Xinrui Electronics: High Accounts Receivable, Low R&D, Abnormal Gross Profit Margin, Poor Profit Quality | IPO Watch

Source: Titanium Media

On April 3, Linhai City New Rui Electronic Technology Co., Ltd. (hereinafter referred to as “New Rui Electronic”) will appear before the Beijing Stock Exchange (BSE) IPO review meeting. The company plans to publicly issue no more than 6.4 million shares.

The writer notes that during the reporting period, although New Rui Electronic’s revenue and net profit continued to grow, the company’s profitability quality was relatively weak. The ratio of net operating cash flow to net profit never exceeded 0.5. The core issue behind this phenomenon is concentrated in accounts receivable: nearly 40% of the company’s assets are accounts receivable, and the overdue portion accounts for more than half. The company’s collection capability is far weaker than that of peers. Of even greater concern, against the backdrop of high collection risk, the company’s bad debt provision standards are comparatively conservative, which further exacerbates the risk of asset impairment. In addition, although the company claims it is a “Little Giant” in terms of specialized, refined, distinctive, and innovative enterprises, with impressive patents and computer software copyrights, its R&D investment intensity is clearly insufficient. Its R&D expense ratio is far lower than the peer average; in 2024, the gap between the two is nearly 10 percentage points. Even more unusual, with the double backdrop of continuous declines in the unit prices of its main products and insufficient R&D investment, the company’s gross margin rose against the trend and even outperformed the industry, completely deviating from conventional operating logic. Meanwhile, the company has been sued by Huiding Technology for alleged infringement of trade secrets, with the amount involved totaling RMB 30 million. The case has not yet gone to trial, and the outcome remains uncertain.

Poor profitability quality

New Rui Electronic began developing industrial robot control systems in 2010, making it one of the earlier companies in China to carry out R&D in industrial robot control systems. After more than a decade of technological innovation and product iteration, it has formed a solution and product system combining software and hardware, including complete sets of industrial robot control systems, drive-and-control integrated control systems, standalone control system units, servo systems, and others. Currently, the company’s main business is the R&D, production, and sales of industrial robot control systems and components, as well as servo systems and components.

From 2022 to 2025 (hereinafter referred to as the “reporting period”), New Rui Electronic respectively achieved operating revenue of RMB 204 million, RMB 301 million, and RMB 318 million, while net profits were respectively RMB 30.966 million, RMB 55.2637 million, and RMB 59.0482 million, with performance continuing to grow.

Despite ongoing increases in both revenue and net profit, the company’s overall profitability quality remains weak. During the reporting period, New Rui Electronic’s net cash flow from operating activities was respectively RMB 10.7578 million, RMB 22.0307 million, and RMB 26.9267 million. Combined with the net profit for the same period, the ratio between the two can be calculated as 0.35, 0.4, and 0.46 respectively, and the ratio never exceeded 1.

The core reason why cash flow substantially lagged behind net profit may be that the company’s accounts receivable scale surged significantly. As of the end of 2023, 2024, and 2025, New Rui Electronic’s accounts receivable balances were respectively RMB 82.8009 million, RMB 115.6383 million, and RMB 143.317 million, accounting for 33.47%, 38.93%, and 39.61% of total assets as of the respective period. The compound annual growth rate of accounts receivable averaged 31.56%, which also far exceeds the revenue growth rate of 24.85% over the same period.

At the same time that accounts receivable remain high, the problem of delayed collection of amounts is especially prominent: more than half of the company’s accounts receivable are beyond normal credit terms. In the above time periods, New Rui Electronic’s accounts receivable beyond the credit period were respectively RMB 46.6303 million, RMB 57.876 million, and RMB 889.4458 million, accounting for 52.75%, 46.56%, and 57.35% of the accounts receivable balances for the respective period.

The writer also notes that the ability to convert accounts receivable into cash is weaker than that of peers. During the reporting period, New Rui Electronic’s accounts receivable turnover ratios were respectively 2.71, 2.83, and 2.28. Meanwhile, the average accounts receivable turnover ratios of New Rui Electronic’s peer comparable companies were 5.17 in 2023 and 4.22 in 2024. In other words, in 2023 and 2024, the company’s accounts receivable turnover ratio was far below the peer average.

What is worth questioning is that, under multiple risks such as a high proportion of accounts receivable, a large overdue scale, and weak collection capability, the company’s bad debt provision standards are instead relatively conservative. As of the end of 2023, the end of 2024, and the end of June 2025, New Rui Electronic’s comprehensive bad debt provision ratio for accounts receivable were respectively 6.34%, 6.96%, and 7.1%. The average figures of peer comparable companies were respectively 7.61%, 9.66%, and 9.55%. The company’s provision level has long been below the industry average. This abnormal situation—high collection risk paired with low bad debt provision—further increases doubts about the authenticity of profits and the risk of asset impairment. The company urgently needs to provide a reasonable explanation.

Low R&D, High gross margin

The writer notes that in its filing, New Rui Electronic describes itself as a “Little Giant” enterprise at the national level in terms of specialized, refined, distinctive, and innovative capabilities; as well as a “specialized, refined, distinctive, and innovative” small and medium-sized enterprise in Zhejiang Province; a science-and-technology-based small and medium-sized enterprise in Zhejiang Province; and a National High-tech Enterprise. As of the date of signing of this prospectus, it has obtained 58 patents, including 27 invention patents, 16 utility model patents, and 15 design patents, and it owns 140 computer software copyrights. It also participated in drafting the national standards “Industrial system, apparatus and equipment and industrial product signal code—Part 1: Basic rules” and “Machine state monitoring and prediction of diagnosis—Part 1: General guidance.” The company’s product is an “accurate dynamic control servo robotic arm control system and high-precision, high-flexibility multi-axis servo robotic arm control system.”

This series of descriptions makes it hard not to feel that New Rui Electronic is highly capable in R&D technology, with strong technological flair. However, is that really the case?

The prospectus shows that during the reporting period, New Rui Electronic’s R&D expense ratios were respectively 5.55%, 4.98%, and 5.46%, showing some fluctuation. Meanwhile, in 2023 and 2024, the average R&D expense ratios of New Rui Electronic’s peer comparable companies were respectively 13.34% and 14.55%. That is to say, in 2023 and 2024, the company’s R&D expense ratio was far below the peer average; especially in 2024, the difference between the two was nearly 10 percentage points, indicating clearly weak R&D investment intensity.

In addition, in November 2025, Shenzhen Inovance Technology Co., Ltd. and Suzhou Inovance Technology Co., Ltd., citing “unfair competition conduct such as infringement of technical secrets and business secrets,” listed 25 entities, including New Rui Electronic, as co-defendants, with the amount involved totaling RMB 30 million.

In response, New Rui Electronic stated that as of the date of signing of this prospectus, the above lawsuits have not yet been heard, and there is some uncertainty regarding the outcome. If the company were to lose the lawsuit(s), it may have a certain adverse impact on the issuer’s production and operations and financial condition.

Apart from the above, the writer also notes that against the double backdrop of R&D investment falling short of peers and continuous declines in the unit prices of core products, New Rui Electronic’s gross margin nevertheless rose against the trend and even outperformed the industry. During the reporting period, New Rui Electronic’s gross margin was respectively 33.73%, 36.44%, and 36.02%. In 2023 and 2024, the gross margins of New Rui Electronic’s peer comparable companies were 35.04% and 35.55%. This shows that New Rui Electronic’s gross margin has been trending upward, and as early as 2024 it was already well above the peer average.

More importantly, New Rui Electronic’s main products are drive-and-control integrated control systems, complete set control systems, standalone control system units, and drives. During the reporting period, the sales unit prices of the drive-and-control integrated control system were respectively RMB 3,490.36 per set, RMB 3,204.06 per set, and RMB 2,639.24 per set; the sales unit prices of complete set control systems were respectively RMB 4,062.97 per set, RMB 3,744.29 per set, and RMB 3,338.6 per set; the sales unit prices of standalone control system units were respectively RMB 1,647.33 per unit, RMB 1,614.32 per unit, and RMB 1,522.8 per unit; and the sales unit prices of drives were respectively RMB 272.62 per unit, RMB 270.25 per unit, and RMB 243.04 per unit. This also means that the unit selling prices of all of the company’s main products have been continuously declining; especially for the drive-and-control integrated control system, the cumulative price decline over the three years was 24.38%.

Overall, New Rui Electronic presents an abnormal pattern: its R&D expense ratio is below the industry level, the selling prices of its flagship products continue to fall, yet its gross margin climbs steadily and even outperforms peers—completely deviating from conventional operating logic. Doubts remain about the reasonableness of the profitability data. The causes of these differences and the accounting basis need to be explained by the company. (Text | Company Observer, Author | Deng Haotian, Editor | Cao Shengyuan)

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