Author: Dongyin
Produced by: Insight IPO
Important components manufacturer of laptop computers—Kunshan Xingxihe Technology Co., Ltd. (referred to as "Xingxihe"), recently submitted an application for listing on the main board to the Shanghai Stock Exchange.
Due to the high growth in laptop shipments under the influence of the epidemic home economy, Xingxihe's revenue and net profit both experienced a rapid growth trend from 2019 to 2020, but the company's revenue growth slowed down significantly in 2021, and net profit declined year-on-year. The company currently occupies more than 20% of the market share of the keyboard film switch industry. Due to the relatively mature development of the global laptop market, a stable supply chain system has been formed, which also means that the company's future performance growth space may be relatively limited.
For this IPO, Xingxiehe plans to issue no more than 66.88 million shares, and plans to raise 730 million yuan, which will be used for computer keyboards and 5G supporting FPC combined board projects and supplement working capital.
Growth slowed down in 2021, and the product structure is too single
Xingxiehe has not been a joint-stock company for a long time, and its purpose is self-evident.
Xingxiehe was established in December 2006 and was changed into a joint-stock company in July 2020. At present, Ding Yixi and Ding Xiuqin directly or indirectly control 85.82% of Xingxihe's voting rights, and are the actual controllers of the company. Ding Yixi holds a total of 73.21% of the company's shares and is the controlling shareholder.
Since its establishment, Xingxiehe has been engaged in the production and manufacturing of laptop components such as laptop keyboard membrane switches. Currently, the company's main products include the research, design, production and sales of laptop keyboard membrane switches, touchpad keys, cable connectors, etc.
According to the prospectus, in 2019, 2020 and 2021, Xingxiehe achieved operating income of RMB 380 million, RMB 543 million and RMB 561 million respectively; and achieved net profit of RMB 63.7739 million, RMB 129 million and RMB 105 million respectively. It can be seen that the company's revenue and net profit in 2020 increased by 42.92% and 102.78% year-on-year respectively, with a large increase. However, the company's performance declined in 2021, with revenue only increasing by 3.17% year-on-year, and net profit declined by 18.61% year-on-year.
Company's main business data
Image source: Xingxihe Prospectus
Regarding the company's performance fluctuations, Xingxihe stated in its prospectus that in 2020, due to the impact of the epidemic, global laptop shipments rose rapidly, the market demand for keyboard membrane switches was relatively strong, and the unit price of products also increased slightly. In 2021, changes in the external environment have caused the profit level of keyboard membrane switches to decline.
On the one hand, although the overall market demand is still strong in 2021, in the second quarter, due to external factors such as chip shortage, the production scheduling of downstream customers of the company showed certain fluctuations, resulting in a decline in the company's shipment speed and intensified phased market competition; on the other hand, due to the rise in international silver prices, crude oil prices, etc. on the cost side, keyboard film switch manufacturers face certain pressure to increase raw materials, further reducing profit margins. In addition, the US dollar exchange rate in 2021 continued to remain at a low level, causing the average unit price to decline and also erode part of the profits.
From the perspective of product revenue structure, in 2019, 2020 and 2021, the proportion of laptop keyboard film switch revenue to the company's main business revenue was 89.73%, 89.46% and 88.15%, respectively, and the gross profit margin level remained at around 35%-43%, which is the company's main source of income. Other products account for a small proportion of revenue. From this, it can also be seen that the company faces a large risk of a single product structure. If the downstream market demand for keyboard membrane switches changes adversely, it will have a great impact on the company's profitability.
Company product revenue structure
Image source: Xingxihe Prospectus
Company product gross profit margin level
Image Source: Xingxihe Prospectus
suppliers are too concentrated, and the price of raw materials fluctuates greatly. In the laptop industry chain, the issuer's main products are keyboard membrane switches, touchpad buttons, cable connectors and other parts products, located in the middle of the industrial chain; the upstream is LED, silver paste, silicone buttons, PET, keycaps, electronic wires and other raw materials suppliers; the downstream is laptop keyboard manufacturers and laptop computer manufacturers.
Image source: Xingxiehe Prospectus
Currently, the company has established long-term and stable business relationships with world-renowned laptop keyboard manufacturers, including Jingyuan Computer, Dafang Electronics, Qunopol Electronics, Optoelectronics, Optoelectronics, Zhishen Technology, etc., but the customer concentration is also relatively high. Data shows that in 2019, 2020 and 2021, the company's sales to the top five customers accounted for 82.20%, 85.78% and 84.07% of the current operating income, respectively.
Xingxiehe also stated in its prospectus that the company's customer concentration is relatively high, and its operating performance is greatly affected by the procurement policies and order execution of specific customers. If the overall development of the downstream laptop industry is not good, or if a specific customer reduces the procurement of the company's component products due to their own operating reasons, it may have a significant impact on the company's operating performance.
In addition, from the perspective of the company's raw materials, the main raw materials of the company's core products, keyboard film switches, include silver paste, PET, LED lamps, etc., which account for a relatively high proportion of cost. Among them, the main raw material of silver paste is metal silver, and the main raw material of PET is petroleum. Therefore, fluctuations in silver prices and oil prices will directly affect the production cost of the company's products.
Since changes in silver prices and oil prices are affected by various factors such as domestic and international economic situation, macroeconomic policy regulation, and supply and demand relationship, there is great uncertainty. Therefore, if the prices of raw materials fluctuate significantly, the company's operating performance and profitability will also face adverse effects.
industry has a high concentration, and the growth space may be limited
As an upstream supplier of the laptop industry, the company's operating efficiency has a strong correlation with the entire laptop industry.
is affected by the relatively stable competitive landscape of downstream laptop computer manufacturers. The field of keyboard film switches also shows a market pattern of competition among a few companies. The market entities participating in the competition are mainly existing film switch manufacturers, with high industry concentration and relatively orderly competition.
From the perspective of the industry competition pattern, Xingxiehe's main competitors currently include Taiwanese-funded enterprises such as Kejia Co., Ltd. (5215.TW) , Chun'an Electronics (6283.TW) , and large-scale production enterprises represented by Chuanyi Technology (002866.SZ) , and Xingxiehe, which occupy most of the market share. Some other domestic small and medium-sized enterprises have a small scale and are relatively fierce in price competition.
Image source: Xingxiehe prospectus
Data shows that in the field of film switches, Kejia Co., Ltd.'s global market share in sales in 2019 and 2020 was 28.01% and 41.44%, respectively, while Xingxiehe's global market share in 2019, 2020 and 2021 was 22.08%, 24.12% and 21.11%, respectively, slightly lower than the former. As a necessity for daily life and work, the demand for laptops is "rigid" and the consumption demand is very stable. Due to the impact of the epidemic, notebook shipments increased significantly in 2020 and 2021, but have shown a downward trend since 2022. Some analysts believe that the laptop market may be oversupply this year.
In addition, it should be pointed out that since the development of the laptop market has entered a relatively mature stage and the industry concentration is high, its supply chain system has also been relatively complete, which means that Xingxiehe may have limited future growth space, and the sustainability of performance growth is questionable.
