Duchuang/Shenzhen Business Daily reporter Zhu Feng
Shenzhen Yilian Technology Co., Ltd. (hereinafter referred to as Yilian Technology) has encountered setbacks from the beginning.
As a company highly bundled with CATL , Yilian Technology plans to be listed on the Shenzhen Stock Exchange Growth Enterprise Market. On June 20 this year, it submitted the prospectus and was accepted. However, on July 29 and August 19, Yilian Technology was investigated by the China Securities Regulatory Commission for the evaluation agency and sponsor. The Shenzhen Stock Exchange suspended its listing review twice in accordance with relevant regulations, and it did not resume the issuance and listing review until September 5.
On November 2, Yilian Technology and sponsor China Merchants Securities responded to the Shenzhen Stock Exchange's inquiry letter. This time, will Yilian Technology turn around and achieve its wish?
▍60% of the income comes from "Ningwang". Is there any major risk?
Yilian Technology was established in 2011. It is a product and solution provider integrating the research and development, design, production, sales and service of current connection components. The company is deeply engaged in the field of electrical connection components. It has currently built production bases in Shenzhen, Guangdong, Ningde, Fujian, Liyang, Jiangsu, Yibin, Sichuan and Yueqing, Zhejiang. Its main products cover various electrical connection components such as battery cell connection components, power transmission components, and low-voltage signal transmission components. It has formed an industrial development pattern with new energy vehicle as the main axis of development, and energy storage systems, industrial equipment, medical equipment, consumer electronics and other application fields moving forward together.
During the reporting period (2019, 2020, 2021 and January-June 2022), Yilian Technology's operating income was RMB 735.2389 million, RMB 698.7704 million, RMB 143.38796 million and RMB 105.57286 million, with a compound growth rate of 43.25% in the first three years; net profit was RMB 81.918 million, RMB 65.1813 million, RMB 138.8131 million and RMB 96.2118 million, respectively, with a compound growth rate of 30.17% in the first three years.

It is not difficult to find that in 2020, both revenue and net profit, Yilian Technology has declined year-on-year, but overall, its performance in recent years has shown an increase year by year. All of this is due to the big tree of CATL behind it.
During the reporting period, Yilian Technology's operating income from the top five customers was RMB 541.1261 million, RMB 524.8311 million, RMB 1105.837 million and RMB 859.7632 million, respectively, accounting for 73.60%, 75.11%, 77.12% and 81.44% of the operating income, respectively. The company's operating income from the top five customers accounted for relatively high proportion of operating income in each period, and has been increasing year by year. Among them, the operating income from CATL accounted for 59.71%, 62.38%, 64.72% and 63% respectively, which is not on the same level as the customers ranked 2-5.

In this regard, Yilian Technology stated that if the business of the issuer's main customers in the future is affected by many factors such as the international political situation, changes in the market environment, supply of key materials, downstream market demand, import and export policies, or lead to a reduction in purchase orders to the company, it may lead to a decline in the company's performance.
Shenzhen Stock Exchange's inquiry letter requires explanation of whether the customer concentration level and the changing trends during the reporting period meet the general characteristics of the industry, and whether the issuer has major risks in terms of customer stability and business sustainability.
Yilian Technology replied that in the electrical connection component industry where the issuer is located, other companies in the same industry such as Huguang Co., Ltd., Changying Precision and Luxshare Precision also have relatively concentrated customers. Overall, the electrical connection component industry in which the company is located is affected by the high concentration of downstream industries. Due to the consideration of the operating strategy of and the quality of customer service, high-quality large customers are usually preferred for cooperation. Most of the downstream large customers are industry-leading companies with large order demand, so it is more common to have a high concentration of customers, which is in line with industry practices and the actual operating conditions of the company.
At the same time, after years of development and accumulation of experience, the company has formed a rich product structure and strong R&D technology strength, and established a long-term and stable cooperative relationship with major customers through high-quality products and services; it has continuously expanded new customers in the new energy vehicle industry and other industries, vigorously promoted R&D and innovation, expanded product application scenarios and optimized product performance, and comprehensively enhanced its own risk resistance and comprehensive competitiveness. Therefore, the company does not have significant risks in terms of customer stability and business sustainability.
▍Gross profit margin is declining year by year. Is it reasonable?
prospectus shows that during the reporting period, Yilian Technology's comprehensive gross profit margin was 25.67%, 23.09%, 21.69% and 19.58%, respectively, and the gross profit margins of the main business were 25.88%, 23.15%, 21.70% and 19.48%, respectively, and the overall trend was year by year.
prospectus also suggests the risk of a decrease in gross profit margin: In the future, with the renewal of products, if the company cannot continue to strengthen technology research and development, consolidate or develop customer resources, maintain and strengthen its own competitive advantages, or in the future, the industry competition and bargaining power will be intensified due to competitors' joining, the investment in fixed assets will increase, the price of raw material procurement, and the salary of the company's personnel will increase, the company's gross profit margin may decline, which will affect the company's overall profit level.
Regarding the Shenzhen Stock Exchange's inquiry letter, Yilian Technology replied that during the reporting period, after considering the transportation and loading and unloading fees, the gross profit margin of the company's main business was similar to the average level of comparable listed companies in the industry, and the overall trend was on a downward trend year by year. Electrical connection components products have a wide range of applications. Due to the different sub-sectors, the gross profit margins of in terms of the quality, specifications and models, process routes, production capacity scale, cost structure, customer structure, etc., the gross profit margins of major products may vary greatly due to the customized characteristics of the products. The decline in the company's gross profit margin during the reporting period does not differ significantly from the average value of comparable companies in the same industry, and is relatively close to the gross profit margin levels of comparable companies such as Ruikeda, Laimu Co., Ltd. , and Shenglan Co., Ltd., and is reasonable.
In addition, at the end of each reporting period, the book value of the company's accounts receivable was RMB 219.6553 million, RMB 251.8046 million, RMB 496.9764 million and RMB 556.8772 million, accounting for 48.33%, 47.78%, 44.95% and 43.78% of the current assets at the end of each period, respectively, accounting for a high proportion. Yilian Technology said that although the company's main customers have good credit status, as the business scale gradually expands, there is still a risk that accounts receivable cannot be recovered on time or in full due to individual customers' poor management or disputes.
▍Is there a risk of being punished for labor dispatch violations?
Yilian Technology also used a large number of labor dispatch workers during the reporting period. The prospectus shows that in 2019 and 2020, the company's labor dispatch number was 70 and 250, accounting for 4.67% and 12.65% of the total number of employees, respectively. There was a situation where the labor dispatch ratio exceeded 10%, which violated the relevant provisions of the " Interim Provisional Regulations on Labor Dispatch ".
The Shenzhen Stock Exchange’s inquiry letter requires the company to explain the reasons for the labor dispatched employees in 2020, the reasons for the illegal use of student workers in during the reporting period, whether there is a risk of being punished, and whether it constitutes a major illegal and irregular act.
Yilian Technology replied that during the reporting period, the company had a situation where labor dispatch exceeded 10%, mainly because the company needed a large number of workers on daily production and operation. Due to the urgent urgent orders, it faced a shortage of workers in some periods. At the same time, due to the difficulty of self-recruiting labor during the epidemic, the company adopts labor dispatch as a supplementary employment form to ensure the normal progress of daily production and operation activities.
Yilian Technology stated that the above-mentioned employment defects of the company and its holding subsidiaries are at risk of being subject to administrative penalties for . However, since the company's labor dispatch workers exceed the statutory proportion and the illegal use of student workers have been eliminated after the standardization and rectification, the company has not been subject to administrative penalties for violating national and local labor laws, administrative regulations and rules during the reporting period.
review: Yu Fanghua