Demand and sales of representative products have declined Hengbo shares sprint to the ChiNext board to raise funds to expand production

Per reporter: Zhang Mingshuang Per editor: Zhang Haini

More than two years after the delisting of the New Third Board, Hengbo Holdings Co., Ltd. (hereinafter referred to as Hengbo Shares) launched a sprint to the ChiNext Board, intending to raise 528 million yuan through IPO for Taizhou expansion projects, Chongqing expansion projects, supplementary working capital, etc., and the current review status is "inquired".

Hengbo Co., Ltd.'s main products are internal combustion engine intake systems and accessories, which are used in automobiles, motorcycles, general machinery and other fields. In 2018, Hengbo co., Ltd. stepped on Beiqi Yinxiang Automobile Co., Ltd. (hereinafter referred to as BAIC Yinxiang), Chongqing Phantom Speed Auto Parts Co., Ltd. and its related parties (hereinafter referred to as Chongqing Phantom Speed), and made a provision of 17.2489 million yuan for the bad debts of the two customers, which became an important reason for the decline of 73.21% in net profit in that year.

"Daily Economic News" reporter found that because electric vehicles do not exist in the air intake system and carbon tank, Hengbo shares' products are mainly used in fuel vehicles and hybrid vehicles, its production and sales of the main components of the air filter sales continue to decline, in this case the company still intends to expand the air filter production capacity through the investment project, whether it can be smoothly digested is still unknown.

Data source: Reporter collated Visual China map Yang Jing cartography

Net profit plummeted by 70% in 2018

In recent years, the revenue of Hengbo shares has been in a continuous growth stage. From 2018 to 2020 and the first half of 2021, Hengbo co., Ltd. achieved operating income of 470 million yuan, 495 million yuan, 573 million yuan and 296 million yuan, and net profit attributable to the mother of 8.5224 million yuan, 35.8979 million yuan, 64.7405 million yuan and 48.6239 million yuan, respectively.

Hengbo shares were delisted from the New Third Board in January 2019, and the latest periodic report disclosed by hengbo is the 2018 semi-annual report. In 2017, the operating income of Hengbo co., Ltd. was 470 million yuan, and the net profit attributable to the mother was 31.8149 million yuan. Through comparison, the operating income of Hengbo shares in 2018 was almost the same as that in 2017, but the net profit attributable to the mother plummeted by 73.21% year-on-year. In addition, Hengbo co., Ltd. achieved operating income of 232 million yuan and net profit attributable to the mother of 25.189 million yuan in the first half of 2018. That is to say, under the normal income in the second half of 2018, the net profit attributable to the mother lost 16.6666 million yuan.

In the prospectus (filing draft), Hengbo shares did not mention the relevant situation of the decline in net profit in 2018, the company replied to the "Daily Economic News" reporter said that in 2018, due to the impact of the debt crisis of customers BAIC Yinxiang and Chongqing Phantom Speed, the company made a provision for bad debts of 17.2489 million yuan for the full amount of its accounts receivable, resulting in a decline in net profit.

According to public information, BAIC Yinxiang is an automobile enterprise jointly established by Beijing Automobile Group and Chongqing Yinxiang Industrial Group, and its brand is mainly BAIC Phantom Speed. In 2018, BAIC Yinxiang fell into a debt crisis and completely stopped production in July of that year, and its suppliers were also affected, and listed companies such as Tianyong Intelligent and Bethel all recorded asset impairment. Due to insolvency, in March 2021, the court approved the draft reorganization plan of BAIC Yinxiang, and if successfully implemented, BAIC Yinxiang will achieve a turnaround during the six-year implementation period of the reorganization plan.

According to some recruitment and company profile websites, Chongqing Phantom Speed is the largest parts supplier of BAIC Yinxiang. Qixinbao information shows that at present, Chongqing Phantom Speed is also involved in a number of judicial disputes, has been listed as an executor, and has been listed as a defendant together with BAIC Yinxiang in some cases.

However, the "Daily Economic News" reporter noted that the decline in the net profit of Hengbo shares in 2018 was not only caused by the provision of bad debts, but also had almost no net profit in the second half of 2018, and even showed a loss situation. At the end of June 2018, Hengbo shares made a provision for bad debts of 7.2934 million yuan, and at the end of 2018, the amount of bad debts provision was 22.2436 million yuan, which calculated that the amount of bad debt provision in the second half of 2018 was 14.9502 million yuan, which could not make up for the loss of net profit attributable to the mother in the second half of 2018.

For the operation of the second half of 2018, Hengbo shares did not further explain in response to reporters.

It is worth mentioning that Hengbo's provision for bad debts for accounts receivable is almost still rising. At the end of each period from 2018 to 2020 and from January to June 2021, its balance of bad debt provision was 22.2436 million yuan, 24.3579 million yuan, 34.9841 million yuan and 34.0766 million yuan, respectively.

Products are mainly for the fuel vehicle market

Hengbo Co., Ltd. main products for the internal combustion engine intake system and its accessories, representative products for air filters, in addition to the air intake system assembly products also include a variety of types, models of ventilation lines and other parts. At present, the air filter products produced by Hengbo Co., Ltd. are mainly used in passenger cars and two-wheeled motorcycles.

In the past few years, the demand for air filters for passenger cars and motorcycles, as well as the sales of air filters in Hengbo shares, have shown a downward trend as a whole. Prospectus (Draft Declaration) cites data from the China Association of Automobile Manufacturers that from 2018 to 2020 and the first half of 2021, the domestic passenger car air filter demand (estimated) was 22.543 million pieces, 20.34 million pieces, 18.889 million pieces and 8.818 million pieces, and the sales volume of automotive air filters of Hengbo Co., Ltd. was 1.8561 million pieces, 1.6752 million pieces, 1.5058 million pieces and 745,300 pieces, respectively; the demand for air filters for two-wheeled motorcycles (estimated) was 1.8561 million pieces. Respectively, 13.9667 million pieces, 15.4302 million pieces, 14.8034 million pieces and 8.7285 million pieces were sold, and the sales volume of air filters for hengbo motorcycles was 3.9617 million pieces, 3.903 million pieces, 3.8782 million pieces and 2.3944 million pieces.

While the demand for air filters and the overall decline in the company's air filter sales, Hengbo still plans to raise funds to expand production through IPO, of which taizhou expansion project is an annual output of 1.5 million sets of automotive intake systems and 1 million sets of fuel evaporation pollutant control systems, and Chongqing expansion projects are 1.3 million sets of automotive intake systems. In terms of the necessity of project implementation, Hengbo said that the fundraising project will "expand the company's business scale" and "expand the production capacity of air filters".

Is it reasonable to continue to expand the capacity of air filters? Hengbo shares replied to reporters that according to the national fuel consumption regulations, by 2025, the average fuel consumption of passenger cars needs to be reduced to 4L/100KM, and the relevant technologies of the intake system can improve the driving performance of the car while meeting the fuel consumption requirements, so the requirements for a good intake system in China's automobiles will show an upward trend in the next few years.

Of course, the main product of Hengbo co., LTD. is not only the air filter, affected by the change in the sales structure of the product, the sales volume of the main products of Hengbo Co., Ltd. has risen and fallen in the past few years. From 2018 to 2020 and the first half of 2021, the sales of automotive air intake systems and accessories were 8.588 million pieces, 8.3854 million pieces, 8.5694 million pieces and 4.5462 million pieces, respectively, and the sales of motorcycle air intake systems and accessories were 19.9702 million pieces, 20 million pieces, 18.7424 million pieces and 10.869 million pieces.

Although the sales volume of air filters has declined, and the sales of intake systems and accessories have risen and fallen, the main business income of Hengbo Co., Ltd. has shown overall growth, with 443 million yuan, 463 million yuan and 472 million yuan from 2018 to 2020, respectively. Hengbo shares said that the growth of automotive intake system and accessories revenue is mainly due to the increase in average sales unit price, and the fluctuation of motorcycle intake system and accessories revenue is mainly due to the impact of the change in sales volume of major products and average sales unit price.

The average sales unit price has a greater impact on the growth of the company's main revenue. From 2018 to 2020, the average sales unit price of Hengbo's automobile intake system and accessories was 25.50 yuan / piece, 27.59 yuan / piece and 29.51 yuan / piece, respectively, and the average sales unit price of motorcycle intake systems and accessories was 9.25 yuan / piece, 9.70 yuan / piece and 9.96 yuan / piece, and the average sales unit price showed a continuous upward trend.

According to the analysis of the prospectus (draft declaration), the increase in the sales unit price of automobile and motorcycle intake systems and accessories is due to the increase in the proportion of sales of products (hereinafter referred to as new products) that are sold for the first time. The increase in sales of new products for automotive air intake systems "offset the adverse impact of customers on the 'annual decline' in product prices, and led to an increase in the overall average sales unit price of automotive intake systems and accessories in the current and subsequent years." The average unit price of new products of motorcycle intake systems and accessories was higher, and "the increase in sales volume had a positive impact on the overall average sales unit price of motorcycle intake systems and accessories during the reporting period".

However, OEMs generally adopt a high-low pricing strategy during their product life cycle, requiring their suppliers to appropriately reduce supply prices year by year. Therefore, Hengbo said that if the company cannot do a good job in life cycle management and cost control, and actively develop new products for new customers, it will face the risk of falling average selling prices of products.

It is worth noting that the products of Hengbo are mainly for the fuel vehicle market and are being impacted by new energy vehicles. Hengbo has also made some orders in the field of new energy vehicles. "The company has mass-produced air intake systems and accessories for PHEV (plug-in hybrid vehicle) models, and has acquired parts for electric vehicle cooling systems for customers." How much revenue these orders contribute to, whether it can become a new growth point for the company, Hengbo shares did not further explain.

There were no new invention patents for 6 years

When introducing its competitive advantages, Hengbo clearly stated that its advantages include R&D innovation advantages, laboratory testing advantages, and process technology advantages.

However, the "Daily Economic News" reporter noted that as of the date of signing of the prospectus (application draft), the company has obtained a total of 79 patents authorized and protected, including 3 invention patents and 76 utility model patents. The application date of the three invention patents is from 2013 to 2015, and the most recent invention patent on the application date is "Detection equipment for the intake resistance of the air filter of the general machine small flow", and the application date is September 25, 2015. That is to say, Hengbo shares have not obtained new invention patents for up to 6 years.

In addition, among the 3 invention patents, 1 of which is patented by Hengbo Shares, and the patentee of the other 2 invention patents is Zhejiang Greenya Technology Co., Ltd., which is a wholly-owned subsidiary of Hengbo Shares, mainly engaged in the production and sales of garden machinery products, and belongs to other businesses of Hengbo Shares, which is a supplement to the main business.

According to the composition of operating income, the income of Hengbo co., Ltd. includes the main business income and other business income, and other business income comes from the sales of medical equipment and garden machinery products, mold income, rent income, etc.

Why hasn't a new invention patent been formed for up to 6 years? Hengbo shares replied to reporters that the company has formed a wealth of technological innovation achievements in product research and development design, product production technology, etc., mastered a series of core technologies, and has authorized a number of patents, while the company currently has a number of patents in the application.

Hengbo shares will be relatively close to the business of Temple shares, Zhejiang Xiantong, Anhui Phoenix and Huayuan shares as comparable companies. Hengbo shares have been listed on the New Third Board, and anhui Phoenix, which is also a new third board company, shows that the number of invention patents owned by the company in 2020 is 65. Huayuan shares did not disclose the number of invention patents in the periodic report. The number of invention patents of Temple and Zhejiang Xiantong in 2020 is 16 and 6 respectively.

However, the R&D expense rate of Hengbo shares is relatively high. From 2018 to 2020 and the first half of 2021, Hengbo co., Ltd.'s R&D investment was 32.968 million yuan, 38.0156 million yuan, 30.4381 million yuan and 16.5028 million yuan, respectively, and the R&D expense rates were 7.01%, 7.68%, 5.31% and 5.58%, while the average R&D expense rates of comparable companies in the same industry were 4.03%, 4.57%, 4.87% and 5.17%.

In addition, Hengbo plans to raise 53.628 million yuan of funds raised by the IPO for research and development and data center construction projects, and further improve the ability of independent research and development innovation and the transformation of scientific and technological achievements.

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