Gross profit margin of core products declines, and the sustainability of Xintianxia’s performance growth is worrying

Previously, taking advantage of the rising price of chips, Xintianxia’s performance grew rapidly. However, as the supply and demand of the chip market gradually stabilized, its performance began to decline. Whether the company’s performance can continue to grow in the future is worrying.

Previously, the listing application of Xintianxia Technology Co., Ltd. (hereinafter referred to as “Xitianxia”) on the Growth Enterprise Market has been approved by the listing committee meeting, and it is only a step away from listing. However, looking closely at the information it disclosed, there are still many doubts to be solved.

In recent years, due to the imbalance between supply and demand in the chip industry, chip prices have risen rapidly. As a chip supplier, the performance of Xintianxia has taken off. However, with the change in the relationship between supply and demand in the industry and the decline in product prices, its performance has obviously begun to fall. In the future, the performance of the company will increase Sustainability is worrying.

In addition, it is worth noting that there are financial exchanges between the executives of Xintianxia and the distributors, and the company’s shareholders once had their distributors. Therefore, the authenticity and fairness of the transactions between the company and the distributors are also suspicious.

Sustainability of performance growth is worrying

Xintianxia is an enterprise engaged in the R&D, design and sales of code-type flash memory chips. It provides code-type flash memory chips with a wide capacity range from 1Mbit to 8Gbit. The main products include NOR Flash and SLC NANDFlash, which are used in consumer electronics, network communications, and the Internet of Things. , industry and medical fields.

The data shows that in 2019 and 2020, its operating income was 249 million yuan and 335 million yuan respectively, and its net profit was 3.341 million yuan and 2.5303 million yuan respectively. It is not difficult to see from this that its revenue scale and profitability at that time were average. On the low side. However, at the end of 2020, due to the surge in semiconductor demand and insufficient market supply capacity, the world is in the predicament of chip shortage, and a “chip shortage” has appeared in the market. In this context, as a supplier of flash memory chips, the order volume of Xintianxia, a supplier of flash memory chips, has suddenly increased, prompting its performance to take off rapidly. A rising tide raised all boats, reaching 213 million yuan, a year-on-year increase of 8303.15%.

However, as the relationship between supply and demand in the chip market gradually stabilizes, Xintianxia’s performance began to show signs of decline. In the first three quarters of 2022, it achieved operating income of 709 million yuan and net profit of 138 million yuan, the latter down 16.86% year-on-year.

In fact, judging from the status of the orders in hand, we can roughly see some of the company’s operating conditions. According to the reply to the company’s inquiry letter, as of September 21, 2022, Xintianxia’s orders in hand were approximately 237 million yuan, a year-on-year decrease of approximately 37.72%. The sharp decrease in the amount of orders in hand will undoubtedly have an important impact on the company’s future performance. According to the performance forecast data released by it, in 2022, its net profit attributable to shareholders of the parent company is expected to be between 165 million and 185 million yuan. , a year-on-year decrease of 22.40% to 12.99%.

It is not difficult to see from this that the soaring performance of Xintianxia lacks sustainability. With the gradual balance of supply and demand in the global chip market, its future performance growth rate is worrying. The stability of performance is related to the sustainable development of the company. Given that the performance of Xintianxia has begun to decline, it is inevitable that people will worry about the sustainability of the company’s future development.

In addition to unstable performance, Xintianxia’s rapidly increasing inventory is also worthy of attention. At the end of 2021, Xintianxia’s inventory amounted to 226 million yuan, an increase of 115.24% from 105 million yuan in the previous year. The existence of huge inventory, on the one hand, squeezed out a large amount of working capital of the company; In the following first half of 2022, Xintianxia’s asset impairment loss reached 15.4353 million yuan, a year-on-year increase of 14.2215 million yuan. According to the explanation given by it, it is mainly due to the increase in the reserve scale of raw material wafers, which caused the company to withdraw a large amount of inventory depreciation reserves for raw materials in the current period.

It should also be noted that Xintianxia’s overseas income also faces greater risks. The data shows that from 2019 to 2021, the proportions of its overseas income to its main business income are 56.91%, 41.25%, and 43.43%, respectively, which are not low.

In recent years, the international trade environment has become increasingly complex, international trade frictions and disputes have intensified, and some countries have tried to restrict the development of some high-tech industries in China by means of trade protection. As a key high-tech industry, the integrated circuit industry is greatly affected by international trade frictions. In October 2022, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) announced a statement on new regulations on China’s export controls, targeting the field of advanced chips and chip manufacturing equipment, and revised the direct product rules again, escalating sanctions on China’s semiconductor industry again.

Although Xintianxia stated that the chip products currently designed do not involve the aforementioned technologies, but in view of the increasingly complex international relations, the development of Xintianxia’s overseas business is also full of challenges. Take the first half of 2022 as an example, the proportion of Xintianxia’s overseas revenue has dropped sharply to 24.77%, a drop of 18.66 percentage points from 2021. It is not difficult to see from this that its export risks have gradually been exposed.

Gross profit margin of core products may enter a downward channel

More than 90% of Xintianxia’s revenue comes from code-type flash memory chips, and the most core products are NOR and SLC NAND. Taking 2021 as an example, the revenue of the aforementioned two products accounted for 35.37% and 52.53% of operating revenue respectively.

In 2021, under the background of the unbalanced relationship between supply and demand in the chip industry, the prices of its products will increase significantly. Among them, the sales price of NOR products will rise from 0.58 yuan/piece in the previous year to 0.71 yuan/piece, with a price increase of 23.82%; while SLC NAND The sales unit price of the product rose from 4.42 yuan per piece in the previous year to 8.75 yuan per piece, a price increase of 97.99%, almost doubled. With the rise in product prices, Xintianxia’s gross profit rate has also ushered in a bright moment. In 2021, its gross profit rate will reach 45.30%, an increase of 19.84 percentage points from 25.46% in the previous year.

However, when the supply and demand relationship in the downstream market tends to be stable, the gross profit rate of Xintianxia will also begin to drop sharply. In the first half of 2022, it is difficult to maintain the previous high price of SLC NAND products, which had a steep price increase. The sales unit price of this product has dropped by 7.44% compared with the previous period. Maintain a high level, an increase of 23.00% over the previous period. Squeezed by dual factors, the gross profit margin of this product dropped from 50.76% in the previous year to 34.56%.

In addition, although the unit selling price of another core product NOR in the first half of 2022 increased by 57.37%, the unit cost increased by 78.83%. Obviously, the increase in unit selling price was lower than the increase in unit cost, which led to its The gross profit margin of the core product NOR fell by 8.00% in the current period. Driven by the decline in the gross profit margin of the two core products, in the first half of 2022, its gross profit margin dropped sharply to 33.12%, a drop of 12.18 percentage points from the previous year.

More importantly, there is a risk that the price of Xintianxia’s products will continue to decline. According to TrendForce research, in the second half of 2022, NAND Flash will be in a state of oversupply. From the second half of the year, buyers will focus on destocking and greatly reduce purchases, and sellers will set breaking prices to consolidate orders. However, various NAND Flash end products Still sluggish, the inventory of the original factory has risen rapidly, leading to an expansion of the decline in NAND Flash prices to 15%-20% in the fourth quarter.

In the first half of 2022, the sales unit price of SLC NAND products of Xintianxia will drop by less than 10%, but the gross profit margin of this product will drop sharply by 16.19 percentage points. If the price of NAND products continues to fall, the relationship between supply and demand cannot be reversed in the short term. Gross profit margins may continue to decline, which will undoubtedly have an adverse impact on its profitability.

Suspicious relationship with distributors

According to the prospectus, Xintianxia is mainly based on the distribution model. From 2019 to the first half of 2022 (hereinafter referred to as the “reporting period”), its distribution income accounted for 82.46%, 74.90%, and 80.23% of the main business income. , 91.72%.

Interestingly, there are still capital exchanges between Xintianxia’s shareholders and its distributors. According to the data, Su Zhiqiang, the deputy general manager and chief technology officer of Xintianxia, has a capital transaction with Lou Jin, the actual controller of Jiaxi, with an amount of 3 million yuan. Yijia Department is the distribution customer of Xintianxia, and it is also its top five customers. During the reporting period, Xintianxia’s sales revenue from Yijia Department was 19.3506 million yuan, 37.4002 million yuan, 57.9856 million yuan, and 25.0787 million yuan.

According to the prospectus, Su Zhiqiang previously worked in Zhaoyi Innovation. He joined Xintianxia in June 2020 and became its core technical staff, and indirectly held 3% of Xintianxia’s equity through the employee stock ownership platform. It is worth mentioning that Wen Jingkang, Wang Xiaoguang, and Tang Weiqiang, other core technicians who are veteran employees, only hold 0.43%, 0.17%, and 0.76% of the shares of Xintianxia respectively. Su Zhiqiang has been working for Xintianxia for a short time, but he holds much higher equity than other core technicians through the employee stock ownership platform, which shows that his influence in the company is higher than that of other core technicians.

Regarding the capital exchange between Su Zhiqiang and the dealer, Xintianxia stated that it was a personal loan from Su Zhiqiang to Lou Jin, the actual controller of the Yijia Group. Therefore, he borrowed money from Lou Jin, and he returned the above loan in full to Lou Jin in September 2021. It is worth mentioning that in the year when Su Zhiqiang joined Xintianxia, Yijia Department jumped from the third largest customer in the previous year to the largest customer. Judging from the above situation, Su Zhiqiang has a very close relationship with the Yijia family, and this is unavoidably worrying whether the fairness of the transaction between Xintianxia and the Yijia family will be affected by this.

Not only that, but according to the data, in March 2015, Shen Yue, one of the actual controllers of Xintianxia, transferred her 10% stake in Xintianxia to Wang Yucheng. Wang Yu became the actual controller of Shenzhen Haoshanghao Information Technology Co., Ltd. (hereinafter referred to as “Hoshanghao”), a well-known electronic component distributor in China. Xintianxia said that the company was established for a short time and was small in scale at that time. The shareholding change is to consolidate the cooperation between the two parties and enhance the strength of the company.

Interestingly, Wang Yucheng cashed out shortly after becoming a shareholder. In April 2017, he transferred his 10% stake in Xintianxia Co., Ltd. to Long Dong, one of the issuer’s actual controllers, at a price of 5 yuan per registered capital. Celebration, the transfer price was 4 million yuan, while the transaction price of the transferred Xintianxia equity at that time was 3.5 yuan per registered capital, and the total transaction price was 2.8 million yuan, which means that it obtained millions of yuan by reselling the Xintianxia equity income.

It should be noted that after Wang Yucheng withdrew from Xintianxia, Xintianxia and its subsidiaries still maintained transactions. From 2019 to 2021, the sales revenue of its wholly-owned subsidiaries of Haoshanghao controlled by Wang Yucheng, Beigaozhi Technology (Shenzhen) Co., Ltd., Shenzhen Beigaozhi Electronics Co., Ltd., and Hong Kong Beigaozhi Technology Co., Ltd. were 14.2883 million yuan, 14.4822 million yuan and 21.9487 million yuan.

To sum up, Xintianxia mainly adopts the distribution model and maintains a close relationship with dealers. Whether it will use its relationship with dealers to conduct unreal transactions and push up its own income scale requires investors to be highly vigilant .