cryptogamecom| Oulai New Materials is issued at a discount, and fluctuations in raw material prices test the company's cost management capabilities

Source: red magazine finance and economics

By Wang Zongyao

Although the fluctuation of raw material prices has a significant impact on the performance of Oulai New Materials, the prospect of the industry is very optimistic.

On May 8, Oulai Xincai issued a "notice on the listing of RMB ordinary shares of Guangdong Oulai High-tech Materials Co., Ltd.", saying that it will be listed and traded on May 9, 2024 under the stock code "688530". As a company whose main business is R & D, production and sales of high-performance sputtering targets, the successful listing of Oulai New Materials means that A-share new materials industry has added new members.

Have a large number of high-quality customers

The net profit of the shareholders belonging to the parent company continues to grow.

The products of Oulai New Materials mainly include copper targets, aluminum targets, molybdenum and molybdenum alloy targets and ITO targets of various sizes and shapes. The products can be widely used in semiconductor display, touch screen, architectural glass, decorative coating, integrated circuit packaging, new energy cells and solar cells.

From the perspective of the industry prospect, the global sputtering target market has maintained a sustained growth trend. According to data from Huajing Industrial Research Institute and China Business Industrial Research Institute, from 2016 to 2023, the global market for sputtering targets increased from US $11.3 billion to US $25.8 billion, with an annual compound growth rate of 12%.Cryptogamecom.52%. However, in terms of market share distribution, large multinational companies represented by JX Metals, Honeywell, Dongcao and Plex together occupy about 80 per cent of the global market share.

In addition, the forward-looking Industrial Research Institute predicts that with the production capacity transfer of display panels, the acceleration of semiconductor localization and the rising prosperity of the solar cell market, the demand for high-performance sputtering targets in the downstream market will continue to increase. The market of high-performance sputtering targets in China has a broad prospect from 2021 to 2026. It is expected that the market will grow to 65.3 billion yuan in 2026, with an annual compound growth rate of 15.0%.

According to the prospectus, the business income of sputtering targets ranked fourth among domestic sputtering target manufacturers in 2022, and ranked second among domestic sputtering target manufacturers in 2021. According to the certificate of China Electronic Materials Industry Association, according to sales statistics, Oulai New Materials 2021 flat display copper target products ranked in the forefront of domestic manufacturers.

In the customer list of Oulai new materials, including mainstream manufacturers of semiconductor display panels such as Beijing Oriental, Huaxing Optoelectronics, Huike and beyond Horizon, well-known touch screen manufacturers such as Ultrasonic Electronics, Laibao Hi-Tech and Southern Glass Group, and leading architectural glass manufacturers such as AGC (Asahi nitrate) and Southern Glass Group are all on the list. The existence of these high-quality customers ensures the sustainable development of the enterprise to a certain extent, 2020 to 2023. The company's revenue maintained a sustained growth trend, with year-on-year increases of 52.75%, 55.44%, 2.5% and 21.5%, respectively. The net profit of shareholders belonging to the parent company increased by 370.68%, 129.07% and 39.69% in 2020, 2021 and 2023 respectively (see attached table).

However, the existence of high-quality customers is sometimes a double-edged sword, which not only brings a lot of revenue for the company, but also may bring the practical problems of high customer concentration and accounts receivable management.

According to the prospectus, from 2021 to 2023, Oulai's main business sales to the top five customers were 235.4634 million yuan, 249.8456 million yuan and 252.8168 million yuan respectively, accounting for 70.42%, 70.03% and 66.86% of the current main business income, respectively.

On the issue of customer concentration, Oulai Xincai said: "in the future, if the company's product and service quality does not meet the requirements of the major customers, the cooperative relationship between the two parties will undergo significant adverse changes, reduce or stop purchasing from the company, or the major customers will not renew their contracts or breach of contract due to the deterioration of their operating conditions and financial conditions, or the business scale of the major customers will decline due to adverse changes in the downstream display panel industry." The company will face risks such as reduction or loss of customer orders, which will adversely affect the daily operation of the company. "

As for the management of accounts receivable, it also said, "the scale of accounts receivable is generally large." In the future, if the customer has operational difficulties, the financial situation deteriorates or the company's accounts receivable are improperly managed, the company may face the risk that accounts receivable can not be recovered on schedule or bad debts can not be recovered, which will affect the company's operating performance and the normal turnover of funds. "

The cost of direct materials is relatively high.

The net interest rate of sales increases steadily.

The revenue of Oulai New Materials increased rapidly during the reporting period, but by the end of 2023, the company's revenue was still less than 500 million yuan. By contrast, the revenue of Jiangfeng Electronics, a comparable company in the same industry, has reached 2.324 billion yuan, Longhua Technology has reached 2.301 billion yuan, and Ashchuang has reached 695 million yuan.

According to the composition of the company's main revenue items, it is composed of copper target, aluminum target, molybdenum and molybdenum alloy target, ITO target, residual target, and so on. Among them, copper target is the most important revenue contributor. From 2021 to 2023, the income share of aluminum target, molybdenum and molybdenum alloy target has gradually decreased in recent years, and the combined proportion of 2023 has been less than 20%.

It should be pointed out that in the past few years, the company is still in a weak residual target in the composition of revenue, but it has risen rapidly in the past two years. According to the prospectus, in 2022 and 2023, Oulai new materials accounted for more than 20% of the revenue from residual targets, and the overall amount exceeded the combined sales revenue of aluminum targets, molybdenum and molybdenum alloy targets.

"affected by the long time interval between the issuance of purchase orders for major raw materials and the main business costs of product production and sales, as well as residual target business model and residual target accounting treatment, the impact of price fluctuations of major raw materials on the company's main business costs is lagging behind." Oulaixin said in its prospectus that in order to simplify management and improve transaction convenience, it is usually shown that downstream customers such as panel manufacturers will agree with suppliers that the residual targets will be recycled free of charge by the target suppliers after the sputtering target has been used, and that the supplier will handle the residual targets on their own, and the value of the residual targets has been taken into account in the process of determining the sales price of the sputtering targets by both parties.

According to the prospectus, the main raw materials needed for the production of Oulai new materials include copper, indium ingots, aluminum, molybdenum powder and so on.CryptogamecomHe molybdenum raw materials and niobium powder and other niobium raw materials, the prices of these raw materials are mainly affected by related metal commodity prices, supply and demand and other factors. During the reporting period, the amount of direct materials in the company's main business costs was 119.3053 million yuan, 173.2586 million yuan and 213.8151 million yuan respectively, accounting for 74.43%, 74.36% and 77.94% of the main business costs, respectively.

In terms of the cost composition of Oulai new materials, the proportion of direct materials is more than 70%, but in recent years, the manufacturing cost has increased year by year from amount to proportion, while the direct material cost has decreased in 2023. Direct labor and manufacturing costs have increased greatly in 2023.

In terms of period expenses, the sales expenses of Oulai new materials continue to decline with the continuous growth of income; in terms of management expenses, as the company's income increases, it increases in 2022 and decreases to a certain extent in 2023; in terms of R & D expenses, the company has some control on R & D investment in 2023, and R & D expenses are lower than the same period last year. In terms of financial expenses, the first two years were negative, the company had a certain amount of interest income, but it became positive in 2023, the overall interest payment of the company increased, and the financial pressure increased.

Among the main raw materials purchased by Oulai New Materials, copper accounted for 75.8% and 67.68% of its raw material purchases in 2022 and 2023, followed by indium ingots, accounting for 7.05% and 6.96%, respectively. According to the company, the purchase price of copper increased by 4.85% in 2021, while that of indium ingot rose by 26.71%. In 2022, the purchase price of copper increased by 4.72%, and that of indium ingot by 18%. Copper prices fell by 9.71% in 2023, while indium ingots rose by 3.13%. Under the influence of the above factors, from 2021 to 2023, the gross profit margin of its main business was 30.32%, 23.10% and 22.46% respectively, and the gross profit margin decreased significantly.

With regard to the impact of changes in raw material prices, Oulai New Materials pointed out in the prospectus, "in the future, if the company's major raw material prices continue to fluctuate sharply, the company will not be able to transmit the raw material price fluctuations to the downstream in time." or if the price of the company's main raw materials falls sharply or forms an obvious downward trend, although it can reduce the purchase price of the company's main raw materials, downstream customers may ask the company to reduce the price of its products. Or if the balance price and production access price of the main raw materials in the company's inventory are relatively high, it will lead to an increase in the direct material cost carried forward to the main business cost during the sale of the company's products and a decrease in the direct material cost offset by the residual target. all of the above situations will lead to a decline in the gross profit margin of the company's products, which will adversely affect the profitability of the company. "

It is worth mentioning that, compared with the decline in the gross profit margin of the main business, the company's net sales profit margin is relatively good. From 2020 to 2023, the net sales profit margin reached 8.96%, 13.20%, 9.01% and 10.36%, respectively.

Issue and list at a discount

The stock price is more flexible.

According to the initial public offering announcement of Oulai Xincai, the number of shares in this issue is 40.0112 million shares, with a total share capital of 160.0448 million shares, accounting for 25% of the total share capital after the issue; the issue price is 9.60 yuan per share, and the price-to-earnings ratio is 41.44 times.

According to the total equity of 160 million yuan and the issue price of 9.60 yuan per share, the overall valuation is 1.536 billion yuan. If calculated according to the price-to-earnings ratio of 41.44 times, its net profit as long as more than 37 million yuan can support this valuation. In fact, the net profit of Oulai New Materials exceeded 49 million yuan in 2023, which means the company is issuing at a discount.

In terms of revenue, the compound growth rate of revenue from Oulai from 2021 to 2023 was 7.59%; in terms of net profit, the compound growth rate from 2021 to 2023 was-0.76%. The result of income increase without profit increase during the reporting period means that enterprise cost management is particularly important. If the net profit margin and net asset scale can be effectively improved, the future valuation will increase significantly.

It is worth mentioning that discounted companies tend to perform better than high-priced companies after listing, and share prices tend to rise well on the first day of listing. For example, Baitong Energy, which is listed on the main board of the Shenzhen Stock Exchange in November 2023, has a total share capital of 460.9 million shares after its initial public offering, with a price-to-earnings ratio of 20.99 times and an offering price of 4.56 yuan per share. After its listing, it was sought after by funds, with an increase of 753.07% on its first day of listing. As of April 25, 2024, the share price had fallen back to 20.05 yuan per share, an increase of 339.69% compared with the issue price.

In addition, according to the Oulai new materials prospectus, this investment project is expected to use the raised funds of 577 million yuan, due to this discount issue, according to the issue price of 9.60 yuan per share and the number of new shares issued, it is expected to raise 384 million yuan, after deducting the issuance expenses, the amount of funds raised by Oulai new materials is still a certain distance from the amount needed to raise money for the project.

In short, how will the valuation of Oulai Xincai, which was listed on May 9, perform? It's worth looking forward to.