Special Explanation on Financial Accounting Issues
RSM China (Special General Partnership)
Beijing, China
1. Inquiry Letter Overview
On January 21, 2026, Jiangyin Electric Alloy Co., Ltd. (hereinafter referred to as "Electric Alloy," "Issuer," or "Company") received an inquiry letter from the Shenzhen Stock Exchange regarding its application to issue convertible bonds to unspecified objects (Inquiry Letter [2026] 020003). RSM China (Special General Partnership) (hereinafter referred to as "Reporting Accountant" or "we") has conducted a thorough review of the issues raised in the inquiry letter that require clarification or opinion from the reporting accountant. In this explanation, any discrepancies between totals and individual item values are due to rounding. Unless otherwise specified, the abbreviations or definitions in this response report are consistent with those in the prospectus.
2. Financial Overview
2.1 Revenue and Cash Flow
The reporting materials indicate that during the reporting period, the issuer's main business revenues were 208,943.68 million yuan, 234,848.93 million yuan, 253,657.70 million yuan, and 227,601.69 million yuan, respectively. Other business revenues were 3,742.12 million yuan, 4,393.30 million yuan, 5,616.60 million yuan, and 1,742.29 million yuan, primarily from material sales. The net cash flow from operating activities was 12,363.10 million yuan, 15,790.19 million yuan, -2,592.31 million yuan, and 5,328.57 million yuan, indicating a negative cash flow in 2024 despite revenue growth.
2.2 Gross Profit Margins
During the reporting period, the gross profit margins for the issuer's railway contact line products were 19.44%, 19.14%, 13.66%, and 16.34%, while the margins for railway bearing wire products were 9.16%, 14.76%, 9.63%, and 9.74%. The gross profit margins for high-voltage connectors for new energy vehicles were 16.65%, 12.84%, 19.02%, and 20.90%. The sales to the top five customers accounted for 55.97%, 54.38%, 53.08%, and 58.78% of total revenue, indicating a high concentration of customers.
2.3 Accounts Receivable and Inventory
At the end of each reporting period, the book value of accounts receivable was 52,944.72 million yuan, 58,694.00 million yuan, 73,425.47 million yuan, and 85,105.41 million yuan, with accounts receivable turnover rates of 3.69, 3.97, 3.66, and 3.61, respectively. The industry average turnover rates were 16.16, 15.75, 14.52, and 12.56. The book value of inventory was 36,697.73 million yuan, 30,886.62 million yuan, 39,640.87 million yuan, and 44,116.44 million yuan, accounting for 17.25%, 12.91%, 15.29%, and 14.43% of total revenue. The company faces significant risks of inventory impairment due to potential customer defaults and falling copper prices.
3. Additional Explanations Required
The issuer is requested to provide additional explanations on the following matters:
- The reasons and rationality for the sustained growth in operating revenue during the reporting period, considering industry trends, competitive position, core product competitiveness, and sales models.
- The reasons for the significant decline in net cash flow from operating activities and the effectiveness of measures taken to address this issue.
- The analysis of gross profit margin fluctuations for specific products and their sustainability.
- The reasons for the high concentration of major customers and the stability of these relationships.
- The basic situation of major suppliers and the reasons for the high concentration of suppliers.
- The credit policies of major customers and the adequacy of bad debt provisions.
- The reasons for the significant proportion of inventory in relation to revenue and the measures taken to mitigate risks associated with falling copper prices.
- The company's plans for expanding overseas markets and the impact of trade policies.
- The rationale for not classifying certain derivative financial assets as financial investments.
- The background and execution procedures related to performance commitments during the transfer of control.
4. Conclusion
The issuer is required to disclose the risks associated with the above matters. The sponsor and accountant should verify and express clear opinions, while the issuer's lawyer should verify specific points and provide clear opinions.