The short-term loans of Lilai Zhizhi are much higher than those of its peers, and 21 real estate projects under its name have been mortgaged and IPO on the main board

Source of this article: Times Business School Author: Lei Ying

Source: Times Investment Research

Author: Lei Ying

Edited by Sun Yiming

In the face of a short-term debt funding gap of more than 500 million yuan, the pressure on Suzhou Lilai Industrial Intelligent Manufacturing Co., Ltd. (hereinafter referred to as "Lilai Intelligent Manufacturing") cannot be ignored. As of the end of May 2024, only one of the 22 properties in the company's name has not been mortgaged.

Lilai Zhizao applied for an IPO on the main board of the Shenzhen Stock Exchange on December 29, 2023, and received the second round of review inquiry letter on August 16 this year. The Company's main products are aluminum and steel metal shear parts, stamping parts and others, which are used in the fields of automobiles and home appliances.

As of the end of 2023, the total liabilities of Lilai Intelligent Manufacturing are 2.961 billion yuan, and the corresponding asset-liability ratio is 70.59%, which is much higher than the average of its peers. Among them, the company's short-term borrowings are as high as 1.321 billion yuan, and short-term borrowings account for more than 50% of current liabilities; The short-term borrowings of comparable companies in the same industry are less than 450 million yuan, and the average proportion of short-term borrowings in current liabilities is only 11.10%.

It should be noted that as of the end of 2023, the book currency funds of Lilai Zhizhi are 879 million yuan, the total amount of short-term borrowings and non-current liabilities due within one year is 1.411 billion yuan, and the funding gap is 532 million yuan, and the short-term debt repayment risk is prominent.

The debt-to-asset ratio and short-term borrowings are much higher than those of peers

The main products of Lilai Intelligent Manufacturing include steel and aluminum shear parts for automobiles and home appliances, as well as stamping parts such as automobile body parts, chassis parts, seat frames and TV backsheets. In the past three years, the company's main business income has increased from 3.004 billion yuan to 4.405 billion yuan, with a compound annual growth rate of 21.10%.

Lilai Zhizao said in the prospectus that the company has seized the market opportunity of the rapid development of the new energy automobile industry, which has made the sales revenue of auto parts grow rapidly. As the scale of the business continues to expand, the company's demand for working capital continues to increase.

As for the source of funds, Lilai Zhizao pointed out in the prospectus that the company mainly replenishes working capital through bank loans at this stage.

In the past three years, the interest expense of Lilai Intelligent Manufacturing has increased by 98.92% from 33.1325 million yuan to 65.9079 million yuan, and the financial expense ratio has exceeded 1.10%, while the average financial expense ratio of comparable listed companies in the same industry is less than 0.2% in the same period.

According to the prospectus, from 2021 to the end of 2023, the total liabilities of Lilai Intelligent Manufacturing increased from 1.518 billion yuan to 2.961 billion yuan, with a compound annual growth rate of 39.67%, far exceeding the compound annual growth rate of main business income in the same period. During the same period, the company's total assets increased by 2.001 billion yuan, of which 72.11% came from liabilities.

The sharp increase in the scale of liabilities has also pushed up the asset-liability ratio of Lilai Zhizao. As of the end of 2023, the asset-liability ratio of Lilai Zhizao reached 70.59%, and the average asset-liability ratio of comparable companies in the same industry at the end of the same period was only 43.87%. It is not difficult to find that the company's asset-liability ratio is significantly higher than that of its peers.

Times Investment and R&D shows that behind the high debt of Lilai Intelligent Manufacturing, the scale of short-term borrowings is particularly eye-catching.

According to the prospectus, as of the end of 2023, the proportion of current liabilities in total liabilities is as high as 83.87%, and short-term borrowings (1.321 billion yuan) account for 53.19% of current liabilities. During the same period, the scale of short-term borrowings of comparable listed companies in the same industry was less than 450 million yuan, and the average proportion of short-term borrowings in current liabilities was only 11.10%.

On September 6 and 9, on the issue that the scale of short-term borrowings is higher than that of comparable companies in the same industry, Times Investment Research sent a letter to Lilai Zhizao and called to inquire. The company replied that the company's financing channels were relatively limited mainly because comparable companies in the same industry raised more funds through IPOs and refinancing, which effectively improved its solvency.

Short-term debt repayment pressure is highlighted

From the perspective of short-term loan details, the scale of guaranteed loans, mortgages and guaranteed loans has doubled in the past three years.

According to the prospectus, from 2021 to the end of 2023, among the short-term loans, the guaranteed loans of Lilai Zhizao increased by 7.06 times from 90 million yuan to 725 million yuan, and the mortgage and guarantee loans increased by 1.26 times from 248 million yuan to 562 million yuan. The collateral for the above loan includes real estate and production equipment in the name of the company.

According to the first version of the prospectus, as of December 24, 2023, Lilai Zhizao and its subsidiaries owned a total of 21 real estate (land use rights and ownership of houses/structures on them), of which 19 were mortgaged.

The details of the mortgage loan contract listed in the reply to the first round of review inquiry letter show that in addition to the real estate mortgage, the company also uses machinery and equipment in its name as collateral security, and the loan contract will expire on September 30, 2024.

This means that if Lilai Zhizao cannot repay its debts in a timely manner, it may face the risk of the relevant collateral assets being disposed of. So, does Lilai Zhizao have enough funds to repay the above-mentioned short-term loans in a timely manner?

According to the prospectus, as of the end of 2023, the total amount of short-term borrowings and non-current liabilities due within one year is 1.411 billion yuan. At the end of the same period, the company's monetary funds on the books were 879 million yuan, and there was a funding gap of 532 million yuan compared to the amount of debt to be repaid in the above year.

It is not difficult to find that the existing monetary funds of Lilai Zhizhi cannot meet its short-term debt repayment needs.

It should be noted that in the first half of this year, Lilai Zhizao added a new real estate and used two real estate as collateral loans.

According to the prospectus, from December 24, 2023 to May 31, 2024, Lilai Zhizao added a state-owned construction land use right with an area of 38,000 square meters in Suzhou Industrial Park.

According to the reply documents to the first round of review inquiry letter, in May 2024, Lilai Zhizao signed a loan contract with the Wuzhong Branch of Shanghai Pudong Development Bank with a contract amount of 70 million yuan with the new real estate as collateral. In the same month, Lilai Zhizao also signed a loan contract with Bank of China with a contract amount of 350 million yuan with the real estate No. 0069466 real estate of Hongshan Real Estate in Wuhan City under its name (2023) as collateral. So far, only 1 of the 22 real estate projects under the name of Lilai Zhizao has not been mortgaged. The total amount of the above two new bank loans is 420 million yuan.

If the above two new borrowings are used to borrow new to repay old ones, the short-term debt repayment funding gap at the end of 2023 is still 112 million yuan.

In addition to mortgage loans, what is the cash generation capacity of Lilai's business operations?

According to the prospectus, from 2021 to 2023, the net cash flow generated by Lilai's operating activities will be 35.3034 million yuan, -70.7731 million yuan, and 116 million yuan respectively, which fluctuates greatly.

If Lilai Zhizao's net operating cash flow in 2024 can reach the level of 2023, obtain a net cash inflow of more than 100 million yuan, and use all monetary funds and two new borrowings on the book to repay short-term debts, and still have a real estate unmortgaged, it may be expected to resolve the risk of short-term debt default.

On September 6th and 9th, on the issue of the debt repayment plan, Times Investment wrote a letter and called Lilai Intelligent Manufacturing to inquire. The company replied that the company's revenue grew steadily, providing strong support for the company's debt repayment. As of May 31, 2024, the unused bank credit line of the Company and its subsidiaries was RMB900 million, and the Company could obtain stable bank borrowings to replace the mortgage borrowings that would expire when necessary.

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