Relying on government subsidies to support performance, how much can Poly can go?

Famous economist Song Qinghui frankly stated that Jucan Optoelectronics has a situation that depends heavily on government subsidies to support performance. If the company no longer has the relevant preferential or subsidy conditions, not only its profit level will be directly plunged, but it may also cause a huge negative impact on the company's business development, which in turn will affect the long-term healthy development of the company.

Recently, Polycan Optoelectronics Technology Co., Ltd. (hereinafter referred to as "Poly Solar") disclosed the prospectus in the official website of the China Securities Regulatory Commission, which means that Polycan Optoelectronics formally launched an impact on the A-share market. However, in the recent years, the operating performance of Jucan Optronics Co., Ltd., which is listed and fluctuates, has fluctuate greatly. In particular, the government subsidies accounted for a relatively large portion of the performance, which means that it has a lot of meaning to eat. In addition, due to the intensified competition in the industry as a whole, the sales price of the main products of Jucan Optoelectronics continued to decline, causing the company's main product gross margin to continue to decline. According to industry insiders, if the price of the main products of Polycan Optoelectronics continues to decline in the future, the company's future development will face certain pressure.

Government grants

PolyCan Optoelectronics, which intends to land on the ChiNext, hides some "funny" behind the steady increase in revenue, which inevitably leaves investors with doubts about the company's profitability.

According to the prospectus disclosed by Jucan Optoelectronics, the operating revenue of the company has been growing steadily in the past three years. The operating revenue from 2014 to 2016 was approximately 296 million yuan, 351 million yuan and 480 million yuan respectively, in 2015 and 2016. Operating income increased by 18.81% and 36.61% respectively over the previous year. However, the reporter found that there seems to be some "fake" behind the growth figures. The data show that in 2014, 2015 and 2016, the operating profit of Jucan Optoelectronics was respectively 38,822,200,000, 62,153,300 and 3,551,710,000, and the total profit was 65,031,000, 27,126,600 and 69,485,500 respectively. Based on a rough calculation, during the reporting period, Poly Solar's operating profits accounted for a small proportion of total profit.

After comparison, it was found that the above situation was related to the fact that Poly Solar had obtained government subsidies in recent years. During the period of 2014-2016, the amount of government subsidies included in non-operating income of the company was 25.333 million yuan, 26,783,700 yuan and 33,304,500 yuan respectively, accounting for 38.96%, 98.6% and 47.8% of the total profits for the current period.

The data show that in 2014, 2015 and 2016, Jucan Optoelectronics achieved net profit of approximately 57,048,800 yuan, 23,417,300 yuan and 60,608,500 yuan respectively, and the corresponding net profit after deduction was 34,004,900 yuan and 1517.76 respectively. Ten thousand yuan and 31,624,500 yuan. It is not difficult to see that in the period from 2014 to 2016, the amount of non-recurring gains and losses of Jucan Optronics has a significant impact on the company's operating results, and the company’s non-recurring gains and losses are mainly government subsidies that are included in the current profit and loss. In 2014-2016, the government subsidy included in the current profit and loss of Jucan Optoelectronics was 25.333 million yuan, 26,783,700 yuan and 33,116,200 yuan respectively.

In this regard, the famous economist Song Qinghui frankly stated that Jucan Optronics has a situation that depends heavily on government subsidies to support performance. If the company no longer has the relevant preferential or subsidy conditions, not only its profit level will be directly plunged, but it may also cause a huge negative impact on the company's business development, which in turn will affect the long-term healthy development of the company.

In response to government subsidies, Wang Jianhui, director of the First Securities Research Institute, told reporters in an interview that government subsidies include R&D, marketing, infrastructure investment, and even tax returns. If it is a mature company, Faced with temporary difficulties, such as the iron and steel industry, relying on government subsidies to maintain profitability or low profit levels, the government may use tax rebates and other special one-time subsidies to ensure that the company will not fail, playing a role in maintaining stability or smooth transition. Especially for enterprises closely related to the local economic and social stability, government subsidies may be higher. Under such circumstances, it is acceptable to rely on government subsidies to seek profit in a short period of time. Looking at the current situation, Jucan Optoelectronics is still a growing company. Excessive reliance on government subsidies to achieve profitability is debatable and investors must be cautious.

Main product prices continued to decline

In addition to relying on government subsidies to cover up the performance, due to the influence of market conditions, the sales price of the main products of Jucan Optoelectronics continued to decline, and the company's future development may have certain hidden troubles.

As a manufacturer of LED chips, Jucan Optoelectronics' main revenue mainly comes from the sales of LED chips and epitaxial wafers. The data shows that the operating revenue of the chips in 2014-2016 was 237 million yuan, 245 million yuan and 286 million yuan, respectively. The ratios were 90.13%, 77.44%, and 68.92% respectively. The operating income of the epitaxial wafers achieved in 2014-2016 was 10,259,000 yuan, 5,185,500 yuan and 105 million yuan respectively, accounting for 3.9%, 16.42% and 25.23% of the operating income for the current period.

Affected by the relative overcapacity of the LED industry, especially the epitaxial chip segment, and the intensified competition in the industry, the sales prices of the company's LED chips and epitaxial wafer products have dropped significantly. Data shows that the sales price of the chip in 2014 was 314.83 yuan per piece. In 2015 and 2016, the sales unit price of the product was RMB 224.95 per unit and RMB 143.51 per unit respectively. The sales unit price in 2015 decreased 28.55% year-on-year from 2014, and the unit sales price of the chip in 2016 decreased by over 30% year-on-year.

In addition, the sales unit price of Polycan's optoelectronic wafers has also continued to decline. According to the data, the sales price of the wafers sold by Jucan Optoelectronics was RMB 170.7/piece in 2014, and it decreased to RMB 127.02/piece in 2015, a decrease of approximately 25.59% year-on-year. By 2016, the decline in unit sales price of this product continued to decrease to 93.57 yuan per piece, a decrease of 26.33% year-on-year. During the three years, the cumulative sales price of epitaxial wafers dropped by as much as 45.18%.

It is worth noting that although the company's operating income continues to increase, but in the case of the company's main product sales prices continue to decline, Jucan Optoelectronic's main product gross margin has also continued to decline. The prospectus shows that the gross profit margins of the chips in 2014-2016 were 34.32%, 26.44% and 18.24%, respectively, and the gross profit margins of the wafers were 28.97%, 26.4% and 27.96%, respectively.

In the opinion of an analyst who did not wish to be named, in the context of falling sales prices of the entire LED chip industry, in order to gain more market share, Poly can adopt the strategy of “low-price competition” or out of frustration. Lift.

Song Qinghui believes that if Jucan Optoelectronics continues to adopt the “low-cost sales” approach to gain market share, it will have a certain impact on the future development of the company. Looking at the market, Jucan Optoelectronics should seek greater market share and a more healthy development momentum by taking the path of differentiation and innovation.

Wang Jianhui said that like dripping, sharing bicycles, etc., just started below the cost price, the purpose is to occupy the market, but the premise is innovative business models, products or innovative services, if a market is not very large or medium-sized companies, To take market share through price wars, there is a certain degree of risk.

350 million fund-raising capacity expansion

The prospectus shows that Jucan Optoelectronics plans to publicly issue shares of no more than 64.33 million shares and raise funds of 350 million yuan. After deducting the issuance costs, it is used for the company's LED epitaxial wafers and chip R&D, production and sales projects. For the rationality of the fundraising project, Jucan Optoelectronics stated that it is beneficial to the company to improve product levels, improve the LED industry upstream industry chain, reduce product production costs, expand the company's overall production capacity, and increase market share.

Jucan Optoelectronics also stated that after the current production of all MOCVD equipment is completed, the annual output of LED epitaxial wafers will reach 3 million (equivalent to 2 inches). According to the plan of Polycan Optoelectronics, if the fundraising project is completed, the implementation of the raised capital investment project will increase the company's epitaxial wafers and chip production capacity of 1.8 million pieces (equivalent to 2 inches).

Although the production utilization rate of Polycan photoepitaxial wafers and chips are at a relatively high level, they have not reached a fully saturated state. Specifically, the production capacity of the epitaxial wafers in 2014-2016 was 1.122 million pieces, 1.914 million pieces, and 3.181 million pieces respectively. The output was divided into self-produced and OEM versions, which totaled 1,095,500 pieces, 1,886,400 pieces, and 310.55 pieces. Million, the product's capacity utilization rate was 97.64%, 98.56% and 97.63% respectively. In addition, the chip's capacity in 2014, 2015, and 2016 were 850,000, 1.24 million, and 1.81 million respectively. During the reporting period, the chip's capacity utilization rate was 97.01%, 97.84%, and 95.87%.

It is understood that Jucan Optoelectronics mainly adopts the sales model of sales to production, and customers mainly use LED packaging manufacturers. "If the model is based on sales, there is some uncertainty in whether or not the company can achieve the expected results after a substantial expansion of the company's production capacity. If the sales scale does not reach the expected results after expansion, it will result in certain development of the company. Due to the adverse impact, the scale of sales of the company may face certain challenges in the future,” said the analyst.

Song Qinghui also stated that under the background of the current overcapacity of the LED chip industry as a whole and the falling prices of LED chips, Jucan Optoelectronics plans to raise 350 million yuan for the LED chip R&D project after listing. This practice has extremely high risks. Sex, or there may be less than expected results.

Wang Jianhui believes that in the fierce competition environment, the significance of expanding market share through capacity expansion is not significant. An industry that competes by burning money or price wars is suicidal for small businesses. The key lies in whether there is technical support or business model support.

In response to the company's related issues, the reporter had interviewed Jucan in the form of an interview letter. However, as of press time, the other party did not make any reply.

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