Author / Tomato under the stars
Edit/Spinach's Starry Sky
Typesetting/Leeks under the stars
On March 28, Xiaomi Auto was released on the market, which once again ignited the heat of domestic new energy vehicles. On the same day, Zongmu Technology, an intelligent driving company invested by Xiaomi, submitted a statement to the Hong Kong Stock Exchange, starting the journey of the Hong Kong market. This time, Zongmu Technology abandoned A to go to Hong Kong, I don't know if it can catch the east wind of Xiaomi Su7?
It is reported that before competing on the Hong Kong Stock Exchange, Zongmu Technology submitted its form to the Science and Technology Innovation Board in November 2022, but the company withdrew its listing application in September 2023 after being inquired by the Shanghai Stock Exchange.
At the same time, the company's high accounts receivable, dependence on large customers, and suspicious stock transfer prices and many other problems will become obstacles on the road to its listing.
1. With a loss of 1.6 billion, when will there be a performance inflection point?
Founded in Shanghai in 2013, Zongmu Technology mainly provides solutions for automotive customers with comprehensive autonomous driving functions, and the company also independently develops autonomous driving energy service robots.
After years of development, Zongmu Technology has also successfully become a leading enterprise in the industry. According to CIC, in terms of sales revenue in 2022, among the company's suppliers headquartered in Chinese mainland, Zongmu Technology is among the top five in the industry in many fields.
Industry rankings are compiled by the Prospectus
According to the prospectus, as of December 31, 2023, Zongmu Technology has achieved mass production of intelligent driving solutions with 16 OEMs (automotive original equipment manufacturers) for 50 models, and covers all OEMs in the top 10 in China in terms of sales volume in 2022 (it is understood that the top 10 OEMs account for 72.1% of the total passenger car sales in the Chinese market) and a number of other major new energy vehicle brands in China.
Business Highlights Excerpt from the Prospectus
However, although it has performed well in terms of market share, the performance of Zongmu Technology has not been able to deliver a good answer. According to the prospectus, from 2021 to 2023 (referred to as the reporting period), Zongmu Technology's operating income will be 225 million yuan, 469 million yuan and 498 million yuan respectively, an overall increase of 121.33%, however, the company's net profit in the same period will be -434 million yuan, -588 million yuan and -564 million yuan respectively, and the overall loss will reach 1.586 billion yuan, even after adjustment, the loss will reach 1.375 billion yuan. Judging from the amount of annual losses, the performance inflection point has not yet been reached, and it is difficult to say when it will be able to break even.
Operating results Excerpt from the Prospectus
It is not difficult to find that in 2021 and 2022, Zongmu Technology's gross profit margin will be negative, and at the same time, the proportion of R&D expenditure and general administrative expenses in the reporting period is too high. As a high-tech enterprise, it is relatively understandable that the proportion of R&D expenditure is too high, but the average proportion of general and administrative expenses of more than 40% is indeed abnormally high, and the high proportion of large R&D expenditure also needs to be based on solid performance, otherwise it is difficult to sustain.
In the future, if Zongmu Technology is unable to control the relevant expenses within a reasonable range, it may be difficult for the company to turn losses into profits. It is no wonder that the SSE was skeptical about its ability to continue as a going concern when questioned. In addition to solving the problem of long-term profitability, how to solve the immediate cash flow problem and enhance the independent viability is also very urgent.
Second, relying on large customers, cash flow is extremely tight
From the "prospectus", it can be seen that the company has not yet been able to form its own hematopoietic capacity, operating cash flow has a large outflow all year round, during the reporting period, the net outflow of operating cash flow reached 1.475 billion yuan, the company can only rely on continuous external financing to replenish blood. However, Zongmu Technology's financing net inflow into finance is also falling off a cliff, with 1.289 billion yuan in 2021 and only 153 million yuan in 2023, which also led to the company's overall net cash flow falling from 799 million yuan in 2021 to 357 million yuan, a decrease of 55.32%.
The company's cash flow is extracted from the Prospectus
However, the company's R&D expenditure and general and administrative expenses for the full year of 2023 reached $567 million. In other words, the existing cash flow is difficult to support the company's expenses for a year. The company's dependence on large customers in the process of business development may further exacerbate the company's cash flow problems.
During the reporting period, Zongmu Technology's revenue from the top five customers accounted for 72.5%, 88.7% and 93.0% of the total revenue in the same period. Among them, Li Auto, Sailis, Changan Automobile, VOYAH Automobile, and FAW Group will become the company's top five customers in 2023, contributing up to 93% of revenue.
While the proportion of revenue from large customers is increasing year by year, the company's overall receivables balance is also increasing year by year, from 200 million yuan in 2021 to 262 million yuan in 2023, an overall increase of 31%, and correspondingly, the impairment provision for receivables has also increased from 8.33 million yuan to 22 million yuan, an increase of 164.11%, much higher than the increase in accounts receivable, which shows that the recovery risk of existing accounts receivable is accumulating rapidly.
Receivables Extract from the Prospectus
In addition, in the process of business development, the proportion of large customer business is too high, it is easy to form a large customer dependence, thereby reducing the company's bargaining power to customers, affecting unit revenue, and at the same time, the large revenue formed is also a manifestation of the interests of large customers, which can easily lead to the accumulation of the company's overall business risk.
As a popular fried chicken in the market, the author feels that the development of Zongmu technology has benefited from capital and is also trapped by capital.
3. How to solve the valuation inversion if the price of the stock transfer is doubtful?
According to the prospectus, before the IPO application, Zongmu Technology completed nearly 10 rounds of financing, with a cumulative amount of equity financing of 2.247 billion yuan. In the E round of financing in 2023, the financing cost is 93.56 yuan per share, according to this calculation, the valuation of Zongmu Technology in the primary market is more than 9 billion yuan.
Cost per share Extract from the Prospectus
Of course, in the past rounds of financing, Zongmu Technology has not only increased capital and shares, but also accompanied by the transfer of old shares. It's just that there is a price difference between the capital increase and share expansion and the transfer of old shares in the same period, which has to make people wonder.
In December 2021, investors Fupu New Century and Dongyang Guanding increased their capital and shares at a price of 93.56 yuan per share, while the company's shareholding platform Ningbo Zongmu transferred its 2.2629 million shares of the company to Dongyang Guanding at a price of 56.48 yuan per share, with a price difference of 39.63%. Under normal circumstances, the transfer of old shares will indeed be lower than the price of capital increase and share expansion, but the difference between the two is generally not too big, kept within 20%, once the difference is too large, it does make people doubt whether there is a problem of benefit transfer.
Moreover, on the eve of the submission of the Science and Technology Innovation Board, a number of shareholders cashed out in the form of old share transfers. Is it because they are not optimistic about the company's prospects?
Speaking of the sprint of the Hong Kong Stock Exchange, the author believes that the valuation inversion problem of Zongmu Technology cannot be ignored. The author selected Zhixing Automotive Technology (01274. HK) to make a comparison. At present, the latest price-to-book ratio of Zhixing Automotive Technology is 18.10, and the price-to-sales ratio is 16.661, according to the net assets of Zongmu Technology of 366 million yuan and the net profit of 498 million yuan as of the end of 2023, the two reasonable valuations calculated are 6.617 billion yuan and 8.297 billion yuan respectively, which are lower than the valuation level of 9 billion yuan in the primary market.
The waves of the industry have gradually subsided, and the market's hot sentiment towards intelligent driving has gradually calmed down, and sustained profitability has become an important indicator for market assessment enterprises. At present, it is indeed difficult for market investors to give high valuations to companies that cannot be profitable.
Note: This article does not constitute any investment advice. The stock market is risky, and you need to be cautious when entering the market. There is no harm in buying and selling.