During the reporting period, the gross profit margin of Longchuang Design fluctuated greatly, and during the listing period, it received regulatory warning letters due to problems such as letter disclosure.
Punctuation financial researcher Li Lu.
At the end of 2023, the advent of Huawei Auto and Xiaomi Auto has set off a new wave of enthusiasm in the domestic automotive industry, and many attention has fallen on the "cool" styling of new cars.
As an upstream industry of automobile manufacturing, automobile design is a specialized industry involving the fields of automobile exterior art design, engineering, materials science, aerodynamics and ergonomics. As a necessary premise and foundation for the overall conception of body design, automobile styling design is the embodiment of the perfect integration of art, culture and science and technology.
Shanghai Longchuang Automobile Design Co., Ltd. is one of the earliest independent automobile R&D enterprises established in China, the company focuses on providing full-process R&D solutions from concept design to mass production of model products for major automobile OEMs at home and abroad, and participates in the design of star models including VFE34, Dongfeng Fengxing T5 EVO, Citroen C3-XR, Changan Kaicheng F70, Haval H9, Foton Daimler Galaxy Heavy Truck, DeepWay Shenxiang Xingchen Heavy Truck, etc.
Recently, this automobile "designer" submitted a form to the Shenzhen Stock Exchange to be listed on the GEM. Punctuation financial researchers noted that this is the second time that the company has submitted listing materials to the main board. On June 22, 2017, the company submitted the initial listing application materials to the China Securities Regulatory Commission, but due to the adjustment of the listing plan, the company applied to withdraw the listing application documents on September 21, 2017. Previously, Longchuang Design was listed in the national stock transfer system in 2015 and publicly transferred, and is still in the listed state.
Looking at the prospectus, punctuation financial researchers noticed that although Longchuang Design ranks second in the domestic independent automobile design industry in terms of business scale, its gross profit margin has fluctuated greatly in recent years, there is uncertainty in revenue, and the proportion of R&D investment is lower than the industry average. Before the IPO, the company also had problems of varying degrees in terms of option agreements and administrative penalties.
In response to the above situation, Punctuation Finance and Economics researchers communicated with Longchuang Design, and the relevant person in charge of the company said that in 2023, the development of China's automobile industry will make breakthroughs, and the company has good development prospects and opportunities in the future under the background of the steady increase in the penetration rate of new energy vehicles, the steady development of intelligent networking and safe driving of automobiles, and the acceleration of new car launches. For automotive design companies, on the one hand, it is necessary to increase R&D investment in the structure, styling design, performance and safety of new energy vehicles to meet the demand for automotive design services from the rapid development of new energy vehicles. On the other hand, automotive design needs to keep up with market demand, continuously develop personalized products, and meet the future business layout planning of automobile OEMs.
Can gross profit margin be stabilized?
According to the data disclosed in the prospectus, from 2020 to 2022 and in the first half of 2023, Longchuang Design will obtain operating income of 34.7 billion yuan, 53.8 billion yuan, 76.1 billion and 41.8 billion yuan, the year-on-year growth rate of revenue from January to June in 2021, 2022 and 2023 is respectively. 5% and 1627%, although it has always been in a growth trend, the growth rate has been declining, and the decline will be particularly significant in 2023. In the same period, the company's net profit deducted from non-attributable to the parent company was 2655120,000 yuan, 3671370,000 yuan, 1100 million yuan and 4963210,000 yuan.
Different from the continuous growth of revenue, the gross profit margin of Longchuang Design's main business fluctuated greatly during the reporting period, respectively. 02% and 3876%。The company said that the change in gross profit margin was mainly affected by factors such as changes in the prosperity of the automobile market, changes in labor costs, business structure and customer resources.
The impact of the automobile market prosperity on Longchuang Design is not only reflected in the gross profit margin, as a part of the automotive industry, the company's operation is deeply bound to the downstream automobile sales. From the perspective of business structure, the company's main business income is mainly composed of automobile design, parts and restructured vehicles, other professional and technical services and electric scooters, of which automobile design business is the main income, accounting for more than 75% of the main business income.
The automobile design business can be divided into new energy vehicle design business and fuel vehicle design business according to the classification of downstream products, so the company's revenue composition is significantly affected by the sales game of downstream new energy vehicles and fuel vehicles. Since 2021, the new energy vehicle industry has grown rapidly, and the company's business development has also shifted to focus on new energy vehicle design business. 21% and 7785%。
However, whether the penetration rate of new energy vehicles can continue to grow, and whether the new energy vehicle market has developed to a certain bottleneck period, are all questions.
Tesla, a leading company in the new energy vehicle industry, released data for the fourth fiscal quarter of 2023, showing that the company's operating profit fell by 47%, and also warned that its electric vehicle sales growth in 2024 will be "significantly lower" than in 2023. Since the beginning of the epidemic period, Tesla products have continued to reduce prices significantly, which is also a common phenomenon in the electric vehicle industry. With the increase in the number of electric vehicle mass production manufacturers, the growth potential of the industry is no longer as good as before the epidemic, and in this context, there is uncertainty about where the business layout of upstream automotive design enterprises will go and how their profitability will be affected.
The company's ties to the automotive market have deepened
According to the prospectus, Longchuang Design has made strategic investments in some downstream automobile companies because it is optimistic about the development prospects of the automobile market, which further deepens the binding degree of the company with the automobile market. However, automobile companies are also greatly affected by policy changes, changes in market prosperity and financing smoothness, and the two-way increase in the impact of the automobile market on the company.
For example, in 2021, due to the operating difficulties of Guoji Zhijun, a shareholding company of Longchuang Design, the company significantly impaired its investment, resulting in a fair value change profit or loss of -24 million yuan, which had a significant impact on the company's operating performance in 2021; In the first half of 2023, Jiangxi Longsheng, a shareholding company, is still in the research and development stage of new models, with a large investment and no realized revenue for the time being, and the company recognized an investment income of -1149 in the current period350,000 yuan. If other shareholding automobile companies have operational difficulties in the future, it will also have a greater impact on the company's operating performance.
In this regard, Longchuang Design told Punctuation Finance and Economics that in recent years, the automobile industry has continued to overcome and break through a series of challenges and difficulties, and has achieved significant results. In 2023, China's vehicle exports will be 4.91 million units, a year-on-year increase of 579%, ranking first in the world for the first time. Among them, the export of new energy vehicles is 12030,000 units, a year-on-year increase of 776%, providing global consumers with diversified consumption choices. In the future, with the rise of domestic independent automobile brands and new energy vehicle manufacturers, the construction of new energy vehicle related technologies and supporting facilities will be further upgraded and improved, and the market scale of new energy vehicles will be further developed, bringing development opportunities to automobile design companies with technical strength.
At the same time, Longchuang Design mentioned that for automobile design companies, on the one hand, it is necessary to increase investment in the research and development of new energy vehicle structure, styling design, performance and safety, and conduct technical pre-research with a forward-looking vision to meet the needs of the rapid development of new energy vehicles for automobile design services, so as to seize a larger market share of new energy vehicle design; On the other hand, with the personalization and diversification of the life of a new generation of young people, the aesthetic needs are also diversified and fashionable, and automobile design needs to keep up with market demand and continuously develop personalized products.
Judging from the data disclosed in the prospectus, the proportion of the company's R&D expenses to operating income in each period of the reporting period was as follows. 29% and 648%, showing a downward trend year by year, lower than the comparable company Alter (300825SZ) and Ivey (838897nq）。
Comparison of Longchuang design and R&D expenses with companies in the same industry
Data**: Company Prospectus.
What are the potential risks of compliance?
Since its establishment in 2003, Longchuang Design has also been caught in various turmoil. The first is the entanglement of option terms with Hangzhou Kaitai Wealth Investment Management, hereinafter referred to as Hangzhou Kaitai. At the beginning of 2014, the rapid development of Longchuang Design's business led to a shortage of liquidity. On April 15, 2014, the company signed the "Option Agreement" with the actual controller Wang Xun and Hangzhou Kaitai, stipulating that the company hired Hangzhou Kaitai to provide financing consulting services, and Hangzhou Kaitai had the right to subscribe to the company's capital increase or transfer the company's equity held by Wang Xun to obtain 2% of the shares of Longchuang Design, with an exercise of 1.8 million yuan.
In the middle of the years, the agreement was changed again and again, first in March 2015, due to the planning to be listed on the national stock transfer system, the company could not become a party to the "option agreement", so the parties to the agreement signed an agreement to terminate the aforementioned "option agreement", and Wang Xun signed the agreement with Hangzhou Kaitai; In July 2015, Hangzhou Kaitai decided to exercise its rights and signed the "Exercise Agreement" with Wang Xun, but finally gave up the exercise; In June 2017, Wang Xun and Hangzhou Kaitai signed the "Cash Compensation Option Agreement", stipulating that Hangzhou Kaitai would no longer exercise the original 1 million options agreed in the "Exercise Agreement", of which the cash compensation amount corresponding to 250,000 shares of options was 1.05 million yuan, and the cash compensation amount corresponding to 750,000 shares of options was 1170750,000 yuan; In November 2022, the two parties signed the Supplemental Agreement to the Cash Compensation Option Agreement, re-stipulating that the total amount of cash compensation to be paid by Wang Xun to Hangzhou Kaitai was 975750,000 yuan, and finally Wang Xun paid the cash compensation in full.
An option clause entanglement lasted for 7 years, and whether there was another hidden reason in it, the prospectus did not give further explanation. Longchuang Design told Punctuation Finance researchers that up to now, the option terms enjoyed by Hangzhou Kaitai have all been terminated, and the relevant agreements have been fully implemented. There is no creditor's rights and debts dispute or equity dispute between Hangzhou Kaitai and the company and Wang Xun, which will not constitute a legal obstacle to the company's issuance, and there is no equity entanglement or unresolved dispute.
In addition, the company also incurred some non-compliance matters during the listing period. In December 2019, the company was taken by the Shanghai Regulatory Bureau of the China Securities Regulatory Commission to issue a warning letter for failing to timely disclose foreign investment matters, failing to review and disclose related party transactions in a timely manner, and failing to timely disclose the pledge of shares held by the controlling shareholder. In April 2020, due to the above-mentioned matters and the failure to review and disclose in advance the guarantee provided by Longchuang Design to the shareholding company Dingchuang Automobile in April 2019, Longchuang Design, the chairman of the board of directors and the secretary of the board of directors were given a disciplinary punishment of notification and criticism by the National Equities Exchange and Quotations Company, and recorded in the integrity file.
Whether it is the daily production and operation activities or the listing period of the capital market, Longchuang Design has a lot of flaws in compliance management, which may have a certain impact on its IPO.