IPO Observation: After Divorce Dispute, Shenzhen Sunway Electronic's Performance Slumps: The company's revenue contribution from its largest client drops by nearly 60%, leading to a decline in overall performance.
As we enter March, Shenzhen Sunway Electronic Co., Ltd.'s (hereinafter referred to as Sunway) IPO process has reached the third round of questioning. Notably, after the first two rounds of review and inquiry, Sunway's controlling shareholder, Mr. Zheng Zhijian, and his former wife, Ms. Huang Xin, settled their series of lawsuits outside the court in September last year. However, just as things seemed to be settling down, another wave emerged. For a company heavily reliant on large clients, such as Sunway, it is crucial to maintain stable relationships with these key customers.
Risk of Dependence Syndrome
First-largest client's revenue contribution drops by nearly 60%
According to the prospectus, Sunway is a national high-tech enterprise engaged in the research, development, production, and sale of connector products. Its main clients include 3M, Huawei, Linsen Precision (002475), Huitian Technology (300124), and Teco Electronics, among others. There exists a risk of customer concentration.
During the reporting period (2020-2022 and the first half of 2023), Sunway's sales revenue from its top five clients accounted for 74.77%, 72.02%, 69.23%, and 66.50% of total operating income, respectively. The customer concentration rate is relatively high.
Furthermore, the risk warning suggests that if the company fails to continue deepening relationships with existing major clients or effectively open up new client resources, its future performance may be significantly affected.
In a nutshell, Sunway's revenue and profit both declined sharply in 2023, mainly due to the sudden decline in revenue from its largest client, 3M. As of 2024 Q1, the company is expected to maintain stable sales revenue from 3M, but the overall sales revenue may still experience a significant decrease.
Sunway's response indicates that the company maintains a stable cooperative relationship with 3M, with no significant changes in order frequency and quantity. Based on the data of the first half of 2023, Sunway expects to maintain stable sales revenue from 3M in the second half of 2023.
However, since the second half of 2023, 3M's procurement volume has decreased significantly. In the first six months of 2023, Sunway's revenue from 3M was RMB 2,837.32 million, a year-on-year decline of 60.58%.
R&D Expenses Decline
R&D Expenses Ratio Downward Trend
According to the prospectus, during the reporting period, Sunway's R&D expenses ratio was 11.86%, 9.14%, 8.54%, and 8.09%, respectively, with a downward trend.
Risk Warning: If the company fails to continue innovation and maintain product quality, it may face a decline in market competitiveness and an increase in revenue growth.
In summary, Sunway's performance has slumped significantly due to the sudden decline in revenue from its largest client, 3M. As the IPO process continues, the company's future performance may still be subject to uncertainty.