Sanwei Xin'an Technology Co., Ltd. (referred to as "Sanwei Xin'an" or the "Issuer") passed the deliberation of the Science and Technology Innovation Board Listing Committee on May 25, but it still faces a huge test in the issuance registration process of the China Securities Regulatory Commission.
Sanwei Xin'an is a domestic commercial cryptography infrastructure provider, focusing on the research and development, sales and service of commercial cryptography product . Its main products include three series: cryptographic boards, cryptographic machines and cryptographic systems.
However, this crypto company, which exudes a high-tech atmosphere, has many inconsistencies in its prospectus. For example, the issuer’s market share is only 0.4%, but it claims to be an industry leader, and uses this as a reason. Abnormally high gross profit margin endorsement.
In addition, Sanweixin’s revenue increased significantly during the outbreak, but its inventory of goods decreased. In particular, accounts receivable have clearly soared and even exceeded revenue growth. However, under back-to-back payment conditions, bad debts and aging can be frozen in calculation; there is also peer competition with joint-stock companies.
Some of these issues were covered during the on-site inquiry by the Science and Technology Innovation Board Listing Committee on May 25, but some were not covered or were not covered in depth enough, such as the authenticity of the issuer's income and costs, which are very unusual and disturbing. Shocking "back-to-back payment" credit policy !
1. The substantial growth in operating income is not supported by reasonable reasons, is contrary to the growth of inventory, and is not consistent with the impact of the epidemic.
The prospectus shows that during the reporting period, the issuer’s main business income was 134 million yuan, 202 million yuan, and 269 million yuan respectively. billion, with growth rates reaching 51.35% and 33.05% respectively, achieving substantial growth.
However, the prospectus explains the reasons for the revenue growth, but there are many contradictions and situations that are inconsistent with the actual situation, which raises doubts about the authenticity of the revenue growth, mainly involving the following aspects:
(1) Cryptometry The impact of the introduction on the issuer's revenue growth was exaggerated
The prospectus attributed the substantial revenue growth first to the encryption law that was implemented in early 2020. According to its logic, the promulgation of the encryption law will greatly increase the mandatory use of commercial encryption and make it natural for issuers' revenue to increase significantly. However, this is not in line with the actual situation. The
password method divides passwords into core passwords, ordinary passwords, and commercial passwords, and implements classified management and classified protection. Among them, core passwords and ordinary passwords can be used to protect state secret information, and commercial passwords are used to protect information that is not state secrets.
The current network security protection level is divided into 5 levels, corresponding to different password level requirements. Please see the table below for details. The
cryptography method mainly strengthens the mandatory network security evaluation requirements for level 3 and above protected objects. For example, level 3 requires mandatory assessment once a year. Level 4 is once every six months. For Level 2 protected objects, only a filing requirement once every two years is added, and there is no mandatory evaluation requirement. For the first-level protection objects represented by small and medium-sized enterprises, which have the largest number, there are still no mandatory evaluation requirements.
Even for level 3 protection objects, such as government affairs, securities companies, etc., is it not necessary to have strict and efficient password protection before the introduction of the password law, such as the security of stock accounts? Therefore, the changes in demand of such customers due to cryptography are also limited.
The issuer is mainly engaged in commercial encryption, and mainly uses level 2 encryption technology. The quantity and quality of the target customer groups have not changed much, so the encryption method itself has a very limited role in promoting revenue growth.
To sum up, the prospectus mentioned the benefits brought by cryptography many times. It is more likely to tell a story, which itself cannot endorse the substantial growth of the issuer's revenue.
(2) products in progress , inventory products and goods shipped are all decreasing year by year, which is obviously contradictory to the substantial growth in revenue year by year.
According to common sense, as the issuer's revenue increases significantly, inventory should generally increase in the same direction. Moreover, the growth of the two must comply with a certain proportional relationship, and the same is true for the work-in-progress, inventory goods and shipped goods in the inventory.
can be simply understood as, the more orders you sign with customers, the more goods you need to prepare and the more you need to wait for delivery.
However, the actual situation of the above three issuers is generally declining year by year (excluding the growth in individual years), which is obviously abnormal. Please see the table below for details.
(Note: The growth of data in individual years in the table does not change the overall downward trend)
In this regard, on the one hand, the prospectus explains that: the issuer implements the production policy of "determined production based on sales and appropriate inventory", resulting in inventory of goods year by year. Reduced; but it is also mentioned in the prospectus that because the issuer's revenue scale is relatively small, it must maintain a high level of safety stock. This is one of the contradictions.
On the other hand, the prospectus also believes that the issuer has strengthened inventory management , clarified inventory product stocking policies, standardized the approval process, canceled stocking for unclear customer needs, and only arranged production orders when there are clear supply needs in the business. , leading to a decrease in inventory; however, the prospectus also mentioned that the issuer’s main customers come from governments, financial institutions, large state-owned enterprises and other units with high security and confidentiality requirements. Some customers need to borrow products before becoming familiar with the products, resulting in inventory The proportion of goods has increased, which is inconsistent with the principle of not stocking up without clear demand. This is the second contradiction.
In fact, not only the inventory of goods that has been declining year by year reflects the possibility of an inflated increase in income. Even unconventional operations such as borrowing products, shipping first and then signing the order, may become one of the ways to inflate income . For example, the contract for borrowing products is treated as a sales contract, but the order is shipped first but the order is not signed. In this case, sales revenue will still be recognized based on shipment.
In situations such as borrowing products and shipping first, it should generally be easier for returns and exchanges to occur. However, the prospectus does not disclose that the issuer has a record of returns and exchanges, so the issuer needs to further disclose these two situations in depth.
Based on the above analysis, the issuer's inventory of goods has dropped significantly, which is obviously different from the surge in revenue. There may be an inflated increase in revenue.
(3) The timing of the substantial growth in revenue coincides with the first major outbreak of the new coronavirus epidemic in China, which is very unreasonable. The prospectus of
shows that from January to March 2022, the issuer’s revenue only achieved a year-on-year growth of 6.54%, and various items Profit indicators have turned negative across the board, with non-net profit deducting a year-on-year drop of 24.23%, a clear setback in performance. Please see the table below for details.
The prospectus attributed the decline in performance mainly to the new crown epidemic in Shanghai, Xi'an and Jilin.
In the first quarter of this year, Shanghai only started to be "closed" on March 28, which only lasted 4 days; Xi'an was "closed" for 24 days, and Jilin was closed for most of March.
If the COVID-19 epidemic has such a big impact on the issuer's performance, then in early 2020, the domestic COVID-19 epidemic will break out for the first time. In terms of the scale of the epidemic, the degree of harm, the scope of the impact, and the duration of the lockdown, it will greatly exceed the epidemic in the first quarter of this year. . For example, at that time, all cities across the country were locked down for at least three weeks, with the longest lockdown in Wuhan lasting 76 days. It stands to reason that the impact on the issuer's performance should be greater. However, the issuer achieved a 50% increase in revenue and a 160% increase in net profit.
Therefore, according to the logic of the prospectus, the substantial revenue growth in 2020 is obviously inconsistent with the serious impact of the epidemic on the business. This is another inconsistency in the prospectus and increases the possibility of inflated revenue.
(4) The largest domestic market decline
The prospectus shows that the issuer’s largest market share comes from the North China and East China markets, accounting for about 70% in total. However, the North China market, the largest among them, actually experienced a sales drop of more than 20 million yuan in 2021, a drop of more than 10%. With the support of favorable policies and the general growth of the industry, the issuer's defeat in the largest market is particularly abnormal, and it is also obviously contrary to the good industry development and the issuer's industry leading position described in the prospectus.
Although the issuer relied on the magical 100% sales growth in the East China market and ultimately maintained continuous growth in total revenue, the prospectus was silent on the causes and consequences of the miracle in the East China market, which makes it impossible to recognize its authenticity.
(5) The growth of sales expenses is significantly lower than the revenue growth.
The issuer's three main types of commercial password products can be reused by customers for a long time after purchase, without repeated purchases. Therefore, issuers must continue to develop new customers or new projects in order to maintain continuous revenue growth. Mainly by continuously investing sales personnel to contact and visit customers and obtain new orders.
In this case, the issuer's sales expenses and sales numbers will be closely related to revenue, just like the relationship between electricity consumption and output of manufacturing companies.
Although the prospectus does not disclose the changes in the number of sales every year, abnormalities can still be found even from the sales expenses, especially the compensation of sales personnel.
For example, sales expenses increased by only 8.21% in 2020, and sales staff compensation increased by only 8.64%. The prospectus explained that it was affected by the epidemic, which seems reasonable. However, revenue increased by more than 50% during the same period. Is it not affected by the epidemic? In fact, many corporate businesses have declined due to the impact of the epidemic in 2020, which further highlights the abnormal growth of issuer revenue.
Based on the above analysis, the issuer’s revenue has increased significantly, but there are still many doubts that require further clarification by the issuer.
2. The growth rate of operating costs is far lower than the price increase of chips, copper and aluminum and other raw materials and the growth rate of sales volume, which is obviously unreasonable.
In addition to the suspected inflated increase in revenue, the changes in the issuer's operating costs are also consistent with a number of reference data If it does not match, there may be a false reduction. The prospectus of
shows that during the reporting period, the annual operating cost growth rate did not exceed 40%. Please see the table below for details.
Among the issuer’s operating costs, direct materials account for the highest proportion, about 75%, mainly including chips, motherboards, power supplies, resistors and capacitors, chassis, PCB boards, etc. Among them, the price changes of chips and copper and aluminum materials have the greatest impact on the cost of direct materials.
However, whether it is chips or copper and aluminum materials, the price increase during the same period is much greater than the growth rate of the issuer's operating costs, reflecting that operating costs may be inflated. The specific analysis is as follows:
(1) Chip prices
Starting from the second half of 2020 So far, it has been a period of sharp price increases with a serious imbalance between chip supply and demand. In the second half of that year alone, chip prices rose by as much as 40%.
In 2021, the ex-factory price of chips will continue to rise by 50%, and due to the stockpiling of some chip dealers, the actual purchase price of terminal manufacturers like the issuer has even increased several times. For example, the CCTV news report reprinted by Sohu : The price of the STL9369 chip used in the automotive industry has skyrocketed from 20 yuan to 2,800 yuan, a full 140 times.
However, the issuer's operating costs only increased by 31.48% in 2021, which is significantly lower than the increase in chip prices. Moreover, the issuer did not significantly increase the inventory of low-price raw materials from 2019 to 2020, so it is unreasonable that the operating costs are obviously too low.
(2) Copper and aluminum material prices
Copper and aluminum material prices have a great impact on motherboards, PCB boards and other components. In the first half of the year before and after the beginning of 2021, the prices of copper and aluminum materials increased unilaterally and doubled, and have remained high to this day. This will inevitably lead to a sharp increase in the price of computer components that use more copper and aluminum. Therefore, it does not match the increase of only more than 30% in the issuer's operating costs, indicating that the operating costs are too low and unreasonable. Please see the following two pictures for details.
LME copper price trend
LME aluminum price trend
(3) Sales quantity increase
During the reporting period, the sales quantity of the issuer's products increased by approximately 100%-120%. Please see the table below for details.
Even if the prices of main raw materials such as chips remain unchanged, based on the huge increase in sales volume alone, the issuer's operating costs should at least double every year, and it cannot be more than 30%.What's more, the prices of the above raw materials have also increased by one to several times, and the annual increase in operating costs has to be at least doubled.
Of course, the prospectus mentioned that the issuer has launched a large number of cheap SJK19140 cards for the medical insurance industry starting from 2020, with as many as 32,404 cards that year and 42,491 cards the following year. This may become a "moisture factor" in the growth of sales volume.
In order to increase comparability, the number of the above-mentioned cheap cards has been removed from the password cards and compared again. Please see the table below for details.
Even if the number of cheap cards is excluded, the overall growth rate of sales volume is still much greater than the growth rate of operating costs. Combined with the factor of price increase, comparison once again concluded that the growth of operating costs is obviously low..
Therefore, based on the above analysis, the issuer may have inflated operating costs .
3. Accounts receivable soared sharply, and the growth continuously exceeded revenue
The prospectus shows that during the reporting period, compared with comparable companies in the same industry, the issuer's accounts receivable turnover rate continued to deteriorate, from significantly exceeding It became lower than the industry average, indicating anomalies in accounts receivable. Please see the table below for details.
At the same time, the issuer's accounts receivable rose sharply, significantly exceeding revenue growth. And the most dramatic thing is that not only accounts receivable accounted for revenue, soaring sharply from 35% to 70%; 's annual new revenue is not only converted into accounts receivable, but also needs to be reversed. Please see the table below for details of . The prospectus of
explains that the company is in a stage of rapid development and its revenue is small, resulting in a large increase in the balance of receivables. But this does not explain why the growth in accounts receivable continues to exceed revenue.
If we consider the possibility of the issuer's inflated income mentioned above, then it would make complete sense if continued to list the inflated income as accounts receivable. Moreover, since the issuer's customer groups have the characteristics of large numbers and small sales (for example, annual sales of 5 million yuan can enter the top five), it is also more difficult to detect in audit practice.
Although the accounts receivable bad debt provisions disclosed in the prospectus only increase by about 4 million yuan every year, and the proportion of accounts receivable aged within one year is as high as 91%, it does not seem to be a big problem. However, a paragraph in the prospectus still reveals the mystery: "As the company's revenue scale continues to grow in 2020 and 2021, the company's revenue scale from cooperative manufacturers and back-to-back collections continues to increase , making the balance of accounts receivable at the end of 2021 Growth is faster.”
Back-to-back collection means that only when the issuer's customers receive payment from their next party, the customer needs to fulfill its payment responsibility to the issuer. Originally this was an unfavorable term for the issuer.
But now, according to the issuer's logic, as long as the customer's next home does not pay the customer, the customer does not have to pay himself, and it is neither overdue nor does the aging calculation start.
In this way, even if the issuer's accounts receivable surge sharply and continuously exceed revenue growth, there will be no problem with the bad debt and aging data because the customer's next home has not yet paid the customer. As for when the customer's next payment will be made, will it have to wait until the issuer goes public? Only God knows.
And with this powerful tool, if the issuer wants to ship the goods in advance and confirm the revenue in advance, it is very easy. Customers will logically be willing to cooperate, because they only need to pay if they can sell. If they cannot sell, it will be harmful to themselves. There is nothing to lose, only the issuer bears the greatest risk in the transaction. Even if the issuer achieves increased revenue through such a credit policy that obviously violates normal business logic, the quality is very poor and of little significance.
Even if the issuer wants to fabricate some customers and transactions, there will be no operational difficulties.
In order to resolve the above doubts, the issuer needs to further provide key information on back-to-back payments before the truth can be clarified.Among them, customer background, key transaction nodes and other information are crucial to verify the authenticity of "back-to-back payment" transactions.
4. The gross profit margin is abnormally higher than the industry average, and the market share is unparalleled.
The prospectus shows that the issuer’s recent gross profit margin has been significantly higher than the industry average by about 20%, and the abnormally high gross profit margin is attributed to due to product and business differences. Please see the table below for details.
However, the products and businesses of most comparable companies are similar to those of the issuer, and there are more than 1,200 suppliers in the domestic crypto market, which is close to a perfectly competitive market. The issuer is only a price taker in it, which is not enough to support the issuer's abnormally high gross profit. interest rate.
Moreover, through the previous analysis of the possibility of an inflated increase in operating income and an inflated decrease in operating costs, as well as various abnormalities in accounts receivable, we have deepened our doubts about the issuer's abnormally high gross profit margin.
In addition, the domestic epidemic broke out for the first time in 2020. Overlay chips and copper and aluminum materials surged in the second half of the year, but the issuer’s net profit increased by 160% that year. This may be more difficult to understand and convince than revenue growth. The net cash ratio in 2020 dropped from 1.04 to only 0.03, reflecting the low actual quality of the huge nominal profits.. Please see the table below for details.
5. Most subsidiaries are losing money
The prospectus shows that during the reporting period, the issuer had as many as 5 subsidiaries, which were distributed in major cities across the country and were mainly used as sales branches. However, the operating results were unsatisfactory. In the latest period, with a total net assets of 121 million yuan, it only made a net profit of 2.88 million yuan, and more than half of its subsidiaries suffered losses. Even if we exclude Shandong Polypower, which is responsible for research and development work, the results are still not ideal. Please see the table below for details.
In addition to internal control and management, the reason may be that the market cultivation, favorable policies and implementation of commercial passwords have not met the expectations in the prospectus, which means that the industry is not as easy to make money as imagined. This also justifies doubts about the significant growth in the issuer's revenue and profits.
6. There is horizontal competition with related joint-stock companies
The prospectus shows that during the reporting period, Tianjin Sanwei Xin’an Technology Development Co., Ltd. (Tianjin Sanwei) was a joint-stock company of the issuer, with a shareholding ratio of only 10%. Please see the table below for details.
Tianjin Sanwei was established in 2020 with a registered capital of up to 10 million yuan. Its main business is the sales of commercial password product , which is exactly the same as the issuer's main business. Moreover, the products of both parties are highly similar, substitutable and competitive, and their sales scope overlaps, so there is a conflict of interest between the two parties.
Therefore, the above is completely consistent with the situation of horizontal competition mentioned by the regulatory authorities in question 15 of the latest 2020 first issue Q&A. Tianjin Sanwei and the issuer have already formed horizontal competition, which may constitute an obstacle to the issuer's listing. . Why did the issuer
insist on investing in a new company that competed with its peers at the critical moment before its listing? The prospectus of
shows that at the beginning of Tianjin Sanwei’s establishment, the issuer became the controlling shareholder with a 51% shareholding. However, at the end of 2020, due to unclear development prospects and unfavorable business development caused by the new crown epidemic, the issuer transferred 41% of Tianjin Sanwei's equity (the unpaid capital contribution part) to other shareholders He Yafang and Gao Bo respectively at a price of 0 yuan. , so far the issuer still retains 10% equity. Tianjin Sanwei can still share the use of the issuer's trade names "Sanwei" and "Sanwei Xin'an", and the agreement between the two parties will be terminated by the end of 2022.
So, there is another possibility: the issuer originally planned to invest in Tianjin Sanwei to operate as a major subsidiary, but its performance was unfavorable due to the new crown epidemic. In order to avoid dragging down the overall performance and affecting the listing, the issuer significantly reduced the shareholding ratio, thus removing Tianjin Sanwei from the scope of the consolidated statements, and at the same time reduced the degree of correlation to reduce the risk of horizontal competition on the listing.
But it is estimated that the issuer is unwilling to completely give up Tianjin Sanwei, so it insists on retaining the last 10% of the shares in order to make a comeback.Moreover, combined with the 0 yuan transfer of equity, there is likely to be a hidden equity holding agreement between the issuer and the increasing shareholders, which is also an obstacle to its listing.
Based on all the above analyses, the issuer's abnormal growth in accounts receivable is the most noteworthy of all possible problems. In particular, whether the encryption of back-to-back payments will cause the issuer to make up for bad debts after listing, and the performance will change, needs to be decrypted even more.
In addition, although the issuer passed the review of the Science and Technology Innovation Board Listing Committee on May 25, during the on-site inquiry, the listing committee focused a lot of time on the core issue of "back-to-back payments", especially " The customer background of "back-to-back payments" and the authenticity of the transaction are completely consistent with the core issues that Valuation House focused on questioning in the previous paragraph.
The issuer will next face a huge test of whether it can pass the registration with the China Securities Regulatory Commission. The key to whether it can pass lies in the China Securities Regulatory Commission’s understanding and acceptance of the authenticity of the issuer’s income and costs, as well as the “back-to-back payment” credit policy. , Valuation House will wait and see!
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