The truth behind the 59% debt ratio of Prevail after restructuring: high debt and true stability under the advance payment model

Prevail (300710.SZ) disclosed a major asset restructuring plan for the acquisition of Zhongkong Information, which has become a market focus as the company's debt-to-asset ratio will significantly rise from 19.63% to 59.32% after the transaction is completed. According to the pro forma review report, the total liabilities will increase by 3971.35%, far exceeding the total assets' increase of 1247.45%. However, a deeper analysis of Zhongkong Information's debt structure and cash flow performance reveals that this data change mainly stems from the unique business model of the system integration industry, and the overall financial substance remains robust.

Contract liabilities drive up the debt ratio, operating cash flow verifies solid fundamentals

As a leading provider of infrastructure digital intelligence services in China, Zhongkong Information's main business is centered around system integration. The operating revenue for 2025 is projected to be 2.335 billion yuan, with system integration revenue reaching 2.123 billion yuan, accounting for over 90% of the main business revenue. This business model determines that the company will generate a large amount of advance payments—i.e., contract liabilities—during project execution.

According to financial data, Zhongkong Information's contract liabilities at the end of 2025 will be 1.426 billion yuan, accounting for over 30% of current liabilities. Contract liabilities are classified as "liabilities" in accounting, but their economic substance represents advance payments made by customers for projects or goods, indicating that the company has secured orders that have not yet been completed and accepted. As projects progress and revenue is recognized, this portion of "liabilities" will automatically convert into operating revenue without the need for actual cash payment. In other words, high contract liabilities reflect Zhongkong Information's ample orders on hand and strong customer prepayment willingness, serving as a positive indicator of business prosperity rather than traditional debt pressure.

According to the disclosed restructuring plan, Zhongkong Information's net cash flow from operating activities for 2024 and 2025 will be 62.5467 million yuan and 443 million yuan, respectively, both exceeding the net profit levels during the same period, indicating the company's strong operational cash generation capability. From the cash flow structure perspective, the system integration industry typically adopts a phased payment model of "advance payment—progress payment—acceptance payment—retention money." The existence of contract liabilities means that the company has already received part of the cash at the early stage of the project, effectively alleviating the pressure of advance funding. Behind the 1.426 billion yuan contract liabilities at the end of 2025 are numerous signed and paid projects that have not yet been completed and accepted, which will gradually convert into revenue and release cash flow in the next 1-2 years. As projects progress, the initial advance payments will be gradually consumed, while new cash inflows will be generated, forming a positive cycle.

Financial outlook after pro forma statements

After the transaction is completed, Prevail's pro forma consolidated statements indicate that operating revenue will leap from 270 million yuan to 2.605 billion yuan in 2025, achieving a qualitative change in asset scale and revenue structure. Although the pro forma debt-to-asset ratio of 59.32% significantly increases compared to before the transaction, it essentially results from the consolidation of operating liabilities such as contract liabilities under Zhongkong Information's system integration business model, reflecting a robust operational reality of full orders and active customer prepayments.

Moreover, it is worth noting that this supporting financing will be fully subscribed by the actual controller Mr. Fu Xiaotong, with the raised funds of 634 million yuan to be used for cash consideration payments, replenishing working capital, and the construction of three major R&D projects: HarmonyOS edge control, infrastructure robotics, and industry large models, directly enhancing the listed company's capital strength and cash flow reserves At the same time, the phased issuance mechanism of shares by the performance commitment party, impairment testing, and assessment of accounts receivable recovery, among other multiple guarantee clauses, provide institutional support for the financial stability after the transaction