Under the shadow of low R&D and low gross profit, how long can a power battery star company fly?

　　On the other side of the ocean, Jia Yueting is still building cars behind closed doors, while Tesla boss Elon Musk has shifted his goal to China. Not to be outdone, Weilai and Xpeng Motors went public in the United States to continue raising money and burning money. There is a heated discussion online that new energy vehicles are the future trend. Musk and others have invested heavily in their plans, with the ultimate goal of seizing the opportunity. But do you know that making electric vehicles is only one of the hot spots, and its industrial chain should also pay attention, and power batteries are an important component of new energy vehicles. The protagonist of today’s standard APP introduction is Ningbo Rongbai New Energy Technology Co., Ltd. It is mainly engaged in the research and development, production and sales of lithium battery cathode materials and their precursors. The ternary cathode material is used in the manufacture of lithium batteries and is mainly used in new energy vehicle power batteries, energy storage equipment and electronic products. We have learned that lithium batteries can be divided into lithium manganese oxide batteries, lithium cobalt oxide batteries, lithium iron phosphate batteries, ternary lithium batteries and other types according to different cathode materials. Ningbo Rongbai's ternary cathode materials have the characteristics of low cost, high cycle life, and good overall performance. However, the disadvantage is that some metals are expensive. After rapid development, Ningbo Rongbai's performance has continued to hit new highs in recent years. From 2016 to 2018, the company's revenue increased from 885.1923 million yuan to 3041.2601 million yuan, and the net profit increased from 5.5593 million yuan to 210.9704 million yuan. The revenue and net profit data are very impressive. The company's substantial increase in net profit is related to its expense accounts. In 2016, the sales expense to revenue ratio was still 0.96%, and by 2017 it dropped to 0.75%. With such a low sales fee, isn’t it enough to promote the product? Ironically, compared with the dazzling profit statement, this company’s operating cash flow is embarrassing. From 2016 to 2018, Ningbo Rongbai's operating cash flow was negative, which were -62.8796 million yuan, -637.6665 million yuan and -542.8214 million yuan respectively. What's going on? 1. The hidden worries about accounts receivable must first start with Ningbo Rongbai's receivable items - accounts receivable and notes receivable. From 2016 to 2018, Ningbo Rongbai's accounts receivable balance accounted for 37.55%, 42.91% and 37.66% of the current operating income respectively. It is worth noting that the company’s second largest customer, BAK Power, owed as much as 215.5 million yuan in 2018, ranking first in the list of receivable customers. BAK Power is a leading domestic power battery company. During its peak period, its installed capacity growth rate exceeded that of peers CATL and BYD. However, the good times did not last long. BAK Power's net profit fell by 84.53% year-on-year in 2018. The negative impact was that it Shareholders Changxin Technology and Zhongli Group have made provision for impairment, which has had a certain impact on the performance of these two listed companies. Ningbo Rongbai also explained in its prospectus that the fluctuations in cash flow are related to the fact that customers mainly use bank acceptance bills for settlement. We are aware that customers including BAK Power, Penghui Power and Zhejiang Gushen Energy were unable to pay a total of 35 million yuan in commercial acceptance bills in 2018. From 2016 to 2018, Ningbo Rongbai's notes receivable surged, from 97.9891 million yuan to 672 million yuan. The risk of default by customers receivable requires careful vigilance. 2. Low R&D and low gross profit In addition, Standard APP also found that Ningbo Rongbai’s R&D expense rate and gross profit rate were lower than those of its peers. From 2016 to 2018, Ningbo Rongbai's R&D expenses were 31.7967 million, 76.9764 million and 119.8978 million respectively, accounting for 3.59%, 4.1% and 3.94% of operating income during the same period, which were all lower than the average level of its peers. Taking Dangsheng Technology as an example, the company's R&D expense rates in the past three years have been 5.53%, 4.8% and 4.35% respectively. Ningbo Rongbai explained that this is because Dangsheng Technology involves two types of businesses: lithium battery material research and development and intelligent equipment research and development, so the research and development expense rate is high. Is the business of other companies related to Ningbo Rongbai’s R&D investment? It seems not! Ningbo Rongbai introduced in the prospectus that through continuous R&D investment, the company has obtained a total of 60 technology patents, including 29 domestic invention patents, 19 Domestic utility model patents, 1 US patent and 11 Korean patents. Since we say we have many technological achievements, it stands to reason that our gross profit margin is not low, because this is an indicator of a company's competitiveness. From 2016 to 2018, the gross profit margins of Ningbo Rongbai's ternary cathode business were 13.95%, 15.74% and 18.21% respectively, showing an upward trend year by year. Not bad, right? Then look at the situation of peer companies. The gross profit margins of GEM’s new energy battery materials were 22.32%, 24.06% and 22.01% in the same period. The gross profit margins of Shanshan Co., Ltd.’s cathode material business were 20.91%, 24.67% and 17.13% in the same period. . In comparison with the data, Ningbo Rongbai is not outstanding. Another hidden concern is that as the prices of cobalt sulfate, nickel sulfate and manganese sulfate rise, this will increase Ningbo Rongbai's raw material costs (direct material costs account for more than 90% of the company's operating costs). Generally speaking, when operating cash flow is negative, higher receivable items also worry investors, while low R&D and low gross profit make everyone realize that the company's competitive strength needs to be improved.

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