存货周转天数偏长

Our inventories increased from RMB20.4 million as of December 31, 2021 to RMB32.7 million as of December 31, 2022, primarily due to our business expansion.

Our inventory turnover days increased from 69.4 days in 2021 to 128.8 days in 2022, aligning with our business expansion.

Throughout the Track Record Period, except from write-down of inventories in 2022 and early 2023 in line with our accounting policies after taking into account various factors that we believe are non-recurring, including the impact of COVID-19 on operations, reduced foot traffic, changes in our inventory procurement plan, and declining prices of certain FMCG products, we have not experienced any material adverse effect in inventory consumption, and we believe sufficient provision has been made.

The increase in our inventory turnover days from 159.2 days in 2021 to 242.5 days in 2022 was primarily due to the absence of a new flagship product launch in Smart Devices and Other Accessories during 2022.

As of December 31, 2021, 2022 and 2023, we wrote down RMB20.0 million, RMB20.9 million and RMB29.7 million of inventories, respectively.

Our Directors are of the view that there is no material recoverability issue for our inventories, primarily because (i) a substantial portion of the inventories as of December 31, 2023 were aged less than one year, (ii) our raw materials and certain finished goods are generally not subject to expiration, and the finished aged over one year are not perishable or fragile products and can maintain saleable value and (iii) we assessed our finished goods’ applicability from time to time and recorded cost of sales for forfeiture of any outdated ones, and therefore considered there was no material difficulty in the utilization of our inventories as of the end of each reporting period.

Our inventories increased from RMB470.3 million as of December 31, 2020 to RMB635.7 million as of December 31, 2021, primarily due to (1) increase purchase volume of rough tea leaves (i) in preparation for the production of flagship products for our business expansion and (ii) as the management believed the rough tea leaves grown in 2021 was extraordinary in quality; and (2) the increase in our finished goods because (i) the product portfolio under Tea Mama continued to expand, adding up to an increase in finished goods, (ii) we stocked up on Chenpi to avoid its anticipated rise in price in the future, and (iii) we stocked up on our flagship products, which were reserved for distributor-operated stores to be opened in the future.

During each year/period of the Track Record Period, our inventory turnover days were 1,345 days, 1,061 days, 1,641 days and 1,588 days, respectively.

According to the F&S Report, our inventory turnover days during the Track Record Period were in line with the industry average.

Our inventory turnover days increased from 91.2 days in 2020 to 130.2 days in 2021, primarily because we stocked up raw nests to prevent raw material shortage amid the pandemic in 2020, which resulted in a slower turnover in 2021.

Our raw materials increased from RMB125.9 million as of December 31, 2022 to RMB187.7 million as of May 31, 2023, primarily because we purchased a certain amount of raw nests for production in anticipation of the “618” shopping festival.

As of September 30, 2023, approximately RMB233.4 million, or 89.7%, of our total inventories as of May 31, 2023 were utilized or sold.

Our inventory increased by RMB18.2 million from RMB1.8 million as of December 31, 2021 to RMB20.0 million as of December 31, 2022 primarily due to an increased balance of finished goods in inventories as (i) the increase in the stock up of raw materials and finished goods driven by the increased research and development activities and sales of our products, and (ii) we purchased CUP-MNDE and CUP-SFJH from overseas collaboration partners in preparation for commercialization in China.

The reasons for our prolonged inventory turnover days from 769 as of December 31, 2021 to 1,161 as of December 31, 2022 include (i) the increase in the stock up of raw materials and finished goods driven by the increased research and development activities and sales of our products and (ii) some of our inventories, including CUP-MNDE and CUP-SFJH, are purchased in relatively large quantities at once from overseas collaboration partners in preparation for commercialization in China due the increased demands of CUP-MNDE and CUP-SFJH and our sales records and ongoing marketing activities.

We believe we are generally not subject to any material recoverability issue of our inventories and no provision for inventories was recorded during the Track Record Period.