Eliza Wong
The Digital Education Giant’s Controversial Ascent
When universities shuttered classrooms during pandemic lockdowns, Zhihuishu became the invisible backbone of China’s higher education system. The company’s digital learning platforms kept millions of students connected to their coursework, propelling its revenue to unprecedented heights. Now, as parent company Zhuoyue Ruixin races toward a Hong Kong IPO after three rapid-fire applications in 2024-2025, alarming financial patterns and compliance scandals threaten to derail its ambitions. With accounts receivable ballooning to 67.6% of current assets and multiple bribery convictions on its record, clearing the mines on the IPO path requires navigating a complex minefield of regulatory scrutiny and investor skepticism.
Financial Turbulence: Profit Swings and Receivable Risks
Zhihuishu’s financial performance resembles an academic rollercoaster—dramatic peaks and valleys that raise questions about sustainable growth. Between 2022 and 2024, revenue climbed steadily from ¥400 million to ¥850 million, but profits swung violently from a ¥59.11 million loss to an ¥81.42 million gain, then to a ¥100 million profit. The most concerning volatility appeared in 2024 when the company reported a staggering ¥88.855 million first-half loss before miraculously recovering to full-year profitability.
Accounts Receivable: The Ticking Time Bomb
The company’s trade receivables and retention deposits exploded by 154% over two years, reaching ¥340 million in 2024—equivalent to 40% of annual revenue. By April 2025, these doubtful assets consumed 67.6% of current assets, severely constraining operational liquidity. Simultaneously, impairment provisions for bad debts surged 177% to ¥34.1 million, while net financial asset impairment losses expanded 126% to ¥14 million during the same period. This pattern suggests aggressive revenue recognition through lenient credit terms to universities, creating a high-risk financial structure.
Profitability Whiplash and Margin Instability
Gross margins fluctuated erratically from 51.1% (2021) to 44.1% (2022), then spiked to 60.7% (2023) before settling at 61.9% (2024). Such volatility indicates inconsistent pricing power and cost management. The 2024 swing from massive H1 losses to year-end profits—without clear explanation in IPO documents—further undermines confidence in the company’s financial controls and reporting transparency.
Cash Flow Crisis and Liquidity Pressures
Operating cash flow tells a concerning story of financial strain. Zhihuishu recorded negative operating cash flows in two of the past three years (-¥48.14 million in 2022 and -¥9.53 million in 2024), with a particularly alarming -¥206 million outflow during the first half of 2024. This cash burn forced the company to take on new debt, including a ¥56.2 million loan in 2024.
Dwindling Cash Reserves
By April 2025, cash reserves had plummeted 70% from December 2024 levels to just ¥6.89 million—the lowest point in three years. This liquidity crunch coincides with:
– Rising financial asset impairment losses (¥6.244 million in 2022 to ¥25.856 million in 2024 H1)
– Increasing receivables aging beyond 180 days
– Growing dependence on debt financing
Compliance Landmines: Bribery and Regulatory Sanctions
Zhihuishu’s expansion came with serious ethical compromises. Public records reveal at least two major compliance violations that now jeopardize its listing prospects. Clearing the mines on the IPO path requires addressing these explosive revelations head-on.
The Gansu Bribery Scandal
In June 2021, a Zhihuishu salesperson bribed Liu (刘某), then director of bidding at Gansu Industrial Vocational College, through intermediary Huang (黄某). The ¥30,000 cash payment secured improper influence in the “Teaching Quality and Management Enhancement Project” tender. This incident exposes systemic corruption risks in the company’s university sales practices.
Collusive Bidding and False Advertising
Shanxi Provincial Finance Department penalized Zhihuishu for colluding with competitors in 2021-2022 bidding processes at Shanxi Medical University. The company received a symbolic ¥2,250 fine—a penalty unlikely to deter future misconduct. Separately, Shanghai’s Xuhui District Market Regulatory Bureau fined Zhihuishu ¥50,000 for illegal education advertising, indicating lax marketing compliance.
Regulatory Scrutiny: The CSRC’s Concerns
China’s securities regulator explicitly questioned Zhihuishu’s compliance failures in its June 28-July 4, 2024 filing feedback. The seven-point inquiry demanded explanations about:
1. Specific corrective actions for bribery and collusion incidents
2. Measures to prevent recurring compliance violations
3. Assessment of impact on IPO eligibility
4. Enhanced internal control mechanisms
The China Securities Regulatory Commission (CSRC) emphasized that these issues directly challenge the company’s operational legitimacy and governance maturity. Clearing the mines on the IPO path requires satisfying these regulatory concerns through demonstrable reforms.
The Path Forward: Can Zhihuishu Successfully List?
Founders Wang Hui (王晖) and Ge Xin (葛新) built Zhihuishu into an education technology leader over 17 years, but their transition from A-share to Hong Kong listing reveals desperation. After terminating their mainland IPO process in April 2024, they submitted three Hong Kong applications within 13 months—an unusually aggressive timeline suggesting financial pressure. Success now hinges on:
Addressing the Compliance Imperative
Zhihuishu must implement visible anti-corruption measures including third-party compliance audits, revised sales incentives, and transparent bidding protocols. The company should voluntarily disclose all ongoing investigations to preempt regulatory surprises.
Restructuring Financial Operations
Stabilizing finances requires reducing receivables to under 30% of revenue through stricter university payment terms, diversifying beyond government-dependent clients, and securing emergency financing to address the cash crisis. Independent verification of the remarkable 2024 profit recovery is essential for credibility.
For investors considering this IPO, thorough due diligence on receivables quality and compliance history is non-negotiable. Scrutinize the final prospectus for evidence of genuine reform rather than window-dressing. The company’s future hinges on clearing the mines on the IPO path through transparency and accountability—anything less risks explosive consequences for stakeholders.
