New Tianli IPO: Degradable plastic production capacity utilization is only 20%, is the new 340 million yuan fundraising capacity hard to absorb?

Ask AI · How will the nationwide promotion of the plastic ban order impact the digestion of new fundraising capacity?

    "Electric Eel Finance" Electric Eel Account / Text

    On February 11th, Xintianli Technology Co., Ltd. ( hereinafter referred to as Xintianli ) successfully registered with the Beijing Stock Exchange for an IPO. The prospectus shows that Xintianli is a national-level specialized and innovative "Little Giant" enterprise and a leading company in China's thermoformed food container industry. The company's main products are plastic and paper food containers, covering downstream applications such as the food industry, catering, street drinks, and other scenarios. Relying on continuous technological innovation, high-quality product quality, and excellent customization capabilities, the company provides multi-scenario, comprehensive food container solutions for well-known food industrial companies and chain restaurant brands such as Xiangpiaopiao, Mixue Bingcheng, Yili, Mengniu Group, Xibei, and Nongfu Spring.

    "Electric Eel Finance" notes that according to the disclosure in the inquiry materials, demand from two major downstream customers is decreasing, coupled with the fact that the utilization rate of the entire industry's biodegradable plastic capacity is only about 20%. How will Xintianli's annual capacity of 36,000 tons of high-quality plastic food containers, funded by the recent fundraising, be absorbed in the future? Moreover, if the newly expanded capacity encounters the nationwide rollout of the "plastic ban," it will also impact the demand for the company's products. Additionally, in the first quarter of 2025, the gross profit margins of Xintianli's two core products both declined, and revenue growth has also slowed. Will the company's poor performance become the "norm"? Will the gross profit margin continue to decline?

Industry’s biodegradable plastic capacity utilization only 20% How to absorb 337 million yuan of new capacity?

    The prospectus shows that from 2022 to 2024 and January-June 2025 ( hereinafter referred to as the reporting period ), Xintianli's revenue from plastic food containers accounted for 93.15%, 95.11%, 96.3%, and 97.65%, respectively, while revenue from paper food containers accounted for 5.36%, 3.52%, 2.63%, and 1.79% during the same period.

    It can be seen that during the reporting period, more than 90% of Xintianli's revenue came from plastic food containers. For this IPO, Xintianli plans to raise 398 million yuan, of which 337 million yuan will be used for the capacity expansion project of 36,000 tons of high-quality plastic food containers annually, accounting for 85% of the total funds raised.

    The prospectus shows that this fundraising project will be implemented at the company's Taizhou factory, by building an intelligent production line for 36,000 tons of high-quality plastic food containers annually. Xintianli states that this project will further enhance the company's capacity and market share, fully leverage the advantages of large-scale production, and lay a solid foundation for the company's future growth and expansion.

    It is evident that Xintianli's new fundraising project will increase the company's future capacity for plastic food containers. However, it is worth noting that the utilization rate of the company's plastic food container capacity is not high, with reported figures of 83.38%, 97.43%, 91.04%, and 81.37%, showing an initial rise followed by a decline, while the capacity utilization rate of paper food containers was 17.2%, 17.45%, 13.88%, and 7.59%.

    The prospectus shows that at the end of each reporting period, Xintianli's inventory book value was 89.9015 million yuan, 118.0017 million yuan, 139.2756 million yuan, and 115.2842 million yuan, accounting for 8.88%, 12.29%, 13.36%, and 11.25% of total assets at each period's end, respectively, and 22.7%, 30.3%, 30.9%, and 26.54% of current assets.

    During the reporting period, the book value of Xintianli's inventory of goods was 44.9722 million yuan, 70.8149 million yuan, 92.0008 million yuan, and 72.720 million yuan, accounting for 50.02%, 60.01%, 66.06%, and 63.08% of current inventories.

    It can be seen that inventory of goods accounts for over 60% of Xintianli's inventories. How will the future capacity expansion be absorbed?

    Regarding the absorption prospects of Xintianli's new capacity, the second round of inquiry from the exchange continued to ask. Although Xintianli provided explanations, the reasons were not convincing enough.

    In the response to the second round of inquiry, Xintianli disclosed that the promotion of biodegradable products mainly relies on policy support, and the company's main products, plastic food containers, are not within the scope of the aforementioned "plastic restriction" policies. From the policy development perspective, the national policies tend to adopt a combination of "biodegradable" and "recyclable and easy to recover," reducing the risk of the company's products being completely replaced by a "one-size-fits-all" approach.

    However, according to data from Wang Jiangping, a member of the National Committee of the Chinese People's Political Consultative Conference and former Vice Minister of the Ministry of Industry and Information Technology, in an interview, in 2024, China's total capacity for biodegradable plastics will reach 1.96 million tons, with a production of only 400k tons. This indicates that in 2024, the utilization rate of China's biodegradable plastics industry capacity is only 20.4%.

    We cannot help but ask: given that the utilization rate of the entire biodegradable plastics industry is only about 20%, how will Xintianli absorb the additional capacity from the "annual production of 36,000 tons of high-quality plastic food containers" expansion project, which adds 21 thermoforming lines? After reaching full production, the capacity of plastic food containers is expected to increase by 48.82%.

    Under these circumstances, how will Xintianli's massive fundraising of 36,000 tons of high-quality plastic food containers annually be absorbed in the future?

    Moreover, it is worth noting that the industry's growth rate does not fully support Xintianli's capacity expansion. In 2024, China's soft drink market size will reach 1.2502 trillion yuan, with an expected steady growth at a compound annual growth rate (CAGR) of 6.9% from 2025 to 2029; from 2018 to 2022, China's dairy market grew at a CAGR of 5.44%, and is expected to approach a market size of 600 billion yuan by 2026. In 2023, China's plastic food container market size was 50.61 billion yuan, with a CAGR of 4.98% from 2023 to 2030, and is projected to reach 72.72M yuan by 2030.

    Xintianli states that the downstream markets mentioned above are growing relatively steadily, but it is worth noting that the growth rates of China's beverage market and food container market are only single digits. Can they support the company's new capacity expansion in the future?

    Additionally, demand from major downstream customers for Xintianli's products is also decreasing.

    According to Xintianli's disclosure in response to the second round of inquiry, since 2014, Xintianli has cooperated with Mixue Bingcheng, and the sales revenue of its plastic food containers increased from 229.0864 million yuan in 2022 to 280.2264 million yuan in 2024, with an average annual compound growth rate of 10.60%. However, in the first half of 2025, the company's sales to Mixue Bingcheng decreased by 34.9278 million yuan year-on-year, mainly due to customer procurement strategy adjustments. As a leading domestic chain tea beverage company, Mixue Bingcheng has developed a large-scale, complete end-to-end supply chain system. With the expansion of procurement volume, to further ensure the stable supply of packaging materials such as plastic cups, Mixue Bingcheng has adopted a decentralized procurement strategy, reducing its purchases of large single items like U-660-89 plastic cups and U-420P-89 plastic cups from the company. Therefore, Xintianli's sales to Mixue Bingcheng have declined under this decentralized procurement strategy.

    In 2023, Xintianli's sales of plastic food containers to Xibei decreased by 6.52% year-on-year, mainly because of the company's consideration of Xibei's previous dine-in difficulties, and the significant discounts on some bowl lid series during the renewal contract period from August 5, 2022, to August 4, 2023, which led to a decrease in sales price; in 2024 and the first half of 2025, sales to Xibei decreased by 13.97% and 13.86% year-on-year, mainly because Xibei adopted a strategy of shrinking fast food, cutting retail, and returning to its core complex Chinese cuisine business, leading to decreased demand for the company's products, with the unit prices moving in tandem with raw material price declines.

    From this, it is clear that downstream major customers Mixue Bingcheng and Xibei are both reducing demand for Xintianli's products, coupled with the industry's biodegradable plastic capacity utilization rate of only about 20%. How will the capacity of 36,000 tons of high-quality plastic food containers annually, funded by Xintianli's fundraising, be absorbed in the future?

The “strictest plastic ban” in Shanghai is about to take effect. This ban, jointly issued by the Shanghai Development and Reform Commission, the Municipal Ecology and Environment Bureau, the Market Supervision Administration, and the Commerce Commission, is no longer an environmental protection initiative but a mandatory industrial revolution. Its core goal is to completely eliminate all difficult-to-recycle, environmentally polluting “pseudo-environmental” disposable tableware from the market.

    The first to be affected by the "plastic ban" are the disposable tableware we use daily, such as paper coffee cups, beverage cups, and food boxes, whose inner plastic films are mostly PE-coated or difficult-to-recycle PLA coatings. These pseudo-environmental coatings are a nightmare for recycling systems, as they cannot be recycled as waste paper for re-pulping and can only be incinerated or landfilled. The new regulation clearly states that any product that hinders recycling will be eliminated. Violating companies face fines of up to 100k yuan and even suspension of business, and will be recorded in their credit records, affecting long-term development. The compliant and efficient way out is to embrace truly "recyclable" technologies.

    The Shanghai "strictest plastic ban" will soon be adopted by other provinces. The prospectus does not describe whether Xintianli's capacity of 36,000 tons of high-quality plastic food containers is biodegradable plastic. After the capacity expansion is put into production, will it encounter the nationwide rollout of the "plastic ban"? How will Xintianli's new capacity be absorbed?

Will the decline in gross profit margins of the two core products lead to a performance bottleneck?

    During the reporting period, Xintianli achieved operating revenues of 944 million yuan, 400k yuan, 1.101 billion yuan, and 536 million yuan, respectively, with net profits attributable to the parent company of 36.32 million yuan, 57.77 million yuan, 68.40 million yuan, and 42.57 million yuan.

    In the second round of inquiry responses, Xintianli disclosed that in the first half of 2025, it achieved operating revenue of 536 million yuan, with net profit attributable to the parent of 100k yuan. However, it is worth noting that in the first quarter of 2025, operating revenue was 242 million yuan, net profit was 13.89 million yuan, and net cash flow from operating activities was 741.7k yuan.

    Additionally, it is noteworthy that the revenue from plastic food containers was 232 million yuan, a decrease of 14.0174 million yuan compared to the same period last year. According to Xintianli, in the first quarter of 2025, the company's operating revenue decreased by 14.4808 million yuan year-on-year, mainly due to the decline in plastic food container revenue of 14.0174 million yuan.

    Does the decline in plastic food container revenue in the first quarter of 2025 indicate that the company's performance growth has reached a "bottleneck"? Can it recover in the future? There are concerns about the digestion of the company's new capacity.

    In the first quarter of 2025, the gross profit of Xintianli decreased by 7.6254 million yuan year-on-year. Among them, the gross profit margin of plastic food containers declined by 1.72 percentage points, from 19.22% in the same period last year to 17.5% this year.

    In response to the second round of inquiry, Xintianli stated that the main reasons for the change in gross profit margin of plastic food containers include the temporary decrease in revenue, the decline in capacity utilization rate in the first quarter of 2025, the scale effect reduction, and the product price decline caused by price adjustments for some large and high-growth customers in the second quarter of 2024.

    From January to March 2025, the gross profit of paper food containers decreased by 1.0201 million yuan year-on-year, mainly due to changes in customer structure and sales strategies affecting gross profit margins.

    Regarding the decline in gross profit margin of paper food containers, Xintianli explained that the company's relatively high gross profit margin of paper food containers, calculated by net method, led to a significant decrease in sales of paper food products for Xiangpiaopiao, with a year-on-year decrease of 1.7027 million yuan. The company's sales of paper food containers to Xiangpiaopiao accounted for 49.17% of its paper food container sales in the same period in 2024, dropping to 20.54% in the first quarter of 2025. Meanwhile, the company adopted low-price strategies for new customers with growth potential, such as Shizhu, Pacific Coffee, and Algebraist, to offset the impact of low prices on paper food containers, while also increasing sales of paper food containers to these customers and improving the company's own capacity utilization.

    From this, it is clear that in the first quarter of 2025, both of Xintianli's core products saw declining gross profit margins, and revenue growth was sluggish. Will the company's poor performance become the "norm"? Will gross profit margins continue to decline?

    During the reporting period, Xintianli's R&D expenses were 30.9682 million yuan, 33.6629 million yuan, 1.02B yuan, and 1.1B yuan, respectively, accounting for 3.28%, 3.29%, 3.21%, and 3.19% of operating revenue. During the same period, the company's gross profit margins were 17.13%, 18.73%, 18.3%, and 19.44%, lower than the average of comparable companies at 24.22%, 24.26%, 21.67%, and 19.11%.