“Science and Technology Innovation Board Daily”, June 21 (Reporter Yu Jiaxin) Business transformation continued despite loss in performance. On June 19, Li Yuanheng disclosed the response to the annual report inquiry letter. The Shanghai Stock Exchange raised questions about the company's gross profit margin, current orders, top five customers, accounts receivable, inventory, balance ratio, etc., and asked them to explain the comparable gap with the same industry.

In 2023, Li Yuanheng increased revenue without increasing profit, achieving operating income of 4.994 billion yuan, an increase of 18.81% year on year; net loss of 188 million yuan, a year-on-year decrease of 164.94%. In the first quarter of this year, the company's performance continued to decline, with a net loss of 188 million yuan.

“Our goal this year is definitely to do everything in the direction of improving performance. Whether it's from order signing or internal operation management, it's all about reducing costs and increasing efficiency. There were month-on-month and year-over-year improvements in various indicators, but in terms of individual net profit indicators, there were indeed losses in both the year and the first quarter.” A person from Li Yuanheng's securities department told the “Science and Technology Innovation Board Daily” reporter.

Some industry insiders told the “Science and Technology Innovation Board Daily” daily reporter that inquiries about Li Yuanheng also reflect the current fierce competition on photovoltaic and lithium battery circuits, and it is worth paying attention to how companies can carefully lay out in this context.

▍ Business transformation was questioned

According to information, Li Yuanheng was founded in 2018. Since 2020, the company has transformed from consumer lithium battery equipment business to power lithium battery equipment, and has received mass production orders from leading power lithium battery customers such as BYD, Ningde Times, and Guoxuan Hi-Tech. Since 2022, Li Yuanheng has begun to move from lithium battery products to photovoltaics and other fields.

In terms of revenue composition, in 2023, Li Yuanheng Power's lithium battery business revenue was 3.406 billion yuan, an increase of 121.84% over the previous year, making it the main revenue driver.

However, the increase in revenue from Li Yuanheng's lithium battery business did not lead to an increase in overall performance. According to the announcement, in 2023, Li Yuanheng's gross margin and net profit after deduction were both larger than those of comparable companies in the same industry (Pioneer Intelligence, Hangke Technology, Yinghe Technology, and Cree Technology).

Li Yuanheng gave various explanations for the decline in performance, including the lack of large-scale effects in the power lithium battery sector, low gross margin of power lithium batteries, low share of overseas revenue, and high management and financial expenses.

In terms of product composition, the company specifically mentioned that in terms of power lithium battery equipment, the company's standardized model products account for a significant proportion of the company's front-middle class products. However, under the same circumstances in the downstream application field, the gross margin of equipment in the middle and back end of the lithium battery production line is relatively high due to the high degree of customization and relatively low degree of competition. The company is expanding its mid-stage process equipment.

However, in this context, the company continues to enter the photovoltaic circuit. In 2023, Li Yuanheng's sales revenue in the photovoltaic sector was 29.915 million yuan. The annual report shows that in 2023, Li Yuanheng will continue to increase resource investment in equipment such as machine-processing automated production lines such as monocrystalline silicon rods, slicing, and cutting, and photovoltaic intelligent storage in the early stages of photovoltaics.

In response, the Shanghai Stock Exchange requested Li Yuanheng to explain the main considerations and market competitiveness of moving into lithium power batteries and continuing to increase investment in photovoltaic equipment.

Li Yuanheng said that battery manufacturing, whether lithium batteries, photovoltaics, or energy storage batteries, includes processes such as cell manufacturing, assembly, inspection and assembly. They have common points in technical points such as coupling control, flexible manufacturing, precision molding, and imaging inspection. Intelligent production management is also inseparable from intelligent storage technology, IoT technology, and digital twins. The company already has these platform-based technologies. At the same time, the company's accumulation of production experience, project experience, core technology, R&D system, and brand image in the field of lithium battery manufacturing equipment can help the development of the photovoltaic cell manufacturing equipment business.

According to the disclosure, as of May 31, 2024, the company's on-hand orders amounted to 5,017 billion yuan. Among them, orders for lithium power equipment are in hand for 3.149 billion yuan, and for the photovoltaic sector, there are on-hand orders of 220 million yuan. Li Yuanheng admits that the amount and share of revenue from manufacturing equipment in the photovoltaic sector currently does not constitute the company's main source of business revenue.

▍ Fierce competition on photovoltaic and lithium battery circuits

In fact, it is not uncommon for companies to deploy lithium batteries and photovoltaic equipment at the same time. Some industry insiders told the “Science and Technology Innovation Board Daily” reporter that inquiries about Li Yuanheng also reflect the current fierce competition in the photovoltaic and lithium battery circuit, and it is worth paying attention to how the company carefully lays out in this context.

Take lithium batteries as an example. Since 2023, the overall performance of lithium battery companies has been under pressure, and many companies have sought to open up new tracks. Among them, Hummer Star, which also focuses on lithium battery devices, recently disclosed an announcement about the layout of medical laser equipment across fields.

Looking at photovoltaics, although photovoltaic equipment companies are currently benefiting from rising PV installations and their performance is on the rise, industry insiders warned that if there is an oversupply in the industry and price competition is too intense, downstream manufacturers may reduce production expansion plans, and demand for photovoltaic equipment will also be affected.

In this context, the industry's low-end production capacity is expected to be cleared at an accelerated pace. On June 20, Li Chuangjun, director of the New Energy and Renewable Energy Department of the National Energy Administration, said at the press conference of the State Information Office that currently, China's photovoltaic industry is indeed fiercely competitive. In order to guide the healthy development of the industry, we will work with relevant departments to organize industry associations to publish information such as industry size, capacity utilization rate and market demand in due course to reasonably guide the construction and release of upstream PV production capacity, avoid repeated construction of low-end production capacity, and strive to create a favorable market environment. Regarding lithium batteries, the Ministry of Industry and Information Technology publicly solicited opinions on the lithium battery industry specification conditions and administrative measures (draft for comments) on May 8. Among them, it is proposed to guide enterprises to reduce manufacturing projects that simply expand production capacity, strengthen technological innovation, improve product quality, and reduce production costs.

The “Science and Technology Innovation Board Daily” reporter noticed that the expansion of overseas markets and new technologies has become a “killer weapon” for current enterprises. Among them, Autoway, which mainly focuses on photovoltaic equipment, recently disclosed a semi-annual report showing that the company's revenue and net profit both increased in the first half of the year. A person in its securities department mentioned that the company has accelerated its expansion of overseas markets in recent years, and the overseas market situation this year is more optimistic than in the same period last year.

Looking back at Li Yuanheng, according to the announcement, as of May 31, 2024, Li Yuanheng's overseas business accounted for 20.68% of the order amount in hand. A person from the securities department told the “Science and Technology Innovation Board Daily” reporter, “The company's share of overseas order business is gradually increasing, and now it is gradually being tested, so revenue is also gradually increasing. Overseas revenue should also increase relatively, but in the end, the amount still depends on the published data.”

In terms of new technology, the annual report shows that Li Yuanheng is currently developing 19 projects. Application prospects include new energy vehicles, power batteries, photovoltaics, energy storage, and large cylindrical batteries.

The announcement revealed that in terms of dry electrode equipment and press transfer equipment for solid-state batteries, the company is currently docking solutions or providing related equipment with BYD, GAC Aian, Suzhou Qingtao New Energy Technology Co., Ltd., and Guoxuan Hi-Tech; in the perovskite direction, Li Yuanheng's laser marking machine and laser edge cleaning machine have completed laboratory verification in Ningde Era.

▍ The financial situation is not optimistic

Exploring new fields requires continued steady cash flow support. The “Science and Technology Innovation Board Daily” reporter noticed that Li Yuanheng's current financial data is not optimistic. Among them, various indicators such as accounts receivable, inventory, and balance ratio have been questioned.

According to the annual report, the company's balance ratio in 2023 was 75.62%. At the end of 2023, the amount of the company's non-current liabilities due within one year was 597 million yuan, an increase of 197.93% over the previous year; the total amount of long-term and short-term loans was 1,287 million yuan, an increase of 51.80% over the previous year. Financial expenses of 66.1129 million yuan were incurred in the current period, an increase of 424.30% over the previous year.

In 2023, the net cash flows from the company's operating activities were -1,244 billion yuan, respectively. Li Yuanheng said that it is mainly because the sales repayment schedule lags behind the product's sales progress, and the repayment cycle in the power lithium battery sector has been lengthened. However, investments such as raw materials and personnel expenses are relatively advanced, and the settlement period with suppliers is relatively short, resulting in negative cash flow from the company's operating activities.

According to disclosed data, the repayment cycle for consumer lithium batteries is mainly 3-6 months, the repayment cycle for power lithium batteries is 3-12 months, and the repayment period for photovoltaics is 6-18 months.

Looking at accounts receivable, the “Science and Technology Innovation Board Daily” reporter noticed that BYD may account for a large proportion of Li Yuanheng's accounts receivable. According to the announcement, Client B's accounts receivable and contract assets were 880 million yuan, and the repayment amount as of the end of May this year was 195 million yuan. According to the customer's business conditions disclosed in the announcement, it can be inferred that customer B may be BYD.

In response, Li Yuanheng said, “Since downstream NEV lithium battery manufacturers have been in a period of rapid expansion in recent years, and they are strong industry leaders, the production plans of some customers corresponding to the inspected equipment have changed, which has affected the customer's cash flow recovery plan. Therefore, the customer negotiated with the company to extend the repayment cycle.”

As of May 31, 2024, the total amount of credit granted by Li Yuanheng was 2.8 billion yuan, with an unused credit limit of $2.07 billion and an unused credit line of 730 million yuan.

Some industry insiders told the “Science and Technology Innovation Board Daily” reporter that the company's losses may affect its R&D progress and new technology layout. According to the data, in the first quarter of 2024, Li Yuanheng's R&D expenses were 107 million yuan, compared to 136 million yuan in the same period last year. R&D expenses declined.

However, regarding the overall situation this year, a person from the company's securities department mentioned to the “Science and Technology Innovation Board Daily” reporter that the overall gross margin is expected to increase this year. On the one hand, internal cost reduction and efficiency are increasing. At the same time, in terms of product structure, judging from orders received this year, there has been a change in the state where single power lithium batteries account for a large share of revenue last year. “This year, our share of smart storage equipment and consumer lithium battery equipment with high gross margins will increase.”