Apple supplier Lantech Optics knocks on the door of the Science and Technology Innovation Board, heavily dependent on major customers

In the past two years, various cameras have become increasingly important parts that reflect the differentiation of consumer electronic terminal products. In addition, there is still a lot of room for development in my country's optical impact-related industries, so this industry is increasingly sought after by the capital market. Among them, related optical companies including Wufang Optoelectronics and Yutong Optics, which passed the IPO last year, as well as many manufacturers such as Sunny Optical, O-Film, and AAC Technologies, which have long been among the first-tier companies, are increasing their investment in the optical field.

Recently, another optical company, Zhejiang Lantech Optics Co., Ltd. ("Lanttech Optics"), has "knocked on the door" of the Science and Technology Innovation Board. A few days ago, Lantech Optics' IPO application for the Science and Technology Innovation Board has entered the inquiry stage, and from the two rounds of inquiries it has gone through, it is found that Lantech Optics' IPO journey is not smooth.

Over-reliance on major customers leads to significant fluctuations in performance

According to information, one of Lantech Optics' main product types is optical prisms, and the main customer for this type of product is the AMS Group, which is ultimately used in related products of Apple, a giant in the consumer electronics industry.

It is reported that in January 2017, Apple, AMS Group and Lantech Optics signed a tripartite agreement to stipulate the information disclosure and confidentiality terms of the long prism project. During the reporting period, Lantech Optics' long prism products were mainly sold to AMS Group and eventually used in Apple's related products.

In 2017, 2018 and 2019, the sales revenue from the top five customers of Lantech Optics accounted for 81.37%, 74.54% and 68.17% of its operating income respectively, mainly including AMS Group, Corning Group, Magna Group, Sunny Optical Group, Kunming Tengyang Group and other well-known manufacturers in the industry. Among them, the orders from AMS Group basically maintained at about 40%-50% of its revenue.

Lantech Optics even stated in its prospectus: "The order volume of the largest customer AMS Group has a great impact on the company. At present, the company has been planning to expand new business areas and downstream customers. However, in the short term, if the company's product development capabilities and product production quality do not meet the requirements of major customers, resulting in major adverse changes in the cooperative relationship between the two parties, or if the major customers' own operating conditions in the future have major adverse changes, resulting in a sharp decline in direct order demand for the company, it may have a significant adverse impact on the company's operating performance."

In fact, such an impact has indeed occurred. As can be seen from the above table, in the past three years, the amount and proportion of Lantech Optics' revenue to AMS Group have been declining year by year.

Lantech Optics explained that since 2018, affected by the previous product pricing strategy and intensified market competition, Apple's smartphone shipments have declined year-on-year, and future market expectations have also decreased. In addition, with the continuous production and supply of downstream products, AMS Group's production level has improved, resulting in a significant increase in yield.

"Due to the fact that the sales of terminal products did not meet expectations and the previous inventory was large, the AMS Group purchased the company's products and formed a certain inventory that needed to be digested. At the same time, with the improvement of the AMS Group's supply chain management requirements, in 2019, its inventory of the company's long prism products was adjusted from 2 months to 2 weeks, reducing the new purchases. The main products sold by the company to the AMS Group are relatively single. Although new projects in the fields of deep-processing glass wafers and microprisms developed in cooperation with the AMS Group have made certain progress, they have not yet been mass-produced due to factors such as the product launch cycle of downstream customers. Affected by the aforementioned factors, the company's orders from the AMS Group decreased in 2018 and 2019, and sales revenue continued to decline." Lantech Optics added.

Although it has the support of orders from major customers, it is undeniable that compared with several competing companies, Lantech Optics is actually at a disadvantage in many aspects.

Gross profit is higher than peers, but overall strength is weak

As of the end of 2019, Lantech Optics' total assets were 874 million yuan, and its parent company's equity was 646 million yuan, which is a certain gap compared with major optical manufacturers at home and abroad. In addition, from the growth of Lantech Optics' revenue scale in recent years, it can be seen that its competitors Crystal Optech and Wufang Optoelectronics have more obvious advantages.

In addition, the optical component manufacturing industry is a capital-intensive and talent-intensive industry. Especially in the past two years, with the acceleration of technological upgrading and the intensification of industrial competition, the quality of financial strength has become an important factor affecting the results of corporate competition.

Lantech Optics' main customers are in the consumer electronics field. The characteristics of the industry chain determine that before the company obtains formal orders from downstream customers, it often needs to invest funds and manpower in technology research and development, equipment procurement, etc. Compared with listed companies in the same industry, it has the disadvantage of weaker financial strength.

In addition, the lack of technical patents has also become a major factor that has reduced the overall strength of Lantech Optics. As of the signing date of its prospectus, the company has 45 domestic and foreign patents of various types, including 8 invention patents, and has obtained 4 software copyrights.

At the same time, Jiwei.com found out from the information that Crystal Optech has applied for a total of 358 patents, of which 25 invention patents have been authorized and 242 utility model patents have been authorized; Wufang Optoelectronics has applied for a total of 197 patents, of which 18 invention patents have been authorized and 117 utility model patents have been authorized.

It is worth mentioning that Lantech Optics' comprehensive gross profit margin is much higher than that of its peers. It is reported that during the reporting period, Lantech Optics' main business income mainly came from the sales revenue of optical prisms, glass aspherical lenses, glass wafers, automotive rearview mirrors and other products, as well as other income including spherical lenses, glass flat sheets, molds, optical lenses, etc.

Among them, optical prisms are the most important component of the company's main business income, and the proportion of its main business income has always been above 62% in the past three years. Among them, the revenue from long prisms supplied to Apple accounts for more than 60% of the optical prism revenue, and the gross profit margins are 78.70%, 70.14% and 63.47% respectively.

Although thanks to Apple's endorsement and the considerable profit margin of such products, the gross profit margin of Lantech Optics' main products is generally higher than the industry level; however, it can be found that the gross profit margin of Lantech Optics' products has continued to decline, and the gross profit margin in 2019 has dropped by more than 15 percentage points compared with 2017. The reason is that this is directly related to the volatility of mobile phone market demand and the above-mentioned major customer AMS Group. Especially when Apple and AMS Group experience product fluctuations, Lantech Optics will also be greatly affected simultaneously.