Jindi Yang Group IPO: Difficulties in Collecting Large Customer Payments

Investors Network by Hou Shuqing

Editor: Wu Yue

New energy vehicles are undoubtedly one of the hottest tracks in the capital market in recent years, with many star companies emerging. Numerous enterprises along the industry chain have also joined the IPO wave. Wuxi Jinyang New Materials Co., Ltd. (hereinafter referred to as “Jinyang Co.”) is one of them.

Jinyang Co. mainly focuses on the research, production, and sales of precise battery structural components and materials, including battery packaging shells, safety valves, and nickel-based conductor materials. Currently, it has established stable partnerships with well-known companies such as LG Chem and BYD (002594).

In 2019, Jinyang Co.'s revenue and net profit experienced some decline. The company attributed the performance fluctuation to the impact of the waning new energy vehicle subsidy policies, which affected the business and receivables from key customer BAK Battery, leading to bad debts. However, the proportion of bad debts in revenue in the prospectus does not seem to support this explanation.

In September 2020, Jinyang Co. conducted a capital increase at a price of 16.49 yuan per share, after which its valuation was 1.02 billion yuan. If the current listing is successful, the company’s valuation will reach 2.633 billion yuan. However, compared to September 2020, Jinyang Co.'s performance has not shown a breakthrough.

“Policy-sensitive” Industry

From 2018 to September 2021 (hereinafter “the reporting period”), Jinyang Co. achieved revenues of 608 million yuan, 549 million yuan, 754 million yuan, and 853 million yuan, respectively, with net profits attributable to shareholders of 40.62 million yuan, -26.72 million yuan, 68.43 million yuan, and 112 million yuan. The company’s performance fluctuated significantly during this period.

Especially in 2019, Jinyang Co.'s revenue declined compared to 2018, and net profit turned from profit to loss.

In terms of business, the precise battery structural components account for about 60% of the company’s revenue in each period, remaining its main income source. Revenue from this segment slightly decreased in 2019, from 387 million yuan in 2018 to 213 million yuan, while sales of nickel-based conductor materials continued to grow during the same period.

Specifically analyzing the battery structural components business, the sales revenue of packaging shells in 2019 dropped significantly from 344 million yuan in 2018 to 271 million yuan. This indicates that poor performance of packaging shells was the main reason for the decline in Jinyang Co.'s 2019 performance.

In the prospectus, Jinyang Co. explained the decline in 2019 as influenced by factors such as the retreat of new energy vehicle subsidies, including adverse effects on business operations and cash flow of lithium battery industry clients like BAK Battery.

Although these policy changes are short-term factors, after 2019, Jinyang Co.'s revenue and net profit exceeded 2018 levels. However, as an emerging industry, policy fluctuations may always be a “Damocles sword” hanging over Jinyang Co.

Hidden Risks in Bad Debts

In 2018, BAK Battery was Jinyang Co.'s largest customer, contributing 90.94 million yuan in sales, accounting for 14.96% of that year’s revenue.

However, business with BAK Battery also brought a large amount of accounts receivable. By the end of 2018, receivables from Zhengzhou BAK Battery Co., Ltd. (“Zhengzhou BAK”) and Shenzhen BAK Power Battery Co., Ltd. (“Shenzhen BAK”) totaled 57.55 million yuan.

This receivable posed a hidden risk for Jinyang Co.'s 2019 performance. Due to cash flow issues downstream, BAK Battery began delaying payments to upstream suppliers.

In 2019, Jinyang Co. conducted an impairment test on receivables and made a provision for bad debts of 50.16 million yuan, with Zhengzhou BAK and Shenzhen BAK collectively provisioning 33.57 million yuan.

To reduce risk, Jinyang Co. lowered sales to BAK Battery to 24.34 million yuan in 2019, slightly below its fifth-largest customer, Jinshan Industrial, which had sales of 26.15 million yuan.

However, as the industry recovered in 2020, BAK Battery again became the company’s third-largest customer, with sales of 46.86 million yuan that year.

Although the industry improved, the accounts receivable balance from BAK Battery only decreased slightly from 38.20 million yuan in 2019 to 36.62 million yuan in 2020. By September 30, 2021, this figure had increased to 55.59 million yuan, surpassing the 2018 year-end level of 40.49 million yuan.

Despite this, cooperation with BAK Battery did not diminish. From 2019 to September 2021, transactions with BAK Battery increased from 24.34 million yuan to 56.86 million yuan.

Reviewing the history of cooperation, Investors Network found that in 2018, bad debt provisions accounted for 7.67% of receivables, rising to over 20% in 2019, and never decreasing afterward.

If the increasing bad debt scale is due to industry policy impacts, why did it not decrease after 2019 but instead grow? Under the dual challenges of difficult collections and rising bad debts from BAK Battery, why did Jinyang Co. allow BAK Battery to continue expanding transactions? These are questions Jinyang Co. needs to answer.

Jinyang Co. is not the only “victim.” BAK Battery was sued by Hubei Hualu Bione Technology Co., Ltd. (a subsidiary of Rongbai Technology, 688005) for failing to pay nearly 200 million yuan in overdue payments and penalties.

Significant Debt Pressure

During the reporting period, Jinyang Co.'s asset-liability ratio was 56.73%, 56.66%, 50.11%, and 53.86%. In comparison, KedaLi (002850), Zhongrui Electronics, and Zhenyu Technology had average ratios of 37.92%, 37.02%, 43.60%, and 45.22%, respectively. Throughout the period, Jinyang Co.'s asset-liability ratio remained higher than the average of comparable listed companies.

Jinyang Co. stated that to meet operational needs, the company moderately increased bank financing, with short-term borrowings rising by 42.01 million yuan from the previous period.

Regarding repayment capacity, the company explained that it is still in a period of business expansion, requiring ongoing purchases of fixed assets and construction in progress, which necessitate bank loans, leading to higher asset-liability ratios and lower current and quick ratios.

As of the end of the reporting period, Jinyang Co. held approximately 49.01 million yuan in cash, while its short-term liabilities reached 204 million yuan, facing significant repayment pressure.

In this IPO, Jinyang Co. plans to issue no more than 25% of its shares, raising 658 million yuan to fund R&D and manufacturing of high-safety energy-type power battery materials, new plant construction, and working capital.

In the prospectus, Jinyang Co. admitted that the company previously lacked financing channels. If the fundraising is successful, the company’s capital strength will be significantly enhanced, helping to reduce its asset-liability ratio and improve debt repayment ability. (Produced by Siwei Finance)■