On November 17, Changsha Xingjia Biological Engineering Co., Ltd. (hereinafter referred to as "Xingjia Biological"), which intends to be listed on the Science and Technology Innovation Board, replied to the inquiry letter of the Shanghai Stock Exchange. In the reply letter, we can see that the Shanghai Stock Exchange focused on four questions, such as the attributes of Xingjia Biotech' science and technology innovation; patent expiration, patent pledge, and the risk of real estate mortgage.
The perception of the attributes of science and technology is confusing
According to the prospectus, from the perspective of the main business income, the revenue of Xingjia Biology mainly comes from monomer/composite trace elements; among them, it is mainly hydroxychlorine and organic compound polymetalminal products.
In each period of the reporting period, the company's revenue from the sales revenue of hydroxychlorine and organic compound minerals accounted for 60.58%, 66.28%, 74.12% and 77.58% respectively.
It is understood that hydroxychloride is a basic salt, mainly instead of the traditional inorganic salt, this basic salt includes Fuller copper, Jiale Tong, Jiale zinc, Jiale manganese, etc.; organic composite polymetals are compound polymetes with amino acid complex (chelated) complexes and hydroxychlorine as the core raw materials. The company's main products are mainly used in the field of animal and plant nutrition, so the company's product attribute is the feed industry.
The feed industry is an important industry that connects planting and breeding, provides material support for the modern breeding industry, and provides conversion value-added channels for crops and their production and processing by-products, so to be precise, Xingjia Biology belongs to the category of agricultural biotechnology. Although the company's products are closely related to the safe and stable supply of animal products, it does not mean that they can be divided into biomedicine.
Moreover, in terms of the nature of the company's main customers, during the reporting period, the company's customers were Royal DSM, Cargill, Smithfield (the world's largest hog producer and pork supplier), Tyson Foods (the world's largest supplier and producer of chicken, beef and pork), Wen's Group, Haida Group, New Hope Liuhe Group, Dabeinong Group, Kangdi Group and other world-renowned feed and breeding production enterprises. No matter how you look at it, it can't be related to biomedicine.
At the time of the pre-disclosure of the first draft declaration, Xingjia Bio positioned itself as the biomedical field, which was very confusing. After the inquiry of the Shanghai Stock Exchange, Xingjia Bio finally soberly realized that the company does not belong to the positioning of the "biomedical" industry of the science and technology innovation board.
Revenue growth slowed down by the impact of "African swine fever" Value-added tax incentives have a great impact on profits
Throughout the reporting period, Xingjia Bio achieved revenue of 308 million yuan, 312 million yuan, 306 million yuan and 159 million yuan respectively, and the net profit included in the same period was 25.0192 million yuan, 44.9754 million yuan, 49.7606 million yuan and 30.1042 million yuan, respectively. The company's performance is relatively good growth.
Since the main business mainly involves the animal field, since the second half of 2018, the whole industry has experienced a huge impact of "African swine fever", the scale of pig inventory has dropped sharply, the sales volume of Xingjia Biological's main products has declined, and the revenue growth rate has slowed down, and the company's revenue in 2018 has increased slightly by 1.3% year-on-year; in 2019, revenue has fallen by 1.92% year-on-year. But net profit continued to grow.
In addition, the company's core products hydroxychloride, amino acid complex (chelate) complex, and the domestic traditional inorganic mineral trace elements enterprises do not have a direct competitive relationship, its main competitors are mostly overseas enterprises including the United States Navic, the United States Altchi, the United States Jinbao Company, Taigao Group, Switzerland Pankosma, etc., with import substitution advantages.
The draft declaration shows that the company's net profit from 2017 to 2019 has a compound annual growth rate of 41.03%. According to the financial data reviewed by the reporting accountant, the company achieved operating income of 266 million yuan from January to September 2020, an increase of 28.92% over the same period of the previous year, and deducted non-net profit of 48.5122 million yuan, an increase of 63.93% over the same period of the previous year, and the company has good growth.
In addition, in recent years, the proportion of the company's overseas distribution and sales revenue has increased significantly, and the proportion of domestic sales has declined significantly. It can be seen that the company attaches great importance to overseas markets.
It is understood that the company's main export areas include North America, Europe and Asia, among which sales to the North American market accounted for 75.01%, 56.35% and 65.07% of the overseas market, respectively. However, if the United States further raises tariffs in the future, to a certain extent, it may affect the export business of Xingjia Biologics and adversely affect the production and operation of Xingjia Biologics.
At the same time, some of the company's mineral trace element products and micro-balanced ecological organic fertilizer products as feed additives are exempt from VAT in line with the feed products and organic fertilizer product standards stipulated by the state.
During the reporting period, the sales of the company's VAT-exempt products were 194 million yuan, 225 million yuan, 188 million yuan and 84.645 million yuan, accounting for 63.22%, 71.91%, 61.37% and 53.35% of the consolidated sales revenue, accounting for a relatively high proportion.
If the state's tax policy on the above-mentioned tax-free products changes, the conversion of some tax-free products into taxable products may adversely affect the cost and pricing of the company's products, which in turn may have a greater impact on the company's production and operation.
2 patents expired, 16 patents pledged, 22 real estate mortgages
As of the date of signing of this prospectus, Xingjia Bio has obtained 53 invention patents through independent research and development and innovation, involving four major categories of products such as amino acid complex (chelate), hydroxychlorine, composite trace elements, and micro-balanced ecological organic fertilizer, and a total of 4 invention patents related to hydroxymethionine chelate series products, of which 2 invention patents expired on August 15, 2020.
After the expiration of the patent, other competitors can also legally use the above patented technology to produce hydroxymethionine zinc and hydroxymethionine products, if the same products are imitated by other enterprises, it will cause a certain degree of adverse impact on the market competition environment and product pricing of the two products.
In addition, on June 16, 2020, Xingjia Bio pledged 16 invention patents to the HSBC branch of Changsha Bank as a guarantee for the maximum amount of 49.57 million yuan. On July 7, 2020, Changsha Bank actually issued a patent pledge working capital loan of RMB14 million to the issuer for a period of 12 months. The operating income, profit and proportion generated during the reporting period of the main products corresponding to the 16 patents pledged above are as follows:
It can be seen that the 16 patents pledged account for more than 60% of revenue. If the company is unable to repay the loan when due, it will have a significant impact on the company's main business.
In addition, during the reporting period, the 22 houses and buildings mortgaged and the land occupied were all the company's own real estate, except for the subsidiary Hengyang Xingjia, which had not yet been put into use because it did not actually carry out business, the other real estate uses were the company's production, research and development and operation of the office, and the mortgage period of the above-mentioned real estate was completed until the corresponding main claim was fulfilled, and the mortgage rate was below 60%.
As at the date of this Prospectus, the above assets remain in mortgage. If the company has overdue repayment of principal and interest or other default situations or risk events that cause the mortgagee to exercise the mortgage right, it will adversely affect the company's production and operation.
If the production capacity is not fully utilized, can the new capacity be digested?
It is reported. Xingjia Bio intends to raise 329 million yuan this time; of which 200 million yuan will be used for the expansion project of mineral trace element industrial park.
Xingjia Bio said that after the completion of the project, the annual production capacity of high-quality mineral trace element additives will increase by 60,000 tons. Among them, 26,000 tons of organic mineral elements, 11,000 tons of hydroxychlorine, 20,000 tons of complex mineral trace elements, and 3,000 tons of fermented products.
However, it is worth noting that at present, Xingjia Bio still has a situation of underutilized production capacity. According to the draft declaration, from 2017 to 2019, the company's production capacity of monomer trace element series products was 130 million tons, 136 million tons and 136 million tons, respectively, and the output in the same period was 7964.02 tons, 7330.07 tons and 7605.61 tons, respectively. The capacity utilization rate was 61.26%, 53.90% and 55.92% respectively.
The capacity utilization rate of the company's composite trace element series products has been fully saturated, 221.31%, 225.48%, and 193.45% respectively.
Regarding whether the fundraising expansion will be used for the monomer trace element series or the composite trace element series, Xingjia Bio did not make specific instructions. However, it is obvious that the company's new production capacity is most likely for the composite trace element series.
At present, the company's existing production capacity is 45,600 tons / year (of which the Wangcheng Tongguan production plant (phase I) construction project added 24,000 tons / year has been officially put into operation in early August). The Company's sales volume in 2019 was 23,048.89 tons. On this basis, the company will add another 60,000 tons of production capacity, and the investment project is expected to be completed within 3 years, and the total production capacity will be expanded to 105,600 tons after the completion of the project.
Due to the uncertainty of unpredictable changes in market demand, national macroeconomic policies, industry competition and other factors, there is still some uncertainty about whether the company can absorb the new production capacity.