving rise to personal health care products like graphene heating knee pads, neck protectors, eye masks, etc., and showing more advanced application potential in the medical field, such as physical cancer treatment using the heat conversion properties of oxidized graphene. Driven by the ice and snow economy and the Beijing Winter Olympics, it is expected that the market demand for graphene heating products will continue to rise in the future. However, it is worth noting that the Chinese market for new heating materials and products is highly fragmented, with over 50,000 industry players in 2025. Specifically, in 2025, the total revenue of Chinese new heating material enterprises reached 15.14 billion yuan, with the top five market participants accounting for only about 0.7% of the market share. Changhong New Materials, with approximately 23 million yuan in revenue from new heating materials, occupies about 0.2% of the market share, ranking second in the field. In the market for new heating products, the total revenue of new heating products produced in China in 2025 reached 16.22 billion yuan, with the top five market participants collectively holding about 1.7%. Changhong New Materials, with around 96 million yuan in revenue from new heating products, occupies approximately 0.6% of the market share, ranking first in the field. It can be seen that the company operates in an industry that is relatively fragmented, with actually not very high entry barriers. Traditional heating material companies theoretically have the potential to penetrate upward due to their existing metallurgical process foundations, and brand giants in adjacent industries such as home textiles and outdoor apparel, like Toread Holdings Group and South Pole, could potentially enter the graphene heating product market and pose a competitive threat to Changhong New Materials with their mature existing channels and brand advantages. In addition to concerns about the competitive landscape, reliance on a single raw material is also an important uncertainty factor in Changhong New Materials' profit forecast. In the 2024 and 2025 fiscal years, direct raw material costs accounted for approximately 15.8% and 10.3% of the company's sales costs, significantly impacting operational performance. In recent years, the price trend of graphene has shown typical fluctuations. Since 2020, the global economic slowdown has led to excess graphite capacity, putting pressure on prices. However, the rapid increase in demand for electric vehicles in the same year has driven a sharp increase in demand for power batteries and high-purity graphite raw materials, in turn reversing the decline in graphite prices. Between 2020 and 2025, both import and export prices for graphite have shown a declining trend. According to Changhong New Materials' prospectus, the average import purchase cost per ton of graphene fluctuated between 0.62 US dollars and 0.59 US dollars per kilogram in the 2024 and 2025 fiscal years. Looking at the global industry as a whole, the graphite trade shows a pattern of relatively concentrated exports and relatively dispersed imports. Major exporting countries include China, Madagascar, Mozambique, Germany, and Brazil, while major importing countries are scattered among South Korea, Japan, Germany, India, and the United States. This structure makes prices more susceptible to the influence of changes in supply from a few sources. In such a market environment, the ability of the company to smoothly raise prices to distributors and end consumers during raw material price increases depends on its brand loyalty. Considering the company's current market share of only 0.6%, the ability to command a premium for its brand is still relatively weak, and cost increases are likely to directly erode gross profit margin. Overall, Changhong New Materials' fundamentals exhibit both strengths and weaknesses. While the company has shown impressive performance in the past, issues such as high accounts receivable and tightening cash flow will be key concerns for the market. Benefiting from the ice and snow economy, aging population, and environmental trends, the new heating materials track in which the company operates is expected to remain robust. However, with its current low market share, a solid competitive barrier has yet to be established, and fluctuations in raw material prices could potentially erode profits. If the company can improve its financial condition and cash flow performance after listing, its investment value may be reassessed.