IPO Observation: A Closer Look at the Risks Behind Jintian Tiandi's Upcoming IPO: High Dependence on a Few Large Customers, Significant Increase in Bad Debt, and Frequent Related Transactions

　Hunan Xiangtong Technology Co., Ltd. (hereinafter referred to as Jintian Tiandi), which applied for listing on the Science and Technology Board of Shanghai Stock Exchange in mid-2023, is scheduled to go public on February 1st this year. It's worth noting that behind Jintian Tiandi's upcoming IPO, there are several risks that warrant attention. Among these, the company's high dependence on a few large customers is particularly noteworthy. According to its prospectus, Jintian Tiandi relies heavily on five major customers for nearly 80% of its revenue.

　Accounts Receivable High and Occupies Over 60% of Revenue

　Bad Debt Losses Increase Sixfold, Approaching CN¥1 Million

According to the prospectus, Jintian Tiandi is primarily engaged in the research, production, and sales of high-end titanium and titanium alloy materials, with its main products being used in the aerospace, defense, and other high-tech fields. As a major supplier to the military industry, Jintian Tiandi has a significant dependence on a few large customers, with nearly 80% of its revenue coming from these five major clients.

As seen from the prospectus, the company's accounts receivable increased significantly during the reporting period, with the average occupancy ratio reaching over 60%. Furthermore, the bad debt losses have been rising steadily, increasing by sixfold compared to the previous year and approaching CN¥1 million. This has raised concerns about the potential risks associated with the company's high dependence on a few large customers.

During the reporting period, Jintian Tiandi's accounts receivable balance was CN¥28.18 billion, CN¥31.85 billion, CN¥37.89 billion, and CN¥60.83 billion, respectively, accounting for 13.54%, 13.75%, 16.16%, and 24.19% of the company's total assets. The accounts receivable balance also accounted for 61.03%, 55.63%, 54.07%, and 75.04% of the company's revenue, respectively (already normalized). The accounts receivable balance was relatively high.

As seen from the prospectus, Jintian Tiandi's accounts receivable turnover rate was 1.79 times per year, 1.84 times per year, 1.95 times per year, and 1.59 times per year (already normalized), with a relatively low accounts receivable turnover rate and a relatively long accounts receivable collection period compared to its peers.

Jintian Tiandi stated that its main customers are military-industry-related units and their supporting manufacturers, which are affected by various factors such as the overall arrangement of the industrial chain, end-customer payment progress, and so on. This has led to a relatively long accounts receivable collection period and high accounts receivable balance.

However, according to the prospectus, Jintian Tiandi's bad debt losses have been rising steadily during the reporting period, with a loss of CN¥307.58 million, CN¥243.08 million, CN¥211.90 million, and CN¥997.22 million, respectively (losses represented by negative numbers). This has raised concerns about the potential risks associated with the company's high dependence on a few large customers.

　Frequent Related Transactions Occur, Involving Sales and Purchases

　Purchases from Affiliated Companies Increase Threefold Over Two Years

It is worth noting that Jintian Tiandi has frequent, high-value related transactions during the reporting period, with purchases from affiliated companies increasing by nearly threefold over two years. This affiliated company is also one of Jintian Tiandi's five major suppliers.

According to the prospectus, the company had significant related-party transactions during the reporting period, including purchases and sales. Among these, the company purchased goods worth CN¥1.765 billion, CN¥3.007 billion, CN¥6.398 billion, and CN¥3.233 billion from affiliated companies, respectively, accounting for 5.66%, 8.61%, 13.68%, and 12.26% of the company's total operating costs, respectively.

It is worth noting that Jintian Tiandi purchased raw materials worth over CN¥6 billion from affiliated companies during the reporting period, with a significant increase in purchases over two years. This has raised concerns about the potential risks associated with the company's related-party transactions.

The prospectus also mentioned that the company expects to continue having certain related-party transactions in the future. If the company fails to strictly execute its internal control systems or cannot effectively control the scale of these transactions, or if there are issues with pricing or decision-making and approval processes, then there is a risk that these transactions may harm the interests of the company or minority shareholders.