Following Zhongjing Electronics (002579SZ) 800 million yuan fixed increase by the Shenzhen Stock Exchange after the second round of inquiries, the company recently replied to the content of the inquiry letter. In July this year, Zhongjing Electronics threw out a fixed increase plan, planning to raise no more than 800 million yuan for expansion and replenishment of working capital. It is worth mentioning that the company's fixed increase is in the context of performance losses, the previous fundraising project did not meet expectations and the company's overall capacity utilization rate declined, so in the two rounds of review and inquiry letters, the Shenzhen Stock Exchange has made key inquiries about the Zhongjing Electronics expansion project. "It is estimated that the fundraising project is expected to incur losses in the first year of operation, and if the company is unable to turn losses into profits, it will further increase the degree of losses during the production capacity ramp-up period," the company said frankly.
At the same time as replying to the letter, Zhongjing Electronics lowered the upper limit of the fundraising amount from 800 million yuan to 6400 million yuan, of which the amount of investment in the expansion project will be 5600 million yuan was lowered to 4500 million yuan, and the supplementary amount will be increased by 2400 million yuan to 1900 million yuan. In the secondary market, in the past half a month, the company's stock price has been in a downward trend as a whole, and as of December 22, the company's share price closed at 86 yuan, down 216%。
According to public information, Zhongjing Electronics' main business is the research and development, production, sales and service of printed circuit boards, and the main products are rigid circuit boards (RPCB), flexible circuit boards (FPC) and application modules, which are mainly used in the field of consumer electronics. Since 2019, the company has begun to enter the R&D and production of FPC and its application modules in the field of new energy batteries. The company originally planned to raise a total of no more than 800 million yuan, of which 5600 million yuan for Zhongjing New Energy Power and Energy Storage Battery FPC Application Module Project (Project 1. $400 million to replenish working capital and repay bank loans. After the adjustment, the company's fundraising ceiling was lowered to 6400 million yuan, and the investment amount of the above two fund-raising projects decreased by 4500 million yuan, 1900 million yuan.
Among them, the products of project 1 are mainly used for BMS (battery management system) of new energy power and energy storage batteries, which is one of the key components of new energy batteries. In the context of the demand for consumer electronics is less than expected, the company plans to strengthen the competitive advantage in the application field of new energy vehicles by means of raising funds to expand production, so as to improve the company's profitability and improve its comprehensive competitiveness.
It should be noted that before this private placement, in 2019 and 2020, the company raised a total of 16800 million yuan, the raised funds were invested in the flexible printed circuit board (FPC) automatic production line technology upgrade project (hereinafter referred to as the old project 1) and Zhuhai Fushan high-density printed circuit board (PCB) construction project (hereinafter referred to as the old project 2), but the previous fundraising projects did not achieve the expected benefits.
As of June 30, 2023, the actual benefit of the old project 1 was 799110,000 yuan, lower than the expected benefit of 39.39 million yuan, while the actual benefit of the old project 2 is -18.5 billion yuan, still in the loss, the project is expected to benefit 23.3 million yuan.
From the perspective of product categories, the products produced by this fundraising project and the company's previous fundraising project all involve flexible circuit boards, with a high degree of similarity.
In this regard, Zhongjing Electronics explained that the fund-raising project is mainly used in the field of new energy batteries, and the previous fund-raising project is mainly used in the field of consumer electronics, and the two products are different from the consumer FPC application module in terms of size, circuit requirements, etc., and the company's other product production capacity cannot be shared with the production line of the new energy battery FPC application module. In addition, the company's existing factories and equipment have a clear future business plan and cannot be directly or adjusted for the production of new energy battery application modules. 
In the two rounds of inquiry letters, the necessity of the construction of project 1 has been the focus of the Shenzhen Stock Exchange's inquiry.
It is reported that the design annual production capacity of Zhongjing Electronics' fundraising project is 8.5 million new energy power and energy storage battery FPC application modules (including 8.5 million FPCA production capacity and 1.87 million of which are upgraded to CCS production capacity), and the company's existing annual production capacity of similar products is 3 million, so the expansion scale of this fundraising project is relatively large. Although the company emphasizes that the current new energy FPC capacity utilization rate is relatively saturated and the order schedule is extended, it is still doubtful whether the expanded production capacity can be fully digested under the condition that the company's overall capacity utilization rate is low.
In terms of capacity utilization, from 2020 to the first three quarters of 2023, the capacity utilization rate of Zhongjing Electronics' flexible circuit board and its application module business was %;The capacity utilization rate of rigid circuit boards is %. It can be seen that in 2022 and the first three quarters of this year, the capacity utilization rate of the company's main products is at a low level. In fact, Zhongjing Electronics has been losing money since 2022, and the loss has continued to this day. From 2022 to the first three quarters of 2023, Zhongjing Electronics' net profit attributable to the parent company was -17.9 billion yuan, -11.1 billion yuan, with a cumulative loss of 2900 million yuan. At the same time, the company's revenue scale has declined, and the revenue in the first three quarters of this year was 192.6 billion yuan, down 16 percent year-on-year77%。It should be noted that the construction period of project 1 is 2 years and the operation period is 10 years. According to calculations, the estimated net profit in the first three years of the operation period of the fundraising project was -9.32 million yuan, 33.78 million yuan and 69.19 million yuan respectively, which shows that the fundraising project is expected to incur losses in the first year of the operation period. At that time, if Zhongjing Electronics is still unable to turn losses into profits, this fundraising project will further increase the company's losses during the capacity ramp-up period. (This article was first published by Li Ruohan).