Yangtze River Business Daily reporter Shen Yourong
After queuing for more than a year and completing the second round of inquiries, the IPO of Hecheng Technology Co., Ltd. (hereinafter referred to as "Hecheng Technology") pressed the pause button.
Hecheng Technology started with distribution, and gradually formed a comprehensive service platform model of "self-production + distribution". The company's business spans the two major fields of modified plastics and food sauces and additives, and as a small and medium-sized company, the business layout is a bit strange.
From 2020 to 2022, the company's operating income fell three times in a row, and in 2021, 2022 and the first three quarters of 2023, the company's net profit attributable to shareholders of the parent company (hereinafter referred to as "net profit") continued to decline.
In this IPO, Hecheng Technology plans to raise 1 billion yuan, of which 300 million yuan will supplement liquidity, and the company predicts that the funding gap will be about 574 million yuan in the next three years. In 2020 and 2021, the company's cash dividends will exceed 68 million yuan.
At present, Jiang Wenzhen and Hu Binfeng control a total of 88.58% of the company's equity, and the logistics company established by Jiang Canping, Jiang Wenzhen's nephew, is almost exclusively dedicated to providing logistics services for Hecheng Technology, and has obtained a total of more than 18.2 million yuan in business in recent years.
High-tech enterprises have broken through the main board
There is something unusual about the IPO behavior of Hecheng Technology.
According to the prospectus, Hecheng Technology was founded in 1996, and its initial main business was the distribution of modified plastics and food sauces and additives. In terms of modified plastics business, the company has been engaged in the color matching and modification business of plastics since 2000, and has independently developed and produced and sold various modified plastic products since 2006, and in the food sauce and additives business, the company began to independently produce compound food additive products in 2005, and on this basis, it has carried out continuous research and development and innovation, and began to produce various baking sauces in 2013. The company said that it has gradually formed a comprehensive service platform model of "self-production + distribution", the company has been deeply engaged in the distribution field for many years, and has formed a large-scale sales and supply network.
From the perspective of operating income composition, in recent years, the distribution business has contributed more than 60% of the operating income to Hecheng Technology, while the revenue of self-produced products accounts for less than 40%.
From the business point of view, modified plastics and food sauces and additives are two industries with a low degree of relevance, and it is puzzling how to synergize and complement each other.
Hecheng Technology claims to be a private high-tech enterprise integrating R&D, production and sales. In recent years, with the smooth progress of the reform of the A-share market, the positioning of the Science and Technology Innovation Board and the Growth Enterprise Market has become clearer. The market questioned that since Hecheng Technology is a high-tech enterprise, why does it not break through the Science and Technology Innovation Board and the Growth Enterprise Market, but wants to be listed on the main board of the Shenzhen Stock Exchange?
The R&D expenses and R&D rates of Hecheng Technology are on a downward trend. From 2020 to January to June 2023 (hereinafter referred to as the reporting period), the company's R&D expenses were 41.4006 million yuan, 40.8673 million yuan, 38.1958 million yuan, and 16.3376 million yuan respectively, and the corresponding R&D rates were 2.33%, 2.31%, 2.25%, and 2.04%.
Compared with comparable companies in the same industry, the R&D rate of Hecheng Technology is significantly lower than the industry average, and the trend is opposite. During the reporting period, the average R&D rate of the industry was 3.28%, 3.56%, 3.79% and 4.22%, showing an upward trend.
Perhaps, this is one of the main reasons why Hecheng Technology broke through the main board of the Shenzhen Stock Exchange.
What has attracted much attention is that the IPO listing of Hecheng Technology has been opposed by shareholders and supervisors Luo Andong. Luo Andong directly holds a 7.41% stake in Hecheng Technology and holds part of the shares through three employee stock ownership platforms.
On May 5, 2022, Hecheng Technology held the first extraordinary general meeting of shareholders in 2022 to consider the proposals related to the issuance and listing. According to Luo Anton's authorized entrustment, Luo Anton's authorized representative voted against all the proposals of this general meeting of shareholders.
As a shareholder, the company's listing is good for it, why did Luo Andong vote against? Hecheng Technology once explained that after communication and consultation, the relevant parties have reached a consensus on the previous differences.
Net profit continued to decline, and profitability was in doubt
The continued profitability of Hecheng Technology has been questioned by the market.
Hecheng Technology, which has broken through the main board market, is not only weak in terms of research and development, but also the company's main business is not clear.
As mentioned above, the company's distribution business contributed more than 60% of the operating income, while the company's self-produced products accounted for less than 40% of the revenue, and the gross profit margin of the self-produced business continued to decline. During the reporting period, the gross profit margin of self-produced business was 29.07%, 20.77%, 17.13% and 18.93% respectively, while the gross profit margin of distribution business was 12.39%, 14.95%, 13.60% and 13.14% respectively, which was relatively stable overall.
In this IPO, Hecheng Technology plans to raise 1 billion yuan, of which 300 million yuan will be used to supplement working capital and 700 million yuan will be used to expand production, that is, to build 100,000 tons of new material projects and 50,000 tons of food projects.
From the perspective of fundraising projects, Hecheng Technology tried to increase its self-produced business, but whether it could meet expectations in the end was variable.
On the one hand, major manufacturers in the industry have expanded production, and industry competition has intensified. On the other hand, the company is in a weak position in R&D, how to improve the competitiveness of its products?
In recent years, the operating performance of Hecheng Technology has declined significantly. In 2019, the company's operating income, net profit, and net profit after deducting non-recurring gains and losses (hereinafter referred to as "non-net profit") were 1.863 billion yuan, 99.1578 million yuan, and 100 million yuan, respectively. During the reporting period, the company's operating income was 1.778 billion yuan, 1.771 billion yuan, 1.698 billion yuan and 802 million yuan respectively, down 4.59%, 0.38%, 4.09% and 3.10% year-on-year respectively, and the net profit was 140 million yuan, 125 million yuan, 93.771 million yuan and 51.3511 million yuan respectively, with a year-on-year change of 41.12%, -10.95%, -24.75% and -8.44%; The net profit after deduction was 136 million yuan, 123 million yuan, 90.4435 million yuan and 48.288 million yuan respectively, with a year-on-year change of 35.85%, -9.26%, -26.72% and -9.69%.
The above data show that operating income has declined for three and a half consecutive years, and net profit and non-net profit have declined for two and a half consecutive years.
In the first three quarters of 2023, the company's operating income will be 1.197 billion yuan, and the net profit and non-net profit will be 64.1534 million yuan and 59.9493 million yuan respectively. Among them, net profit decreased by 4.73% year-on-year.
Net profit continued to decline, and the continued profitability of Hecheng Technology was in doubt.
There is an exception in the procurement from related parties
The shareholding concentration of Hecheng Technology is relatively high, and Jiang Wenzhen and his wife control nearly 89% of the company's equity, and there are internal control risks.
According to the prospectus, Jiang Wenzhen directly holds 58.15% of the shares of Hecheng Technology and is the controlling shareholder of the company, and Jiang Wenzhen also directly holds 58.77%, 58.92% and 56.39% of the property shares of Zhuhai Hecheng, Zhuhai Heye and Zhuhai Chengchuang, and then indirectly holds 5.09%, 5.08% and 4.84% of the shares of Hecheng Technology. Zhuhai Hecheng, Zhuhai Heye and Zhuhai Chengchuang are the employee shareholding platforms of Hecheng Technology, and Jiang Wenzhen directly and through the employee shareholding platform holds a total of 73.17% of the company's shares, and directly and indirectly controls a total of 84.03% of the company's shares.
Jiang Wenzhen's spouse, Hu Binfeng, directly holds and controls 4.55% of the company's shares, and Jiang Wenzhen and Hu Binfeng directly and indirectly control a total of 88.58% of the company's shares.
In this IPO, Hecheng Technology plans to raise 300 million yuan to supplement liquidity. The exchange inquired about this because the company had previously paid a large cash dividend.
In 2020, Hecheng Technology distributed cash dividends of 30.9796 million yuan in 2019 to all shareholders, 26.9149 million yuan in interim cash dividends in 2020 to all shareholders, and 10.8 million yuan in cash dividends in 2021, with a total dividend amount of 68.6945 million yuan.
Hecheng Technology said that the company is expected to have a future operating capital gap of about 574 million yuan based on the minimum cash holdings in the operating process, the expected new working capital needs in the next three years and the company's project construction expenditure capital needs.
In other words, even if 300 million yuan is raised to supplement liquidity, there is still a funding gap for Hecheng Technology. If there is a funding gap, why do we need to pay cash dividends to shareholders?
Hecheng Technology explained that the total dividend amount accounted for 19.17% of the company's total distributable profit from 2020 to 2022, which is relatively low. In addition, the company has not paid dividends on its operations from mid-2020 to the present. The high proportion of cash dividends in 2020 is mainly due to the significant improvement in the issuer's operating performance and better cash flow in 2019 and 2020. After considering the company's production and operation and other factors, reasonable dividends are carried out to meet the reasonable return demands of shareholders, and dividends are implemented in a timely manner under the premise of fully considering factors such as comprehensive profitability, future development planning, operating capital needs, etc., taking into account the company's long-term interests and sustainable development, so the company's cash dividends are reasonable.
In terms of related party transactions, Hecheng Technology also has anomalies.
During the reporting period, the company purchased logistics and transportation services from related parties Yunhong Logistics, with the purchase amounts of 4.7057 million yuan, 5.3946 million yuan, 5.6136 million yuan and 2.496 million yuan respectively, totaling 18.2099 million yuan.
Yunhong Logistics Department was established on January 29, 2015 by Jiang Canping and Jiang Yonghong, Jiang Canping is the nephew of Jiang Wenzhen, the actual controller of the company, and Jiang Yonghong is the wife of Jiang Canping.
According to the disclosure of Hecheng Technology, Yunhong Logistics has also tried to develop customers many times since its establishment, but due to its small number of vehicles and drivers, the transportation scope and transportation capacity are limited, and it is still in the business development period, and has not successfully obtained large orders from other customers. At the same time, due to Jiang Canping's limited financial capacity, limited customer resources, and Yunhong Logistics has not yet made large-scale profits, it has not carried out large-scale publicity and customer development for Yunhong Logistics and transportation. Therefore, Yunhong Logistics' transportation service customers are mainly Hecheng Technology, and it is reasonable.
Although Hecheng Technology denied that Yunhong Logistics was set up specifically for Hecheng Technology, Yunhong Logistics has mainly served Hecheng Technology since its establishment in 2015. Therefore, there is an anomaly in the cooperation between the two parties.
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