Haida Solar's VAM agreement seeks to go public: the unit price of core products has declined, and the turnover rate of accounts receivable is weak

"Harbor Business Observer" Huang Yi

On June 29, Wuxi Haida Solar Co., Ltd. (hereinafter referred to as "Haida Solar") IPO on the main board of the Shanghai Stock Exchange has been inquired, and Huaying Securities is its sponsor.

On March 1, 2023, Haida Solar submitted a prospectus to the Shanghai Stock Exchange and was accepted, and received a review inquiry letter from the Shanghai Stock Exchange the following month, which lasted ten months before the company gave a reply on January 31, 2024, and did not update the latest version of the prospectus simultaneously.

In 2023, the national demand for finished photovoltaic glass products will be 4,759.8 million m2, and the company will sell 122 million m2 of photovoltaic glass, with a market share of 2.57%. It can be seen that Haida Solar's market share is not outstanding.

01

The gross profit margin is not as good as that of peers, and the unit price of core products has declined

From 2019 to 2021 and the first half of 2022 (reporting period), the company's operating income was 260 million, 603 million, 908 million, and 644 million respectively, of which 2020 increased by 131.44% year-on-year. The attributable net profit was 19.9686 million, 95.1993 million, 81.4638 million and 50.797 million respectively. It is worth noting that in 2021, that is, while the company's revenue increased by 50.67% year-on-year, the net profit fell by 14.42%, and there was a situation of increasing revenue but not increasing profits.

During the same period, the company's gross profit margin was 17.55%, 24.02%, 16.93% and 14.17% respectively, showing an overall downward trend. On the other hand, the average gross profit margins of comparable peers are 20.03%, 32.41%, 22.76%, and 16.10%, respectively, which still maintain a gap.

In addition, Haida Solar's R&D expense ratio was also lower than the average of its peers, which were 3.53%, 3.54%, 3.37% and 2.52% respectively during the period. The average values of comparable peers were 3.14%, 3.30%, 3.55% and 3.12%, respectively.

The company's main business income can be divided into photovoltaic module glass, BIPV and other special glasses according to product types, and other special glasses mainly include automotive glass and home appliance glass. During the reporting period, photovoltaic module glass accounted for 88.17%, 95.47%, 96.43% and 97.74% of the main business revenue, respectively, and the company focused on the photovoltaic module glass business.

During the reporting period, the self-operated photovoltaic module glass revenue accounted for 88.21%, 75.64%, 78.13% and 83.06% of the photovoltaic module glass revenue, respectively, which is the main component of photovoltaic module glass revenue, and its gross profit margin was 16.20%, 26.30%, 18.83% and 15.60% respectively.

It is reported that the gross profit margin of photovoltaic module glass trade fluctuates greatly due to the type and quality of the commodities traded; The gross profit margin of the entrusted processing of photovoltaic module glass is relatively high, but due to the small scale of entrusted processing, the gross profit margin is greatly affected by the price adjustment of processing fees, and the gross profit margin of the business fluctuates greatly.

Among them, the revenue of double-glass module encapsulation glass (2.0mm) accounted for the highest proportion, which were 3.94%, 66.12%, 68.89% and 83.04% respectively. During this period, the unit price of double-glass module encapsulation glass (2.0mm) declined, which were 22.01 yuan, 26.54 yuan, 21.14 yuan and 19.91 yuan respectively. Combined with the content of the reply to the inquiry letter, from 2021 to 2023, the average selling price of the product will be 21.14 yuan, 19.56 yuan, and 17.37 yuan respectively, which is also showing a downward trend.

During the reporting period, the gross profit margin of double-glass module encapsulation glass (2.0mm) also continued to decline, which were 20.10%, 30.48%, 20.81% and 16.00% respectively.

Haida Solar pointed out that with the policy adjustment of the photovoltaic glass industry and the changes in the supply and demand relationship brought about by the changes in the downstream demand of the photovoltaic industry, the price of the company's self-operated photovoltaic module glass has changed significantly. From 2019 to the first half of 2020, the price trend of photovoltaic glass was relatively stable, and in the second half of 2020, it began to be supported by the release of phased demand. In 2021, some new lines of photovoltaic glass will be ignited, the contradiction between supply and demand will be alleviated, and the price will be corrected. With the continuous launch of new PV glass production capacity in 2022, the relationship between supply and demand has changed, and the continuous rise in polysilicon prices has affected the terminal installed capacity, and the demand for PV glass has been suppressed, resulting in low PV glass prices.

For the continuous decline in gross profit margin, from January to June 2022, the gross profit margin of self-operated photovoltaic module glass further fell to 15.60%. From 2020 to January to June 2022, the sales freight was included in the cost of the main business, and the freight costs of self-operated photovoltaic module glass were 5.1328 million yuan, 15.9883 million yuan and 21.4103 million yuan respectively, accounting for 1.19%, 2.35% and 4.11% of the revenue of self-operated photovoltaic modules, respectively.

In the first half of 2022, the reasons why the sales freight had a greater impact on the gross profit margin of the company's self-operated photovoltaic module glass were, on the one hand, the increase in freight costs; On the other hand, the company's customer structure has changed. In the first half of 2022, the company's sales to JinkoSolar increased from 46.3026 million yuan in 2021 to 158 million yuan, and the proportion of operating income increased from 5.10% to 24.54%. Since JinkoSolar is located in Shangrao, Jiangxi Province, compared with customers in Jiangsu Province such as Trina Solar, the company's sales time is longer and the shipping cost is higher.

02

Relying on the top five customers, the accounts receivable turnover rate is weak

As for the impact of the change in customer structure mentioned by Haida Solar, in fact, Haida Solar relies heavily on the top five customers.

In each period of the reporting period, the top five customers accounted for 56.57%, 80.74%, 78.71% and 80.54% of the company's operating income respectively. Trina Solar's largest customers accounted for 14.90%, 64.01%, 59.25% and 38.25% of its revenue, respectively.

JinkoSolar, mentioned above, accounted for 5.10% and 24.54% of its revenue in 2021 and the first half of 2022, respectively, and directly became Haida Solar's second largest customer in the second year.

The company's accounts receivable are also greatly affected by customers.

During this period, the top five accounts receivable customers accounted for 68.25%, 86.23%, 81.55% and 87.95% respectively. Among them, Trina Solar has maintained a high level of proportion, which is 20.79%, 69.40%, 50.87% and 37.34% respectively.

At the same time, the book value of the company's accounts receivable was 68.6799 million yuan, 147 million yuan, 323 million yuan and 323 million yuan respectively, accounting for 34.15%, 40.26%, 34.05% and 38.17% of current assets respectively, and the ratio of accounts receivable balance to operating income was 30.06%, 26.39%, 36.74% and 25.84% respectively. The accounts receivable turnover ratios were 4.46 times/year, 5.08 times/year, 3.69 times/year, and 3.87 times/year, respectively, and the average values of comparable peers were 3.78 times/year, 4.88 times/year, 6.10 times/year, and 6.21 times/year, respectively.

Obviously, Haida Solar's accounts receivable and its proportion in current assets are increasing year by year, and at the same time, although the accounts receivable turnover rate has improved, it is far from the performance of its peers.

In addition, Haida Solar's inventory has also increased significantly. During the reporting period, the book value of the company's inventory was 19.9498 million yuan, 31.5968 million yuan, 62.2242 million yuan and 38.5505 million yuan respectively, accounting for 9.92%, 8.66%, 6.56% and 4.56% of current assets respectively. Among them, the inventory of goods was 9.9044 million, 9.3182 million, 34.9318 million, and 18.5761 million respectively.

Haida Solar pointed out that the amount of raw materials and inventory goods at the end of 2021 was higher than that of other years, because the company moderately increased its stock according to the price trend of photovoltaic glass at the end of 2021, and increased the safety stock of about half of its purchase volume after consultation with Trina Solar.

03

Bank borrowings are rising, and the amount of accounts receivable factoring fluctuates greatly

In addition to the rise in accounts receivable, Haida Solar's cash flow is gradually under pressure and it continues to expand the scale of short-term borrowings.

During the reporting period, short-term borrowings were 65,143,960, 55,084,000, 243 million and 135 million respectively; The balances of bank loans (including guarantees, pledges, mortgages and other guarantees) were 56.3734 million yuan, 55.00 million yuan, 77.400 million yuan and 79.6566 million yuan respectively.

Haida Solar disclosed that the company's short-term borrowings are mainly composed of bank borrowings, accounts receivable factoring and underecognized note discounts, and the significant increase in the balance of short-term borrowings at the end of 2021 and the decrease in the balance at the end of June 2022 are due to changes in the balance of accounts receivable factoring. In particular, the company pointed out that the factoring of accounts receivable for short-term loans is 0, 0, 148 million and 55.5716 million respectively, and the amount of accounts receivable factoring refers to the amount of funds raised by the enterprise by transferring the accounts receivable to the factor.

During the Reporting Period, Trina Solar and CECEP provided the Company with supply chain financing channels, enabling the Company to factor its accounts receivable through the corresponding commercial banks without recourse. Although the factoring contract stipulates that the type of transaction is public non-recourse factoring, out of prudence, the company has not terminated the recognition of the accounts receivable that have entered the factoring plan, but still listed them in the books.

Since the accounts receivable entering the factoring have not been derecognized, the company recognizes the funds raised from the bank as short-term loans. Trina Solar's customers and the Company have settled their payments with the Company in a manner that includes bank acceptance bills, commercial acceptance bills, and payment commitment letters, etc., and the amount of the payment commitment letter at the end of the period is mainly determined by the financial status of Trina Solar and other customers, so the factoring amount of the Company's accounts receivable at the end of the period fluctuates greatly.

Song Qinghui, a well-known economist, pointed out that "if the company's 'accounts receivable factoring amount' fluctuates, there may be many risks, such as the increase in the risk of bad debts, the loss of cash outflow and the loss of capital opportunity cost. These risks, in turn, can affect the operational and financial health of the business. Therefore, when conducting relevant factoring business, enterprises should fully consider risk factors and take corresponding risk management measures to resolve risks. ”

During the reporting period, the company's net cash flow from operating activities was -14.5633 million, -31.6838 million, -194 million and -29.9809 million respectively.

Haida Solar pointed out that the company's cash flow from operating activities continued to be in a state of net outflow, of which the net outflow in 2021 was large. In 2021, the net cash outflow from operating activities was relatively large, mainly because the funds obtained from factoring and discounting of accounts receivable and bills that were not derecognized at the end of the year were divided into cash inflows from financing activities, with a total amount of 162 million yuan, and after excluding this influencing factor, the net cash flow from operating activities in 2021 was -31.489 million yuan.

The main reason for the net cash outflow from operating activities was the inconsistency between the purchase payment and sales collection periods, and the sales scale continued to increase significantly during the reporting period. According to the industry settlement practice, photovoltaic glass manufacturers adopt the "payment before delivery" settlement mode when selling original films, and at the same time, photovoltaic module manufacturers usually have an account period of 1-2 months when purchasing photovoltaic glass after deep processing.

In addition, the company's asset-liability ratios were 58.24%, 55.16%, 67.99% and 58.81% respectively; The average values of comparable peers were 59.87%, 47.48%, 47.26% and 51.41%, respectively. Obviously, Haida Solar's solvency failed to meet the standard line.

04

Deposit VAM agreement, dividends of hundreds of millions of yuan in two years

Although the solvency and cash flow situation are not ideal, it does not prevent Haida Solar from paying dividends.

On June 17, 2021, the company's shareholders' meeting deliberated and approved the profit distribution plan, and agreed to distribute cash dividends of 80 million yuan to shareholders based on the company's cumulative undistributed profit of 244 million yuan as of May 31, 2021.

On June 20, 2022, the general meeting of shareholders of the company deliberated and approved the profit distribution plan for 2021, and agreed to distribute cash dividends of RMB 2 (tax included) to all shareholders for every 10 shares based on the total share capital of 125 million shares as of December 31, 2021, with a total cash dividend of RMB 25 million.

At the same time, the company also has a VAM agreement and has been questioned by the regulatory authorities.

According to the prospectus, the company's shareholders Yida High-tech, Jinling Medical Care, Jintou Jiatai, Huiqian Huixin, Huikai Zhengze, Huizhixin, Huizhicheng and Haida Solar and its related shareholders signed investment agreements with Haida Solar and its related shareholders have special rights clauses such as share repurchase, if the company fails to achieve a qualified IPO before December 31, 2024, the above shareholders have the right to require the company or the original shareholders or actual controllers or core personnel of the company to purchase their shares; (2) The shareholders of the Company, Chanfa Guosheng, Haida Solar, the actual controller and relevant shareholders also signed agreements including special rights such as repurchase rights; (3) In December 2021, Yida High-tech and other investors signed a supplementary agreement with the Company and relevant shareholders to revise the content of Haida Solar as the obligor of the VAM clause stipulated in the original agreement, and the Company will not act as the obligor of the VAM clause from the beginning and will not assume any repurchase obligation; (4) Haida Solar and its related parties agreed with Sanfa Guosheng on the termination of the VAM agreement, and the special terms stipulated in the agreement shall terminate when the company submits a qualified IPO application (subject to the date on which the listing application documents are formally accepted by the relevant regulatory authorities), but with a reinstatement clause.

As a result, the regulatory authorities required Haida Solar to reply, 1) whether the stipulation in the supplementary agreement signed by the relevant parties and Yida High-tech and other 7 investors that "the company shall not act as the obligor of the VAM clause from the beginning" constitutes the "ab initio invalidity" of the repurchase liability, whether the issuer is still a signatory to the VAM agreement, and whether the accounting treatment of the relevant special rights clause complies with the provisions of the "4-3 VAM Agreement" of the Guidelines for the Application of Supervision - Issue No. 4.

2. Refer to the relevant provisions of the "4-3 VAM Agreement" in the Guidelines for the Application of Regulatory Rules - Issuance No. 4, and explain whether the relevant special rights clauses signed between the company and the company and relevant parties meet the regulatory requirements, and if not, please rectify them.

3. Whether there are other VAM agreements or similar arrangements such as share repurchases, performance commitments and compensation, and if so, whether they have been truly and completely terminated, whether there are other benefit arrangements between the issuer and its actual controllers and relevant shareholders, whether the relevant terms or arrangements violate the prohibitive provisions of laws and regulations or harm the interests of other shareholders, and whether there are risks, disputes or potential disputes such as clear equity ownership. (Produced by Harbour Finance)