Securities code: 002447 securities abbreviation: Dalian Morningstar Network Technology Co.Ltd(002447) Announcement No.: 2022-004 Dalian Morningstar Network Technology Co.Ltd(002447)
Announcement on the reply to the letter of concern of Shenzhen Stock Exchange
The company and all members of the board of directors guarantee that the information disclosed is true, accurate and complete without false records, misleading statements or major omissions.
Dalian Morningstar Network Technology Co.Ltd(002447) (hereinafter referred to as “the company”) received the letter of concern about the company (company department concern letter [2022] No. 79, hereinafter referred to as “the concern letter”) issued by Shenzhen Stock Exchange on January 28, 2022. After careful verification, we hereby reply to the questions involved in the concern letter as follows: 1. Please explain the specific business model of smart printing business in detail, Including but not limited to procurement mode, production mode, sales mode and profit mode, explain whether the business has complete input, processing process and output capacity, whether your company can provide processing or conversion activities for products to improve the value of products under this business mode, and explain whether the business has commercial essence and constitutes trade business.
Company reply:
1、 Introduction to smart printing business
Shanghai Luoxiu Technology Co., Ltd. (hereinafter referred to as “Luoxiu technology”), a wholly-owned subsidiary of the company, was established in May 2020 with a registered capital of 10 million yuan. It was specially established by building a comprehensive business platform for smart printing and fully entering the engineering graphic industry. This industry is a sub industry attached to national engineering construction, serving from national capital construction and national defense construction to civil construction, industrial products and other design industries. The products are mainly used for engineering paper in various professional design institutes, real estate, construction engineering and other fields. It has the characteristics of many varieties, high degree of personalization and great difficulty in obtaining, China’s annual market demand exceeds 10 billion yuan. China’s long-term sustained and rapid development has brought broad prospects for sustainable development to the industry.
According to the company’s strategic planning, the mature smart printing business will include “e mall” with the construction of smart graphic printing e-commerce platform as the main body, and multi-dimensional products such as special paper series products for engineering graphics, a variety of graphic production software products, printing equipment, pre press and post press matching equipment and comprehensive solutions for graphic services. In terms of business model, gradually establish a complete development system and production and processing means in production, take the e-commerce platform as the business main body in sales, establish and improve the team network of dealers and franchisees all over the country, adopt Wuxi Online Offline Communication Information Technology Co.Ltd(300959) two operation lines and realize Wuxi Online Offline Communication Information Technology Co.Ltd(300959) effective linkage, so as to form the core competitiveness of Luoxiu technology.
After the establishment of Luoxiu technology, it specializes in the distribution and processing of special paper series products for engineering graphics and texts, and continuously promotes the implementation of the overall plan. At present, Luoxiu technology is mainly engaged in two series of “original page” brand paper products and pulp. Among them, paper products include coated paper, blue drawings, engineering copy paper, digital special paper, pulp and other varieties that basically cover the needs of the engineering graphic industry.
Luoxiu technology achieved sales revenue of 51.53 million yuan in 2020 and about 101.39 million yuan in 2021 (Unaudited).
2、 Description of smart printing business model
1. Smart printing business model
(1) Procurement mode
Luoxiu technology manages through its own supply chain system and comprehensively selects suppliers from multiple dimensions such as raw material channel, quality, category and reputation. Luoxiu technology determines the demand plan of raw materials according to the customer demand, the prediction of raw material market supply and inventory, and determines the supplier through the price, inventory and supply of raw materials of the supplier, and purchases accordingly.
(2) Production and processing mode
1) Subcontracting mode
The special paper series products of Luoxiu technology’s own brand project graphics and texts adopt the outsourcing processing mode. Luoxiu technology is responsible for providing raw materials, formulating product standards, technical indicators and acceptance standards, and then entrusting the processing plant to be responsible for processing.
2) Necessity of outsourcing mode
Since Luoxiu technology started operation in May 2020, the number of cooperative customers has been increasing, and a stable supplier system and perfect e-commerce system have been established. Since Luoxiu technology has been in a period of rapid development since its establishment, the expansion and stability of suppliers and sales network require a lot of investment. Therefore, under the condition of minimizing the pressure of the company’s cash flow, Luoxiu technology adopts the outsourcing mode in the initial stage of operation.
After the business scale gradually stabilized, in order to improve product quality and operation efficiency, Luoxiu technology began to set up its own processing plant in the fourth quarter of 2021, and completed the leasing of processing site in January 2022. The procurement of processing equipment has also been evaluated and agreed with the equipment party. It is expected to complete the acceptance and put into use in the first quarter of 2022, Finally, the self owned processing mode is fully realized.
(3) Sales model
Luoxiu technology mainly adopts the sales mode of combining distribution and direct sales. At the beginning of its establishment, the customers were mainly dealers. In 2021, end customers including professional design institutes, offline graphic agencies, large and medium-sized enterprises and so on were timely added. In 2022, we will further strengthen channel construction, continue to expand end customers and increase the proportion of end customers’ income. (4) Business process
According to the market situation and customer demand, Luoxiu technology contacted suppliers to communicate the purchase demand of raw materials, finally determined the suppliers and signed the purchase contract. After the arrival of raw materials, they shall be accepted and warehoused by the warehouse and enter the state to be processed. At the same time, sign the sales contract according to the customer’s needs, and send the entrusted processing order to the processing plant according to the sales contract. After both parties confirm the processing process and process, the processing plant will carry out customized production and processing, and the processed finished products will be accepted and warehoused. Finally, the customer shall pick up the goods after receiving the goods from the warehouse for acceptance.
2. Processing flow and process
After purchasing base paper and pulp, Luoxiu technology processes the raw materials into finished products that meet the customized needs of customers through special equipment processing and process processing. The processing technology is as follows:
(1) The large cylindrical base paper is processed into flat base paper by high-speed flat cutting machine, which is convenient for the subsequent process to cut into specific specifications, and then processed into finished products by paper cutting machine according to customized requirements.
(2) The large cylindrical base paper is rewound into semi-finished cylindrical paper by rewinder, and then processed into finished products of specific specifications by knife rack.
(3) The large-scale pulp is processed into pulp products convenient for use and transportation through professional cutting process according to customer requirements.
3、 Smart printing business has commercial substance
Luoxiu technology intelligent printing business has the brand of “original page”, stable supplier system, perfect e-commerce system and expanding customer group. Through perfect processing process, raw materials are processed into products that meet customer needs.
Luoxiu technology has a warehouse. Since the raw materials are purchased and put into storage, the goods are transferred in with the property right and risk at the same time. The raw materials are sold to the market after production and processing, and the products and property right are transferred out from Luoxiu technology.
From raw materials to finished products, goods are always controlled by the company.
Luoxiu technology intelligent printing business has a stable business and profit model, which can provide processing activities for products and improve the value of products. Therefore, it has commercial essence and does not constitute trade business.
2. According to the reply to the inquiry letter of 2020 annual report, there were only four customers and five suppliers in this business in 2020, with high concentration. Please supplement your company’s customers and suppliers of this business in 2021, whether there is an association with your company, and whether your company’s smart printing business has significant dependence on customers and suppliers, and whether this business is sustainable.
Company reply:
1、 Customers of smart printing business in 2021
The main products of Luoxiu technology are special paper series products and pulp products for engineering graphics and texts, which are processed, produced and sold according to the customized needs of customers. In 2021, the number of customers of Luoxiu technology has increased greatly, the new end customer group has been added, the customer structure has been greatly improved, and the proportion of single customer sales has been greatly reduced. The number of customers increased from 4 in 2020 to 13 in 2021, an increase of 9 over 2020. The sales proportion of the largest customer decreased from 44.87% in 2020 to 34.20% in 2021, and the sales proportion of the largest customer decreased by 10.67 percentage points; The sales proportion of the second largest customer decreased from 38.11% in 2020 to 23.68% in 2021, and the sales proportion of the second largest customer decreased by 14.43 percentage points. In 2021, the number of customers of Xiuluo technology has been further optimized, and the proportion of sales will be significantly improved in 2022.
To sum up, Luoxiu technology does not rely heavily on customers.
2、 Smart printing service suppliers in 2021
The raw materials purchased by Luoxiu technology are mainly base paper and pulp. Such raw materials have rich supplier resources in Jiangsu, Zhejiang and Shanghai, and there is a large choice space. Based on the consideration of product quality, credit policy, timeliness and other factors, Luoxiu technology maintains a relatively stable cooperative relationship with its current suppliers. At the same time, the number of Luoxiu technology suppliers in 2021 has expanded greatly compared with that in 2020, from 5 to 10. In 2022, with the gradual improvement of Luoxiu technology’s own supply chain system, Luoxiu technology will further optimize the supplier structure and escort the better development of the business.
To sum up, Luoxiu technology does not rely heavily on suppliers.
3、 Description of association relationship
The company, its directors, supervisors and controlling shareholders have no relationship with the suppliers and customers of Luoxiu technology. 4、 Sustainability of smart printing business
In 2021, the business of Luoxiu technology developed rapidly, the operating revenue and gross profit margin increased greatly, and the market recognition and business value were further improved.
The company’s smart printing business has a stable and clear business model. Since the establishment of Luoxiu technology, the business scale, the number of customers and the number of suppliers have achieved great growth, and has a certain market scale and commercial value in this field.
At present, the company’s smart printing business is in a sustained and healthy stage of rapid development. In 2022, according to the established strategic plan, the company will increase production and processing investment, enrich product types, further expand and optimize customer and supplier resources, so as to achieve better and sustainable development of the business.
Note: the above financial data are the preliminary accounting results of the company’s financial department. The specific financial data shall be subject to the 2021 annual report disclosed by the company.
3. In combination with the above situation and the relevant provisions on matters related to operating income deduction in Article 4.2 of the guidelines for self discipline supervision of listed companies of Shenzhen Stock Exchange No. 1 – business handling, please explain whether the income generated by smart printing business needs to be deducted. The annual audit accountant shall check and give clear opinions.
Company reply:
1、 The business income generated by the smart printing business of Luoxiu technology belongs to the main business income of the company.
Luoxiu Technology Smart printing business is one of the company’s main businesses and has a long-term development plan. Since the start of the business, the scale has been increasing, and it is not a special, temporary and accidental business. The details are as follows:
1. Smart printing business is one of the company’s main businesses, and the business income does not belong to other business income other than normal operation.
2. The smart printing business provides customers with customized special paper series products for engineering graphics and texts. The business income does not belong to the unqualified financial business income.
3. Smart printing business has complete links such as procurement, production, processing and sales, and realizes the value improvement of products through processing activities. The business income does not belong to the income generated by new trade business in this fiscal year and the previous fiscal year.
4. The suppliers and customers of smart printing business have no relationship with the company, and the business income does not belong to the income generated by connected transactions unrelated to the existing normal business of the listed company.
5. Luoxiu technology is a wholly-owned subsidiary invested and established by the company. The income from smart printing business does not belong to the income from the beginning of the period to the merger date of the subsidiary of business merger under the same control.
6. The smart printing business has a stable business and profit model, and the business income does not belong to the income generated by the business that has not formed or is difficult to form a stable business model.
2、 The income from smart printing business of Luoxiu technology is the income with commercial essence.
The smart printing business of Luoxiu technology has a stable business and profit model, a stable supplier system, a perfect e-commerce system and an expanding customer base. It has commercial essence and does not constitute a trade business. The details are as follows:
1. Since its launch, smart printing business has continuously generated stable business income, which is one of the main business income of the company and brings continuous and stable operating cash flow to the company.
2. Smart printing business income is the income generated by transactions with real business.
3. The transaction and purchase prices of smart printing business are market-oriented prices, and the business income does not belong to the income generated by the business whose transaction price is obviously unfair.
4. As a wholly-owned subsidiary invested and established by Luoxiu technology, the income from smart printing business does not belong to the income from subsidiaries or businesses of business combination obtained by significantly unfair consideration or non transaction in this fiscal year.
5. The income from smart printing business does not belong to the income generated by other transactions or events that are not commercially reasonable.
3、 The income from smart printing business does not belong to other income that has nothing to do with the main business or does not have commercial substance.
To sum up, the income from the smart printing business of Luoxiu technology does not belong to the business income irrelevant to the main business and the income without commercial substance. It does not belong to the deduction of operating income, and there is no need to deduct the operating income.
Reply of annual auditor:
1、 Verification procedure
As of the date of issuance of this special instruction, our audit of the 2021 financial statements of Chenxin technology has not been completed. For the above-mentioned contents replied by the company, we have implemented the following verification procedures:
1. Understand the specific business model of the company by asking relevant personnel of the company;
2. Check the industrial and commercial information of major customers, and judge whether they are related to the company and the commercial rationality of purchasing paper from the company according to the basic information of customers;
