About Guangdong High Dream Intellectualized Machinery Co.Ltd(300720)
Special description of letter of concern
Special description of letter of concern
Tjyh [2021] No. 10
Shenzhen Stock Exchange:
We have received the attention letter on Guangdong High Dream Intellectualized Machinery Co.Ltd(300720) (GEM attention letter [2021] No. 405, hereinafter referred to as the attention letter) transferred from Guangdong High Dream Intellectualized Machinery Co.Ltd(300720) (hereinafter referred to as Guangdong High Dream Intellectualized Machinery Co.Ltd(300720) company or company). We have carefully verified the financial matters that need to be explained in the attention letter, and now report and explain as follows.
Announcement 2 shows that the unaudited operating income of the subject company in the past two years was 83.2782 million yuan, 64.5872 million yuan and 151.3202 million yuan respectively, the net profit was 10.8579 million yuan, 5.7908 million yuan and 14.6779 million yuan respectively, and the net cash flow from operating activities was 3.2696 million yuan, – 4.1961 million yuan and 86500 yuan respectively. In the first half of 2021, the closing balance of accounts receivable was 96.5279 million yuan, a large increase compared with the opening balance of 29.6501 million yuan. (1) Please verify whether the revenue in the first half of 2021 meets the recognition conditions in combination with the market environment, sales policy, product structure, sales quantity, unit price and cost changes, and explain the reasons and rationality for the significant increase in the operating revenue and net profit of the target company in the first half of 2021. (2) Please explain the reason and rationality of the mismatch between the net cash flow of operating activities and the change range of operating income and net profit in combination with the sales credit policy, the turnover days of accounts receivable and the change of inventory turnover rate. (3) In combination with the low net cash flow from operating activities of the subject company in the past two years, please supplement whether the future performance is sustainable, whether it affects the valuation, and the reason and rationality of no performance compensation clause in this transaction. Ask the accountant to check and comment. (point 3 of the letter of concern)
We have audited the financial statements of Chengdu Xintong Software Co., Ltd. (hereinafter referred to as the subject company) from January 1, 2019 to August 31, 2021 and issued the audit report with unqualified opinion (Tianjian Yueshen [2021] No. 1629). The reply data to the above questions are based on the audited data of the subject company.
1、 Reasons and rationality of substantial increase in operating revenue and net profit of the subject company
The target company is a provider of RF technology and services. Its products are widely used in three fields: mobile communication, medical treatment and Internet of things solutions. In the field of mobile communication, the target company mainly provides wireless access remote RF units, power amplifiers and other products, which are applied to the construction of base stations in multiple application scenarios; In the medical field, the MRI super power RF power amplification module and other products provided by the target company are used in medical nuclear magnetic imaging; In the field of Internet of things solutions, products such as wireless spectrum monitoring equipment provided by the target company are applied to machine data visual acquisition. Benefiting from the development of the industry, from January to August 2021, the revenue of the target company’s communication products increased significantly, which led to a significant increase in operating revenue. The details are as follows:
（1） Market environment
According to the statistics of the Ministry of industry and information technology, by the end of 2020, the total number of mobile phone base stations in China had reached 9.31 million. Among them, the total number of 4G base stations has reached 5.75 million, which has achieved deep coverage in urban areas; The construction of 5g network has been steadily promoted, with a total of 718000 stations opened. 5g network has covered cities above prefecture level and key counties and cities in China. By the end of June 2021, the total number of mobile communication base stations in China had reached 9.48 million. Among them, the total number of 4G base stations is 5.84 million, accounting for 61.6%; The total number of 5g base stations is 961000. China has opened 5g base stations, which is far ahead in the world.
In the first half of 2021, the total number of mobile communication base stations in China increased by 170000 over the end of the previous year. Due to the shortage of chips, China’s 5g construction progress has been slowed down, and the construction rhythm is expected to recover in the second half of the year. It is expected that telecom operators will build more than 800000 5g base stations in 2021.
By the first half of 2021, the total number of 4G base stations in China was 5.84 million (including 4 million macro stations and 1.84 million small stations); According to the fact that macro stations in the medium and low frequency band can achieve the same coverage as 4G base stations, it is estimated that the number of 5g macro stations will be 1.2 times that of 4G macro stations, that is, 4.8 million stations; The number of small stations used in hot spots or higher capacity business scenarios is conservatively estimated to be twice that of macro stations, and the number of 5g small stations is expected to reach 9.6 million; That is, the total number of new macro base stations and small base stations has reached 14.4 million.
Benefiting from the growth of small base station construction, the business of the target company increased significantly from January to August 2021.
（2） Revenue and net profit growth of the subject company
The main business income of the target company in 2019, 2020 and January August 2021 is classified by product structure as follows:
January August 2021
Subdivision category
Sales revenue sales cost quantity average price average cost gross profit margin
Medical products 19267799.4611373804.763243.005941.353507.1940 97%
Communication products 160459320.82143693153.7360771.002640.392364.5010 45%
Internet of things resolver: 19302610.6711859144.452108.009156.845625.7838 56% cases and products
Software and services 10579448.85781513.285389.001963.16145 292.61%
Total 209609179.80167707616.2219 99%
(Continued)
Year 2020
Subdivision category
Sales revenue sales cost quantity average price average cost gross profit margin
Medical products 28084565.0816534856.823845.007304.184300.3541 12%
Communication products 14664614.038778529.223296.004449.222663.3940 14%
Internet of things resolver 14372695.968766684.111415.0010157.386195.5439 00% cases and products
Software and services 6028531.15184015.052514.002397.9873 2096.95%
Total 63150406.2234264085.2045 74%
(Continued)
2019
Subdivision category
Sales revenue sales cost quantity average price average cost gross profit margin
Medical products 50630327.6628504794.766245.008107.344564.4243 70%
Communication products 13277453.2310287422.533773.003519.072726.5922 52%
Internet of things resolver 11729905.326441062.56609 0019,260.9310,576.4645. 09% cases and products
Software and services 5831617.91233955.213041.001917.6676 9395.99%
Total 81469304.1245467235.0644 19%
The revenue growth of the target company from January to August 2021 is mainly due to the growth of the revenue of communication products. The communication products are mainly wireless access remote RF units. Due to the growth of the construction of small base stations in the industry, the demand is increasing, resulting in the growth of the revenue of the target company.
In 2020, the target company’s communication products were mainly communication RF products, accounting for 84.53% of the communication products. In 2021, with the development of the company’s 5g business, it mainly sold wireless access remote RF unit products, accounting for 96.91% of the communication products. At the same time, the average selling price of wireless access remote RF unit products was lower than that of communication RF products, Therefore, the change of product structure in communication products leads to the decline of average selling price.
The unit cost of communication products decreased slightly compared with that in 2020, mainly because the wireless access remote RF unit was in the stage of R & D and small-scale trial production in 2020, the procurement volume was limited and the procurement unit price was high. Mass production will begin in 2021, and the increase of purchase volume will enhance the bargaining power and reduce the purchase unit price. The above comprehensive results in a substantial increase in the gross profit of the target company’s communication products.
In conclusion, the growth of the target company’s revenue and net profit is in line with the background of industry development.
2、 Reasons and rationality for the mismatch between net cash flow from operating activities and changes in operating income and net profit
The accounts receivable turnover rate and inventory turnover rate of the target company are as follows:
Project from January to August 2021 to 2019
Operating income 211125837.9664260966.1683203714.29
Net profit 4252619.843556960.708670352.76
The turnover rate of accounts receivable is 6.422 two hundred and eighty-four point zero four
Turnover days of accounts receivable 56.87160 three thousand one hundred and ninety point three two
Inventory turnover 11.722 two hundred and twenty-three point eight three
Net cash flow from operating activities: 5520396.34-2108897.67689569.70
During the reporting period, the credit policies of the main customers of the subject company were 45 days, 60 days and 120 days respectively, and there was no change, while the turnover days of accounts receivable were mainly changed, which was mainly caused by the growth of operating revenue, with an increase of 3.17 times in 2019 compared with 2018 and 2.29 times from January to August 2021 compared with 2020. Without the change of credit policies, The fluctuation of the target company’s performance results in the fluctuation of accounts receivable turnover days.
From January to August 2021, the net cash flow from operating activities of the subject company is basically consistent with the net profit; In 2020, there was a big difference between net cash flow and net profit from operating activities, mainly due to the impact of the epidemic, the slowdown of early shipments, and the return of customer procurement to normal after the epidemic was controlled, resulting in an increase in the proportion of sales in the fourth quarter. The target company’s sales in the fourth quarter of 2020 accounted for about 34%, while the sales in the fourth quarter of 2019 accounted for about 29%. At the same time, due to the impact of the epidemic, the company reserves raw materials in advance, resulting in an increase in cash flow expenses paid for purchasing goods. Therefore, the net cash flow from operating activities in 2020 does not match the net profit. There is a big difference between the net cash flow from operating activities and net profit in 2019, which is mainly due to the expansion of the business scale of the subject company in 2019 and the addition of new customers from August
