Runhe Materials Convertible Bond Inquiry Letter Reply: Financial Data Matching and Fundraising Investment Necessity Approved by Accountants

Rongcheng Certified Public Accountants recently issued a special explanation regarding the inquiry letter on the review of Ningbo Runhe High-tech Materials Co., Ltd. (hereinafter referred to as “Runhe Materials”) for the issuance of convertible corporate bonds to unspecified objects. They conducted a detailed investigation and response on the company’s financial accounting issues. The investigation results show that the differences between cash flow from operating activities and net profit are reasonable, accounts receivable and fixed asset impairment provisions are sufficient, overseas income is genuine and sustainable, and the current financing is necessary and of a reasonable scale.

Analysis of Differences Between Operating Cash Flow and Net Profit

During the reporting periods, Runhe Materials’ net profits were 90.14 million yuan (2022), 82.21 million yuan (2023), 96.24 million yuan (2024), and 95.29 million yuan (Jan-Sept 2025). The net cash flow from operating activities was -5.07 million yuan, 154.77 million yuan, 52.61 million yuan, and 49.41 million yuan, respectively. There are some differences in the trend of these two figures.

The accountants pointed out that the differences are mainly caused by changes in working capital. The negative cash flow in 2022 was mainly due to payments of previous raw material payables, with notes payable decreasing by 101.82 million yuan compared to the beginning of the year. The improvement in cash flow in 2023 was due to reduced procurement expenses. In 2024 and Jan-Sept 2025, the changes were affected by increases in accounts receivable and decreases in accounts payable. After excluding the impact of working capital changes, the net cash flow from operating activities (excluding working capital) as a percentage of net profit remained between 131.77% and 161.47%, stable overall and consistent with the trend of net profit.

Compared with industry peers such as Tmall Zhijian and Demei Chemical, which also show fluctuations in cash flow and net profit, mainly due to differences in industry structure, customer base, and settlement cycles. Runhe Materials’ relevant indicators are within a reasonable industry range and comply with the “Registration Measures” regarding “having a reasonable asset-liability structure and normal cash flow.”

Sufficiency of Accounts Receivable and Fixed Asset Impairment Provisions

At the end of each reporting period, the accounts receivable balance of Runhe Materials continued to grow, from 254.36 million yuan at the end of 2022 to 385.54 million yuan at the end of September 2025, accounting for 21.51%-28.10% of operating income. This is mainly due to business expansion, matching revenue growth. The company implements a 30-90 day credit policy for major customers, with accounts receivable within one year accounting for over 94%. As of the end of February 2026, the collection rate for each period was between 87.70% and 96.22%. The provision for bad debts is consistent with comparable companies like Silicobond Technology, indicating sufficient provisions.

Regarding fixed assets, the book values at the end of each period were 458.76 million yuan, 446.39 million yuan, 422.50 million yuan, and 540.34 million yuan, respectively, accounting for over 72% of non-current assets. Capacity utilization and production-sales ratios are high; for example, in Jan-Sept 2025, the utilization rate of silicone deep-processing products reached 99.69%, and textile dyeing auxiliaries reached 104.36%. No impairment signs were found. Compared with industry peers, the scale of fixed assets aligns with capacity, output, and revenue, with consistent impairment policies, indicating low risk of large impairments in the future.

Authenticity and Sustainability of Overseas Income

Runhe Materials’ overseas income mainly comes from South Asia, the Middle East, and other regions, with export amounts of 269.72 million yuan, 283.25 million yuan, 383.27 million yuan, and 281.15 million yuan during the reporting periods, accounting for 23.01%-28.90% of main business revenue. Major customers have stable cooperation, with over three years of partnership, and the proportion of export revenue in the first nine months of 2025 was 20.76%.

The review shows that the company’s overseas income recognition methods comply with accounting standards. Customs declaration data differ from recorded income by only -0.66% to 0.03%. Export tax rebates match export income. To address risks from international trade and exchange rate fluctuations, the company has established mechanisms for monitoring tariffs, price transmission, and market diversification. The impact of US tariff adjustments in 2025 on the company is limited (US revenue accounts for a maximum of 3.95%). Exchange rate fluctuations have less than 0.15% impact on operating income, and foreign exchange gains account for up to 6.52% of total profit, indicating manageable risks.

Necessity and Reasonableness of the Current Financing

Based on available funds, asset-liability structure, and future capital needs, Runhe Materials estimates a capital gap of 437.21 million yuan over the next three years. The proposed issuance of 370 million yuan in convertible bonds is necessary. As of the end of September 2025, after issuance, the asset-liability ratio before conversion would increase from 25.95% to 38.86%, and after conversion, decrease to 21.42%, remaining within a reasonable range. The company’s average distributable profit over the past three years is 89.53 million yuan, enough to cover one year’s interest expenses, with healthy cash flow.

The previous fundraising projects, “35kt/a Organic Silicon New Material Project (Phase I)” and “8kt/a Organic Silicon Adhesives and Supporting Projects,” were completed in September and June 2025, respectively, and are currently ramping up production. In October 2025 to February 2026, they achieved net profits of 2.52 million yuan and 1.37 million yuan. The current fundraising project, “High-end Organic Silicon New Material Project,” will add fixed assets of 267.14 million yuan, with annual depreciation of 16.69 million yuan after reaching full capacity, accounting for about 2.20% of expected revenue, with minimal impact on performance.

The accountants believe that the scale of this financing is reasonable, and the company’s asset-liability structure and cash flow are good. All financial indicators meet the requirements for issuing convertible bonds. The company has also disclosed risks related to raw material price fluctuations, overseas income, fixed asset impairments, and financing.

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