Progress Photon’s gross profit margin declines: Accounts receivable surge, a mysterious shareholder hits the jackpot with a 30x return

Ask AI · How does a surge in accounts receivable affect a company’s cash-flow turnover efficiency?

Harbor Business Observation — Shi Zifu

On March 27, the Shanghai Stock Exchange will convene the 12th meeting of its Listing Committee in 2026 to review the initial public offering review matters of Wuhan Changjin Photonics Technology Co., Ltd. (hereinafter referred to as “Changjin Photonics”).

Public information shows that in August 2025, Changjin Photonics applied for and was accepted for listing on the Science and Technology Innovation Board. The sponsor is Guotai Haitong Securities. Before this meeting, the Shanghai Stock Exchange had issued two rounds of audit inquiry letters, focusing on issues such as the company’s customers, raised-investment projects, revenue, and gross margin.

1

Gross margin declines during the period

Tianyancha shows that Changjin Photonics was established in 2012. The company is a leading domestic manufacturer of specialty optical fibers. The company’s main product, erbium-doped fiber, is an important subclass of specialty optical fibers; it is a core optical material in the upstream of the laser industry chain and a core component for various fiber laser oscillators, fiber amplifiers, and fiber laser lidars. It is widely used in fields such as advanced manufacturing, optical communications, measurement and sensing, defense and military industry, medical and health care, and scientific research.

The company’s operating revenue mainly comes from erbium-doped fiber, and the revenue contribution from that segment has been above 85% in each year. Based on ytterbium-doped fiber, the company has accumulated extensive technology reserves and experience in mass production of specialty optical fibers. On that basis, it has expanded into a richer set of product series, including erbium-doped fiber, erbium-ytterbium co-doped fiber, thulium-doped fiber, enhanced-function rare-earth-doped fibers, and energy-transmission fibers, among others, continuously broadening the application scope of its products.

For rare-earth-doped fiber, the company’s core product, from 2023-2025 (hereinafter referred to as the “reporting period”), revenue achieved by this business was 126 million yuan, 165 million yuan, and 218 million yuan respectively, accounting for 87.09%, 86.05%, and 88.8% of the company’s operating revenue for the period, respectively; in each period, the share exceeded 85%.

Among rare-earth-doped fibers, ytterbium-doped fiber is the main source of revenue. Revenue from this business in each period was 94.4583 million yuan, 87.1895 million yuan, and 111 million yuan respectively, accounting for 65.34%, 45.49%, and 44.98% of operating revenue for the period.

In addition, Changjin Photonics has about 10% of its revenue from energy-transmission fibers. In the same period, revenue from energy-transmission fibers was 17.1739 million yuan, 16.76M yuan, and 17.06M yuan respectively, accounting for 11.88%, 8.75%, and 6.94% of operating revenue for the period.

Regarding sales volume, in the reporting period, the unit price of ytterbium-doped fiber was 24.32 yuan/m, 21.94 yuan/m, and 19.93 yuan/m respectively, with change rates of -9.77% and -9.18% respectively; sales quantities were 3,883.96 km, 3,973.15 km, and 5,544.45 km respectively, with change rates of 2.3% and 39.55% respectively.

In 2024, the sales revenue of ytterbium-doped fiber decreased by 7.2688 million yuan compared with 2023. Within this, sales volume increased by 2.30% year-over-year, and the change in sales quantity contributed 1.9573 million yuan to revenue. The average selling price decreased by 9.77% year-over-year, and the change in average selling price reduced revenue by 9.2261 million yuan.

Because rare-earth-doped fiber is the company’s core product, changes in its gross margin will have a significant impact on the company’s overall gross margin level. During the reporting period, Changjin Photonics’ gross margin from its principal business was 69.31%, 69.13%, and 65.06% respectively. In 2025, the gross margin fell by 4.08 percentage points, mainly due to the gross margin of rare-earth-doped fiber declining by 6.25 percentage points, resulting in a 3.59 percentage-point decrease in its contribution to the overall gross margin.

Additionally, in 2023 and 2024, the average gross margin of comparable peer companies was 49.63% and 45.79% respectively, which was all clearly lower than Changjin Photonics’ gross margin level for the period. In response, the company stated: Among the comparable listed companies in the aforementioned industry, Changyingtong has a specialty optical fiber business. Its annual reports disclosed that the gross margin on self-produced specialty optical fibers for 2023-2024 was 83.01% and 80.17%, respectively, which is higher than its own overall gross margin level, and is comparable to the gross margin level of the issuer.

2

Upstream and downstream concentration is high; accounts receivable surges

Because the market for downstream fiber laser oscillators has a high degree of concentration, Changjin Photonics inevitably also has a high customer concentration.

During the reporting period, Changjin Photonics’ combined sales revenue to the top five customers was 119 million yuan, 140 million yuan, and 163 million yuan respectively, accounting for 82.26%, 73.19%, and 66.20% of operating revenue for the period respectively. Although the share of revenue from the top five customers had already declined significantly during the period, as of the end of the reporting period, it was still above 50%.

On the other hand, Changjin Photonics’ purchases from the five major raw material suppliers were 35.0743 million yuan, 29.1202 million yuan, and 44.3267 million yuan respectively, accounting for 82.8%, 72.31%, and 83.54% of the total purchases of raw materials for the period.

At the same time, as the company’s business scale expands, its accounts receivable and inventory are also continuing to grow.

At the end of each period in the reporting period, the company’s accounts receivable balances were 59.1149 million yuan, 77.6037 million yuan, and 117 million yuan respectively, accounting for 40.89%, 40.49%, and 47.48% of operating revenue for the period respectively; the carrying value of accounts receivable was 56.1186 million yuan, 73.5392 million yuan, and 111 million yuan respectively; and the allowance for bad debts was 2.9964 million yuan, 4.0645 million yuan, and 6.2144 million yuan respectively.

During the same period, the company’s inventory carrying balances were 50.9889 million yuan, 57.1331 million yuan, and 52.94M yuan respectively. Inventory carrying values were 50.2770 million yuan, 55.8770 million yuan, and 51.1841 million yuan respectively, and the proportions of current assets were 15.84%, 15.26%, and 9.43% respectively. Inventory provision for write-downs was 711.9k yuan, 1.26M yuan, and 1.76M yuan respectively.

At the end of each period in the reporting period, the company’s net cash flow from operating activities was 45.7414 million yuan, 79.2614 million yuan, and 101 million yuan respectively. The difference between the company’s net cash flow from operating activities in each period and its net profit in the same period was -8.9151 million yuan, 3.5055 million yuan, and 5.3130 million yuan respectively.

In 2023, the net cash flow from operating activities was lower than net profit by 8.9151 million yuan, mainly because the company’s business scale expanded rapidly, causing the inventory scale to increase correspondingly. In addition, amounts of operating receivables such as notes receivable and accounts receivable financing increased.

Since the company’s main business specialty optical fibers have a fast update cycle, the market also places great importance on the company’s R&D investment.

During the reporting period, the company’s R&D expense ratio was 15.08%, 14.71%, and 13.95% respectively. At the end of each period in the reporting period, the number of R&D personnel was 29, 37, and 46 respectively, and R&D personnel as a proportion were 15.51%, 17.37%, and 18.11% respectively.

3

The second-largest shareholder is also a major customer; another mysterious shareholder “times the entry” and makes a 30x profit

In this IPO, the company plans to raise 780 million yuan, of which 680 million yuan will be used to invest in a high-performance specialty optical fiber production base and R&D center, and 100 million yuan will be used to supplement working capital.

During each period in the reporting period, the company’s production capacity utilization rates for its specialty optical fiber products were 99.04%, 99.26%, and 96.74% respectively, with capacity utilization close to saturation.

As of the end of each period in the reporting period, Changjin Photonics’ cash and cash equivalents at the end of the period were 33.1316 million yuan, 31.3006 million yuan, and 92.8M yuan respectively. Monetary funds were 38.1316 million yuan, 38.9088 million yuan, and 101 million yuan respectively. Over the past three years, the company’s recorded cash and funds have shown a recovery trend.

It is worth mentioning that as of the end of each period in the reporting period, the company’s asset-liability ratio (consolidated) was 19.7%, 18.6%, and 29.08% respectively, showing an upward trend. The company attributes the increase in the asset-liability ratio at the end of 2025 to new payable equipment payments, long-term borrowings, and other items incurred by the company for constructing the high-performance specialty optical fiber production base and the R&D center.

From 2023 to 2025, the company’s accounts payable were 12.8541 million yuan, 12.2551 million yuan, and 83.0957 million yuan respectively. In 2025, the company recorded 92.8555 million yuan in long-term borrowings.

Regarding the equity structure, as of the date the prospectus was signed, Li Jinyan is the executive affairs partner of Changhe Xin, Zhiyuan No. 1, and Zhiyuan No. 2. Through Changhe Xin, Zhiyuan No. 1, and Zhiyuan No. 2, Li Jinyan indirectly holds 17.95% of the company’s equity. In total, through Changhe Xin, Zhiyuan No. 1, and Zhiyuan No. 2, they control 35.84% of the company’s voting rights.

In August 2022, Li Jinyan and the company’s director and general manager Liu Changbo signed a 《Consistent Action Agreement》. Therefore, Li Jinyan, together with Changhe Xin, Zhiyuan No. 1, and Zhiyuan No. 2, and the Consistent Action Agreement, jointly controls 43.12% of the company’s voting rights.

The outside world has noted that in May 2020, JEPTe increased its capital and invested in Changjin Photonics. As of the end of the reporting period, it held 12.24% of the company’s shares, making it the second-largest shareholder, and it is also a related party of the company.

During the reporting period, the company’s revenue from selling specialty optical fibers and a small amount of components to JEPTe was 14.9468 million yuan, 17.7882 million yuan, and 23.6414 million yuan respectively, accounting for 10.34%, 9.28%, and 9.58% of operating revenue for the period respectively.

During the reporting period, the company’s purchases of laser oscillators and optoelectronic components from JEPTe were 0.67 thousand yuan, 11.30 thousand yuan, and 7.65 thousand yuan respectively, accounting for 0.02%, 0.19%, and 0.09% of operating costs for the period respectively.

Related-party transactions with major shareholders have also attracted multiple rounds of attention from regulators. In the first round of audit inquiry letters, the Shanghai Stock Exchange requested that Changjin Photonics explain: whether JEPTe’s investment is a circumstance that requires confirming share-based payments; whether the investment and the purchases are part of a package arrangement; and the reasons why the gross margin from the company’s sales to JEPTe is lower than that to other laser oscillator manufacturers, among others.

In response, Changjin Photonics stated: During the reporting period, the company’s sales revenue to JEPTe fluctuated, and the changes in sales revenue were mainly affected by changes in JEPTe’s own demand. Over the past three years, the company’s gross margin on sales to JEPTe has shown a downward trend, mainly because competition in the fiber laser oscillator market has intensified, JEPTe has a need to reduce costs, and therefore the company’s overall sales price to JEPTe declined.

In addition, Director Wu Jianke of Changjin Photonics has served as Vice General Manager and Secretary to the Board of JEPTe from April 2016 to the present, which constitutes a case of “concurrent appointment.”

Well-known attorney Fu Jian, the director of Henan Zejin Law Firm, believes that, according to the 《Measures for the Registration Administration of Public Offerings of Stocks on the Science and Technology Innovation Board for the First Time》, Article 12: the issuer’s business is complete and it has the ability to operate independently and continuously with direct facing of the market. (1) Asset integrity. The business, personnel, and finances, institutions are independent, and there is no industry competition that constitutes a material unfavorable impact on the issuer between the issuer and the controlling shareholder, actual controller, and other enterprises controlled by them. There are no related-party transactions that seriously impair independence or are manifestly unfair. (2) The issuer’s principal business, control rights, management team, and core technical personnel are stable. Over the past 2 years, the principal business, directors, senior management, and core technical personnel have not undergone any major unfavorable changes. The equity of the shares of the issuer held by controlling shareholders, shareholders under the control, and shareholders controlled by the actual controller is clearly defined. Over the past 2 years, there has been no change in the actual controller. There are no major ownership disputes that could lead to a possible change in control rights. At the same time, pursuant to the 《Company Law》, directors and senior executives owe the company fiduciary duties and must not, without the consent of the shareholders’ meeting, operate the same or similar businesses on their own or for others. Wu Jianke’s concurrent appointment has violated the above obligations; without rectification, it may cause Changjin Photonics’ IPO to fail. He needs to resign from the position on one side.

Not only that, external parties also commonly question that a mysterious shareholder “timed the entry” and rapidly made a 30x profit.

According to materials, in January 2019, Changjin Photonics was still in its early development stage, and its pre-investment valuation was only 12.75 million yuan. Li Yaogang entered at a price of 4.75 yuan per registered capital unit, catching the company’s low point in valuation. In May 2020, he additionally became a director of the company; only 8 months later, in January 2021, he quickly resigned from his director position and returned to the identity of a financial investor.

After resigning, Li Yaogang’s “doubling” cash-out began in earnest: in December 2023, he transferred shares to Nanjing Lianchuang at a price of 22.54 yuan per share, bringing in about 15 million yuan in cash; in May 2025, he transferred shares to Dianheng Venture Capital again at a price of 25.62 yuan per share, further locking in gains.

As of now, Li Yaogang has cashed out nearly 20 million yuan in total, and still holds 1.5489 million shares in his hands (2.20%), corresponding to an accounting value of about 40 million yuan. Compared with his investment cost of about 1.9 million yuan, his investment return rate is as high as 30x.

On internal control, in July 2012, when Changjin Limited was established, the registered capital was 1.00 million yuan. Wang Shanzhen subscribed in cash for 0.50 million yuan, and Liu Changbo subscribed in cash for 0.50 million yuan. Of the 0.50 million yuan of registered capital subscribed by Wang Shanzhen, 0.40 million yuan was held on behalf of Li Jinyan, and 0.10 million yuan was held on behalf of Li Haifeng. Of the 0.50 million yuan of registered capital subscribed by Liu Changbo for Changjin Limited, 0.10 million yuan was held on behalf of Li Jinyan. The reasons for holding shares on behalf were mainly that Li Jinyan and Li Haifeng, due to their on-campus positions, entrusted Wang Shanzhen and Liu Changbo to hold the equity of Changjin Limited on their behalf.

Between 2022 and 2023, Changjin Photonics and its controlling shareholder and actual controller signed related agreements, including other special right arrangements such as valuation adjustment (bet) clauses. Changjin Photonics stated: as of the end of the reporting period, the company has entered into supplemental agreements with the shareholders enjoying special rights, stipulating that the provisions regarding such shareholders’ special rights will terminate as of the date of signing of the supplemental agreements, and that under any reason or condition, the legal effectiveness of the special rights provisions that are stated not to be restored shall not be reinstated again. (Produced by Harbor Finance)