By Zhang Ranqi, Harbour Business Insights

Capitalizing on the automotive industry’s shift towards lightweight materials and electrification, China’s precision aluminum components sector is on the cusp of a significant breakthrough. Shandong Huichuan Precision Technology Co., Ltd. (hereinafter referred to as "Huichuan Precision") has recently filed its prospectus for listing on the ChiNext board, which has been accepted by the Shenzhen Stock Exchange, with Ping An Securities serving as the sponsor.

Despite its impressive operational achievements, Huichuan Precision is not without its risks. The sustainability of its current prosperity remains uncertain.

1. Overreliance on a Single Product Line, Declining Unit Prices for Core Offerings

Founded in 2011, Huichuan Precision specializes in the research, development, and manufacturing of precision automotive components, primarily supplying core parts for automotive air conditioning compressor systems, including pistons, swash plates, and planetary disks.

From 2023 to 2025 (hereinafter referred to as the "reporting period"), the company reported operating revenues of RMB 456 million, RMB 600 million, and RMB 715 million, respectively. Net profits attributable to the parent company’s owners were RMB 25.0783 million, RMB 62.5865 million, and RMB 89.6005 million, respectively, marking a more than 2.5-fold increase in net profit over three years. Comprehensive gross profit margins were 21.67%, 25.04%, and 26.02%, respectively, showing a steady upward trend.

However, a closer look at the revenue structure reveals a heavy reliance on a single sector, with an increasingly imbalanced product mix. During the reporting period, automotive air conditioning compressor components, as the core revenue driver, generated revenues of RMB 254 million, RMB 366 million, and RMB 460 million, accounting for 61.40%, 68.06%, and 71.66% of the main business, respectively. Revenue growth was thus 70% dependent on this single sector.

Contributions from the other three business lines were limited, with their proportions continuing to shrink. During the reporting period, automotive brake air compressor components generated revenues of RMB 54.0003 million, RMB 56.4656 million, and RMB 64.3247 million, accounting for 13.04%, 10.50%, and 10.02% of the main business, respectively. Small internal combustion engine components generated revenues of RMB 32.8662 million, RMB 38.9121 million, and RMB 41.4435 million, accounting for 7.94%, 7.24%, and 6.46% of the main business, respectively. Other high-performance aluminum-based new material products generated revenues of RMB 72.9981 million, RMB 76.3250 million, and RMB 76.0960 million, accounting for 17.63%, 14.20%, and 11.86% of the main business, respectively.

Notably, core products are under sustained downward price pressure. During the reporting period, the unit prices of automotive air conditioning compressor components were RMB 9.48, RMB 9.02, and RMB 8.74, respectively, showing a year-on-year decline. The company acknowledged that due to prevalent "annual price reduction" policies implemented by downstream OEMs and component customers, its product prices generally declined, aligning with industry practices in the automotive components sector. This implies that the company’s revenue growth is highly dependent on sales volume expansion. Any fluctuations in downstream demand or intensification of price wars would directly pressure profitability.

2. Accounts Receivable Approach 40%, R&D Expenditure Ratio Declines Annually

While experiencing rapid performance growth, the company has also faced increasing operational capital occupation pressure and concerns over profit quality.

At the end of each reporting period, the company’s inventory book values were RMB 142 million, RMB 134 million, and RMB 160 million, accounting for 35.55%, 28.11%, and 27.13% of current assets, respectively. Inventory allowances for diminution in value were RMB 11.2228 million, RMB 10.1127 million, and RMB 7.4983 million, respectively. With capacity release and order growth, inventory turnover efficiency improved, with inventory turnover rates of 2.28, 3.01, and 3.40, respectively. However, inventory levels remained high, and combined with demand fluctuations in the downstream automotive industry, the risk of inventory write-downs cannot be ignored.

The occupation of funds by accounts receivable was more pronounced. At the end of each reporting period, the company’s accounts receivable balances were RMB 203 million, RMB 234 million, and RMB 274 million, accounting for 44.60%, 39.17%, and 38.26% of current revenues, respectively. Allowances for doubtful accounts were RMB 10.9903 million, RMB 12.1043 million, and RMB 14.2939 million, respectively. The book values of accounts receivable were RMB 192 million, RMB 222 million, and RMB 259 million, accounting for 47.99%, 46.58%, and 43.99% of current assets, respectively.

The divergence between cash flow and profit growth further underscores concerns about profit quality. During the reporting period, net cash flows from operating activities were RMB 38.6846 million, RMB 73.3635 million, and RMB 75.9467 million, respectively, with a mere 3.52% year-on-year growth in 2025, far below the growth rate of net profits attributable to the parent company during the same period. The cash content of profits continued to weaken.

At the R&D investment level, the company’s R&D expenses during the reporting period were RMB 20.7951 million, RMB 24.5092 million, and RMB 29.26 million, respectively, showing an increase with revenue growth. However, the R&D expenditure ratio declined annually, at 4.56%, 4.11%, and 4.09%, respectively, indicating a continuous weakening of R&D investment intensity. With R&D investment growth lagging behind revenue growth, whether the pace of technological iteration and new product reserves in the new energy sector can support long-term growth remains to be verified over time.

During the same period, the company’s selling expenses were RMB 5.2903 million, RMB 7.357 million, and RMB 7.475 million, respectively, accounting for 1.16%, 1.23%, and 1.05% of the main business, respectively, maintaining a relatively low level overall.

3. RMB 800 Million Fundraising for Expansion, Pre-Prospectus Rectifications Push Debt Ratio to 60%

In this IPO, Huichuan Precision plans to raise RMB 806 million, with RMB 401 million allocated to the expansion project for automotive air conditioning compressor components; RMB 200 million to the expansion project for dynamic and static scroll plates of new energy vehicle air conditioning compressors; RMB 135 million to the construction project for the production line of automotive air conditioning compressor housing components; and the remaining RMB 70 million to supplement working capital.

From the perspective of existing capacity, the company’s expansion has certain order support. During the reporting period, the capacity utilization rates of the company’s main products were 80.00%, 93.67%, and 95.01%, respectively, nearing saturation.

However, the company’s asset-liability structure is rapidly deteriorating, with an increasingly urgent need for external funds.

At the end of each reporting period, the company’s consolidated asset-liability ratios were 50.54%, 48.10%, and 60.57%, respectively. Current ratios were 1.65, 1.61, and 1.08, respectively. Quick ratios were 1.06, 1.16, and 0.79, respectively. Short-term solvency indicators have significantly weakened. The scale of short-term liabilities has shown leapfrog growth, reaching RMB 0, RMB 9.6391 million, and RMB 142 million at the end of each period, respectively, with a sharp increase in liquidity pressure.

Regarding the significant fluctuations in financial indicators, the company explained that the decline in current and quick ratios at the end of 2025 was mainly due to two reasons: First, Shandong Dachuan and Longkou Rural Commercial Bank re-signed a loan agreement, taking over the bank loans of Longkou Dachuan, with the original long-term loans reclassified as short-term loans, leading to a substantial increase in current liabilities. Second, unpaid equity transfer payments totaling RMB 57.7202 million from business combinations under common control and asset acquisition payments of RMB 19.1095 million payable to Longkou Dachuan. The increase in the asset-liability ratio was due to the equity/asset transfer payments payable from business combinations under common control and the offsetting of capital reserves by the portion of the transaction price exceeding the book value.

Delving into the essence of the debt increase, it was not a natural result of business expansion but rather the financial cost incurred by the company to meet listing compliance requirements and implement asset restructuring under common control.

According to the prospectus, to avoid horizontal competition, reduce related-party transactions, and enhance the independence of the company’s operations, the company implemented three asset restructurings under common control during the reporting period.

In November 2023, the company’s wholly-owned subsidiary, Jiangsu Dachuan, signed an Asset Acquisition Agreement with Kaiyuan Dachuan, acquiring assets related to the piston business for automotive air conditioning compressors, including inventory, fixed assets, and long-term prepaid expenses, for a cash consideration of RMB 25.0884 million. The acquisition price has been fully paid, and the business assets have been delivered.

More far-reaching financial impacts came from the debt-assuming acquisition of Longkou Dachuan in 2025. In November 2025, the subsidiary, Shandong Dachuan, signed an Asset Purchase Agreement with Longkou Dachuan, acquiring its operating assets and simultaneously assuming operating liabilities: operating assets included land use rights, building ownership, machinery and equipment, etc., with a consideration of RMB 41.1095 million (including tax). At the same time, through re-signing loan agreements, it assumed bank loans totaling RMB 86.98 million from Longkou Dachuan at Longkou Rural Commercial Bank.

This acquisition marked a critical turning point for the deterioration of Huichuan Precision’s financial indicators and the sharp increase in liquidity pressure. The large-scale debt-assuming acquisition in 2025 directly propelled the company’s short-term loans from nearly zero to over RMB 100 million.

Through this series of integrations, historical compliance issues within the actual controller’s system were resolved in a closed-loop manner. The company’s cumulative related-party guarantees totaling over RMB 500 million were all fulfilled and terminated, with the last guarantee not being lifted until December 2025. At the end of the reporting period, the company had no outstanding related-party guarantees.

Formally, the company has completed the separation of business, funds, and guarantees with related enterprises under the actual controller, clearing the core compliance obstacles for the ChiNext listing application. However, the cost of rectification was ultimately borne entirely by the listed entity: over RMB 120 million in cash acquisition payments directly consumed the company’s accumulated retained profits, significantly reducing internal funding reserves. At the same time, the RMB 86.98 million in bank loans from related parties were transferred to the listed company’s balance sheet as current liabilities, converting the original contingent compensation risks into rigid repayment obligations. In other words, the operational and debt risks of related enterprises under the historical actual controller were formally transferred to the company and its future public shareholders through asset integration.

Regarding the asset restructuring operations before the prospectus submission, Yang Zhaoquan, Director of Beijing Winno Law Firm, believes that the operation of acquiring enterprises under the actual controller with RMB 122 million in cash and assuming nearly RMB 87 million in loans harbors three governance risks.

First, it constitutes disguised benefit transfer. The full cash payment, sourced from the retained earnings of all shareholders, was cashed out to the actual controller without adopting constraint mechanisms such as share payments or performance guarantees. The fairness of asset valuation is questionable, potentially damaging the property rights and interests of minority shareholders.

Second, it involves the transfer of debt risks. Incorporating nearly RMB 87 million in liabilities originally belonging to the actual controller into the listed entity directly pushes up the asset-liability ratio, squeezes operating cash flows, and lacks guarantee clauses from the actual controller. The repayment risks are jointly borne by all shareholders, with a clear imbalance in rights and responsibilities.

Third, it only treats the symptoms, not the root cause. Merely eliminating surface violations by combining external entities does not establish a long-term mechanism to constrain the actual controller’s power. After listing, there remains a possibility of establishing new related enterprises and repeating guarantee and fund occupation issues.

In fact, Huichuan Precision has also exhibited non-compliant operations in its internal control. In 2023, its wholly-owned subsidiary, Shandong Dachuan, received RMB 3.3567 million in scrap sales revenue through personal accounts, posing risks of tax compliance and fund misappropriation.

The company responded that the scale of funds received through personal cards for scrap sales was minimal relative to revenue and costs, had no substantial impact on operations, and had all been recorded, with no transfer of profits or advance payments for expenses. However, this operation still sideways exposed weak links in the company’s financial internal control.

Operational legal risks also warrant attention. According to Tianyancha, as of July 20, 2026, the company had a cumulative total of 14 legal cases, with the company being the defendant in 78.57% of them. The main causes of action included creditor’s subrogation disputes, sales contract disputes, and labor contract disputes.

As of the date when the prospectus was signed, Xie Julin and his mother, Hu Guiying, collectively held a direct stake of 80.1 million shares in the company, representing 89.66% of the company's total share capital. Xie Julin, serving as the chairman of the company, wields voting rights through the board of directors and shareholders' meetings, thereby exercising control over the company. He possesses the capability to significantly influence or, in practice, direct the company's actions via resolutions passed by the board of directors and shareholders' meetings. Additionally, he has the authority to determine and substantially shape the company's business strategies, decisions, as well as the appointment and dismissal of the management team. Consequently, Xie Julin and his mother, Hu Guiying, are deemed the actual controllers of the company. (Produced by Harbour Finance)