Sanlian forging net profit rises continuously, deviates from cash flow, gross profit margin falls, and new energy development is insufficient.

　　Editor of China Economic Net: Wuhu Sanlian Forging Co., Ltd. (hereinafter referred to as "Sanlian Forging") will hold its initial meeting on March 14th. The sponsor (lead underwriter) is Essence Securities Co., Ltd., and the sponsors are Li Yang and Zeng Zeyun.

　　From January to June in 2019, 2020, 2021 and 2022, Sanlian Forging realized operating income of 530,472,300 yuan, 617,844,800 yuan, 929,259,500 yuan and 472,336,900 yuan respectively, and realized net profit attributable to owners of the parent company of 53,108,200 yuan respectively. 8,695,100 yuan, and the net profit attributable to the owners of the parent company after deducting non-recurring gains and losses was 47,730,700 yuan, 64,815,500 yuan, 66,761,500 yuan and 26,013,300 yuan respectively.

　　During the reporting period, the weighted average return on equity calculated by Sanlian Forging based on the net profit attributable to ordinary shareholders of the company after deducting non-recurring gains and losses was 13.48%, 14.96%, 13.04% and 4.63% respectively.

　　In each period of the reporting period, the net cash flow generated by Sanlian Forging was RMB 52,222,500, RMB 40,058,800, RMB 39,061,400 and RMB 42,757,300, with net cash ratios of 0.98, 0.55, 0.51 and 1.49 respectively. The cash received from selling goods and providing services was 529,879,400 yuan, 568,199,800 yuan, 945,218,800 yuan and 364,172,000 yuan respectively, and the cash-to-cash ratios were 1.00, 0.92, 1.02 and 0.77 respectively.

　　During the reporting period, the gross profit margin of Sanlian Forging was 26.76%, 26.64%, 21.15% and 20.41% respectively, of which the gross profit margin of main business was 27.94%, 27.71%, 22.70% and 21.81% respectively.

　　According to the interface news report, at present, new energy vehicles are still the new growth point of the automobile industry. In 2021, the global and domestic new energy vehicle industries are in a period of rapid growth, and the sales of new energy vehicles increased by 107.92% and 157.57% respectively.

　　At present, the triple forging products can be used for new energy vehicles except the high-pressure common rail and the pump body, but only the electric drive hollow shaft products are special for new energy vehicles, mainly used in the electric drive system and gearbox of the transmission system of new energy vehicles. In addition, the company’s lock claw products are used in the shift actuator of hybrid and electric vehicles to realize the shift selection and shift function of the shift head.

　　At present, Sanlian Forging comes from insufficient expansion in the field of new energy. During the reporting period, the product income of Sanlian Forging from new energy vehicles was 3,297,000 yuan, 5,121,800 yuan, 23,604,200 yuan and 22,836,600 yuan respectively, accounting for 0.65%, 0.87%, 2.74% and 5.18% of the main business income respectively.

　　It is planned to raise 435 million yuan.

　　Sanlian Forging is mainly engaged in research and development, production and sales of automobile forging parts. The company’s products are mainly used in automobile power system, transmission system, steering system, suspension support and other systems that require high mechanical performance and safety performance of parts.

　　Sanlian Forging plans to land on the main board of Shenzhen Stock Exchange this time. The number of shares to be publicly issued this time is no more than 28.38 million shares, and the number of shares to be issued is not less than 25% of the total share capital of the company after this issuance. The funds to be raised this time are 434.6818 million yuan, and the net amount after deducting the issuance expenses will be used for the technical renovation and machining supporting construction project of precision forging production line, the capacity expansion project of high-performance forging production line (50MN), the construction project of R&D center and supplementary working capital.

　　As of the signing date of the prospectus, the joint actual controllers of Sanlian Forging are Sun Guofeng, Zhang Yiheng, Sun Guomin and Sun Renhao. Sun Guofeng and Sun Renhao are father and son, Sun Guofeng and Sun Guomin are brothers, and Sun Guofeng, Sun Guomin and Zhang Yiheng are uncles and nephews.

　　Sun Guofeng directly holds 26.91% of the shares of Sanlian Forging. He is the largest shareholder of Sanlian Forging and serves as the chairman and general manager of the company. Zhang Yiheng directly holds 26.77% of the shares of Sanlian Forging and serves as a director of the company; Sun Guomin directly holds 26.77% shares of Sanlian Forging; Sun Renhao directly holds 1.92% of the shares of Sanlian Forging as the deputy general manager of the company; Sun Guofeng, as the executive partner of Wuhu Sanlian Holding Partnership (Limited Partnership) (hereinafter referred to as Sanlian Partnership), can actually control the voting rights of Sanlian Forging 4.10% shares held by Sanlian Partnership. Sun Guofeng, Zhang Yiheng, Sun Guomin and Sun Renhao actually control the voting rights of 86.47% shares of Sanlian Forging, which can have a significant impact on the shareholders’ meeting and the board of directors of Sanlian Forging.

　　Sun Guofeng, Zhang Yiheng, Sun Guomin and Sun Renhao signed the Concerted Action Agreement on July 12, 2018, which stipulated: "All parties guarantee to adopt the same expression of will when exercising the rights of shareholders and directors and business decisions of the company, especially when exercising the right to convene, propose and vote, so as to consolidate their control position in the company and maintain the stability of the actual control right of the company. If all parties negotiate on relevant proposals or voting and decision-making matters,

　　Sun Guofeng, chairman and general manager of Sanlian Forging, male, China nationality, no permanent residency abroad, born in April 1968, junior high school education. From March 1994 to January 2010, he served as the director, executive director and general manager of Wenzhou Sanlian (formerly known as Ruian Guohuan Screw Factory and Ruian Sanlian Forging Factory); From April 2004 to March 2018, he served as a supervisor of Ruian Xinlian Auto Parts Co., Ltd.; From June 2004 to October 2018, he served as a limited supervisor, executive director and general manager of Sanlian; From October 2015 to May 2017, he served as executive director of Wuhu Mofei Ergonomics Technology Co., Ltd.; From December 2015 to August 2018, he served as supervisor of Huangshan Lianxin; From June 2017 to November 2020, he served as the supervisor of Huzhou Sanlian; Since July 2017, he has served as executive director and general manager of Wuhu Wanlian; Since October 2017, he has served as chairman and director of Xinlian Seiko; Since October 2018, he has served as executive director and general manager of Wuhu Shunlian; Since October 2018, he has served as the chairman and general manager of Sanlian Forging; Since November 2019, he has served as the executive partner of Sanlian Partnership; Since April 2020, he has served as executive director and general manager of Wuhu Yilian.

　　Zhang Yiheng, director of Sanlian Forging, male, China nationality, without permanent residency abroad, born in August 1992, with a college degree. From June 2016 to July 2017, he served as the purchasing manager of Wenzhou Sanlian; From July 2017 to June 2020, he served as a supervisor of Wuhu Wanlian; From February 2018 to October 2018, he served as a limited director of Sanlian; Since February 2018, he has served as director and chairman of Xinlian Seiko; Since January 2018, he has served as executive director and general manager of Sanlian Parts; Since October 2018, he has served as a director of Sanlian Forging.

　　Sun Guomin, executive director and general manager of Huzhou Sanlian, a wholly-owned subsidiary of Sanlian Forging, male, China nationality, without permanent residency abroad, was born in February 1976, with a high school education. From March 1994 to July 2021, he served as sales manager, vice president of marketing, executive director and general manager of Wenzhou Sanlian; From March 2001 to February 2008, he served as the general manager of Huaying Yong Guang Forging Machinery Factory; From June 2011 to July 2012, he served as executive director and general manager of Ruian Sanlian Investment Consulting Co., Ltd.; From June 2004 to March 2014, he served as the general manager of Sanlian Limited; From April 2013 to December 2013, he served as the supervisor of Ruian Kaisheng Trading Co., Ltd.; Since August 2019, he has served as deputy general manager of Sanlian Parts; Since March 2021, he has served as executive director and general manager of Huzhou Sanlian.

　　Sun Renhao, deputy general manager of Sanlian Forging, male, China nationality, born in June 1994, with a college degree. From March 2015 to October 2018, he served as the sales manager of Sanlian Limited; From February 2018 to March 2021, he served as executive director and general manager of Huzhou Sanlian; From October 2018 to October 2020, he served as secretary of the board of directors of the company; From October 2018 to November 2020, he served as a director of the company; Since November 2020, he has served as deputy general manager of Sanlian Forging.

　　Continuous increase in performance

　　In 2022, Sanlian Forging realized an operating income of 1,049,782,700 yuan, a year-on-year increase of 12.97%; The net profit attributable to shareholders of the parent company was 94,840,100 yuan, a year-on-year increase of 23.75%; The net profit attributable to shareholders of the parent company after deducting non-recurring gains and losses was 83,918,100 yuan, a year-on-year increase of 25.70%; The net cash flow from operating activities was RMB 104,045,100, a year-on-year increase of 166.36%.

　　Combined with past performance, market demand and orders, Sanlian Forging expects the company to realize an operating income of 265,128,500 yuan from January to March 2023, a year-on-year increase of 2.39%; The net profit attributable to shareholders of the parent company was 17,393,500 yuan, a year-on-year increase of 1.41%; The net profit attributable to shareholders of the parent company after deducting non-recurring gains and losses was 15,453,300 yuan, a year-on-year increase of 6.31%.

　　Gross profit margin fell continuously.

　　During the reporting period, the average gross profit margin of the main business of comparable listed companies in the same industry was 25.08%, 22.34%, 23.85% and 22.05% respectively.

　　During the reporting period, gross profit margins of domestic main business of Sanlian Forging were 29.98%, 29.58%, 23.85% and 21.38% respectively, and gross profit margins of overseas main business were 16.45%, 16.70%, 18.25% and 23.05% respectively.

　　At the end of June 2022, the book value of accounts receivable was 226 million yuan.

　　At the end of each reporting period, the book value of accounts receivable of Sanlian Forging was 142,228,300 yuan, 163,244,400 yuan, 192,470,800 yuan and 226,083,600 yuan respectively, accounting for 43.32%, 44.41%, 36.33% and 39.04% of current assets respectively; The balance of accounts receivable was 152,668,900 yuan, 173,553,900 yuan, 204,342,700 yuan and 240,289,600 yuan respectively, accounting for 28.78%, 28.09%, 21.99% and 50.87% of operating income respectively.

　　In each period of the reporting period, the accounts receivable turnover rate of Sanlian Forging was 3.38 times, 3.79 times, 4.92 times and 2.12 times respectively, and the average accounts receivable turnover rate of comparable listed companies in the same industry was 3.79 times, 3.62 times, 3.99 times and 1.77 times respectively.

　　At the end of each reporting period, the bills receivable of Sanlian Forging were 10,697,800 yuan, 14,666,200 yuan, 10,964,500 yuan and 8,806,500 yuan, respectively, and the fair value of receivables financing was 24,547,900 yuan, 16,255,600 yuan, 40,141,700 yuan and 28,718,800 yuan, respectively.

　　Based on this calculation, at the end of each reporting period, the receivables of Sanlian Forging were 184,807,200 yuan, 199,816,700 yuan, 250,370,900 yuan and 275,181,300 yuan respectively.

　　At the end of June 2022, the book value of inventory was 251 million yuan.

　　At the end of each reporting period, the book value of Sanlian forging inventory was 112,799,800 yuan, 122,719,000 yuan, 238,363,500 yuan and 250,858,300 yuan respectively, accounting for 34.36%, 33.39%, 44.99% and 43.32% of current assets respectively, and the book value of inventory at the end of the reporting period was 43.32%.

　　In each period of the reporting period, the inventory turnover rate of Sanlian Forging was 3.31 times, 3.47 times, 3.77 times and 1.44 times respectively, and the average inventory turnover rate of comparable listed companies in the same industry was 3.15 times, 3.13 times, 3.04 times and 1.17 times respectively.

　　Interface news: insufficient expansion of new energy field

　　Source: China Automobile Industry Association.

　　According to the data of China Association of Automobile Manufacturers, from 2019 to 2021, the domestic automobile sales were 25.769 million, 25.311 million and 26.275 million respectively, the domestic new energy vehicles sales were 1.206 million, 1.367 million and 3.521 million respectively, and the market penetration rate of new energy vehicles was 4.68%, 5.40% and 13.40% respectively.

　　The State Council released the peak carbon dioxide emissions Action Plan before 2030 in October 2021, which pointed out that by 2030, the proportion of new energy and clean energy vehicles will reach about 40%. In the future, there is still much room for improvement in the market penetration rate of new energy vehicles.

　　Lockclaw and hollow shaft products are newly added products of the company in 2019 and 2020, and hollow shafts belong to shaft products. In 2020 and 2021, the sales of hollow shafts were not seen in the top five customers’ purchases of shaft products of the company. It was not until the first half of 2022 that Wuxi () Technology Group Co., Ltd. purchased hollow shaft products in Sanlian Forging, and the total number of purchased motor shafts and hollow shafts was 57,500.

　　Image source: prospectus

　　By June 30th, 2022, the company has entered the designated development projects of new energy automobile parts of well-known automobile manufacturers such as Daimler, Volkswagen, General Motors, Audi, BMW, (), BYD Toyota, Weilai, Ideality, Tucki, SAIC Volkswagen, SAIC-GM, SAIC, Great Wall, Chery and Geely.

　　Image source: prospectus

　　However, most of the projects are still in the APQP and PPAP certification stage, and many parts and components involved are purchased by fork. In 2021 and the first half of 2022, the gross profit margin of the company’s fork unit was only 11.00% and 12.45%, respectively, and the profit was relatively thin.

　　International Finance News: Suppliers may have "stories"

　　According to the International Finance News, Wenzhou Sanlian Auto Parts Co., Ltd. (hereinafter referred to as "Sanlian Parts") is a wholly-owned subsidiary of Sanlian Forging.

　　This subsidiary was involved in an interesting case.

　　According to the executive ruling in March 2022, the dissident Xiangtan Xinhuida Electroplating Co., Ltd. (hereinafter referred to as "Xinhuida") believes that Sanlian Parts has always been a customer of Xinhuida, and later, because Sanlian Parts are going to be listed, it is necessary to have a complete environmental assessment procedure, and Xinhuida rents the factory building of Hunan Zhaoliang Electroplating Co., Ltd. (hereinafter referred to as "Hunan Zhaoliang"), and all enterprises in the park use the relevant qualifications of electroplating environmental assessment of Hunan Zhaoliang. At present, Hunan Zhaoliang has collected Xinhuida’s payment amount of RMB 349,200 in December 2021.

　　Regarding whether Xinhuida uses Hunan Zhaoliang’s qualification to sign the contract and collect and transfer the payment, the execution ruling does not give a clear answer. In addition, the court held that Article 25, paragraph 1 (3) of the Provisions of the Supreme People’s Court on Several Issues Concerning People’s Courts Handling Cases of Execution Objection and Reconsideration stipulates that if an outsider objects to the case, the bank deposit shall judge the obligee according to the name of the account of the financial institution. In this case, the money involved was deposited into the account opened by Hunan Zhaoliang in Xiangxiang Sub-branch (). According to the above laws and regulations, the right holder of the money is Hunan Zhaoliang, not Xinhuida. For Hunan Zhaoliang’s property, our court can execute it. Therefore, the dissident’s view that the money involved belongs to him and should be unsealed is inconsistent with the above legal provisions.

　　Abstract of enforcement ruling, data source: China Judgment Document Network.

　　It should be pointed out that the Sanlian Forging Declaration shows that Xinhuida is the fourth largest outsourcing supplier of Sanlian Forging in 2020, and the related purchase amount is 497,100 yuan. In 2021, Xinhuida did not become the top five outsourcing suppliers of Sanlian Forging. Hunan Zhaoliang was not the top five outsourcing suppliers of Sanlian Forging in 2019 and 2020, but became the fifth largest outsourcing supplier of Sanlian Forging in 2021, with a related purchase amount of 567,300 yuan.

　　Then, does Xinhuida use the qualification of Hunan Zhaoliang to sign the cooperation contract of Sanlian parts? If so, do the suppliers of Sanlian Forging have similar situations?