Filter manufacturer Canqin Technology's IPO on the Science and Technology Innovation Board was accepted, raising 3.8 billion yuan to expand its main business

On June 30, the IPO of ceramic filter manufacturer Jiangsu Canqin Technology Co., Ltd. ("Canqin Technology" for short) on the Science and Technology Innovation Board was accepted.

According to information, Canqin Technology is mainly engaged in the research and development, production and sales of microwave dielectric ceramic components. Its products include dielectric waveguide filters, TEM dielectric filters, dielectric resonators, dielectric antennas and other components. They are mainly used for the reception, transmission and processing of radio frequency signals. They are widely used in mobile communications, radar and radio frequency circuits, satellite communications, navigation and positioning, aerospace and national defense science and technology. 

Raised 3.8 billion to invest in filter project

At present, with the accelerated construction of 5G base stations, the market demand for ceramic dielectric filters has increased significantly, and Canqin Technology is one of the main beneficiaries. During the reporting period, Canqin Technology's main product, dielectric waveguide filter, is one of the core RF devices of 5G macro base stations, with many performance advantages such as high quality factor (Q value), low insertion loss, low temperature drift, small size, light weight and low cost. As the global mobile communications industry rapidly enters the 5G era, the market demand for dielectric waveguide filters has shown explosive growth.

It is worth noting that Canqin Technology became the world's first manufacturer of mass-produced 5G dielectric waveguide filters in 2018. It has now become an important supplier of RF devices in the upstream of the global 5G communication industry chain, and has established extensive business cooperation with communication equipment manufacturers such as Customer H, Ericsson, and Datang Mobile. In 2019, it became a strategic core supplier of Customer H and also participated in China Mobile's 5G Joint Innovation Center project. According to industry insiders, Customer H is Huawei.

It can be said that with the support of Huawei, a major 5G communication equipment customer, Canqin Technology's performance has also achieved rapid growth. During the reporting period, Canqin Technology's revenue was 120 million yuan, 271 million yuan, and 1.408 billion yuan respectively; net profit was 28.6065 million yuan, 57.6584 million yuan, and 702 million yuan respectively. Benefiting from the promotion of 5G commercial use, the accelerated construction of 5G base stations has driven the simultaneous growth of filter demand, and its revenue and net profit have shown explosive growth in 2019.

This time, Canqin Technology plans to raise 3.836 billion yuan to invest in the construction of the Canqin Technology Park project, expand the ceramic dielectric filter project for 5G communications, supplement working capital, etc., mainly used to increase the company's dielectric waveguide filter production capacity, build new HTCC and LTCC product lines, and build a new electronic ceramics research institute.

It can be seen that with the development of 5G communication technology and the demand for base station construction, Canqin Technology will continue to increase its investment in the field of ceramic dielectric filters to further enhance its competitiveness.

At the same time, the high concentration of major customers and their demands for price reductions have resulted in certain risks hidden behind the development of Canqin Technology.

Gross profit margin is declining, and concentration of major customers poses risks

With the increase in new entrants in the ceramic filter industry, intensified industry competition, continued price reduction demands from downstream customers, and the replacement of new technologies, the average selling price of dielectric filter products may drop rapidly. Canqin Technology is currently facing the risk of falling sales prices and fluctuating gross profit margins.

According to the prospectus, during the reporting period, the proportion of revenue from the company's main business was 42.52%, 67.06% and 95.01% respectively, the gross profit margin was 60.26%, 70.24% and 68.82% respectively, and the average sales price was 22.82 yuan/piece, 50.89 yuan/piece and 44.11 yuan/piece respectively. The average sales price in 2019 decreased by 13.33% compared with 2018.

In addition, Canqin Technology's main customers are Customer H, CommScope Communications, Rosenberger, China Electronics Technology Group Corporation, Datang Mobile, etc. During the reporting period, due to the relative concentration of downstream mobile communication equipment manufacturers, the company's revenue from the largest customer accounted for 20.67%, 50.87% and 91.34% of its operating income, and the company's revenue from the top five customers accounted for 57.46%, 79.82% and 97.10% of its operating income, with a high customer concentration. If the company's cooperation with major customers in the downstream market changes unfavorably in the future, the new customer development plan is not as expected, or the company's major customers have a decline in market share due to intensified industry competition, macroeconomic fluctuations and product upgrades, it will cause major downstream customers to reduce their purchases of the company's products, which will have an adverse impact on the company's business development.

The concentration of major customers also increases the risk of concentrated accounts receivable customers of Canqin Technology. According to the prospectus, at the end of each period of the reporting period, the top five accounts receivable accounted for 57.01%, 79.37% and 86.00% respectively. Whether accounts receivable can be successfully recovered is closely related to the operating and financial conditions of major customers. During the reporting period, the company's major customers had good reputations and all accounts receivable could be recovered as scheduled. However, if the operating conditions of major customers deteriorate in the future, the company may face the risk of unrecoverable accounts receivable, which will have an adverse impact on the company's financial condition.