Suzhou ousheng Electric Co., Ltd
Suzhou Alton Electrical & Mechanical Industry Co., Ltd. (north of Linhu Avenue and east of laixiu Road, FenHu high tech Development Zone, Jiangsu Province) about Suzhou ousheng Electric Co., Ltd
IPO and listing on GEM
Reply to the opinion implementation letter of the Audit Center
Sponsor (lead underwriter)
(No. 86, Jingqi Road, Shizhong District, Jinan City, Shandong Province)
December, 2001
catalogue
Question 1 About the financial data after the audit deadline 3 question 2 About Amazon revenue 18 question 3 About gross margin 23 question 4 About sales service fee and freight 44 Shenzhen Stock Exchange:
We have received the Audit Center opinion implementation letter on Suzhou ousheng Electric Co., Ltd. applying for initial public offering and listing on the gem (hereinafter referred to as “Audit Center opinion implementation letter” or “implementation letter”) issued by your office on September 3, 2021. Suzhou ousheng Electric Co., Ltd. (hereinafter referred to as “ousheng electric”, “issuer” or “company”) has carefully studied and implemented with Zhongtai Securities Co.Ltd(600918) (hereinafter referred to as “sponsor” and “sponsor”) and Lixin Zhonglian Certified Public Accountants (special general partnership) (hereinafter referred to as “issuer accountant” and “Lixin Zhonglian”), In accordance with the requirements of the implementation letter, we have replied to the problems involved, which are now submitted to your office for review. Note:
1. Unless otherwise stated, the abbreviations and definitions of terms used in this reply report are consistent with those in the prospectus.
2. Any discrepancy between the total amount and the mantissa of the sum of the sub item values in this reply report is caused by rounding.
The font in this reply report represents the following meanings:
Review the questions listed in the inquiry letter in bold (BOLD)
Responses to the questions listed in the inquiry letter (not bold)
Amendments and supplements to the prospectus (BOLD)
Question 1 Financial data after the audit deadline
The application materials show:
(1) From January to June 2021, the company realized an operating revenue of 688304100 yuan, a year-on-year increase of 96.87%; The net profit attributable to the shareholders of the parent company was 79.3475 million yuan, a year-on-year increase of 27.62%; After deducting non recurring profits and losses, the net profit attributable to the shareholders of the parent company was 74.8924 million yuan, a year-on-year increase of 31.55%, which increased with the increase of operating revenue, but its growth rate was lower than that of operating revenue, which was mainly affected by the rise of sea freight, the increase of air compressor tariffs and the decline of the average exchange rate of the US dollar.
(2) Small air compressors and wet and dry vacuum cleaners are indispensable household products for American household life. At the same time, China is the main production base of small air compressors and wet and dry vacuum cleaners in the world. It is difficult for the United States to find other production bases with sufficient supply to meet the needs of American residents. In a foreseeable period of time, Sino US trade friction will not have a great impact on the company’s product export business. The company does not cancel a large number of orders and transfer purchases from major customers.
Please the issuer:
(1) In combination with covid-19 epidemic situation, exchange rate fluctuation, raw material price fluctuation, Sino US trade friction and tariff policies on the issuer’s main products, explain the reasons and rationality for the significant increase in the issuer’s performance in the first half of 2021, and the reasons and rationality for the significant increase in operating revenue higher than the increase in net interest rate;
(2) Combined with the main distribution and market share of global manufacturers of small air compressors and dry and wet vacuum cleaners, explain the price advantage of the issuer’s products under the influence of Sino US trade friction, the specific duration of “foreseeable period” and its impact on the issuer’s export business, and supplement risk tips;
(3) Combined with the impact of covid-19 epidemic on freight, explain the increase amount and range of freight. Combined with the rise of freight and tariff, explain the issuer’s and downstream customers’ commitment mechanism and negotiation progress on freight and tariff, the specific impact on the issuer’s performance and the issuer’s countermeasures.
The issuer and the reporting accountant are requested to express clear opinions on the above matters.
reply:
1、 In combination with the covid-19 epidemic, exchange rate fluctuations, raw material price fluctuations, Sino US trade frictions and tariff policies on the issuer’s main products, this paper explains the reasons and rationality for the significant increase in the issuer’s performance in the first half of 2021, and the reasons and rationality for the significant increase in operating revenue over the increase in net interest rate
(I) reasons and rationality for the substantial increase in the issuer’s performance in the first half of 2021
In the first half of 2021, the audited operating income of the company was 683546700 yuan, with a year-on-year increase of 95.51%. The main reasons for the sharp increase in performance in the first half of 2021 are as follows:
1. Rising demand from overseas consumers
At the beginning of 2020, the covid-19 epidemic broke out all over the world. Affected by this, the federal government and state governments of the United States introduced economic rescue bills and unemployment benefit subsidies to stimulate people’s consumption, and the consumption capacity of American consumers has been enhanced.
In addition, due to the impact of covid-19 epidemic, overseas consumers’ time at home has increased. People will buy dry and wet vacuum cleaners for indoor and outdoor cleaning and car cleaning, and small air compressors for home decoration. Therefore, the demand for the issuer’s products has increased.
2. Overseas supply has an impact
With the continuous improvement of China’s epidemic prevention and control situation, industrial enterprises have resumed work and production. Under the background that the epidemic prevention and control situation in some countries and regions around the world is still severe, China’s industrial enterprises took the lead in restoring production capacity and accelerating export overseas. Foreign enterprises are affected by the repeated outbreak of the epidemic, and their production and operation are affected to a certain extent.
3. Sales in the first half of 2020 were affected by covid-19 epidemic in China
In the first half of 2020, the issuer was affected by the covid-19 epidemic in China, the downstream manufacturers were not started enough, and the production and sales of the issuer in the first half of 2020 were adversely affected. In the first half of 2021, the epidemic situation in China was well controlled, and the issuer ensured the execution of customer orders through orderly production and operation. Therefore, the revenue in the first half of 2021 was better than that in the first half of 2020.
4. Continue to explore the international market and Chinese market
In recent years, the company has actively explored the international market and achieved effective expansion in Europe, Southeast Asia and other markets. The company will continue to actively explore the international market and continuously improve the global business layout; The company will also continue to deepen cooperation with North American customers, consolidate and expand North American market share.
In addition, with the improvement of Chinese consumers’ economic level and the change of consumption concept, the specialized small air compressors and wet and dry vacuum cleaners produced by the company are gradually accepted by Chinese consumers, and the Chinese market demand still has great growth potential. In the future, based on the existing products, the company will launch a series of products to meet the market demand and vigorously explore the Chinese market.
5. Actively expand new business models
Affected by the epidemic, the consumer behavior habits of the company’s main sales areas in the United States and other countries have changed, more shopping through the Internet, actively expand the B2B business with Amazon’s e-commerce platform, and vigorously develop the online sales business by setting up a subsidiary Shenzhen Jiede, recruiting a special e-commerce operation team, so that the sales scale of Amazon (B2B) has increased rapidly.
To sum up, in the first half of 2021, the global market, especially the North American market, still maintained a high prosperity. In particular, home office in North America has become a new normal working mode, which objectively increased the company’s product demand, reduced the R & D and production efficiency of overseas competitors, and provided the company with a rare opportunity to quickly increase market share. While the industry is booming, the severe impact of the epidemic on the global supply chain has led to a bottleneck in supply / production capacity. In this context, relying on the supply chain with China as the core and through orderly capacity expansion, the issuer promoted the steady growth of operating revenue in the first half of 2021. In addition, due to the decrease of operating revenue in the first half of 2020 affected by the covid-19 epidemic in China, the issuer’s performance in the first half of 2021 increased significantly compared with the same period last year.
(II) reasons and rationality for the increase of operating income significantly higher than that of net interest rate
The issuer’s performance in the first half of 2021 is as follows:
Unit: 10000 yuan
Change rate of the project from January to June 2021 to January to June 2020
Operating income 68354.67 34821.97 96.30%
Operating profit 9547.95 7377.76 29.42%
Net profit 8093.12 6051.12 33.75%
Net profit attributable to owners of parent company 8093.12 6051.12 33.75%
Note: the data from January to June 2020 have not been audited or reviewed, and the data from January to June 2021 have been audited, the same below.
From January to June 2021, the company realized an operating revenue of 683.5467 million yuan, a year-on-year increase of 96.30%; The net profit attributable to the shareholders of the parent company was 80.9312 million yuan, a year-on-year increase of 33.75%; The growth rate of net profit was lower than that of operating revenue, mainly due to the decline of US dollar against RMB exchange rate, the rise of raw material prices, the rise of sea freight and the imposition of tariffs on small air compressors.
1. The decline in the exchange rate of US dollar against RMB and the rise in the price of raw materials led to the decline of the company’s gross profit margin
(1) Exchange rate of USD against RMB
From January to June 2021, the average exchange rate of US dollar against RMB was 6.4682, and from January to June 2020, the average exchange rate of US dollar against RMB was 7.0413, a year-on-year decrease of 8.14%. The company’s sales model is mainly export-oriented, and the financial statements take RMB as the functional currency. On the premise that product pricing, cost and other factors remain unchanged, the reduction of the average exchange rate of US dollar against RMB will directly lead to the decline of the company’s gross profit margin.
(2) Raw materials
There are many kinds of raw materials purchased by the issuer, and the raw materials purchased in large quantities are mainly benchmarked with the commodity index of Q235B 2.75 * 1250 * C (Shanghai, Angang), PP raw material k7926 (Yuyao, Shanghai Secco) and 50aw800 (Shanghai / Angang). From January to June 2021, Q235B 2.75 * 1250 * C (Shanghai, Angang) PP raw materials k7926 (Yuyao, Shanghai Secco) and 50aw800 (Shanghai / Angang) increased by 45.99%, 8.60% and 69.38% respectively compared with January June 2020.
The issuer’s main business cost mainly consists of direct materials, direct labor, manufacturing expenses, etc. During the reporting period, the direct material cost of the company accounted for more than 85% of the main business cost. Therefore, the rising price of raw materials promoted the rise of the issuer’s main business cost, resulting in the decline of gross profit margin.
The decline of the US dollar against RMB exchange rate and the rise of raw material prices led to the decline of the issuer’s comprehensive gross profit margin.
2. The expenses vary greatly during the period
(1) The shortage of international transport capacity leads to the increase of sea freight
In the first half of 2021, due to the adverse impact of the covid-19 epidemic on overseas manufacturing industry, there was a shortage of production capacity in all links overseas. Due to the good epidemic prevention and control, Chinese enterprises carried out production and operation activities steadily. The above reasons resulted in a sharp increase in China’s export volume, a shortage of export containers and a shortage of international transportation capacity. In addition, affected by the epidemic, the relative shortage of international shipping related staff such as crew, port unloaders, loaders and truck drivers has delayed the speed and efficiency of shipping, further leading to the shortage of international transport capacity. Under the above background, the issuer’s transportation expenses increased from RMB 16.452 million (Unaudited or reviewed) in the first half of 2020 to RMB 44.5561 million in the first half of 2021, an increase of 170.82%.
(2) Tariff changes of small air compressors under Sino US trade friction
From January 1, 2021, the tariff rate of small air compressors exported by the United States to China will be restored to 25%. In the first half of 2021, the tariff amount of the issuer’s small air compressors will be 4.504 million yuan. From January to June 2020, due to the refund of the previously imposed tariff on small air compressors by the United States, the tariff amount of the issuer’s current small air compressors from January to June 2020 will be -5.9942 million yuan, The change of tariff policy of Sino US trade friction on the issuer’s main products leads to a large change in the amount of tariff during the issuer’s period.
(3) Exchange gains and losses
Exchange gains and losses are mainly affected by the fluctuation of the exchange rate between the US dollar and the RMB. From January to June 2020, the exchange rate of US dollar against RMB generally showed an upward trend, resulting in the exchange gain generated by the company from January to June 2020 of RMB 2042600 (Unaudited or reviewed). From January to June 2021, the exchange rate of US dollar against RMB generally showed a trend of first rising and then falling, and the exchange loss incurred by the company was 4.4919 million yuan. The fluctuation of the exchange rate between the US dollar and RMB leads to large changes in the exchange gains and losses of the issuer.
In conclusion, due to the comprehensive impact of covid-19 epidemic, exchange rate fluctuations, raw material price fluctuations, Sino US trade frictions on the issuer’s tariff policies on its main products and other factors, it is reasonable that the issuer’s operating revenue growth in the first half of 2021 is higher than the net profit growth.
2、 Combined with the main distribution and market share of global manufacturers of small air compressors and dry and wet vacuum cleaners, it shows that they are subject to Sino US trade
