水发兴业新材料(08073) - 2019 - 年度财报

CHAIRMAN'S STATEMENT Performance Overview and Business Development In 2019, the Group achieved 14.5% revenue growth and RMB 18.2 million profit attributable to shareholders, driven by a 174.5% increase in ITO conductive film sales and enhanced market share for smart dimming products Key Financial Indicators for 2019 | Metric | Amount | | :--- | :--- | | Revenue | RMB 148 million | | Year-on-year Growth | 14.5% | | Profit Attributable to Shareholders | RMB 18.2 million | | Proposed Final Dividend | HK 1.0 cent per share | - ITO conductive film sales revenue reached RMB 51.9 million, representing a 174.5% year-on-year increase, primarily due to the acquisition of Huabei Co., Ltd. in December 2018[24][28] - Combined revenue from smart dimming film and smart dimming glass businesses totaled RMB 67 million, with increasing brand recognition and market share[25][28] Technology Development and Future Plans The Group maintains technology-driven innovation, achieving 40% market share in China's smart dimming film market in 2019, and plans to expand market share through M&A while strengthening R&D in functional film materials - In 2019, the Group's market share for smart dimming film in mainland China reached 40%[30][32] - The smart color-changing glass R&D project was selected as a Zhuhai City innovation project, receiving RMB 12 million in government grants[30][32] - Future plans include building a manufacturing industry cluster centered on conductive films and smart dimming products through mergers and acquisitions[31][33] MANAGEMENT DISCUSSION AND ANALYSIS Business Review In 2019, the Group's business segments showed mixed performance, with ITO conductive film revenue surging 174.5% due to an acquisition, while smart dimming projection systems declined 87.7%, leading to a 7.9% decrease in profit attributable to owners due to increased impairment losses on trade receivables 2019 Revenue Performance by Business Segment | Business Segment | 2019 Revenue (RMB) | 2018 Revenue (RMB) | Year-on-year Change | | :--- | :--- | :--- | :--- | | ITO Conductive Film | 51,948,000 | 18,923,000 | +174.5% | | Smart Dimming Film | 49,231,000 | 47,700,000 | +3.2% | | Smart Dimming Glass | 17,762,000 | 17,010,000 | +4.4% | | Smart Dimming Projection System | 3,237,000 | 26,405,000 | -87.7% | | Other Goods and Services | 25,856,000 | 19,254,000 | +34.3% | - Profit attributable to owners slightly decreased by 7.9% from RMB 19.79 million in 2018 to RMB 18.22 million in 2019, primarily due to increased impairment losses on trade receivables[44][46] Outlook and Prospects The Group plans to focus on film products and expand into overseas markets, with the COVID-19 pandemic causing only a one-week production delay and limited impact on operations and financials by the report date - Future strategy will shift focus to film products, with plans to expand business into overseas markets[48][51] - COVID-19 pandemic caused a one-week production delay until February 9, 2020, but production has since returned to normal levels with over 95% of employees back to work, indicating limited impact[55][58] Financial Review In 2019, total revenue grew 14.5% to RMB 148 million, primarily from ITO conductive film sales, though gross margin decreased to 39.8%; the Group maintained a stable 27.7% gearing ratio with no bank borrowings 2019 Financial Performance Summary | Metric | 2019 (RMB) | 2018 (RMB) | Year-on-year Change | | :--- | :--- | :--- | :--- | | Revenue | 148,034,000 | 129,292,000 | +14.5% | | Cost of Sales | 89,052,000 | 70,089,000 | +27.1% | | Gross Profit | 58,982,000 | 59,203,000 | -0.4% | | Gross Margin | 39.8% | 45.8% | -6.0pp | | Administrative Expenses | 22,686,000 | 20,740,000 | +9.4% | Analysis of Use of Listing Proceeds (as of 2019/12/31) | Business Strategy | Planned Use (HKD million) | Actual Use (HKD million) | Balance (HKD million) | | :--- | :--- | :--- | :--- | | Overseas Business Expansion | 9.8 | 4.2 | 5.6 | | New Materials and Product R&D | 21.1 | 11.5 | 9.6 | | Purchase of Machinery and Equipment | 6.8 | 6.8 | — | | Enhancement of Wide ITO Conductive Film | 4.3 | 4.3 | — | | Working Capital | 7.3 | 7.3 | — | | China Sales and Marketing | 8.7 | 4.7 | 4.0 | | Smart Dimming Product Fully Automatic Production Line | 12.0 | 12.0 | — | | Laser Home Theater System | 3.0 | 0.8 | 2.2 | | Smart Dimming Product Ultra-wide Production Line | 11.5 | — | 11.5 | | Glass Processing Fully Automatic Production Line | — | 9.0 | 9.0 | - As of December 31, 2019, the Group had no bank borrowings, with a stable gearing ratio of 27.7% compared to 26.1% in 2018[72][83] - The Group faces a product quality dispute lawsuit, resulting in RMB 12.52 million in bank cash being frozen by the court; however, directors believe they have strong defenses and have not recognized related losses[91][95] Possible Risks and Uncertainties The Group faces significant business and financial risks, including intense competition in ITO conductive film and smart dimming product markets, intellectual property protection challenges, and reliance on a single production base in China - The ITO conductive film market is highly competitive with numerous participants and potential consolidation, while the smart dimming product market faces price pressure from large manufacturers and new entrants[111][112][115] - Protecting self-developed technology and proprietary knowledge is crucial for competitiveness, with increased intellectual property infringement claims risk as the Group expands into overseas markets[119][120][121] - All production activities are conducted at a single facility leased from the controlling shareholder, making the Group vulnerable to significant business disruption and profitability impact from any natural disaster or accident[125][127] CORPORATE GOVERNANCE REPORT Board and Committees The company complied with corporate governance codes, with a board comprising executive, non-executive, and independent non-executive directors, and distinct roles for Chairman and CEO, supported by audit, remuneration, and nomination committees to ensure oversight - The company has applied and complied with all applicable code provisions of the Corporate Governance Code in Appendix 15 of the GEM Listing Rules[131] - The roles of Chairman (Mr. Liu Hongwei) and Chief Executive Officer (Mr. Sun Jinli) are held by different individuals, ensuring clear segregation of duties[148][151] - The company has established Audit, Remuneration, and Nomination Committees, whose composition and responsibilities comply with Listing Rules, and all committees held meetings in 2019 to fulfill their duties[162][174][180] Risk Management and Internal Control The Board is responsible for the Group's risk management and internal control systems, reviewing their effectiveness annually, and currently opts for external professional internal audit services due to cost-effectiveness, with this approach re-evaluated yearly - The Board is responsible for risk management and internal control systems, having reviewed their effectiveness during the reporting year, covering financial, operational, and compliance controls[197] - The Group currently lacks an internal audit function, as the Board deems external professional services more cost-effective given the company's size, a need that will be reviewed annually[198][199] Shareholders' Rights The report outlines shareholder communication channels and key rights, including procedures for convening extraordinary general meetings, proposing resolutions, and submitting inquiries to the Board, ensuring transparency and participation - Shareholders holding not less than 10% of the paid-up share capital have the right to request an extraordinary general meeting[211][213] - Shareholders holding not less than 5% of the total voting rights or at least 100 shareholders may submit written requests for the company to propose resolutions or circulate statements at general meetings[212][214] REPORT OF THE DIRECTORS Principal Activities and Business Review The company, an investment holding entity, primarily engages in R&D, production, and sales of ITO conductive films and related smart dimming products in mainland China, with a change in ultimate control due to a share subscription by Shuifa Group (Hong Kong) Holdings Limited in 2019 - The Group's principal activities involve the R&D, production, and sales of ITO conductive films and related downstream products (smart dimming films, glass, and projection systems), primarily operating in mainland China[275][279] - In 2019, controlling shareholder China Singyes Solar Technologies Holdings Limited allotted and issued 1,687,008,585 new shares to Shuifa Group (Hong Kong) Holdings Limited, resulting in the latter holding 66.92% equity in Singyes Solar and indirectly changing the Company's ultimate control[283][285] Dividends and Reserves The Board recommends a final dividend of HK 1.0 cent per share for 2019, with distributable reserves of approximately RMB 6.34 million as of year-end, and plans to transfer RMB 10 million from share premium to contributed surplus for distribution - The Board recommends a final dividend of HK 1.0 cent per share for 2019, lower than HK 1.2 cents in 2018[298][305] - As of end-2019, the company's distributable reserves were RMB 6.34 million, with plans to transfer RMB 10 million from the share premium account to the contributed surplus account for distribution[301][302] Major Customers and Suppliers In 2019, the Group's customer and supplier concentration was moderate, with the top five customers accounting for 27% of total revenue and the top five suppliers for 43.5% of total purchases, and no related party interests among them 2019 Customer and Supplier Concentration | Category | Percentage of Total (%) | | :--- | :--- | | Top Five Customers | 27% | | Largest Customer | 6.9% | | Top Five Suppliers | 43.5% | | Largest Supplier | 12.3% | Share Option Scheme The company adopted a share option scheme in 2017, granting 21 million options in 2018 at HK 1.16 per share, with 5.3 million forfeited by end-2019 due to resignations, leaving 15.7 million outstanding, representing 3.019% of issued shares - On January 31, 2018, the company granted 21,000,000 share options under the scheme, with an exercise price of HK 1.16 per share[337][341] - As of end-2019, 5,300,000 share options were forfeited due to employee resignations, leaving 15,700,000 outstanding[337][341] Interests and Short Positions of Substantial Shareholders As of December 31, 2019, Top Access Management Limited, wholly owned by China Singyes Solar, held 62.37% of the company's issued share capital, making it the direct controlling shareholder, with Shuifa Group as the ultimate controlling party and AMATA Limited holding 7.69% Substantial Shareholders' Shareholdings (as of 2019/12/31) | Shareholder Name | Capacity/Nature of Interest | Number of Shares Held | Percentage of Shareholding (%) | | :--- | :--- | :--- | :--- | | Top Access Management Limited | Beneficial owner | 324,324,325 | 62.37% | | China Singyes Solar Technologies Holdings Limited | Interest in controlled corporation | 324,324,325 | 62.37% | | Shuifa Group Co., Ltd. | Interest in controlled corporation | 324,324,325 | 62.37% | | AMATA Limited | Beneficial owner | 40,000,000 | 7.69% | INDEPENDENT AUDITOR'S REPORT Opinion and Key Audit Matters Ernst & Young issued an unqualified opinion on the 2019 consolidated financial statements, identifying impairment assessments of trade receivables and goodwill as key audit matters due to significant management judgment and estimation - Auditor Ernst & Young issued an unqualified opinion on the financial statements, deeming them to fairly present the Group's financial position[432][435] - Key audit matters include the impairment assessment of trade receivables and impairment assessment of goodwill, due to significant management judgment and estimation involved[438][443][448] - For trade receivables impairment, auditors assessed the accounting process for impairment provisions, checked aging analysis accuracy, and evaluated expected credit loss methodology; for goodwill impairment, they assessed management's cash flow forecasts, key assumptions (e.g., growth and discount rates), and engaged internal valuation experts for review[441][451] AUDITED FINANCIAL STATEMENTS Consolidated Statement of Profit or Loss and Other Comprehensive Income In 2019, the Group's revenue was RMB 148.03 million, a 14.5% increase, with gross profit stable at RMB 58.98 million, but profit for the year decreased 6.6% to RMB 18.51 million due to increased impairment losses on trade receivables, resulting in basic earnings per share of RMB 0.035 Consolidated Statement of Profit or Loss Summary (RMB thousand) | Item | 2019 (RMB thousand) | 2018 (RMB thousand) | | :--- | :--- | :--- | | Revenue | 148,034 | 129,292 | | Gross Profit | 58,982 | 59,203 | | Impairment Loss on Trade Receivables | (7,779) | (5,242) | | Profit Before Tax | 21,118 | 22,705 | | Profit for the Year | 18,513 | 19,828 | | Profit Attributable to Owners of the Company | 18,221 | 19,788 | | Basic Earnings Per Share (RMB) | 0.035 | 0.041 | Consolidated Statement of Financial Position As of end-2019, the Group's total assets were RMB 319.1 million, total liabilities RMB 69.17 million, and net assets RMB 249.93 million, all showing slight increases, with non-current assets significantly growing due to property, plant, and equipment additions Consolidated Statement of Financial Position Summary (RMB thousand) | Item | 2019 (RMB thousand) | 2018 (RMB thousand) | | :--- | :--- | :--- | | Total Non-current Assets | 105,000 | 57,751 | | Total Current Assets | 214,100 | 237,464 | | Total Assets | 319,100 | 295,215 | | Total Current Liabilities | 55,644 | 58,653 | | Total Non-current Liabilities | 13,525 | 2,419 | | Total Liabilities | 69,169 | 61,072 | | Net Assets | 249,931 | 234,143 | | Total Equity Attributable to Owners of the Company | 244,464 | 228,968 | Consolidated Statement of Cash Flows In 2019, net cash from operating activities significantly improved to RMB 31.48 million, but net cash used in investing activities was RMB 65.1 million, primarily for property, plant, and equipment, resulting in a net decrease of RMB 41.39 million in cash and cash equivalents, ending the year at RMB 26.93 million Consolidated Statement of Cash Flows Summary (RMB thousand) | Item | 2019 (RMB thousand) | 2018 (RMB thousand) | | :--- | :--- | :--- | | Net Cash from Operating Activities | 31,482 | (14,694) | | Net Cash (Used in) from Investing Activities | (65,098) | 81 | | Net Cash Used in Financing Activities | (7,771) | (2,678) | | Net Decrease in Cash and Cash Equivalents | (41,387) | (17,291) | | Cash and Cash Equivalents at Beginning of Year | 68,279 | 85,538 | | Cash and Cash Equivalents at End of Year | 26,932 | 68,279 | 5-YEAR FINANCIAL SUMMARY 5-Year Financial Summary From 2015 to 2019, the Group's revenue grew from RMB 60.48 million to RMB 148.03 million, and total assets increased from RMB 89.75 million to RMB 319.1 million, with profit for the year showing a fluctuating upward trend after a dip in 2016 Five-Year Financial Data Summary (RMB thousand) | Item | 2015 (RMB thousand) | 2016 (RMB thousand) | 2017 (RMB thousand) | 2018 (RMB thousand) | 2019 (RMB thousand) | | :--- | :--- | :--- | :--- | :--- | :--- | | Revenue | 60,477 | 90,887 | 115,823 | 129,292 | 148,034 | | Profit for the Year | 7,696 | 6,381 | 14,026 | 19,828 | 18,513 | | Total Assets | 89,753 | 126,484 | 239,923 | 295,215 | 319,100 | | Total Liabilities | 31,269 | 48,857 | 54,660 | 61,072 | 69,169 | | Net Assets | 58,484 | 77,627 | 185,263 | 234,143 | 249,931 |