FengHua Advanced Technology's high-end transformation accelerates, with net profit surging 74% in the first half of the year, but cash flow declining by more than 50% | Financial Report Insights

Fenghua Advanced Technology, which has been deeply involved in the electronic components industry for more than 40 years, delivered a half-year report showing that its profit growth rate was significantly faster than its revenue growth rate.

In the first half of 2026, the company achieved operating revenue of RMB 3.5 billion, a year-on-year increase of 26.28%; net profit attributable to the parent company was RMB 290 million, a year-on-year increase of 74.01%; and net profit attributable to the parent company excluding non-recurring items was RMB 288 million, a year-on-year increase of 68.84% . The company stated that both operating revenue and the production and sales volume of its main products reached record highs. Profitability further improved in the second quarter, with net profit attributable to the parent company and net profit attributable to the parent company excluding non-recurring items increasing by 127.80% and 126.60% respectively compared to the previous quarter.

While profits surged, cash flow showed a significant divergence. Net cash flow from operating activities in the first half of the year was only RMB 161 million, a year-on-year decrease of 55.64% , while inventory and operating receivables increased by nearly RMB 580 million, indicating a marked rise in working capital. How to further convert profit growth into cash flow has become a key issue the company needs to address in the next stage.

Revenue and profit both increased, and profit elasticity continued to be released.

In the first half of 2026, FengHua Advanced Technology achieved operating revenue of 3.498 billion yuan, of which 3.437 billion yuan came from its main business and 63.17 million yuan from other businesses. Operating costs were 2.843 billion yuan, a year-on-year increase of 25.03%, lower than the revenue growth rate, which led to a slight improvement in gross profit margin.

In terms of regional markets, domestic revenue was 3.352 billion yuan, accounting for 95.77%; overseas revenue was 148 million yuan, a year-on-year increase of 31.67%, which was higher than the overall revenue growth rate, indicating that the expansion of overseas markets has accelerated.

The profit performance was even more impressive. Financial expenses were -19.17 million yuan, mainly driven by increased interest income; other income from government subsidies and additional deductions amounted to approximately 39 million yuan; and investment income from associates accounted for using the equity method was 21.82 million yuan. These gains contributed to a certain increase in profits.

The tax burden change warrants attention. Income tax expenses increased by 160.25% year-on-year to RMB 26.18 million in the first half of the year. The company's high-tech enterprise qualification expires in 2025 and is currently undergoing review, with a temporary preferential tax rate of 15%. If the review fails, the corporate income tax rate will rise to 25%, potentially putting further pressure on profitability.

Profits surged, but cash flow lagged significantly.

Compared to the high growth in profits, the cash flow performance is significantly weaker.

In the first half of the year, the company's net cash flow from operating activities decreased to RMB 161 million from RMB 363 million in the same period last year, a year-on-year decrease of 55.64%. The company explained that this was mainly due to the rise in metal raw material prices and the tightening of upstream settlement policies, which led to faster procurement payments.

At the same time, inventory increased by approximately RMB 231 million compared to the beginning of the year, and notes receivable and accounts receivable increased by more than RMB 300 million, tying up approximately RMB 577 million in operating cash. In other words, order and revenue expansion is leading to greater working capital needs.

As of the end of the period, the company's accounts receivable had a book balance of RMB 1.879 billion and a net amount of RMB 1.693 billion, of which RMB 87.89 million was over 5 years old; inventory had a book balance of RMB 1.371 billion, with a provision for impairment of RMB 116 million. The company still had RMB 3.754 billion in cash, but RMB 76.93 million of it was frozen due to litigation, and more than RMB 2 billion was deposited in a finance company under its controlling shareholder, which somewhat affected the flexibility of its cash use.

Automotive electronics and AI computing power have become the breakthrough points for high-end development.

On the product side, FengHua Advanced Technology is accelerating its penetration into high-value application areas.

In the first half of the year, sales in the automotive electronics sector increased by 30% year-on-year, industrial control by 54%, smart terminals by 14%, and supercapacitors saw an even greater increase of 85%. Sales to the top ten customers increased by 12%, further solidifying the customer structure.

The company's main products cover passive components such as MLCCs, chip resistors, inductors, ceramic filters, and supercapacitors, and it continues to expand into fields such as automotive electronics, AI computing power, drones, energy storage, and medical care.

High-end products are the company's core strategic direction. MLCC, resistors, and inductors are being upgraded to higher capacitance, higher voltage, higher reliability, and higher precision. Core materials such as high-end ceramic powder, copper paste, nickel paste, and silver paste have been independently developed, and the performance gap between some products and international advanced levels continues to narrow.

However, competition in the high-end market is also becoming more intense. The company has explicitly stated that it will directly compete with international leaders such as Murata and TDK in the process of product upgrading, increasing market expansion pressure and posing a risk of market expansion falling short of expectations. Supercapacitors have become another growth highlight. On June 30, the former wholly-owned subsidiary, Guangdong Fenghua Supercapacitor Technology, completed its absorption and merger, and was wholly incorporated into the supercapacitor division. With accelerated market expansion, it is expected to further contribute incremental growth.

Increased R&D investment and simultaneous upgrade of talent structure

Behind the high-end transformation is the continuous increase in investment in research and development and talent.

In the first half of the year, the company's R&D investment reached 145 million yuan, a year-on-year increase of 16.70%, all of which was expensed. The company currently has 5 national-level innovation and R&D platforms, 1 academician workstation, and 1 postdoctoral workstation, and has established research institutes in Zhaoqing and Suzhou. It has won a total of 28 national, provincial and ministerial-level science and technology awards.

During the reporting period, the company applied for 22 new patents, including 14 invention patents; it also introduced 17 professional managers, expert consultants and technical backbones, and recruited 373 recent college graduates, of whom more than 70% had a master's degree or above.

Overall, FengHua Advanced Technology's first half of the year was characterized by "accelerated revenue growth, high profit growth, and accelerated premiumization." However, the deterioration of cash flow and the increase in working capital occupation are also cause for concern. For this long-established passive component manufacturer, the sustainability of this performance improvement will depend on whether it can further increase the proportion of high-end products during the industry's upward trend and convert profit growth into stable operating cash flow.

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