On May 16, 2024, the Listing Committee of the Shenzhen Stock Exchange held a meeting to consider Marco Polo's initial listing application and made a decision to suspend the review.
Regarding the suspension of the review of Marco Polo's issuance and listing, the relevant person in charge of the Shenzhen Stock Exchange said that this is a normal situation in the review, and in terms of the provisions of the review system and the actual implementation, the listing committee's review results of the issuance and listing application include three types: approval, rejection, and suspension of review.
According to a relevant person from the Shenzhen Stock Exchange, the listing committee suspended the review of Marco Polo's listing application, mainly considering the actual situation of the company's operating income and profit during the reporting period, such as a certain decline, and it is necessary to further confirm whether the uncertain factors affecting the performance are eliminated on the existing basis.
During its deliberations, the Listing Committee raised two main issues.
One is the issue of business performance. According to the application materials provided by Marco Polo, the operating income of the issuer during the reporting period was 9.365 billion yuan, 8.661 billion yuan and 8.925 billion yuan respectively, and the net profit attributable to the parent company after deducting non-profits was 1.46 billion yuan, 1.36 billion yuan and 1.24 billion yuan respectively; The average sales price per square meter of products was 45.46 yuan, 41.62 yuan and 39.48 yuan respectively; The gross profit margin of the issuer's main business was 43.09%, 35.10% and 36.01% respectively, and the average of comparable companies in the same industry was 28.82%, 23.19% and 27.65% respectively. From January to March 2024, the issuer's operating income, net profit attributable to the parent company after deducting non-profits, and the average selling price per square meter of products decreased by 16.01%, 15.36%, and 6.13%, respectively.
The Listing Committee requires: (1) distinguish different types of end customers and explain the reasons and reasonableness of the issuer's operating income growth in 2023; (2) Quantitatively analyze and explain the reasons and reasonableness of the gross profit margin of the issuer's main business being higher than that of comparable companies in the same industry based on different types of end customers, cost composition, market competition, and comparable companies in the same industry; (3) Explain the stability of the issuer's operating performance in light of the price trend of the issuer's main products, market competition, and comparable companies in the same industry. At the same time, ask the sponsor to give a clear opinion.
The other is the issue of accounts receivable. According to the issuer's application materials, the balance of the issuer's accounts receivable at the end of the reporting period was 2.863 billion yuan, 2.817 billion yuan and 2.648 billion yuan respectively, and there was a reversal of bad debts during the reporting period.
The Listing Committee requires the company to: distinguish different types of end customers, and explain in detail the basis for determining the customers who make provision for bad debts according to individual items, the specific proportion and reason for making provision at the end of each period of the reporting period, whether the provision for bad debts in each period of the reporting period is sufficient, and whether the provision for individual bad debts is accurate. At the same time, ask the sponsor to give a clear opinion.
Finally, Marco Polo needs to further implement the following matters:
(1) Explain and disclose whether the operating performance is stable based on the price change trend of the issuer's main products, market competition, and comparable companies in the same industry;
(2) Explain whether the provision for individual bad debts is accurate.
At the same time, the sponsor and the reporting accountant are requested to supplement the verification and express a clear opinion.
Previously reported
Marco Polo is a well-known company engaged in the business of architectural ceramics, the main products are glazed tiles and unglazed tiles, the predecessor can be traced back to the establishment of Guangdong Weimei Ceramics Co., Ltd. in 1992. The actual controller of the company is Dongguan entrepreneur Huang Jianping, who held a total of 42.12% of Marco Polo's shares before the IPO.
Performance continued to decline
According to the website of the China Securities Regulatory Commission, Marco Polo made a pre-disclosure on May 19, 2022, sponsored by China Merchants Securities, and then updated its financial information on May 10, 2024, with an estimated financing amount of 3.158 billion yuan.
In terms of financial data, Marco Polo's performance in the past three years has shown a downward trend. From 2021 to 2023, the company's operating income will be 9.365 billion yuan, 8.661 billion yuan, and 8.925 billion yuan respectively, and the net profit will be 1.653 billion yuan, 1.514 billion yuan, and 1.353 billion yuan respectively, and the non-net profit will be 1.46 billion yuan, 1.36 billion yuan, and 1.24 billion yuan respectively.
This trend continued into the first quarter of this year. In the first quarter of 2024, Marco Polo achieved operating income of 1.313 billion yuan, a year-on-year decrease of 16.01%; net profit was 197 million yuan, down 16.03% year-on-year; deducted non-net profit of 174 million yuan, down 15.36% year-on-year; Net cash flow from operating activities was -111 million yuan, down 132.7% year-on-year.
While revenue and net profit declined, Marco Polo's accounts receivable increased significantly. In its prospectus, the company specifically warned of this risk.
Due to the relatively large sales scale and long payment cycle of the business model, Marco Polo mostly uses accounts receivable or commercial paper settlement.
According to the prospectus, as of the end of 2023, the book value of Marco Polo's accounts receivable is 1.599 billion yuan, accounting for 20.45% of the current assets at the end of the period, and the receivables mainly come from engineering customers such as real estate.
In addition, the above-mentioned accounts receivable of 1.599 billion yuan are calculated according to the book value, and through the provision for bad debts, the book balance of accounts receivable in 2023 is 2.648 billion yuan, and the provision for bad debts is 1.049 billion yuan, with a provision ratio of 39.61%.
Marco Polo explained that the company has adopted a single provision for bad debts for the accounts receivable of some customers with a high risk of debt default and housing, and prudently takes the risk of bad debt losses into account and makes a single provision for accounts receivable.
According to the list of provisions for bad debts in 2023, more than a dozen well-known real estate companies such as Sunac Real Estate, Greenland Real Estate, Times Real Estate, Sunshine City Real Estate, Excellence Real Estate, Shimao Real Estate, Blu-ray Real Estate, Agile Real Estate, Jinke Real Estate, China Fortune, and Country Garden are all customers of Marco Polo.
Among them, 10 companies have a bad debt provision ratio of 100%, which is an astonishing amount. Sunac Real Estate has the highest book balance of 151 million yuan, and the provision for bad debts reached 133 million yuan, with a provision ratio of 88.19%.
Taking Evergrande as an example, the prospectus shows that in 2023, Evergrande Real Estate, which has "exploded", ranks second among the top five customers in Marco Polo's sales revenue, with an amount of 399 million yuan, and Evergrande Real Estate is also the second largest customer of Marco Polo's sales revenue in 2022 and 2021.
In the prospectus "the specific amount of related party transfer claims and the provision of bad debts", Evergrande Real Estate's claims of 510 million yuan in 2021 were 100% accrued for bad debts; Sunac Real Estate's debt of 51.6878 million yuan in 2021 will be charged with 80% of bad debts.
"Bad debts" are sold to related parties
From 2021 onwards, together with most upstream real estate companies, Marco Polo began to have a situation of "repaying debts with housing". Including Zhongliang Real Estate, Greenland Real Estate, Rongxin Real Estate and other real estate companies under 65 sets of commercial housing, 6 parking spaces to offset the company's receivables.
At the same time, Marco Polo demanded that the real estate companies pay the property directly to its affiliate, Weimei Decoration, another ceramic brand founded earlier by Marco Polo's founder, Huang Jianping.
The specific plan is as follows: Marco Polo and Weimei Decoration signed a creditor's rights transfer agreement to transfer the creditor's rights to the relevant real estate company to Weimei Decoration, and the original value of the creditor's rights was used as the creditor's rights transfer price. Weimei Decoration and other related parties signed a real estate sales contract with the relevant real estate company at the market price, and paid the relevant real estate company with this part of the creditor's rights as the purchase consideration for the relevant real estate, and the transaction price of the relevant debt assets was 814 million yuan.
Before the transfer of the huge amount of receivables, Marco Polo had already made a provision for bad debts of 682 million yuan of 814 million yuan of assets. This means that Weimei Decoration actually received a debt worth 132 million yuan as part of the debt repayment, and this plan also effectively transferred part of Marco Polo's debt risk.
As a related party of the company, Weimei Decoration had frequent related party transactions with Marco Polo during the reporting period. Since its establishment in 1988, Weimei Decoration has been engaged in the production and sales of ceramic products, and has certain sales channels and customer resources. Marco Polo was established in 2008, in order to make full use of the customer resources of aesthetic decoration and expand the scale of business, Marco Polo accepted its commission to process and produce ceramic products during the reporting period.
In 2019 and 2020, Marco Polo was commissioned to produce ceramic products and sold 730 million yuan and 405 million yuan to Weimei Decoration and the companies controlled by it, accounting for 8.98% and 4.71% of sales revenue respectively.
During the reporting period, Marco Polo and Weimei Decoration had related party procurement, mainly entrusting Weimei Decoration and related parties to process ceramic tile products, purchase raw materials and transportation services, with 295 million yuan and 117 million yuan in 2020 and 2021, accounting for 6.11% and 2.20% of the current operating costs respectively.
It is reported that Marco Polo and Weimei Decoration have 359 overlapping customers and 198 overlapping suppliers, in order to solve the competition in the same industry and standardize related party transactions, since the beginning of 2021, Weimei Decoration has stopped the ceramic sales business.
In addition, Marco Polo also borrowed funds from Weimei Decoration and its related parties at the beginning of the reporting period, with an amount of 1.295 billion yuan. According to the prospectus, as of the beginning of the reporting period, due to the company's production and construction needs in history, the balance of funds provided by related parties was 1.651 billion yuan. In order to repay the above debts, Marco Polo successively cleared the relevant debts through debt transfers and bank transfer payments from 2020 to 2022.
Interestingly, Marco Polo did not actually pay interest on the borrowings of funds obtained from related parties during the reporting period. The amount of interest payable to related parties in 2020, 2021 and 2022 is 63.5131 million yuan, 33.9054 million yuan and 2.9989 million yuan respectively based on the bank loan interest rate of the same period. According to the prospectus, the above-mentioned interest expenses were not actually paid and were included in the capital reserve.
(Source: Securities Times, Interface, etc.)