In-Depth Analysis of Gao Te Electronics' Pre-IPO Valuation and Inventory Issues

Based on collected public information and data, I conducted a systematic analysis of the changes in Gao Te Electronics’ pre-IPO valuation and inventory turnover issues:

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Time Node	Valuation (RMB 100 million)	Change from Previous	Growth Rate
April 2023	20.00	—	—
July 2023	25.00	+5.00	+25.0%
September 2023	27.08	+2.08	+8.3%
March 2025	43.27	+16.19	+59.8%

• From April 2023 to March 2025, valuation surged from RMB 2.0 billion to RMB 4.327 billion,
  an increase of RMB 2.327 billion over two years, representing a 116.4% growth rate
  [1]
• However, performance growth over the same period: revenue increased from RMB 346 million to RMB 919 million (+165.6%), and net profit rose from RMB 54 million to RMB 98 million (+81.5%)[2]
• Valuation growth rate (116%) far outpaces net profit growth rate (81.5%), posing an overvaluation risk

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Indicator	2021	2023	Industry Normal Level
Inventory Turnover Ratio	5.78x	2.45x	3-6x
Inventory Turnover Days	~63 days	~149 days	60-120 days
Proportion of Consigned Processing Materials in Inventory	33.55%	47.07%	—

1. Sharp Decline in Inventory Turnover Efficiency
   • Inventory turnover ratio plummeted from 5.78x in 2021 to 2.45x in 2023, a 57.6% decrease[3]
   • Based on this calculation, inventory turnover days are approximately 149 days, far exceeding the industry normal level

2. Abnormal Inventory Structure
   • The book value of inventory at the end of each reporting period was RMB 134 million, RMB 114 million, and RMB 98 million respectively,
     showing a year-on-year downward trend
     [3]
   • This is
     in stark contrast
     to the continuous double-digit expansion of revenue scale; theoretically, business growth should drive inventory up

3. Severe Inventory Age Issues
   • The proportion of inventory with an age of over 1 year has increased
   • Raw materials and finished goods with an age of over 1 year have increased significantly
   • The post-period transfer ratio is low and not covered by existing orders
   • This mainly involves early-model products, after-sales warranty spare parts, and inventory related to new energy vehicles and power businesses[4]

4. Risks Masked by the Specificity of the Production Model
   • The company uses consigned processing for a large number of production links, and related work-in-progress is recorded as “consigned processing materials”
   • This model can reduce on-balance-sheet inventory pressure, but
     may mask real supply risks and inventory backlog issues
     [3]

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Risk Indicator	Data Performance	Risk Rating
Valuation/Performance Matching Degree	116% valuation growth vs. 81.5% net profit growth	⚠️ High Risk
Inventory Turnover Efficiency	149-261 days vs. industry 60-120 days	🔴 Severe Abnormality
Accounts Receivable Proportion	53-59% vs. industry 20-30%	⚠️ High Risk
Gross Margin Change	28.37%→22.02%, a decrease of 6.35 percentage points	⚠️ Continuous Deterioration
Operating Cash Flow	Negative for 2022-2023 consecutive years	⚠️ Cash Pressure
Deterioration of Accounts Receivable Age Structure	Over-1-year accounts receivable increased from RMB 57.01 million to RMB 243 million	🔴 Rapid Deterioration

1. Overvaluation Risk
   • Valuation growth far outpaces performance growth, overdraining future expectations
   • If performance growth slows down, the valuation bubble may burst

2. Inventory Backlog Risk
   • Excessively long inventory turnover days may indicate:
     • Goods shipped but revenue not recognized for a long time
     • Increase in the proportion of slow-moving inventory
     • Risk of product unsalable or obsolescence[3]

3. Accounts Receivable Risk
   • Over 50% of annual revenue is recorded as accounts receivable
   • Over-1-year accounts receivable surged by 325% (from RMB 57.01 million to RMB 243 million)
   • Bad debt risk has increased significantly[3]

4. Cash Flow Pressure
   • Severe divergence between profits and cash flow
   • Operating cash flow has been negative for consecutive years 2022-2023
   • Relies on external financing to maintain operations[3]

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According to the second-round review inquiry letter, the SZSE focuses on the following:[4]

1. Sustainability of Performance Growth
   • Impact of the cancellation of the mandatory new energy storage allocation policy on the business
   • Impact of product price competition on profitability

2. Inventory Issues
   • Reasons for the growth of inventory with an age of over 1 year
   • Reasons for the low post-period transfer ratio
   • Whether there is inventory that is obsolete or no longer valuable

3. Accounts Receivable Risks
   • Reasons for slow post-period payments from customers
   • Whether bad debt provision is sufficient
   • Whether there have been adverse changes in customer credit

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Based on the above analysis, Gao Te Electronics does have certain elements of “inflated performance” (i.e., “water” in performance):

1. ✅
   Valuation Inflation
   : Valuation growth far outpaces performance growth, with the issue of overdraining future expectations
2. ✅
   Inventory Inflation
   : Sharp decline in inventory turnover efficiency, abnormal inventory structure, and high inventory backlog risk
3. ✅
   Accounts Receivable Inflation
   : Excessively high proportion of accounts receivable, deteriorated age structure, and significant bad debt risk
4. ⚠️
   Cash Flow Inflation
   : Long-term negative operating cash flow, with profits unable to be converted into real cash

• High Short-Term Risk
  : It is recommended that investors pay attention to the risk of valuation correction after the IPO
• Long-Term Observation Needed
  : If the company can improve inventory turnover and accounts receivable management, its fundamentals may gradually improve
• Close Monitoring Required
  : Subsequent responses to inquiry letters and regulatory review opinions

[1] Gao Te Electronics Prospectus (Draft Submission) - Valuation Change Data
[2] Touzijie (Investment Circle) - Gao Te Electronics IPO Report - Financial Data
[3] East Money - In-Depth Analysis of Gao Te Electronics’ IPO
[4] Shenzhen Stock Exchange - Gao Te Electronics’ Response to the Second-Round Review Inquiry Letter