graysnowpoker| Operating cash flow continues to be negative, Taihu Yuanda applies for IPO on the Beijing Stock Exchange

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Zhejiang Taihu Broad New Materials Co., Ltd. ("Taihu Broad") reports to Beijing Stock Exchange IPO, the company's main products are cross-linked polyethylene (XLPE) cable materials, low-smoke halogen-free cable materials and shielding materials, which are mainly used in wire and cable manufacturing and indirectly used in power, rail transit, communications, new energy, construction and many other fields.

During the reporting period, the companyGraysnowpokerThe main financial data are as follows:

In recent years, with the rapid growth of the company's operating scale, the company has a large investment in fixed assets such as new production lines and factories, but because the company's financing channel is relatively single, it mainly depends on debt financing, and the asset-liability ratio remains at a high level. At the end of each period of the reporting period, the company's asset-liability ratio (merger) was 68.Graysnowpoker.41%, 63.57%, 61.40% and 56.82%.

In each period of the reporting period, the company's overseas sales were 34.6556 million yuan, 79.3454 million yuan, 191.7751 million yuan and 99.7858 million yuan respectively, and the proportion of operating income was 4.23%, 7.41%, 13.77% and 13.69%, respectively.

First, the main medium and low voltage cable materials, but the high voltage DC insulating material is the "neck" material of the cable industry.

The core products of Taiyuan Lake University are silane cross-linked polyethylene cable material and chemical cross-linked polyethylene cable material, which all belong to medium and low voltage cable materials.

During the reporting period, the total income contributed by the above products to the company was 652.6788 million yuan, 807.6772 million yuan, 1.0210063 billion yuan and 5547.35 million yuan, accounting for 79.76%, 75.39%, 73.33% and 76.09% of the main business income, respectively.

On the other hand, China's high-voltage DC cable materials have been completely dependent on imports for a long time. As the core competitiveness, high-voltage DC insulating materials have been monopolized by Nordic Chemical and Dow Chemical for a long time, which is the "choking" material of the cable industry.

However, at present, the issuer does not have the production capacity of high-voltage and ultra-high-voltage peroxide crosslinking cable materials such as 110kV, 220kV, 500kV, etc. In this regard, Taihu Broad said that the company is constantly developing from medium to low voltage to high voltage and ultra-high voltage. It is expected that 110kV high voltage insulating material and 220kV ultra high voltage insulating material will be produced on a large scale and officially sold to the outside world in 2025 and 2026, while 500kV ultra high voltage insulating material will be started timely according to the progress of 110kV and 220kV ultra high voltage insulating material, and its market time is still in a state to be determined.

At the same time, Taihu Broad's competitor 002276.sz has been able to mass-produce high-voltage and ultra-high-voltage cable materials. In 2022, three new products, "Ultra High Voltage Cable (220kV) Super Clean XLPE Insulation material", "Ultra High Voltage Cable use (220kV) Ultra-smooth semi-Conductive shielding material" and "35kV Thermoplastic Polypropylene Cable material", independently developed by Wanma High Molecular Co., Ltd. passed the national new product appraisal, and made a breakthrough in the field of high voltage and UHV cable insulation materials, and related products have entered the market for mass sales.

Second, the performance increased year after year, but the operating cash flow continued to be negative during the reporting period.

From the performance point of view, Taihu Lake Broad performance is more outstanding. Its revenue growth rate has been about 30% for two consecutive years in 2021 and 2022, and the growth rate of the company's net profit has exceeded that of revenue growth in 2022.

From 2020 to 2023, the operating income of Taihu Yuanda was 818 million yuan, 1.071 billion yuan, 1.392 billion yuan and 1.524 billion yuan respectively, and the company's revenue increased by 86.31% within four years. In the same period, the company's net profit was 37.2344 million yuan, 45.8956 million yuan, 61.091 million yuan and 73.387 million yuan respectively, and the company's net profit increased by 96.88% in four years.

It is worth noting that despite the year-on-year growth of Taihu Lake's great performance, the operating cash flow continued to be negative during the reporting period. From 2020 to 2023, the net operating cash outflow of Taihu Lake was 118 million yuan, 207 million yuan, 151 million yuan and 166 million yuan respectively, with a net outflow of 642 million yuan in four years.

For the company's operating cash flow continued to flow, Taihu Broad explained that the company discounted cash obtained from ordinary commercial bills as cash inflows in fund-raising activities, resulting in the company's operating cash flow continued to flow.

During the reporting period, the specific differences between the net cash flow and the net profit generated by the company's operating activities are as follows:

After Taihu Yuanda excluded the bill discount item, the net cash flow generated by the company's operating activities in each period of the reporting period was 5.2131 million yuan, 16.399 million yuan and 47.8893 million yuan respectively, all positive.

In addition, the annual increase of the company's accounts receivable is also the main factor leading to the lack of cash in daily operations.

From 2020 to 2023, the balance of accounts receivable of the company is 166 million yuan, 218 million yuan, 270 million yuan and 273 million yuan respectively, showing a growing trend. According to the first round of inquiries, Taihu Broad is currently mainly sold on credit, and most customers have longer account periods, while the upstream suppliers have lower credit lines and shorter credit periods, resulting in a shortage of liquidity.

It is worth noting that the proportion of bad debts of accounts receivable for 1-2 years in Taihu Lake is much higher than that of comparable companies in the same industry.

The data show that the proportion of bad debts of accounts receivable within six months is 1%, which is almost the same as Wanma shares of comparable listed companies, higher than CSL Xincai and Zhizheng shares, but lower than Hangzhou Hi-Tech, which has 5% of bad debts. The proportion of bad debts of accounts receivable for 1-2 years is 30%, which is the highest among comparable companies, and is higher than that of CSL, Zhi Zheng shares, 10% of Hangzhou Hi-tech and 11.60% of Wanma shares.

III. During the reporting period, the salary of sales staff far exceeded the level of R & D personnel and comparable companies.

From 2021 to 2023, the average salary of sales staff of Taiyuan Lake University was 299800 yuan, 336000 yuan and 329400 yuan, while the average salary of the same industry was 166000 yuan, 207400 yuan and 257,100 yuan. The average salary of R & D personnel of issuers is 108,700 yuan, 139,800 yuan and 152,200 yuan, while the average salary of the same industry is 177,300 yuan, 163,400 yuan and 252,700 yuan. During the reporting period, the per capita salary of issuers' sales personnel was significantly higher than that of R & D personnel and comparable companies, while the salary of issuers'R & D personnel was significantly lower than that of comparable companies.

Taiyuan Lake University said that the average salary of sales staff is higher than that of R & D personnel mainly due to the difference in performance appraisal policies between the two.

The salary of the company's sales staff is supplemented by the basic salary and based on the performance reward. The basic salary of the sales staff in the company is relatively low, usually at the level of 3000-5000 yuan per month; the performance reward mainly depends on the sales staff responsible for the sales and payback of the customers. the company rewards the performance according to the completion of the sales task and the completion of the payback task.

The salary of the company's R & D personnel is based on the basic salary and supplemented by performance reward. The company will comprehensively consider the educational level and professional ability of R & D personnel, and set its basic salary, usually 5000-20,000 yuan / month; performance reward mainly depends on R & D achievements.

The proportion of the basic salary of sales staff and R & D personnel to the total salary during the reporting period is as follows:

Taihu Broad said that due to the high per capita income of the company's sales staff, the average salary of its sales staff is higher than that of comparable companies in the same industry.

During the reporting period, the per capita income and average salary of the company's sales staff compared with comparable companies in the same industry are as follows:

As shown in the picture above, from 2021 to 2023, the per capita income of the company's sales staff was 31.7442 million yuan, 40.0662 million yuan and 37.541 million yuan respectively, far exceeding the per capita income of 15.1037 million yuan, 19.2481 million yuan and 22.3934 million yuan of comparable companies in the same industry.

4. It is proposed to build a new production line of 500kV and below peroxide crosslinking cable material, which is still in the state of research and development.

According to the above, Taihu Lake Broad's main source of income is medium and low voltage insulating materials. This fundraising project, which is still in the state of research and development, will focus on the "industrialization of crosslinked polyethylene insulating materials for 500kV ultra-high voltage cables". It is proposed to raise 20% of the funds. 151000 yuan newly built 1 set of production line equipment for 500kV and less peroxide crosslinking cable materials, 1 set of 35kV and lower peroxide crosslinking cable material production line equipment, and 2 sets of new energy special materials production line equipment.

By the end of 2023, the issuer's "industrialization Research on XLPE Insulation Materials for 500kV UHV cables" has completed the production process route design, plant design, equipment selection and other work. continue to verify the processing safety and stability of special resin materials for UHV cable materials, and verify the formulation design of raw materials such as antioxidants and auxiliary cross-linking agents. It has applied for a utility model patent "a granulation device for high voltage cable insulating material" (ZL202322292606.4).

It is worth noting that according to the second round of inquiries, the expected completion of Taihu Lake ambitious 500kV UHV insulating material project depends on the progress of 110kV and 220kV EHV insulating materials, while the current time for 110kV high-voltage insulating materials to achieve large-scale production and sales is about September 2025; the time for 220kV UHV insulating materials to achieve large-scale production and sales is about December 2026. In other words, due to the progress of the above products, the start-up time of the 500kV ultra-high voltage insulating material project will be longer.

At the same time, the exchange also inquired, "(3) combined with the progress of the research and development of the project" industrialization of XLPE insulating materials for 500kV EHV cables ", it shows that it is necessary and reasonable for issuers to use raised funds to build new production lines of 500kV and below peroxide crosslinked cable materials, and to explain the risks of project research and development and the implementation risks of raising investment projects in combination with the company's R & D capabilities and technical reserves."

V. other matters of concern

1. During the reporting period, the inventory turnover rate of companies is much higher than that of industry companies.

From 2021 to 2023, the inventory balance of the issuer is 43.1366 million yuan, 37.5182 million yuan and 59.2084 million yuan respectively, and the inventory turnover is 24.98,30.92 and 28.11 respectively. In the same period, the inventory turnover of the comparable company led by Wanma shares is less than half of that of the issuer.

Taihu Broad believes that the high inventory turnover of the company compared with its peers is mainly caused by the inconsistency in the product structure and business development of comparable companies.

Reply according to the first round of inquiry: "the company's inventory turnover is higher than Wanma shares, mainly due to the product structure." The production cycle of polymer materials for cables is usually shorter than that of wires and cables, while other products such as electric power account for a relatively high proportion in the business composition of Wanma shares, while the operating cost of polymer materials accounts for 31.31% in 2023. The difference in product structure makes the inventory turnover rate of Wanma shares lower than that of our company during the reporting period. The company's inventory turnover rate is higher than that of Hangzhou Hi-tech, Zhi Zheng shares and CSL new materials, which is mainly due to some differences in business development in recent years. On the one hand, the operating performance of Hangzhou Hi-tech and Zhizheng shares has declined in recent years. Affected by the shortage of funds in 2019, there is also a sharp decline in production and sales, and the overall inventory turnover is poor. On the other hand, the company's business growth, lack of capital strength, in order to control the risk of raw material price fluctuations, the company to improve the efficiency of the use of working capital and management ability, so that the inventory turnover rate is relatively high. "

In addition, Taihu Broad disclosed the realization of the after-period sales of each period's ending inventory:

As shown in the table above, the proportion of sales in the three months after the inventory period is 91.92%, and that in one month after the delivery period is 100%. The post-period sales of the above-mentioned inventory are better.

2. On the adequacy of sales revenue verification

According to the application documents and the reply to the first round of inquiries, the overseas sales income of the issuer during the reporting period (from 2020 to June 2023) was 34.6147 million yuan, 79.3351 million yuan, 191.7751 million yuan and 99.7858 million yuan respectively, accounting for 4.24%, 7.42%, 13.82% and 13.70%, respectively. Since 2022, overseas income has grown rapidly, and major overseas customers have changed greatly.

Please explain: (1) the mode of overseas business, the mode of development, the transaction background, the basis for signing large contract orders, the execution process, and the current status of orders in hand. (2) whether the main differences between domestic and export business in product pricing, collection mode, credit period, transportation mode, product after-sale, etc., are consistent with the contractual agreement and the practice of the same industry. (3) the reason and rationality of the great change of the main overseas customers in each period, and the rationality of stopping the transaction to CROWNEFFORTPTE.LTD., H.MESMAILANDCOMPANYLIMITED and other customers in 2023.

Sponsor institutions and reporting accountants are requested to verify the above-mentioned matters, express their clear opinions, and explain: (1) the on-the-spot visits and the proportion of visits to overseas customers, and the verification means and conclusions for the sales authenticity of customers whose transactions are stopped by CROWNEFFORTPTE.LTD., H.MESMAILANDCOMPANYLIMITED and so on. (2) the reasons for the large amount of substitution test in the correspondence procedure of the major customers, the corresponding situation of the main customers, the reasons for not replying the letter, whether the replacement test is effective, and the specific circumstances of the overseas income letter. (3) the amount and proportion of on-the-spot visits to domestic and overseas customers, and the reasons for the low proportion of interviews with overseas customers in 2020 and 2021, and whether the relevant verification is sufficient. (4) large transfers by key individuals, large access to specific transaction amounts, supporting evidence obtained by counterparties and intermediaries, whether the relevant transactions are reasonable, whether cash transactions are real and form a closed loop. (5) the income cut-off test shall be carried out one month before and after the balance sheet date, the amount of the test and its proportion to the income of that month. (6) comprehensively verify the integrity of the relevant elements of the issuer's income confirmation documents, and urge the issuer to supplement and improve the income recognition basis in view of the incomplete documents, indicating whether the relevant internal control system of the issuer has been established and effectively implemented. Please recommend institutions and reporting accountants to explain the verification means and proportion of incomplete documents, and express clear opinions on the accuracy and authenticity of the issuer's income recognition.

3. On gross profit margin

According to the first round of inquiry responses, during the reporting period, the gross profit margin of the issuer's main customers varied greatly; the issuer traded with Hong Kong products through Suzhou Guangrun, and the sales to Hong Kong products in 2021 and 2022 were 1.1081 million yuan and 12.8812 million yuan, respectively. the gross profit margins are-1.49% and 2.0% respectively, and the gross profit margins of similar products are 12.80% and 12.73% respectively. Please note that ①, combined with the breakdown of product categories and gross profit margin, further illustrates the rationality of the large difference in gross profit margin among major customers. The reason why the gross profit margin of ② sales to Hong Kong domestic products is low or even negative and its rationality, whether the transaction price is fair, and whether there is benefit transfer or other interest exchanges between the issuer and related personnel and Suzhou Guangrun. ③ Jiangsu Nanhai Polymer Materials Co., Ltd. commissioned processing mode of the top five customers in part of the reasons for negative gross profit margin and rationality.

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