"Investor Network" Zhang Sven

Editor Hu Shan

On April 15, Zhejiang Huayuan Automotive Technology Co., Ltd. (hereinafter referred to as "Zhejiang Huayuan") submitted its prospectus to the Shenzhen Stock Exchange, which started the journey of listing on gem.

The auto parts company, which mainly sells fasteners and locks, is highly dependent on major customers, and the top five customers contributed nearly half of their revenue last year. However, since last year, the capacity utilization of its main product fasteners has declined significantly. The company not only does not give an explanation, but also plans to expand the production of this kind of production line.

In addition, the sales cost of Zhejiang Huayuan stands out among comparable companies, not only 40% of Changhua shares, which is three times higher than its revenue, but also nearly 2 times that of Chaojie shares with similar revenue. Why?

Major customers contribute nearly 50% of revenue

Data show that from 2019 to 2021, the operating income of Zhejiang Huayuan was 274 million yuan, 346 million yuan and 454 million yuan respectively, and the net profit was 33 million yuan, 51 million yuan and 200 million yuan respectively.

From the perspective of revenue structure, fasteners and locks are the main products of Zhejiang Huayuan. In 2021, fasteners contributed 270 million yuan in revenue, accounting for 62.33% of the main business revenue; locks contributed 166 million yuan in revenue in the same period, accounting for about 38%, as shown in the table below.

However, Zhejiang Huayuan currently has a high degree of customer concentration.

From 2019 to 2021, Zhejiang Huayuan's sales to the top five customers were about 150 million yuan, 170 million yuan and 210 million yuan respectively, accounting for 57.09%, 52.22% and 47.83% of the main business income, respectively.

Taking 2021 as an example, Zhejiang Huayuan's top five customers are Lear Group, SAIC Group, Andaotuo Group, Great Wall Motor and Sensata Group. Last year's sales were about 63 million yuan, 47 million yuan, 42 million yuan, 33 million yuan and 25 million yuan, accounting for 14.37%, 10.56%, 9.62%, 7.5% and 5.69%, respectively.

Capacity utilization is declining and still wants to expand.

On the other hand, the capacity utilization of fasteners, the main products of Zhejiang Huayuan, has declined significantly.

In 2021, Zhejiang Huayuan expanded the production line of blockbuster fasteners, with an annual output of 77000 pieces from 2020 to about 92000 pieces, with an annual output increase of 15000 pieces, an increase of nearly 19%.

However, this new capacity has not been effectively utilized. Zhejiang Huayuan produced only more than 8000 fasteners in 2021, which led to a sharp decline in capacity utilization in 2021, from 99.88 per cent in 2020 to 92.75 per cent.

However, the above phenomenon has not attracted the attention of Zhejiang Huayuan, and the company still plans to expand the production capacity of such products.

According to the prospectus, Zhejiang Huayuan plans to invest 314 million yuan in the new "special high-strength fastener project with an annual output of 28500 tons of cars", of which it plans to invest all the 300 million funds raised in the listing. The project is located in Bmur21-2, a private economic science and technology industrial base in Wenzhou. It plans to build a new plant of 77772 square meters and purchase supporting facilities for the production of special-shaped fasteners. The construction period of the project is 36 months, the after-tax internal rate of return of all investment in the project is 15.70%, and the payback period of investment is 5.53 years.

Of course, Zhejiang Huayuan has no intention to build this "high-quality" project with its own funds. The project, which was approved by the shareholders' meeting in August last year, has not yet started.

If we look at the capital reserves of Zhejiang Huayuan, the monetary fund of 242 million yuan in the account last year seems to be able to guarantee the expenditure of 120 million yuan on civil works in the early stages of the project.

As for the contradiction between the decline in capacity utilization and the newly expanded capacity, Zhejiang Huayuan did not explain it in the prospectus.

The cost of sales is much higher than that of peers.

In addition, there are many doubts about the sales expenses of Zhejiang Huayuan.

Judging from the two comparable companies that have issued last year's annual reports, Changhua shares (605018.SH) and Super Jie shares (301005.SZ), Changhua shares have a revenue of about 1.5 billion yuan at most, Zhejiang Huayuan followed by 454 million yuan, and Chaojie shares have the smallest size, with 394 million yuan.

However, Zhejiang Huayuan's sales expenses have been higher than Changhua shares for two years in a row. Data show that in 2020 and 2021, the sales expenses of Zhejiang Huayuan were about 11 million yuan and 14 million yuan respectively; Changhua shares were 8 million yuan and 10 million yuan respectively in the same period; and Chaojie shares were 6 million yuan and 8 million yuan respectively in the same period.

Thus it can be seen that the revenue is 3 times that of Changhua shares in Zhejiang Huayuan, and the sales cost is only 71% of that of Zhejiang Huayuan, while the sales cost of Chaojie shares with similar revenue scale is only about half of that of Zhejiang Huayuan.

Then where are the sales expenses of Zhejiang Huayuan spent?

From the use details, the main expenses come from salary expenses and business hospitality expenses; in 2021, the salary expenditure of sales staff in Zhejiang Huayuan is about 7.56 million yuan, accounting for 55.17% of the sales expenses; and the business hospitality expenses is about 2.29 million yuan, accounting for 16.69%.

It is worth noting that the business hospitality fee of Zhejiang Huayuan has increased by nearly 1.5 times in three years, to only 959300 yuan in 2019. By the end of last year, this fee was much higher than that of its counterparts. The business hospitality fee of Changhua shares last year was about 1.66 million yuan, while that of Chaojie shares was about 700000 yuan.

On the one hand, Zhejiang Huayuan continues to increase marketing efforts; on the other hand, the company has also seen the loss of major customers.

Chongqing Hongli Zhixin Technology Development Group Co., Ltd. (now renamed Magna Hongli Automotive Systems Group Co., Ltd.), which contributed 8.16% and 9.58% of its revenue to the company in 2019 and 2020, is no longer among the company's top five customers.

For the above abnormal situation, Zhejiang Huayuan did not explain in the prospectus. (produced by thinking Finance) ■