With Tesla's sharp price reduction at the beginning of the year, the intelligent competition in China's new energy vehicle market has become intense. Data show that the penetration rate of new energy passenger vehicles in China will reach 27.6% in 2022, and with the rapid recovery of the intelligent driving track, the high-end intelligent driving field will be fully contested in 2023.
The intelligent driving industry is composed of independent modules such as chips, algorithms, sensors, etc., to system integration, to vehicle production and sales, and finally to travel service applications, the main types of companies include chip companies, L4 driverless companies, sensor companies, system suppliers, vehicle manufacturers and mobility service companies.
In the technical route of automatic driving, the most representative is Tesla's pure vision solution, relying only on the camera and algorithm to carry out automatic driving. Most Chinese manufacturers choose the direction of integrating multiple sensors such as lidar and cameras.
As an application scenario just needed by artificial intelligence, autonomous driving has always been a hot spot for capital and startups. With the rapid development of the intelligent driving industry, more and more practitioners related to the industrial chain have poured into the market.
Founded in 2013, Zongmu Technology is one of the earliest entrants in the field of autonomous driving in China, mainly engaged in the research and development, production and sales of automotive intelligent driving systems.
Recently, Zongmu Technology replied to the review inquiry of the science and technology innovation board, which marks that the company is one step closer to the first A-share autonomous driving share.
Tang Rui, the head of science and technology! In 1991, he studied in the Department of Electronics of Tsinghua University, went to Silicon Valley in early 2000 to do chip technology for 14 years, and served as the global senior engineering director of the automotive business group of CSR (now acquired by Qualcomm) in the United Kingdom, responsible for the research and development of all automotive chips of CSR, and managed the definition and research and development of automotive semiconductor products of more than 230 million US dollars per year. In 2012, based on the original intention of promoting assisted driving and automatic driving, Tang Rui created Zongmu Technology, switching from chips to assisted driving.
Looking through the prospectus, Huiju Finance found that Zongmu Technology reminded in the prospectus that the company's unprofitable state may continue to exist in a certain period of time in the future, and may face the risk of delisting after listing! Companies that are not yet listed and indicate the risk of delisting in the prospectus are really rare.
According to the prospectus, Zongmu Technology is mainly engaged in the research and development, production and sales of automotive intelligent driving systems, positioned as a supplier of front-loading mass production systems for passenger cars, and provides vehicle manufacturers with intelligent driving systems composed of intelligent driving control units, cameras, ultrasonic sensors, millimeter-wave radars and other hardware and supporting software and algorithms.
At present, the company's intelligent driving system can provide low-speed intelligent driving functions covering L0 to L4 levels, and the mass-produced functional products include panoramic surveillance image function products, automatic parking assistance function products and autonomous parking function products during the reporting period. Among them, the cumulative shipment of panoramic surveillance image function products during the reporting period was nearly 400,000 sets.
During the reporting period, the revenue of Zongmu Technology to the top five customers was 44.4081 million yuan, 74.8654 million yuan, 163.3986 million yuan and 77.7161 million yuan, accounting for 89.42%, 89.31%, 71.84% and 86.32% of the revenue, respectively.
The actual controller Tang Rui is an American national
Mother and son control 33.30% of the voting rights
According to the prospectus, the controlling shareholder of Zongmu Technology is Hong Kong Zongmu, which directly holds 22.17% of the shares of Zongmu Technology, and the actual controller of Zongmu Technology is Tang Rui, a US nationality with Chinese mainland permanent residency, and its concerted action is Li Xiaoling (Tang Rui's mother). Tang Rui holds 100% of the shares of Hong Kong Zongmu through ZongmuTechnology, indirectly controls 22.17% of the shares of Zongmu Technology, and controls 1.92% and 1.31% of the shares of Zongmu Technology through Shanghai Haomu and Shanghai Zongmu respectively; Li Xiaoling, the concerted actor of Tang Rui, is the managing partner of Ningbo Zongmu and Ningbo Tianzong, controlling 6.35% and 1.56% of the shares of Zongmu Technology through Ningbo Zongmu and Ningbo Tianzong, respectively. Tang Rui and his concerted actors collectively control the voting rights corresponding to 33.30% of the shares of Zongmu Technology.
In addition, according to the reply letter, according to the actual controller, chairman and general manager Tang Rui's capital flow, he himself prefers financial management, during the reporting period, the financial investment was 500,000 yuan, 100,000 yuan and 2.8 million yuan respectively, in addition, its housing sales income in 2019 was 1.93 million yuan, and the total expenditure of children's study abroad expenses in the first three quarters of last year was 1.1608 million yuan.
Xiaomi Industrial Fund is the fifth largest shareholder
It is worth mentioning that behind Zongmu Technology, a number of well-known investment institutions gathered, including Qualcomm Holdings, Legend Capital, Xiaomi Yangtze River Industrial Fund, etc.
Among them, in May 2021, Xiaomi Industrial Fund spent about 212 million yuan to transfer relevant shares from the original shareholders of Zongmu Technology at a price of 43.45 yuan per share.
Since then, it has received its newly issued shares at a price of 56.48 yuan per share, and Xiaomi Industrial Fund currently holds about 4.73% of Zongmu Technology's shares, making it its fifth largest shareholder.
In addition, Lenovo's subsidiaries, Legend Chengye, Xiuyue Investment and Lianrui Frontier, hold a total of 9.94% of the shares of Zongmu Technology.
The equity transfer and capital increase were in the same month
Spread disparities were questioned
Looking through the prospectus, Huiju Finance found that during the reporting period, Zongmu Technology carried out a total of 10 capital increases and 6 equity transfers, and a relatively strange phenomenon appeared in the equity transfer. In December 2021, Ningbo Zongmu, an employee shareholding platform of Zongmu Technology, transferred 2,262,859 shares to Dongyang Guanding at a transfer price of 56.48 yuan per share, and in the same month, Dongyang Guanding increased its capital by 3,978,129 shares, with a capital increase price of 93.56 yuan per share, and the price of the subsequent capital increase was 1.66 times the previous equity transfer price. It is worth noting that the above-mentioned equity transfer and capital increase occurred in the same month, and the equity transfer price was 37.08 yuan / share lower than the capital increase price. What is the reason, whether the pricing is fair, and is there a situation of profit transmission? In addition, Huiju Finance also found that the equity transfer prices from February to July 2022 were also low.
In this case, the SSE requires an explanation of the reasons and reasonableness of the low equity transfer price, and whether the transferor and the transferee have an affiliation or other interest arrangement.
The explanation given by Zongmu Technology is surprising, the company said that it is a market practice to give a discount on the basis of the same equity transfer price lower than the capital increase price, and the investment money paid directly to the company at the time of capital increase can increase the company's net assets, which can increase the company's net assets, can increase the company's funds that can be invested in business development, and directly benefit the company's future development, while the investment money during the equity transfer is directly paid to the equity transferor, without increasing the company's net assets, so the equity transfer price is usually given a certain discount on the basis of the same or the latest capital increase price.
Institutions cashed out at low prices and were tortured
In addition, Huiju Finance noted that from March to July 2022, three institutional investors, Defeng Jiarun, Changzhou Fenghao and Keboda Investment, cashed out of the market, with a transfer price between 70.17 yuan per share and 84.20 yuan per share. Among them, Defeng Jiarun cashed out about 50 million yuan, Changzhou Fenghao cashed out about 32.3 million yuan, and Keboda invested in 51.35 million yuan.
It should be noted that in March 2017, November 2017 and June 2018, Defeng Jiarun invested in the form of capital increase and share increase and equity transfer, and this time, 356,295 shares and 251,490 yuan were transferred at 84.20 yuan per share and 79.53 yuan per share in March 2022, respectively, cashing out 30 million yuan and 20 million yuan.
Zongmu Technology itself also took the opportunity to cash out in July 2022, transferring 165,000 shares at a transfer price of 72.98 yuan per share, cashing out 12.04 million yuan.
According to Zongmu Technology, the transfer of shares held by shareholders from February to July 2022 at a price lower than the capital increase in the same period is in line with market investment practices, and the transferor of the equity transfer transfers the shares of the issuer based on its own capital needs and in order to obtain investment returns, and the transferee is optimistic about the development prospects of the autonomous vehicle industry and the development strategy of the issuer, so it acquires shares by transferring the shares of the issuer's old shareholders at a preferential price.
The private placement in which the customer Changan Automobile participated was tortured
According to the prospectus, in May 2020, Zongmu Technology and Chongqing Changan Automobile Co., Ltd. (hereinafter referred to as "Changan Automobile") signed a product development contract and formally reached a cooperation.
In April 2021, Changxin Zhiqi, more than 10 external investors, including Shanghai Science and Technology Investment, Fosun Chongqing, Tongchuang Fund and Qualcomm Holdings, each invested in the issuer at RMB 43.45 per share ("D2 round of financing pricing"). Changxin Intelligent Automobile is a private equity fund of Changan Automobile, a customer.
Zongmu Technology explained that Changan Automobile is optimistic about the development prospects of the company and its industry, recognizes the company's technology and development strategy, and based on the professional management needs of investment, Changan Automobile decided to invest in the company with its private equity fund Changxin Zhiqi as the investment entity; At the same time, securing investment from well-known automakers will help strengthen the company's visibility in the automotive industry.
The customer Changan Automobile's shareholding also led to questions from the Shanghai Stock Exchange, requiring clarification on the necessity and reasonableness of the introduction of customers and supplier shareholders and related transactions, the fairness of the shareholding/transaction price, and whether the transaction content, scale, price and conditions before and after the shareholding have changed greatly.
Revenue was much lower than that of peers
The loss in the past four years exceeded 1.2 billion
Huiju Finance noted that Zongmu Technology is expected to achieve main business income of 487 million yuan in 2022, an increase of 114.95% over the whole year of 2021. From 2019 to the first quarter of 2022, the company's operating income was only 49.6601 million yuan, 83.8304 million yuan, 227.4548 million yuan and 90.0348 million yuan, which was far lower than comparable companies in the same industry. The company's main source of revenue is automatic parking assistance function products, and the company's L2 level automatic parking assistance function products have been mass-produced on nearly 20 models such as AITO M5 and FAW Hongqi H9.
Although the revenue increased significantly, Zongmu Technology suffered a significant loss of 586 million yuan in 2022, compared with a loss of 416 million yuan in 2021, a year-on-year loss. The company further strengthened the investment of R&D resources, established a sound management system, expanded the sales network, and continued to increase expenses during the period.
Huiju Finance noted that from 2019 to the first three quarters of 2022, the net profit attributable to the parent of Zongmu Technology suffered losses of about 160 million yuan, 209 million yuan, 416 million yuan and 420 million yuan, respectively. The non-net profit was -180.421 million yuan, -229.3599 million yuan, -425.6313 million yuan and -433.9923 million yuan respectively, and the cumulative loss in three years and nine months reached 1.205 billion yuan.
In the inquiry, the SSE asked to analyze the reasons why the company has not yet made a profit and there is a large accumulated uncovered loss in the latest period, and explain whether there is significant uncertainty in the company's future profitability in combination with the decline in R&D service revenue, the company's acquisition of fixed points and the development cycle.
Zongmu Technology further said that the reason why the company has not yet made a profit and there is a large cumulative uncovered loss in the latest period is mainly due to the relatively low penetration rate of the intelligent driving industry, which is in the stage of rapid growth, and the company's reporting period is in the stage of mass production climbing, with small revenue scale, large R&D investment, low gross profit margin, and high expense ratio, and it is expected to achieve a turnaround in 2025-2026.
In each period of the reporting period, the gross profit margin of the company's main business was 10.75%, 16.43%, 13.21% and 16.81% respectively, and the gross profit margin of each product and service varied greatly, and in 2019 and 2021, the gross profit margin of the company was lower than the industry average.
Net operating cash flow continued to be negative
The cash outflow gap is growing
In addition, Huiju Finance found that the cash outflow gap of Zongmu Technology is increasing. In each period of the reporting period, the net cash flow of the company's operating activities was -11,346,200 yuan, -19,789.12 million yuan, -46,387.37 million yuan and -54,063.56 million yuan, and the difference rates between net cash flow from operating activities and net profit were 30.29%, -5.38%, 11.60% and 28.77% respectively.
We all know that net cash flow from operating activities reflects the self-accumulating ability of a company's funds. From the data point of view, the cash flow situation of Zongmu Technology is worrying, and the cash flow gap from operating activities expanded to -541 million yuan in the first three quarters of 2022, while the cash flow gap from operating activities in 2021 was -464 million yuan, which continued to deteriorate. The cash flow gap of Zongmu's technology operating activities is affected by continuous losses and increased inventory stocking, and there is a risk that it will continue to expand.
Regarding the continued negative net operating cash flow, the SSE required clarification on whether it had a significant impact on the company's ability to resist risks and continue as a going concern.
The company said that the main reason for the continued negative cash flow from operating activities is the continuous loss, the rapid expansion of the scale of operating current assets such as inventory and receivables, and the company's main reliance on cash flow from financing activities.
Zongmu Technology further explained that due to the expansion of revenue scale and the shortage of some chips, the company increased the inventory of raw materials, and the book balance of raw materials in each period of the reporting period was 13.9861 million yuan, 20.8368 million yuan, 164.0603 million yuan and 348.6593 million yuan, since 2021, the revenue growth rate has been relatively fast, the balance of raw materials and other inventory has increased significantly, and the increase in inventory has occupied more working capital.
As for the reasons for the loss, the company said that the rapid growth rate of expenses and the high expense ratio during the reporting period were one of the important reasons for the loss. The main component of the expenses during the period was employee compensation, which amounted to RMB122.619 million, RMB161.0591 million, RMB293.835 million and RMB286.7467 million respectively.
Whether they are sufficiently resilient to risk are questioned
Huiju Finance noted that the current autonomous driving related enterprises and industries have recently encountered great difficulties, corporate bankruptcy, a sharp decline in revenue capacity, Volkswagen and Ford's self-driving company ArgoAI for many years went bankrupt, Tesla's self-driving business laid off a large number of employees, Mobileye IPO for the second time, but the valuation was significantly lower than expected, and NVIDIA's stock price fell sharply.
In view of the single technology business, small revenue scale, cash flow mainly relying on financing, a large number of operating difficulties or declining valuations of industry leaders, etc., SSE asked whether the company has sufficient anti-risk ability and meets the requirements of the Administrative Measures for the Registration of Initial Public Offerings that the issuer has the ability to operate independently directly facing the market.
In this regard, Zongmu Technology said that the company is positioned as a first-level system supplier oriented to front-loading mass production and adopting a gradual route of development, with customers mainly domestic independent brands and China's huge market, on the one hand, R&D investment in the L2+ level market and actively promoting commercialization, on the other hand, the autonomous driving business at the L0-L2 level has achieved a certain scale of mass production revenue, and maintained high growth, and the operating conditions have improved. These increases have boosted the company's valuation, with the company's latest round of external financing reaching a pre-investment valuation of 8 billion yuan, attracting many investors and raising 867 million yuan.
It has deep technical accumulation and rich project reserves in the field of parking, driving and parking, and it is expected that the future revenue will be more diversified, and continue to maintain rapid growth, continuous improvement in operating conditions, and sufficient anti-risk ability.
Cialis is the largest customer, accounting for 50.7%;
According to the prospectus, the revenue of customers such as Cialis Automobile, Lantu Automobile, Changan Automobile, and Li Auto maintained growth, contributing about 50% of the revenue, and the cumulative revenue of the top five customers accounted for nearly 70% during the reporting period, contributing most of the revenue.
The total sales amount of the company's top five customers accounted for 89.42%, 89.31%, 71.84% and 83.97%, accounting for relatively high, Zongmu Technology said that from January to September 2022, Cialis Automobile M5 and M7 models have entered the mass production stage, and the models have been favored by consumers after they are listed, becoming best-selling models, with higher orders and settlements, and Cialis Automobile has become the largest customer. In addition to the continuous increase in sales of the mass-produced model (Li ONE) in the current period, the new model L9 entered the mass production stage, and the sales volume was good, contributing a large amount of revenue, and it entered the ranks of the top five customers from January to September 2022.
This supplier "exceptionally" cooperated the same year it was founded
The registered capital of the two suppliers is small
It is worth mentioning that Huiju Finance found that there are 3 "abnormalities" among the suppliers cooperated with Zongmu Technology. Among them, Mantu Sensing Technology (Wuxi) Co., Ltd. (hereinafter referred to as: Mantu Technology) was established on March 22, 2021, with a registered capital of 10 million yuan.
It should be pointed out that Mantu Technology is among the top five chip suppliers of Zongmu Technology in 2021, with a procurement amount of 20.7339 million yuan.
The company explained that Mantu Technology is a chip trader, due to the shortage of chips in 2021, the company purchases spot chips from the supplier, and the company selects suppliers based on factors such as supply capacity and relative price, which is reasonable, and does not cooperate with related parties of suppliers.
In addition, Huiju Finance also noticed that the other two suppliers of Zongmu Technology, Chongqing Dingjing Electronic Technology Co., Ltd. and Shanghai Ruiqin Electronic Technology Co., Ltd., both have a registered capital of only 2 million yuan, and the registered capital amount is low.
Why does Zongmu Technology choose a company with a small registered capital as a supplier? In the reply to the audit inquiry letter, Zongmu Technology said that Chongqing Dingjing Electronic Technology Co., Ltd. is a wire harness and connector supplier, the company selects the supplier for procurement based on factors such as product price and quality, the supplier has been established for a long time, the scale of transactions with the company is small, the company's transactions with the supplier meet the needs of production, are reasonable, and do not cooperate with the supplier's related parties. Shanghai Ruiqin Electronic Technology Co., Ltd. is a R & D equipment trader, the company based on price and quality and other factors to select the supplier for procurement, the supplier has been established for a long time, the scale of transactions with the company is small, the company's transaction with the supplier meets the needs of research and development.
The ratio of receivables to revenue is higher than the peer average
During the reporting period, the company's receivables (including accounts receivable, notes receivable and receivables financing) were 27.7357 million yuan, 74.5845 million yuan, 199.0596 million yuan and 223.1788 million yuan respectively, which continued to increase significantly. The proportion of operating income was 63.79%, 61.03%, 60.15% and 49.00% respectively, and the proportion of operating income in the first three years was high and increased significantly, much higher than the average of comparable companies. Huiju Finance noted that the average values of comparable companies were 41.11%, 44.51%, 38.20% and 35.74%, respectively.
The company explained that the company's revenue is in a high-speed growth stage, and the scale and proportion of revenue in each quarter show an overall upward trend, and the annual revenue growth rates from 2020 to 2022 are 68.81%, 171.33% and 92.92% respectively (of which the growth rate in 2022 is calculated based on the annualized situation from January to September). From 2019 to September 2022, the proportion of revenue to the annual revenue in the last quarter was 19.34%, 60.93%, 43.51% and 45.74%, respectively, and the corresponding receivables of this part of the income were all within the credit period and had not yet been collected, which increased the balance of accounts receivable at the end of the period, resulting in a large proportion of receivables in operating income.
There are 700 million on the books but 200 million short-term borrowings
Working capital is stretched
Huiju Finance noted that at the end of each period of the reporting period, the company's monetary funds plus trading financial assets (hereinafter referred to as funds) were 69.4947 million yuan, 58.9604 million yuan, 799 million yuan and 703 million yuan, respectively, which can be said to be quite sufficient cash reserves. The total amount of various borrowings was RMB52.2142 million, RMB83.4339 million, RMB134.7355 million and RMB147.7952 million respectively, mainly short-term borrowings of RMB43.5216 million, RMB76.3516 million, RMB109.2693 million and RMB218.7452 million respectively, of which more than RMB100 million was still newly borrowed in 2022.
In response to this situation, the SSE also questioned the reasoning and reasonableness of the company's need to borrow a large amount of short-term loans even if it had a large amount of funds on its books.
In this regard, Zongmu Technology gave its own explanation, combined with the cash flow forecast for 2022 and 2023, the company's net cash flow from operating activities and investment activities in the short term is still negative, and the funding gap is large. At the end of 2021, the company's cash holdings were 799.0988 million yuan, and the existing funds could not cover the operating needs of the following year, and it still needed to obtain 514.8226 million yuan of cash through financing in 2022 and 801.8704 million yuan through financing in 2023. Out of prudence, the fund holdings will be kept in a relatively stable state through short-term borrowing in 2021 and 2022, so as not to affect the company's daily production and operation activities due to insufficient funds in the subsequent period.
The above explanation is not difficult to see that the working capital situation of Zhenmu Technology is stretched!
Associate Professor of Beijing Jiaotong University and stealth external advisor
The three-year remuneration is 3.3909 million yuan
The reply letter disclosed that among the partners of Ningbo Zongmu, there were 4 external consultants, and the specific services provided by them involved financial management consulting and preparation of bidding documents, assisting in reporting smart city project plans and marketing publicity to customers, and seeking potential business opportunities in the US market, etc., Zongmu Technology confirmed a total of 2.5246 million yuan in share-based payment expenses and paid remuneration of 3.3909 million yuan, these four external consultants were Yang Xiaoli, Cai Junhui, Song Yu and Huang Zhe.
Huiju Finance noted that Song Yu is an associate professor in the Department of Automation, School of Electronic and Information Engineering, Beijing Jiaotong University, and his main research directions are autonomous driving, SLAM, multi-source fusion state estimation, environmental perception modeling and understanding, and is a well-known expert consultant in the intelligent driving industry. From July 20, 2018 to October 31, 2021, Song Yu served as a consultant to Zongmu Technology to provide professional consulting services such as development direction and investment planning in the field of automotive autonomous driving, and provided technical guidance for R&D projects.
In 2019, 2020 and 2021, Zongmu Technology paid Song Yu 645,400 yuan, 1,180,000 yuan and 1,565,500 yuan respectively, and a three-year reward of 3,390,900 yuan. In addition, Song Yu's shareholding platform Ningbo Zongmu was also granted a capital contribution of 15,568 yuan, with a grant price of 2.83 yuan per share and 14.24 yuan per share, respectively, and a total share payment of 807,100 yuan. In this regard, the SSE requires clarification on whether there is commercial bribery or other benefit transmission through such persons.
In the past 4 years, it has lost 1.2 billion yuan in a row, and it has not yet been listed to remind the risk of delisting, whether Zongmu Technology, which has limited working capital, can be successfully listed, Huiju Finance will continue to pay attention to it in the future!