“Science and Technology Innovation Board Daily”, January 17 (Reporter Huang Xiumei) On January 16, the Shanghai Stock Exchange updated the review status of Zhimingda's convertible bond refinancing plan and announced Zhimingda's response to the second round of review inquiries. According to public information, Zhimingda's convertible bond plan to raise 411 million yuan was accepted on July 8, 2023. Since then, it has gone through two reviews and inquiries and multiple submission of application materials.

In the two reviews and inquiries, the Shanghai Stock Exchange mainly focused on the case where the IPO fundraising project was postponed. The current refinancing plan was an iterative project. Zhimingda also confessed in a related response that the price of raw materials in the industry has risen in recent years, and the industry has entered the price adjustment stage. The company's gross margin has been declining for many years, and the increase in accounts receivable has expanded rapidly.

IPO fundraising project delayed refinancing by more than 400 million yuan to expand production capacity

Su Lizan, an analyst at Dongwu Securities, once said that Zhimingda is a leading private enterprise in the field of embedded computers. It has benefited from the integrated development of mechanization, informatization, and intelligence in the “14th Five-Year Plan” equipment. There is plenty of space in the information technology market in the field of special electronics, and the company may be expected to benefit deeply.

On the evening of December 7, 2023, Zhimingda issued an announcement to postpone the IPO fundraising project. Apart from the 100% progress and completion of the R&D center's technological transformation and supplementary working capital, the embedded computer capacity expansion project is scheduled to be extended from the end of 2023 to July 2024.

Regarding the extension of the IPO fundraising project, Zhimingda explained that due to reasons such as the progress of early demolition and specific national factors in 2022, the project's land listing time, communication time for the later purchase of industrial plants, and construction work time were all delayed, leading to the overall delay of the project.

By the end of the third quarter of 2023, the embedded computer capacity expansion project promised to invest 162 million yuan. Approximately 100 million yuan has been invested, and the progress of the use of the funds raised has reached 62.14%.

Zhimingda submitted a convertible bond refinancing plan to the Shanghai Stock Exchange in July 2023, all of which are intended to supplement and upgrade the IPO fund-raising project — embedded computer capacity expansion to supplement investment construction and R&D center upgrade construction.

Of the 411 million yuan Zhimingda plans to raise, 231 million yuan will be used to supplement the investment and construction of embedded computer capacity expansion. Of this, 108 million yuan was used to make up for the funding gap in the previous fund-raising project, and 123 million yuan was used to further upgrade the company's embedded computer product production equipment.

Regarding whether the two fundraising projects the Shanghai Stock Exchange is concerned about are repeated construction, Zhimingda stated in its latest response that due to factors such as the overall lack of capital raised by the IPO, the “embedded computer capacity expansion project” of the IPO fund-raising project has created a funding gap.

However, since its listing, the company's business scale has grown rapidly, new projects are being developed and orders are sufficient, and the scale of the IPO fund-raising project can no longer meet its future development needs, so the total investment scale has been expanded and upgraded.

Zhimingda mentioned in its latest response that the current fund-raising expansion investment is used to purchase more and more advanced equipment to further improve the production capacity and level of intelligence and digitalization of the newly built production line. There is no overlap in the investment content, and the production capacity planning is reasonable.

Regarding this fund-raising, which is also being invested in the construction of the R&D center, Zhimingda said that the quantity, quality, and condition of the existing software and hardware equipment in the R&D center can no longer meet the needs of the company's R&D work in the next 3 to 5 years.

Therefore, the 60 million yuan raised will continue to be used to complete the addition and upgrade of the software and hardware equipment facilities of the R&D center. In addition to this, 120 million yuan of the amount raised in refinancing will be used to supplement working capital.

Zhimingda: Gross margin recovery in 2024 is still unlikely

The “Science and Technology Innovation Board Daily” reporter noticed that Zhimingda said in various channels such as the results conference that the company's business scale is growing rapidly and downstream demand is strong. As of the end of the reporting period for the third quarter of 2023, it had orders of 550 million yuan (including oral orders). Entering the fourth quarter, the company also had new orders.

In response to investor research, Zhi Mingda said that from an industry perspective, benefiting from the integrated development of mechanization, informatization, and intelligence in the “14th Five-Year Plan” equipment, there is a large market space for information technology in the field of special electronics. It believes that the industry's development trend will gradually improve.

At present, many of Zhimingda's main models have been finalized. It is expected that the next 3-5 years will bring considerable output value to the company.

Zhimingda also announced on December 20, 2023, that it has received orders for related tasks from customers. The targets of the task demand orders are airborne embedded computers, and modules related to in-vehicle embedded computers; the total amount is about 133 million yuan, accounting for 24.58% of the company's audited revenue in the most recent fiscal year.

The “Science and Technology Innovation Board Daily” reporter noticed that although downstream demand is expected to improve, due to the nature of its downstream customers and the objective situation in the field of special equipment, Zhimingda's overall gross margin has declined continuously in recent years, and the increase in accounts receivable has expanded rapidly. Some institutional analysts have told reporters that procurement of special equipment has already entered the adjustment stage, and it may be difficult for the military sector to return to the rapid growth trend in the future.

Zhimingda said in response to the review inquiry that this is due to the impact of the repayment rhythm of downstream customers. From 2020 to the first half of 2023 (hereinafter referred to as the reporting period), the company's accounts receivable book balances were RMB 211 million, RMB 320 million, RMB 486.4 million, and RMB 500 million respectively, accounting for 65.08%, 70.72%, 89.88%, and 727.96% of current revenue, respectively. The increase was high in the first half of 2023.

Affected by the characteristics of customized production of products in key areas, Zhimingda's inventory balances were 120 million yuan, 240 million yuan, 350 million yuan, and 364 million yuan respectively during the reporting period, and inventory turnover ratios were 1.23, 0.97, 0.88, and 0.37 respectively, showing a downward trend year by year, and the decline was significant in the first half of 2023.

In addition, Zhimingda also said that due to factors such as an increase in the localization ratio, raw material prices rose and gross margin declined. The gross margins of the company's main business were 63.16%, 61.08%, 51.95%, and 51.54% respectively during the reporting period.

It should be noted that the estimated gross margin of the “embedded computer capacity expansion supplementary investment and construction project” to be raised in the company's refinancing plan is 50.78%, which is lower than the actual gross profit margin of the past three years, and there are certain operating risks.

In response to the above situation presented by the company's operations and questions such as whether its gross margin is expected to rise this year, the “Science and Technology Innovation Board Daily” reporter called the director of Zhimingda as an investor. The relevant staff said, “The company is facing an industry-wide decline in gross margin, which is mainly affected by the decline in procurement prices for customers in the downstream specialty sector, causing some of the company's new models to be priced even lower than the old models.”

The staff mentioned above said that the price and gross margin of different models of products in different projects are very different, so the company's gross margin situation in 2024 can only be predicted from an overall perspective.

“Downstream demand expectations are positive. There is no problem with overall gross margin stabilizing, but there is still little chance of a recovery this year.” Its staff said.