Bocheng Technology (Kunshan) Co., Ltd. (hereinafter referred to as Bocheng Technology), a manufacturer of printed circuit boards, plans to sprint to be listed on the gem.
Baicheng technology was listed on the new third board until June 2018. Three years later, at the end of June 2021, the company’s gem listing application was accepted. Recently, the company replied to the first round of inquiries of Shenzhen Stock Exchange and updated the information.
According to the prospectus and inquiry reply materials of Baicheng technology, there is horizontal competition between Baicheng technology and the actual controlling shareholder Baicheng Technology Co., Ltd. (hereinafter referred to as Baicheng Taiwan); Moreover, the actual controller of the company once guaranteed the enterprises within the scope of non company merger, and the guaranteed enterprise is the holding subsidiary of Baicheng Taiwan joint stock company.
In terms of operation, Baicheng technology had sustained losses from 2012 to 2016. Until 2017, the next year after entering the Xiaomi supply chain system, it began to make profits. In 2019 and 2020, Baicheng technology’s sales to Xiaomi accounted for more than half of its revenue. The company also admitted that it had a significant dependence on Xiaomi communication. Under such circumstances, can Baicheng technology be successfully listed?
both parties are mainly engaged in PCB business
Baicheng technology is mainly engaged in the R & D, production and sales of high-density interconnection circuit board (HDI board), soft and hard combination board (RF board) and hard printed circuit board (r-pcb board). The actual controller of the company is Li Qiliang. Li Qiliang and those acting in concert control 90.85% of the equity of the company by controlling Baicheng Technology Co., Ltd. (hereinafter referred to as Baicheng Taiwan), which is the actual controlling shareholder of the company.
Pacheng Taiwan is a listed company. As of May 31, 2021, Li Qiliang and those acting in concert held 36.31% of the equity of Baicheng Taiwan. The prospectus of Baicheng technology suggests that the company has the risk that the actual controller and its persons acting in concert hold a low proportion of Baicheng Taiwan.
It is worth noting that there is horizontal competition between Baicheng technology and Baicheng Taiwan. Pacheng technology said in the prospectus that the company’s main business is PCB business, which is the same and similar to the PCB business in pacheng’s main business in Taiwan. However, Bocheng Taiwan does not have horizontal competition that has a significant adverse impact on the company.
Baicheng technology analyzed the following four reasons: for the products of PCB industry, the average proportion of similar income or gross profit of Baicheng Taiwan in the company’s main business income or gross profit in the latest period and reporting period is less than 30%; For products in PCB industry, only r-pcb products of the company and Baicheng Taiwan overlap, and the proportion of rpcb products in the sales of both parties shows a downward trend in the reporting period (2018, 2019, 2020 and the first half of 2021, the same below) and in the future; The company and Baicheng Taiwan have a small number of overlapping customers, which has no significant adverse impact on the company; The R & D systems of the company and Baicheng Taiwan are independent of each other, and the R & D situation of both parties will not have a significant adverse impact on the company.
Baicheng technology and Baicheng Taiwan still have the intersection of guarantee and trademark. According to the prospectus of Baicheng technology, Li Qiliang has guaranteed Yongcheng huanke Co., Ltd. (hereinafter referred to as Yongcheng huanke), an enterprise within the scope of non merger. Yongcheng huanke is a holding subsidiary of Baicheng Taiwan’s joint-stock company sustainable development Co., Ltd. (hereinafter referred to as sustainable development). Baicheng Taiwan holds 4.52% of the shares of sustainable development, and sustainable development holds 96.13% of the shares of Yongcheng huanke. As of the signing date of the prospectus, the Neihu branch of Taichung commercial bank has granted Yongcheng huanke a loan of NT $670 million, and Li Qiliang is the joint guarantor of the above loan.
In this regard, Baicheng technology replied to the reporter of the daily economic news that when the company’s IPO application materials were submitted to the Shenzhen Stock Exchange on June 30, 2021, the loan balance of Yongcheng huanke was NT $670 million and NT $659 million. As of December 22, 2021, Neihu branch of Taichung commercial bank has relieved Li Qiliang’s joint and several guarantor liability for the loan of Yongcheng huanke.
In addition, Baicheng technology also suggested that there are business and litigation risks caused by trademark confusion with Baicheng Taiwan. However, the company has submitted an application for registration of the new trademark on September 10, 2021.
main business gross profit margin gradually increased
There is not only horizontal competition with the actual controlling shareholders, but also a number of partners have taken shares in Baicheng technology.
In December 2020, Baicheng technology introduced external shareholders Zhang Ming, Xu Youheng, Cui Guoping, Gu Lifang, Zhu Jianlin, Fei Jingtao and Zu Xinliang. Among them, Xu Youheng, Cui Guoping, Zhu Jianlin, Fei Jingtao and Zu Xinliang are the actual controllers of the company’s intermediary service providers, outsourcing manufacturers, environmental protection service providers and traders respectively.
Partners have taken shares. What is the performance of Baicheng technology in recent years? From 2018 to 2020, Baicheng technology achieved revenue of 676 million yuan, 498 million yuan and 578 million yuan respectively, and net profit after deduction was 161148 million yuan, 255099 million yuan and 590964 million yuan respectively.
The net profit of Baicheng technology continued to grow after deducting non profits, and the gross profit margin of its main business also gradually increased. From 2018 to 2020, the gross profit margin of the company’s main business was 14.07%, 17.41% and 22.78% respectively. In this regard, Baicheng explained that it was mainly due to the change of product structure and the change of gross profit margin of products with different product structure during the reporting period.
Can the rising momentum of gross profit margin of Baicheng technology continue? According to the prospectus of Baicheng technology, the company’s direct materials mainly include copper clad laminate, PP, dry film, potassium aurous cyanide, copper oxide powder and copper foil. The amount of direct materials accounts for 45.26%, 40.61% and 42.57% of the current main business costs respectively. In the first three quarters of 2021, the average purchase price of copper clad laminate, copper oxide powder and copper foil of Baicheng technology showed an upward trend, of which the average purchase price in the first half of 2021 increased by 17.75%, 27.12% and 26.15% compared with that in 2020, and the average purchase price in the third quarter of 2021 increased by 20.94%, 10.73% and 13.42% respectively compared with that in the first half of 2021.
On March 10, 2022, Baicheng technology replied to the daily economic news that the price of bulk commodities has continued to rise since 2021, but the company timely negotiated with downstream customers for price increase and took effective cost reduction measures. Therefore, the gross profit margin of the company’s main business has increased compared with that in 2020. Up to now, the price rise of raw materials has not had a significant adverse impact on the company’s gross profit margin.
Xiaomi communication is the largest customer
Baicheng technology has achieved good performance in recent two years, which is also related to developing customer resources. According to the disclosure of the prospectus, during the reporting period, the company has established long-term and stable cooperative relations with high-quality enterprises such as Xiaomi communication, Meilv group and Shenzhen Transsion Holdings Co.Ltd(688036) and so on.
From 2018 to 2020, Xiaomi communication has long been the largest customer of Baicheng technology. The company mainly sells HDI boards to Xiaomi communication. The company’s sales revenue from Xiaomi communication is 289434400 yuan, 289484900 yuan and 306306306900 yuan respectively, accounting for 42.84%, 58.12% and 52.95% of the current operating revenue respectively.
In contrast, from 2018 to 2020, the average proportion of the revenue of 12 comparable companies in the same industry, including Avary Holding (Shenzhen) Co.Limited(002938) , Suzhou Dongshan Precision Manufacturing Co.Ltd(002384) and others, as the largest customer, was 20.29%, 20.09% and 19.27% respectively. It can be seen that the proportion of the revenue of the largest customer of Baicheng technology in the revenue is obviously high.
From 2012 to 2016, Baicheng technology had sustained losses. After entering the Xiaomi supply chain system in 2016, the company began to make profits in 2017; In addition, the company’s sales to Xiaomi account for a relatively high proportion of revenue. Does this mean that Baicheng technology is dependent on Xiaomi?
Baicheng technology replied to the reporter of the daily economic news that from the perspective of income proportion index, the company has a significant dependence on Xiaomi communication. However, the above dependence is mainly consistent with the high concentration of the smartphone market where Xiaomi communication is located, and the company’s products are of good quality and timely delivery. It is the main PCB supplier of Xiaomi communication. The two sides cooperate closely and win-win, the customers are stable, and the business cooperation is sustainable, which does not have a significant adverse impact on the company and does not constitute an obstacle to this issuance and listing. In addition, the company has formulated a plan to expand new customers, and has gradually realized the new customer expansion plan. Baicheng technology said that it will strive to carry out business with manufacturers with great potential for market capacity growth in the industry and create a diversified and all-round customer structure for the company’s product line.
