"Electric Eel Finance" article / Li Ruifeng
On April 7, 2023, the IPO of Tongyu New Materials (Guangdong) Co., Ltd. (hereinafter referred to as Tongyu New Materials) on the Growth Enterprise Market of the Shenzhen Stock Exchange was approved, and the financial data was updated on September 19, 2023. However, there has been no progress on the company's listing application since then.
According to the prospectus, Tongyu New Material's main business is the research and development, production and sales of electronic resins, which are mainly used in the production of copper clad laminates. The Company's products mainly include MDI modified epoxy resins, DOPO modified epoxy resins, high-bromine epoxy resins, BPA phenolic epoxy resins, phosphorus-containing phenolic resin curing agents and other series.
When reading the listing information provided by the company, "Electric Eel Finance" noticed that in this IPO, Tongyu New Materials plans to raise 100 million yuan to supplement liquidity. However, it is worth noting that the company has just paid a cash dividend of 12 million yuan, and the total annual salary of the company's four senior officials is more than 12 million, while its net operating cash flow has been negative. In addition, the company has no invention patents in the last three years, and its R&D investment lags behind comparable companies in the same industry. The company has a high concentration of suppliers and customers, and there are great risks in the future.
Fourth, the annual salary of senior executives exceeds 12 million, and the operating cash flow has been negative year after year
According to the prospectus, in this IPO, Tongyu New Materials plans to raise 1.3 billion yuan, of which 1.2 billion yuan will be used for Jiangxi Tongyu New Materials Co., Ltd. with an annual output of 200,000 tons of electronic lipid project (phase I), and 100 million yuan will be used to supplement working capital.
While using 100 million yuan of raised funds to supplement liquidity, Tongyu New Materials has just paid a cash dividend of 12 million yuan in 2022.
As of the signing date of the latest prospectus, Zhang Chi served as the chairman and general manager of the company, directly holding 11,997,300 shares of the issuer, accounting for 39.99% of the total number of shares of the issuer, and at the same time, Zhang Chi was the sole general partner of Sihui Zhaoyu and indirectly controlled 5.26% of the voting rights of the issuer through Sihui Zhaoyu. Zhang Chi controls a total of 45.25% of the issuer's voting rights and is the controlling shareholder of the issuer. Su Shiguo served as the director and deputy general manager of the company, directly holding 7,839,700 shares of the issuer, accounting for 26.13% of the total share capital before the issuance. Zhang Chi and Su Shiguo together control 71.38% of the voting rights of the issuer, and the voting rights they enjoy according to their shares can have a significant impact on the company's board of directors and the company's production and operation management. Therefore, Zhang Chi and Su Shiguo were determined to be the joint actual controllers of the issuer.
It can be seen that more than seventy percent of the above-mentioned dividends fell into the pockets of the actual controllers. In fact, the supply of monetary funds of Tongyu New Materials is not sufficient. From 2020 to 2022, the company's monetary funds accounted for 10.98%, 5.63% and 12.22% respectively, with an amount of 31.72 million yuan, 33.01 million yuan and 90.02 million yuan respectively; During the same period, the company's accounts receivable accounted for 39.3%, 43.82% and 40.83% respectively, and the book value amounted to 113.55 million yuan, 256.93 million yuan and 300.69 million yuan respectively.
In addition, during the reporting period, the net cash flow generated by Tongyu New Material's operating activities was -51.9351 million yuan, -56.5133 million yuan and -13.5869 million yuan respectively, which was negative in the past three consecutive years, which can be imagined that the company's accounts receivable balance accounted for a high proportion.
While the cash flow is negative, while raising funds to replenish the flow, and on the eve of the IPO surprise dividends, the executives of Tongyu New Materials have not treated themselves badly at all. In 2022, the remuneration of Zhang Chi, chairman and general manager of the company, will be 3.0447 million yuan, the remuneration of its director and deputy general manager Su Shiguo will be 2.6297 million yuan, the remuneration of its director and deputy general manager Deng Kaihua will be 3.6944 million yuan, and the remuneration of Zhang Xing, chairman of the board of supervisors and director of the technology promotion department, will be 2.789 million yuan. It can be seen that the total remuneration of the company's four executives is 12.16 million yuan.
During the reporting period, the remuneration of the company's management personnel accounted for 16.48%, 5.71% and 6.01% of the company's total profit.
There is no invention patent in three years, and R&D investment lags behind peers
According to the prospectus, as of the signing date of the latest prospectus, Tongyu New Materials has 8 patents, of which 7 are invention patents and 1 is a utility model patent. It is worth noting that one of the invention patents recently obtained by Tongyu New Materials was applied for on May 31, 2021. It can be seen that the company has not obtained any invention patents in the past three years.
During the reporting period, the R&D expenses of Tongyu New Materials were 7.7846 million yuan, 12.6769 million yuan and 14.9312 million yuan respectively, accounting for 2.06%, 1.34% and 1.25% of the current operating income respectively. The R&D expense ratios of comparable companies were 4.09%, 3.51% and 3.68%, respectively, during the same period.
It can be seen that the R&D expense ratio of Tongyu New Materials is significantly lagging behind that of comparable companies in the same industry.
As of December 31, 2022, Tongyu New Materials had a total of 31 R&D and technical personnel, accounting for 13.54% of the total number of employees; The company's core technical personnel have a total of 3 people, namely Zhang Chi, Zhang Xing, and Xu Guozheng, and the core technical personnel account for 9.68% of the employees in the R&D department.
During the reporting period, the employee remuneration in the R&D expenses of Tongyu New Materials was 4.4758 million yuan, 5.9923 million yuan and 9.4077 million yuan respectively, accounting for 57.49%, 47.27% and 63.01% of the current sales expenses respectively.
High concentration of suppliers and customers, and the decline in customer performance may be affected
According to the prospectus, during the reporting period, Tongyu New Materials achieved operating income of 378.1582 million yuan, 947.0779 million yuan and 1192.8477 million yuan respectively, and net profit of 39.9872 million yuan, 135.269 million yuan and 188.0032 million yuan respectively in the same period.
It can be seen that Tongyu New Materials has maintained rapid performance growth. However, it is worth noting that the company's purchases and sales are relatively concentrated. The company's top five suppliers account for more than 40% of purchases, while sales to the top five customers account for more than 70%.
According to the prospectus, during the reporting period, Tongyu New Materials purchased 168.3794 million yuan, 301.8959 million yuan and 327.9153 million yuan from the top five raw material suppliers respectively, accounting for 56.97%, 41.66% and 40.59% of the total raw material procurement in the current period, and the supplier concentration was relatively high.
At present, Tongyu New Materials' main suppliers include Kingboard Group, Nanya Electronic Materials (Kunshan) Co., Ltd., Sanguang Trading (Shanghai) Co., Ltd., etc. The company said that if there is a material adverse change in the business relationship between the major supplier and the issuer or its own production and operation conditions, it may lead to a shortage of the company's main raw materials, which in turn will have a negative impact on its production and operation.
At the same time, during the reporting period, Tongyu New Material's revenue from the top five customers was 281.2742 million yuan, 701.2432 million yuan and 947.5215 million yuan respectively, accounting for 74.38%, 74.04% and 79.43% of the current operating income respectively, and the customer concentration was relatively high.
Tongyu New Materials said that during the reporting period, the company's main customers include Shengyi Technology, Huazheng New Materials, Nanya New Materials, Kingboard Group and other well-known copper clad laminate manufacturers in the industry, if the main customers' own operating conditions in the future have major adverse changes, it may still have an adverse impact on their operating performance.
According to public information, Nanya New Material's operating income and net profit attributable to the parent company after deducting non-profits in the first three quarters of 2022 decreased by 13.12% and 94.46% year-on-year, Shengyi Technology fell by 11.07% and 45.85% respectively, and Huazheng New Materials decreased by 11.23% and 70.25% respectively; Kingboard Group's net profit for the first half of 2022 fell by 52.40%.
Regarding the impact of the decline in customer performance on Tongyu New Materials, the Issuance Examination Committee also raised inquiries in the inquiry letter.
According to the prospectus, Tongyu New Material's accounts receivable balance from Nanya New Materials accounted for the highest proportion, accounting for 41.09%, 25.55% and 27.43% of the total accounts receivable balance during the reporting period, respectively, and the amount of bad debt provision accounts in the same period was 2.4557 million yuan, 3.4552 million yuan and 4.3418 million yuan respectively.