The downstream machinery industry implicated Taifeng hydraulic performance gold content declined year by year

Shandong Taifeng Hydraulics Co., Ltd. recently disclosed the report of the prospectus. Although the company's scale has maintained growth in the past three years, accounts receivable accounts for a relatively high proportion of revenue, and in particular, the balance of accounts receivable in 2011 has soared by more than 60%, accounting for the highest ratio in three years. The downturn in the downstream industry and capital shortage also affect the "gold content" of Taifeng's hydraulic performance.

Taifeng Hydraulics is a hydraulic component industry in the general equipment manufacturing industry. It mainly produces hydraulic system control components. The core product is a two-way cartridge valve. The proportion of its main business revenue has been maintained at 65% to 70% in the past three years, and increase yearly. The company's product requirements include machine tools, construction machinery, metallurgical machinery and many other industries. In the past three years, Taifeng Hydraulic's top 10 customers in the year were large and medium-sized machinery manufacturers, accounting for more than 40% of total revenue, mainly including listed companies such as Taiyuan Heavy Industry, Jiangsu Yangli Group, etc., and were relatively stable. In 2011, the downstream machinery industry of the company bid farewell to high growth, the growth rate has significantly declined, and it is still at the bottom of the recovery process, thus affecting the company's growth momentum. From 2009 to 2011, the company’s main businesses were RMB 109 million, RMB 157 million and RMB 184 million, respectively. The year-on-year growth rates for 2010 and 2011 were 44.3% and 17.4%, respectively, and the growth rate dropped significantly.

At the same time, the proportion of accounts receivable of the company also reached the highest value in nearly three years in 2011. From the end of the reporting period from 2009 to 2011, the corresponding balances of accounts receivable of the company were RMB 28.53 million, RMB 37.3 million and RMB 61.96 million respectively, accounting for 26%, 23.5%, and 33.3% of the operating revenue for each period of the reporting period, respectively. The growth rates were 39.5%, 30.7% and 66.1%, respectively. Among them, one reason for the increase of more than 60% in 2011 is due to the large increase in the balance of accounts receivable for large customers such as Taiyuan Heavy Industry. The data shows that Taiyuan Heavy Industry has grown to be the company's largest customer at the end of 2011, with a sales amount of 15.75 million yuan. However, at the end of the period, the company’s accounts receivable for Taiyuan Heavy Industry had 12.9 million yuan.

The high level of accounts receivable is bound to affect the "gold content" of the company's performance. From 2009 to 2011, the company’s net profit was 14.5 million yuan, 23.38 million yuan, and 34.09 million yuan respectively, and the net cash flow from operating activities was 9.15 million yuan, 1.59 million yuan, and negative 1.79 million yuan, respectively. The profit cash content has declined significantly year by year, with 63%, 6.8% and -5.2% respectively. This can be described as "conducted" by the downstream machinery industry. For example, its major customer, Taiyuan Heavy Industry, had a net cash profit of only 0.07% at the end of 2011. This figure was about 0.74% at the high economic prosperity in 2010. At the same time, the proportion of accounts receivable at the end of 2011 also increased to 76%. It was nearly 12 percentage points higher than the figure for the same period last year. At the end of the first quarter of this year, the net profit of Taiyuan Heavy Industry was 19.15 million yuan, but the net cash flow from operating activities was negative 586 million yuan.

The same situation also appears in the leading enterprises in the machinery and equipment industry. The account receivables of Sany Heavy Industry, Zoomlion, and Xugong Machinery at the end of 2011 all exceeded 20%, both significantly higher than at the end of 2010. At the same time, the cash profits of the above-mentioned companies at the end of the first quarter of this year were all negative, and some were even as low as -100%. This to a certain extent reflects the difficulties faced by the Taifeng Hydraulic downstream industry in 2012. Sales of mechanical products slumped in the first half of the year. However, due to the clear trend of policy relaxation at present, the demand growth of mechanical products in the second half of the year is undergoing a process from a decline to a gradual stabilization. However, the degree of specific recovery is still difficult to judge.