More than 40% of Changyingtong's revenue comes from related parties Core executives have served competitors with hidden dangers

In recent years, with the continuous improvement of the engineering degree of the inertial navigation system based on the optical fiber gyro, the key technologies of the optical fiber gyroscope such as the optical fiber ring and its main material partial fiber have made major breakthroughs, the application field has been continuously expanded, the market scale has been increasing, and the rapid growth of Changfei Optical Fiber and Wuhan Changyingtong Optoelectronic Technology Co., Ltd. (hereinafter referred to as Changyingtong) has been driven.

It is reported that Changyingtong recently submitted an IPO prospectus to the Shanghai Stock Exchange Science and Technology Innovation Board, but according to the author's inquiry, the concentration of Changyingtong's customers and suppliers is relatively high, and more than 40% of the revenue comes from related party transactions. At the same time, the company and the largest supplier Offidelity Fiber have both cooperation and competition, and many core executives have served in Changfei Fiber, and there are hidden dangers in future development.

More than 40% of revenue comes from related party transactions

After years of deep ploughing in the professional field and continuous technology accumulation, Changyingtong has the ability to independent mass production of optical fiber ring and partial fiber, has a variety of optical fiber ring products and other special optical fiber products, and takes special optical devices such as optical fiber ring as the core, and has a strategy of synchronous development and mutual promotion in the relevant industrial fields such as special optical fiber, new materials, electromechanical equipment and other related industries suitable for optical devices.

From 2018 to the first half of 2021 (hereinafter referred to as the reporting period), Changyingtong achieved operating income of 139 million yuan, 178 million yuan, 215 million yuan and 111 million yuan respectively; the corresponding net profit was 22.0614 million yuan, 46.6055 million yuan, 53.9297 million yuan and 26.9583 million yuan, respectively, which shows that its operating performance as a whole shows a growth trend.

Among them, the company's sales revenue to the top five customers during the reporting period totaled 75.1943 million yuan, 128.3474 million yuan, 174.1570 million yuan and 84.2046 million yuan, accounting for 74.55%, 79.40%, 84.45% and 78.41% of the company's revenue, respectively, which exceeded 70%.

Changyingtong believes that although a stable cooperative relationship has been formed between the company and major customers, if there is an adverse change in the future cooperation with customers or changes in customer operation and credit situation, and the company fails to develop new customers in a timely manner, the higher customer concentration will adversely affect the company's operating performance.

It is worth noting that the vast majority of Changyingtong's revenue comes from related party transactions.

According to the disclosure, the Aerospace Science and Industry Group indirectly holds more than 5% of the shares of Changyingtong through the section salary management, the high investment fund and the aerospace national adjustment fund, so the unit controlled by the aerospace science and industry group and the transaction with the company is identified as a related party.

During the reporting period, the main business income of Changyingtong to Aerospace Science and Industry Group was 45.3483 million yuan, 83.0936 million yuan, 114.7564 million yuan and 43.6299 million yuan, accounting for 44.96%, 51.40%, 55.65% and 40.63% respectively.

For the relatively high proportion of related party transactions, Changying Tong said that it is mainly due to the large demand for optical fiber ring devices and special optical fiber supporting in the relevant military business of the subordinate units of the Aerospace Science and Industry Group, and the company has a long history of cooperation, and the company's products have been verified by it and used in its finalized military products. Based on this, the above-mentioned related party transactions will continue in the future. The company will actively expand other military customers and the civilian products industry market, expand the scale of business, thereby reducing the proportion of related party transactions.

Industry insiders pointed out that "related party transactions are easy to lead to problems such as interest transmission, related party payments, financial fraud, etc., and long-term high-value related party transactions will even directly affect the independence of listed companies, which is not conducive to the normal operation of listed companies." ”

During the reporting period, changying tong's accounts receivable continued to increase, at the end of each reporting period, the carrying amount of the company's accounts receivable was 66.9084 million yuan, 66.5317 million yuan, 150.8285 million yuan and 148.9720 million yuan, accounting for 36.68%, 28.92%, 49.86% and 45.76% of the current assets, and the balance of accounts receivable accounted for 51.73%, 40.32% and 75.28% of the current operating income, respectively. 144.23%。

Among them, the account receivable balances of the subordinate units of the Aerospace Science and Industry Group of Changyingtong Affiliated Company were 6.6393 million yuan, 18.6365 million yuan, 76.557 million yuan and 76.2542 million yuan, respectively, which continued to be at a high level.

This also led to a continuous decline in Changyingtong's operating cash flow. From 2018 to 2020, the company's net operating cash flow was 16.4959 million yuan, 1.8291 million yuan and -2.7399 million yuan, showing a downward trend year after year, and even negative in 2020.

Changyingtong said that in the future, if there is an adverse change in the financial situation of the relevant debtors, it may lead to delays in payment, etc., and the company may face the risk of receivables recovery and the risk of large provision for bad debts of accounts receivable, which in turn will have an impact on the company's operating conditions and cash flow.

Core executives have served as competitors with hidden dangers

Not only that, the upstream suppliers of Changyingtong also have a high degree of concentration risk, and there is a close relationship with the largest supplier, Changfei Fiber.

During the reporting period, the procurement amount of Changyingtong to the top five suppliers was 64.4795 million yuan, 46.8031 million yuan, 41.8504 million yuan and 24.7435 million yuan, accounting for 84.76%, 76.43%, 67% and 65.22% of the total procurement respectively, all of which exceeded 65%.

Among them, Changfei Optical Fiber is the largest supplier of Changyingtong, supplying special optical fiber, communication optical cable and other products. Changyingtong and Changfei optical fiber signed a procurement framework agreement on an annual basis, the company according to customer needs and its own optical fiber ring production plan, send orders to Changfei optical fiber, part of the purchased partial fiber for ring production, part of the company after the ring verification directly sold to customers, customers after purchasing their own ring, the company in the sale of outsourced partial fiber at the same time to provide customers with quality testing, glue matching testing, ring technical support and other supporting value-added services.

During the reporting period, the purchase amount of Changying To Changfei Optical Fiber was 59.6706 million yuan, 39.0216 million yuan, 31.3169 million yuan and 17.0035 million yuan, respectively, accounting for 78.44%, 63.72%, 50.14% and 44.82% of the total procurement, respectively. Although its purchase amount and proportion of long-distance optical fiber have declined, it still accounts for a higher proportion.

Changyingtong said that with the company's independent development of bias-preserving optical fiber products gradually through customer verification, into the military stereotyped product supply system, and in more new models of products applied, the proportion of procurement of Changfei optical fiber showed a gradual decline trend.

From its explanation, it can be seen that in addition to cooperation, there is also a competitive relationship between Changyingtong and Changfei Fiber. What is more interesting is that the actual controller of Changyingtong and many executives have worked in Changfei Fiber.

According to the disclosure, the chairman, president and actual controller of Changyingtong is Pi Yabin, who controls a total of 30.35% of the shares of Changyingtong, and from 1998 to 2010, he served as a technical manager and marketing director in Changfei Optical Fiber and its shareholding company, Wuhan Changguang Technology Co., Ltd.

In addition to pi yabin, the actual controller, many directors and supervisors of Changyingtong or core technical personnel have also performed their duties as Changfei Fiber, such as zhou Fei, director of the company's director, vice president, director of the marketing center, and director of the optical system business department, and from 2004 to 2009, he served as a technical manager and regional sales manager in Changfei Fiber and its shareholding company, Wuhan Changguang Technology Co., Ltd. From 2006 to 2010, Kwong Guanghua, Director of The Operation Center and Assistant to the President, was the head of marketing at Wuhan Changguang Technology Co., Ltd.

In addition, Guo Miao, secretary of the board of directors of Changyingtong, served as sales assistant, general manager secretary and administrative manager of Changfei Fiber from 2000 to 2012, and Tu Feng, a core technical personnel, served as the manager of Changfei Fiber from 2002 to 2015.

Industry insiders pointed out that the core technical personnel and key management personnel of Changyingtong have served in Changfei Optical Fiber and held important positions in Changfei Optical Fiber, so whether the core technology of Changyingtong comes from Changfei Optical Fiber and whether there is infringement of the intellectual property rights of Changfei Optical Fiber will be the focus of investors' attention.

Although Changying tong said that there are currently no disputes with Changfei Fiber over intellectual property rights and employee non-competes. However, with the major changes in the business cooperation relationship between the two parties or the demand structure of downstream military customers, major disputes between Changyingtong and Changfei Optical Fiber in terms of intellectual property rights and non-competes may occur, which will affect the stability of the company's above business and adversely affect the company's operating performance.

(Proofreading/New)