On March 19, Shanghai Yingfeng Electronics updated the reply to the third round of inquiries for the GEM IPO review. Dolphin Finance noticed that it is relatively rare for IPO companies to go through three rounds of regulatory inquiries. Taking 2022 as an example, there are a total of 402 companies planning to IPO on the GEM, and only 87 companies have gone through three rounds of inquiry, accounting for less than 22%. According to incomplete statistics from Dolphin Finance, as of March 20, 2024, there are 74 companies that have updated their opinions on IPOs on the GEM of the Shenzhen Stock Exchange, of which only 8 are in the third round, accounting for about 11%.
In addition, a total of 12 A-share IPO companies will be rejected in 2023, of which 6 will be rejected due to the problems of sustainable operation, growth, and gross profit margin, accounting for half of the rejected companies. Dolphin Finance noticed that these three questions happened to be the topics that Eagle Peak Electronics was repeatedly questioned by the exchange in the three rounds of inquiries, and behind these questions, they are closely related to BYD, the largest customer of Eagle Peak Electronics.
Success is also BYD, defeat is also BYD
According to the prospectus, Yingfeng Electronics is a manufacturer of passive components for power electronics, mainly engaged in the research and development, production and sales of capacitors, inductors, busbars, resistors and other products, and its products are used in new energy vehicles, wind power photovoltaics, industrial automation and other fields. From 2020 to 2022, the operating income of Yingfeng Electronics will be 482 million yuan, 877 million yuan, and 1.482 billion yuan respectively, and the net profit attributable to the parent company will be 26 million yuan, 43 million yuan, and 104 million yuan respectively.
Dolphin Finance noticed that Eagle Peak Electronics has not yet been listed, and its performance has begun to show signs of slowing down or even declining. In 2023, Yingfeng Electronics' operating income will decline by 5.91% year-on-year, and the net profit attributable to the parent company after deducting non-profits will decrease by 3.05%.
In the first quarter of 2024, Yingfeng Electronics expects an operating income of about 317 million yuan, a year-on-year increase of about 1%, a net profit of about 22 million yuan, a year-on-year decrease of 4%, and a net profit of about 22 million yuan, a year-on-year increase of 4%.
Judging from the prospectus, the performance of Yingfeng Electronics in 2023 will stagnate, and the performance in 2024 will not be optimistic, and the uncertainty of future growth will increase greatly.
In addition, according to the estimated adjusted financing amount of Eagle Peak Electronics, its issue price is 25.16 yuan per share, which is significantly higher than the valuation of comparable companies listed in its prospectus. If growth slows or there is no growth in the future, current valuation levels are likely to be under pressure.
From the perspective of revenue sources, the revenue of the new energy vehicle field will decrease by 16.03% year-on-year in 2023, and the gross profit margin will decrease by 3.13%, which is a large decline. In the prospectus, Yingfeng Electronics explained that the decline in the company's main business income in 2023 is mainly due to the large decline in revenue from the sale of products to BYD.
Dolphin Finance noted that the revenue of Yingfeng Electronics has grown rapidly in the past few years, mainly due to the expansion of its revenue scale in the field of new energy vehicles.
According to the prospectus, the products of Yingfeng Electronics were mainly used in the fields of wind power photovoltaic and industrial automation in the early days, and in 2020, the revenue of these two fields of Yingfeng Electronics accounted for 86.23%. Starting from 2021, Yingfeng Electronics' business focus will be tilted towards the field of new energy vehicles.
From 2020 to 2022, the revenue scale of Yingfeng Electronics in the field of new energy vehicles reached 49 million yuan, 323 million yuan, and 927 million yuan respectively, accounting for 10.29%, 37.26%, and 63.70% of the revenue respectively. In the past three years, Yingfeng Electronics has achieved a compound growth rate of 334.52% in the field of new energy vehicles.
The success of Yingfeng Electronics in the field of new energy vehicles is inseparable from BYD's strong support. In 2020, BYD was only the fifth largest customer of Yingfeng Electronic New Energy, and in 2021 and 2022, BYD became its largest customer.
From 2020 to 2022, the company's sales revenue to BYD will be 24.5701 million yuan, 215.5273 million yuan, and 627.0145 million yuan respectively, and the sales revenue from BYD will account for 5.15%, 24.89%, and 43.11% of Yingfeng Electronics' main business income respectively, accounting for 49.0%, 66.9%, and 67.6% of the sales revenue in the field of new energy vehicles in the same period.
However, in 2023, the momentum of Yingfeng Electronics' rapid growth will come to an abrupt end. In 2023, Yingfeng Electronics' sales revenue to BYD will fall to 446 million yuan, a year-on-year decrease of 28.8%.
In the reply to the third round of regulatory inquiries, Yingfeng Electronics said that its performance in 2023 and 2022 will be basically the same, with gross profits of 311 million yuan and 313 million yuan respectively, showing signs of stagflation. Among them, the gross profit margin of the new energy vehicle field fell from 179 million yuan in 2022 to 126 million yuan, a decrease of 30%;
Profits can be grown, and growth is sustainable, which is a necessary element for a healthy listed company. The growth, sustainability and gross profit margin of Yingfeng Electronics' three rounds of continuous questioning by the regulator are actually closely related, and the business related to BYD is the top priority of the investigation.
The stagnation of Yingfeng Electronics' performance is closely related to BYD. According to the prospectus, Yingfeng Electronics sells two major products to BYD: film capacitors and step-up inductors.
Let's start with film capacitors. In 2023, Yingfeng Electronics' sales to BYD will be 679,200 pieces, a year-on-year increase of 36.21%, however, in the second half of 2023, the unit price of automotive-grade film capacitor products sold by Yingfeng Electronics to BYD will decrease by 32.74% month-on-month and 49.15% year-on-year, and the price will almost be cut in half, resulting in a year-on-year decrease of 36.50% in sales revenue.
After the sharp price reduction, the gross profit margin of Yingfeng Electronics' automotive-grade film capacitor products for BYD in the second half of 2023 will only be 6.22%, a year-on-year decrease of 9.65 percentage points.
It is worth noting that the trend of price reductions is not over. Yingfeng Electronics admitted frankly in the prospectus that BYD began to adopt the electronic bidding model to determine product suppliers and supply prices at the end of 2022, and the product supply prices determined by this model were relatively low, which made the sales unit price of vehicle-grade film capacitor products sold by Yingfeng Electronics to BYD show a downward trend.
Combined with the substantial expansion momentum of the production capacity of domestic automotive-grade film capacitor products, the price of products will be further pressured in the future, and the gross profit margin level of Yingfeng Electronics on this product may be difficult to withstand the fierce price competition in the industry.
In terms of vehicle-grade boost inductors, Yingfeng Electronics has also encountered the tragic reality of rising sales and halved prices.
In 2022, Yingfeng Electronics will sell 797,100 sets of step-up inductors to BYD, and 803,400 sets in 2023, of which, in the second half of 2022 and the first half of 2023, Yingfeng Electronics' sales ratio of step-up inductors supporting BYD's plug-in hybrid vehicles will be higher than 80%.
From the second half of 2023, BYD began to introduce new suppliers of automotive-grade step-up inductors, the matching ratio of Yingfeng electronic products was reduced to 36.34%, and the number of automotive-grade step-up inductors sold was 344,000 pieces, a year-on-year decrease of 50.99%.
In addition to halving sales, in the second half of 2023, the unit price of automotive-grade boost inductor products sold by Yingfeng Electronics to BYD decreased by 33.24% month-on-month and 39.78% year-on-year from the same period last year. Affected by this, in the second half of 2023, the gross profit margin of Yingfeng Electronics' step-up inductor products for BYD fell by 18.68 percentage points year-on-year.
Although Yingfeng Electronics argued in the reply letter that the amount of revenue and gross profit from BYD did not account for more than 50% of the company's operating income and gross profit, the company did not rely on BYD significantly. However, judging from the financial data in the second half of 2023 and the first quarter of 2024, the sales and price "double killing" of BYD's two major products has seriously affected the growth of Yingfeng Electronics, and in 2024, the negative impact of BYD's price reduction on its performance will be further revealed.
In addition, Yingfeng Electronics also admits that there is a significant dependence on BYD for automotive-grade step-up inductor products.
BYD's semi-annual bidding model has a great impact on Yingfeng Electronics, which has essentially led to the phenomenon of "increasing revenue without increasing profits", and even increasing income and reducing profits. In the new energy vehicle industry, other manufacturers are expected to keep up with BYD, and the procurement bidding model will have a fatal impact on the company's future product prices and gross profit margins.
The exchange inquired three times about the reasonableness of the gross profit margin
Normally, the unit price of the product is proportional to the profit, and the price increase will increase the profit, and the price will fall if the price falls. However, the prospectus shows that the unit price of BYD products of Yingfeng Electronics has plummeted, and its contribution to the change in gross profit margin has only decreased by 3.7 percentage points, and the gross profit margin of the overall product has only decreased by 2.13 percentage points. Such a contradictory phenomenon has caused the Shenzhen Stock Exchange to repeatedly ask in three rounds of inquiry letters the reasons and reasonableness of the price changes of Yingfeng electronic products that have little impact on the changes in gross profit margin.
For example, in 2022 and 2023, the average unit price of Yingfeng electronic capacitor products will decrease by 23.61%, but the gross profit margin will increase from 12.33% to 13.26%, and the average unit price of inductor products will decrease by 22.6%, and the gross profit margin will decrease from 25.09% to 16.72%.
The exchange's three rounds of inquiries focused on the issue of gross profit margin, which also showed that it was not satisfied with the authenticity and completeness of the relevant disclosures and responses of Eagle Peak Electronics and its sponsors.
The issue of gross profit margin will generally become the primary risk in financial information disclosure, and in more serious cases, it will be regarded as a major matter to remind investors to judge the business risk. In practice, gross profit margin is the most easily manipulated link, such as the change of revenue recognition time, and its authenticity, completeness and cut-off correctness will have a significant impact on gross profit margin, so it is also one of the most critical aspects of the audit, and will also be the focus of regulatory attention.
As far as Eagle Peak Electronics is concerned, the contradiction of the aforementioned gross profit margin was not clearly stated in the initial prospectus, but after three rounds of regulatory inquiries, the key was finally revealed, that is, to adjust the sales proportion of different products, Eagle Peak Electronics also said that this is the company's sales strategy. In fact, in the two major fields of wind power photovoltaic and industrial automation, the sales proportion of related products has also been adjusted, so as to achieve the effect of strengthening the average gross profit margin.
In response to the problem of contradiction in gross profit margin, Yingfeng Electronics mentioned three ways in the reply letter: product structure optimization, customer diversification, cost reduction and efficiency increase.
Among them, the essence of product structure optimization is to reduce the sales proportion of low-margin products. For investors, this effectively obscures the true state of the main business. This method is not a positive signal for the fixed cost allocation, cash flow, market share, etc. of Eagle Peak Electronics, and will also affect customer satisfaction and loyalty, for example, when Eagle Peak Electronics actively reduces the supply of a customer, customers must seek alternatives from other channels or companies.
In terms of customer diversification, in 2022 and the first half of 2023, the sales proportion of the top five customers of Yingfeng Electronics will be 62.25% and 59.13% respectively, which is not much change. Yingfeng Electronics said that there were no new customers in the top five customers in each period of the reporting period. Overall, it doesn't seem to have made significant progress in customer diversification.
Not only that, Yingfeng Electronics's dependence on a single large customer, BYD, is actually increasing. According to the reply letter, in 2021, 2022 and the first half of 2023, among its top five accounts receivable customers, BYD's proportion is getting higher and higher, from 51.29% all the way to 85.67%, and accounts receivable have also soared from 141 million yuan to 404 million yuan.
In the first half of 2023, Yingfeng Electronics' accounts receivable to BYD accounted for almost 57.55% of its revenue, and its dependence on a single large customer is obvious.
During the reporting period, the total amount of Yingfeng electronic notes receivable, accounts receivable and accounts receivable financing was 306 million yuan, 562 million yuan, 722 million yuan and 763 million yuan respectively, accounting for 74%, 70%, 64% and 71% of current assets respectively. In the future, if there is a change in the customer's settlement method or the company's inability to collect the payment in a timely manner, it will adversely affect its operating efficiency or performance.
Aggressive expansion may lead to overcapacity
Dolphin Finance noted that Yingfeng Electronics originally planned to raise 1.23 billion yuan, of which 660 million yuan was used for an annual output of 6 million sets of vehicle-grade film capacitor projects, 200 million yuan for an annual output of 10,000 tons of metal soft magnetic powder core projects for new energy, 70 million yuan for R&D center projects, and another 300 million yuan to supplement working capital.
However, the 660 million yuan film capacitor expansion project attracted inquiries from the exchange. In the second round of inquiry letters, the Shenzhen Stock Exchange asked Yingfeng Electronics to explain whether the expansion of production in the same industry has a significant adverse impact on the capacity digestion of its fund-raising projects and the sustainability of future revenue growth, and whether there is a risk of overcapacity.
According to the prospectus, the competition in the automotive-grade film capacitor market is fierce. According to NE data, in 2021 and 2022, Farah Electronics will have a market share of 41.2% and 35.4% in the field of DC support (DC-Link) film capacitors for new energy vehicles, respectively, and Farah Electronics is also one of BYD's automotive-grade film capacitor suppliers. In March 2023, Farah Electronics announced that it plans to invest 2.6 billion yuan to build a film capacitor production base project for new energy, and it is estimated that the expansion scale of Farah Electronics' film capacitors will be more than 10 million sets.
In addition, Nichcon, which currently has an annual production capacity of 1 million sets of film capacitors, also announced an expansion of 4 million sets, and Tongfeng Electronics expanded its production capacity by 1 million sets, and the first phase has been put into operation in August 2022. In August 2023, Wang Zixin issued a fixed increase announcement, planning to expand 2.8 million film capacitors for new energy vehicles, and plans to put them into production in 2026.
According to the conservative calculation of the above data, in the past two years, domestic manufacturers have announced the expansion of production capacity of film capacitors for new energy vehicles by 18 million sets, plus the 6 million sets of Yingfeng Electronics plans to expand production, by 2026, the domestic film capacitor production capacity for new energy vehicles will be as high as 24 million sets, plus the existing 6 million sets of production capacity, the total production capacity will exceed 30 million sets. According to the data cited in the reply letter, Yingfeng Electronics will sell 16 million new energy vehicles in mainland China in 2026, and according to this calculation, there will be 47% overcapacity of vehicle-grade film capacitors by then, and in 2030, 20 million new energy vehicles will be sold in mainland China, and there will still be a surplus of 33% of vehicle-grade film capacitors.
It can be seen that the date when the Yingfeng Electronics fundraising project is put into production, there is a high probability that the industry's production capacity is oversaturated. And overcapacity can only lead to a tragic price war. At present, when the industry's production capacity has not been greatly improved, BYD has lowered the price of Yingfeng Electronics' film capacitors by 50% within a year through the procurement model of semi-annual bidding, which also shows that the threshold of this industry is not high and there are many competitors.
The aggressive expansion plan in the Eagle Peak electronic prospectus is obviously not carefully researched. This is why, after the second round of regulatory inquiries, Yingfeng Electronics hurriedly lowered the fund-raising target to 880 million yuan, a decrease of about 28.5%; related investment projects have also significantly reduced the production scale, the original plan to expand to 6 million sets of film capacitor project to 4 million sets, a decrease of 33.33%; the new energy metal soft magnetic powder core project has also been reduced from the original plan of 10,000 tons of annual output to 6,000 tons, a decrease of 40%.
The expansion scale of 4 million sets is 2.6 times the output of film capacitors of Yingfeng Electronics in 2022, and it is still doubtful how to digest the huge production capacity in the future.
He has cooperated with suppliers to defraud loans in violation of regulations
According to the prospectus, there were a number of dishonesty and violations during the reporting period.
For example, in 2021 and 2022, the cumulative amount paid to suppliers by Shanghai Retuo Electronic Technology Co., Ltd., a holding subsidiary of Yingfeng Electronics, was greater than the purchase amount of the same supplier in the current year through bank loan entrusted payment, and there were cases where the supplier transferred part of the entrusted payment back to Shanghai Reto, involving an amount of 4.2768 million yuan and 370,700 yuan respectively, which constituted a "re-loan" matter.
The so-called "re-lending" actually refers to the fact that Shanghai Retuo fraudulently obtained bank loans in the name of paying the purchase price to the supplier, and the supplier acted as the channel for Shanghai Reto's loan funds in the process. The money lent by the bank to Shanghai Retuo was diverted elsewhere.
For example, Company A applied for a loan from a bank using a purchase contract with a supplier (for example, the contract amount was 20 million yuan), and the bank approved and granted a loan of 15 million yuan, but stipulated that the loan could only be paid directly to supplier B by the entrusted payment method. However, in fact, the supplier only supplied 5 million yuan to Company A, and after the supplier received the payment, the supplier transferred the loan of 10 million yuan to Company A. The actual purpose of Company A's loan is different from the use of funds required by the bank, which constitutes on-lending.
It must be made clear that on-lending is not legal. Article 71 of the General Principles of Loans stipulates that if the borrower does not use the loan for the purpose specified in the loan contract, the lender shall charge interest on part or all of the loan; Article 175 of the Criminal Law stipulates that a person obtains a loan, acceptance of bills, letter of credit, letter of guarantee, etc., from a bank or other financial institution by fraudulent means, causing major losses to the bank or other financial institution or other serious circumstances...... Where a unit commits the crime in the preceding paragraph, the unit is to be fined, and the directly responsible managers and other directly responsible personnel are to be punished in accordance with the provisions of the preceding paragraph.
Although Yingfeng Electronics has no malicious purpose of defrauding loans, the above-mentioned relending behavior exposes the lack of integrity and non-standard internal control of Yingfeng Electronics, which is also reflected in the non-standard use of the company's bills, and many details such as the actual controller Hong Yingjie collecting and paying for goods through his personal account. All of these will affect investors' value judgments about the company.
Source: Dolphin Finance