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Shenzhen Stock Exchange:
In accordance with the requirements of the "Audit Inquiry Letter Regarding the Application of Shandong Longhua New Material Co., Ltd. for Issuing Convertible Corporate Bonds to Unspecified Targets" (Audit Letter [2026] No. 020029) (hereinafter referred to as the "Inquiry Letter") issued by your exchange on April 13, 2026, Rongcheng Certified Public Accountants (LLP) (hereinafter referred to as "we") have conducted a thorough review of the issues raised in the Inquiry Letter that require explanation or opinions from accountants. We hereby provide this special explanation as follows:
(The financial statements of Shandong Longhua New Material Co., Ltd. (hereinafter referred to as Longhua New Material, the Issuer, or the Company) for the years 2022, 2023, 2024, and 2025 have been audited by us, while the financial data for January to March 2026 is unaudited.)
- Question One
During the reporting periods, the Company's operating income was 3,167.8411 million yuan, 5,021.0123 million yuan, 5,623.9620 million yuan, and 4,455.0872 million yuan, respectively; net profits were 126.9756 million yuan, 248.0295 million yuan, 171.3801 million yuan, and 100.3846 million yuan, respectively, showing a downward trend since 2023; the gross profit margin of the main business was 6.55%, 7.38%, 3.84%, and 4.01%, respectively, with the gross profit margin being relatively low in the last year and one period. During the reporting periods, the net cash flow generated from the Company's operating activities was 212.0184 million yuan, 236.7085 million yuan, 78.7740 million yuan, and 34.0283 million yuan, respectively. During the reporting period, the Company's raw material procurement accounted for a high proportion, and the upstream raw material suppliers were all large petrochemical groups, with the procurement proportion of the top five suppliers exceeding 50% during the reporting period.
At the end of each reporting period, the book value of the Company's accounts receivable was 35.0525 million yuan, 58.1216 million yuan, 76.7928 million yuan, and 163.1690 million yuan, respectively. The increase in the balance in the most recent period was mainly due to the increase in sales of newly developed amino-terminated polyether products; the balance of prepayments was 12.7928 million yuan, 62.7688 million yuan, 85.7180 million yuan, and 183.6348 million yuan, respectively; the book value of the Company's inventory was 195.4208 million yuan, 251.6284 million yuan, 357.2910 million yuan, and 415.9937 million yuan, respectively, accounting for 18.15%, 18.00%, 21.25%, and 21.95% of current assets.