More than half of Decoli's revenue depends on ZTE's independence is questionable, and the 9-fold increase in net profit in two years deviates from operating cash flow

Yangtze River Business Daily news ● Yangtze River Business Daily reporter Wei Du

The growth of Wuxi Dekeli Optoelectronic Technology Co., Ltd. (hereinafter referred to as Dekeli), which is impacting the IPO of the Science and Technology Innovation Board, is questionable.

Decoli plans to raise 1.030 billion yuan in this IPO, of which 250 million yuan is intended to supplement working capital. However, last year, before the IPO, the company suddenly achieved two cash dividends, with a total cash dividend of 80 million yuan. The legitimacy of its surprise dividends is questionable.

Purely from the operating performance data, Decoli seems to have achieved rapid growth. In 2020, its net profit attributable to shareholders of the parent company (hereinafter referred to as net profit) was 142 million yuan, which was 10 times the net profit in 2018.

However, there is moisture in this high-growth performance. In addition to the company's continued large net outflow of operating cash flow, notes receivable and accounts receivable have grown rapidly, and as of the end of June this year, they have exceeded 50% of the current assets of the current period.

In addition, Decoli has a clear dependence on ZTE. In 2019 and 2020, the company's sales to it accounted for more than 50% of the company's operating income.

Not only that, Decoli changes hands frequently, and once, ZTE was also the company's largest shareholder.

In this regard, the market questioned the independence of Decoli and the fairness and rationality of the transaction.

More than half of the income comes from ZTE

The establishment and development of Decoli is directly related to ZTE.

The predecessor of Decoli was ZTE Optoelectronics, which was established on January 31, 2000, and at the beginning of its establishment, ZTE held 65% of the shares. In the pre-disclosed prospectus, Decoli did not disclose the evolution of the shareholding structure in detail, and it is not known when ZTE withdrew from the position of the largest shareholder. Before 2014, the three initial major shareholders, including ZTE, were no longer among the company's shareholders. Since then, the company's major shareholders have changed frequently and changed hands several times.

However, although ZTE disappeared from Decoli's shareholder list, there is still an inextricable connection between the two in terms of equity structure.

In recent years, Decoli has frequently increased its capital and expanded its shares, and introduced external shareholders, among which the two companies of Laterite Zhanlu Fund and Shenzhen Venture Capital entered in November last year.

According to public information, when the Laterite Zhanlu Fund was established, ZTE, as a limited partner, invested 400 million yuan to subscribe and held 40% of its shares. In addition, ZTE also holds a 0.23% share of Shenzhen Venture Capital. ZTE indirectly holds a 1.71% stake in Decoli through Red Clay Cham Lu and Shenzhen Venture Capital.

In addition, the actual controllers of Dekeli are Gui Sang, Qu Jianping and Zhang Shao. The company said that the three people have been colleagues for many years and are consistent actors. Among them, Qu Jianping, born in 1975, worked for ZTE from 2001 to 2011, joined Dekeli in 2012, and is currently serving as a director and general manager of the company.

In terms of business, Decoli and ZTE have a closer relationship, mainly in the form that ZTE has always been The first major customer of Decoli.

According to the prospectus, from 2018 to the first half of this year, the sales amount of Dekeli to ZTE was 96.14 million yuan, 215 million yuan, 365 million yuan and 166 million yuan, accounting for about 36.27%, 55.59%, 54.94% and 43.22% of the company's current operating income, of which more than 50% in 2019 and 2020. This means that more than half of the company's revenue comes from ZTE.

In this regard, Dekeli said that it is mainly determined by the characteristics of the company's downstream customers. From the perspective of the global market, telecom equipment manufacturers have a high degree of industry concentration, and Huawei, Nokia, Ericsson, ZTE and other manufacturers occupy a higher market share. The company has established a long-term and stable cooperative relationship with ZTE, the transaction price is fair, and the company does not constitute a major dependence on ZTE.

Receivables surge profitability is questionable

Decoli, which has impacted the science and technology innovation board, has doubts about its growth.

Decoli has been deeply involved in the optoelectronic device industry for more than 20 years, and its main business covers the research and development, production and sales of optical transceiver modules, optical amplifiers, and optoelectronic systems, and the optoelectronic devices it studies are the core devices of optical communication systems. The company said that it has established good cooperative relations with many global mainstream telecommunications equipment manufacturers such as ZTE, Infinera, Ciena, Fiberhome, Nokia, ECI, etc., the three major domestic operators and high-end customers in domestic and foreign industries such as The State Grid.

Judging from the operating performance data, in recent years, Decoli seems to have achieved rapid development.

Wind data shows that from 2012 to 2015, Decoli achieved operating income of 201 million yuan, 195 million yuan, 228 million yuan and 228 million yuan, and net profit of -0.39 billion yuan, -0.15 billion yuan, 0.12 billion yuan and 0.06 billion yuan, respectively, with greater fluctuations in performance.

In 2018, its realized operating income was 265 million yuan, an increase from 2015, with a net profit of 0.14 billion yuan, and a net profit after non-recurring gains and losses (referred to as non-net profit) of 0.06 billion yuan, slightly higher than in 2014. This year, the performance was mediocre.

What is surprising is that in 2019 and 2020, the operating income achieved by Decoli was 387 million yuan and 665 million yuan respectively, an increase of 46.17% and 71.57% year-on-year. The corresponding net profit was 0.47 billion yuan and 142 million yuan, an increase of 229.55% and 205.07% respectively year-on-year, both of which were more than 2 times the growth. In the same period, the non-net profit was 0.45 billion yuan and 135 million yuan, an increase of 673.97% and 201.77% respectively year-on-year, and also an increase of more than 2 times.

In the first half of this year, it achieved operating income of 383 million yuan, net profit and deduction of non-net profit of 0.67 billion yuan and 0.65 billion yuan respectively, operating income exceeded half of last year, and net profit and deduction of non-net profit were close to half of last year's full year. According to this, it can be judged that throughout this year, the year-on-year growth rate of net profit may slow down significantly.

So, is the operating performance of the super-high growth in the past two years real?

At the end of 2019 and the end of 2020, the book value of Decoli's bills receivable and accounts receivable was 215 million yuan and 323 million yuan respectively, an increase of 46.26% and 50.23% year-on-year, all of which were high-speed growth. At the end of June this year, the carrying amount of its notes receivable and accounts receivable rose to 369 million yuan, accounting for 51.83% of its current assets in the current period.

Operating cash flow related to net profit, from 2019 to the first half of this year, Decoli net outflows of 0.52 billion yuan, 175 million yuan and 0.30 billion yuan, respectively, in 2019 and 2020 fell by 2500% and 236.54% respectively, this phenomenon is seriously deviated from net profit.

Two surprise dividends before the IPO

Decoli also has a highly questionable point, that is, the original ability to repay the debt is insufficient, but it suddenly found a gold dividend.

On October 12 this year, Decoli submitted a listing application for listing on the Science and Technology Innovation Board. In 2020, the company made a surprise dividend.

According to the prospectus, on February 20, 2020, Decoli implemented the 2019 annual profit distribution plan, based on the undistributed profits as of the end of 2019, and distributed a cash dividend of 40 million yuan (including tax) to all shareholders in proportion to their shareholdings. The profit distribution was completed in March 2020. At the end of 2019, the company's undistributed profit amounted to 93.5187 million yuan.

After four months, at the end of July 2020, Decoli realized the profit distribution plan for the first half of 2020, and once again distributed a cash dividend of 40 million yuan (including tax) to all shareholders, which was implemented in October 2020. This profit distribution is actually "eating grain". In 2020, Decoli achieved a net profit of 142 million yuan, and at the end of that year, the company's undistributed profit was -9.3275 million yuan.

The implementation of two cash dividends in such a large-scale surprise has aroused widespread doubts. Because, the company's own ability to repay its debts is insufficient. As of the end of June this year, Decoli had 0.31 billion yuan of monetary funds on the book and 0.36 billion yuan of short-term borrowings, and the existing funds could barely cope with short-term debts.

In recent years, the company's investment activities cash flow has continued to net outflow, which means that the company still has projects under construction, etc., and needs to continue to invest. In this case, the rationale for the large-scale implementation of the cash dividend scheme is questionable.

One of Decoli's measures to alleviate liquidity pressure and enhance its solvency is to hope for this IPO.

According to the prospectus, in this IPO, Decoli plans to raise 1.030 billion yuan, of which 250 million yuan will be used to supplement working capital. In addition, the fundraising will be used for the expansion and upgrading of the high-speed optical transceiver product line and the optical transmission subsystem platform research and development project, and it is planned to use the fundraising of 600 million yuan and 180 million yuan respectively.

According to the plan, the total investment of the two projects is 836 million yuan, and the proposed use of raised funds is 780 million yuan, and there is a gap of 0.56 billion yuan. This gap, which requires the company to self-finance, is bound to affect the company's cash flow.

After the sudden dividend, the fundraising was used to supplement the working capital, and Decoli was suspected of encircling money.

Editor-in-charge: ZB

This article originated from the Yangtze River Business Daily