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Author: Lei Ying

Author | Lei Ying

Editor | Sun Yiming

In the first half of this year, my country's new energy vehicles maintained a strong production and sales trend. Faced with the high growth of terminal demand in the industry, the operating performance of Zhejiang Fute Technology Co., Ltd. (hereinafter referred to as "Fute Technology") declined against the trend in the first half of the year.

Fute Technology's main products are high-voltage power supply systems for new energy vehicles, and its downstream customers are mainly new energy vehicle manufacturers. The company's registration took effect on October 20, 2023, and it will apply for new shares on August 26, intending to list on the ChiNext.

Times Investment Research found that Fute Technology's unlisted performance has declined against the trend, mainly due to the decline in orders from its major customers. In the past three years, the company's sales to its largest customer, GAC Group (601238.SH), have continued to rise, accounting for 56.15% of sales in 2023. However, in the first half of 2024, GAC Group's sales of new energy vehicles fell by 30.61% year-on-year, and Fute Technology's orders from GAC Group also decreased simultaneously.

On August 20 and 22, Times Research sent letters and made phone calls to Fute Technology to inquire about its declining performance and cooperation with major customers. As of press time, the company has not responded to the relevant questions.

Performance in the first half of 2024 declined against the trend

According to data released by the China Association of Automobile Manufacturers, from January to July 2024, my country's production and sales of new energy vehicles were 5.914 million and 5.934 million respectively, up 28.8% and 31.1% year-on-year respectively. The sales of new energy vehicles accounted for 36.4% of the total sales of new vehicles.

Among them, from January to July 2024, my country's domestic sales of new energy vehicles reached 5.226 million units, a year-on-year increase of 34.3%; export sales reached 708,000 units, a year-on-year increase of 11.4%. It can be seen that the demand for both domestic and export markets of new energy vehicles in my country continues to improve.

However, in the face of high growth in terminal demand in the industry, Fute Technology's performance changed in the first half of the year. The prospectus shows that in the first half of 2024, the company achieved operating income of 662 million yuan, a year-on-year decline of 24.23%; and achieved a net profit attributable to shareholders of 48.232 million yuan, a year-on-year decline of 14.67%.

This is contrary to the company's high growth trend in performance in the past three years. According to the prospectus, from 2021 to 2023, Fute Technology's operating income will increase from 964 million yuan to 1.835 billion yuan, with a compound annual growth rate of 37.94%; net profit attributable to shareholders after deducting non-recurring items will increase from 53.5779 million yuan to 92.4073 million yuan, with a compound annual growth rate of 31.33%.

Times Investment Research found that in the past three years, Fute Technology's performance growth trend has been consistent with comparable listed companies in the same industry. However, in the first half of 2024, Fute Technology's performance has lagged significantly behind its peers.

In the prospectus, Fute Technology listed Xinrui Technology (300745.SZ), Yingboer (300681.SZ), Jingjin Electric (688280.SH), and Weimaisi (688612.SH) as comparable listed companies in the same industry. From 2021 to 2023, the average annual compound growth rate of revenue of these four comparable companies in the same industry was 38.49%, which was basically the same as Fute Technology's performance during the same period.

The latest performance report shows that in the first half of 2024, according to preliminary calculations, Yingbo's operating income increased by 42.06% year-on-year, which is in sharp contrast to the decline in revenue of Fute Technology during the same period.

As of August 22, three comparable companies in the same industry, Xinrui Technology, Jingjin Electric, and Weimaisi, have not yet announced their financial data for the first half of 2024. However, in the first quarter of 2024, these three comparable companies in the same industry all achieved operating income growth, and the corresponding year-on-year revenue growth rate averaged 29.40%.

Demand from several major customers declined

Why did Fute Technology's performance suddenly slow down in the first half of this year and deviate from the growth trend of its peers? The main reason is the decline in demand from the company's downstream major customers.

In the prospectus, Fute Technology admitted that from January to June 2024, the company's operating income decreased compared with the same period last year due to a year-on-year decline in terminal demand from customers such as GAC Group, EasyGo New Energy Automobile Co., Ltd. (hereinafter referred to as "EasyGo", a joint venture subsidiary of Dongfeng Group (0489.HK) in which Dongfeng Group (0489.HK) holds a 50% stake), and Great Wall Motor (601633.SH).

Fute Technology also stated that the company's revenue from GAC Group fell mainly due to the fluctuations in the production and sales of GAC Aion, and the average unit price also fell due to the company's product iteration. The company's revenue from EasyGo and Great Wall Motors fell mainly due to the upgrade of the main models of EasyGo and Great Wall Motors that the company supported, and the launch or mass production was later than planned.

The production and sales data of the above customers show that in the first half of this year, Great Wall Motor's sales of new energy vehicles increased by 41.99% year-on-year, maintaining a high growth trend; the sales of new energy vehicles of GAC Group and EasyGo both fell by 30.61% and 82.24% year-on-year respectively, a large decline.

It can be seen that the decline in sales to important large customers has a significant impact on Fute Technology's performance, which further highlights the drawbacks of Fute Technology's "large customer dependence".

The prospectus shows that from 2021 to 2023, the sales of Fute Technology to its top five customers accounted for more than 95%, and its sales to its largest customer, GAC Group, continued to increase from 29.49% to 56.15%. In addition, GAC Group, NIO (NIO.N, 9866.HK), EasyGo, and Great Wall Motors have always been among the top five customers of Fute Technology, with a high concentration of large customers.

In contrast, during the same period, the sales of the four comparable listed companies in the same industry to the top five customers accounted for no more than 76%. Among them, the comparable company with the lowest customer concentration was Yingboer.

In 2023, Yingbo's sales to the top five customers accounted for only 62.73%, and its sales to the largest customer accounted for only 29.68%. It has reached long-term cooperative relations with automobile companies such as Geely, SAIC, Changan, Dongfeng, Great Wall, Chery, JAC, and Xiaopeng.

It should be noted that the problem of Fute Technology's excessive customer concentration has also aroused doubts from the Shenzhen Stock Exchange.

In the first and second rounds of review inquiry letters, the Shenzhen Stock Exchange asked Fute Technology to explain the impact of high customer concentration on its ability to continue operating, whether its cooperative relationship with major customers is stable, whether there are major uncertainties in the core factors driving performance growth, and whether it has the ability to develop new customers or expand sales to existing customers.

It is worth mentioning that Fute Technology’s performance changed drastically a few months after it obtained the registration approval.

The official website of the Shenzhen Stock Exchange shows that Fute Technology successfully passed the review on December 23, 2022, and obtained the registration approval on October 20, 2023.

After the registration was approved, Fute Technology's performance declined against the trend in the first half of 2024, reversing its previous high growth trend. In the first three quarters of this year, Fute Technology's performance may continue the downward trend in the first half of the year.

The prospectus shows that according to preliminary statistics, from January to September 2024, Fute Technology expects to achieve operating income of 1.202 billion to 1.262 billion yuan, a year-on-year decline of 9.59% to 13.88%; the non-net profit attributable to shareholders is expected to be 72.232 million to 75.232 million yuan, a year-on-year decline of 16.45% to 19.79%.

In this regard, Fute Technology stated that the decline in the company's operating income in the first three quarters of this year was mainly due to the year-on-year decline in terminal demand from customers such as GAC Group and EasyGo. Affected by the decline in operating income, the non-GAAP net profit attributable to shareholders decreased accordingly year-on-year.