Author: Li Juan
After updating the information, many Xiaomi eco-chain enterprises continued their process of sprinting A-share listing.
It is a common practice for some listed companies to be deeply tied up with giants such as Xiaomi Group (01810.HK) in the industrial chain. Shenzhen Sushi Technology Co., Ltd. (hereinafter referred to as "Sushi Technology") is one of them. The sponsor is China Merchants Securities (600999.SH), which recently updated the financial data for 2021 and the reply to the regulatory inquiry letter.
Sushi Technology’s main products are small personal care appliances such as electric toothbrushes, and more than half of its income comes from Xiaomi Group. The first financial reporter found that there is a big difference in gross profit margin between self-owned brands and products supplied to Xiaomi Group, and how to maintain independence in the future is a problem. Before the issuance, Xiaomi Group held nearly 20% equity of Sushi Technology through its affiliated investment company.
More than half of the income comes from Xiaomi.
Xiaomi Group is not only the major shareholder of Sushi Technology, but also the largest customer.
Sushi Technology’s main business is the research, development, design, production and sales of small household appliances. Focusing on the head care scene, it has formed three product categories: oral care, hair care and hairdressing care. The products are divided into self-owned brand products and Xiaomi customized Mijia brand products, among which the most important oral care products mainly include electric toothbrushes, tooth flushers and peripheral products.
In the inquiry letter, the regulatory authorities raised such questions and asked Sushi Technology to make a reasonable explanation for related party transactions: "The actual controllers of Tianjin Jinmi and Shunwei Technology are both Lei Jun.. There are related purchases and related sales between the issuer and Xiaomi Group during the reporting period. " "Explain the issuer’s position in Xiaomi eco-chain enterprises, cooperation and competition with eco-chain enterprises; Whether the issuer’s sales to Xiaomi Group are relatively high is reasonable, and compared with comparable companies of the same type, it shows whether there is industry universality in this situation. "
The shareholding structure shows that Tianjin Jinmi and Shunwei Technology hold 10.90% and 8.57% of Sushi Technology respectively. Sushi Technology said that before the issuance, Xiaomi Group held 8.57% of the shares of the company through Tianjin Jinmi controlled by it, and director Chen Bo was the representative of Tianjin Jinmi on the board of directors; Xiaomi related Fang Shun holds 10.90% of the company’s shares for Technology. Tianjin Jinmi and Shunwei Technology’s investments in Sushi Technology are all equity investments with voting rights, but they have no control over the business decisions of Sushi Technology.
According to the disclosure data, from 2019 to 2021, the income realized by Sushi Technology through Xiaomi mode accounted for 59.39%, 59.82% and 55.56% of the main business income respectively.
According to Sushi Technology, the company is one of the Xiaomi eco-chain enterprises that focuses on protecting small household appliances. As a customized product supplier, it provides Mijia brand products such as Mijia electric toothbrush, Mijia tooth punch, Mijia electric razor, Mijia hair dryer and some self-owned brand products for Xiaomi Communication. Xiaomi Group is the largest customer of Sushi Technology. Xiaomi Communication (100% owned by Xiaomi Group) specifies the trademark, industrial design and packaging design scheme for Mijia brand products, and is responsible for the publicity and sales of Mijia brand products. Sushi Technology is responsible for the overall development and production of Mijia brand products, and is responsible for transporting them to the warehouse designated by Xiaomi Communication. The channels for Xiaomi Communication to sell Mijia brand products include Xiaomi Mall, Youpin and other Xiaomi’s own platforms, Xiaomi’s offline channels and third-party platforms.
Sushi Technology suggested in the prospectus that there is a certain degree of competition between the company’s own brand products and Xiaomi’s customized Mijia brand products. Xiaomi, as an independent market entity, can carry out competitive business with Sushi Technology by itself or through cooperation with other third parties.
In this regard, a sponsor representative analyzed to the First Financial Reporter that Xiaomi Group, as an H-share listed company, the interests of Sushi Technology may sometimes conflict with the interests of Xiaomi shareholders or their affiliates. However, the pricing and gross profit margin of sales to Xiaomi and other customers are inconsistent, which also lays a certain hidden danger for future management.
Gross profit margin varies greatly, how to maintain independence?
The gross profit margin of its own brand is quite different from that of products supplied to Xiaomi. How can Sushi Technology maintain its operational independence?
In the inquiry letter, the supervisor also asked the company to explain the reasons, necessity, average selling and purchasing price of related party Xiaomi Group during the reporting period, and whether the pricing of related party transactions is fair in combination with the price of selling and purchasing similar products to other independent third parties in the same period.
From 2019 to 2021, the gross profit margin of Mijia brand electric toothbrush was 17.04%, 13.67% and 15.60%.
Sushi Technology explained that the decline in gross profit margin in 2020 was caused by the increase in sales of products with lower gross profit margin and the increase in the proportion of sales revenue; In 2021, when the gross profit margin increased, the company implemented supplier cost reduction. By introducing new suppliers or negotiating prices with the original suppliers, the purchase prices of the two main sales models were reduced. In addition, the company adjusted its product strategy and gradually stopped selling a model product with low price and low gross profit margin, thus increasing the gross profit margin.
During the reporting period, the gross profit margin of Sushi brand electric toothbrush was 33.17%, 43.41% and 50.22%, which showed a steady upward trend and was much higher than that of Xiaomi brand.
Sushi Technology said that since 2019, the gross profit margin of the company’s own brand electric toothbrush has increased, mainly for two reasons: the introduction of smart electric toothbrushes with higher unit price and more functions and usage modes, the expansion of product sales scale, the decline of its average unit cost and the increase of gross profit margin. Through multi-brand strategy for differentiated competition, the positioning of different brand products is quite different, resulting in different gross profit margins of different brand products.
Regarding the inconsistency in pricing, Sushi Technology explained: Mijia brand products are positioned in the mass market, and the unit price is relatively low, and most Mijia brand products are sold through the sharing model; Sushi brand products mainly focus on fashion, high value, personalized design and function, focusing on the aesthetic preferences of young consumers, especially young female consumers. The appearance and positioning are different from Mijia brand products, and some products can be directly sold to end consumers, so the gross profit margin is higher than Mijia brand products.
In addition, the cooperative sales mode of Sushi Technology and Xiaomi Communication is mainly divided mode, and a small number of products are direct sales mode. Under the sharing mode, the settlement price between the company and Xiaomi Communication is the basic purchase price plus the sharing amount, and the sharing ratio is usually 30%-50% of the final sales profit, but there are differences between different products. Under this business model, part of the profit of Mijia products is enjoyed by Xiaomi Communication, resulting in a lower gross profit margin of the sharing model.
Referring to the comparison with Xiaomi’s eco-chain enterprises, Sushi Technology explained that the cooperation mode and benefit distribution mechanism between the company and Xiaomi are not significantly different from those of Roborock (688169.SH) and No.9 Company (689009.SH). Because the main products of Fun Sleep Technology are self-owned brand products, Xiaomi has few customized products, and its business model is different from that of typical Xiaomi eco-chain enterprises. Therefore, there is no significant difference between the sales model and profit distribution mechanism of the company and Xiaomi and the cooperation model of other enterprises in Xiaomi ecological chain, and the pricing is fair.
Recently, both Roborock and No.9 Company, which have been listed, have made great efforts to reduce their holdings.
In addition, Sushi Technology is expected to raise 775 million yuan, which will be used to promote four projects, including product upgrading, brand promotion and marketing upgrading, "R&D center construction" and "supplementary liquidity". Among them, the largest investment in the whole product upgrade project is nearly 300 million yuan, including the purchase of office buildings in Luohu, Shenzhen. The specific way is to build the company to raise funds related to newly acquired real estate. At present, the company has signed a purchase intention agreement with Shenzhen Guosu Real Estate Development Co., Ltd., and plans to subscribe for some floors of Guosu Century Building located at No.3029 Baoan South Road, Luohu District, Shenzhen, of which 2,864.4 square meters will be used for the construction of this project. However, the prospectus did not disclose the specific transaction price of the floor. Public information shows that the current office price in Luohu District of Shenzhen is about 30,000 yuan per square meter.
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