Longchen Technology's Q1 profit growth slows down: cash flow under pressure, historical compliance issues attract attention

Ask AI · How did Longchen Technology successfully advance its IPO by rectifying internal control issues?

Harbor Business Observation Zhang Rangi

On March 23, Hubei Longchen Technology Co., Ltd. (hereinafter referred to as “Longchen Technology”) submitted a registration application to the Beijing Stock Exchange, and the IPO process entered the final sprint, with only one last step remaining before listing. On April 3, the China Securities Regulatory Commission issued Longchen Technology’s issuance approval document.

As a company in the new energy capacitor film sector, Longchen Technology has been deeply involved in the R&D of products such as BOPP base films. With its related capacity advantages, it holds a place in the industry. Notably, this is not Longchen Technology’s first IPO. As early as the end of 2022, the company submitted an IPO application to the Beijing Stock Exchange and it was accepted, with its sponsor being Minsheng Securities. The company went through two rounds of review meetings. In June 2023, it was rejected due to issues such as incomplete disclosure of related-party transactions and deficiencies in internal controls. After that, Longchen Technology made targeted rectifications, addressing problems such as non-compliant filings and unclear related-party transactions. After replacing its sponsor with Guotai Junan Securities, it re-submitted its application. At the end of 2024, the company again submitted an IPO registration application to the Beijing Stock Exchange. In February 2026, it successfully passed deliberation at the Listing Committee and entered the registration stage after a series of setbacks.

1

Falling unit prices; profit growth slows in the first quarter

According to the prospectus and Tianyancha, Longchen Technology was established in 2003 and is a company mainly engaged in the manufacturing of computers, communications, and other electronic equipment. The company’s main business is the R&D, production, and sales of BOPP film materials related to film capacitors. Its BOPP film materials have advantages such as high insulating impedance, good thickness uniformity, low dielectric loss, and high dielectric strength, making them one of the core raw materials for film capacitors.

Financial data show that in 2023–2025 (hereinafter referred to as the reporting period), the company’s operating revenue was 371 million yuan, 604 million yuan, and 642 million yuan, respectively. In 2024 and 2025, year-over-year growth was 62.80% and 6.29%, respectively, with performance continuing to grow. Over the same period, net profit was 43.1948 million yuan, 78.4724 million yuan, and 99.2828 million yuan, respectively, with year-over-year increases of 81.67% and 26.52%, respectively, indicating a steadily improving profitability level.

During the reporting period, the company’s revenue from its main business was 367 million yuan, 586 million yuan, and 635 million yuan, respectively, accounting for more than 95% of operating revenue. Net profit attributable to owners of the parent after deducting non-recurring gains and losses was 35.6327 million yuan, 67.3318 million yuan, and 83.6065 million yuan, respectively. The combined revenue share of base films and metallized films was 92.75%, 91.64%, and 92.15%, respectively—making them the company’s main revenue sources. Other business revenue mainly came from rental income, income generated from sales of raw materials, and so on.

In the same period, the unit prices of the company’s main-business high-temperature base films were 32.8k yuan/ton, 31.1k yuan/ton, and 31.1k yuan/ton, respectively. After the price was at a high level in 2023, the unit price in 2024 fell 5.18% year over year.

The company stated that as market supply-and-demand pressures eased, the market price of high-temperature base films moved downward. Meanwhile, in the first half of 2024, because the company’s new production lines were in the initial commissioning stage or trial production stage, the yield was still in the ramp-up process, so the selling price of this portion of the products was lower, which in turn dragged down the average product price.

At the same time, the company’s gross margin from its main business was 33.23%, 29.66%, and 33.35%, respectively, showing an overall pattern of first decreasing and then increasing. The company attributed fluctuations in gross margin to factors such as industry cycles and production capacity ramp-up.

The company expects to achieve operating revenue of 170 million yuan to 186 million yuan in January to March 2026, representing year-over-year growth of 5.67% to 15.62%. It expects net profit attributable to owners of the parent to be 25 million yuan to 27 million yuan, representing year-over-year changes of -1.27% to 6.63%. Net profit attributable to owners of the parent after deducting non-recurring gains and losses is expected to be 24.50 million yuan to 26.50 million yuan, representing year-over-year changes of -0.59% to 7.53%.

2

Supplier dependency of nearly 90%; cash flow under pressure

During the reporting period, Longchen Technology’s suppliers were highly concentrated. In the period, the top five suppliers’ purchase amounts as a proportion of the total purchases in the same period were 89.02%, 87.13%, and 89.71%, respectively, staying at a high level for the long term, indicating extremely high dependence on the upstream supply chain.

Among them, the amounts the company directly purchased from Da Han You Hua for polypropylene resin were 73.5239 million yuan, 102 million yuan, and 147 million yuan, respectively. The amounts purchased through trading intermediary Shanghai Sailingte Plastic Co., Ltd. and its related companies were 32.2351 million yuan, 76.0995 million yuan, and 89.1220 million yuan, respectively. In total, these amounts accounted for 54.72%, 66.14%, and 74.62% of the total purchase amounts, respectively, representing a relatively high proportion. The company admits that if Da Han You Hua is affected by trade policies or other factors in the future and cannot supply the relevant raw materials in a timely and adequate manner, and if the company cannot seek substitute raw materials in the short term, it would have an adverse impact on the company’s production and operations.

Well-known business consultant Huo Hongyi pointed out that the key for a company to break away from reliance on a single supplier lies in building a controllable supply chain system, which can be advanced in three directions. First, gradually diversify procurement. Second, promote technology substitution and independent R&D. Third, establish a long-term cooperation mechanism. For the capital market, what they care about is whether the company has undertaken actual actions to mitigate dependency risks. If it can provide specific evidence such as cooperation progress with alternative suppliers and a R&D timeline for substitute technologies, then even if dependency is still relatively high, it can demonstrate the company’s risk awareness and problem-solving capability. Conversely, if it only remains a verbal plan without substantive measures, it may be identified as a hidden risk that affects continued operations.

With the company’s scale continuing to expand, during the reporting period the structure of accounts receivable and inventory continued to be under pressure, and capital pressure was significant. At the end of each period in the reporting period, the book value of accounts receivable was 107 million yuan, 141 million yuan, and 168 million yuan, respectively, accounting for 32.26%, 29.38%, and 43.99% of current assets, respectively. The accounts receivable turnover ratios were 3.63, 4.58, and 3.92, respectively, with the turnover ratio declining somewhat.

It is worth noting that Longchen Technology’s customer concentration for accounts receivable was high, further concentrating collection risk. At the end of each period in the reporting period, the concentration of the company’s top five accounts receivable customers was 36.28%, 37.15%, and 50.45%, respectively, showing a significant increase. If, in the future, downstream customers are affected by factors such as changes in industry market conditions, technology updates, and changes in macro policies of the countries where customers are located—leading to major adverse changes in production and operations and financial conditions—and if accounts receivable cannot be collected on time or cannot be collected at all, then the risk of bad debts would increase, which would adversely affect the company’s capital turnover and operating performance.

In terms of inventory, at the end of each period in the reporting period, the book value of inventory was 103 million yuan, 66.3425 million yuan, and 75.5929 million yuan, respectively, accounting for 31.10%, 13.83%, and 19.91% of current assets, respectively. In each period of the reporting period, the inventory turnover ratios were 2.64 times, 5.03 times, and 5.92 times, respectively. The company’s inventory mainly consists of raw materials and inventory goods.

Looking further, the amounts for provision for inventory price decline as a proportion of the total provision for inventory price decline were on average 42.32%, 59.51%, and 73.31%, respectively. Longchen Technology’s provision scale for inventory price decline was generally lower than that of comparable companies in the same industry, reflecting that the company’s provision for inventory price decline is relatively conservative.

In terms of solvency and cash flow, at the end of each period in the reporting period, the company’s asset-liability ratio was 46.18%, 46.63%, and 42.12%, respectively, showing a downward trend. The company’s current ratio was 0.77, 0.95, and 0.78, respectively; the quick ratio was 0.53, 0.82, and 0.62, respectively. Overall, all were below 1, indicating relatively weak short-term solvency.

During the reporting period, the company’s net cash flows from operating activities were -52.2026 million yuan, 3.9593 million yuan, and -26.7321 million yuan, respectively. Only in 2024 did it turn slightly positive; overall, its “cash-making” capacity continued to decline.

According to further disclosure in the prospectus, as of the end of 2025, the company’s short-term borrowings balance was as high as 358 million yuan, of which secured borrowings accounted for nearly 80%, totaling 282 million yuan. Even more urgently, these 358 million yuan of short-term debt will mature in installments by quarter within 2026, with amounts of 67.00 million yuan, 75.90 million yuan, 56.90 million yuan, and 81.99 million yuan, respectively.

The company believes that because the debt maturity dates are relatively dispersed, to some extent it avoids the risk of concentrated runs on payment. However, in terms of total amount, the annual repayment amount is still at a high level, and cash flows would form a continuous outflow. If external financing conditions or operating cash collections fluctuate, it may still lead to phased capital pressure.

3

Unstable capacity utilization; historical scrutiny of internal control compliance

For this IPO, Longchen Technology plans to publicly issue no more than 33.9985 million shares, raising 375 million yuan. Of this, 345 million yuan will be specially invested in the development project for new energy electronic film materials. The project is expected to have a total investment of 380 million yuan, with a construction period of 2 years. After the project is completed, it will add base film capacity of 3,768 tons per year, focusing on ultra-thin, high-dielectric-strength capacitor film products required in fields such as new energy vehicles, photovoltaics, and energy storage. The remaining 30 million yuan will be used to supplement working capital to support the funding needs arising from the expansion of its operating scale.

The prospectus shows that in May 2024, the company held its 2023 annual general meeting of shareholders, where the resolution was approved, and in the same period it distributed cash dividends totaling 32.8k yuan. On one hand, it distributes cash dividends in the range of tens of millions to return to shareholders; on the other hand, it plans to use the proceeds to supplement working capital—its rationale is questionable.

In terms of equity structure, Lin Meiyun controls 54.08% of the company’s shares in total and serves as the company’s chairman and general manager. She is the company’s controlling shareholder and the actual controller. The company’s fourth-largest shareholder, Lin Weiliang, holds 3.48% of the shares and is Lin Meiyun’s brother.

More importantly, even though existing capacity has not yet been fully absorbed, the company still plans to expand production. During the reporting period, the company’s base film capacity utilization ratios were 101.22%, 84.69%, and 90.29%, respectively, and capacity utilization later clearly fell.

Given unfavorable factors in combination, and with current capacity not being operated at full production capacity, after new capacity is put into place it may further exacerbate supply-demand imbalance. In the future, both capacity absorption and performance realization have significant uncertainty, and the rationale for expanding production has been highly disputed.

It is especially important to note that non-standard corporate governance and information disclosure are among the key reasons why Longchen Technology’s IPO was set back, and also one of the most obvious compliance shortcomings on its path to listing.

According to the prospectus and regulatory documents, the company’s subsidiary Anhui Longchen acquired a capacitor film production line in June 2022 for about 77.6051 million yuan. This transaction accounted for 35.85% of the company’s latest audited net assets. It had already reached the standards for board approval stipulated in the articles of association, yet it did not promptly fulfill internal decision-making procedures and information disclosure obligations. Only in May 2025 did it convene a board meeting to ratify and approve the relevant matters retroactively.

Due to the above procedural violations, the Hubei Regulatory Bureau of the China Securities Regulatory Commission and the Management Department 1 of the China National Equities Exchange and Quotations Co., Ltd., took administrative regulatory measures against Longchen Technology, as well as Lin Meiyun, the then chairman and general manager, and Lin Na, the then secretary of the board of directors, by issuing warning letters. Furthermore, regarding the determination of acting-in-concert relationships, it was only after the inquiry from the China Securities Regulatory Commission that Lin Meiyun and her brother supplemented and signed an acting-in-concert agreement and completed the related disclosures. Before that, there had been long-term failure to clearly define it; the timeliness and completeness of information disclosure were clearly insufficient, which also led outsiders to question the standardization of the company’s internal governance. (Produced by Harbor Finance)