Eliza Wong
The Precarious Path to Public Markets
Behind Zhihuishu’s aggressive push for a Hong Kong IPO lies a troubling narrative of financial volatility and ethical compromises. The education technology firm, whose online learning platforms gained popularity during university pandemic closures, now faces regulatory scrutiny over bribery schemes and accounting irregularities. As Zhihuishu files its third application within twelve months, investors must question whether this IPO represents opportunity or peril.
Financial Turbulence Undermines Stability
Zhihuishu’s financial performance resembles a rollercoaster rather than the steady growth expected of IPO candidates. Revenue figures present a deceptively positive trajectory:
– 2022: ¥400 million
– 2023: ¥650 million
– 2024: ¥850 million
Yet profitability tells a different story. The company swung from a ¥59.11 million loss in 2022 to an ¥81.42 million profit in 2023, then plunged to an ¥88.855 million loss in the first half of 2024 before miraculously reporting a full-year ¥100 million profit. This volatility suggests fundamental operational weaknesses masked by selective reporting periods.
Margin Mysteries Raise Eyebrows
Gross margin fluctuations further erode confidence:
– 2021: 51.1%
– 2022: 44.1%
– 2023: 60.7%
– First Half 2024: 46.1%
– Full Year 2024: 61.9%
Such dramatic swings lack clear explanation in prospectus disclosures, indicating potential revenue recognition issues or cost management failures. The Zhihuishu IPO prospectus fails to adequately justify these irregularities, leaving investors guessing about true operational health.
Accounts Receivable: The Ticking Time Bomb
Trade receivables reveal alarming trends that threaten liquidity:
– 2022: ¥134 million
– 2024: ¥340 million (154% increase)
By April 2025, receivables ballooned to 67.6% of current assets – meaning two-thirds of liquid assets are tied up in uncollected payments. Even more concerning, 2024 receivables represented 40% of total revenue, suggesting sales are being artificially inflated through lenient credit terms.
Impairment Warnings Flash Red
Allowances for doubtful debts tell a grim story:
– 2022: ¥12.3 million
– 2024: ¥34.1 million (177% increase)
Financial asset impairment losses followed the same trajectory:
– 2022: ¥6.2 million
– 2024: ¥14 million
These numbers indicate deteriorating credit quality among Zhihuishu’s university clients. The sudden improvement reported in late 2024 – where impairment losses supposedly dropped by over ¥10 million within six months – lacks credible explanation, raising questions about accounting practices ahead of the Zhihuishu IPO.
Cash Flow Crisis Deepens
Operational realities contradict paper profits:
– 2022 Operating Cash Flow: -¥48.14 million
– 2023: +¥10.9 million
– 2024: -¥9.53 million
The first half of 2024 revealed a devastating -¥206 million operational cash outflow. By April 2025, cash reserves plummeted 70% from ¥230 million to just ¥68.9 million – the lowest in three years. This liquidity crunch explains the emergency ¥56.2 million loan acquired in 2024 and the desperate push for the Zhihuishu IPO funding.
Ethical Landmines Threaten Listing Approval
Zhihuishu’s compliance record presents formidable barriers to successful listing. Regulatory filings and court documents reveal systemic misconduct:
Bribery for Contracts
In June 2021, a salesperson from Zhihuishu’s parent company Excellence Ruixin bribed Liu (刘), director of infrastructure at Gansu Industrial Vocational Technical College. Through intermediary Huang (黄), they paid ¥30,000 to manipulate bidding for the “Teaching Quality and Management Enhancement Project.” Court records confirm this criminal conviction directly implicating Zhihuishu’s sales tactics.
Collusive Bidding Schemes
Shanxi Provincial Finance Department penalized Excellence Ruixin ¥22,500 for colluding with competitors on bids for Shanxi Medical University’s online course projects in 2021-2022. Such coordinated fraud violates fundamental procurement integrity expected of public suppliers.
Deceptive Marketing Practices
Shanghai Xuhui District market regulators fined the company ¥50,000 in 2021 for illegal education advertising. This pattern of violations prompted China Securities Regulatory Commission (CSRC) to demand explanations about how these “compliance deficiencies” might impact the Zhihuishu IPO during its June 2024 review.
Leadership and Listing Desperation
Founders Wang Hui (王晖) and Ge Xin (葛新), a husband-wife team with decades in education technology, initially pursued a domestic listing. Their A-share application commenced in January 2021 but abruptly terminated in April 2024. The subsequent Hong Kong IPO blitz saw applications in:
– May 2024
– December 2024
– June 2025
This frantic pace suggests severe financial distress rather than strategic growth planning. The Zhihuishu IPO now appears driven by necessity – a final gamble to secure capital before mounting liabilities overwhelm operations.
Regulatory Hurdles and Investor Risks
The CSRC’s seven-point supplemental request specifically highlights:
– Employee involvement in bribery cases
– False advertising violations
– Bid-rigging penalties
Each represents potential disqualifying factors under Hong Kong Exchange listing rules. Even if approved, investors face substantial post-IPO risks:
– Accounts receivable may prove uncollectible
– Customer concentration in cash-strapped universities
– Ongoing regulatory scrutiny
– Possible delisting for non-disclosure
The Zhihuishu IPO prospectus downplays these issues despite their material significance. Without transparent remediation plans, these governance failures could trigger shareholder lawsuits or regulatory action post-listing.
The Verdict on Zhihuishu’s Future
Zhihuishu’s journey epitomizes the high-wire act of companies seeking public capital amid unresolved scandals. While digital education remains a growth sector, this IPO carries exceptional risks:
1. Financial statements show patterns suggestive of revenue inflation
2. Legal violations indicate systemic compliance failures
3. Cash flow problems threaten operational continuity
Prospective investors must demand independent verification of receivables quality and scrutinize governance reforms. Regulatory approval of the Zhihuishu IPO would set a dangerous precedent unless accompanied by transparent corrective actions. Before considering investment, review the full prospectus disclosures and consult legal counsel regarding liability exposure in cases of corporate misconduct.
