IPO Radar | Ninety percent of revenue has not been recovered, and Xinke Mobile, which has doubts about its ability to continue operations, plans to raise 4 billion yuan to compete with Huawei and ZTE?

IPO Radar | Ninety percent of revenue has not been recovered, and Xinke Mobile, which has doubts about its ability to continue operations, plans to raise 4 billion yuan to compete with Huawei and ZTE?

The renewal and iteration of each generation of mobile communication systems has stimulated the rise of a large number of industrial chains and brought significant economic benefits.

In the 2G era, Ericsson and Nokia became the world’s leading communication equipment vendors and mobile phone manufacturers; in the 3G era, more countries and organizations participated in the formulation of mobile communication technical standards; in the 4G era, the technical standards tended to be unified.

In the past, the inconsistency of mobile communication technology standards has brought great inconvenience to major software and hardware manufacturers and operators. In 2018, the 3GPP 5G NR standard SA solution was released at the 80th meeting of 3GPP TSG RAN, marking the official release of the first truly complete international 5G standard.

According to the “2021 China Mobile Economic Development Report” issued by the Global Association for Mobile Communications Systems, the number of 5G connections in China will account for 87% of the number of global 5G connections in 2020. According to statistics from the Ministry of Industry and Information Technology, as of the first half of 2021, my country has a total of 961,000 5G base stations, ranking first in the world in terms of the number of base stations.

Recently, Xinke Mobile, a mobile communications company under the Xinke Group, launched the listing process on the Science and Technology Innovation Board, which has been accepted by the Shanghai Stock Exchange and Shenwan Hongyuan is the sponsor.

For this listing, Xinke Mobile plans to raise 4 billion yuan, of which 2.28 billion yuan will be used for 5G wireless system product upgrades and technology evolution research and development projects; 420 million yuan will be used for 5G industry private network and intelligent application research and development projects; 300 million yuan will be used In 5G fusion antenna and new room equipment research and development project; 1 billion yuan to supplement working capital.

Xinke Mobile chose the fourth set of listing criteria, that is, the estimated market value is not less than RMB 3 billion, and the operating income in the most recent year is not less than RMB 300 million. However, before the listing, Xinke Mobile still had many problems, such as the decline in main business income, long-term losses and excess debt ratio. How should Shinco Mobile, which has doubts about its business sustainability, “compete” with Huawei and ZTE?

Merged into Datang Mobile for free before listing, with high non-recurring losses

The predecessor department of Xinke Mobile was jointly established by the Academy of Posts and the Wuhan Optical Communication Technology Company, and it used to be named Hongxin Communication. After the reorganization of the Institute of Electrical Engineering and the Academy of Posts and Telecommunications to form China Xinke, through the overall arrangement of the business reorganization of Zhongke Xinke, Hongxin Communications was changed to a 100%-owned subsidiary of China Xinke (SS).

As of the issuance, China Xinke (SS) holds 51.27% of Xinke Mobile and is the controlling shareholder of Xinke Mobile. The actual controller is the State-owned Assets Supervision and Administration Commission of the State Council. As a mobile communications company under China Xinke, the prospectus disclosed that Xinke Mobile provides 4/5G mobile communication network solutions and comprehensive services for users in more than 30 provinces and nearly 100 cities across the country.

In October 2020, China Xinke integrated its mobile communications business. Xinke Mobile Co., Ltd. acquired 100% of Datang Mobile’s equity through the free transfer of state-owned equity. Actually controlled by SASAC. At the same time, the Electric Power Research Institute and Datang Holdings transferred 8118 communications-related patents (including unlicensed) and non-patent technologies they held to Datang Mobile for free.

Before the reorganization, Xinke Mobile was mainly engaged in the research and development, production, and sales of mobile communication antenna feeder equipment and room sub-equipment, as well as the provision of mobile communication technology services; Datang Mobile was mainly engaged in the research and development, production, and production of mobile communication system equipment and industry private network related products. Sales and some technical services.

After the aforementioned reorganization and free transfer, Xinke Mobile and its subsidiaries have become the sole bearer of China Xinke’s mobile communications business, focusing on the R&D, production and sales of mobile communications technology and products.

Specifically, the year before the reorganization (2019), Datang Mobile’s revenue was 1.161 billion yuan, accounting for 35.58% of Xinke’s revenue of 3.263 billion yuan. Datang Mobile’s total profit for the year was 1.646 billion yuan. Mobile’s net profit for the year was -39,582,600 yuan.

According to the relevant accounting standards, the net profit and loss of the subsidiaries arising from the business combination under the same control from the beginning of the year to the date of the merger is combined. Due to the large losses of Datang Mobile, from 2018 to 2020, the company’s non-recurring profit and loss resulted from the merger of subsidiaries under the same control. The net profit and loss amount of the current period from the beginning to the merger date reached 626 million yuan,- 1.646 billion yuan, 1.320 billion yuan, at a relatively high level.

From 2018 to the first half of 2021, the net profit attributable to the parent company of Xinke Mobile was -605 million, 1.637 billion, 1.752 billion and -620 million, respectively. After deducting non-recurring gains and losses, the net profit attributable to the parent was- 13.0585 million yuan, -42.6911 million yuan, -4.497 billion yuan and -671 million yuan.

Main business income declined, 90% of accounts receivable

During the reporting period (2018 to the first half of 2021), Xinke Mobile’s revenue came from the two major businesses of mobile communication network equipment and mobile communication technology services. In 2019, Xinke’s mobile network equipment and technical service revenues fell by 20.53% and 6.33%, respectively. In 2020, the network equipment business rebounded by 10.12%, but the technical service business continued to be sluggish, and revenue fell again by 5.88%.

Specifically, Xinke Mobile’s network equipment mainly includes the network equipment business of the mobile communication access network, and the core is the deployment of the core key technologies of mobile communication and the research, development, production and service provision of base station related equipment.

Covers mobile communication system equipment such as the baseband processing unit BBU, remote radio unit RRU, and antenna-based antenna feed equipment (antennas, feeders, and other passive components) used for low-cost coverage in indoor scenarios. In addition, it also includes customized industry private network equipment for enterprise users in all walks of life.

In the 5G era, large-scale antenna technology solutions are introduced in order to meet the requirements for large-scale broadband network performance. Due to the large-scale increase in the number of antennas, the industry has realized the integration of RRU and antenna feeders to form AAU products and constitute characteristic hardware equipment in the 5G era One, it forms a 5G base station system with BBU.

But on the whole, according to the prospectus, the 5G network still uses the traditional construction method of “BBU+RRU+antenna” similar to 4G in the initial stage of construction. Compared with the BBU and RRU products in the 4G period, Shinco Mobile’s 5G series products still maintain A similar form of 4G.

From the perspective of Xinke’s mobile equipment business alone, in 2018, Xinke Mobile has not deployed 5G system equipment, and the source of system equipment revenue is a single 4G system equipment. The revenue for the year was 774 million yuan. In 2019, Xinke Mobile’s 4G system equipment revenue was substantial. It fell 67.96% to 248 million yuan, while 5G system equipment was in its infancy, with revenue of 13.229700 million yuan.

Entering 2020, with the layout of 5G system equipment, Xinke Mobile will shift its focus and bet its revenue on 5G system equipment that year, with revenue of 437 million yuan and 4G system equipment revenue of 191 million yuan. In general, Shinco’s mobile device business revenue fell by 20.53% in 2019. Thanks to the increase in revenue from 5G system equipment, Shinco’s mobile network equipment revenue rebounded in 2020. However, the company’s revenue has entered a downward channel except for 5G system equipment.

Compared with 4G and previous communication technologies, the biggest feature of 5G mobile communication is that the downstream application scenarios focus on the integration with the Internet of Things technology and the real economy. According to the International Telecommunication Union (ITU), the three major usage scenarios of 5G include smart homes/buildings, smart cities, 3D video, ultra-high-definition screens, autonomous vehicles, and industrial automation. However, the current market is still imperfect, and the space for 5G to play is limited.

In addition, Xinke’s mobile technology service revenue has also continued to be sluggish. The company’s technical services are mainly based on integrated mobile communications services, which accounted for more than 80% of technical service revenue in the past three years, supplemented by operation and maintenance service revenue.

The integrated services of Xinke Mobile mainly include wireless network planning, construction and optimization. Revenue from 2018 will be reduced from 2.610 billion yuan to 2.087 billion yuan in 2020. Even though the revenue of network operation and maintenance services has increased, but the proportion is affected, Xinke Mobile Technology The overall service revenue dropped from 2.779 billion yuan to 2.45 billion yuan in 2020. In the first half of this year, Xinke’s mobile technology service revenue was 766 million yuan.

Therefore, the revenue growth rate of Xinke Mobile in the past three years has been weak and even declined, from 5.142 billion yuan in 2018 to 4.48 billion yuan in 2019. Although revenue in 2020 has rebounded slightly to 4.518 billion yuan, it is still difficult to reach 2018. . As of the first half of this year, Xinke Mobile’s operating income was 1.453 billion yuan.

But the bigger risk is that 90% of Xinke Mobile’s revenue has not been recovered. The prospectus shows that from 2018 to the first half of 2021, the accounts receivable of Xinke Mobile reached 4.222 billion yuan, 3.69 billion yuan, 3.723 billion yuan and 3.345 billion yuan, respectively, accounting for 93.86 billion yuan in current operating income. %, 96.73%, 96.41% and 135.48%.

In addition, the amount of bad debt provisions (including contract assets) accrued in each period reached 612 million yuan, 650 million yuan, 642 million yuan and 602 million yuan respectively. Xinke Mobile gave four explanations for this. First, the fourth quarter revenue accounted for a relatively high proportion, and the payment cycle was relatively long; second, the company’s mobile communications integrated services accounted for a relatively high proportion, and the integrated service settlement cycle was longer; The main downstream customers of Xinke Mobile are telecommunications operators and large government and enterprise customers. The payment process requires multi-level approval, resulting in a long payment collection cycle.

During the reporting period, Xinke Mobile’s bad debt reserves exceeded 600 million yuan in each year. In addition, Xinke Mobile’s accounts receivable within one year accounted for only 61.25% on average, and the average age of 90% of the company’s accounts receivable and contract assets was within 3 years.

Not only that, but also with the same industry ZTE (000063.SZ), Jingxin Communication (2342.HK), Tongyu Communication (002792.SZ) Mobi Development (0947.HK), Shenglu Communication (002446.SZ), China Comparing Beitong (603220.SH) and Runjian (002929.SZ), etc., the accounts receivable of Xinke Mobile 1.10 times/year, 0.98 times/year, 1.04 times/year and 0.7 times/year during the reporting period The turnover rate is still lower than the industry average of 1.90 times/year, 1.86 times/year, 1.86 times/year and 1.91 times/year.

In particular, compared with ZTE and Tongyu’s account receivable turnover rate of more than 2 times/year, Xinke Mobile is even more vulnerable. Although the proportion of bad debts in Xinke Mobile was relatively small in the past few years, the company’s working capital has been significantly affected.

Competitiveness is apparently insufficient, what is the solution to the cash flow dilemma?

The mobile communication industry is a typical technology-intensive and capital-intensive industry. The industry’s high R&D investment, long cycle, and high risk make each generation of mobile communication technology require a large amount of capital investment. Communication standards and underlying core technologies have been achieved. And the process of product research and development and subsequent commercialization.

In order to maintain market competitiveness, Xinke Mobile vigorously engages in research and development. From 2018 to the first half of 2021, Shinco Mobile’s R&D expenditures were all at the level of over 1 billion yuan, which were 1.086 billion yuan, 1.486 billion yuan, 1.420 billion yuan and 595 million yuan, respectively. The R&D expense ratios corresponded to as high as 21.10%, 33.10%, 31.36% and 40.82%, far exceeding the industry average of 8.54%.

However, Shinco Mobile’s insufficient investment in industrialization, supply chain construction, market development, and service capabilities, coupled with the historically low maturity of the TDD technology ecosystem, has not formed a large-scale market application, resulting in a serious shortage of early-stage investment recovery. At present, Xinke Mobile has accumulated a total loss of 4.614 billion yuan from 2018 to the first half of 2021. As of June 2021, Xinke Mobile’s audited undistributed profit is as high as -7.18 billion yuan.

Under the continuous loss, the net cash flow generated by the company’s operating activities also continued to lose money, which were -519 million yuan, -878 million yuan, -80 million yuan, and 1.685 billion yuan, respectively. At the same time, it is also facing high debt pressure. According to the prospectus, during the reporting period, Xinke Mobile generated an average of more than 2 billion short-term borrowings each year, and the combined asset-liability ratio reached 91.60%, 105.60%, 89.11% and 70.14%.

The high debt ratio and working capital pressure make Xinke Mobile not only face the risk of capital allocation, but also means that the investment in future industrialization capabilities and supply chain construction will be insufficient.

From the perspective of operating gross profit alone, Xinke Mobile’s performance is also no advantage. From 2018 to 2020, Xinke Mobile’s comprehensive gross profit margin dropped from 21.71% to 8.50%. Among them, in 2019 and 2020, the gross profit margin of Xinke Mobile’s 5G system equipment is negative -53.08% and -57.31%, respectively.

According to the company, it is due to the high initial investment cost of 5G system equipment, and Shinco Mobile has adopted a strategic quotation in order to actively explore the market. Compared with the average gross profit margin of comparable companies in the same industry, Xinke Mobile is significantly lower.

In the industry, the industry companies of mobile communication network equipment companies include Huawei, ZTE (000063.SZ), Ericsson (Ericsson, ERIC.O), Nokia (Nokia, NOK.N), Jingxin Communications (2342.HK), and Unicom (002792.SZ), Mobi Development (0947.HK) and Shenglu Communication (002446.SZ), etc.

Under the background of my country’s full commercial use of 5G in 2020, in the centralized procurement of mobile 5G phase II wireless network main equipment in March of that year and the joint centralized procurement of wireless main equipment in the 5GSA new project of China Telecom and Unicom in April, the winning bidders include Huawei, ZTE, Ericsson and Letter Branch moved four companies.

Among them, the centralized procurement of Huawei’s total number of winning base stations was 271,900, and the winning share was 56.05%; ZTE’s total number of winning base stations was 150,100, and the winning share of 30.95% ranked second; Ericsson ranked second with a total of 51,900 winning base stations. Fourth, the bid-winning share was 10.70%, and Xinke Mobile only won the bid for a total of 11,200 base stations that year, which was at the bottom with 2.3% of the bid-winning share.

In the first half of this year, in July of this year, in the centralized procurement of 5G700M wireless network main equipment of China Mobile Broadcasting Corporation and the joint centralized procurement of wireless main equipment (2.1G) of China Unicom’s 5GSA construction project, Huawei and ZTE have stable leading advantages, and the number of winning base stations is respectively 428,000 and 232,900. Shinco Mobile and Ericsson won 25,000 and 17,300 bids respectively. Although the share of Shinco Mobile’s winning bids has increased compared with last year, it is nearly ten times different from the number of bids won by ZTE, the second place.

However, it is worth noting that Xinke Mobile’s income dependence on China Mobile is very high. From 2018 to the first half of 2021, the revenue from China Mobile accounted for 62.62%, 51.81%, 47.19% and 45.87% of the total revenue, on average. Half of the revenue comes from China Mobile.

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