Recently, Hongying City Operation Service Group Co., Ltd. (hereinafter referred to as "Hongying Shares") submitted a prospectus to be listed on the Hong Kong Stock Exchange.
Titanium Media APP noticed that there are many related party transactions in Hongying shares, and more than 6% of its revenue comes from controlling shareholders and their related parties. At the same time, there is also a phenomenon of "concession" in the transaction between Hongying shares and the controlling shareholder and its related parties.
There are many related-party transactions
Hongying Co., Ltd. is a city service and operation provider. From 2021 to 2023 (hereinafter referred to as the "reporting period"), Hongying Co., Ltd. achieved operating income of 431.653 million yuan, 528.523 million yuan and 651.875 million yuan respectively, and profits during the year were 40.841 million yuan, 53.596 million yuan and 70.178 million yuan respectively, and its performance continued to rise.
The reason why Hongying shares can achieve the above performance mainly depends on the top five customers. During the reporting period, the sales revenue generated by Hongying Co., Ltd. to the top five customers were 255.241 million yuan, 355.864 million yuan and 421.556 million yuan respectively, accounting for 59.1%, 67.3% and 64.7% of the current operating income, of which the sales revenue generated to the largest customer Chengfa Group was 178.833 million yuan, 232.475 million yuan and 278.259 million yuan respectively, accounting for 41.4%, 44% and 42.7% of the current operating income respectively.
It is worth mentioning that the origin of Urban Development Group is not small. It is reported that the equity of Hongying shares was previously wholly owned by Pilot Holdings, a wholly-owned subsidiary of Urban Development Group.
In June 2020, the assets of Hongying shares were restructured, in which Pilot Holdings transferred 100% of the equity of Hongying shares to Chengfa Group Company free of charge, and at the same time, a number of companies were injected into Hongying shares, and after the completion of the restructuring, the situation of Hongying shares is as follows:
As can be seen from the figure above, at present, Urban Development Group directly holds 95% of the equity of Hongying Co., Ltd. and holds 5% of the equity through the wholly-owned grandson company Yuelu Mountain Company, and the total shareholding ratio is still 100%.
This also means that the largest shareholder of Hongying shares contributes more than 4% of the company's revenue every year.
Titanium Media APP noticed that the above 4 percent performance is only a direct contribution of the urban development group, and its related parties have also contributed a lot of performance to Hongying shares. During the reporting period, the sales revenue generated by Hongying Co., Ltd. to Urban Development Group and its related parties were 303.196 million yuan, 348.766 million yuan and 419.843 million yuan respectively, accounting for 70.2%, 66% and 64.4% of the current operating income respectively.
In fact, in addition to sales, in terms of procurement, Hongying shares are also more dependent on the urban development group. During the reporting period, the amount of purchases from Hongying Group was 17.721 million yuan, 19.741 million yuan and 23.523 million yuan respectively, and the urban development group has always been the second largest supplier of the company. In the face of so many related party transactions, what is the independence of Hongying shares?
"Concessions" to shareholders
From the business point of view, Hongying shares mainly have property management services, urban services, and commercial operation services, the details are as follows:
At the same time, the gross profit and gross profit margin of the above three major businesses of Hongying are as follows:
It can be seen that urban services have gradually replaced property management services as the most profitable business, and urban services have always been the most profitable business.
In particular, in the city service, titanium media APP noticed a peculiar phenomenon. The gross profit margin of the business to the urban development group and its affiliates during the reporting period was 16.1%, 20.1% and 21.9% respectively, and the gross profit margin to the independent third party was 31%, 29.2% and 22.3% respectively, which shows that in 2021 and 2022, the gross profit margin between the two is quite different, especially in 2021, the difference between the two is almost doubled. Why does Hongying give such profits to Urban Development Group and its affiliates?
In fact, no matter what changes occur in the business of Hongying shares, almost all of its revenue comes from Changsha, Hunan. During the reporting period, the sales revenue generated by Hongying shares in Changsha was 425.5 million yuan, 523.3 million yuan and 646.5 million yuan respectively, accounting for 98.6%, 99% and 99.2% of the total revenue of the current period.
At the same time, as of the end of 2023. The projects under management, construction area under management, contracted projects and contracted construction area of Hongying Co., Ltd. are as follows:
Hongying shares do not seem to be able to leave Changsha, where is the future growth? (This article was first published in Titanium Media APP, author|Deng Haotian)