Financial Risk Warning|Runbei Hangke's gross profit margin hit a six-year low, and its cash flow continued to decline for five years

Source | Times Business School

Author | Chen Jiaxin

Edit | Zheng Shaona

After three consecutive years of revenue decline, Runbei Hangke (001316. SZ) has finally ushered in a big rebound in 2023. However, the company's earning power is declining, and the gross profit margin has hit a new low in nearly six years.

On the evening of April 11, Runbei Hangke released its 2023 annual report, driven by the recovery of the civil aviation industry, the company will achieve revenue of 826 million yuan in 2023, a year-on-year increase of 46.90%, and a net profit of 91.8637 million yuan, a year-on-year increase of 16.15%. However, in 2023, the company's gross profit margin decreased by 3.97 percentage points year-on-year to 24.4%, a new low since 2018.

As a part of the aviation industry chain, Runbei Aviation Technology mainly distributes aviation materials, including civil aviation fuel, aviation raw materials and aviation chemicals, etc., and is an authorized distributor of ExxonMobil, 3M, Av-DEC, EC, Lufthansa Technik, Huntsman, LANXESS, Bosch and other internationally renowned brands.

At the same time, Runbei Hangke also develops a variety of independent products of aviation materials, but in 2023, the company's self-developed products will only account for 6.47% of the revenue. In addition, more than 10 patent applications have been rejected.

On the day after the release of the annual report (April 12), the share price of Runbei Hangke closed down 4.84%, and fell by 5.5% and 7.14% respectively in the following two trading days. As of the close of trading on April 17, the company's share price closed at 27.57 yuan per share (before the right to reset), with a total market value of 2.267 billion yuan.

The gross profit margin of suppliers has reached a new low due to price increases, and the company said that its self-developed products are expected to maintain a stable gross profit margin

Affected by the decline in civil aviation passenger flow, from 2019 to 2022, Runbei Hangke's operating income decreased from 852 million yuan to 562 million yuan.

In 2023, the civil aviation industry has recovered well, with global passenger capacity steadily recovering. According to the Civil Aviation Administration of China, in 2023, the mainland's civil transport airports will handle 1.26 billion passengers, an increase of 142.2% over the previous year. Benefiting from the improvement in the prosperity of the civil aviation industry, Runbei Hangke's revenue will increase by 46.90% year-on-year to 826 million yuan in 2023, but it has not yet recovered to the level of 2019.

While the revenue will grow rapidly in 2023, the gross profit margin of Runbei Hangke will hit a new low in the past six years, and it is also a new low since the public financial data was available.

According to the annual report, in 2023, the gross profit margin of Runbei Hangke will be 24.37%, a year-on-year decrease of 3.97 percentage points, and the net profit margin will be 11.13%, a year-on-year decrease of 2.95 percentage points.

As for the reasons for the decline in gross profit margin, Runbei Hangke replied to Times Business School that in terms of distribution, some suppliers will increase prices in 2023, and the company has actively used methods such as stockpiling goods in advance and transmitting them to downstream customers to hedge the price increase pressure, but it still has a partial impact on the gross profit margin;

The payment cycle of downstream customers is slow, and a large amount of stocking drags down cash flow

Supplier price increases may be related to their higher bargaining power. The annual report shows that in 2023, the top five suppliers will purchase 68.15% of the total procurement, of which the first supplier will account for 46.31%. In the prospectus, Runbei Hangke said that its supplier concentration is relatively high, especially on ExxonMobil, an aviation lubricant supplier.

According to the prospectus, most of the main suppliers of Runbei Hangke belong to internationally renowned brands in the industry, with high pricing power, and usually formulate the corresponding product distributor face price, and the face price of the distributor set by the supplier will be comprehensively considered according to its production cost and market competition and other factors.

In addition to gross profit margin, Runbei Hangke's cash flow from operating activities is not ideal. Wind shows that from 2019 to 2023, the net cash flow from operating activities of Runbei Hangke will be 211 million yuan, 133 million yuan, 45.8568 million yuan, 9.2136 million yuan, and 4.6116 million yuan respectively, which will decline significantly. The cash content of net profit (net cash flow from operating activities/net profit * 100%) in the same period was 271.91%, 200.04%, 35.47%, 11.64% and 4.99% respectively.

As for the reasons for the decrease in net cash flow from operating activities since 2019, Runbei Hangke replied to Times Business School that the net cash flow from operating activities in 2019 reached 211 million yuan, mainly due to the tariffs imposed on imported aviation materials in China in 2019, and the company's stockpiling in advance in 2018, resulting in an increase in the purchase of goods in 2018 and a decrease in the cash spent on foreign purchases of goods in 2019; The decrease in net cash flow from operating activities in 2022 was due to the impact of the external macro environment, which was greatly affected by the aviation industry and the slowdown in the payment collection cycle of downstream customers.

Wind shows that the accounts receivable of Runbei Hangke increased from 161 million yuan at the end of 2019 to 258 million yuan at the end of 2023. The inventory at the end of 2023 reached 228 million yuan, a year-on-year increase of 41.61%.

The revenue of self-developed products is less than 7%, and a number of invention patent applications have been rejected

Self-developed aviation materials for many years, and the proportion of self-developed product revenue of Runbei Aviation Technology is still low.

According to the prospectus, during the start-up period (2005-2010), Runbei Hangke mainly focused on the distribution of aviation materials, and gradually established cooperation with ExxonMobil, 3M, EC and Av-Dec, and continuously enriched the types of aviation materials distributed.

Subsequently (2011-2016), Runbei Hangke obtained the first batch of domestic aviation parts distributor certificates issued by the Civil Aviation Maintenance Association of China, and also began to independently develop new aviation materials through its subsidiary Guangdong Runhe New Material Technology Co., Ltd. At present, the products independently developed by Runbei Hangke mainly include adhesive tapes, cleaning agents, disinfectants, interior wallpapers, pilot headsets, ground support headsets, etc.

From 2019 to 2022, affected by the new crown epidemic, the aviation chemicals with cleaning, disinfection and other functions independently developed by Runbei Hangke grew rapidly, and the revenue of self-developed products increased from 8.5373 million yuan in 2019 to 36.8028 million yuan in 2022, accounting for 6.55% of the total revenue.

In 2023, the revenue of Runbei Hangke's self-developed products will reach 53.4093 million yuan, a year-on-year increase of 45.12%, accounting for 6.47% of the total revenue, a decrease of 0.08 percentage points from 2022, and the revenue of distributed products will account for 93.53% in the same period.

On the whole, the current revenue scale of Runbei Hangke's self-developed products is still small, and the proportion is also low.

Runbei Hangke said that although the sales of self-developed and self-produced aviation materials are not high, the sales of related products have maintained stable and rapid growth, which will become an important driving factor for the company's future performance growth. The company will continue to increase investment in the research and development of self-developed products and production capacity building, and it is expected that the sales scale will continue to increase in the future.

In 2023, the R&D expenses of Runbei Hangke will be 11.4394 million yuan, a year-on-year increase of 41.32%, accounting for 1.39% of the total revenue.

In addition, Times Business School noticed that the invention patent application of Shenzhen Runbei Chemical Co., Ltd. (hereinafter referred to as "Runbei Chemical"), the predecessor of Runbei Hangke, was rejected a relatively high rate.

According to the website of the State Intellectual Property Office, from 2019 to 2020, Runbei Chemical applied for a total of 16 invention patents, of which 14 were rejected and only 2 were authorized.