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Decoli's operating cash flow deteriorated with the old shareholder ZTE's disconnection of independence

Decoli's operating cash flow deteriorated with the old shareholder ZTE's disconnection of independence

Wuxi Dekeli Optoelectronic Technology Co., Ltd. (hereinafter referred to as "Decoli") is mainly engaged in the optoelectronic device industry, the main business covers optical transceiver modules, optical amplifiers, optical transmission subsystem research and development, production and sales, products are widely used in communication trunk transmission, 5G fronthaul, 5G backhaul, data link acquisition, data center interconnection, UHV communication protection, etc.

Since the filing of the draft declaration on October 12, 2021, after less than half a year of inquiry, Decoli has ushered in the stage of review, and such a short inquiry time is rare in the proposed IPO project. However, the shorter inquiry time does not mean that there are not many problems in the enterprise, on the contrary, there are many problems in Decoli, such as the change of control during the reporting period, the lawsuit of the shareholders of the subsidiary to withdraw the capital contribution, and the transformation of the major shareholder into a major customer.

Major shareholders become larger customers

In 1999, ZTE and natural persons Wu Peichun and Wei Yu jointly funded the establishment of ZTE Optoelectronics, the predecessor of Decoli, with a registered capital of 8 million yuan, of which ZTE invested 5.2 million yuan in cash and technology, Wei Yu invested 1.04 million yuan in cash, wei Yu contributed 1.04 million yuan in cash, at that time ZTE as the majority shareholder occupied 65% of the company's shares, and the company name also had a strong "ZTE" brand.

However, after decades of operation, ZTE, the major shareholder of decoli, which is in the limelight, has chosen to withdraw from the control of the company, and at present, ZTE only indirectly holds 1.71% of the company's shares through Laterite Cham Lu and Shenzhen Venture Capital.

However, although ZTE is no longer the majority shareholder of Decoli, it still seems to "take care" of the company's development, and this feeling of disconnection cannot help but question the real reason for ZTE's withdrawal from Decoli.

According to the prospectus, from 2018 to 2020, Decoli achieved revenue of 264 million yuan, 387 million yuan and 665 million yuan, respectively, and the net profit attributable to the mother in the same period was 0.14 billion yuan, 0.47 billion yuan and 142 million yuan, respectively. From 2018 to 2020, ZTE's revenue contribution to Decoli was 0.96 billion yuan, 215 million yuan and 365 million yuan, accounting for 36.27%, 55.59% and 54.94% of the current revenue, respectively, of which in 2019 and 2020 for two consecutive years, the proportion exceeded the standard of 50% relied on by large customers, and at the same time, as of November 30, 2021, the amount of orders in hand was 400 million yuan, of which ZTE accounted for 69.5% of the time. It is precisely because of the credit of ZTE that Decoli was able to quickly meet the listing requirements of the science and technology innovation board.

It is worth mentioning that ZTE as the former major shareholder of Dekoli, today's large customers, ZTE to Decoli's purchase price is also quite favorable, the same type of products sold by Decoli to ZTE in the reporting period are lower than other customers, of which 10G 10km and below optical transceiver module products, ZTE procurement average price is 25.86% discount over other customers; 100G 80km and above optical transceiver module products, ZTE procurement average price is 22.51% discount compared to other customers Fixed gain optical amplifier products, ZTE procurement average price is 24.02% discounted compared with other customers, in this regard, although Decoli said that ZTE purchased a large amount from Decoli, the bargaining power is strong, but whether this explanation is reasonable remains to be examined.

ZTE, the founding major shareholder of Decoli, chose to withdraw when the company's development momentum was in full swing, which was relatively rare, and what was more suspicious was that ZTE became the company's largest customer after withdrawing from control, which had to make people question whether ZTE, as a business scope that coincided with Decoli, used the method of withdrawing from the control of the company to avoid competition in the same industry. That deeper thinking, how much influence can ZTE continue to exert on the operation of Decoli? And does Decoli have operational independence under the "care" of the old shareholder ZTE?

Operating cash flow is under pressure

The prospectus discloses that Decoli accounts receivable and notes receivable account for a large proportion of current assets, and with the expansion of the company's operating scale in the future, the balance of accounts receivable and notes receivable will increase accordingly.

From 2018 to the first half of 2021, the book value of Decoli's accounts receivable was 82.7724 million yuan, 74.4652 million yuan, 134.0128 million yuan and 225.145 million yuan, and the book value of the company's bills receivable was 64.4713 million yuan, 140.3519 million yuan, 188.8568 million yuan and 144.0287 million yuan, respectively, and the total proportion of accounts receivable and notes receivable in the current assets of each period was 50.30%, 54.41%, respectively. 46.21% and 51.87%, of which the commercial acceptance drafts in the company's notes receivable increased significantly, from 56.2922 million yuan at the end of 2018 to 188.9153 million yuan at the end of 2020.

The continuous expansion of the scale of accounts receivable and notes receivable has also brought great pressure to The cash flow of Decoli, from 2018 to the first half of 2021, the net cash flow of operating activities of Decoli was -0.02 billion yuan, -0.52 billion yuan, -175 million yuan and -0.3 billion yuan, which has been negative for four consecutive periods, and the operating cash flow gap has shown an ever-expanding trend.

Decoli also admitted that if the financial situation of major customers suddenly deteriorates, it will bring the risk that the company's accounts receivable and bills receivable cannot be recovered in time, which will aggravate the company's operational pressure.

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