The gross margin of BYD, a customer in the intelligent equipment business sector, decreased significantly year-on-year in 2023. The main reason for the low gross margin level is that the company entered the market at a low stock price in order to enter this customer's market and subsequent cooperation based on strategic orientation. The company's UK and Germany projects did not progress smoothly, and as of the end of 2023, accumulated inventory depreciation provisions for such projects amounted to 189 million yuan.
On June 26, Juyi Technology disclosed its response to the 2023 inquiry letter.
Juyi Technology's 2023 performance declined sharply, with operating income of 3.691 billion yuan and a net loss of 204 million yuan attributable to the parent company, turning a profit last year to a large annual loss for the first time since the company went public.
The Shanghai Stock Exchange made key inquiries into the reasons for the company's decline in operating performance. Juyi Technology said the performance decline was mainly due to a decrease in revenue from the new energy vehicle motor and electronic control parts business, a decrease in the gross profit margin of the intelligent equipment and new energy vehicle motor and electronic control parts business, which had a certain impact on the company's profit, as well as continuous increases in research and development spending and hefty asset impairment losses for individual projects in the intelligent equipment business.
Specifically, in 2023, revenue from Juyi Technology's new energy vehicle motor and electronic control parts business was 691 million yuan, a 16.17% decrease year-on-year.
In 2023, the new energy vehicle market was highly competitive. Juyi Technology admitted that the sales volume of its main products matched with some major customers' terminal markets declined, resulting in a corresponding drop in sales of the supporting designated vehicle product-lines. At the same time, Juyi Technology's new designated vehicle products are still in the research and capacity ramp-up phase and were unable to achieve large-scale sales in 2023.
As for improving its operating conditions, Juyi Technology said it would actively develop new customers and seek new designated vehicle models. At present, the company has obtained the designated models of major head companies in the domestic new car-making forces and the new designated models of existing customers such as Chery and Honda. At the same time, with the increase in the demand for the original vehicle models of clients such as Changan and Dongfeng, it is expected that the new energy vehicle motor and electronic control parts business will be effectively improved.
However, Juyi Technology also admitted that if the auto industry market declines, new energy vehicle penetration is lower than expected, or the delivery of its products and projects falls short of expectations, there may be further risks of decline in its future operating performance.
Both main business margins declined.
In 2023, Juyi Technology's comprehensive gross profit margin for its main business was 11.8%, a decrease of 5.86 percentage points from the same period last year. Among them, the gross profit margin of the company's intelligent equipment business declined by 6.33%, and the gross profit margin of the new energy vehicle motor and electronic control parts business declined by 7.6%.
Both main business gross margins showed different degrees of decline, and since Juyi Technology went public, its gross margin has continued to decline. Gross margins in 2021, 2022 and 2023 were 22.75%, 17.66%, and 11.8%, respectively. The Shanghai Stock Exchange made key inquiries into the company's decline in gross margin.
Juyi Technology explained that this is due to the impact of expanding the market for intelligent equipment business, entering the new car-making forces market, exploring new business areas, and product structure and delivery scale of new energy vehicle motor and electronic control parts.
As for the intelligent equipment business, Juyi Technology's top five clients in 2023 were NIO, Ideal, BYD, Client A, and Geely. By the first quarter of 2024, the top five clients changed to BYD, Volkswagen, Geely, Anhui Jianghuai Automobile Group Corp.,Ltd., and Xiaopeng. Revenue from BYD increased from 10.63% in 2023 to 33.18% in the first quarter of this year.
Juyi Technology also added that, in the intelligent equipment business sector, the client with a relatively large decline in gross margin level in 2023 was BYD. The relatively low gross margin level was mainly due to the company's strategic orientation, which chose to enter the market at a low stock price for subsequent cooperation with the client.
For the aforementioned reasons, the proportion of revenue from Chery and its affiliates in Juyi Technology's new energy vehicle motor and electronic control parts business sector increased from 12.74% in 2023 to 23.85% in the first quarter of this year.
The decline in gross margin of this business segment is also related to Chery. Jiuyi Technology stated that customers with a larger year-on-year decline in gross margin level in 2023 include Chery and its affiliates. The main reason for the lower gross margin level is that some products are affected by the decrease in terminal sales of specific vehicle models, and fail to achieve economies of scale and price reductions.
Large provision for impairment of overseas projects attracts attention.
Jiuyi Technology's annual report shows that the provision for inventory impairment was CNY 252 million in 2023, a year-on-year growth of 255.65%. The Shanghai Stock Exchange made a key inquiry into the company's situation, such as a large inventory balance at the end of 2023 and large provisions for individual projects.
According to the disclosure, Jiuyi Technology's inventory balance at the end of 2023 was CNY 3.155 billion, accounting for 40.55% of its total assets, and the inventory balance was relatively large. The company explained that this was due to the large amount of orders in hand at the end of the period, and the long delivery cycle of intelligent equipment business.
At the end of 2023, Jiuyi Technology's intelligent equipment business had orders in hand of CNY 5.686 billion, and the contract costs incurred for executing orders in hand were CNY 2.856 billion, accounting for 50.23% of the orders in hand for intelligent equipment business. In addition, the company's intelligent equipment is non-standard customized products, and the cycle is relatively long. At the end of 2023, the cost amount of unfinished projects was high due to the impact of delivery cycle, and the contract fulfillment cost was large.
It is worth noting that Jiuyi Technology has made large provisions for impairment in individual projects. According to the disclosure, these projects mainly include those implemented in the United Kingdom and Germany. By the end of 2023, the accumulated provision for inventory impairment for such projects was CNY 189 million.
Regarding the United Kingdom project, due to Jiuyi Technology's lack of experience in overseas project implementation and failure to timely meet the demand for overseas professional talents, the entire project delivery cycle was delayed compared to the plan, resulting in delivery disputes with the customer, and the two parties failed to reach agreement through consultation. Therefore, since the third quarter of 2023, the company has prepared a special provision for inventory impairment for this project, and the accumulated provision for inventory impairment by year-end was CNY 116 million.
As for the German project, Jiuyi Technology's prediction of the project's technical requirements, on-site management, language and culture was insufficient, resulting in serious deviation of the project cycle and continuous increase in costs. By the end of 2023, the company had made provisions for inventory impairment totaling CNY 73.1 million for the project. Jiuyi Technology also added that the project is currently in the final trial production stage, and if progress goes smoothly, there will be no further impairment risks.
In 2023, Jiuyi Technology's overseas main business income for the intelligent equipment business was CNY 215 million. By the end of 2023, the company's overseas orders in hand for intelligent equipment were about CNY 634 million.
Regarding overseas project management, Jiuyi Technology stated that measures have been taken to prevent similar incidents from happening again, such as establishing a customer risk and project risk review process, formulating project risk management processes and mechanisms, and establishing dedicated overseas project management teams in each business unit.