Shenzhen Business Daily Reading Client Reporter Li Gengguang
According to the website of the Beijing Stock Exchange, Founder Valve Group Co., Ltd. (hereinafter referred to as "Founder Valve") updated the latest progress of the IPO, on July 5, the company has received the second round of review inquiry letter issued by the Beijing Stock Exchange, in addition to the authenticity of sales to the atomic company and the sustainability of export revenue growth and other regulatory concerns, the necessity of the fund-raising project and the rationality of the scale of fund-raising were questioned again.
Founder Valve was listed on the national stock transfer system on January 18, 2023. According to the prospectus, Founder Valve is a full set of industrial pipeline control solution providers, mainly engaged in the design, manufacture and sales of industrial valves. The company is a key supplier network member of major domestic oil and gas and petrochemical enterprises such as PetroChina, Sinopec and CNOOC, and is also a qualified supplier of international energy and petrochemical giants such as Shell, BP and Oman Petroleum.
▎In the past two years, the revenue has grown rapidly, but the proportion of export sales is high, and the sustainability of growth has been questioned
In terms of performance, the prospectus of Founder Valve shows that during the reporting period (2020 to January to June 2023), the company's operating income was 662 million yuan, 486 million yuan, 643 million yuan and 352 million yuan respectively, in addition to the 2021 annual operating income decreased by 26.61% year-on-year, in 2022 and 2023 from January to June, the company's operating income maintained rapid growth, with a year-on-year increase of 32.40% and 26.24% respectively.
Founder Valve said that in 2021, oil and natural gas-related exploitation, pipeline network, refining and other investment projects will resume one after another, and the demand for industrial valves will rise, making the company's sales revenue from January to June in 2022 and 2023 achieve recovery growth.
According to the latest financial report, in 2023, Founder Valve will achieve operating income of 703 million yuan, a year-on-year increase of 9.30%; The net profit attributable to shareholders of the company was 60.593 million yuan, a year-on-year increase of 40.88%. According to the company, the main reason is that the company continues to expand new markets and new products, continue to strengthen market sales, and achieve stable growth in performance. At the same time, in the case of revenue growth, the company's gross profit margin has also increased, making the company's net profit increase in 2023.
However, compared with listed companies in the same industry, the performance of Founder Valve fluctuates and the scale is small, and there is a risk of decline. Although its revenue is not dependent on overseas markets, it is significantly affected by overseas markets, and during the reporting period, overseas large customers fluctuated frequently, and at the same time faced the risk of trade policy changes and exchange rate fluctuations.
Founder Valve's products are mainly sold to North America, the European Union, the Middle East, Southeast Asia and other regions. During the reporting period, the proportion of export sales in the company's main business income was relatively high, reaching 48.34%, 35.91%, 39.02% and 41.54% respectively. The average number of export customers among the top five customers in each period of the reporting period was two, and none of them coincided.
The company admits that because the company's export product revenue is mainly settled in US dollars, the appreciation or depreciation of RMB against the US dollar will lead to a decrease or increase in the company's RMB revenue denominated in US dollars. Therefore, changes in the proportion of the company's export revenue and fluctuations in foreign currency exchange rates will affect the company's revenue scale. The Company's business and operations may be adversely affected if there are changes in the trade policies and certification systems of major exporting countries and regions for the Company's related products in the future, or if countries and regions in major overseas markets impose trade sanctions or fierce trade wars against China.
In this regard, the second round of review inquiry letter of the Beijing Stock Exchange requires the company to explain the reasons why the issuer's valve sales volume in 2020 and 2021 is contrary to the trend of changes in global oil and gas production, and further explain the impact of changes in the macro environment and international oil prices on the stability of the company's operating performance; Explain the changes in export customers and the reasons for the fluctuation of sales amount in each period, and demonstrate whether the export orders are sustainable.
In addition, the main business of Founder Valve is facing the risk of gross profit margin fluctuations. During the reporting period, the company's comprehensive gross profit margin was 30.03%, 24.61%, 24.79% and 25.11% respectively, and the gross profit margin fluctuated to a certain extent. According to the company, as an industrial valve manufacturer, the gross profit margin is comprehensively affected by various factors such as market supply and demand, bargaining power, industry competition, raw material market price, and product composition.
▎The authenticity of sales to atomic companies is questioned: is it a transfer of benefits?
It is worth noting that the fairness and authenticity of the sales pricing of Founder Valve to Founder Canada, the former holding subsidiary of Founder Valve, were mainly questioned.
According to the prospectus and the latest financial report in 2023, from 2020 to 2023, Founder Valve's revenue from Founder Canada will be 23.1502 million yuan, 17.1923 million yuan, 41.1297 million yuan, and 30.4237 million yuan respectively, that is, after the company sold Founder Canada's equity in 2021, the revenue realized through Founder Canada increased by 130% in the following year.
The prospectus also shows that in 2021, Founder Canada will lose 1.2057 million yuan, and the average profit from 2022 to 2023 will be 2 million yuan. This means that Founder Canada achieved profitability the following year after "breaking" from Founder Valve.
The reporter noticed that the sales of Founder Valve to Canada were directly sent by the company to the customer Wolseley, Wolseley did not use the company's products, and sold them separately after receipt, and Wolseley retained the value of the company's goods at the end of each period to keep the safety stock of about 40 million yuan.
In view of the commercial reasonableness of the significant increase in sales to Founder Canada after the equity transfer, the Beijing Stock Exchange requires the company to list the changes in the equity and actual controller of Founder Canada at different points since its establishment, as well as the previous equity transfer prices and pricing basis; the background, commercial reasonableness of the Company's transactions with Wolseley through Founder Canada; As well as the reasons and commercial reasonableness of the company's inventory of about 40 million yuan retained by the customer Wolseley at the end of each period, the authenticity of the company's sales revenue to the customer Wolseley is demonstrated.
It is worth mentioning that the products sold by Founder Valve to Founder Canada are mainly ball valves, and the gross profit margin of sales in 2022 and 2023 will be 26.16% and 32.10% respectively, which is 4-6 percentage points lower than the gross profit margin of similar products of other export customers.
In this regard, the second round of inquiry letters from the Beijing Stock Exchange requires: to explain whether the company actually controls Founder Canada, whether there is a situation where the company sells to Founder Canada with a low gross profit margin, and Founder Canada sells to Wolseley with a high gross profit margin, so as to transfer benefits to the actual controller of Founder Canada.
▎In the past three and a half years, the dividend has exceeded 60 million yuan, and the necessity of fundraising projects has been questioned twice in a row
According to the prospectus, Founder Valve's IPO plans to raise 117 million yuan, of which 77.0808 million yuan will be used to add 30,800 sets of high-end industrial valve production line technical transformation projects, 14.8299 million yuan will be used for the upgrading and transformation project of the research institute, and 25 million yuan will be used to supplement working capital.
Regarding the necessity of IPO fundraising projects and the reasonableness of the scale of fundraising, the Beijing Stock Exchange paid close attention to the two rounds of review and inquiry, and continued to inquire.
In terms of the production capacity of the proposed investment project, the prospectus shows that the new production line capacity ratio of the company's high-end industrial valve production line technical transformation project is 5.19 (output per 10,000 yuan), which is lower than 9.72 of the existing production line, and the project is expected to achieve an income of 157.7102 million yuan and a net profit of 18.6817 million yuan, which is different from the investment and economic benefits of the existing production line.
In this regard, the Beijing Stock Exchange requires the company to explain the reasons and reasonableness of the large difference between the new production line and the existing production line in terms of production capacity, investment and economic benefits of the fundraising project, and whether the investment expenditure calculation of the fundraising project is prudent and reasonable. Combined with the capacity utilization rate and new production capacity during the reporting period, the self-production and OEM business model, the valve demand for downstream customers' engineering projects, the orders in hand, and the market demand space for new and updated downstream industries, the quantitative analysis illustrates the necessity and feasibility of the construction of the technical transformation project of the new 30,800 medium and high-end industrial valve production lines.
In response to this problem, Founder Valve said in the first round of replies that the output per 10,000 yuan of machinery and equipment of the existing production line is higher than that of the fund-raising production line, on the one hand, the purchase time of the existing production line machinery and equipment and pressure testing equipment is earlier, and the market price is lower at the time of purchase; On the other hand, the fundraising and investment projects are positioned in mid-to-high-end products, and the performance requirements for equipment have also been improved, and the purchase price of corresponding equipment is also higher. To sum up, the number of equipment purchased and the total amount of equipment investment in this fundraising project are reasonable.
At the same time, the company's existing site and equipment can not meet the demand for the increase in the production capacity of high-end valves, which limits the further expansion of the company's market. After the successful implementation of the project, the company's high-end valve production capacity will be expanded, breaking through the bottleneck of high-end valve production capacity and meeting the growing market demand.
In addition, it is worth noting that Founder Valve has to pay large dividends before submitting the table, and on the other hand, it has to raise funds to expand production and replenish the flow.
Founder Valve is a typical family business. As of the date of signing this prospectus, as of the date of signing this prospectus, Fang Gaoyuan and Fang Pintian directly and indirectly hold a total of 89.94% of the shares of Founder Valve, and are the joint actual controllers of the company.
According to the prospectus, Founder Valve threw out a fixed increase plan 2 months after being listed on the New Third Board, and finally raised 17.358 million yuan to supplement liquidity.
In addition, while implementing the fixed increase, Founder Valve also paid dividends 4 times in the reporting period, with a total of 62.836 million yuan, and the dividend amount was about 40% of the net profit of 155 million yuan in the same period, and the latest dividend period was in the first half of 2023. According to the calculation of the previous 91.04% direct shareholding, Fang Gaoyuan and Fang Pintian brothers shared nearly 23.17 million yuan, and the difference between them and their fixed increase of 17.358 million yuan was about 5.9 million yuan.
In the eyes of the outside world, the brother of the actual controller, as the biggest beneficiary of the previous dividends, is suspected of "hollowing out" the company, and the necessity of this fundraising is also doubtful.
In the first round of inquiry, the Beijing Stock Exchange required the company to disclose the specific purpose or calculation process of the supplementary liquidity in accordance with the requirements of the format standards, and explain the necessity and reasonableness of the scale of the supplementary liquidity in combination with the company's monetary funds, cash flow, asset-liability structure, etc.
Founder Valve replied that after calculation, the company's total estimated liquidity demand for 2023-2025 is 50.2311 million yuan, and the supplementary liquidity in this fundraising project is 25 million yuan, which is lower than the aforementioned amount, which is cautious. Replenishing working capital is conducive to optimizing the company's capital structure, alleviating the company's working capital pressure, reducing the asset-liability ratio and financial expenses, ensuring the normal development of the company's various businesses, and is conducive to the company's future business development, which is reasonable and necessary.
However, Founderval's reply was not convincing. In the second round of inquiry, the Beijing Stock Exchange once again asked the company to further explain the necessity and rationality of the scale of using the raised funds to supplement liquidity in combination with the monetary funds, cash flow, and asset-liability structure at the end of the reporting period.