Hehong shares GEM IPO was accepted, MFi authorization certification was cancelled, and revenue declined year by year

Recently, the Shenzhen Stock Exchange officially accepted the GEM listing application of Shenzhen Hehong Industrial Co., Ltd. (hereinafter referred to as "Hehong Co., Ltd."). 

The prospectus shows that Hehong shares is mainly engaged in the research and development, design, production and sales of consumer electronic accessories. Its products mainly include three categories: connection products, power products and audio products. Among them, connection products mainly include various types of connection cables and signal adapters, power products mainly include various types of chargers and mobile power supplies, energy storage devices, audio products mainly include various types of headphones and speakers, and other products include a series of mobile phone and PC peripheral products provided for supporting customer services, such as mobile phone cases and brackets, storage devices, etc.

At present, its consumer electronic accessories products are mainly aimed at the retail consumer market, and it has established a global sales channel. Its main customers include global retail supermarkets such as Wal-Mart, Home Depot, DSG, international consumer electronic accessories brands such as Hama, Audiovox, ELECOM, and well-known e-commerce platforms such as Amazon and JD.com. Its product application areas cover mobile terminals, personal computer equipment, audio and video equipment, wearable devices, smart homes and other fields.

MFi authorization certification was cancelled, and Hehong shares' revenue continued to decline

From 2017 to January-September 2020, Hehong Co., Ltd. achieved operating income of 1.068 billion yuan, 1.09 billion yuan, 961 million yuan and 712 million yuan, showing a downward trend; the corresponding net profits were 30.3365 million yuan, 55.1386 million yuan, 33.7148 million yuan and 38.3928 million yuan, respectively, which also fluctuated. Among them, from 2017 to 2019, the sales revenue of its connection products declined, the sales revenue of power products showed an overall growth trend, and the audio products remained at around 100 million yuan. From January to September 2020, the sales revenue of connection products improved, and the sales revenue of power products declined.

Hehong Co., Ltd. stated that the fluctuation in its main business revenue was mainly due to the fact that it was in a period of business transformation after the cancellation of the MFi authorization certification, and continued to increase its investment in resources in R&D, manufacturing, channels, and management, resulting in a high level of period expense rate. It was also affected by external factors such as the impact of additional tariffs imposed by Sino-US trade frictions on North American export business and the impact of the new crown epidemic on overseas consumer market demand.

From the perspective of gross profit margin, the overall gross profit margin of its main business showed a fluctuating downward trend, which was 23.58%, 21.91%, 26.00% and 22.07% respectively. From January to September 2020, the gross profit margin of its main business declined significantly, mainly affected by changes in the RMB exchange rate and changes in the scope of operating cost accounting.

In terms of customers, Hehong Co., Ltd.'s ODM business mainly includes international retail supermarkets, globally renowned consumer electronic accessories brands and other customers, while the brand business customers are dealers and end-consumer users.

In recent years, its top five customers accounted for 44.75%, 41.71%, 35.51% and 36.63% of its revenue respectively, and there is no situation of heavy dependence on a few customers.

Raised 498 million yuan to invest in the construction of consumer electronics production base and other projects

In addition, the prospectus shows that Hehong Co., Ltd. plans to raise 498 million yuan this time to invest in the construction of consumer electronics production base projects, marketing and service channel construction projects, research and development center construction projects, and to supplement working capital.

Among them, the "Consumer Electronics Production Base Construction Project" mainly invests in expanding the company's existing production capacity of consumer electronic accessories products. After the project is completed, the company's industrial chain link and original industrial chain positioning will remain unchanged. The core processes and technologies used in this project, such as HDMI 4K processing technology, ultra-long-distance high-definition transmission line-optical fiber process, high-frequency process, and mixed production line layout, are all original innovations or independently mastered by the company. They have been widely used in the production of the company's existing products, with high technical maturity and good market response. The implementation of the project is based on the company's original core technology and will not cause major changes in the company's original production model and supply chain management model. According to the plan, this project will achieve an average annual sales revenue of 1.351 billion yuan and an average annual net profit of approximately 82 million yuan, with good economic benefits.

The "R&D Center Construction Project" is based on the need to strengthen the overall R&D strength of the company's core products and improve the overall detection and testing capabilities. It focuses on four major research directions: appearance design innovation, research and application of new materials, new technologies, and new processes, research and application of new transmission technologies, and research in new product areas. It provides strong technical support for the company's main business expansion and market competitiveness enhancement. 

In addition, the "Marketing and Service Channel Construction Project" will improve and upgrade the existing marketing network, further expand online and offline sales channels, strengthen brand building efforts, and enhance brand influence in order to achieve the goal of increasing the stickiness of existing customers and improving customer satisfaction. The implementation of the project will not lead to major changes in the company's sales model.

Looking to the future, Hehong shares takes "technology empowerment, intelligent future" as its mission, adheres to the core strategic idea of ​​"endogenous growth as the main body, capital and external strategic cooperation as the two wings" to promote the company's sustainable development. Relying on the accumulation of three major categories of connection, power, and audio, combined with market demand, it continuously expands the application areas of existing products, explores and extends new products from existing customers and existing markets, and continuously iterates and expands business boundaries, gradually developing into a professional consumer electronic product and technology provider with international competitiveness.