Source of this article: Times Business School Author: Peng Chenyu
Source: Times Investment Research
Author: Peng Chenyu
Edited by Sun Yiming
On the eve of the IPO, the asset restructuring has expanded the scale of performance, but since then, the net profit has been cut in half again, is this main board IPO company in line with the blue-chip positioning of the market?
According to the official website of the Shenzhen Stock Exchange, on August 22, 2024, Guangzhou Ruili Bureau of Automotive Electronics Co., Ltd. (hereinafter referred to as "Ruili Bureau of Technology") received the second round of review inquiry letters and plans to land on the main board.
Times Investment Research found that before and after the listing counseling, Ruili Kemi carried out a major asset restructuring and acquired 4 companies under the controlling shareholder, with a transaction consideration of nearly 900 million yuan. Through this restructuring, the scale of Ruili Co.M.'s revenue has been significantly expanded, and its valuation has soared nearly 5 times.
It should be noted that in the year following the completion of the acquisition (2022), Ruili Kemi's revenue declined, and the net profit attributable to the parent company was directly cut in half. In the same year, the performance trend of Ruili Kemi deviated from that of comparable peers, and the stability of operating performance was questioned by the Shenzhen Stock Exchange.
On August 29 and September 5, Times Investment Research sent letters and phone calls to Ruili Kemi on issues such as asset restructuring and the stability of operating performance before listing, but as of press time, the other party has not replied to relevant questions.
Two asset restructurings before and after the listing counseling
According to the prospectus, Ruili Bureau's main business is the research and development, production, sales and technical services of motor vehicle active safety systems and aluminum alloy precision die castings, and its core products cover mainstream technical routes such as pneumatic brake/hydraulic brake, electric control brake/wire control, etc., which are widely used in the braking safety and other fields of commercial vehicles, passenger cars and motorcycles.
As of June 28, 2024, Ruili Group Co., Ltd. (hereinafter referred to as "Ruili Group") directly held 86.7 million shares of Ruili Kemi, accounting for 64.16% of the total share capital before the issuance, and was the controlling shareholder of Ruili Kemi.
According to the official website of the China Securities Regulatory Commission, Ruili Bureau of Science and Technology conducted counseling and filing on July 5, 2021. In June 2021, Ruili Bureau of Technology carried out a major asset restructuring and acquired 100% of the shares of Wenzhou Ruili Automotive Technology Co., Ltd., a subsidiary of the controlling shareholder Ruili Group, 84% of the shares of Wuhan Ruili Kodes Automotive Electronics Co., Ltd., and 100% of the shares of Shengsaisi Precision Die Casting (Yangzhou) Co., Ltd.
In December 2021, Ruili Bureau of Science and Technology acquired a 30% stake in Wenzhou Lichen Auto Parts Co., Ltd. (hereinafter referred to as "Wenzhou Lichen"), a holding subsidiary of Ruili Group, and obtained a controlling stake in Wenzhou Lichen.
The total transaction consideration of the four companies is as high as 864 million yuan, and after the completion of the acquisition, Ruili will include the above entities in the scope of the merger.
So, why did Ruili Bureau carry out a major asset restructuring of the company on the eve of listing?
Ruili Bureau said in the prospectus that through the acquisition, the company's business layout has been improved, the competition with the subsidiaries of the controlling shareholder Ruili Group has been solved, and related party transactions have been reduced, which is necessary and reasonable.
After the restructuring, the proportion of related party transactions of Ruili Bureau has decreased. In 2022, Ruili Co.M.'s related sales accounted for 20.63%, and related party purchases accounted for 12.48%.
It should be noted that Ruili Co., Ltd. has achieved an increase in overall revenue scale and valuation through restructuring.
According to the prospectus, in the year before the merger and acquisition (2020), the total assets, operating income and total profits of the above four companies were 749 million yuan, 539 million yuan and 77 million yuan respectively, accounting for 48.70%, 53.16% and 33.84% of the total assets, operating income and total profits of Ruili Bureau of Science and Technology in the current period.
Through this reorganization, the revenue scale of Ruili Kemi has increased by more than 50%, and the net profit has increased by more than 30%, and the overall scale has been significantly expanded.
In this IPO, Ruili Kemi plans to raise 1.6 billion yuan, the amount of funds raised exceeds the net assets, and the proportion of issued shares is not less than 25% of the total share capital after issuance. Based on the issuance ratio of 25%, the valuation of Ruili Co., Ltd. is about 6.4 billion yuan, which is 3.7 times higher than the valuation of 1.351 billion yuan in the most recent equity transfer before listing.
In response to the above-mentioned restructuring, in the first round of inquiry letters, the Shenzhen Stock Exchange also paid close attention to it, requiring Ruili Technology to explain whether the restructuring and acquisition enterprise has entrusted shareholding, benefit transfer or other benefit arrangements based on the business of the issuer and its subsidiaries before the acquisition and the business of the acquired company.
In the reply to the inquiry letter, Ruili Bureau stated that the acquisition was an asset restructuring under the same control, the ownership of the target company's equity was clear, the acquisition process performed the relevant review procedures, and the acquisition pricing was fairly priced according to the appraisal price of the appraisal company, and there was no entrusted shareholding, benefit transfer or other benefit arrangements.
The net profit attributable to the parent company was once cut in half, and the stability of performance was questioned
However, after the expansion of the revenue scale, the profit scale of Ruili Kemi has declined significantly.
According to the prospectus, from 2021 to 2023 (hereinafter referred to as the "reporting period"), the year-on-year change rates of Ruili Kemi's revenue were 8.87%, -4.18%, and 32.81% respectively; The year-on-year change rates of net profit attributable to the parent company were -20.42%, -50.91% and 143.32% respectively. It can be seen that in the year of the reorganization, the net profit attributable to the parent company of Ruili Kemi fell by two percent year-on-year, and the net profit attributable to the parent company in the following year was halved year-on-year.
From the perspective of products, the prospectus shows that in 2022, the profit of Ruili Kemi's main product pneumatic electric control brake system (accounting for about 50% of revenue in the reporting period) will decline the most, and the gross profit of this product will decline by about 40% year-on-year.
From the perspective of sales volume, in 2022, the sales volume of complete sets and parts of Ruili Kemi's pneumatic and electroelectric control braking system will decline by 44.36% and 34.15% year-on-year, respectively.
It is worth mentioning that in 2022, the performance trend of Ruili Bureau will deviate significantly from its peers.
According to the prospectus, in 2022, the operating income and net profit of the five comparable companies in the same industry of Ruili Bureau of Science and Technology will all maintain growth, with an average year-on-year growth rate of 30.08% and an average year-on-year growth rate of 52.19%.
In this IPO, Ruili Co., Ltd. chose the first set of listing standards on the main board. On April 30 this year, in order to further highlight the blue-chip positioning of the main board, the Shenzhen Stock Exchange increased the cumulative net profit of the first set of listing standards on the main board in the last three years from "150 million yuan" to "200 million yuan", and the net profit in the latest year from "60 million yuan" to "100 million yuan".
If you look at the new standard, the declaration draft shows that in 2022, the net profit of Ruili Bureau after the reorganization will only be 104 million yuan, stepping on the line and meeting the standard. As Ruili Bureau achieved a significant increase in revenue and net profit in 2023, there was no failure to meet the listing criteria.
As we all know, the main board focuses on supporting high-quality enterprises with mature business models, stable operating performance, large scale and industry representativeness.
The sharp fluctuation of net profit during the reporting period has triggered the Shenzhen Stock Exchange's focus on the stability of Ruili C.M.'s operating performance.
In view of the sharp decline in net profit in 2022 and the difference in profit change trend from peers, in the first round of inquiry letters, the Shenzhen Stock Exchange asked Ruili to analyze the reasons for the decline in net profit in 2022, and further explain the stability of operating performance.
Ruili Kemi replied that the decline in performance in 2022 was mainly affected by the decline in market demand for commercial vehicles and the increase in the price of major raw materials. The unfavorable factors of declining demand for commercial vehicles from 2023 onwards have been eliminated, and the operating performance has rebounded significantly, and the operating performance has been stable.
However, after a sharp increase in performance in 2023, in the first half of this year, Ruili Kemi's net profit may decline again year-on-year.
According to the reply documents to the first round of inquiry letters, from January to June 2024, Ruili Micro preliminarily estimated that the operating income increased by 8.53% year-on-year, the net profit decreased by 4.57% year-on-year, and the net profit deducted from the non-attributable parent decreased by 4.52% year-on-year.
Ruili Bureau also admitted in the prospectus that the company's operating performance during the reporting period showed certain fluctuations, if the company's main product sales declined, raw material prices rose, adverse changes in the international trade situation and other factors in the future, it will have an adverse impact on the company's revenue, profitability, resulting in the risk of fluctuations in the company's operating performance.
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