Zhang Wei, Investor Network

Editor Hu Shan

On April 19, reducer manufacturer Zhejiang Kone Transmission Technology Co., Ltd. (hereinafter referred to as "Kone Technology") disclosed the third round of audit inquiries listed on the gem of the Shenzhen Stock Exchange. responded to more than 30 issues of concern to the Shenzhen Stock Exchange, such as revenue growth, industry status, R & D investment, and so on.

Kone has less than 1 per cent of the market in the domestic reducer industry, far less than direct competitors such as 603915.SH and 002164.SZ, according to the prospectus. At the same time, we also have to face the squeeze from international manufacturers such as SEW, FLENDER and other global industry leaders. It remains to be seen whether Kone Technology can expand its operation scale and improve the competitiveness of the industry through listing.

Attention is paid to the upward drivers of main revenue.

According to the official website, Kone Technology was founded in 2008, is a professional engaged in reducer research and development, production, sales and services of high-tech enterprises, its products include general reducer, industrial gearbox two categories, and provide accessories and maintenance services. These three businesses constitute the main source of revenue for Kone Technology.

From 2019 to 2021 ("the reporting period"), Kone Technology's main business income was 305 million yuan, 340 million yuan and 463 million yuan respectively, and its net profit was 37.24 million yuan, 55.15 million yuan and 90.55 million yuan respectively. During the reporting period, its general reducer accounted for more than 75% of revenue, industrial gearbox more than 20%, accessories and maintenance less than 2%.

Figure 1: revenue and net profit of Kone Technology

Although the revenue and net profit of Kone Technology continued to grow during the reporting period. However, in the third round of inquiry, the Shenzhen Stock Exchange asked Kone Technology to explain whether the overall upward driver of main business revenue is in line with the changing trend of comparable companies in the same industry.

Kone Technology replied, "the overall rise is mainly driven by the rapid growth of downstream equipment manufacturing and related applications, active market expansion leading to sales growth of reducer products and fluctuations in the unit price of reducer products."

Financial data show that the prices of general reducers and industrial gearboxes of Kone Technology in 2021 are 3975 yuan and 35775 yuan per unit, up 8% and 7.9% respectively from 2020.

According to disclosed financial data, revenue of Guomao and Ningbo Dongli both grew by more than 40% in the first three quarters of 2021. Kone Technology believes that the change trend of the company's main business income is consistent with that of comparable companies in the same industry, but there are some differences in the growth rate due to the differences in the operating scale, subdivision product structure and sales strategy of each company. It's reasonable.

How to call it a "leader" with a market share of less than 1%?

In addition to the revenue growth rate is not as fast as ITC shares and Ningbo Dongli, there is also a significant gap between Kone Technology and the above two companies in terms of total assets, revenue scale and market share.

According to Wind data, the total assets of Guomao and Ningbo Dongli in 2020 were 4.003 billion yuan and 1.86 billion yuan respectively, while that of Kone Technology was only 504 million yuan in the same period. The operating income of Guomao shares and Ningbo Dongli in 2020 was 2.184 billion yuan and 1.238 billion yuan respectively, while that of Kone Technology was only 343 million yuan in the same period. The net profits of Guomao and Ningbo Dongli in 2020 were 360 million yuan and 1.461 billion yuan respectively, while Kone Technology just exceeded 55 million yuan in the same period.

It can be seen that the two direct competitors are several times larger than Kone in terms of total assets, operating income and net profit. In the prospectus, Kone Technology believes that "it belongs to the leading enterprise." In this regard, the Shenzhen Stock Exchange requires Kone Science and Technology to explain that "it belongs to the basis of the expression of leading enterprises, and whether the relevant determination is prudent."

Kone Technology said that due to its own development scale, there is a certain gap in the company's market share compared with the listed companies in the same industry, but due to the low concentration of the domestic reducer industry, the company's market share is still in the forefront of the general reducer industry. Statistics show that in 2020, Kone Technology's market share was about 0.62%, lower than Guomao's 3.92% and Ningbo Dongli's 1.94%.

Kone Technology also mentioned that although the company and larger reducer companies such as Guomao shares and Ningbo Dongli have become the leading general reducer companies in China, their market share is still relatively small, the domestic high-end market is still occupied by foreign companies such as SEW and FLENDER, and there is still a certain gap between the overall technical level of domestic enterprises and international manufacturers such as SEW and FLENDER.

Will the core technology or product be eliminated?

The purpose of fund-raising shows that Kone Technology plans to raise 345 million yuan in this IPO, of which 205 million yuan is used for the technical renovation project of intelligent factories with an additional annual production of 50, 000 industrial reducers, 50.41 million yuan for the technical renovation project of R & D center upgrading, and 90 million yuan for replenishing liquidity.

Chart 2: arrangement for the use of Kone Technology fundraising

It is reported that the working principle of the reducer is to drive the power provided by the prime mover to the output shaft through all levels of gears to drive the operation of the working equipment to achieve the purpose of reducing the speed and increasing the torque. According to the prospectus, Kone Technology has an existing production capacity of 64500 units per year, and after the investment project reaches production, the production capacity of the reducer will exceed 110000 units per year.

For capacity expansion, Kone Technology told Investor Network, "with the rapid growth of revenue from the main business, insufficient capacity has become an important factor restricting the development of the company, it is necessary for the company to expand capacity at this stage." During the reporting period, the capacity utilization rate of Kone technology reducer was 98%, 117% and 145%, respectively.

At the same time, Kone Technology also plans to raise 50.41 million yuan for R & D center upgrading and technical renovation projects. Kone Technology said that the completion of this project will help the company to further maintain and enhance its technological advantages, comply with the mainstream trend of technological development in the industry, enhance the company's ability of independent innovation, meet the company's R & D needs, and then enhance the company's core competitiveness.

However, the amount of R & D investment in Kone Technology is not high compared with companies in the same industry. In the first half of 2021, the R & D investment of Guomao and Ningbo Dongli was 52.1 million yuan and 31.31 million yuan respectively, which was higher than that of Kone Technology (19.33 million yuan) in 2021. This also makes the Shenzhen Stock Exchange focus on the core competitiveness of Kone Technology, requiring it to specify whether "there is a risk of elimination of core technologies or products".

Kone Technology said that the absolute amount of R & D investment of the company is lower than that of the above-mentioned companies because of the gap between its revenue scale and its peers such as Guomao and Ningbo Dongli, but judging from the R & D expenditure rate of the latest issue (the first half of 2021), there is little difference compared with listed companies in the same industry.

Financial data show that the R & D expenditure rates of Guomao and Ningbo Dongli in the first half of 2021 were 3.52% and 3.99%, respectively. Kone Technology invested 41.69 million yuan in R & D in the past three years, accounting for 3.73% of its operating income in the past three years.

Figure 3: research and development expenditure rate of Kone Technology in the first half of 2021

As to whether the core technology or products are at risk of being eliminated, Kone Technology believes that the company's core technology does not belong to the general technology of the industry and has the characteristics of being private and cannot be easily obtained by industry participants. as a result, the company's reducer products belong to the mainstream of the industry and have strong market competitiveness.

Kone Technology also mentioned that as a drafting unit, the company has participated in the formulation of four national and industry standards for reducers, and will continue to accumulate and update core technologies in the future, and continuously improve its R & D strength to meet the needs of technology and product development in the industry. maintain the company's sustainable competitiveness in the industry. (produced by thinking Finance) ■