New Stock Outlook | Leading kaolin company Jinan High-tech Ventures to Hong Kong again: Net profit doubles on the left hand, while "begging for a gold bowl" on the right hand.

On July 25, Anhui Jinyan Kaolin New Materials Co., Ltd. (referred to as "Jinyan Gaoxin"), from Huaibei, Anhui, submitted its prospectus to the Hong Kong Stock Exchange, planning to list on the Hong Kong IPO. This is the company's second application after its initial filing expired on January 3, 2025. CMBC CAPITAL has joined as a sponsor this time, jointly sponsoring with Guoyuan International. The prospectus shows that Jinyan Gaoxin was established in 2012 and is a leading company in the Chinese coal-based kaolin industry, with integrated capabilities across the entire value chain from mining, research and development, processing, production to sales. According to data provided by Frost & Sullivan, as of 2024, based on revenue, Jinyan Gaoxin is the largest producer of refined metakaolin materials in China, with a market share of 19.1%. In terms of company background, Huaibei Mining Holdings Group directly and indirectly holds 60.13% of Jinyan Gaoxin's shares through its wholly-owned subsidiary Wanhui Investment. In 2022 and 2023, Huaibei Mining Holdings Group was also the second and third largest supplier to Jinyan Gaoxin. The cooperation between the two parties can be traced back to 2012, when Jinyan Gaoxin was established, which seems to imply a sense of relying on a strong backer. Kaolin sector leader's profit increase Information shows that the refined metakaolin materials are mainly used in the production of medium-sized shells in precision casting processes, and are essential materials for the casting of high-precision components in industries such as automotive, aerospace, medical, and general equipment. The refractory metakaolin materials are mainly used in the production of refractory materials, serving industries such as metallurgy and building materials. Jinyan Gaoxin's main products include refined metakaolin materials, refractory metakaolin materials, as well as the sale of coke and pulverized coal. Jinyan Gaoxin wholly owns the Shuoli kaolin mine located in Huaibei, Anhui Province, which is known for its rich coal-based kaolin resources. In terms of finances, in the fiscal years 2022, 2023, and 2024, as well as the five months ended May 31, 2025 (referred to as the reporting period below), Jinyan Gaoxin achieved revenues of approximately RMB 190 million, RMB 205 million, RMB 267 million, RMB 105 million, and net profits and comprehensive income totaling RMB 24.42 million, RMB 43.617 million, RMB 52.602 million, and RMB 18.032 million, respectively. From 2022 to 2024, the company's gross profit margins were 30.2%, 34.8%, and 36.7% respectively. Comparing revenues, it can be seen that in 2023, revenue increased by 7.5%, while net profit increased by 78.6% during the same period. This was not only due to a significant increase in other income from government subsidies, but also due to the company's cost control measures, with a 23.18% reduction in administrative expenses, a 4.17% reduction in research and development expenses, a 6.08% reduction in sales expenses, and a 98.1% reduction in other expenses. The net profit growth achieved through cost compression awaits market recognition, and its sustainability remains to be observed. Breaking down the revenue structure, the vast majority of Jinyan Gaoxin's revenue comes from refined metakaolin materials. During the reporting period, revenue generated from the sale of refined metakaolin materials and refractory metakaolin materials accounted for approximately 100%, 92.6%, 88.9%, and 88.5% of total revenue. It is expected that the production and sales of refined metakaolin materials and refractory metakaolin materials will continue to account for a significant proportion of total revenue in the future. Jinyan Gaoxin's performance downturn may be influenced by its core products. The prospectus shows that in the first three quarters of 2022 to 2024, the average selling prices of refined metakaolin decreased continuously from RMB 1554 per ton, RMB 1522 per ton, to RMB 1426 per ton. In 2022, sales revenue from refined metakaolin material accounted for 96.8% of Jinyan Gaoxin's total revenue. However, besides the continuous decline in average selling prices, the sales volume of refined metakaolin material also decreased in 2023, dropping from 118,500 tons in 2022 to 109,000 tons, resulting in a situation of declining quantity and price. It is worth noting that the company's trade accounts receivable and trade notes receivable turnover days were approximately 51 days, 61 days, 65 days, and 67 days. During the reporting period, recorded trade accounts receivable and trade notes receivable were approximately RMB 26.6 million, RMB 42.3 million, RMB 53 million, and RMB 40 million, respectively, accounting for 15.9%, 33.0%, 24.5%, and 18.1% of the total current assets. The increase in trade accounts receivable has led to significant fluctuations in the company's cash flow. During the reporting period, the company recorded net cash flows from operating activities of approximately RMB 45.624 million, RMB 11.971 million, RMB 36.65 million, and RMB 27.519 million, with cash and cash equivalents of RMB 95.085 million, RMB 32.564 million, RMB 71.694 million, and RMB 62.478 million, respectively. With decreasing cash on hand and increasing loans year by year, the sustainability of such cash flow raises concerns about the company's ability to continue operating. Expansion of production capacity for growth Jinyan Gaoxin is determined to enter a larger capital stage, which may be related to the company's ambitious expansion plans. It is noted that Jinyan Gaoxin plans to further expand the production scale of its products in the future. Currently, the company operates a refractory metakaolin material production line with a designed annual production capacity of 30,000 tons. In the future, Jinyan Gaoxin plans to build a new production line with a designed annual production capacity of 40,000 tons. Additionally, in order to improve product quality and achieve automation in the production process, the company also plans to purchase intelligent sorting machines and automatic color sorters. Furthermore, the company plans to upgrade the rotary kiln, install high-gradient magnetic separators, and implement various automation technologies. Even if Jinyan Gaoxin successfully lists on the stock exchange and expands its production capacity as planned, the company's growth prospects are not necessarily smooth sailing. According to industry data, the market size of refined metakaolin materials in China was approximately RMB 9.25 billion in 2023, with a compound annual growth rate (CAGR) of about 11.2% from 2019 to 2023. However, the expected CAGR for this market from 2024 to 2028 is 8.4%, indicating a significant slowdown in potential growth. The growth rate of the dominant refined material sector, which accounts for 90% of revenue, has dropped from 11.2% to 8.4% and heavily depends on cyclical industries such as automotive and aerospace. The imagination for growth is restricted by market space. In contrast, the expected growth rate of refractory metakaolin materials is much higher than the past five years, but in absolute terms, there are no significant highlights. Data shows that the market size of refractory metakaolin materials in China was RMB 5.4 billion in 2023, with a CAGR of as low as 0.9% from 2019 to 2023, nearly stagnant growth. The expected CAGR from 2024 to 2028 is 5.2%, a slight improvement over the previous growth rate. Even if Jinyan Gaoxin successfully lists on the stock exchange, the growth prospects of its two main businesses do not seem to be very promising. The prospectus also indicates that the permitted production scale and design mining capacity of the Shuoli kaolin mine are both 500,000 tons per year. However, in the first three quarters of 2022 to 2024, the actual mining volumes of Jinyan Gaoxin were only 171,200 tons, 295,800 tons, and 264,100 tons, with utilization rates of 34.2%, 59.2%, and 70.4%, respectively. In response, Jinyan Gaoxin stated in the prospectus that the company sets monthly mining plans based on the demand for its products. In other words, the kaolin ore mined by the company is primarily for internal use rather than external sales. With a mining capacity utilization rate of less than 70%, still planning to build a new 40,000-ton refractory material production line, and the expected CAGR of this sector in the next five years being only 5.2%, the addition of new capacity may exacerbate the idle risk. In conclusion, with scarce coal-based kaolin resources and industry-wide barriers, Jinyan Gaoxin firmly holds the leading position in the refined sector with a 19.1% market share. Its three-year consecutive increase in gross profit margin and doubling of net profit seem impressive. However, behind the bright data lies hidden risks. This foray into the Hong Kong stock market is not only a crucial game in which a resource-based player backed by Huaibei Mining Holdings Group seeks capital injection but also a race against time - if it cannot open a new growth trajectory before its cash flow dries up, even with rare mining resources, it may face the capital dilemma of "holding a golden bowl for alms."