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On July 12, the China Securities Regulatory Commission approved the registration of Suzhou Tianmai Thermal Technology Co., Ltd. (hereinafter referred to as Suzhou Tianmai) for its initial public offering on the Shenzhen Stock Exchange.

Public information shows that Suzhou Tianmai applied for the Growth Enterprise Market in June 2022, received the first round of inquiries in July 2022, and passed the review in January 2023. The review cycle has been as long as 25 months.

During this period, the Shenzhen Stock Exchange sent two inquiry letters to Suzhou Tianmai, covering many issues such as GEM positioning, revenue, major customers, important contracts, cash flow, and quality of information disclosure.

Sustainability of performance questioned

Suzhou Tianmai was established on July 25, 2007 and completed its share reform on January 25, 2018. The company's main business is the research and development, production and sales of thermal conductive and heat dissipation materials and components. Its main products include heat pipes, temperature spreaders, thermal conductive interface materials, graphite films, etc. The products are widely used in terminal products of many well-known brands such as Samsung, OPPO, vivo, Huawei, Honor, and Hikvision.

In recent years, consumer electronic products represented by smartphones have been developing towards high performance, multi-functions and thinness. Vapor chambers and heat pipes have gradually been favored by smartphone brand manufacturers due to their excellent thermal conductivity.

From 2021 to 2023, Suzhou Tianmai's main business revenue will be RMB 696,898,800, RMB 827,957,100 and RMB 914,860,700 respectively, and net profit attributable to shareholders of the parent company will be RMB 64,535,300, RMB 116,703,800 and RMB 154,185,000 respectively. Among them, the three-year compound growth rate of heat dissipation business revenue reached 14.58%.

But it is worth noting that Suzhou Tianmai’s high growth performance may be difficult to sustain in the future.

In recent years, although the company has made positive progress in diversifying its business in downstream security monitoring, automotive electronics, communications equipment and other application areas, in the short term, the smartphone field remains an important business area and source of revenue for the company, accounting for nearly 70% of sales.

Affected by factors such as global economic fluctuations, chip shortages, and tense geopolitical situations, global smartphone shipments have shown a clear downward trend. How can Suzhou Tianmai be immune to this?

By product, except for the substantial increase in the amount and proportion of temperature averaging plates, the revenue growth rate of heat pipes and thermal conductive interface materials was relatively slow, and the revenue proportion decreased rapidly; the revenue proportion of graphite films was relatively low.

In 2023, Suzhou Tianmai's main business gross profit margin was 33.29%, an increase from the previous year, mainly due to the rapid increase in gross profit margin of the temperature balancing board product, which accounts for the largest proportion of revenue. Other main products performed poorly.

Regarding innovation capabilities, the actual controllers of the company, Xie Yi and Shen Fenghua, have junior high school and technical secondary school education respectively. The core technical personnel of the issuer, Ding Xingqiang and Liu Xiaoyang, both have bachelor's degrees.

By the end of 2023, the company has a total of 240 R&D and technical personnel, of which only 11 have a master's degree or above. At present, the company has 77 patented technologies, including 11 invention patents, and many patent technologies are under application.

High customer concentration

In 2021, 2022 and 2023, the company's sales to the top five customers (consolidated on a group basis) accounted for 40.40%, 32.88% and 41.36% of the operating income in the same period, respectively, which is a relatively high proportion.

It is worth noting that the top five customers of Suzhou Tianmai are highly volatile. In 2020, BYD was Suzhou Tianmai's second largest customer; in 2021, vivo and OPPO entered the company's top five customers; in 2023, ELENTEC, Huamao Electronics, and Huawei replaced Foxconn, Lingyi Intelligent Manufacturing, and Changying Precision to enter the company's top five customers.

Among them, Hikvision ranked as the company's third, fourth and fourth largest customer from 2019 to 2021 respectively.

In June 2020, Suzhou Tianmai introduced Hangzhou Hikvision Smart Industry Equity Investment Fund Partnership (Limited Partnership) (hereinafter referred to as Hikvision Smart) as a new shareholder by increasing capital and expanding shares. Currently, Hikvision Smart holds 3.55% of the company's shares, while Hikvision holds 60% of Hikvision Smart's investment.

Whether benefits were transferred to its customer and shareholder Hikvision has also attracted the attention of regulatory authorities.

In 2021, 2022 and 2023, the company's sales to Hikvision were RMB 31.444 million, RMB 16.6304 million and RMB 14.1774 million respectively. The products are mainly thermal interface materials, accounting for 93.94%, 95.02% and 95.37% of Hikvision's sales revenue respectively.

From the perspective of the entire industry chain, Suzhou Tianmai does not have much say in the industry, which can be seen from its accounts receivable.

As of the end of 2021, 2022 and 2023, the net book value of the company's accounts receivable was RMB 211.5535 million, RMB 248.7725 million and RMB 227.7779 million, respectively, which are large amounts; the proportion of current assets at the end of each period was 41.57%, 51.12% and 38.97%, respectively, which is a high proportion.

Suzhou Tianmai said that as the company's business scale expands in the future, accounts receivable may further increase. If accounts receivable cannot be collected on time or cannot be collected and bad debts occur, the company may face the risk of shortage of working capital, which will adversely affect profitability.

There are loopholes in the internal control management of enterprises

The prospectus shows that the company's controlling shareholder is Mr. Xie Yi, and the actual controllers are Mr. Xie Yi and his wife Shen Fenghua. Among them, Mr. Xie Yi directly holds 54.44% of the company's shares, Ms. Shen Fenghua directly holds 15.82% of the company's shares, and the two indirectly control 2.42% of the company's shares through Suzhou Tianyixiang, which they control, and together control 72.68% of the company's shares.

According to the previous inquiry letter, Xie Yi and Shen Fenghua withdrew large amounts of cash from 2019 to 2021 and from January to June 2023. In 2019, 2020, 2021 and from January to June 2023, they withdrew a total of 1.08 million yuan, 7.74 million yuan, 340,000 yuan and 250,000 yuan in large amounts, respectively.

The main uses of large cash withdrawals include: supporting parents, household consumption and house decoration, etc.; refunds after adjusting the equity incentive price, loans to some employees, etc. Among them, "purchasing alcoholic beverages" appears frequently.

It is said that this is mainly because the actual controller and his wife purchased vintage wine and other collectible wines from wine distributors in batches for personal reasons such as collection or hobbies, and part of the payment was paid in cash. This is mainly because the wine distributors gave higher discounts for cash settlement due to their own business reasons.

According to the inventory records of the wine stored in the actual controller's home in early March 2021, the market price exceeded 5 million yuan. The relevant wine transactions and capital flows and deposits mainly occurred in 2020 and January 2021.

Previously, Suzhou Tianmai had been punished many times due to loopholes in its internal control management.

On November 27, 2019, an employee of the company was killed when he was caught in a kneading machine in the workshop due to an operational error. He was fined 210,000 yuan by the Suzhou Wuzhong District Emergency Management Bureau.

On April 28, 2019, the company was fined 10,000 yuan each by the Wuzhong District Brigade of the Suzhou Public Security Fire Brigade for stacking gas cylinders in the fire truck passage, occupying the fire truck passage, and for setting up shoe cabinets in the evacuation stairwell to stack miscellaneous items, occupying the evacuation passage.

There are many hazards caused by an imperfect internal control system. An imperfect internal control system will lead to various loopholes, thereby increasing the risks of the enterprise. For example, the lack of a sound asset management system may lead to the loss of funds and property. If Suzhou Tianmai succeeds in its IPO, how to improve its own management level may become a question that investors pay close attention to.