Financial Information

Material fluctuations of the consolidated statement of profit or loss items are explained below:

Revenue

The Group’s revenue for the financial year ended 31 December 2023 (“FY2023” or the “Reporting Period”) increased by approximately RMB216.3 million, or approximately 10.6% from approximately RMB2,039.6 million in the previous financial year ended 31 December 2022 (“FY2022”) to approximately RMB2,255.9 million in FY2023.

Part of the increase in revenue for FY2023 comparing FY2022 is due to the completion of the acquisition of Nanjing Zhangyu Information Technology Co., Ltd. (“Nanjing Zhangyu”) and Shanghai Zhangyu Information Technology Co., Ltd. (“Shanghai Zhangyu”) (collectively, the “Zhangyu Companies”) in July 2022. The revenue of Zhangyu Companies formed the Digital Technology and Digital Security business segment of the Group. The Zhangyu Companies have contributed approximately RMB94.2 million in revenue in the second half of FY2022. During the full year of FY2023, the Zhangyu Companies contributed approximately RMB202.7 million of revenue, representing an increase of approximately RMB108.5 million or 115.1% from revenue during the previous year.

The other reason contributing to the increase in revenue for FY2023 comparing FY2022 is due to the completion of the acquisition of Zhejiang Zhongguang New Energy Co., Ltd. and its subsidiaries (“Zhongguang New Energy”) in August 2023. The revenue of Zhongguang New Energy formed the New Energy and Services business segment of the Group. Zhongguang New Energy have contributed approximately RMB77.1 million in revenue in the second half of FY2023.

By separating the revenue contribution by the Zhangyu Companies in the full year of FY2023 and Zhongguang New Energy in the second half of FY2023, the Telecommunications business segment recorded a small increase in revenue of approximately RMB30.8 million or 1.6% from FY2022’s approximately RMB1,945.4 million to FY2023’s approximately RMB1,976.2 million. Below is an analysis of revenue according to the categories of business segments.

Digital Technology and Digital Security

With the completion of the acquisition of the Zhangyu Companies in July 2022, a new business segment of Digital Technology and Digital Security comprising the Zhangyu Companies was formed. During the full year of FY2023, Zhangyu Companies have recorded revenue of approximately RMB202.7 million (representing an increase of approximately RMB108.5 million or 115.1% from approximately RMB94.2 million for the second half of FY2022), of which revenue from (i) design services was approximately RMB44.4 million; (ii) tape-out service was approximately RMB63.9 million; and (iii) digital technology, cloud computing and services were approximately RMB94.4 million.

New Energy and Services

With the completion of the acquisition of the Zhongguang New Energy in July 2023, a new business segment of New Energy and Services was formed with a focus on the supply of electricity through the production and sales of solar power as well as the provision of development consultation and technical services of the solar thermal power generation technology. Since the completion of the acquisition in July 2023, Zhongguang New Energy have recorded revenue of approximately RMB77.1 million from the sales of solar power from the business segment’s 50MW and 10MW power generating facilities. The New Energy and Services business segment will provide the Group with stable and consistent income stream and marked the Group’s successful leap into a new business diversification arena.

Telecommunications

Due to continuous fierce market competition during FY2023, Telecommunications business segment only recorded a slight increase in revenue of RMB30.8 million or 1.6% from the previous year despite the Group’s increased effort on market exploration with more competitive pricing strategy and broadening its products mix width in order to maintain its market position and securing orders from major telecommunication operators in the PRC.

Gross profit margin

The Group achieved an overall gross profit margin of approximately 19.3% for FY2023 compared to approximately 18.4% for FY2022, representing an increase of approximately 0.9 percentage point year-on-year. By separating the Digital Technology and Digital Security business segment and New Energy and Service business segment, the rest of the Telecommunications business segment achieved a combined gross profit margin of approximately 15.3%, representing a decrease of approximately 1.8 percentage points from the previous year’s 17.1%. The Digital Technology and Digital Security business segment has achieved a gross profit margin of 41.7% during the year of FY2023 (gross profit margin of 45.7% during the second half of FY2022), representing a decrease of 4.0 percentage points year-on-year. The New Energy and Service business segment has achieved a gross profit margin of 61.8% after the completion of the acquisition in July 2023.

As mentioned before, the Telecommunications business segment has faced strong market competition, in order to maintain its market share, more competitive pricing strategy was applied in order to secure more orders, therefore gross profits recorded a decrease year-on-year. Gross profit contribution for the Telecommunications business segment in FY2023 has recorded a year-on-year decrease of RMB29.1 million or 8.8% from FY2022’s RMB331.6 million to FY2023’s RMB302.5 million.

For the Digital Technology and Digital Security business segment, overall gross profit margin for the full year of FY2023 was approximately 41.7% (gross profit margin of approximately 45.7% during the second half of FY2022), representing a decrease of approximately 4.0 percentage points year-on-year. Due to the nature of digital technology, cloud computing and services businesses, gross profit margins are generally higher than the Telecommunications business segment. Because of the change in products mix in FY2023 comparing FY2022, the Digital Technology and Digital Security business segment has recorded a slight decrease in gross profit margin and gross profit contribution in FY2023 was RMB84.5 million, representing an increase of RMB41.4 million or 96.1% from FY2022’s RMB43.1 million.

For the New Energy and Services business segment, overall gross profit margin for the second half of FY2023 was approximately 61.8% and gross profit contribution to the Group was RMB47.6 million since the completion of the acquisition in July 2023.

As the Digital Technology and Digital Security and New Energy and Services business segments have higher gross profit margin than the Telecommunications business segment, the Group recorded an increase in the combined gross profit margin year-on-year.

On the one hand, the Group will enhance product profitability by increasing investment in new product research and development and the application of new technologies. On the other hand, the Group will continue to promote intelligent, information-based and lean development. In addition to micro-innovation and micro operating activities, the Group will also continue to improve output efficiency, reduce labor and materials consumption, control procurement costs and strengthen inventory management, thereby breaking through the bottleneck of costs improvement and maintaining an appropriate gross profit margin to cope with market competition pressure. As the New Energy and Services business segment further develops and contributes to the Group on a full year basis after FY2023, the Group will be able to achieve higher overall gross profit margin and gross profit contribution.

Other operating income

Other operating income increased by approximately RMB6.1 million or approximately 12.7% from approximately RMB48.0 million in FY2022 to approximately RMB54.1 million in FY2023. The increase is primarily due to:

1. an increase in interest income by approximately RMB8.1 million;
2. an increase in government grants and subsidies of approximately RMB3.2 million;
3. a decrease in net foreign gain of RMB6.3 million; and
4. a net increase in other items of approximately RMB1.1 million.

Selling and distribution expenses

Selling and distribution expenses decreased by approximately RMB10.6 million or approximately 9.0% from approximately RMB118.4 million in FY2022 to approximately RMB107.8 million in FY2023. This was due to a combination of various factors including the decrease in salary expenses under selling and distribution expenses, the decrease in transportation costs, and the decrease in marketing expenses due to the stringent policy to control the costs of the Group during FY2023.

Administrative expenses

Administrative expenses increased by approximately RMB11.9 million or approximately 19.6% from approximately RMB60.6 million in FY2022 to approximately RMB72.5 million in FY2023. The increase was mainly due to the full year consolidation of the Zhangyu Companies and the administrative expenses from Zhongguang New Energy after the completion of the acquisition in July 2023 and the legal and profession fees related to the acquisition of Zhongguang New Energy during FY2023.

Impairment loss on trade receivables

Additional impairment loss on trade receivables amounting to approximately RMB26.6 million was provided in FY2023 (2022: Nil).

Other operating expenses

Other operating expenses decreased by approximately RMB30.2 million or approximately 19.4% from approximately RMB155.7 million in FY2022 to approximately RMB125.5 million in FY2023. Such change is mainly due to:

1. slight increase in research and development (“R&D”) expenses by approximately RMB0.1 million year-on-year from FY2022’s approximately RMB114.6 million to approximately RMB114.7 million in FY2023. During FY2023, approximately RMB96.3 million (representing a decrease of approximately RMB8.0 million or 7.7% year-on-year) of R&D is attributable to the continuing R&D activities undertaken for the modifications and improvements to the Group’s telecommunications products during FY2023; approximately RMB13.6 million is due to the R&D undertaken by the Zhangyu Companies during the full year FY2023; and approximately RMB4.8 million is due to the R&D undertaken by Zhongguang New Energy during the second half of FY2023; and
2. a decrease in the net loss on financial assets measured at FVPL of approximately RMB29.8 million in FY2023.

Interest expense

Interest expense increased by approximately RMB19.1 million or approximately 160.5% from approximately RMB11.9 million in FY2022 to approximately RMB31.0 million in FY2023, mainly because of the interest expenses amounting to approximately RMB20.8 million relating to the bank borrowings for the acquisition of Zhongguang New Energy during FY2023 and the interest expenses relating to Zhongguang New Energy’s bank loans.

Profit before taxation

Profit before taxation increased by approximately RMB48.5 million or approximately 63.0% from approximately RMB77.0 million in FY2022 to approximately RMB125.5 million in FY2023. During the second half of FY2023, Zhongguang New Energy have made positive profit contribution to the Group, forming a new driver for the Group’s growth in addition to the Digital Technology and Digital Security business segment formed in FY2022. Therefore, profit before taxation increased due to the new profit centers from Zhangyu Companies and Zhongguang New Energy.

Income tax

The Group’s main subsidiaries, Jiangsu Hengxin Technology Co., Ltd. (“Jiangsu Hengxin”), Zhangyu Companies and the subsidiary of Zhongguang New energy, Qinghai Zhongkong Solar Power Co., Ltd., have been subject to an incentive tax rate of 15% in FY2023 as they qualify as a high-tech enterprise in the PRC. Income tax expense increased by approximately RMB12.5 million or approximately 140.4% from approximately RMB8.9 million in FY2022 to approximately RMB21.4 million in FY2023. The increase is mainly due to (i) the increase in profit from operations during FY2023 due to the new profit centers after the acquisition of the Zhangyu Companies in the second half of FY2022; (ii) the increase in profit from operations and the new profit center after the acquisition of Zhongguang New Energy in the second half of FY2023; and (iii) decrease in the deferred tax expense reversal arising from the origination of temporary difference mainly from contingent consideration and put option and intangible assets identified in business combination in FY2022.

Profit Attributable to Equity Shareholders of the Company

In view of the above, after taking into account of the effect of non-controlling interests, profit attributable to equity shareholders of the Company increased by approximately RMB6.1 million or approximately 9.6% from approximately RMB63.6 million in FY2022 to approximately RMB69.7 million in FY2023.

Consolidated Statement of Financial Position

Material fluctuations of the consolidated statement of financial position items are explained below:

Property, plant and equipment

As at 31 December 2023, property, plant and equipment amounted to approximately RMB1,154.8 million, representing an increase of approximately RMB942.4 million or approximately 443.7% from approximately RMB212.4 million as at 31 December 2022. The increase is mainly due to the first time consolidation of Zhongguang New Energy as at 31 December 2023 and the increase mainly include RMB953.5 million of electric generating facilities, rights-of-use assets, land use rights and others.

Intangible assets

Intangible assets amounted to approximately RMB241.5 million as at 31 December 2023 (as at 31 December 2022: RMB56.4 million), representing an increase of approximately RMB185.1 million or approximately 30.5% and mainly represent customer relationship, patents, intellectual property resources and licence. The increase is mainly due to the business combination of the value for the patents and licence relating to the solar power generation of Zhongguang New Energy on the completion of the acquisition of in July 2023. The Group has engaged an external valuation firm to perform fair value assessments on these intangible assets of customer relationship, patents and licence in accordance with IAS 38 Intangible Assets and IFRS 3 Business Combination.

Goodwill

As at 31 December 2023, goodwill amounted to approximately RMB201.6 million (as at 31 December 2022: RMB155.1 million), of which RMB155.1 million was due to the acquisition of the Zhangyu Companies during FY2022 and RMB46.5 million was due to the acquisition of Zhongguang New Energy during FY2023. Based on the independent valuation performed by an external valuation firm engaged by the Group, no impairment on goodwill was required for FY2023.

Inventories and other contract costs

Inventories and other contract costs (comprising raw materials, work-in-progress, finished goods and other contract costs) increased by approximately RMB43.3 million or approximately 28.6% from approximately RMB151.6 million as at 31 December 2022 to approximately RMB194.9 million as at 31 December 2023. The increase was mainly due to the increase in raw materials and finished goods due to the anticipation of the increase in raw materials costs to stock up raw materials and goods in transit as at the year end of FY2023.

Trade and other receivables

1. Net trade and bills receivables increased by approximately RMB164.2 million or approximately 24.7% from approximately RMB666.1 million as at 31 December 2022 to approximately RMB830.3 million as at 31 December 2023. The increase in trade and bills receivables is mainly due to the first time consolidation of the trade receivables relating to Zhongguang New Energy as at 31 December 2023.

   If the gross trade receivables and bills receivables relating to Zhongguang New Energy were taken out from the 31 December 2023 balance, the adjusted gross trade receivables and bills receivables relating to Telecommunications and Digital Technology and Digital Security business segments have recorded a decrease of approximately RMB66.0 million or approximately 9.7% from the FY2022’s year end balance of approximately RMB679.1 million to the adjusted 31 December 2023 year end balance of approximately RMB613.1 million. Such decrease in gross trade and bills receivables during FY2023 was because customers have speeded up their settlement arrangement as the Group has imposed stricter credit control and collection policy on outstanding trade and bills receivables.

   As at 31 December 2023, based on the invoice date and net of allowance for impairment, approximately 70.8% of the net trade and bills receivables are within 6 months as compared with that of approximately 73.4% as at 31 December 2022. For long aged net trade and bills receivables, as at 31 December 2023, approximately 7.3% were over two years (as compared with 1.9% as at 31 December 2022). The long aged net trade and bills receivables were mostly relating to non-operator customers of the Telecommunications business segment. The Group does not foresee any significant difficulty in the collection of these receivables. The Group will continue to endeavour in its collection efforts on the outstanding balances.

2. Net prepayments and non-trade receivables increased by approximately RMB19.0 million or approximately 24.5% from approximately RMB77.6 million as at 31 December 2022 to approximately RMB99.6 million as at 31 December 2023. The increase was mainly due to the (i) increase in prepayments by approximately RMB19.7 million; (ii) increase in refundable deposits by approximately RMB10.9 million; and (iii) decrease in tax recoverable of approximately RMB10.9 million.

Trade and other payables

1. Trade and bills payables increased by approximately RMB67.7 million or approximately 31.2% from approximately RMB217.2 million as at 31 December 2022 to approximately RMB284.9 million as at 31 December 2023. The increase is mainly due to the first time consolidation of the trade and bills payable of Zhongguang New Energy as at 31 December 2023 amounting to RMB49.7million. If the trade and bills payable of Zhongguang New Energy were taken out, the adjusted trade and bills payable of the Telecommunications and Digital Technology and Digital Security business segments have recorded an increase of RMB18.0 million or 8.3% from RMB217.2 million as at 31 December 2022 to the adjusted balance of RMB235.2 million as at 31 December 2023. Such increase is in line with the increase in inventories of raw materials in response to the Group’s purchases in anticipation of increase in raw materials costs.
2. Other payables recorded a slight decrease of approximately RMB2.6 million or approximately 1.5% from approximately RMB170.8 million as at 31 December 2022 to approximately RMB168.2 million as at 31 December 2023. The decrease is mainly due to (i) the increase in contract liabilities by approximately RMB21.8 million; (ii) the increase in tender deposits of approximately RMB8.9 million; (iii) the increase in accrued operating expenses by approximately RMB6.9 million; and (iv) as at 31 December 2023, there was no contingent consideration payables relating to the second (last) payment for the acquisition of the Zhangyu Companies in FY2022 of approximately RMB45.0 million.

Current bank loans and noncurrent bank loans

The current and non-current bank loans as at 31 December 2023 amounted to approximately RMB1,012.9 million. Of which approximately RMB496.9 million was related to the bank loans of Qinghai Zhongkong Solar Power Co., Ltd. having maturity dates from 2025 to 2034 and carry fixed interest rates from 3.5% to 4.7% per annum. The rest of the current and non-current bank loans amounted to approximately RMB516.0 million, the loans were mainly used to enhance the working capital position of the Group and finance the acquisition of Zhongguang New Energy and carry fixed interest rates. The current bank loans as at 31 December 2022 amounting to approximately RMB228.6 million were all related to short term bank loans for general working capital use with fixed interest rates.

SUBSIDIARIES

The major subsidiaries of the Company are Jiangsu Hengxin, Jiangsu Hengxin Wireless Technology Co., Ltd, Hengxin Technology (India) Pvt Ltd, Hengxin Technology International Co., Limited, HODL PCC Limited, Jiangsu Hengxin Zhonglian Communications Technology Co., Ltd., Hengxin Metaverse Limited, Yixing Tianyue Enterprise Management Consulting Partnership (Limited Partnership), Nanjing Zhangyu Information Technology Co., Ltd., Shanghai Zhangyu Information Technology Co., Ltd., Wuxi Sihai Technology Co., Ltd., Shanghai Zhangyu Semi-conductor Co., Ltd., Hangzhou Longkong Zhongguang Enterprise Holding Enterprise Partnership (Limited Partnership), Zhejiang Zhongguang New Energy Technology Co., Ltd., Gansu Yumen Zhongkong Solar Energy Generation Co., Ltd. and Qinghai Zhongkong Solar Energy Generation Co., Ltd.

FOREIGN CURRENCY EXPOSURE

Renminbi (“RMB”) is the functional currency of the Group. Currencies other than RMB expose the Group to foreign currency risk. The Group has foreign currency sales and its revenue and costs are denominated in RMB, India Rupees (“INR”) and United States dollars (“USD”). Some of the Group’s bank balances are denominated in USD, Singapore dollars (“SGD”), Hong Kong dollars (“HKD”) and INR, whilst some costs may be denominated in HKD, SGD and INR. The Group has implemented a hedging policy to strike a balance between the uncertainty and the risk of opportunity loss in light of the growing significance of its exposure to the fluctuations in foreign currency, under which policy foreign exchange forward contracts may be used to eliminate the currency exposure. The Group has entered into certain forward contracts as at the end of the Reporting Period on hedging the expected fluctuations of the exchange rate of USD and will continue to monitor foreign exchange exposure and consider hedging other significant foreign currency exposure should the need arise.

DONATION AND CAPITAL COMMITMENTS

As at 31 December 2023, the capital commitments of the Group in respect of the purchase of property, plant and equipment were approximately RMB10,577,000 (31 December 2022: approximately RMB189,000). The Group’s PRC subsidiary has signed an intention letter to donate RMB500,000 per annum from 2007 for a period of 20 years to a charitable organization in the PRC when making profit in the year. As at 31 December 2023, the donation commitment was approximately RMB1,500,000 (31 December 2022: approximately RMB2,000,000).

CHARGE OR PLEDGE OF ASSETS

As at 31 December 2023, deposits amounting to approximately RMB30,164,000 (2022: RMB39,671,000) were pledged to banks as guarantees for bidding of customer contracts and issuing letter of guarantee. Pledged bank deposits bear interest at an average effective interest rates at 1.3933% (2022: 1.0878%) per annum and for a tenure of approximately 4 to 60 months (2022: 4 to 60 months). Remaining pledged deposits is pertaining to the security deposit for the commodity future contracts entered to hedge the purchase of raw materials during the year.

As at 31 December 2023, deposit amounting to approximately RMB35,000,000 (2022: Nil), electric generating facilities amounting to approximately RMB824,517,000 (2022: Nil) and trade and bills receivables amounting to approximately RMB256,940,000 (2022: Nil) were pledged to banks for secured bank loans and banking facilities at an interest rate of 4.35 – 4.90% per annum. Pledged bank deposits bear interest at an average effective interest rates at 2.9770% (2022: Nil) per annum and for 156 months. The pledged deposits will be released by the expiry of relevant banking facilities.

LIQUIDITY AND FINANCIAL RESOURCES

As at 31 December 2023, the Group’s total assets were approximately RMB4,247,771,000 (2022: RMB2,542,339,000) (of which current assets were approximately RMB2,517,664,000 (2022: approximately RMB2,077,261,000) and non-current assets were approximately RMB1,730,107,000 (2022: approximately RMB465,078,000)), the total liabilities were approximately RMB1,509,198,000 (2022: approximately RMB653,509,000) (of which current liabilities were approximately RMB648,831,000 (2022: approximately RMB632,498,000) and non-current liabilities were approximately RMB860,367,000 (2022: approximately RMB21,011,000)), and shareholder’s equity attributable to equity shareholders of the Company reached approximately RMB1,925,709,000 (2022: approximately RMB1,857,114,000). As at 31 December 2023, the Group’s total cash, time deposits and pledged deposits were approximately RMB1,380,821,000 (31 December 2022: approximately RMB1,181,561,000). As at 31 December 2023, the Group has current bank loans due within one year of approximately RMB176,543,000 (2022: approximately RMB228,634,000) carrying fixed interest rates and non-current bank loans of approximately RMB836,366,000 carrying fixed interest rates. At 31 December 2023, the Group had approximately RMB3,251,000,000 (2022: approximately RMB2,454,000,000) of unutilised bank borrowing facilities.

The Group generally finances its operations from cash flows generated internally and short-term bank borrowings.

The Group manages its capital to ensure that the Group will be able to continue as a going concern while maximising the return to shareholders through the optimization of debt and equity balance.

Management monitors capital based on the Group’s debt-to-assets ratio. This ratio is calculated as total liabilities divided by total assets.

As at the end of the Reporting Period, the Group is in compliance with all capital requirements on its external borrowings.