Rongsheng Environmental Protection 2025 Annual Report Analysis: Non-recurring net profit drops by 48.39%, operating cash flow turns negative, exceeding 560 million yuan

Slight Revenue Growth, Main Business Profitability Under Pressure

In 2025, Rongsheng Environmental Protection achieved operating revenue of 2.25B yuan, a year-on-year increase of only 0.81%, with the growth rate further narrowing compared to 2024, indicating that the company’s revenue growth has approached a bottleneck amid weak downstream demand in the industry. Quarterly-wise, the fourth quarter revenue was 644 million yuan, the highest of the year, benefiting to some extent from seasonal demand in the packaging paper industry, but overall, the trend of slow annual revenue growth remains unchanged.

Net Profit Declines Double, Non-Recurring Gains Support Bottom Line

During the reporting period, the company’s net profit attributable to shareholders of the listed company was 224 million yuan, down 21.86% year-on-year; net profit excluding non-recurring gains and losses was only 122 million yuan, a sharp decline of 48.39% year-on-year, making it the largest drop among the annual profit indicators.

The company explained that the significant decline in net profit excluding non-recurring gains mainly stems from changes in accounting standards: interest from bank deposit-type financial products purchased in 2024 was included in recurring gains and losses, while income from fund trust-type financial products purchased in 2025 was included in non-recurring gains and losses. Adjusting for this impact, the actual year-on-year decline in net profit excluding non-recurring gains is 25.70%, roughly consistent with the decline in net profit, with the core reason still being the rising cost of upstream waste paper procurement and limited profit margin expansion from downstream paper prices.

Per-Share Earnings Decline Simultaneously, Profit Quality Deteriorates

Basic earnings per share dropped from 1.07 yuan in 2024 to 0.86 yuan, a decrease of 19.63% year-on-year; non-recurring earnings per share fell from 0.88 yuan to 0.47 yuan, a sharp decline of 46.59%, closely matching the decline in net profit excluding non-recurring gains, directly reflecting a significant deterioration in the company’s profit quality.

Increased R&D Investment, Stable Workforce

During the period, the company’s R&D expenses amounted to 103 million yuan, accounting for 4.59% of operating revenue, showing a year-on-year increase. The company added 18 authorized patents throughout the year, including 5 invention patents. As of the end of 2025, the company held a total of 181 valid patents, including 46 invention patents, with continuous enrichment of intellectual property reserves.

Regarding R&D personnel, the company maintained a stable team size, focusing on process optimization and green papermaking technology through industry-university-research integration and internal incentive mechanisms, accumulating technological advantages for long-term development.

Operating Cash Flow Turns Negative, Cash Flow Pressure Highlights

In 2025, the company’s net cash flow from operating activities was -560.06 million yuan, turning negative from a positive, with a decline of 603.19%, becoming the most prominent risk point in the annual financial data.

The company explained that the change mainly results from two factors: first, the cash discounting of bank acceptance bills with non-high credit ratings was included in financing activities; second, after waste paper suppliers shifted from legal entities to individuals, payment methods changed from acceptance to cash, and bills issued in 2024 matured and were paid in 2025. Adjusting for these effects, the actual net cash flow from operating activities decreased by 11.32% year-on-year, still reflecting weakened core business cash generation capacity.

The net cash flow from investing activities was -174 million yuan, narrowing by 47.12% year-on-year, mainly due to slowed investment in fixed assets; net cash flow from financing activities surged to 774 million yuan, up 282.33%, primarily through bill discounting and bank loans, partially alleviating the cash flow gap from core operations.

Cost Structure Optimization, Cost Control Shows Results

During the period, the company’s total operating expenses were approximately 385 million yuan, a year-on-year decrease. Selling expenses were about 102 million yuan, down 5.21%, mainly due to optimized sales channels and reduced marketing investments; administrative expenses were about 123 million yuan, up 3.15%, mainly due to increased management costs from the new headquarters; financial expenses were about 65 million yuan, up 12.36%, mainly from increased interest expenses; R&D expenses were about 103 million yuan, up 8.72%, reflecting ongoing investment in technological innovation.

Stable Executive Compensation, Tied to Performance Fluctuations

During the period, Chairman Zhang Yunhua’s pre-tax remuneration was 886.2k yuan; General Manager Feng Ronghua’s pre-tax remuneration was 865.3k yuan; core executives such as Vice Presidents Yu Minfang and Shen Yuehao received pre-tax remunerations in the range of 550,000 to 750k yuan. Overall, compensation levels remained roughly the same as in 2024, with a certain correlation to the company’s declining net profit, reflecting a performance-linked incentive mechanism.

Multiple Risks Overlay, Future Development Challenges

The company highlighted several risks in its annual report: first, industry cycle risk, as the pulp and paper industry faces a loose supply-demand pattern, with downstream demand recovery falling short of expectations, putting ongoing pressure on product prices; second, raw material price volatility risk, as fluctuations in waste paper and other raw materials directly impact profitability; third, environmental compliance risk, as new energy consumption limits and carbon trading systems will increase operational costs; fourth, market competition risk, with industry concentration rising and leading enterprises intensifying competition.

Additionally, the signal of operating cash flow turning negative warrants attention. If profitability does not improve, cash flow pressure will intensify, posing potential threats to the company’s capital chain security and ongoing operations.

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