At the time of the fire of infrastructure concept stocks in the A-share market, Zhengye Design Co., Ltd. (hereinafter referred to as “Zhengye design”) updated the prospectus. The company plans to raise 300 million yuan for the improvement of engineering consulting service capacity of the headquarters, the construction of supporting scientific research system and the supplement of working capital. The sponsor is Minsheng securities.
The company’s accounts receivable for many years are overdue, and its main supplier is its related party. Facing so many problems, can Zhengye design be successfully listed?
90% of the revenue is in Heilongjiang, with strong regional dependence
Zhengye design is mainly engaged in the whole process engineering consulting services of agricultural engineering, water conservancy and other agricultural related projects, including engineering survey, engineering design, planning consulting, surveying and mapping, supervision, etc. The company’s business mainly focuses on the engineering consulting services of agricultural comprehensive development ecological engineering and irrigation and drainage engineering. The service fields include flood control engineering, river regulation, reservoir engineering, river and lake ecology, water and soil conservation, municipal engineering, land and space planning, etc.
The engineering consulting industry is an intelligence intensive industry. The cost is mainly labor cost and Service Procurement Based on survey, design, consulting and other manpower. The labor cost is relatively low, resulting in high gross profit margin. During the reporting period (June 2018-2022), the gross profit margin of Zhengye design’s main business was 58.05%, 57.82%, 56.30% and 51.26% respectively.
There are only 22 companies with class a qualification in the field of farmland consultation. As a member of a rare class a company in the farmland consulting industry, the operating income of Zhengye design is very unstable, with significant regional and seasonal characteristics. Its high dependence on Heilongjiang region and government customers leads to its high accounts receivable.
At present, the business area of Zhengye design is relatively concentrated in Heilongjiang Province, and the operating income mainly comes from projects in Heilongjiang Province. During the reporting period, the proportion of the company’s operating income from Heilongjiang Province was 98.70%, 91.54%, 90.95% and 97.71% respectively, with relatively concentrated business areas.
Zhengye design explained that in the development process of the engineering consulting service industry, there had been the phenomenon of “segmentation, industry protection and regional blockade”, and the industrial protection and local protection had not been completely eliminated. Engineering consulting enterprises generally have certain regionality, especially when they are not listed, they are limited by factors such as enterprise scale, capital strength, brand influence and so on.
It is worth noting that although the engineering consulting industry has the characteristics of regional concentration, among comparable companies in the same industry, Anhui Transport Consulting & Design Institute Co.Ltd(603357) Henan Provincial Communications Planning & Design Institute Co.Ltd(300732) , Hangzhou Landscape Architecture Design Institute Co.Ltd(300649) , Shenzhen L&A Design Holding Limited(300949) , Shanghai Urban Architecture Design Co.Ltd(300983) account for 74.88%, 68.58%, 84.83%, 53.08% and 61.94% of the revenue in the main business areas respectively, which are far lower than 90.95% of the formal design.
Source: prospectus
Excessive geographical concentration leads to unstable revenue of Zhengye design. During the reporting period, Zhengye design achieved operating revenue of 126 million yuan, 162 million yuan, 161 million yuan and 69 million yuan respectively; The net profit attributable to the parent company was 26.1503 million yuan, 58.3878 million yuan, 56.6066 million yuan and 19.1768 million yuan respectively. In 2019, the company’s performance grew rapidly, and its operating revenue increased by 29.18%. In 2020, the operating revenue and net profit have declined to a certain extent.
Zhengye design explained that the decline in performance was mainly due to the impact of the epidemic in Heilongjiang, and the implementation of strict prevention and control measures in all counties and cities, which made it difficult to normally promote the survey and survey in the process of business development, the on-site inspection of designers and the re survey and re survey in the design process, or affected the work efficiency of project executors and the speed of project promotion. In addition, the bidding, project review and other links in the business process of the company are also affected to varying degrees. The progress of some agricultural engineering and water conservancy investment projects has been delayed, which has an adverse impact on the performance of the company.
As of June 2021, although covid-19 pneumonia has been effectively controlled in China, it has had an adverse impact on the company’s operation from 2020 to June 2021. From September to November 2021, several rounds of local outbreaks occurred in Heilongjiang, which may still have an adverse impact on the company’s operating performance in 2021.
Or aware of the problems caused by excessive regional concentration, Zhengye design is also expanding its business to Inner Mongolia, Liaoning, Tibet and other regions. However, from the perspective of operating revenue, the proportion of revenue outside Heilongjiang Province during the reporting period was 1.30%, 8.46%, 9.05% and 2.29% respectively. In the first half of 2021, the proportion of revenue outside Heilongjiang Province was relatively small, and the development outside the province did not meet the expectations.
Source: prospectus
relying on government collection, accounts receivable are high
The unstable operating revenue of Zhengye design is also reflected in its seasonal fluctuation. The revenue recognition of the company is mainly concentrated in the second half of the year, especially in the fourth quarter. The operating revenue recognized from 2019 to the fourth quarter of 2020 is 82.7989 million yuan and 65.4543 million yuan respectively, accounting for 51.01% and 40.54% of the total operating revenue of the year respectively.
Zhengye design explained that the main reason is that the company’s customers are mainly government units and their subordinate institutions and state-owned enterprises. The above-mentioned customers usually formulate corresponding project plans in the first half of each year, perform budget, approval, bidding and business negotiation procedures, and review design results and settle payments in the second half of each year.
The payment approval process of government units and subordinate institutions is long. The accounts receivable of Zhengye design has been high and rising year by year. At the end of each reporting period, the net accounts receivable of the company were about 139 million yuan, 155 million yuan, 167 million yuan and 209 million yuan respectively, accounting for 111%, 95%, 103% and 302% of the total revenue respectively.
With the increase of accounts receivable, there is also the overdue amount. During the reporting period, the overdue amount of accounts receivable of Zhengye design was 51.6598 million yuan, 61.0549 million yuan, 68.6628 million yuan and 96.8932 million yuan respectively, accounting for 33.96%, 35.78%, 36.70% and 41.40% respectively.
Source: prospectus
In addition, it is worth noting that Zhengye design customers are mainly located in Tongjiang City and Jiamusi city. At the same time, many executives and directors of the company have served in relevant public institutions and government departments. Du Zhenyu, general manager, once worked in the Sixth Geological Exploration Institute of Heilongjiang Province and Longyu drilling team in Yonghong District, Jiamusi City; Fan Guolian once worked in Jiamusi Sanjiang drilling company; An Ruiqiang once worked in Heilongjiang Agricultural Reclamation survey, design and Research Institute as the director of scientific research; Zhang Canhe, the director, once worked in Heilongjiang Dongfang municipal construction group company and Jiamusi municipal design and Research Institute.
related parties are the main suppliers, and the related party transactions amount to ten million
Zhengye design has several large related purchases. Its main purchasers are Heilongjiang Hexin survey and Design Co., Ltd. (hereinafter referred to as Hexin survey), Harbin Nongken Hengyi survey and Design Co., Ltd. (hereinafter referred to as Hengyi survey) and Heilongjiang Rongteng survey and Design Co., Ltd. (hereinafter referred to as Rongteng survey), with a cumulative related purchase amount of 16.9452 million yuan.
Source: prospectus
Hexin survey was originally a subsidiary of the issuer and transferred out in November 2015. The prospectus shows that it was the first, fourth and fourth supplier of Zhengye design in 2018, 2019 and 2020, accounting for 16.52%, 10.33% and 8.79% of the total purchase amount respectively.
Chai Yajun, the spouse of Liang Li, the actual controller of Hengyi survey, worked in Zhengye design during the reporting period. The prospectus shows that he was the third, third and first supplier of Zhengye design in 2018, 2019 and 2020, accounting for 13.55%, 11.41% and 13.25% of the total purchase amount respectively.
Li Ming, the actual controller of Rongteng survey, worked in Zhengye construction before 2016 (Zhengye construction was a subsidiary of Zhengye design at that time), and his procurement amount was small, which was not among the top five suppliers.
In addition, the company also has inter-bank lending and third-party payment collection. In 2018, Du Zhenyu, the actual controller of the company, lent the company 10 million yuan free of charge, and the unpaid interest of the company was repaid in the current year. In addition, during the reporting period, the third-party payment collection formed by the company’s sales business incurred 73000 yuan in 2019, accounting for 0.04% of the operating revenue of the current year. 884900 yuan occurred in the first half of 2021, accounting for 1.27% of the current operating revenue.
