Jianrui can break out of debt crisis, net profit plummeted 255.86% in the first quarter

With the intensification of power battery enterprises, the power battery industry has become more and more concentrated, corporate competition has intensified, and the top 20 companies with installed capacity have also undergone major changes, and even some companies have dropped out of the rankings. Last year, Wotema was third in the list, and in March it disappeared from the top 20. On April 20, Kennedy issued a performance correction announcement stating that in 2017, the company's net loss attributable to shareholders of listed companies was 3.689 billion yuan. On February 28, this figure was still profitable of 522 million yuan. The primary reason for the change in performance is that the company has fully calculated the goodwill generated by the acquisition of Wotema. Prior to this, Kennedy Energy acquired the entire equity of Shenzhen battery manufacturer Wotema for 5.2 billion yuan, forming a huge amount of goodwill, reaching 4.613 billion yuan. Subsequently, Waterhorse's rapid expansion and slow return on accounts receivable led to the collapse of the capital chain several months ago and the outbreak of the debt crisis.

In the announcement of the first quarter of 2018, Kennedy Power announced that the company's total operating income was 1,1,1,662,190 yuan, a decrease of 59,88 yuan from the same period last year; The net profit attributable to the company's shareholders was 31,916.57 million yuan, a decrease of 255.86 yuan from the same period last year; The basic earnings per share was -0.13 yuan, a decrease of 230 yuan.

Reasons for the company's large losses:

Since the company's operating rate is only about 20 %, production capacity and income have dropped significantly, but the fixed costs of operations cannot be reduced. For example, the company's fixed asset depreciation, intangible asset amortization, personnel expenditure, and rental fees are relatively fixed and do not decrease with the decrease in business volume.

In 2017, the company obtained a large number of loans from banks and other financial institutions, and the funding cost was relatively high. In the first quarter of 2018, the company's debt crisis broke out, the bank's credit was further reduced, and the difficulty of financing through banks and other financial institutions increased and the cost further increased. The company failed to obtain funds with relatively low financing costs through the primary market of stocks and bonds to ease this difficulty, making the financing costs remain high and the financial costs have increased significantly compared to the same period of the previous year;

According to the accounting policy of accounts receivable of the company, the provision for bad debts is increased according to the aging analysis method, which will reduce profits;

In the first quarter of 2018, the company's battery sales business to the vehicle factory decreased. The revenue was mainly due to the company's use of existing inventory to sell to suppliers in order to solve the debt problem, and thus offset the formation of the company's liabilities. In addition to batteries, this part of the inventory also includes electric cores and other raw materials. Compared with previous sales, the gross profit rate has dropped significantly, from the average gross profit rate of 28 % in 2017 to about 18.93 %, and the gross profit rate has dropped sharply.

In the future, the company will reduce its debt through debt restructuring on the one hand, and actively promote the introduction of strategic investors to attract capital inflows. At the operational level, the company will also actively deploy the energy storage market and the three-yuan lithium battery market to provide new growth momentum for the company's business development.

At the same time, with the outbreak of the debt crisis, Jianrui analyzed the possible operational risks (industry-related excerpts):

Policy risks: On February 13, 2018, the four ministries and commissions jointly issued the "Circular on Adjusting and Improving the Policies of Financial Subsidies for the Promotion and Application of New Energy Vehicles"(hereinafter referred to as "the Notice") to clarify the new energy vehicle subsidy policy for 2018. The notice will be implemented from February 12, 2018 and will be a transitional period from February 12, 2018 to June 11, 2018. During the transition period, the new energy passenger vehicles and new energy passenger cars on the list shall be subsidized 0.7 times the corresponding standard in accordance with the "Notice of the Development and Reform Commission of the Ministry of Science and Technology of the Ministry of Finance on Adjusting the Policies of Financial Subsidies for the Promotion and Application of New Energy Vehicles"(No. 958). New energy trucks and special vehicles are subsidized by 0.4 times, and fuel cell vehicle subsidy standards remain unchanged. The implementation of this policy will help guide the development of new energy vehicles in the high-end direction of high mileage and high energy density. 120Wh / kg has become the entry standard for battery packs. At present, the energy density of the 32700-6 .5 Ah, 7.0 Ah, 7.3 Ah three lithium iron phosphate power batteries developed by Wotema can reach up to 135 Wh/kg, and they have all been put into production one after another. The future will also continue to develop lithium battery products with a system energy density of 140 Wh / kg or more, but there is uncertainty about whether the company's R&D goals can be successfully achieved. If the power cell energy density and other performance indicators developed by Wotema in the future do not meet the requirements of the highest state subsidy, then Wotema will face the risk of going concern.

Debt risk: As of March 2018, the company's major liabilities were 21.238 billion yuan, of which: 1009 billion yuan in bills payable, 2,221 billion yuan in accounts payable, 5.474 billion yuan in bank loans, 2.593 billion yuan in long-term payables from financing leases, and 332 billion yuan in loans from non-financial institutions. Shareholders borrowed 1.59 billion yuan. The company's overdue debt of 1.998 billion yuan, mainly for bills payable and bank loans, faces claims from creditors, and the company faces debt repayment risks. If the company can not raise funds to repay its arrears, it will have a greater impact on the daily operations of the company.

Accounts receivable risk: In recent years, with the rapid development of the new energy automotive industry, Wotema's business volume has continued to grow, resulting in a significant increase in accounts receivable. As of 31 December 2017, Wotema's net accounts receivable amounted to $8.293 billion, an increase of 177.20 percent over the previous year. Although Wotema's downstream customers are mostly well-known domestic vehicle manufacturers, the capital strength is strong and the credit situation is good, but the return situation is not good. The downstream customers 'cash flow is tight and the payment is difficult, and the company will have accounts receivable. Can not return the risk.

Cash flow risk: Cash flow is the first element of the enterprise's production and operation activities. Only if enterprises hold sufficient cash can they obtain the means of production and labor from the market and create the necessary conditions for value. The power battery industry has caused poor cash flow throughout the industry due to its widespread "long account period" and the delayed acquisition of subsidies. The company's current debt crisis is also due to cash flow problems that have caused the company's working capital to fail to turn over normally. In the future, if the company can not solve the cash flow problem by strengthening cash flow management, the company will face the risk of further deterioration of its debt.

The company's risk of maintaining normal production and going concern: the company's debt crisis due to the inability to repay suppliers 'arrears and loans from financial institutions such as banks, and the current debt restructuring to repay some of the arrears, To the normal production and management of enterprises also brought about an impact. As of the end of March 2018, the company's operating rate was about 20 %, and some production subsidiaries were suspended, and the demand for materials was reduced. At the same time, the payment conditions of suppliers are also more stringent than before. Under the condition of full payment, normal supply can be maintained. If the company can not solve the financial problems, it will cause risks to the company's maintenance of normal production and continuous operation.

Single risk of the product: Wotema has always followed the technical route of lithium iron phosphate power cell. The developed lithium iron phosphate power cell has the characteristics of high safety, fast charging, low-temperature resistance, and long life. In 2017, 32700-6 .5 Ah, 7.0 Ah, and 7.3 Ah was developed on the basis of 32650-6 .0 Ah. The single energy density reached 150 Wh/Kg, 160 Wh/Kg, and 165 Wh/Kg, respectively. The cycle of life exceeds 4,000 times. However, the latest subsidy policy introduced in early 2018 clearly favors power battery products with high energy density. The share of lithium-ion batteries in the market has increased. According to GGII data, in 2017, the number of new energy passenger car batteries installed in China was three. Lithium batteries accounted for 76 <UNK>. As of the end of the reporting period, Wotema did not have ternary lithium battery products. In the future, if Wotema did not develop and launch ternary lithium battery products in a timely manner, there was a risk that the company would not be able to withstand the changes in the industry due to a single product.

The risk of increased market competition: with the rapid development of new energy vehicles, power battery manufacturers have also begun to expand production, and international battery giants have invested in the Chinese market, the power battery industry competition has further intensified, and industrial concentration has increased. According to the statistics of the "New Energy Automobile Industry Chain Database" released by GGII, the total installed capacity of new energy automotive power batteries in China in 2017 is about 36.4 GWh, of which, the total number of ten power battery companies with installed total power reaches 26.81 GWh, accounting for the overall 74 <UNK>. It can be seen that the top power battery manufacturers have dominated the market. With the introduction of the new policy of new energy vehicle subsidy in 2018, the increase in the energy density of power batteries and the increase in the mileage requirements of new energy vehicles will lead to a further increase in market concentration. If Wotema cannot maintain the continuous progress of technology and meet the requirements of obtaining the highest subsidy policy of the country in the future, while vigorously expanding the market, consolidating and improving the market position, he will face the risk of increased competition in the industry and the profit level will decline.

Operating Projections:

The cumulative net profit from the beginning of the year to the end of the next reporting period is expected to be a loss: in 2017, the company borrowed heavily from financial institutions such as banks and had relatively high financing costs. In the first quarter of 2018, the company's debt crisis broke out and bank lending further decreased. The difficulty of financing through financial institutions such as banks has increased and the costs have further increased. However, companies have not been able to obtain funds with relatively low financing costs through the primary market of stocks and bonds to ease this difficulty, resulting in high financing costs and financial costs. The same period increased significantly. As of the end of this reporting period, the company's operating rate was only about 20 %, production capacity, and income dropped significantly, while the fixed cost of operating could not be reduced, resulting in a larger net profit loss in the first quarter of the company. If the company can not solve the current debt problem, and to improve sales and opening rates, there is still a risk that the company will not be able to recover from the beginning of the year to the end of the next reporting period.

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