"Harbor Business Observer" Shi Zifu, Wang Lu

On October 14th, Guangdong Hongjing Photoelectric Technology Co., Ltd. (hereinafter referred to as Hongjing Photoelectric) will face its initial public offering (IPO) review, with Shenwan Hongyuan Securities as the sponsor.

On June 26, 2023, Hongjing Photoelectric submitted its application to list on the ChiNext, and before this review, the company had already received two rounds of inquiry letters for review.

More than a year after submitting its application, it remains to be seen whether Hongjing Photoelectric can successfully pass the review at this critical juncture. Notably, the company's large customers have changed frequently, raising concerns from regulatory authorities.

Hongjing Photoelectric is primarily engaged in the research and development, design, production, and sales of optical lenses and camera modules. Its main products include optical lenses and camera modules for smart vehicles and emerging consumer products. The smart vehicle products are used in smart cockpits and intelligent driving systems, while the emerging consumer products are applied in smart homes, panoramic/action cameras, and other areas.

The company has established stable partnerships with numerous Tier 1 suppliers and EMS manufacturers, and its products have entered well-known brands both domestically and internationally, including Daimler-Benz, Nissan, Honda, Chery, BYD, Geely, Great Wall, Aion, NIO, Xpeng, Feifan, Lotus, Ring, Blink, Anker, Insta360, 70mai, Xiaomi, and more.

01

Growth slows down in the first half, with frequent changes in the top five customers

In terms of financial data, from 2021 to the first half of 2023 (reporting period), Hongjing Photoelectric's revenue was 252 million yuan, 446 million yuan, 773 million yuan, and 450 million yuan, respectively, with growth rates of 7.02%, 77.38%, 73.13%, and 29.74%, respectively. While revenue maintained over 70% growth in the past two years, it slowed down significantly in the first half of 2023. Whether the company can maintain its original growth rate for the entire year of 2024 remains to be seen, and efforts must continue in the second half.

Concurrently, the company's net profits were 15.2581 million yuan, 56.4537 million yuan, 116 million yuan, and 68.5244 million yuan, respectively, with gross profit margins of 26.40%, 26.98%, 30.52%, and 30.75%, respectively.

According to the company, its operating income during the reporting period primarily came from sales of optical lenses and camera modules, accounting for over 88% of total revenue, highlighting its core business. The company focuses on smart vehicles and emerging video and imaging products for consumers.

During the reporting period, the company's sales revenue to its top five customers totaled 123 million yuan, 265 million yuan, 600 million yuan, and 353 million yuan, respectively, accounting for 48.79%, 59.46%, 77.65%, and 78.43% of total revenue, respectively, indicating a high concentration of sales among these customers.

In an article titled "Changes and Disappearance of Hongjing Photoelectric's Major Customers: R&D Expenditure Rate Far Weaker Than Peers, Nearly Half of Employees Not Contributing to Provident Fund" published by "Harbor Business Observer" on January 5th of this year, it was pointed out that during 2020-2022 and the first half of 2023, Hongjing Photoelectric's top five customers, especially its largest customer, changed frequently. In 2020, the largest customer was Lite-On Technology, contributing 34.6773 million yuan in sales revenue, accounting for 14.74% of total revenue. In 2021, HANWA Group became the largest customer, contributing 36.8212 million yuan in sales revenue, or 14.63% of total revenue, while Lite-On Technology dropped to third place. In 2022, Insta360 became the largest customer, contributing 144 million yuan in sales revenue, accounting for 32.20% of total revenue, while HANWA Group was no longer among the top five. In the first half of 2023, Insta360 remained the largest customer, contributing 184 million yuan in sales revenue, accounting for 52.96% of total revenue, setting a new record. Both HANWA Group and Lite-On Technology were absent from the top five list.

02

Preferred Supplier Status: Insta360's IPO Delays

Since 2022, Insta360 has consistently been Hongjing Photoelectric's largest customer, with its sales contribution increasing from 32.20% to 46.94% during the reporting period.

As of the first half of 2024, HANWA Group and Lite-On Technology, once the company's largest customers, have disappeared from the top five customer list.

The current largest customer, Insta360, is no stranger to the public, particularly for its long-delayed IPO. It submitted its IPO application to the STAR Market on October 28, 2020, passed the initial review on September 16, 2021, and submitted its registration materials on January 28, 2022, but there has been no progress since then.

Currently, Hongjing Photoelectric faces two challenges: frequent changes in its top five customers in recent years and heavy reliance on Insta360.

The inquiry letter raised concerns about the company's and its customers' competitive environment, significant adverse changes in terminal sales, limitations on growth potential in existing areas, and the ability to explore new areas and customers, taking into account factors such as customers' competitive positions, performance changes, downstream demand changes during the reporting period, the company's orders in hand, and post-period performance changes, especially for Insta360.

According to Hongjing Photoelectric, it has collaborated with Insta360 since 2015. Currently, the company exclusively supplies Insta360 with its main products, including the panoramic cameras ONERS, ONERS 4K, and X3. The camera module HJM5141 used in the X3 generated sales revenue of 177 million yuan from January to June 2023. As of the end of November 2023, the company had orders worth 56.9867 million yuan for Insta360, and based on the sales iteration cycle of consumer-grade smart imaging devices, it is expected that large-scale shipments will continue in the second half of 2023 and in 2024. Furthermore, the panoramic camera X4 will continue to use the company's HJM5141 camera module, and based on the sales performance of the X3, it can be anticipated that sales revenue will remain stable over the next 2-3 years. Additionally, the company will remain the primary supplier for Insta360's next-generation panoramic cameras, ensuring long-term and close cooperation between the two parties.

Moreover, Hongjing Photoelectric and Insta360 signed a strategic cooperation agreement in 2022, in which Insta360 agreed to give Hongjing Photoelectric preferential supplier status in the field of camera modules. Hongjing Photoelectric was also named a strategic cooperation supplier by Insta360 in 2023, indicating the stability and sustainability of their partnership.

Market insiders told "Harbor Business Observer" that the strategic cooperation agreement between Hongjing Photoelectric and Insta360, particularly the preferred supplier status, typically refers to the most favorable pricing, meaning that Hongjing Photoelectric must offer Insta360 the most cost-effective prices, outperforming those offered to other customers. "Offering preferential pricing in exchange for sustained revenue from Insta360, the largest customer, is clearly beneficial. However, heavy reliance on a single customer, especially when it accounts for over half of sales, can lead to higher bargaining power for that customer, potentially impacting the company's gross profit margin. Additionally, any fluctuations in Insta360's business could adversely affect Hongjing Photoelectric's revenue."

Hongjing Photoelectric clarified that both parties follow market pricing principles, considering production costs, related expenses, competitive product prices in the market, and reasonable profit margins to negotiate fair prices. Meanwhile, the company's accounts receivable have continued to grow.

At the end of each reporting period, the company's accounts receivable had book values of 62.5736 million yuan, 140 million yuan, 163 million yuan, and 200 million yuan, respectively, accounting for 32.16%, 39.18%, 35.66%, and 35.53% of current assets.

During the same period, the top five customers accounted for 62.32%, 61.38%, 69.65%, and 78.41% of the company's total accounts receivable, respectively. These customers are primarily well-known enterprises or listed companies in the industry, with strong financial capabilities and low bad debt risks.

During the reporting period, the company's impairment losses on credit and assets amounted to 370,100 yuan, 3.9388 million yuan, 1.2592 million yuan, and 1.8888 million yuan, respectively. The provision for bad debts on accounts receivable was 3.3 million yuan, 7.3554 million yuan, 8.6213 million yuan, and 10.5129 million yuan, respectively. (Produced by Harbor Finance)