Hidden worries of high growth of mobile communication

In the first three quarters of 2020, China Mobile Communications (603236. SH) achieved an operating revenue of 4.208 billion yuan and a net profit of 98.7 million yuan, up 47.40% and 12.02% respectively compared with the same period of last year. However, the company’s operating net cash flow continued to be negative since 2018, 2019 and the first three quarters of 2020, which deviated greatly from the net profit, and its financial indicators gradually deteriorated. < / P > < p > recently, Yueyuan Telecom plans to expand its production capacity through non-public offering. Compared with the current net asset size of 1.802 billion yuan, the fund-raising volume of 1.103 billion yuan is a dilution of the net asset per share of existing investors. If the company does not continue to use the asset light operation mode in the industry, it may face the risk of overcapacity and increase the operation risk in the future. < / P > < p > Yueyuan communication was listed in July 2019. Compared with 2017 and 2018 before listing, the company’s management expenses and R & D expenses showed a significant rebound after listing. < / P > < p > in 2017 and 2018, the sum of the company’s management expenses and R & D expenses accounted for 9.14% and 8.75% of the current operating revenue, respectively, compared with 11.85% in 2019. Such a sharp change is extremely rare among companies in the same industry. For example, the sum of management expenses and R & D expenses of guanghetong (300638. SZ) accounts for 11.65% – 12.73% of the operating revenue. It can be said that it is very stable, and there is no such situation as before and after the listing of Yueyuan communication. Moreover, the R & D expenses of guanghetong account for a relatively high proportion, and the R & D expenses from 2018 to 2019 account for 20% of the operating revenue 87% and 10. 66% respectively, while the mobile communication is 6. 06% and 8. 76% respectively. < / P > < p > before and after the listing, the salary of senior executives and employees of Yueyuan communication has also changed greatly. According to wind’s calculation, in 2017 and 2018, the per capita salary of Yueyuan communication was 237800 yuan and 239600 yuan, which suddenly increased to 288200 yuan in 2019. In 2017, no one’s salary of senior executives reached 2 million yuan, while in 2019, there were three executives whose salary was more than 2 million yuan. < / P > < p > all these signs seem to indicate that the company has squeezed out more profits and thus gained higher valuation by reducing the expenses such as management expenses and R & D expenses before listing. < / P > < p > in 2019, the purchase amount of the top five suppliers of mobile communication was 1.935 billion yuan, accounting for 50.4% of the annual purchase amount. From 2016 to 2018, the purchase proportion of mobile communication to the top five suppliers was 89.79%, 88.09% and 79.74% respectively, which decreased significantly in 2019 compared with the period of the prospectus disclosure. < / P > < p > according to the prospectus, among the top five suppliers disclosed according to the caliber of raw material suppliers, Shenzhen huafuyang supply chain Co., Ltd. (hereinafter referred to as “huafuyang”) is the largest supplier, accounting for 50.30% – 78.52% of its procurement, of which the procurement amount in 2018 was 1.074 billion yuan, accounting for 50.30%. According to the prospectus, the company’s imported raw materials are mainly purchased through supply chain companies, and the payment is made in cash. The supply chain companies and raw material suppliers pay in advance, which can improve the efficiency of the company’s capital use. Even so, it is not common in the industry to rely on single supply chain enterprises to purchase raw materials on a large scale. In recent years, about 30 A-share companies (including IPO stage) have purchased raw materials through huafuyang. Except for yiyuantong, only Tianyi (300504. SZ) and lingyizhizao (002600. SZ) with the amount of more than 300 million yuan have purchased raw materials from huafuyang, but these two companies only accounted for 31.26% of the total. It is unusual for mobile communication to rely on huafuyang for purchasing. It is estimated that the market scale of cellular communication module in 2022 will be close to 30 billion yuan, and the compound annual growth rate from 2018 to 2022 will be 16.39%, far exceeding this growth rate. < / P > < p > in recent years, the high growth of the company’s revenue scale is unique in the industry. In the first three quarters of 2019 and 2020, the company’s operating revenue was 4.130 billion yuan and 4.208 billion yuan respectively, increased by 52.87% and 47.40% compared with the same period of last year. In the half year of 2020, the company reported that in 2019, it will surpass Sheila wireless to become the world’s largest supplier of cellular Internet of things modules. In 2019, the global shipment of cellular Internet of things modules will increase by 22%, reaching 265 million pieces. The top five Suppliers account for 71% of the market share, with Thales as the third, rihai intelligent (002313. SZ) as the fourth and tailit as the fifth. < / P > < p > Thales and rihai intelligence have a wider business scope, and the data of cellular module is unknown, so this paper will not discuss it. In the first three quarters of this year, the operating revenue of Sheila wireless dropped from US $422 million in the same period of last year to US $328 million. In order to reduce costs, the company will integrate engineering resources in 2019, transfer some functions to low-cost locations, and outsource some business processes in finance, it and human resources. In the first half of 2020, the operating revenue of thalite will be US $167 million, compared with us $191 million in the same period of last year In 2019, in order to save costs, Talit will move its R & D centers in high consumption areas to India, Italy and South Korea. < / P > < p > the rapid growth of mobile communication is at the expense of gross profit rate. The gross profit rate of the company has been hovering at 20% for many years, and even dropped to 18.02% in 2017. In contrast, the gross profit rate of guanghetong is 23.19% – 29.70%, and that of Sheila wireless and tailit is higher than 30%. Yiyuantong has repeatedly mentioned the price competition strategy in its prospectus. In the downstream industries with relatively high competition, the company adopts a low price expansion strategy for 4G and Nb IOT products, aiming at key industries or strategic customers to seize customer resources. A typical case is selling 4G modules to Hong Kong supply chain companies of POS manufacturers such as new continent (000997. SZ) at a low price Foreign markets mainly focus on consumer products with lower prices, and the pricing is slightly lower than that of overseas competitors. In 2016 and 2017, the company also sold LTE products at a low price. The representative customers were new continent and Fujian Liandi Commercial Equipment Co., Ltd., and the price of WCDMA / HSPA products sold to ofo small yellow cars was also low. < / P > < p > it can not be ignored that after the bankruptcy and sale of ofo Xiaohuang car, the new generation of bike sharing mostly adopts the lower cost Bluetooth module instead of the cellular communication module; the penetration rate of two-dimensional code mobile payment is increasing, the demand of offline stores for POS machines is gradually slowing down, and the impact of the epidemic in 2020, the offline consumption scenario is limited, so the market’s prediction of the POS machine market is not good Optimistic, the evolution of the downstream market may erode the small market space of cellular module at any time. < / P > < p > in fact, the growth rate of operating revenue of mobile communication has been slowing down, from 189.95% in 2017 to 47.40% in the third quarter of 2020. The net cash flow generated by the company’s operating activities has been negative since 2018, 2019 and the first three quarters of 2020, which is quite different from the net profit. The untimely collection of long-term payments led to a sharp rise in the company’s liabilities. The current liabilities increased from RMB 1.217 billion at the end of 2019 to RMB 2.322 billion at the end of the third quarter of 2020, and the asset liability ratio increased from 41.52% to 56.61%. The notes receivable and accounts receivable at the end of the third quarter of 2020 were RMB 838 million, and the financing of receivables was RMB 249 million, accounting for 25.83% of the total operating revenue, and the proportion was from 2017 to 2019 8%, 9% and 15.97% respectively. In the third quarter of 2020, the company’s operating net cash flow was – 521 million yuan, the days of accounts receivable turnover increased from 32.73 days in the same period of last year to 42.30 days, and the days of inventory turnover increased from 79.66 days to 81.88 days. In addition to the release of administrative expenses, R & D expenses and other expenses mentioned above, in the first three quarters of 2020, the net profit deducted from non return to the parent of mobile communication was 98.7 million yuan, an increase of 12.02% over the same period of last year, far less than the growth rate of operating revenue. < / P > < p > at the end of the third quarter of 2020, the total owner’s equity of the company was RMB 1.802 billion, and most of the initial projects of the company were not available. Recently, the company plans to raise RMB 1.103 billion through non-public offering, which is almost equivalent to rebuilding a listed company, of which RMB 853 million is planned to be invested in the construction project of global intelligent manufacturing center, and RMB 107 million is planned to be invested in R & D The upgrading project of the center, 144 million yuan, is planned to be invested in the industrialization project of the Internet of intelligent vehicles. The equipment investment of the global intelligent manufacturing center construction project and the intelligent Internet of vehicles industrialization project is 765 million yuan and 62.52 million yuan respectively. According to the company’s existing depreciation method, the annual depreciation rate of production equipment is 10% – 20%, which means that the annual depreciation amount of these equipment is 82.75 million yuan to 166 million yuan, compared with 21.8 million yuan of electronic equipment and production equipment at the end of the first half of 2020, such as If the fixed increase is implemented as planned, the company will no longer be light assets. As mentioned in the previous article, peers are working hard to reduce costs and increase efficiency, and they are working towards the direction of asset light. The strategy of moving long distance communication can be said to run counter to each other. According to the feasibility report, by the year of reaching the production capacity, the global intelligent manufacturing center construction project will have an annual production capacity of 10000 wireless chips. It is estimated that the annual operating revenue will reach 4.922 billion yuan and the total profit will reach 152 million yuan. The annual operating revenue of the industrialization project of the Internet of intelligent vehicles will reach 2.559 billion yuan and the total profit will reach 75.82 million yuan. In 2019, the company has sold more than 75 million modules. In the future, it will have to digest the production capacity of 90 million modules. In view of the market space of 265 million modules in 2019, it will not be easy. < / P > < p > Disclaimer: the purpose of this article reprinted by CNFC is to convey more information, and it does not represent the opinions and positions of CNFC. The content of this article is for reference only, and does not constitute an investment proposal. Investors operate on this basis at their own risk. < p > < p > Chinanet is a state key news website under the leadership of the Information Office of the State Council and the management of China foreign language publishing and Distribution Bureau. Through 11 versions in 10 languages, the website publishes information 24 hours a day. It is an important window for China to carry out international communication and information exchange.