The revenue share of core technology products in Zhonggang Luonai during the reporting period showed a downward trend, and the largest supplier is the affiliated party
On January 18, Zhonggang Luonai Technology Co., Ltd. (hereinafter referred to as Zhonggang Luonai) will pass the Science and Technology Innovation Board on the Shanghai Stock Exchange and submit the registration on January 28. CITIC Construction Investment Securities is its sponsor.
Public information shows that the number of shares issued by Zhonggang Luonai this time does not exceed 225 million shares, accounting for 20% of the company's total share capital after the issuance. The total amount of funds raised is expected to be 600 million yuan, which will be used for the annual output of 90,000 tons of new refractory materials, the annual output of 10,000 tons of special silicon carbide new material project, the annual output of 10,000 tons of metal composite new refractory materials project and the construction project of the new material R&D center.
Industry insiders pointed out that although Sinosteel Lonay's revenue has grown steadily in the past three years, it has relied on the sales of outsourced products, and the revenue share of core technology products has been declining. Not only that, China Steel Lonay's largest supplier is an affiliate, and its fairness is also questioned. In response to the above situation, it was found that the network sent an interview letter to Zhonggang Luonai publicly requesting to resolve the doubts, but as of the time of publication, Zhonggang Luonai did not give a reasonable explanation.
Revenue growth depends on outsourcing products, and the proportion of core technology revenue continues to decline
Public information shows that Zhonggang Luonai's product business types include the production and sales of refractory materials, sales of ton steel settlement mode, engineering and technical services, instruments and equipment and new materials, and are mainly used in multiple fields such as steel, non-ferrous metals, non-ferrous metals, petroleum and coal chemical industry.
From 2018 to 2020 and the first half of 2021, China Steel Lonay's operating income was 1.641 billion yuan, 1.82 billion yuan, 2.018 billion yuan and 1.412 billion yuan, respectively, of which the year-on-year growth rate of from 2018 to 2020 was 15.72%, 10.89% and 10.89%; the net profit attributable to shareholders during the same period was 97 million yuan, 135 million yuan, 197 million yuan and 134 million yuan, respectively, and the year-on-year growth rate from 2018 to 2020 was 861.07%, 39.05% and 46.12%.
Source: Wind (Zhonggang Luonai)
Judging from the data presentation, Zhonggang Luonai's revenue and net profit are growing steadily. However, it is worrying that in recent years, the biggest contribution to the growth of Sinosteel Luonai's revenue is not its core technology products, but outsourced products.
prospectus shows that from 2018 to 2020 and the first half of 2021, the direct sales of Sinosteel Lonai's out-of-buy products were RMB 114 million, RMB 208 million, RMB 342 million and RMB 430 million, accounting for 6.92%, 11.42%, 16.96% and 30.47% of operating income.
The sales revenue of Zhonggang Luonai's out-of-purchase products not only showed a continuous upward trend, but the sales growth accounted for higher and higher proportion of operating income. Among them, from 2019 to the first half of 2021, the sales revenue of China Steel Lonai purchased products increased by 52.8%, 67.79% and 64.3% respectively.
In contrast, the proportion of core technology products revenue of Zhonggang Luonai has shown a downward trend. During the reporting period, the revenue of core technology products was 1.429 billion yuan, 1.498 billion yuan, 1.554 billion yuan and 917 million yuan, respectively, accounting for 88.74%, 83.94%, 78.88% and 65.97% of the main business revenue, respectively.
Photo source: Inquiry letter (Zhonggang Luonai)
Analysts said that the growth of Zhonggang Luonai's operating income mainly comes from the sales of outsourced products, and has a certain dependence on outsourced products. In this regard, China Steel Luonai explained in its prospectus that the company's production capacity is limited and the market demand is strong, so the company's purchase volume is large.
The largest supplier is an affiliated party, and the fairness of related transactions is questionable
According to the prospectus, Pingluo County Binhe Silicon Carbide Products Co., Ltd. (hereinafter referred to as Binhe Silicon Carbide) is one of the important suppliers of China Steel Lonai. From 2018 to 2020, Binhe Silicon Carbide was the largest supplier of China Steel Lonay, and in the first half of 2021, it was its second largest supplier. During the reporting period, China Steel Lonay's purchase amounts from Binhe silicon carbide were RMB 131 million, RMB 136 million, RMB 159 million and RMB 78 million, respectively, accounting for 12.07%, 12.39%, 12.93% and 9.24% of the total procurement amount.
Photo source: Prospectus (Zhonggang Luonai)
It is worth noting that Binhe silicon carbide has an extraordinary relationship with Zhonggang Luonai.The prospectus shows that Binhe Silicon Carbide holds 4.91% of the shares of Zhonggang Luonai, and is also a minority shareholder of Zhonggang Ningxia Naiyan Binhe New Materials Co., Ltd., a subsidiary of Zhonggang Luonai, with a shareholding ratio of 49%. Obviously, Binhe Silicon Carbide is an affiliate of Zhonggang Luonai.
prospectus shows that in terms of raw material procurement, Sinosteel Lona mainly purchases silicon carbide from Binhe Silicon Carbide. From 2018 to 2020 and the first half of 2021, Sinosteel Lona purchases totaling 173 million yuan, 152 million yuan, 181 million yuan and 86 million yuan, and the purchase amount from Binhe Silicon Carbide accounted for 67.82%, 80.78%, 80.92% and 83.05% respectively.
Source: Prospectus (Zhonggang Luonai)
In other words, more than 80% of Chinagang Luonai's procurement of silicon carbide raw materials comes from Binhe silicon carbide. The procurement scale is large, and the two parties are related parties. Logically speaking, in price transactions, the price of raw materials provided by Binhe Silicon Carbide to Zhonggang Luonai should be lower than that of other suppliers.
In fact, this is not the case. From 2018 to 2020, the prices of silicon carbide purchased by China Steel Lona from Binhe Silicon Carbide were 6099.77 yuan/ton, 6068.43 yuan/ton and 5531.38 yuan/ton respectively; the purchase prices from other similar non-related suppliers were 6094.57 yuan/ton, 5883.61 yuan/ton and 5413.86 yuan/ton. The prices of raw materials purchased by China Steel Lona from Binhe Silicon Carbide were higher than the average price purchased from other suppliers, and were only lower than other suppliers in the first half of 2021.
Picture source: Inquiry letter (China Gang Luonai)
Why is the price of silicon carbide raw materials purchased from related parties more expensive than other suppliers? The fairness of the related transactions of China Steel Luonai is very questionable.
It is worth mentioning that in addition to Binhe Silicon Carbide, Zhonggang Lonai also purchases raw materials from about 6 other affiliated companies. From 2018 to 2020 and the first half of 2021, the amount of China Steel Lonai purchased goods and received services from related parties was RMB 148 million, RMB 168 million, RMB 279 million and RMB 200 million, respectively, accounting for 12.29%, 12.50%, 17.98% and 18.22% of operating costs, respectively.
Source: Prospectus (Zhonggang Luonai)
In addition to related procurement, Zhonggang Luonai also has related sales. According to the prospectus, from 2018 to 2020 and the first half of 2021, the sales amount of China Steel Lonay to related parties was RMB 25.9306 million, RMB 61.4418 million, RMB 47.9423 million and RMB 49.2626 million, respectively, accounting for 1.58%, 3.38%, 2.38% and 3.49% of operating income, respectively.
Picture source: Prospectus (Zhonggang Luonai)
Industry insiders said that Zhonggang Luonai has frequent related transactions. If Zhonggang Luonai cannot implement the internal control system related to related transactions, resulting in unfair or unreasonable pricing of these related transactions, there is a risk of endangering the interests of the company and shareholders.
(Discovery Network reporter Luo Xuefeng, intern reporter Teng Huiyan)
