Why Does The Export Tax Rebate Of 80% Of Shares Depend On Noma?

On July 17, Zhejiang YEMA Battery Co., Ltd. (hereinafter referred to as "YEMA") updated its prospectus on the official website of China Securities Regulatory Commission (CSRC) and planned to apply for listing on the Shanghai Stock Exchange. It is planned to raise 558 million yuan to invest in the expansion and technical transformation projects of 610 million alkaline zinc manganese batteries, R & D and testing center and intelligent manufacturing center projects, and information construction projects of smart factories.

The IPO of a shares was first disclosed on June 20, 2019.

YEMA battery, an old brand battery enterprise established in November 1996, focuses on the R & D, production and sales of high performance and environmental protection zinc manganese battery. It has more than 20 production lines of various specifications and models of zinc manganese batteries and alkaline manganese batteries, with an annual production capacity of 2 billion. It is one of the largest alkaline battery manufacturers in China.

It is worth mentioning that 70% to 80% of the revenue of Mustang battery, which mainly focuses on overseas market, comes from overseas. According to the statistics of China Battery Industry Association, in 2018, its export volume of zinc manganese battery ranked the third in China.

However, YEMA battery is facing the risk of declining revenue and relying on export tax rebate. Can it gallop in the capital market?

Performance "depends on" export tax rebate?

According to the prospectus, domestic zinc manganese battery manufacturers are represented by Hutou battery, Nanfu battery, Ningbo Zhongyin battery and YEMA battery. Nanfu battery mainly occupies an important position in the domestic market with its own brand, and its market share has exceeded 80%.

In February 2016, Nanfu battery became a holding subsidiary of Ningbo Yajin Electronic Technology Co., Ltd. (830806), a listed company on the new third board through major asset restructuring, and landed in the capital market. According to the data of China Battery Industry Association, in 2018, the operating revenue of Nanfu battery was 2.7 billion yuan, and the total assets was 1.28 billion yuan.

Under the background that the domestic market is firmly grasped by Nanfu battery, YEMA battery has gone abroad. Its products are mainly sold to Europe, North America, Asia and other countries and regions, and are sold in 49 countries or regions. Among them, Europe is its largest export destination, and North America is also an important overseas market.

The sales volume of the main business and YEMA reached RMB 98.8 billion and RMB 85.86 billion respectively, accounting for RMB 98.9 billion and RMB 85.86 billion respectively in the current period, accounting for 85.86% of the total sales of the main business and YEMA in 2017, respectively. In other words, more than 80% of its income comes from overseas.

Specifically, from 2017 to 2019, the sales revenue of Mustang battery to the European market was 459 million yuan, 408 million yuan and 469 million yuan respectively, accounting for 49%, 45.54% and 55.19% of the overseas revenue of that year.

In addition, during the same period, the sales revenue of Mustang battery finally exported to the United States were 278 million yuan, 302 million yuan and 197 million yuan respectively, accounting for 25.8%, 28.79% and 19.86% of the operating income of that year.

With regard to the decline of sales revenue exported to the United States in 2019, YEMA battery said, "due to the impact of Sino US trade friction, some major U.S. customers and the company failed to reach an agreement on the new tariff cost, and temporarily suspended business cooperation. Due to the failure to find a supplier equivalent to the company in terms of product quality, delivery time, customer service, etc., these US customers have since 201 In September, the cooperation with the company was resumed.

From the perspective of performance, from 2017 to 2019, the revenue of YEMA battery showed a downward trend year by year, which were 1.078 billion yuan, 1.051 billion yuan and 99.9 billion yuan respectively, while the net profit was 54 million yuan, 105 million yuan and 123 million yuan respectively, increasing year by year.

For the sharp contrast between the decline in revenue and the growth of net profit in the past three years, on July 20, the reporter called the Securities Affairs Department of YEMA shares, but no one answered.

In the first quarter of this year, due to the impact of the new coronavirus pneumonia epidemic situation, traffic control, personnel flow restriction and other prevention and control policies, the resumption of YEMA battery was delayed. In the first quarter of 2020, the revenue of Mustang battery was 164 million yuan, a year-on-year decrease of 8.71%; the net profit attributable to the parent company was 20.0225 million yuan, with a year-on-year increase of 33.88% (without review or audit).

According to the current orders in hand and production and operation, it is estimated that the revenue in the first half of 2020 will be 400-500 million yuan, with a year-on-year growth of 3.32% to 29.15%; the expected net profit will be 50 million yuan to 60 million yuan, with a year-on-year increase of 52.42% to 82.9% (the above forecast data do not constitute a profit forecast).

In particular, due to its main export business, YEMA battery enjoys more preferential tax policies, but on the other side of the coin, its performance is more "dependent" on export tax refund.

YEMA battery said that during the reporting period, its zinc manganese battery export sales enjoy 15%, 16%, 13% VAT rebate rate. From 2017 to 2019, the export tax rebates received were 100.3497 million yuan, 95.0676 million yuan and 74.4894 million yuan, accounting for 166.54%, 76.19% and 51.23% of the total profit, respectively.

This means that, excluding the tax rebate, YEMA battery actually lost nearly 50 million yuan in 2017; in 2018, nearly 80% of the net profit of YEMA battery came from tax rebate, and the proportion of tax refund in 2019 was also half of its total profit.

"Excessive dependence on overseas markets and tax rebate limits may be the macro risks in its development process," a company financial official said on July 20.

Private brand to break through

YEMA battery's main products are LR03, LR6, LR14, lr20, 6LR61 series alkaline batteries and R03, R6, R14, R20, 6f22 series carbon batteries, which are widely used in household appliances, electric toys, smart home appliances, home medical and health electronic instruments, new consumer electronics, cordless security equipment, outdoor electronic equipment, wireless communication equipment, emergency lighting and other fields.

In terms of business types, YEMA battery mainly carries out OEM sales to customers, including international well-known commercial chain enterprises, international well-known electronic equipment manufacturers and large traders, such as Tesco, Carrefour, Metro, Decathlon, L & apos; image, Panasonic, Philips, Samsung, etc.

In addition to the main OEM business, Mustang battery also has a small number of private brand business.

From 2017 to 2019, the proportion of OEM revenue was 88.65%, 88.86% and 88.94%, respectively, reaching more than 88%, while the proportion of private brand revenue in three years was only about 11%.

So, how can YEMA battery overcome the defect of brand bargaining power caused by OEM?

In this regard, YEMA battery admitted in the prospectus that "because there are few well-known brands in the international market in the industry, most of the exported batteries are sold by OEM, and they must rely on foreign brands, so the enterprise's profit level is low. In the long run, if you don't have your own brand, it will bring hidden trouble to the sustainable and stable development of the industry. Therefore, "we will actively develop our own brand".

From the perspective of equity structure, YEMA battery is currently owned by the founders Yu Yuankang and Chen Enle, with Yu Yuankang's two sons, Yu Gufeng and Yu Guyong, and Chen Enle's two sons, Chen Yijun and Chen Kejun, each holding 15%.

Yu Yuankang, Chen Enle, Chen Yijun, Yu Gufeng, Chen Kejun and Yu Guyong are the joint controllers of YEMA battery, with a total shareholding of 100% before the issuance. After successful issuance, the proportion of voting rights of the above-mentioned six persons will reach 75%.

In this regard, on April 17, this year, the SFC issued a feedback on YEMA battery, asking it to state, "whether the company's decision-making mechanism can guarantee the effectiveness of corporate governance, whether there may be the risk of" corporate deadlock "and the measures taken by the issuer."

In addition, YEMA battery's chairman Chen Yijun and CFO Pang Yali are husband and wife; Wang Jinliang, the sole director, works in China Battery Industry Association as vice chairman and director of Technical Committee; he is also the sole director of Shuangdeng Group Co., Ltd., the independent director of Fujian Minhua power supply Co., Ltd., and the independent director of Zhejiang HENGWEI Battery Co., Ltd.

"Whether Pang Yali, the chief financial officer, meets the requirements for the independence of financial personnel, whether Wang Jinliang's position as an independent director of a competitor has conflicts of interest with the issuer" has also become one of the concerns of the SFC's initial feedback.

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