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.
Lvjing Holding Co.Ltd(000502) (hereinafter referred to as “the company”) received the letter of concern on Lvjing Holding Co.Ltd(000502) issued by Shenzhen Stock Exchange on March 10, 2022 (company Department attention letter [2022] No. 171, hereinafter referred to as “the letter of concern”), and now reply to the relevant information as follows:
1. The reply announcement on the letter of concern to Shenzhen Stock Exchange (hereinafter referred to as “reply announcement 1”) disclosed by your company on December 23, 2021 shows that the income of your company in the third quarter of 2021 was 975144 million yuan, of which the electromechanical installation business income of the wholly-owned subsidiary Shenzhen Hongyi Construction Engineering Co., Ltd. (hereinafter referred to as “Shenzhen Hongyi”) was 738265 million yuan. The reply announcement on the letter of concern to Shenzhen Stock Exchange (hereinafter referred to as “reply announcement 2”) disclosed by your company on February 26, 2022 shows that your company plans to vigorously develop IDC business. Shenzhen Hongyi’s electromechanical installation business is an important part of IDC industrial chain. Your company plans to further enhance the competitiveness of Shenzhen Hongyi, develop relevant businesses and increase the gross profit margin of this business. As of the date of reply, Shenzhen Hongyi has 5 contracts in hand, with a total amount of 252304 million yuan. The electromechanical installation business is sustainable. Your company’s income in 2021 is expected to be 150 million yuan to 175 million yuan, and the income after deduction is expected to be 140 million yuan to 165 million yuan, of which Shenzhen Hongyi’s business income of electromechanical installation engineering in the fourth quarter of 2021 is 48 million yuan.
Please your company: (1) describe in detail the business qualification, personnel experience, customer and supplier relationship upstream and downstream of the industrial chain of Shenzhen Hongyi, as well as the contact with IDC industry; (2) Explain in detail the reasons for the month on month decline in the revenue of Shenzhen Hongyi electromechanical installation business since the fourth quarter of 2021. At the same time, the contract on hand shows that there is a risk of continuous decline. For this, whether it conflicts with the business model of sustainability and stability described by your company, and provide corresponding rationality analysis; (3) In combination with the collection of accounts receivable and operating cash flow of Shenzhen Hongyi, explain the risk, time distribution or amount change of your company’s future cash flow after the new electromechanical installation business, Whether the performance of the mechanical and electrical installation contract meets the requirements of item (IV) of Article 5 of the accounting standards for Business Enterprises No. 14 – income (hereinafter referred to as the “income standards”) “the contract has commercial essence, that is, the performance of the contract will change the risk, time distribution or amount of the enterprise’s future cash flow”, And verify whether the relevant income is the “income generated from transactions or events that do not significantly change the risk, time distribution or amount of the enterprise’s future cash flow” in the guidelines for self regulation and supervision of listed companies of Shenzhen Stock Exchange No. 1 – business handling.
[company reply]:
(1) Describe in detail Shenzhen Hongyi’s business qualification, personnel experience, the relationship between customers and suppliers upstream and downstream of the industrial chain, and the relationship with IDC industry.
At present, Shenzhen Hongyi has the qualification of construction enterprise, including: 1. Grade III professional contracting of construction electromechanical installation engineering; 2. Grade III professional contracting of environmental protection engineering; 3. Safety production license for construction enterprises. The qualification of building electromechanical installation engineering is a necessary qualification for engaging in electromechanical installation business, including the construction of electromechanical installation engineering of data center. The qualification held by Shenzhen Hongyi can be engaged in various professional subcontracting projects of electromechanical installation of data center. In 2022, Shenzhen Hongyi will implement the qualification upgrading according to relevant policies to further enhance the market competitiveness of Shenzhen Hongyi. Shenzhen Hongyi’s existing employees are mainly senior professionals in various professional positions in the field of data center or professionals in electromechanical installation. Most of them have worked in a data center operator. The data center operator has successively developed and built more than 15 data centers from 2014 to 2020, with a cabinet scale of more than 35000 +. Up to now, Shenzhen Hongyi has 1 first-class (electromechanical) cost engineer (9 years in electromechanical installation), 4 first-class (electromechanical) constructors (8 years in electromechanical installation on average), 1 first-class (Civil Engineering) constructor (17 years in electromechanical installation) and 1 second-class (electromechanical) constructor (8 years in electromechanical installation).
The upstream suppliers of Shenzhen Hongyi are mainly equipment, materials and construction labor enterprises in various professional fields such as data center electrical, strong and weak electricity, HVAC, etc., and the downstream customers are mainly the general contractor of data center engineering construction. Shenzhen Hongyi has normal commercial procurement and sales relationship with suppliers of upstream and downstream customers. Suppliers and customers have no relationship with listed companies, controlling shareholders, actual controllers, directors, supervisors and senior managers of listed companies.
The core business of IDC industrial chain includes the construction business and operation business of data center (cabinet rental, also known as “Internet IT equipment and server hosting business” and value-added services). Shenzhen Hongyi focuses on the engineering construction business of the data center and mainly undertakes the electromechanical professional engineering projects of the data center. More than 95% of the engineering projects undertaken in 2021 are the electromechanical installation engineering business of the data center. The electromechanical installation engineering business carried out by Shenzhen Hongyi belongs to the core business scope of the data center and is the upstream of the data center and the main link of the data center industrial chain. The construction enterprise qualification of Shenzhen Hongyi can meet the qualification requirements for Shenzhen Hongyi to engage in mechanical and electrical installation business of data center (IDC), which provides basic conditions for the company to carry out data center construction business; Shenzhen Hongyi employees are mainly senior professionals in various professional positions in the field of data center or professionals in mechanical and electrical installation. They have a good relationship with upstream and downstream customers, suppliers and construction units in the data center industry, and have many channels to obtain industry information and business opportunity information, which widens the information channels for the company to carry out data center construction business; Shenzhen Hongyi was engaged in data center engineering construction subcontracting business in 2021. The downstream customers are mainly Taiji Computer Corporation Limited(002368) and other companies specialized in undertaking the general contracting of data center engineering, and most of the final customers are data center operators. To sum up, Shenzhen Hongyi has close ties with IDC industry in terms of qualification, personnel, customers and suppliers, engineering, etc. About “the connection between the mechanical and electrical installation business of Shenzhen Hongyi data center and IDC industry”, similar situations include: Cetc Digital Technology Co.Ltd(600850) ( Cetc Digital Technology Co.Ltd(600850) . SH) data center intelligent solution business (integrating the engineering construction and operation of the data center, and the business runs through consulting and design, engineering construction, all-weather operation and maintenance, professional evaluation and operation services, etc.) IDC system integration business of Shanghaichengdiconstructioncorporationltd(603887) ( Shanghaichengdiconstructioncorporationltd(603887) . SH) (provide IDC engineering consulting, equipment procurement, construction and other services according to the construction needs of IDC investors).
In the development of data center engineering construction business in 2021, Shenzhen Hongyi successfully completed various engineering operations, steadily promoted the company’s development in IDC industrial chain engineering construction, and laid a foundation for the company to build an Internet data center service provider in the whole industrial chain. In 2022, Shenzhen Hongyi will continue to focus on the field of data center and continue to carry out the electromechanical installation business of data center.
(2) Explain in detail the reasons for the month on month decline in the revenue of Shenzhen Hongyi electromechanical installation business since the fourth quarter of 2021. At the same time, the contract on hand shows that there is a continuous decline risk. For this, whether it is inconsistent with the business model of sustainability and stability described by your company, and provide corresponding rationality analysis.
Since the fourth quarter of 2021, the revenue of Shenzhen Hongyi electromechanical installation business has decreased month on month, while the amount of contracts in hand has decreased. The above situation does not conflict with the business model of sustainability and stability. The specific analysis is as follows:
In the second quarter of 2021, the mechanical and electrical installation engineering business of Shenzhen Hongyi data center had 22.11 million yuan of orders in hand (all new orders in the current period), and there was no carry forward income in the current period; In the third quarter, the amount of orders in hand for the electromechanical installation engineering business of the data center was 120.94 million yuan (including 98.83 million yuan of new orders), and the amount of orders carried forward in the current period was 80.47 million yuan (73.83 million yuan of revenue); In the fourth quarter, the amount of orders in hand for the electromechanical installation engineering business of the data center was 77.75 million yuan (including 37.28 million yuan of new orders), and the amount of orders carried forward in the current period was 52.52 million yuan (47.91 million yuan of revenue). In the first quarter of 2022, the amount of orders in hand for the electromechanical installation engineering business of the data center was 101.1 million yuan (including 75.87 million yuan of new orders).
1. Income from Shenzhen Hongyi electromechanical installation business
The main reasons for the month on month decline of Shenzhen Hongyi electromechanical installation business revenue since the fourth quarter of 2021 are as follows: (1) the amount of contracts in hand in the fourth quarter of 2021 was lower than that in the third quarter. In the fourth quarter, the contract amount of electromechanical installation engineering business in the data center decreased by about 43.19 million yuan compared with the third quarter. (2) In the third quarter, the company carried forward revenue of 73.83 million according to the performance progress of mechanical and electrical installation engineering business; In the fourth quarter, due to prudence, the company carried forward the project revenue of 47.91 million yuan based on the completion acceptance and project delivery of various projects.
2. Orders of Shenzhen Hongyi electromechanical installation business
Analysis on the reasons for the decline of contracts in hand in the fourth quarter of 2021 compared with the third quarter: the company signed a large amount of construction contracts at the beginning of the second and third quarters, and the performance of the above contracts occupied a lot of funds of the company. The monetary capital of the company decreased from 72.65 million yuan on June 30, 2021 to 25.76 million yuan on September 30, 2021, which reduced the space for the company to expand new business to a certain extent. At the same time, since 2021 is the first year of Shenzhen Hongyi’s electromechanical installation business, good engineering performance and quality record are of great significance to Shenzhen Hongyi and can lay a solid foundation for the subsequent expansion of the general contractor’s resources and business scale. In the fourth quarter, Shenzhen Hongyi concentrated resources (such as manpower and capital) to pay attention to the project quality and timely delivery of projects under construction. Based on the above two reasons, Shenzhen Hongyi appropriately slowed down the expansion speed at the end of the third quarter and the beginning of the fourth quarter, focusing on the project implementation, so that the contract in hand in the fourth quarter of 2021 decreased compared with the third quarter.
In 2022, Shenzhen Hongyi will continue to carry out the mechanical and electrical installation business of the data center, enhance and supplement the strength of relevant professionals and teams of the company, further enhance the competitiveness of the company’s mechanical and electrical installation business, and explore the scale and types of business. In the first quarter of 2022, the company added 75 million yuan of new contracts, and the current contracts in hand are about 100 million yuan. To sum up, although the company’s new contract amount, the balance of contracts in hand and the amount of revenue recognized in each quarter fluctuate between quarters, it is a reasonable phenomenon, and there is no contradiction with the continuous and stable business model of the business. (3) In combination with the collection of accounts receivable and operating cash flow of Shenzhen Hongyi, explain the risk, time distribution or amount change of your company’s future cash flow after the new electromechanical installation business, Whether the performance of the mechanical and electrical installation contract meets the requirements of item (IV) of Article 5 of the accounting standards for Business Enterprises No. 14 – income (hereinafter referred to as the “income standards”) “the contract has commercial essence, that is, the performance of the contract will change the risk, time distribution or amount of the enterprise’s future cash flow”, And verify whether the relevant income is the “income from transactions or events that do not significantly change the risk, time distribution or amount of the enterprise’s future cash flow” in the self regulatory guide for listed companies of Shenzhen Stock Exchange No. 1 – business handling on the deduction of operating income. 1、 The contract has commercial substance
After obtaining the business opportunities of the project, the company will prepare the bidding list according to the requirements of equipment brand, process quality and performance in the preliminary outline design document of the owner or the general contractor, and the professional procurement personnel will inquire from multiple suppliers. On the condition of ensuring that the project quality requirements are met, the lowest cost supplier and equipment combination scheme will be selected. On the basis of cost evaluation and inquiry, Form the final project cost, quote and bid from the owner or the general contractor or participate in competitive negotiation, and negotiate the contract price and collection progress with the general contractor.
After the company signs the contract with the general contractor, the company needs to arrange to deal with the preliminary matters such as the submission and review of data before commencement, the construction organization design, the preparation of special construction scheme and general construction schedule, organize personnel to participate in or organize the joint review records of drawings, and carry out the technical disclosure of construction scheme to the labor subcontractor. For the procurement of materials and equipment, the procurement personnel shall negotiate independently with the supplier to purchase the materials and equipment required for the project; During the construction process, the project manager determines the labor progress according to the construction plan. In the process, the project manager independently organizes to check and control the construction quality and progress. The company bears the risk of timely delivery of the project with quality and quantity determined by the contract performance terms, and is ultimately responsible for acceptance with the general contractor to fulfill the obligation of delivering electromechanical engineering.
To sum up, the mechanical and electrical installation business of the company’s data center is obtained through bid invitation and negotiation. The supplier is determined through inquiry. The customer and the supplier have no relationship, have a complete price evaluation and construction management process, and can calculate their costs and income independently. Under this business mode, the conversion activities of services can be provided to improve the product value, the transaction is fair and has commercial essence.
2、 Shenzhen Hongyi accounts receivable collection
In 2021, Shenzhen Hongyi confirmed that the revenue from mechanical and electrical installation business was 120 million yuan, the amount including tax was 130 million yuan, the amount received in the current period was 100 million yuan, and the balance of accounts receivable at the end of the period was 30 million yuan. As of the date of this reply, the accounts receivable had received RMB 10 million.
3、 Shenzhen Hongyi operating cash flow
Unit: 10000 yuan
Amount of the project in 2021 (unaudited data)
Cash received from selling goods and providing labor services
