Risk Analysis of 67% Inventory Growth at Well High (301251)

Jiangxi Well High Electronics Co., Ltd. is an enterprise focusing on the R&D, production, and sales of printed circuit boards (PCBs), and was listed on the STAR Market of the Shenzhen Stock Exchange in September 2023 [1]. The company’s main products include double-sided boards and multi-layer boards, which are widely used in fields such as industrial control, display devices, and consumer electronics. Its downstream customers include well-known enterprises such as Schneider, Delta Electronics, Samsung Electronics, TPV Technology, and TP-Link [2].

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According to data from research institutions, Well High’s inventory scale has reached

, representing a year-on-year increase of [3]. Looking at historical data, the company’s inventory has shown a continuous upward trend:

Time Point	Carrying Value of Inventory	Proportion of Current Assets	Change
End of 2020	RMB 86.51 million	27.28%	-
End of 2021	RMB 128.15 million	30.27%	+48.13%
End of 2022	RMB 220.53 million	32.53%	+72.08%
2024	Approximately RMB 369 million	Approximately 35%+	+67%

The significant growth in inventory is mainly due to the continuous expansion of the company’s production scale and the increase in raw material reserves prepared to meet order demand.

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Well High clearly disclosed inventory management risks in its prospectus [2]:

“As the company’s production scale continues to expand, the inventory balance may further increase in the future, which will affect the company’s capital turnover speed and cash flow from operating activities. In addition, if adverse changes occur in the downstream industry or products become unsalable or returned, the company will face the risk of inventory backlog and price decline, which will have a negative impact on the company’s operating performance and financial condition.”

• Unsaleable Inventory Goods
  : PCB products have a fast update cycle, and technological iteration may lead to obsolescence of inventory products
• Price Decline of Raw Materials
  : Fluctuations in the prices of bulk commodities such as copper and gold directly affect the value of raw materials
• Impairment of Long-term Inventory
  : If inventory has been held for too long, its net realizable value will drop significantly

The 67% significant growth in inventory has a notable impact on the company’s cash flow:

Financial Indicator	Impact Analysis
Working Capital Occupancy	The RMB 369 million inventory occupies a large amount of working capital, reducing capital use efficiency
Cash Flow Tension	The inventory realization cycle is prolonged, affecting the net cash flow from operating activities
Rising Financial Costs	To maintain the funds occupied by inventory, the company may increase borrowings, leading to an increase in financial expenses

According to the company’s 2025 semi-annual report, the net cash flow from operating activities is

, representing a year-on-year decrease of 271.81% [4], with the increase in inventory being one of the important reasons.

Well High’s inventory growth is based on optimistic expectations for downstream demand, but there are the following uncertainties:

• High Customer Concentration
  : The top five customers account for 61.18% of sales [2]; if orders from major customers decrease, it will directly lead to inventory backlog
• Downstream Industry Cycles
  : Industries such as consumer electronics and industrial control have cyclical fluctuations
• Impact of Trade Frictions
  : The company’s export business accounts for approximately 46.51% of its total business, and changes in international trade policies may affect demand

The significant growth in inventory may be related to the following factors, which in turn affect the gross margin:

• Capacity Expansion
  : To digest new production capacity, the company may accept orders with lower gross margins
• Increase in Inventory Goods
  : If the proportion of inventory goods is too high, the company may face pressure to cut prices for promotions
• Lag in Passing on Raw Material Costs
  : Increases in raw material prices cannot be immediately passed on to product prices

The company’s gross margin has fluctuated significantly in history (it dropped to 14.77% in 2021), and inventory growth may exacerbate this risk [2].

The inventory turnover rate is a key indicator for measuring enterprise operational efficiency. According to industry comparative analysis:

Indicator	Well High	Industry Average	Risk Assessment
Inventory Turnover Rate	Downward Trend	Relatively Stable	Caution
Inventory Turnover Days	Prolonged	Approximately 60-90 Days	May Exceed 120 Days

A declining inventory turnover rate means:

• The speed of converting inventory into revenue slows down
• The capital recovery cycle is prolonged
• Operational efficiency decreases

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According to the prospectus and public information, the company has adopted the following measures to address inventory risks:

1. Strengthen Inventory Management
   : Establish a safety stock mechanism and optimize procurement plans
2. Match Customer Orders
   : Arrange production based on customer orders to reduce blind stockpiling
3. Inventory Impairment Testing
   : Conduct regular tests of the net realizable value of inventory and make provision for impairment
4. Expand Sales Channels
   : Develop new customers to diversify demand risks

Indicator to Monitor	Warning Sign	Recommended Measures
Absolute Inventory Value	Continuous Significant Growth	Monitor whether the reasons for growth are sustainable
Inventory Structure	High Proportion of Inventory Goods	Be alert to the risk of unsaleable goods
Inventory Turnover Rate	Continuous Decline	Evaluate changes in operational efficiency
Cash Flow	Negative Operating Cash Flow	Monitor the safety of the capital chain

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• If inventory turnover continues to deteriorate, it may trigger market concerns about the company’s operating quality
• The provision for inventory impairment will directly affect current net profit
• Capital pressure may lead the company to cut R&D or capacity expansion investment

• If downstream customer demand falls short of expectations, it may lead to further inventory backlog
• Industry overcapacity may trigger price wars, affecting the company’s gross margin
• The risk of accounts receivable collection and inventory risk may form a “double blow”

• Technological iteration may lead to the complete loss of value for some inventory
• Intensified industry competition may compress the company’s living space
• If demand is insufficient after capacity expansion, the company will face losses from idle capacity

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Well High’s 67% inventory growth to RMB 369 million reflects the inventory management challenges faced by the company during its business expansion. While moderate inventory growth is a normal phenomenon in business development, such a significant increase warrants vigilance from investors.

1. Capital Occupancy Risk
   : The RMB 369 million inventory occupies a large amount of working capital, affecting capital use efficiency
2. Price Decline and Impairment Risk
   : Inventory backlog may lead to the provision for inventory impairment, affecting profits
3. Turnover Efficiency Risk
   : A declining inventory turnover rate reflects reduced operational efficiency
4. Demand Matching Risk
   : Inventory growth is based on optimistic expectations, and there is a risk that demand will fall short of expectations

• Closely monitor the company’s subsequent inventory turnover
• Pay attention to changes in inventory structure in annual and semi-annual reports
• Evaluate the rationality of inventory growth in combination with downstream customer orders
• It is recommended to maintain a cautious attitude until the inventory turnover rate stabilizes

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[1] P5W Roadshow - Special Topic on Well High (301251) IPO (https://rs.p5w.net/companyIpo/companyInfo.shtml?companyCode=301251)

[2] Prospectus of Jiangxi Well High Electronics Co., Ltd. (http://reportdocs.static.szse.cn/UpFiles/rasinfodisc1/202210/RAS_202210_000183F932CB153FE5D54A2DCA8A263F.pdf)

[3] Guotai Junan Securities Overseas Tracking Report on Textile and Apparel Industry (https://public.fxbaogao.com/report-image/2025/11/20/5157242-1.png)

[4] Well High: 2025 Semi-annual Report (http://money.finance.sina.com.cn/corp/view/vCB_AllBulletinDetail.php?stockid=301251&id=11360257)