Zhenhong Co. Responds to the Beijing Stock Exchange’s Second-Round Inquiry Amid Operating Cash Flow Strain and Ongoing Customer Concentration Risks

Blue Whale News reported on February 6 that Zhenhong Heavy Industry (Jiangsu) Co., Ltd. (hereinafter referred to as “Zhenhong Co.”) has submitted its prospectus and responded to the second round of inquiries from the Beijing Stock Exchange (BSE), according to information disclosed on the BSE’s official website. The inquiries mainly focus on related-party transactions, the authenticity of sales, accounts receivable, and the sustainability of performance growth.

It is understood that the company had previously planned to pursue an IPO on the ChiNext board, but later shifted its listing plan to the Beijing Stock Exchange amid tighter IPO policies. Having now entered the second round of inquiries, the listing aims to leverage capital market support to expand production capacity, replenish working capital, and further consolidate Zhenhong’s market position in the wind power forging segment.

According to the prospectus, Zhenhong Co. is a high-tech enterprise specializing in the research, development, production, and sale of forged wind power main shafts and other large-scale metal forgings. Its main products include wind power forgings, chemical industry forgings, other forgings, and steel plates. Among them, wind power forgings are the company’s core products, contributing more than half of total revenue. During the reporting period, the steady growth of wind power forgings became the key driver behind the company’s overall performance improvement.

Backed by stable product quality and high-standard services, Zhenhong Co. has established itself as an important supplier to well-known enterprises across industries such as wind power, chemicals, machinery, shipbuilding, and nuclear power. The company has built long-term cooperative relationships with major clients including Envision Energy, Windey Co., and Shanghai Electric. In particular, its partnership with Windey has continued to deepen, with the company’s supply share increasing year by year.

Benefiting from the gradual recovery of China’s domestic wind power market, Zhenhong Co.’s operating performance has shown steady growth during the reporting period. According to the prospectus, from 2022 to 2024 and the first half of 2025 (the “reporting period”), the company recorded operating revenues of approximately RMB 827 million, RMB 1.025 billion, RMB 1.136 billion, and RMB 633 million, respectively. Correspondingly, net profit after deducting non-recurring items reached RMB 58 million, RMB 71 million, RMB 102 million, and RMB 56 million.

From a product perspective, wind power forgings generated revenue of RMB 378 million in the first half of 2025, representing a year-on-year increase of RMB 126 million. This segment accounted for 90.85% of the incremental revenue during the period, making it the primary engine of performance growth. From a customer perspective, major clients such as Envision Energy, Windey, and Shanghai Electric contributed a combined RMB 241 million in revenue during the same period, accounting for 98.43% of the total revenue increase, indicating a relatively high level of customer concentration. As of July 31, 2025, the company’s order backlog totaled RMB 567 million, providing a certain degree of support for continued revenue growth.

However, a closer look at the BSE’s inquiry highlights that Zhenhong Co. still faces a number of operational challenges.

From a financial standpoint, the company’s operating cash flow has shown significant volatility. During the reporting period, net cash flow from operating activities amounted to -RMB 130 million, -RMB 52.97 million, RMB 124 million, and -RMB 34.52 million, respectively, remaining in a “cash outflow” state for most periods.

The negative cash flow in 2022 and 2023 was mainly due to a large volume of bills received that could not be derecognized. In 2024, operating cash flow turned positive after Envision Energy changed its settlement method from bill settlement to cash settlement. However, cash flow returned to negative territory in the first half of 2025, driven by rising accounts receivable, increased procurement volumes, and Envision Energy’s resumption of bill-based repayments.

At the same time, the company faces notable short-term debt repayment pressure. At the end of each reporting period, total borrowings stood at RMB 192 million, RMB 214 million, RMB 232 million, and RMB 207 million, respectively. Short-term borrowings consistently exceeded RMB 160 million, while cash and cash equivalents peaked at only RMB 132 million and fell as low as RMB 21.45 million at their lowest point, highlighting tight liquidity conditions.

On the customer and supplier side, the company also faces issues such as overlapping counterparties, abnormal qualifications among certain trading partners, and a high degree of customer concentration. During the reporting period, revenue from the top five customers consistently accounted for around 40% of total revenue, rising to 48.17% in the first half of 2025. Meanwhile, the concentration of the top five suppliers remained above 55%, indicating elevated concentration risks on both the sales and procurement fronts.

Notably, Zhejiang Tianma Bearing Group Co., Ltd. appears among both the company’s top five suppliers and top five customers. During the reporting period, Zhenhong Co. recorded substantial purchases of steel materials from Tianma as well as significant sales of scrap steel to the same company. Regulators have therefore required Zhenhong to explain the commercial rationale behind this overlap. In addition, media reports revealed that Wuxi Zhaoda Energy Co., Ltd.—a long-standing top five supplier during the reporting period—had only four insured employees, while Taizhou Jiuheng Metal Products Co., Ltd., which sold scrap steel to Zhenhong in 2024 and the first half of 2025, reportedly had zero insured employees. Both companies show abnormal qualifications, prompting regulators to place these transactions under heightened scrutiny.

For this IPO, Zhenhong Co. plans to raise a total of RMB 520 million, all of which will be allocated to two projects. Approximately RMB 415 million will be invested in an expansion and upgrading project with an annual capacity of 50,000 tons of high-quality forgings, while RMB 105 million will be used to supplement working capital. The company stated that if the actual net proceeds exceed the total investment required for these projects, the excess funds will be used appropriately in accordance with regulatory procedures. If the funds raised fall short, the gap will be filled through self-raised capital. Prior to the availability of IPO proceeds, the company plans to advance project construction using its own funds and bank loans.