Rongcheng Certified Public Accountants (special general partnership)
About the statement on Allwin Telecommunication Co.Ltd(002231) of Shenzhen Stock Exchange
Reply to the inquiry letter of the 2021 Annual Report
Shenzhen Stock Exchange:
According to the requirements of your inquiry letter on the annual report of Allwin Telecommunication Co.Ltd(002231) 2021 (annual report inquiry letter [2022] No. 196 of the Ministry of company) (hereinafter referred to as the “inquiry letter”), Rongcheng Certified Public Accountants (special general partnership) (hereinafter referred to as “the firm”) as the auditor of the annual report of Allwin Telecommunication Co.Ltd(002231) (hereinafter referred to as ” Allwin Telecommunication Co.Ltd(002231) ” or “the company”) in 2021, the reply to the matters requiring the opinion of the accountant in the inquiry letter is as follows:
Question 2 mentioned in the inquiry letter
During the reporting period, your company’s main military information products and solutions achieved an operating revenue of 528 million yuan, a year-on-year increase of 161.65%, and the current gross profit margin was 14.5%, an increase of nearly 8 percentage points over the previous year; Network optimization coverage equipment products and solutions achieved an operating revenue of 30.074 million yuan, with a gross profit margin of – 9.12% in the current period. Listed by region, the gross profit margin of northwest, Central South, East China and Northeast China is 16.3%, 15.06%, 10.36% and 9.27% respectively, while that of Southwest China is 3.49%.
(1) During the reporting period, the sales volume of communication equipment was 22281 sets. Please explain whether there are significant differences between the company’s business, the gross profit rate of the products covered by information technology and the company’s business in recent years, and whether the price of the products and the gross profit rate of the company’s products are reasonable in combination with the gross profit rate of the company’s products and solutions.
(2) Please explain the reason and rationality of the difference in gross profit margin in various regions in combination with your company’s income and cost accounting method, product and customer composition and other factors.
The annual audit accountant is requested to give a clear opinion.
reply:
1、 During the reporting period, the sales volume of communication equipment was 22281 sets. In combination with the sales price, sales volume, raw material price and fluctuation of your company’s main products in recent three years, please explain the reasons and rationality for the significant increase in the gross profit margin of military information products and solutions business, the negative gross profit margin of network optimization coverage equipment products and solutions business, and whether there are significant differences with comparable businesses of Companies in the same industry.
(I) fluctuation of sales price, sales volume, raw material price and gross profit margin of the company by business in recent three years
Monetary unit: 10000 yuan
Project 20212020 2019
Military business
Main business income 527747720169802238716
Main business cost 451219618821621737086
Gross profit margin 14.50%, 6.68%, 22.41%
Traditional communication room sub service
Main business income Syoung Group Co.Ltd(300740) 6539251325230
Main business cost 3281716482001194220
Gross profit margin -9.12%, 0.88%, 9.89%
The company’s military informatization products and solutions business (hereinafter referred to as “military business”) mainly undertakes the construction of projects in military electronic informatization, audio and video command system, network communication and other business fields, specifically covering: Survey and deployment address, construction wiring, providing core system products and supporting equipment according to the requirements of the bidding document, equipment installation, joint commissioning and joint test between equipment and systems. Network optimization coverage equipment and solutions business (hereinafter referred to as “traditional communication room sub business”) mainly provides mobile communication network optimization coverage equipment and systems for operators, including scheme design, provision of relevant products, equipment installation and commissioning to meet the network quality requirements agreed with operators. The direct customers or final customers corresponding to these two types of businesses are the military, state-owned military industrial units and telecom operators. Such customers have strict procedures and bidding requirements in the bidding procurement process, and most of them adopt the form of bidding. In the project quotation, the company will make strategic bidding quotation based on the competitiveness of its products or services, technical added value, benchmarking effect of the project, competitors, customers and other factors. The company’s products are customized, and most projects are determined in the form of bidding. In the project quotation, the company will make strategic bidding quotation based on the competitiveness of its products or services, technical added value, benchmarking effect of the project, competitors, customers and other factors. Due to the customization of project products and services, there is no clear price comparability between different projects. The overall procurement pricing of the company is relatively stable. The company will fully consider the cost factors such as material price fluctuation in the bidding pricing process, and set the base price according to the cost plus pricing method, so as to keep a certain profit space for the winning project. Military business is affected by individual differences such as customers, projects and regions, and the pricing strategies of different projects will be different. The bidding projects of the company’s military business have the characteristics of customization. The high gross profit margin in 2019 is mainly caused by a single large contract and the settlement of some high value-added projects in the current year. In 2020, affected by the epidemic and other factors, the income decreased and assumed relatively high fixed costs. In addition, as a key year of business transformation, in order to improve brand awareness and rapidly expand market share, the company adopted competitive quotations in some highly competitive projects, and the gross profit margin decreased in that year. The main reasons for the increase of gross profit margin in 2021 are as follows:
1. Military informatization products and Solutions
The military industry business covers audio and video systems, domestic independently controllable equipment, individual information equipment, private network mobile broadband equipment, wireless broadband system, etc. the company has built a relatively complete military broadband mobile communication system. The main reasons for the increase of the gross profit margin of the company’s military business in 2021 are as follows:
(1) 2020 is a key year for business transformation. The company focuses on and vigorously expands its military business. Although the military business has obtained orders of a certain scale through preliminary layout, the company still belongs to the period of business expansion.
Due to the high barriers to entry of the military market, in order to improve brand awareness and rapidly expand market share, the company adopted competitive quotations in some highly competitive projects, resulting in a low gross profit margin of the project in 2020. With the success of the company’s strategic transformation, the company has continuously explored the market, improved the competitiveness of its products and services, and achieved a good reputation in the industry, which has improved the company’s quotation advantage and the overall gross profit margin of the project in 2021.
(2) The company pays attention to the in-depth understanding of the market and customer needs, explores the effective matching of technology with customer needs, and based on this, carries out pilot research and development and rapid response, so as to continuously meet the needs of customers. In terms of R & D, the company increased investment in independent R & D products and model products, and achieved the finalization and delivery of domestic independent controllable equipment products in 2021. In addition, some of the company’s self-developed products have also preliminarily realized quantitative production and sales, which further improved the gross profit margin in 2021.
(3) Affected by the significant growth of military business income mentioned above, the company has gradually formed the scale advantage in this product field. On the one hand, the rapid growth of operating income diluted the fixed cost expenditure such as depreciation, amortization and labor cost, forming the natural growth of gross profit margin; On the other hand, the advantage of scale promotes the improvement of cost management ability, and the company forms an efficient cost management effect.
(4) Affected by the customization characteristics of the above-mentioned projects and different bidding pricing strategies, the individual differences of major projects will affect the fluctuation of gross profit margin of each year.
2. Network optimization coverage equipment and solution business
The branch business of the company’s traditional communication room mainly includes scheme design, provision of relevant products, equipment installation and commissioning to meet the network quality requirements agreed with the operator. It mainly carries out business through bidding mode. The main reasons for the significant decrease in the gross profit margin of the branch business of the company’s traditional communication room in 2021 are as follows:
(1) Downstream communication operators’ investment in network construction in the later stage such as network optimization is further reduced, and the competition in the communication market is further intensified, while the labor cost of upstream construction contractors is increased year by year due to the impact of epidemic and other factors, resulting in the decline of the profit space of the company’s traditional communication room business year by year.
(2) In 2021, the company still had some traditional communication room businesses. Due to the further reduction of relevant businesses, while the revenue decreased, the company undertook relatively high fixed costs, construction costs and rectification costs formed to promote project acceptance, resulting in the decline of gross profit margin.
The company’s military business procurement mainly includes audio and video, simulation training system and other materials. The procurement price follows the market pricing principle and adopts the methods of inquiry, price comparison and price negotiation to conduct non bidding procurement among qualified suppliers. The company has a certain voice in the pricing process of purchasing main raw materials and services. The overall procurement price of the company’s military business has changed slightly in recent years, but the fluctuation is limited.
(II) gross profit margin of comparable companies in the same industry in recent three years
1. Military business
Comparable companies 20212020 2019
Shenzhen Sdg Information Co.Ltd(000070) 11.41% 18.68% 17.92%
Comparable companies 20212020 2019
Wuhan Xingtu Xinke Electronics Co.Ltd(688081) 57.78% 60.94% 77.42%
Including: military products 61.13%, 63.71%, 79.46%
Kyland Technology Co.Ltd(300353) 43.56% 23.51% 45.36%
Beijing Tricolor Technology Co.Ltd(603516) 57.92% 58.77% 68.30%
Allwin Telecommunication Co.Ltd(002231) 14.50% 6.68% 22.41%
Operating income and asset scale of the same industry in 2021:
Monetary unit: 10000 yuan
Project Shenzhen Sdg Information Co.Ltd(000070) Wuhan Xingtu Xinke Electronics Co.Ltd(688081) Kyland Technology Co.Ltd(300353) Beijing Tricolor Technology Co.Ltd(603516) Allwin Telecommunication Co.Ltd(002231)
Operating income 459083851566502941 Guangdong Enpack Packaging Co.Ltd(002846) 809615613928
Total assets 83238327753779523572711146225676802669
The above comparable companies are involved in the military industry, but except Wuhan Xingtu Xinke Electronics Co.Ltd(688081) , the gross profit margin of military industry business is not listed separately. Compared with Wuhan Xingtu Xinke Electronics Co.Ltd(688081) the company mainly undertakes the construction of projects in military electronic informatization, audio and video command system, network communication and other business fields, specifically covering: Survey and deployment address, construction wiring, provision of core system products and supporting equipment according to the requirements of the bidding document, equipment installation, joint commissioning and joint test between equipment and systems Wuhan Xingtu Xinke Electronics Co.Ltd(688081) ‘s business scope focuses on the development and design of video command system and the production and assembly of core equipment, and provides supporting product technical instructions, etc. 2021 is the first year after the strategic transformation of the company. The military business of the company is still in the growth stage, which is different from the development stage, company scale, maturity of business model and products of the above comparable companies. This difference makes the gross profit rate of the company and the comparable companies not comparable.
From the analysis of the fluctuation trend of the comprehensive gross profit margin of comparable companies, most of the companies and comparable companies show a downward trend, which is generally similar to the industry. The fluctuation of gross profit margin in 2020 is mainly due to the competitive quotation adopted by the company in some highly competitive projects in order to improve brand awareness and rapidly expand market share as a key year of business transformation.
2. Traditional communication room sub service
Comparable companies 20212020 2019
Sunwave Communications Co.Ltd(002115)
Comparable companies 20212020 2019
Network optimization coverage 29.04%, 26.05%, 19.80%
Shenzhen Sdg Information Co.Ltd(000070)
Communication equipment pin
