Yinghe Technology’s Vaping Business Maintained Rapid Growth in Q1
Yinghe Technology (300457) recently disclosed its first-quarter report. The company’s net profit growth far exceeded its revenue growth. Based on minority interest profit and loss, it can be inferred that the vaping device business continued last year’s rapid growth momentum in the first quarter.
Previously, Yinghe Technology’s annual report showed that last year it achieved operating revenue of RMB 9.02 billion, up 73.4% year on year, and net profit of RMB 487 million, up 56.53% year on year. This indicates that both the company’s revenue and profit performed well last year.
Yinghe Technology’s core business is lithium battery equipment. Last year, this segment generated revenue of RMB 8.192 billion, accounting for 90.82% of total revenue, with new orders exceeding RMB 10 billion. Overseas, it also secured key lithium battery equipment orders from Volkswagen for 20GWh and partial front-end equipment orders from ACC for 13GWh.
Its vaping device business is focused on overseas markets. Last year, it obtained European TPD product certification and generated revenue of RMB 546 million, up 222.8% year on year, with net profit of RMB 85.3578 million. The main operating entity of this business is Shenzhen SKE Technology Co., Ltd., in which Yinghe Technology holds a 51% stake.
According to Yinghe Technology’s first-quarter report, the company achieved revenue of RMB 1.738 billion in Q1, up 11.9% year on year, and net profit of RMB 103 million, up 59.69% year on year. The report attributed this to profit growth driven by increased overseas sales. Minority interest profit and loss amounted to RMB 50.8952 million, due to increased profitability at certain subsidiaries.
Listed companies are not required to disclose subsidiary performance in first-quarter reports. However, based on the above statements, it can be inferred that the company’s vaping device business still maintained rapid growth in Q1. Minority interest profit and loss refers to the portion of earnings attributable to other non-controlling shareholders of subsidiaries included in the company’s consolidated financial statements, and this amount must be deducted in the income statement. Besides SKE, Yinghe Technology has only one other non-wholly-owned subsidiary in Huizhou. The annual report did not disclose that subsidiary’s business performance, which generally suggests its earnings contribution was very small. From this, it can be inferred that SKE may have achieved net profit exceeding RMB 100 million in the first quarter alone, surpassing its profit for all of last year.
It is understood that by the end of March 2023, in the UK disposable vaping device market ranked by sales, SKE (brand SKE Crystal) had risen to fourth place, behind only ELFBAR/LOSTMARY, Elux, and Vuse Go. The UK is relatively friendly toward vaping devices and has very little regulation. Ranking in the top four in the highly competitive UK market is an outstanding achievement. SKE owns the vaping brand Sikary as well as SKE. At present, ELFBAR, under domestic disposable vaping leader iMiracle, holds a clear lead in the UK market.
In September 2018, Yinghe Technology invested an additional RMB 48.27 million to acquire a 51% stake in SKE. At that time, SKE’s original shareholders promised that SKE’s audited net profit for 2019, 2020, and 2021 would be no less than RMB 60 million, RMB 100 million, and RMB 200 million respectively, with compensation required if the targets were not met. This was later revised so that SKE’s audited net profit for 2019, 2020, 2021, and 2022 would be no less than RMB 60 million, RMB 28 million, RMB 100 million, and RMB 200 million respectively, with cumulative committed net profit over the four years of no less than RMB 388 million. Compensation would only be required if the annual completion rate of the performance commitment fell below 85%.
According to the agreement, SKE committed to net profit of no less than RMB 200 million in 2022, but its actual realized profit was RMB 85.35 million, meaning it failed to meet that year’s performance commitment. The annual report disclosed that the reason for missing the target was changes in domestic policy.
In 2021, Yinghe Technology’s management stated that while focusing on its core lithium battery business, the company would actively promote the development of its subsidiaries in the consumer electronics business and assist subsidiary SKE in listing on the National Equities Exchange and Quotations. This followed the SMOORE route, as SMOORE first listed on the NEEQ and later went public in Hong Kong. However, as the country has strengthened regulation over vaping devices, the path for vaping companies to enter the capital markets has narrowed.
