Zhongyuan Shares Responds to Inquiry Letter Regarding Private Placement, Providing Detailed Explanations of Multiple Financial Data and Business Conditions

Wuhan Zhongyuan Huadian Technology Co., Ltd. (hereinafter referred to as “Zhongyuan Co.”) recently issued an announcement titled “Reply to the Inquiry Letter on the Review of the Application for a Private Placement of Shares.” The company provided detailed responses to questions raised by the Shenzhen Stock Exchange regarding various aspects such as revenue, gross profit margin, customer structure, accounts receivable, inventory, and financial investments.

The announcement shows that Zhongyuan Co. has experienced continuous growth in operating revenue in recent years, mainly due to steady development of its smart grid business. During the reporting periods, the company’s operating revenues were RMB 442.8076 million, RMB 448.0854 million, RMB 553.6927 million, and RMB 415.3497 million, respectively. Among these, revenue from the smart grid business accounted for 79.55%, 93.09%, 96.69%, and 96.74%, becoming the main source of income. Meanwhile, revenue from the healthcare business declined year by year, from 20.45% in 2022 to 3.26% in January-September 2025, mainly due to the company’s strategic contraction of this segment.

Regarding gross profit margin, Zhongyuan Co.'s comprehensive gross profit margins were 46.10%, 47.34%, 46.97%, and 50.26%, respectively, higher than the average level of comparable companies in the industry. The company stated that this is mainly because it focuses on high-technical, high-value-added core products in power automation, with a business structure highly concentrated in the high-margin smart grid sector.

In terms of customer structure, the top five customers accounted for 57.47%, 72.91%, 74.72%, and 74.81% of sales revenue, mainly state grid companies such as State Grid Corporation and China Southern Power Grid, and their subsidiaries. During the reporting periods, some customers also overlapped with suppliers. The company explained that this is due to the long industry chain in power transmission, distribution, and control equipment manufacturing, which features specialization and socialized collaboration, consistent with industry practices.

As for accounts receivable, a high proportion of receivables aged over one year at the end of each period, mainly influenced by the healthcare business. The receivables from the smart grid segment had a good aging structure, with 70.31%, 76.34%, 80.85%, and 80.34% of receivables within one year, and post-period collections were good. The company’s accounts receivable turnover rate has been consistently lower than that of comparable industry peers, mainly due to the lower turnover rate of healthcare-related receivables.

Regarding inventory, the amount of goods issued at the end of September 2025 increased significantly compared to the end of 2024, mainly due to the growth in business scale and shipments of new products such as “online testing devices.” The company has made adequate provisions for inventory devaluation, with no significant difference compared to industry peers.

On financial investments, as of September 30, 2025, the company’s financial investments amounted to RMB 46.5742 million, accounting for 3.36% of net assets attributable to the parent company shareholders. The amount is relatively small and the proportion low, with no significant holdings of financial investments.

Additionally, the company provided explanations regarding the upcoming private placement of shares. The target investors are the company’s actual controllers, Zhu Shuangquan and Zhu Shunquan. The proposed fundraising amount does not exceed RMB 500.0025 million, which will be used entirely for working capital after deducting issuance costs. The company stated that this issuance will further consolidate the actual controllers’ positions, enhance core competitiveness, and meet the funding needs for business development.

During the reporting period, the company’s healthcare informatization business mainly served hospitals and some system integrators, with no individual customers. The company and its major clients do not engage in unfair competition, commercial bribery, dishonest conduct, or other illegal activities. The company has established internal management systems to prevent commercial bribery and enforces them effectively.

The company also disclosed related risks, including large inventory balances and inventory impairment risks, accounts receivable recovery risks, revenue fluctuation risks, gross profit margin volatility risks, control rights stability risks, and risks of insufficient fundraising or failed issuance.

This reply to the inquiry letter helps investors gain a more comprehensive understanding of Zhongyuan Co.'s operational and financial status, providing a reference for investment decisions.

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