Hengxing New Materials IPO Under Scrutiny: Declining Performance Clashes with Expansion Plans

Pre-Listing Performance Reversal: The Growth Story Falters

Hengxing New Materials once captured capital market attention with impressive growth metrics. However, at this critical juncture in the company's IPO sprint, the financial data has delivered a sobering reality check. In 2025, both revenue and net profit declined, with net profit after deducting non-recurring gains and losses plummeting 18.80% — a performance reversal that caught many off guard.

For companies seeking to go public, sustained performance and growth during the reporting period are among the core factors scrutinized in the review process. Did Hengxing New Materials' earlier rapid growth come at the cost of front-loading market demand? Is the performance decline a short-term fluctuation or a signal of a cyclical industry turning point? These questions merit thorough examination.

Overdue Receivables Surpass 50%: Asset Quality Alarm Bells

More concerning than the earnings decline is the quality of the company's accounts receivable. Disclosed data shows that overdue receivables at Hengxing New Materials have surpassed 50% of total receivables — a ratio that stands at a notably high level among peer companies pursuing IPOs.

Elevated overdue receivables typically signal risks on several fronts:

• Questionable collection capability: Downstream customers' willingness or ability to pay may be deteriorating, suggesting the company's bargaining power in the supply chain may not be as strong as expected.
• Mounting bad debt provisioning pressure: As the overdue period lengthens, accounting standards require higher provisions for doubtful accounts, directly eroding profits.
• Cash flow strain: Poor receivables collection leads to significant divergence between operating cash flow and reported profits, affecting the company's actual available funds.

With more than half of all receivables overdue, a pressing question arises: Did the company relax its credit policies to boost performance numbers ahead of the IPO? Against the backdrop of already declining earnings, what are the ultimate recovery prospects for these overdue amounts?

The Production Cut vs. Expansion Paradox: Fundraising Plans Under Fire

Among the many red flags, the most contentious is Hengxing New Materials' contradictory approach of cutting production while simultaneously seeking IPO funds to expand capacity.

Publicly available information indicates that the company's existing capacity utilization rates have declined, with some product lines showing signs of production cutbacks. Despite insufficient absorption of current capacity, one of the primary intended uses of IPO proceeds is capacity expansion. This arrangement has triggered intense market skepticism about the necessity and rationality of the proposed investment projects.

Logically, the prerequisites for fundraising-driven capacity expansion typically include: existing capacity nearing saturation, sustained robust market demand, and a healthy order backlog. Hengxing New Materials' current operating reality, however, appears far removed from these conditions. If newly added capacity cannot be effectively absorbed by the market after project completion, not only will the efficiency of capital deployment be severely compromised, but the company's operational burden could intensify further.

Specifically, expansion projects typically involve substantial fixed-asset investments that generate significant annual depreciation charges once completed. When revenue growth is anemic, rigid depreciation costs will continuously drag on profit performance, creating a vicious cycle where expansion itself becomes a source of losses.

A Dual Test: Industry Cycles and Corporate Operations

Behind Hengxing New Materials' performance pressure lie both company-specific operational factors and broader shifts in industry conditions. In recent years, the advanced chemical materials sector has undergone a capacity expansion cycle, with some sub-segments transitioning from supply shortages to supply-demand balance or even periodic oversupply, putting downward pressure on product prices and gross margins.

Choosing to go public during an industry downturn often presents companies with a dilemma: on one hand, there is an urgent need for external capital to supplement liquidity and optimize capital structure; on the other hand, lackluster performance makes it difficult to support an ideal valuation. Striking a balance between financing needs and market expectations will be a challenge Hengxing New Materials must confront head-on.

IPO Outlook: Regulatory Review May Prove the Decisive Hurdle

Taken together, Hengxing New Materials' path to IPO faces multiple uncertainties. Under the current stringent regulatory review environment, the following areas are likely to draw close scrutiny:

1. Earnings sustainability: Whether the declining trends in revenue and net profit will persist, and whether the company can present a convincing case for performance recovery.
2. Accounts receivable risk: The specific composition of overdue receivables, aging distribution, repayment capacity of major debtors, and the adequacy of bad debt provisions.
3. Necessity of proposed investment projects: Whether the market outlook for expansion projects is sufficiently substantiated given underutilized existing capacity, and whether the capacity absorption plan is genuinely feasible.
4. Disclosure quality: Whether the narrative connecting earlier high growth to the current performance decline is internally consistent, and whether relevant risks have been adequately disclosed.

For investors, the Hengxing New Materials case serves as yet another reminder: while a company's historical performance matters, assessing future operating trends is even more critical. As IPO review standards tighten, the difficulty of pushing through with unresolved issues is rising significantly. Only companies with solid fundamentals and transparent information disclosure can truly withstand the dual test of market and regulatory scrutiny.