Kehua Holdings Responds to Private Placement Inquiry: The 326 Million Yuan Fundraising for Working Capital is Reasonable

KeHua Holding (Rights Protection) Co., Ltd. (hereinafter referred to as “KeHua Holding”) has recently provided a response to the Shanghai Stock Exchange regarding financial matters mentioned in the exchange’s questions letter concerning the company’s application documents for a stock issuance to specific targets. In its response, the company detailed the background for the change in its actual controller, the rationale for the issue price, the basis for calculating the financing scale, and other core issues, and received verification and confirmation from the filing accountants.

According to the response, KeHua Holding plans to raise funds of no more than RMB 3,261 million through this issuance of shares to specific targets. After deducting issuance expenses, all proceeds will be used to supplement working capital. The issuance targets are the company’s current actual controllers, Lu Hongping and Tu Han, with an issue price of RMB 10.87 per share. The pricing benchmark date is the date on which the company’s board resolution was announced on August 22, 2025.

The funding gap is RMB 556.32 million; the fundraising scale is reasonable

In its response, KeHua Holding disclosed in detail the calculation process for the funding gap. After comprehensively considering factors such as the company’s current cash balances, expected future capital inflows and outflows, and various capital expenditures, the company’s current operating funding gap is RMB 55,632.40 million. The RMB 3,261 million to be raised in this offering does not exceed that funding gap.

The specific calculations are shown in the table below:

The company stated that using the fundraising proceeds to supplement working capital will help optimize its capital structure, reduce financial costs, and improve its ability to withstand risks, providing funding support for its long-term development strategy. After verification, the filing accountants believe that the financing scale of this transaction is reasonable.

Performance fluctuations align with industry trends; differences in gross margin between domestic and overseas sales are reasonable

Regarding fluctuations in the company’s revenue, gross margin, and net profit during the reporting period, KeHua Holding explained that the company’s results were mainly affected by multiple factors, including the development trend in the automotive industry, demand in the turbocharger market, fluctuations in direct material prices, and the product pricing approach. From 2022 to 2023, the company’s various key performance indicators grew, and in 2024 and from January to September 2025, due to the decline in sales unit prices, the company’s main business revenue, gross margin, and net profit showed a downward trend.

During the reporting period, the company’s gross margin from its main business was 13.43%, 17.09%, 16.06%, and 14.55%, respectively. The company stated that the fluctuations in gross margin were mainly due to turbocharger housings and assembly parts, a product for which revenue contribution is high, and whose major raw material nickel price volatility has a significant impact on costs.

Regarding the difference in gross margin between domestic and overseas sales, the company disclosed that from January to September 2025, the gross margin in Mainland China was 7.42%, while the gross margin overseas was 19.78%. The main reason for the difference is that overseas customers place greater emphasis on product quality, technical stability, and supply chain resilience. The pricing logic is value-driven, providing relatively higher premiums for high-quality products. Among comparable companies in the same industry, except for Feilong Co., Ltd., the gross margin on overseas sales is generally higher than that of domestic sales. This situation for KeHua Holding is consistent with the industry’s overall trend.

Sufficient provision for bad debts on accounts receivable; reasonable fluctuations in accounts payable notes

During each period in the reporting period, the company’s accounts receivable aging structure remained stable. The proportion of accounts receivable within one year was consistently maintained at around 99.80%, and the overall post-period collections ratio was high. The company’s policy for provisioning for bad debts is basically consistent with that of comparable companies in the same industry, with the provision ratios staying within a reasonable range. For certain aging brackets, the provision ratios are higher than the industry average, and the provisioning for bad debts is sufficient.

Regarding the issue of significant fluctuations in accounts payable notes, the company explained that this is mainly attributable to adjustments to the bank notes pool business and changes in the margin deposit ratio. At the end of 2023, the balance of accounts payable notes decreased, because after the widespread use of electronic bank acceptance bills that can be split in the market, the company reduced its notes pool business and increased bill endorsement payment methods. At the end of 2024 and at the end of September 2025, the balance of accounts payable notes increased, because the margin deposit ratios of the company’s main cooperating banks dropped significantly, and the company proactively expanded such financing and settlement businesses. The balance of accounts payable notes matches the scale of margin deposits, and the fluctuations are reasonable.

The investment in Shangshi Aviation is an industrial investment; it does not constitute a financial investment

KeHua Holding plans to acquire no more than 1.3699% of the shares of Shanghai Shangshi Aviation Engine Co., Ltd. for no more than RMB 49.95 million. The company stated that this investment is intended to expand the market for aircraft engine components, promote the company’s technical extension from sand casting to precision casting, and qualifies as an industrial investment aimed at obtaining technology and channels around the upstream and downstream of the industrial chain, rather than being defined as a financial investment.

As of September 30, 2025, the company’s trading financial assets were RMB 19.25 million, representing its holdings of 2.5 million shares of Daya Co., Ltd., accounting for approximately 1.29% of the net assets attributable to the parent company in the consolidated financial statements, and it does not constitute a financial investment of a relatively large amount. The filing accountants confirmed that the company meets the requirement that there is no financial investment of a relatively large amount as of the end of the most recent period.

KeHua Holding focuses on the R&D and production of turbocharger housings and their assembly parts, as well as intermediate housings and their assembly parts, and plans to further expand its market share in differential housing components, brake systems, and engineering machinery power components. At the same time, it will actively explore new markets and build new tracks. This fundraising will provide funding support for the company’s strategic development and will help achieve long-term, steady growth.

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