Taihu Yuanda's operating cash flow is only 48% of net profit, and the product is still under research and development, and the plan to raise 300 million yuan to expand production has been questioned

Yangtze River Business Daily News ● Yangtze River Business Daily reporter Xu Jia

Zhejiang Taihu Yuanda New Materials Co., Ltd. (hereinafter referred to as "Taihu Yuanda") IPO fundraising project is not small.

Recently, Taihu Yuanda completed the second round of audit inquiry responses. According to the plan, Taihu Yuanda plans to raise about 300 million yuan for the industrialization and expansion project of environmentally friendly polymer materials for special cables and replenish working capital.

The Yangtze River Business Daily reporter noted that Taihu Yuanda currently does not have the production capacity of 110kV, 220kV, 500kV and other high-voltage and ultra-high-pressure peroxide cross-linkable cable materials, and the product is still in the research and development stage.

In recent years, Taihu Yuanda's business performance has improved rapidly, but the company's performance "gold content" is not high. From 2020 to 2023, the net cash flow generated by Taihu Yuanda's operating activities continued to be negative, and the total net cash flow generated by operating activities after excluding the impact of bill discounting was about 107 million yuan, accounting for only about 48% of the company's total net profit in the same period.

The sustainability of performance growth was questioned

According to the data, Taihu Yuanda was established in February 2004, completed the shareholding restructuring in December 2015, was listed on the national stock transfer system in November 2022, and entered the innovation layer in May 2023. At the end of November last year, the Beijing Stock Exchange officially accepted Taihu Yuanda's application for public offering and listing. A few days ago, the company completed the second round of regulatory inquiries.

It is understood that Taihu Yuanda is a national high-tech enterprise integrating R&D, manufacturing, sales and service of environmentally friendly polymer materials for cables, and a state-level specialized and special new "little giant" enterprise, the main products are silane cross-linked polyethylene cable materials, chemical cross-linked polyethylene cable materials, low-smoke halogen-free cable materials, semi-conductive internal and external shielding materials and other specifications of special cable product series, the company can also develop polymer materials with special properties according to customer requirements.

The Yangtze River Business Daily reporter noticed that in recent years, Taihu Yuanda's profitability has increased rapidly. From 2020 to the first half of 2023, Taihu Yuanda achieved operating income of 818 million yuan, 1.071 billion yuan, 1.392 billion yuan, and 729 million yuan respectively, net profit of 37.2344 million yuan, 46.8956 million yuan, 61.0914 million yuan, and 37.8427 million yuan, and non-net profit of 35.6263 million yuan, 44.9171 million yuan, 59.1977 million yuan, and 36.5419 million yuan.

Among them, in each reporting period, the company's overseas sales were 34.6556 million yuan, 79.3454 million yuan, 192 million yuan and 99.7858 million yuan respectively, accounting for 4.23%, 7.41%, 13.77% and 13.69% of the revenue respectively.

In the reply letter, Taihu Yuanda disclosed the latest performance data, in 2023, the company's operating income and net profit will reach 1.524 billion yuan and 77.457 million yuan respectively, an increase of about 86.3% and 108% respectively compared with 2020.

However, the regulatory authorities pointed out in the first round of inquiry letters that from 2020 to the first half of 2023, among the comparable listed companies in the same industry in Taihu Yuanda, the sales revenue of Hangzhou High-tech and Zhizheng shares have declined sharply. In this regard, the regulatory authorities asked Taihu Yuanda to explain whether the continuous growth of its performance is reasonable, and made detailed inquiries about the details of the company's overseas income, and in the second round of inquiry letters, the regulatory authorities again inquired about the large changes in Taihu Yuanda's major overseas customers, the adequacy of the company's sales revenue verification and whether the performance growth is sustainable.

Taihu Yuanda said that the performance changes of Hangzhou high-tech and Zhizheng shares are not a common phenomenon in the industry, and the overall demand of the polymer materials industry for cables has not changed significantly, and the company is reasonable with the inconsistent revenue change trend of some comparable companies in the same industry.

Taihu Yuanda said that it has maintained long-term and stable cooperative relations with a number of large and well-known cable companies at home and abroad, and the orders in hand at the end of 2023 are about 13,500 tons, which is at a high level.

The products involved in the IPO project are still in the research and development stage

Although the operating performance has increased significantly, in fact, the "gold content" of Taihu Yuanda's performance is not high.

The Yangtze River Business Daily reporter noted that from 2020 to 2023, the net cash flow generated by Taihu Yuanda's operating activities was -118 million yuan, -207 million yuan, -151 million yuan, and -166 million yuan, respectively, and the net cash flow generated by operating activities after excluding the impact of bill discounting was 37.3333 million yuan, 5.2131 million yuan, 16.399 million yuan, and 47.8893 million yuan respectively.

Since the payment method of the company's customers includes bill payment, Taihu Yuanda has discounted the commercial draft with general credit rating after receiving the commercial draft paid by the customer. For cash obtained under these methods, the company reports it as cash inflow from financing activities.

Even so, after excluding the impact of bill discounting, from 2020 to 2023, the total net cash flow generated by Taihu Yuanda's operating activities will be about 107 million yuan, accounting for less than 48% of the company's total net profit in the same period.

For the difference between cash flow from operating activities and net profit, in addition to the above accounting factors, Taihu Yuanda also attributed the reason to the rapid growth of business scale in recent years, and the corresponding increase in the scale of the company's accounts receivable and inventory balance.

The reasonableness of the substantial increase in accounts receivable of Taihu Yuanda is also the focus of attention of the regulatory authorities. According to the reply letter, as of the end of 2023, the balance of accounts receivable of Taihu Yuanda is 273 million yuan, and the total receivables including notes receivable, receivables financing, accounts receivable, contract assets, etc. are 515 million yuan, accounting for 33.78% of the company's current operating income.

It is worth mentioning that during the listing of the New Third Board, in November 2023, Taihu Yuanda was subject to regulatory penalties. Due to the change of 10.034 million yuan in the company's previous raised funds to repay bank loans, the change in the use of raised funds did not perform the review procedures and timely disclosure, the national stock transfer system listed company to Taihu Yuanda and the company's chairman Yu Liqin, secretary of the board of directors and financial director Xia Chenke took verbal warning self-regulatory measures.

In February 2023, Taihu Yuanda raised 23.7168 million yuan through the directional issuance of shares, and the balance after deducting the issuance costs was included in the capital reserve, and the above-mentioned raised funds have been used up.

According to the plan, Taihu Yuanda plans to issue no more than 16,711,800 shares (considering the over-allotment option), and intends to raise about 300 million yuan, which will be used for the industrialization and expansion project of environmentally friendly polymer materials for special cables and replenishment of working capital.

It should be noted that Taihu Yuanda currently does not have the production capacity of 110kV, 220kV, 500kV and other high-voltage and ultra-high-voltage peroxide cross-linkable cable materials, but the company still plans to use 200 million yuan to raise funds to invest in the industrialization and expansion project of environmentally friendly polymer materials for special cables. In both rounds of inquiry letters, the regulators questioned the necessity and feasibility of the Taihu Yuanda project.

Taihu Yuanda said that high-voltage and ultra-high-voltage insulating materials are the company's research and development focus at this stage, and it is also a necessary condition for the company to become a leading enterprise in the subdivided industry in the future, and the company will strive to allocate various resources to ensure the success of the project.

Taihu Yuanda expects that the company's 110kV high-voltage insulating material is expected to achieve large-scale production and sales in September 2025, 220kV ultra-high voltage insulating material is expected to achieve large-scale production and sales in December 2026, and 500kV ultra-high voltage insulating material will be launched in due course depending on the progress of 110kV and 220kV insulating materials.