With a change in performance, a broken listing, and repeated names by regulators, why is the quality of Soochow Securities' investment banking business poor for a long time?
"China Science and Technology Investment", Zhang Ting, He Ziyan
Recently, Soochow Securities (601555. SH) announced that it received the "Notice of Case Filing" from the China Securities Regulatory Commission (hereinafter referred to as the "CSRC"), and was filed by the CSRC on suspicion that ST Meixun (600898.SH) and Jilin Zixin Pharmaceutical Co., Ltd. (hereinafter referred to as "Zixin Pharmaceutical") failed to be diligent in sponsoring the non-public issuance of shares.
Since the issuance of the "Several Opinions on Strengthening Supervision and Preventing Risks and Promoting the High-quality Development of the Capital Market" (hereinafter referred to as the "New Nine Articles"), a number of securities institutions have been filed and punished, and the industry has ushered in unprecedented strong regulatory measures. After Soochow Securities was investigated, its stock price fell on the second day, falling more than 7% intraday. Observing the investment banking business of Soochow Securities in the past two years, in addition to the failure to be diligent and derelict in the information disclosure of private placement projects, it is also accompanied by poor practice quality, a number of high commissions, and over-raised IPOs.
At the end of last year, the Securities Association of China released the 2023 investment banking business quality evaluation results of securities companies, and the investment banking business quality evaluation results of Soochow Securities remained at B level. On April 19 this year, the Beijing Stock Exchange and the National Small and Medium-sized Enterprise Share Transfer System Co., Ltd. released the results of the evaluation of the practice quality of securities companies in the first quarter of 2024, and Soochow Securities ranked 18th in terms of practice quality, and was deducted 4 points in the compliance quality score.
The two companies were investigated because no financial fraud was found
According to the announcement issued by Soochow Securities, the case was filed involving two listed companies, ST Meixun and Zixin Pharmaceutical, which were suspected of financial fraud or fraudulent issuance, and both received the "Prior Notice of Administrative Punishment and Market Prohibition" (hereinafter referred to as the "Penalty Notice") issued by the China Securities Regulatory Commission and the Jilin Securities Regulatory Bureau.
According to ST Meixun's "Penalty Notice", the facts of Gome Communication's suspected violations include false records in the 2020 annual report, the non-public issuance of shares in 2020 constitutes a fraudulent issuance, and the 2021 annual report has false records, which constitutes a fraudulent issuance. In 2020, ST Meixun inflated its operating income by 578 million yuan and operating costs by 575 million yuan through false trade business, accounting for 61.53% of the operating income and 62.18% of the operating costs of the year, respectively. In September 2020, ST Meixun's private placement cited the above-mentioned false data, which was suspected of fraudulent issuance. In 2021, the misstatement of Gome Communication's net profit was 19.6298 million yuan, accounting for 38.35% of the net profit recorded in the current report, and there were false records in Gome Communication's 2021 annual report.
Soochow Securities is the sponsor of ST Meixun's non-public offering of shares in 2020, and the continuous supervision period ends on December 31, 2022. According to the "Sponsor Summary Report" disclosed in May 2023, Soochow Securities believes that ST Meixun's information disclosure "does not contain false records, misleading statements or material omissions".
Soochow Securities sponsored Zixin Pharmaceutical's 2014 non-public offering, and the continuous supervision period ended on December 31, 2017. In fact, Zixin Pharmaceutical's financial fraud has lasted for nine years, and on August 4, 2023, it was delisted from the Shenzhen Stock Exchange.
Zixin Pharmaceutical's "Penalty Notice" shows that Zixin Pharmaceutical failed to disclose related party transactions, related party illegal guarantees, major lawsuits, and false records in the 2017-2018 annual report by inflating inventory assets and operating income, profits and annual reports from 2017 to 2018. From 2013 to 2019, Guo Chunsheng, the former actual controller of Zixin Pharmaceutical, instructed 48 companies to have related party transactions with Zixin Pharmaceutical, and failed to disclose the information in accordance with the regulations. Among them, related party transactions accounted for 16.21%, 9.1% and 11.64% of the current net assets from 2013 to 2015. In addition, from 2014 to 2021, Zixin Pharmaceutical purchased underground forest ginseng through loans, but the payment was not paid to the supplier, but was transferred to Guo Chunsheng, resulting in the occupation of non-operating funds and the inflated inventory.
In 2014, Zixin Pharmaceutical applied for a non-public offering, and the company issued a total of 127 million shares and actually raised 1.6 billion yuan. As the sponsor of Zixin Pharmaceutical's private placement, Soochow Securities did not find any violations of Zixin Pharmaceutical's information disclosure during the sponsorship process and in the subsequent continuous supervision process.
The quality of investment banking is poor
In addition to sponsoring the above two private placement projects suspected of violating regulations, Soochow Securities' IPO projects have been "named" by the exchange and regulators many times, and the quality of investment banking practice has also been questioned by the market.
Specifically, in January 2023, when sponsoring Yinuowei (834261.BJ), Soochow Securities had many problems of inconsistent responses and insufficient verification, and was directly named by the Beijing Stock Exchange. In April 2023, after Yinovi successfully landed on the Beijing Stock Exchange, it repurchased shares through an ordinary securities account, and was subsequently issued a self-regulatory measure by the Beijing Stock Exchange. However, Soochow Securities, as a continuous supervising brokerage, did not urge INOVI to use the repurchase professional account to repurchase shares, or failed to be diligent and conscientious.
In March 2022, two insurance agents of Soochow Securities were sponsored by Sanwei shares (603033. In December 2021, two insurance agents were issued warning letters by the China Securities Regulatory Commission (CSRC) for failing to exercise due diligence and inadequate verification of the bills of Jiangsu Sword Agrochemical Co., Ltd. In addition, Jiangsu Yudi Optical Co., Ltd., Zhejiang Shengzhao Pharmaceutical Technology Co., Ltd., Jiangsu Kuaida Agrochemical Co., Ltd., and Suzhou Feiyu Precision Technology Co., Ltd., which were sponsored by Soochow Securities, have all attracted media attention due to problems such as imperfect and inconsistent disclosure of information disclosure.
On January 31, 2021, the China Securities Regulatory Commission (CSRC) simultaneously conducted on-site inspections of Jianke Group (873796.NQ) and Jiangsu Hengxing New Material Technology Co., Ltd. (hereinafter referred to as "Hengxing New Materials"), IPO projects sponsored by Soochow Securities, and on February 10 of the same year, the two projects withdrew their applications, which lasted only 10 days. Last year, Hengxing New Materials submitted a listing application again, and the sponsor was replaced by Guotai Junan (601211. SH), and when explaining why the last IPO was withdrawn, Hengxing New Materials said that Soochow Securities was worried that the sponsor would face the risk of being punished by the regulatory authorities due to the quality of its work, taking into account the omission of some related party transactions and other information in the application materials, and the lack of sufficient confidence in the quality of its own work, so it communicated repeatedly in the hope of withdrawing the materials.
In addition, most of Soochow Securities' IPO projects are accompanied by over-raising, high commissions, post-listing performance changes and stock price breaks. According to the reporter's statistics, in 2022, Soochow Securities sponsored 11 companies to be successfully listed, of which 5 had broken stock prices, and 10 had negative earnings growth in the first year of listing or the first financial report. In 2023, Soochow Securities sponsored 10 companies to be successfully listed, of which 4 had broken stock prices, and 5 had a decline in net profit for the whole year of 2023 or the first three quarters of 2023. In the past two years, a total of 21 IPO projects sponsored by Soochow Securities, such as Longyang Electronics (301389.SZ), Jianke (301115. SZ), Rongqi Technology (301360. SZ) three companies have over-raised funds, high underwriting fees, stock price breakage and performance change.
Specifically, the IPO of Longyang Electronics is expected to raise 495 million yuan, and the actual fundraising is 1.595 billion yuan, and the closing price on the first day of listing is 6.93% lower than the issue price of 22.5 yuan per share; in the first year of listing, Longyang Electronics' revenue decreased by 12.11% year-on-year and net profit decreased by 14.58%. Jianke's IPO overraised 782 million yuan, and its share price fell 19.62% from the issue price on the first day of listing, and its non-net profit decreased by 7.62% in the first year of listing.
In April 2023, Rongqi Technology successfully landed on the GEM, planning to raise 292 million yuan, and the actual fundraising was 959 million yuan, 667 million yuan higher than expected, and the closing price on the first day of listing was 9.14% lower than the issue price of 71.88 yuan per share. The IPO price of Rongqi Technology is 71.88 yuan per share, and the issue price-earnings ratio is 71.62 times, which is twice as high as the industry average price-earnings ratio of 35.23 times. In the first three quarters of 2023, Rongqi Technology's revenue was about 285 million yuan, an increase of 31.96% year-on-year, and the net profit attributable to the parent company was about 10.24 million yuan, a year-on-year decrease of 70.28%. For the whole year of 2023, Rongqi Technology's net profit will also decrease by 34.45% year-on-year.
It is worth noting that the above three IPO projects overraised 1.1 billion yuan, 782 million yuan and 667 million yuan respectively. Due to over-raising, Soochow Securities also received relatively high commissions, and its sponsor underwriting fees were 104 million yuan, 112 million yuan, and 80.6649 million yuan respectively. In addition, coincidentally, among the three over-raised and broken projects, there were high-priced quotations from Ningbo Lingjun Investment Management Partnership (Limited Partnership).
There are 10 listed projects sponsored by Soochow Securities that have updated their status this year, of which 4 have been suspended and 3 have been voluntarily withdrawn. Wind data shows that in the first quarter of this year, Soochow Securities' sponsorship income was 28.5105 million yuan, and the initial offering funds were 396 million yuan.
On February 20 this year, Soochow Securities issued a series of announcements, announcing the intention to cancel the repurchase of A shares and reduce the registered capital, and convene the second extraordinary general meeting of shareholders However, in the part of the proposal on the shareholders' agenda, it is shown that it is "a proposal on the election of non-independent directors of the fourth board of directors of the company". On February 23 this year, Soochow Securities was issued a warning letter by the Shanghai Stock Exchange for failing to submit relevant materials within the specified time in the process of appointing independent directors, resulting in a delay in the filing time. Previously, Soochow Securities disclosed the "2019 Annual Profit Distribution Plan Announcement" on April 25, 2020, which showed that a cash dividend of RMB 1.3 per share was distributed, and then Soochow Securities urgently issued a correction announcement to revise the dividend ratio to a cash dividend of RMB 0.13 per share.
Listed securities institutions should have a high degree of professionalism and rigor, and Soochow Securities may need to strengthen internal management and risk control to further improve the professionalism and professional ability of employees to gain the trust of investors.
The reporter sent a letter to Soochow Securities on investment banking business, case filing and investigation, etc., but has not received a reply as of press time.
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