Under the pressure of the "betting agreement", YiBo Technology's accounts receivable and inventory have been rising year by year

As the global PCB industry develops towards high precision, high density and high reliability, product updates and iterations are accelerating. At the same time, the focus of the PCB industry has shifted to Asia, and China's PCB output value has continued to increase in the world. Domestic PCB design manufacturers have taken this opportunity to develop rapidly. Shenzhen YiBo Technology Co., Ltd. (hereinafter referred to as "YiBo Technology"), which recently submitted an IPO application on the Growth Enterprise Market, is one of them.

The author learned that Yibo Technology is going through the IPO with a "betting agreement", which shows its urgency to go public. With nearly 20 years of experience in PCB design, Yibo Technology has established cooperative relationships with well-known companies such as Zhengzhou Coal Mining Machinery, Zoomlion, Intel, Bitmain, and Mingshuo Computer with its professional PCB design capabilities and fast-response high-quality PCBA manufacturing service capabilities. Its performance has continued to grow in recent years. However, with the growth of performance, its accounts receivable and inventory have also increased year by year, and there are operating performance risks caused by difficulties in collecting accounts receivable and inventory depreciation.

Accounts receivable and inventory are rising year by year

The prospectus disclosed that YiBo Technology is mainly based on PCB design services and provides PCBA manufacturing services. Among them, PCBA manufacturing services focus on the PCBA welding assembly link, and electronic components and PCB bare boards are purchased from suppliers or provided by customers themselves.

During the reporting period, YiBo Technology's performance showed a trend of rapid growth. From 2017 to January-June 2020, its operating income was RMB 261.4201 million, RMB 340.9181 million, RMB 405.8561 million and RMB 251.0779 million, respectively. After deducting non-recurring gains and losses, the net profit attributable to the parent company's shareholders was RMB 38.7905 million, RMB 60.7592 million, RMB 79.3719 million and RMB 56.0347 million, respectively.

While the performance is growing rapidly, its accounts receivable are also rising year by year. At the end of each period of the reporting period, the book balance of the company's accounts receivable was RMB 83.1754 million, RMB 90.0076 million, RMB 98.7622 million and RMB 118.7446 million, accounting for 31.82%, 26.40%, 24.33% and 23.65% of the current operating income, respectively, which is higher than its peers.

In this regard, YiBo Technology stated that at the end of June 2020, the company's accounts receivable balance increased by RMB 19.9823 million compared with the end of 2019, an increase of 20.23%. The main reason for the large increase was that after the situation of the new crown pneumonia epidemic stabilized, the company's operating income grew rapidly in the second quarter of 2020, which led to an increase in the balance of accounts receivable still within the credit period.

However, as YiBo Technology's business scale expands in the future, the number of its customers and the balance of accounts receivable may continue to grow. If some customers experience changes in their financial conditions or cooperative relationship with the company, resulting in payment difficulties or delayed payment, YiBo Technology will face the risk of being unable to recover accounts receivable in full and in a timely manner and increased working capital pressure, which will have an adverse impact on the company's operating results and asset quality.

Not only that, YiBo Technology also faces the risk of inventory backlog and inventory depreciation.

At the end of each period of the reporting period, the book balance of YiBo Technology's inventory was RMB 16.8057 million, RMB 27.4827 million, RMB 53.7994 million and RMB 76.5884 million, respectively, and continued to grow with the expansion of the company's business scale, especially the expansion of PCBA manufacturing service business.

It is understood that YiBo Technology's inventory mainly includes raw materials, work-in-progress, inventory, shipped goods and unfinished PCB design services related to PCBA manufacturing service business.

In terms of raw materials, the inventory raw materials are mainly general materials such as semiconductors and passive components. The reason for the increase in inventory size is that the PCBA manufacturing service business grew rapidly during the reporting period. The sales-based production business model requires the company to maintain a certain amount of raw materials to realize value circulation and obtain economic benefits. At the same time, the company also actively prepares some general materials to respond to customer needs comprehensively and quickly.

Product inventories mainly consist of PCBA products that have not yet been completed, which increased during the reporting period as the business scale grew.

YiBo Technology stated that the overall age of the company's inventory is relatively short, and the company has conducted impairment tests on the inventory and made provisions for write-downs.

However, if there are negative changes in raw material market prices, customer demand, the company's production efficiency and product quality in the future, YiBo Technology will still face a large risk of inventory depreciation, which will in turn affect the company's asset quality and operating performance.

Passing the GEM with a gambling agreement

It is worth noting that with the problem of rising accounts receivable and inventory backlogs year by year, YiBo Technology is also burdened with a "betting agreement" when it attempts to enter the GEM this time.

As of the date of signing of the prospectus, Tang Changmao, Wang Canzhong, Ke Hansheng, Zheng Yufeng, Zhu Xingjian, Li Qinghai and Wu Jun are the company's controlling shareholders and actual controllers. The seven of them hold a total of 48,962,880 shares of the company, accounting for 78.34% of the total share capital. The equity structure of YiBo Technology is as follows:

The prospectus disclosed that during the capital increase and share expansion in August 2018, the issuer and its actual controller, four employee shareholding platform shareholders, Jiebo Chuang, Kaibo Chuang, Zhongbo Chuang, Xinbo Chuang, and external investors Lingyu Jishi, Mingxin No. 1, Zeng Qinfang, and Zhao Rui signed an investment agreement containing a gambling clause. The agreement stipulates a veto, gambling, repurchase right, priority subscription right, priority purchase right, joint sale right, priority liquidation right, anti-dilution right, equal treatment, and special rights clauses including performance commitments. Among them, the performance compensation person in the gambling clause and the repurchase obligor in the repurchase clause are seven actual controllers.

In June 2020, the issuer and its actual controller signed an investment agreement with Morningside Investments that included a VAM clause. The agreement stipulates special rights clauses such as the right to request a repurchase, priority liquidation rights, consent for overall sale, anti-dilution, priority subscription rights, tag-along sales rights, share transfer restrictions, priority purchase rights, joint investment and most favorable treatment. The repurchase obligors who requested the repurchase right are seven actual controllers.

In September and December 2020, the parties to the above-mentioned agreement, including the issuer, respectively signed supplementary agreements, agreeing to terminate the supplementary agreement containing special rights arrangements and the supplementary agreement containing conditional restoration clauses signed by the above-mentioned parties during the capital increase and share expansion in December 2018/June 2020, and all the above-mentioned supplementary agreements will not be resumed under any circumstances, nor will they be deemed to be automatically resumed.

In December 2020, investors Lingyu Jishi, Mingxin No. 1, Zeng Qinfang, Zhao Rui, the actual controller of the issuer and the shareholders of the four employee stock ownership platforms, and the investor Chendao Investment and the actual controller of the issuer signed separate supplementary agreements, stipulating special rights clauses such as bets between shareholders. The supplementary agreement stipulates that the aforementioned special rights clauses will be terminated from the date of signing of the supplementary agreement, and can only be resumed if the company's initial public offering application is rejected or voluntarily withdrawn. Therefore, during the review period of the company's initial public offering application and the issuance and listing period after the review is passed, the aforementioned special rights clauses will not be executed.

YiBo Technology disclosed that the parties to the above-mentioned gambling clauses are limited to shareholders, and the gambling clauses between the company's shareholders are the true and accurate expressions of the intentions of all parties; if the issuer is successfully listed, the above-mentioned gambling clauses will no longer have any effect.

However, if YiBo Technology fails to go public and the relevant special rights are restored, it may trigger the actual controller's repurchase obligation, which may lead to the risk of changes in the shareholding ratio of the issuer's existing shareholders.