Yongsheng Advanced Materials Company Limited

Basis of preparation. IFRS; RMB. FY2018 and FY2019 figures are "as reported" in the 2019 Annual Report (FY2018 headline total revenue includes PFY; continuing-basis values given separately). FY2020 and FY2021 are from the FY2021 results announcement (FY2021 as originally reported, before RMAA re-presentation). FY2022 is from the FY2022 results announcement. Operating income is not presented as a line item in the company's IFRS income statement; EBIT below is analyst-derived as profit before tax plus finance costs expensed. Blank cells denote data not disclosed in the primary documents reviewed.

Income statement

Notes: FY2020 adjusted EBITDA excludes the RMB0.4m fair-value gain on investment properties. FY2021 adjustments: RMB151.8m impairment of goodwill and intangibles plus RMB104.7m investment-property fair-value loss. FY2022 adjustments (continuing): RMB70.4m remeasurement loss on transfer of properties held for sale plus RMB20.3m fair-value loss. FY2021 EBIT/EBITDA use the originally reported consolidated income statement. FY2022 EBIT/EBITDA are continuing operations only (D&A RMB9.5m). DPS: FY2018 3.3 interim + 2.2 final; FY2019 2.0 + 3.0; FY2020 1.5 + 2.0; FY2021 1.0 interim, nil final; FY2022 nil (2019 AR; FY2021 and FY2022 results). H1 2023: revenue RMB119.8m, GP RMB43.8m, PBT RMB22.7m, profit RMB16.3m, attributable RMB18.4m, basic EPS RMB2.6 cents, no interim dividend.

Margins

FY2021 restated continuing gross margin (ex-RMAA) was 35.5% per the FY2022 results. H1 2023 continuing gross margin 36.6%; net margin (attributable) 15.4%.

Growth

Commentary — income statement. The five-year arc has three distinct phases. Phase 1 (FY2018–FY2019): integrated textile group. Reported revenue of RMB680m–982m was dominated by low-margin PFY spinning (14–21% GM); profits of RMB81–114m were respectable, and FY2019 included RMB84.0m profit from discontinued operations in the year the PFY assets were sold to the controlling shareholder. Phase 2 (FY2020–FY2021): diversified holding. With PFY gone, revenue reset to RMB362m in FY2020, half from Hong Kong RMAA contracting, and profit of RMB72.7m. COVID-19 then devastated HK RMAA (revenue -65.3% in FY2021, gross loss), forcing a RMB151.8m write-off of the goodwill and "Widely" brand acquired for HK$206m only two years earlier, while Yongsheng Plaza's first valuation on completion cost RMB104.7m. The headline FY2021 loss of RMB245.3m compares with management's adjusted profit of RMB11.1m. Phase 3 (FY2022–H1 2023): dyeing plus landlord. RMAA was sold for RMB29.5m; Plaza rents ramped (property revenue RMB5.8m → RMB32.9m); but dyeing gross margin collapsed to 22.2% on input-cost inflation and export-order leakage to Southeast Asia, and the reclassification of unsold Plaza units into investment property crystallised a further RMB70.4m loss. H1 2023 showed genuine operational recovery (profit RMB18.4m, dyeing GM back to 29.9%), which coincided with the founder's offer.

Balance sheet

Sources: 2019 AR (FY2018–FY2019 summary balance sheet; FY2018/FY2019 borrowings are "total bank borrowings"); FY2021 results (FY2020–FY2021); FY2022 results (FY2022). Goodwill at 1 January 2020 was RMB105.9m. Investment properties at 1 January 2020 were RMB654.7m. 30 June 2023: total assets RMB1,483.8m; cash RMB146.0m; borrowings RMB125.7m current + RMB114.8m non-current = RMB240.4m; total equity RMB1,124.2m; attributable equity RMB1,123.5m; investment properties RMB809.6m.

Quasi-liquid assets (not in cash above): loan receivables RMB116.5m (FY2020), RMB158.4m (FY2021), RMB139.5m (FY2022), RMB86.5m (H1 2023); financial assets at FVTPL RMB199.1m (FY2020), RMB48.6m (FY2021), RMB25.5m (FY2022), RMB27.0m (H1 2023). Including these, the group was in a net cash position in every year.

From FY2020 the balance sheet became property-heavy: investment properties were ~56% of total assets at end-FY2022. Bank debt (secured on the Plaza at 4.2–6.6%) rose to fund construction and was being amortised from FY2022. The FY2022 drop in working capital reflects reclassification of RMB225.6m of completed properties held for sale into non-current investment property, not a liquidity squeeze; nonetheless the current ratio fell to 1.81x by June 2023 as RMB60m of Plaza-loan instalments moved into current liabilities.

Cash flow

Sources: 2019 AR (FY2018–FY2019 cash flows); FY2021 results; FY2022 results. Capex per segment notes includes additions to PP&E, investment properties and prepayments for PP&E/leasehold land (FY2020–FY2021) and PP&E only (FY2022). Dividends paid in cash in each year were not separately extracted; "declared for the year" amounts are shown.

Commentary — cash flow. OCF collapsed in FY2020 (RMB2.0m) as the RMAA business absorbed working capital and dyeing customers paid in bills; recovery to RMB55.3m in FY2022 was driven by Plaza rents. Free cash flow was heavily negative in FY2020–FY2021 because of Plaza completion and environmental-project spending (Maanshan land RMB78.2m), funded by new bank loans and the run-down of wealth-management products (FVTPL assets fell from RMB199.1m to RMB48.6m in FY2021). FY2022 investing inflow came from RMAA disposal proceeds and loan repayments.

Ratios

Methodology notes: ROE/ROA use simple averages of opening and closing balances; FY2019 ROE uses total equity. ROIC = adjusted EBIT × (1 – tax rate ~20–25%) / (equity + borrowings – cash). Interest coverage on gross interest (before capitalisation) would be 9.5x (FY2020), 1.5x (FY2021) and 2.9x (FY2022). Cash conversion cycle = DIO + DSO – DPO using year-end inventories, trade/bills receivables and trade payables against cost of sales/revenue; trade payables include construction-related payables, which overstate DPO. Source discrepancy: the FY2021 results announcement stated a FY2021 debt-to-equity ratio of 0.33 (consistent with total liabilities/equity), while the FY2022 results announcement restated the FY2021 comparative as 0.20 on the defined basis of total borrowings over attributable equity; analyst recomputation (237.2/1,160.3 = 0.20) supports 0.20. Aggregator Alpha Spread showed a last ROIC of 3.7%, broadly consistent with the analyst estimate.

Commentary — ratios. Returns were structurally low after 2019: the Plaza tied up ~RMB800m of capital yielding a gross rental return of ~4% before costs and financing, and the dyeing mill earned RMB20–43m of segment profit on ~RMB480–560m of segment assets. Leverage was modest and liquidity ample (with loan receivables and wealth products, net cash), so the investment case on exit was one of asset value versus low return on equity — classic territory for a minority-squeezing privatisation at a discount to NAV.

Management guidance (last available, Aug 2023)

Management expected export orders to turn around in 2H 2023 as US brands completed destocking, planned to expand domestic home-textile sales to lift utilisation, anticipated stable rent from Yongsheng Plaza while noting that Hangzhou's property market weakened again in early 2H 2023, and committed to monitoring environmental/water policy in China and Southeast Asia. No quantitative guidance was given, and there has been no consensus estimate (zero analyst coverage).

Bull case (for the private entity / any creditor or counterparty)

1. Asset backing exceeds the take-private price by a wide margin: NAV of RMB1,124m vs offer equity value of ~RMB652m; Plaza alone carried at RMB809.6m.

2. Operating recovery was already visible: H1 2023 profit +64%, dyeing GM +5 points, rent up 36% YoY — and the 2026 polyester-chain restocking narrative could extend this.

3. Liquidity cushion: ~RMB260m of cash, loans and liquid investments versus ~RMB240m of secured debt (Jun 2023).

Bear case

1. Structural margin pressure in commission dyeing (22–30% GM vs 44% in FY2018) amid export migration to Southeast Asia.

2. Hangzhou office oversupply threatens further valuation cuts and rent erosion on an asset that is ~56% of total assets.

3. Capital-allocation track record: a fully written-off acquisition, three years of pre-revenue environmental spending, and related-party transactions favouring the controlling shareholder.

Catalysts and monitorables (next 12 months)

• Any re-emergence of the entity or assets in public markets (bond issuance, asset sale, re-listing) — none signalled.

• Hangzhou Xiaoshan Grade-A office rent and vacancy trends (proxy for Plaza value).

• Polyester filament/fabric sector margins (Tongkun, Hengyi, Xin Fengming disclosures) and listed dyeing peer Hangmin's FY2026 results as read-across for Yongsheng Dyeing.

• Status of the Malaysian water-supply project and Maanshan licensing.

• PRC environmental-enforcement campaigns in Zhejiang dyeing parks.

• Corporate-registry (Qichacha/SAMR) changes at Hangzhou Huvis Yongsheng Dyeing and Hangzhou Yonghao (ownership, pledges, litigation) — the only practical transparency channel post-delisting.

Analyst verdict

Yongsheng Advanced Materials is best understood not as a going investment case but as a completed corporate story: a founder-controlled Xiaoshan textile group that used its 2013 Hong Kong listing as a holding shell, recycled businesses in and out through related-party transactions, and — once the shares traded at under 0.4x book and offered no fundraising utility — took the company private at a price that was generous relative to the market (58.7% premium) but parsimonious relative to reported net assets (~42% discount to NAV per share). Minority shareholders accepted overwhelmingly (98.8%), reflecting years of illiquidity and earnings disappointment rather than a fair-value judgement.

On the fundamentals visible in the last filings, the business had stabilised into two modest, cash-generative cores. The dyeing mill earns roughly RMB20–40m a year of segment profit, is technically credentialled and environmentally compliant, but is sub-scale, commoditised and exposed to export erosion. Yongsheng Plaza delivers RMB30–35m of high-margin rent but remains a low-yield, valuation-sensitive asset in an oversupplied Hangzhou office market. The environmental "blue ocean" never produced revenue during the listed period, and the HK RMAA foray destroyed most of its HK$206m purchase price within three years.

For any stakeholder still assessing the entity in 2026 — lenders, landlords, suppliers, or acquirers of assets — the key issue is opacity: there have been no financial disclosures since June 2023. The last data point suggested a solvent, lowly levered group with improving operations and meaningful hard-asset cover, but the subsequent two-and-a-half years spanned further Chinese property weakness and volatile textile demand. Absent fresh information, the appropriate stance is cautious: asset-backed but low-return, governance-dependent on a single controlling family, and unverifiable since delisting. It is not investable through public markets, and any private engagement should be preceded by updated audited accounts and registry-level due diligence.