On January 19, 2024, Junwei Electronic Technology Co., Ltd. (hereinafter referred to as "Junwei Electronics") successfully passed the third review meeting of the Listing Review Committee of the Shenzhen Stock Exchange in 2024, and on March 31, the review was suspended due to "the financial information recorded in the IPO application documents has expired and needs to be supplemented". After Junwei Electronics submits the latest financial information, the exchange will resume the review.
The IPO Junwei Electronics plans to issue no less than 66,666,700 shares, accounting for 25.00% of the total share capital after issuance, and raise a total of 1,127,449,800 yuan, which will be used for the production project of current sensing precision resistors, the annual output of 23 million power fuses, the construction project of Junwei Zhuhai R&D Center, and the replenishment of working capital. Based on this calculation, the IPO valuation of Junwei Electronics is not less than 4.51 billion yuan.
According to the prospectus, Sky Line, the controlling shareholder of Junwei Electronics, is a company registered in Samoa, the indirect controlling shareholder of the issuer, EVER-ISLAND, is a company registered in Samoa, and the actual controller Yan Ruizhi is a Taiwanese national. Prior to the issuance, Yan Ruizhi, the actual controller, controlled 74.59% of the issuer's equity through Sky Line.
In 2020, affected by the epidemic, the supply of semiconductors was tight, and many semiconductor companies took the opportunity to expand their production capacity, and their performance also exploded. However, after that, there was idle capacity and declining performance. Junwei Electronics is a typical representative of this type of enterprise.
The main products of Junwei Electronics are current sensing precision resistors and fuses, which are mainly used in the fields of consumer electronics and home appliances. From 2020 to 2023, the company's revenue will be 406 million yuan, 559 million yuan, 542 million yuan, and 540 million yuan respectively, and the net profit will be 70.3941 million yuan, 113.169 million yuan, 86.2549 million yuan, and 82.4616 million yuan respectively. The reason behind this is that after the tension in the semiconductor supply chain eased, downstream consumer electronics manufacturers and distributors had high inventories and weakened terminal demand, which eventually led to the loss of upstream semiconductor manufacturers. Looking to the future, it is difficult to repeat the scenario of semiconductor shortage caused by the epidemic in 2021, which means that it is difficult for Junwei Electronics to have outstanding performance in the next few years.
The outlook of the industry largely determines the outlook of the company, which in turn determines the valuation level of the company. At the beginning of 2022, Junwei Electronics introduced 8 institutional investors at a price of 13.55 yuan per share, of which the controlling shareholder Sky Line cashed out about 267 million yuan. However, time has passed, and the current Junwei Electronics can no longer be the same as the Junwei Electronics in 2021. At that time, investors saw that Junwei Electronics' revenue increased by 37.90%, and its net profit increased by 60.77%. As everyone knows, the semiconductor industry is very cyclical, and the boom is followed by decline. According to the performance of Junwei Electronics in the past two years, the valuation level should be lower than that in 2021. However, according to the fundraising plan disclosed in the prospectus, the issue price of Junwei Electronics is not less than 16.91 yuan per share, and the valuation is 25% higher than that round of financing in 2022. Even based on the best performance in 2021, Junwei Electronics' PE is 40 times, and if the company's net profit forecast for 2023 is calculated, the price-to-earnings ratio is as high as 55 times. Combined with the current tough market environment, this valuation level is clearly too high.
After reading the prospectus, Dolphin Finance found that the unlisted performance of Junwei Electronics' IPO has "changed face", product sales and performance have both declined, and the company still has to raise funds to expand production in a big way when the existing production capacity is idle, and the tendency of excessive financing is very obvious.
The existing idle capacity still needs to be greatly expanded
According to the reply letter, due to the prolongation of the IPO process due to repeated inquiries from the exchange, the performance of Junwei Electronics began to "change face".
In the first quarter of 2023, Junwei Electronics' operating income decreased by 32.05% year-on-year, and the net profit attributable to the parent company after deducting non-profits decreased by 84.84%. In the first half of 2023, Junwei Electronics achieved an operating income of 244.2187 million yuan, a year-on-year decrease of 11.54%, and a net profit attributable to the parent company of 27.8915 million yuan, a year-on-year decrease of 38.92%.
The Shenzhen Stock Exchange inquired about Junwei Electronics and asked it to answer questions about performance sustainability. In the reply letter, Junwei Electronics issued a profit forecast report reviewed by the reporting accountant. According to the report, in 2023, Junwei Electronics' operating income will be 539.9535 million yuan, a year-on-year decrease of 1.07%, and the net profit attributable to the parent company after deducting non-profits will be 80.0144 million yuan, a year-on-year decrease of 5.92%. Although the second half of the year is better than the first half of the year, the performance of 2022 is still significantly declining, which is obviously inconsistent with the bright future depicted by Junwei Electronics in the description of the fundraising project.
According to the prospectus, the two major projects that Junwei Electronics intends to raise funds for construction are the current sensing precision resistance production project and the annual output of 23 million power fuses, with an investment of 772 million yuan and 153 million yuan respectively. However, judging from the company's current capacity utilization rate and market demand, the planned production capacity of these two major projects obviously exceeds the actual market demand, and there is a suspicion of excessive financing.
First of all, let's look at the first fundraising project: the production project of current sensing precision resistors. In the IPO fundraising project of Junwei Electronics, the investment amount of the current sensing precision resistor production project is as high as 771.7834 million yuan, accounting for 68.45% of the total funds raised. Current sensing precision resistors are the main products of Junwei Electronics, accounting for 47.29%, 52.20%, 60.01% and 58.46% of revenue from 2020 to the first half of 2023, respectively. In this field, Junwei Electronics will rank fourth in the world in 2022, with a market share of 7.72%.
If the product is in short supply in the market and the company's capacity is tight, it is certainly reasonable to expand the capacity in this case. But the actual situation of Junwei Electronics is the opposite.
According to the prospectus, Junwei Electronics' products share the same production line for current sensing precision resistors and wafer-type chip fuses, so the production capacity and output are combined. From 2020 to the first half of 2023, the total production capacity of these two products of Junwei Electronics will be 1.75 billion, 3.548 billion, 4.32 billion and 2.16 billion respectively, gradually increasing, and the capacity utilization rate of the above production lines will be 98.57%, 84.94%, 64.54% and 51.88% respectively, declining rapidly. It can be seen that after 2022, the capacity utilization rate of Junwei Electronics has fallen to about 60%, indicating that the sales of Junwei Electronics' current sensing precision resistors have declined greatly.
In the case of a large number of idle production lines, Junwei Electronics still insists on raising funds to expand production. According to the fundraising plan, after the completion of the "current sensing precision resistor production project" with an investment of 770 million yuan, Junwei Electronics will add 6 billion CSR resistors per year, 2.4 billion MSH resistors per year, and 50 million MSH shunts per year, with a total production capacity of 8.45 billion per year. Compared with the highest production capacity in the company's history of 4.32 billion in 2022, it has nearly doubled.
With such a huge production capacity, how can Junwei Electronics consume it?
In the letter of inquiry, Junwei Electronics explained the reason for the expansion of production, saying that its sales of current sensing precision resistors increased from 1.464 billion in 2020 to 2.623 billion in 2022, with a compound growth rate of 33.87%. Junwei Electronics predicts the market demand in the next five years at an average annual compound growth rate of 30%, and concludes that the company's resistor sales will reach 9.74 billion in five years. The company's existing production capacity plus new production capacity basically meets market demand.
From 1.464 billion to 9.74 billion, sales increased by 565% in 8 years, is it possible?
There is an obvious common-sense error in Junwei Electronics' reasoning, and it is difficult to sustain the rapid growth of current sensing precision resistor sales before 2022. One of the reasons for the rapid growth rate in the past few years is the epidemic factor, which is caused by the sudden stocking of downstream manufacturers, and the other reason is the low sales volume of Junwei electronic related products, resulting in a low base. In 2019, the sales volume of current sensing precision resistors of Junwei Electronics was 644 million, with a low base, with a compound growth rate of 59.7% from 2019 to 2022, and from 2020 to 2022, the average annual compound growth rate of current sensing precision resistor sales decreased to 33.87%. In the first half of 2023, the sales volume of Junwei electronic current sensing precision resistors will only be 1.152 billion, only 44% of that in 2022. The decline in sales volume and more and more idle capacity show that it is difficult for the sales volume of Junwei electronic current sensing precision resistors to continue to maintain a compound growth rate of 30%.
According to QYResearch statistics, in 2022, the world's top five current sensing precision resistor companies are Yageo, Qiankun, Dayi, Junwei Electronics, and Guangjie Technology, with a total market share of 60.55%. Among them, Junwei Electronics is the world's fourth largest current sensing precision resistor company, with sales of about 325 million yuan in 2022, accounting for 7.72% of the total market share.
In fact, the global market for current sensing precision resistors is not growing fast. From 2019 to 2022, the global current sensing precision resistor market size increased from 3.631 billion yuan to 4.216 billion yuan, with an average annual compound growth rate of only 5.11%.
Dolphin Finance calculated that at an average annual compound growth rate of 30%, Junwei Electronics' sales of current sensing precision resistors in 2028 are expected to reach 1.569 billion yuan, which is 4.8 times that of the current one. According to QY Research's optimistic forecast, the market size of current sensing precision resistors is expected to grow to 9.124 billion yuan in 2028, with an average annual compound growth rate of 13.73%. This means that the sales of current sensing precision resistors in 2028 will account for 17% of the global market size. At present, the market share of Yageo, Qiankun and Dayi, which rank first in the industry, is about 27%, 10% and 9.4% respectively.
Comparable company Zhongrong Electric is one of the giants in the fuse industry. In 2021, Zhongrong Electric disclosed in the prospectus that it plans to raise 224 million yuan to expand the original production capacity of EV fuses, fast fuses, new energy photovoltaic wind power and energy storage fuses, rail transit fuses, etc., and at the same time increase the production capacity of incentive fuses and new series of electronic fuses, with a total production capacity of 66.86 million / year, of which 52 million / year are electronic fuses.
However, one year after listing, Zhongrong Electric adjusted the content of the fundraising project in the 2022 annual report, reducing the fuse production capacity from 66.86 million to 15.47 million, a decrease of 51.39 million. Zhongrong Electric said that the adjustment system has greatly reduced the investment in the automatic production line of electronic fuses. It can be seen that Zhongrong Electric is pessimistic about the future electronic fuse market.
In the case of a sharp reduction in production in the same industry, Junwei Electronics raised nearly 772 million yuan to expand the production of current sensing precision resistors on a large scale, which is obviously unreasonable and suspected of excessive financing.
Let's look at the second project: an annual output of 23 million power fuses.
The fuse is the starting product of Junwei Electronics, but the scale has not been large. From 2020 to the first half of 2023, the revenue of Junwei electronic fuses will be 159 million yuan, 191 million yuan, 135 million yuan, and 62 million yuan respectively, and the proportion of revenue will also decrease, 39.14%, 34.13%, 24.91%, and 25.66% respectively.
In the same period, the production capacity of Junwei electronic fuses was 1.334 billion, 1.721 billion, 1.771 billion and 884 million respectively, and the capacity utilization rate was 77.25%, 65.62%, 37.40% and 41.74% respectively, indicating that its product sales were not good.
The company's existing fuses are mainly used in the fields of electronics and home appliances, such as laptops, smart wearables, drones, lithium battery protection boards, adapters and mobile power supplies, PD fast charging, portable energy storage, refrigerators, air conditioners and other white goods fields, and the planned power fuse projects are used in industrial control, photovoltaics, energy storage, charging piles, and new energy vehicle markets. The production line could not be shared with the existing electronic fuse, so a new capacity was required. The direction of the project is fine, but the scale of production capacity is too large.
The power fuse project plans to invest 153 million yuan to build 23 million power fuses. In 2022, the revenue of power fuses will be 735 million yuan, accounting for 97.41% of the revenue, with a production capacity of 24.61 million and a sales volume of 23.76 million.
Junwei Electronics' planned production capacity is almost close to the current production capacity of Zhongrong Electric, if it can be fully completed and put into production and complete sales, it is equivalent to Junwei Electronics copied a Zhongrong Electric, as a latecomer in the field of power fuses, Junwei Electronics can really catch up with the leading industry segment of the industry?
It is unreasonable to raise funds to supplement liquidity
Dolphin Finance noticed that Junwei's electronic fundraising to supplement liquidity was also inconsistent with its own financial situation, and there was a suspicion of fabricating fundraising.
Enterprises that need to raise funds to replenish the flow are generally enterprises with high debt ratios, tight cash flow and rapid expansion of business scale in the future that require a large amount of liquidity, and Junwei Electronics is not related to these two types of enterprises.
From 2020 to the first half of 2023, the asset-liability ratios of Junwei Electronics are 32.19%, 37.77%, 17.18% and 16.31%, respectively, showing a rapid downward trend. The net operating cash flow was 92.2264 million yuan, 131.532 million yuan, 119.7306 million yuan and 66.3806 million yuan respectively, and its own hematopoietic ability was strong.
In addition, at the end of the reporting period, Junwei's electronic cash and cash equivalents were 38.2588 million yuan, 102.9236 million yuan, 340.7552 million yuan, and 360.7766 million yuan respectively, that is, Junwei electronic account had 361 million yuan in cash, but it had to raise another 120 million yuan to supplement liquidity.
In fact, according to the financial situation of Junwei Electronics, liquidity is not a problem, and the new liquidity can be solved by itself. With the help of supplementary liquidity, Junwei Electronics wants to use the IPO to raise a little more money from the market, and in the context of the current tightening of IPOs, the risk of "circle money" is still very high.
The gross profit margin was 20 percentage points higher than the industry average
In 2022 and the first half of 2023, during the reporting period, the gross profit margin of Junwei Electronics' main business was 47.74%, 48.86%, 47.36% and 42.09% respectively, which was about 20 percentage points higher than the industry average in 2022 and the first half of 2023, with a huge gap.
Among comparable companies in the same industry, the gross profit margin of Junwei Electronics is not only higher than that of A-share listed companies Fenghua Hi-Tech and Haoli Technology, but also higher than that of industry leading companies in Taiwan Province, Yageo Electronics and Dayi Technology, the latter two are global resistance leaders, but the gross profit margin in the first half of 2023 is only 33% and 21%, which is 9% and 21% lower than Junwei Electronics, respectively.
How did a fourth-in-class manufacturer manage to achieve a gross margin that was 9% higher than the No. 1 in the industry?
Founded in 1977, Yageo Electronics, located in Taiwan, China, is a listed company on the Taiwan Provincial Stock Exchange, and is the world's largest manufacturer of R-Chip and Tantalum Capacitor, the second largest manufacturer of magnetic bead inductors and molded inductors (the first largest large-size molded inductors), and the third largest manufacturer of multilayer ceramic capacitors (MLCC). Yageo's main products include current sensing precision resistors.
Founded in 1989, Dayi Technology is also located in Taiwan, China, and is listed on the Taiwan Stock Exchange, and its main business is the manufacturing, processing and trading of electronic components such as thick film wafer resistors, thick film wafer resistors, thick film resistor networks, and thick film integrated electronics, and is the world's second largest manufacturer of thick film wafer resistors. Dayi Technology's main products include current sensing precision resistors.
According to the prospectus, the revenue of Junwei electronic current sensing precision resistors accounted for about 6 percent, and during the reporting period, the gross profit margins of Junwei electronic current sensing precision resistors were 62.84%, 62.21%, 61.34% and 54.97% respectively.
This gross profit margin is so amazing that the Shenzhen Stock Exchange has mentioned whether the gross profit margin is normal in several rounds of inquiries. In the inquiry letter, the Shenzhen Stock Exchange pointed out that during the reporting period, the gross profit margin of Junwei electronic current sensing precision resistors was significantly higher than the comprehensive gross profit margin of comparable companies in the same industry, and it was required to explain the reasonableness of the high gross profit margin of the product and whether it was sustainable.
Dolphin Finance found that Dayi Technology said at the first quarter of 2023 results meeting that the price of resistors in the Asian market seriously deviated from the normal level, mainly due to the fierce price competition from mainland manufacturers, resulting in a rapid decline in the gross profit margin of the industry from the fourth quarter of 2022 to the first quarter of 2023.
This means that mainland resistor manufacturers are seizing the market share of Taiwanese manufacturers through price wars, as the world's top four resistor manufacturers, how can Junwei Electronics maintain high gross profit in the case of other manufacturers cutting prices and strengthening the market?
In addition to maintaining high gross profit for its main products, Junwei Electronics' trading business also has a high gross profit margin.
According to the prospectus, from 2020 to the first half of 2023, Junwei Electronics' other businesses (mainly trade business, that is, the company purchases finished products (including resistors, fuses and other electronic components) from other electronic component companies, and then directly sells them to the outside world, with revenues of 55.0414 million yuan, 76.4631 million yuan, 81.7983 million yuan and 38.4509 million yuan respectively, accounting for 13.57%, 13.67% and 15.08% of the main business income respectively and 15.88%, the gross profit margin of the business was 33.12%, 38.14%, 28.98% and 27.16% respectively.
According to the prospectus, two of the top five suppliers in the trade business of Junwei Electronics have a sales/procurement relationship with Junwei Electronics at the same time, one of which is Tianer Technology in Taiwan, China.
From 2020 to the first half of 2023, Junwei Electronics purchased 1.32 million yuan, 7.53 million yuan, 13.31 million yuan and 2.71 million yuan from Tianer Technology respectively, and during the same period, Junwei Electronics sold 9.25 million yuan, 16.65 million yuan, 13.7 million yuan and 5.4 million yuan to Tianer Technology respectively.
According to the prospectus, Yan Ruizhi, the actual controller of Junwei Electronics, holds 3.22% of the equity of Tianer Technology (Tianer Technology has been listed on the Taiwan Stock Exchange of China on September 1, 2022) through Huaqiong, that is to say, Yan Ruizhi is one of the important shareholders of Tianer Technology.
Nanjing Sutter Technology Development Co., Ltd. is also a supplier of Junwei Electronics, and also purchases products from it. From 2020 to the first half of 2023, Junwei Electronics purchased 10.01 million yuan, 10.88 million yuan, 9.89 million yuan and 5.42 million yuan from Nanjing Sutter Technology, respectively, and during the same period, Junwei Electronics sold 10.04 million yuan, 15.2 million yuan, 7.47 million yuan and 2.48 million yuan to Nanjing Sutter Technology respectively.
Dolphin Finance noticed that in addition to the above-mentioned close related parties, Junwei Electronics' trade customers also include industry giants such as Xinnengde, Quanta, Foxconn, Gree, etc., and the resistors and fuses sold by Junwei Electronics are not scarce products, there are a large number of competitors in the market, and the price is also highly transparent. In particular, large manufacturers such as Foxconn and Gree can obtain suppliers with lower prices through price comparison. It is not in line with industry common sense for Junwei Electronics to obtain trade business with a gross profit margin of more than 30% from these large manufacturers. If Junwei Electronics has achieved a higher gross profit margin through the above-mentioned closely related companies, there is a suspicion of benefit transfer.
All in all, gross margins that far exceed the normal level of the industry in IPOs is an extremely sensitive topic, and if companies do not produce tangible evidence to justify their gross margins, the credibility of their financial data will be greatly reduced. Yabao Electronics, a comparable company in the same industry listed in the prospectus of Junwei Electronics, is the best example, because the gross profit margin exceeded the average of the same industry by more than a dozen points, and the close relationship with the top five customers, which ultimately led to the failure of the listing. After multiple rounds of inquiries by the exchange, will Junwei Electronics be able to pass the customs smoothly?
Source: Dolphin Finance