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 2021 (“FY2021” or the “Reporting Period”) increased by approximately RMB486.5 million, or approximately 42.7% from approximately RMB1,139.3 million in the previous financial year ended 31 December 2020 (“FY2020”) to approximately RMB1,625.8 million in FY2021.

Radio Frequency Coaxial Cables

Revenue generated from the segment of Radio Frequency Coaxial Cables increased by approximately RMB188.3 million or approximately 30.2% from approximately RMB622.5 million in FY2020 to approximately RMB810.8 million in FY2021, of which the revenue from feeder cables increased by approximately RMB148.6 million or 32.1% from approximately RMB462.6 million in FY2020 to approximately RMB611.2 million in FY2021. The increase in the sales of feeder cables was driven by the general improvement in market demand and the Group’s higher winning percentage of tender, as well as the increase in sales prices caused by higher costs. In particular, there was more demand for feeder cables than ever before in terms of product formats due to the investment in the China Mobile 700MHz Project.

Included in the segment revenue of Radio Frequency Coaxial Cables are the revenue from leaky cables of approximately RMB199.6 million for FY2021, representing an increase of approximately RMB39.7 million or 24.8% from approximately RMB159.9 million in FY2020. Leaky cables are special coaxial cables commonly used for the tunnels and underground mobile communication in mass transit railways and thus normally have higher gross profit margins than other Radio Frequency Coaxial Cables products.

Telecommunication Equipment and Accessories

Revenue generated from the segment of Telecommunication Equipment and Accessories increased by approximately RMB124.6 million or approximately 47.4% from approximately RMB262.9 million in FY2020 to approximately RMB387.5 million in FY2021. The significant increase in the revenue from Telecommunication Equipment and Accessories is in line with the general increase in the revenue of feeder cables.

Antennas

Revenue generated from the segment of Antennas during FY2021 was approximately RMB337.9 million, representing an increase of approximately RMB130.8 million or approximately 63.2% from approximately RMB207.1 million in FY2020. Such increase in the revenue from sales of Antennas was mainly attributable to the Group’s successful tender for the China Mobile 700 MHz project.

Others (HTRC and antennas testing services)

Revenue generated from this segment increased by approximately RMB42.6 million or approximately 90.8% from approximately RMB46.9 million during FY2020 to approximately RMB89.5 million during FY2021, of which the significant increase was mostly attributable to the complementary nature for Antennas.

Gross profit margin

The Group achieved an overall gross profit margin of approximately 18.2% for FY2021 compared to approximately 22.9% for FY2020, representing a decrease of approximately 4.7 percentage points year-on-year. Although the Group has gained more market share during FY2021 and achieved a significant growth in revenue, there was still vigorous competition in the market due to the COVID-19 post pandemic effect and no increase in fixed asset investments by the PRC telecommunications operators. Combined with the significant increases in costs of raw materials, labour and transportation, the Group’s various products have recorded lower gross profit margin in FY2021 as compared with FY2020.

Although there is a linkage mechanism between the sales price of feeder cables and the price of copper, the impact of the overall costs increase still existed and cannot be covered by such mechanism due to the nature of limitation of such mechanism. Moreover, overall gross profit margin of Radio Frequency Coaxial Cables has decreased by approximately 3.7 percentage points from approximately 20.6% in FY2020 to approximately 16.9% in FY2021 due to the lack of such linkage mechanism for the sales price of leaky cables. However, the gross profit contribution increased by approximately RMB9.2 million or 6.7% on a year-on-year basis driven by the revenue growth.

In addition, the gross profit margin of Telecommunication Equipment and Accessories has also decreased by approximately 3.7 percentage points from approximately 28.9% in FY2020 to approximately 25.2% in FY2021 because the products sold in FY2021 for this category of product segment generally have lower profitability than that sold in FY2020. Despite facing lower gross profit margin in FY2021, the higher revenue of FY2021 as compared with FY2020 has led to a higher gross profit contribution by approximately RMB21.7 million or 28.6% year-on-year.

As for Antennas, gross profit margin has decreased by approximately 8.4 percentage points from approximately 23.8% in FY2020 to approximately 15.4% in FY2021. Such decrease was mainly due to the significant increase in the costs of labour and raw materials in FY2021.

As a result of the combined effects of the above downward trends in gross profit margin for the various products of the Group, the overall gross profit margin of the Group during FY2021 decreased accordingly.

The Group will continue to monitor production efficiencies to ensure optimal raw materials and labour utilisation, stringent selection of suppliers in tender biddings to keep costs to a minimum, to explore its potential through continuous internal micro-innovation, and coupled with efficient use of various resources to keep up with price pressure resulting from keen competition. The Group will also review its products mix and business transformation process in order to strive for a further enhancement in product profitability.

Other operating income

Other operating income decreased by approximately RMB20.3 million or approximately 34.9% from approximately RMB58.2 million in FY2020 to approximately RMB37.9 million in FY2021. The decrease is primarily due to:

1. decrease in government grants and subsidies of approximately RMB1.0 million;
2. decrease in interest income of approximately RMB7.6 million due to the decrease in average cash and cash equivalents and time deposits balances during FY2021 as compared with FY2020;
3. a net gain on commodity future contracts of approximately RMB4.7 million during FY2021, whereas in FY2020, there was a net loss on commodity future contracts of approximately RMB7.2 million that was classified as other operating expenses; and
4. during FY2021, there was a net foreign exchange loss of approximately RMB5.7 million which was classified as other operating expenses as compared with the net foreign exchange gain of approximately RMB14.5 million for FY2020 that was classified as other operating income.

Selling and distribution expenses

Selling and distribution expenses increased by approximately RMB10.3 million or approximately 11.0% from approximately RMB93.4 million in FY2020 to approximately RMB103.7 million in FY2021 due to the increase in salary expenses under selling and distribution expenses and the increase in freight and transportation costs and marketing expenses as a result of the general rising costs during FY2021.

Administrative expenses

Administrative expenses increased by approximately RMB7.6 million or approximately 19.4% from approximately RMB39.2 million in FY2020 to approximately RMB46.8 million in FY2021. The increase is mainly due to the increase in staff related costs.

Impairment loss on trade receivables

Due to the increase in trade receivables comparing 31 December 2021 and 31 December 2020 and more trade receivables past due over 540 days from other customers (excluding state-owned enterprises) in FY2021 compared to FY2020, additional impairment loss on trade receivables of approximately RMB3.4 million was made in FY2021.

Other operating expenses

Other operating expenses decreased by approximately RMB1.0 million or approximately 1% from approximately RMB100.8 million in FY2020 to approximately RMB99.8 million in FY2021. Such change is mainly due to:

1. an increase in research and development (“R&D”) expenses incurred from continuing R&D activities undertaken for the modifications and improvements to the Group’s products of approximately RMB18.5 million;
2. a net loss on commodity future contracts of approximately RMB7.2 million in FY2020, whereas a net gain on commodity future contracts of approximately RMB4.7 million was recorded in FY2021 and was classified as other operating income;
3. a decrease in the net loss on derivative financial instruments of approximately RMB17.9 million in FY2021; and
4. during FY2021, there was a net foreign exchange loss of approximately RMB5.7 million which was classified as other operating expenses as compared with the net foreign exchange gain of approximately RMB14.5 million for FY2020 that was classified as other operating income.

Interest expense

Interest expense decreased by approximately RMB5.9 million or approximately 45.4% from approximately RMB13.0 million in FY2020 to approximately RMB7.1 million in FY2021, mainly because of the decrease in average interest rates of short-term loans during FY2021.

Profit before taxation

Profit before taxation increased slightly by approximately RMB1.1 million or approximately 1.5% from approximately RMB72.6 million in FY2020 to approximately RMB73.7 million in FY2021.

Income tax

The Group’s main subsidiary, Jiangsu Hengxin Technology Co., Ltd. (“Jiangsu Hengxin”), has been subject to an incentive tax rate of 15% as it has been awarded as a high-tech enterprise in the PRC since 2008. It had been awarded the same status until December 2023.

Income tax expense decreased by RMB1.5 million or 12.3% from approximately RMB12.2 million in FY2020 to approximately RMB10.7 million in FY2021. The decrease is mainly due to the over-provision in prior years.

Profit Attributable to Equity Shareholders of the Company

In view of the above, after taking into account of the contribution from non-controlling interest, profit attributable to equity shareholders of the Company increased by approximately RMB10.0 million or approximately 16.3% from approximately RMB61.3 million in FY2020 compared to approximately RMB71.3 million in FY2021.

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

Trade and other receivables

1. Net trade and bills receivables increased by approximately RMB395.5 million or approximately 78.0% from approximately RMB507.3 million as at 31 December 2020 to approximately RMB902.8 million as at 31 December 2021.

   Average trade and bills receivables turnover days was approximately 161 days as at 31 December 2021 as compared to approximately 216 days as at 31 December 2020. The significant improvement in trade and bills receivables turnover days by approximately 55 days was mainly because COVID-19 pandemic has caused customers’ settlement relatively slow during FY2020 and the Group has applied stricter control and management on receivables during FY2021. During FY2021, customers have speeded up their settlement arrangement. Thus, although the Group has recorded higher revenue during FY2021, turnover days for trade and bills receivables has recorded a big improvement and most of the trade and bills receivables were recent sales which were within the average credit period given to the Group’s customers. As at 31 December 2021, approximately 87.6% of the trade receivables are within the credit period given as compared with that of approximately 72.1% as at 31 December 2020.

   For long overdue trade receivables, as at 31 December 2021, approximately 5.5% were overdue by more than six months (as compared with 12.8% as at 31 December 2020). The trade receivables that were overdue by more than six months were mostly non-operator customers. Considering the Group’s long-standing dealings with these customers and the regular receipts of payments from these customers, the Group does not foresee any issue in the collection of these receivables. The Group will continue to endeavour in its collection efforts on the outstanding balances.

2. Net prepayments and nontrade receivables increased by approximately RMB9.9 million or approximately 14.1% from approximately RMB70.2 million as at 31 December 2020 to approximately RMB80.1 million as at 31 December 2021. The increase was mainly due to the increase in prepayment on input value-added tax to be certified.

Inventories

Inventories (comprising raw materials, work-in-progress and finished goods) increased by approximately RMB147.4 million or approximately 138.1% from approximately RMB106.7 million as at 31 December 2020 to approximately RMB254.1 million as at 31 December 2021. The increase was mainly due to the need to build up the Group’s inventories to meet the expected increase in demand for the products of the Group and the delay of goods delivery for certain export orders.

Short-term loans

Short-term loans were raised with an aim to enhance the working capital position of the Group. Short-term loans as at 31 December 2021 with fixed interest rates will become due for repayment during the second quarter of year 2022.

Trade and other payables

i. Trade and bills payables increased by approximately RMB156.3 million or approximately 151.0% from approximately RMB103.5 million as at 31 December 2020 to approximately RMB259.8 million as at 31 December 2021. The increase is mainly in line with the increase in inventories in response to the expected market demand of the Group’s products in year 2022.

ii. Other payables increased slightly by approximately RMB 2.7 million or approximately 3.6% from approximately RMB75.5 million as at 31 December 2020 to approximately RMB78.2 million as at 31 December 2021.

Cash and cash equivalents and time deposits

Cash and cash equivalents and time deposits decreased by approximately RMB304.2 million or approximately 22.4% from approximately RMB1,357.1 million as at 31 December 2020 to approximately RMB1,052.9 million as at 31 December 2021. The decrease is mainly due to the increase in inventories and trade and bills receivables comparing 31 December 2021 and 31 December 2020.

SUBSIDIARIES

The subsidiaries of the Company are Jiangsu Hengxin, Jiangsu Hengxin Wireless Technology Co., Ltd, Hengxin Technology (India) Pvt Ltd, Hengxin Technology International Co., Limited, Jiangsu Hengxin Zhonglian Communications Technology Co., Ltd., Hengxin Metaverse Limited and Yixing Tianyue Enterprise Management Consulting Partnership (Limited Partnership).

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 2021, the capital commitments of the Group in respect of the purchase of property, plant and equipment were approximately RMB24,000 (2020: approximately RMB285,000).

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 2021, the donation commitment was approximately RMB2,500,000 (2020: approximately RMB3,000,000).

CHARGE OR PLEDGE OF ASSETS

As at 31 December 2021, deposits amounting to RMB9,842,000 (2020: RMB10,600,000) 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 1.317% (2020: 1.390%) per annum and for a tenure of approximately 4 to 60 months (2020: 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.

LIQUIDITY AND FINANCIAL RESOURCES

As at 31 December 2021, the Group’s total assets were approximately RMB2,477,454,000 (2020: approximately RMB2,227,781,000) (of which current assets were approximately RMB2,291,260,000 (2020: approximately RMB2,041,293,000) and non-current assets were approximately RMB186,194,000 (2020: approximately RMB186,488,000)), the total liabilities were approximately RMB690,283,000 (2020: approximately RMB495,367,000) (of which current liabilities were approximately RMB677,528,000 (2020: approximately RMB480,982,000) and non-current liabilities were approximately RMB12,755,000 (2020: approximately RMB14,385,000)), and shareholder’s equity attributable to equity shareholders of the Company reached approximately RMB1,793,422,000 (2020: approximately RMB1,730,286,000). As at 31 December 2021, the Group’s cash and cash equivalents and time deposits were approximately RMB1,052,919,000 (31 December 2020: approximately RMB1,357,073,000). The Group’s time deposits were all due more than three months. As at 31 December 2021, the Group has short-term bank borrowings due within one year of approximately RMB330,293,000 (2020: approximately RMB278,371,000) carrying fixed interest rate. At 31 December 2021, the Group had approximately RMB1,625,700,000 (2020: approximately RMB1,616,036,000) 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.