Image source@Visual China
According to the official website of the Shanghai Stock Exchange, Zhejiang Shenghuabo Electric Appliance Co., Ltd. (hereinafter referred to as "Shenghuabo") will be listed on the Shanghai Stock Exchange on January 12. It is worth noting that the company's large dividends in the early stage have fallen into the pockets of the actual controller, and now the IPO fund-raising replenishment is questionable.
Shenghuabo is a typical family business, the three brothers of the actual controller hold a total of 100% of the company's equity, and the children of the actual controller hold senior positions in the company. The company has a large number of related party transactions and internal control irregularities, for example, the purchase price from the shareholding enterprise of the actual controller is lower than the purchase price of non-related parties, etc. As such, it is difficult for investors to believe that the company can effectively prevent improper control by the actual controller.
Accounts receivable are high, and the R&D expense ratio is declining year by year
According to the prospectus, Shenghuabo's main products are automotive wiper assemblies, seat motors and other auto parts, and the products are mainly used in the vehicle supporting market. At present, Shenghuabo is the largest wiper assembly manufacturer in China, among which the annual production and sales of seat motors are leading in the world.
During the reporting period, affected by factors such as the recovery of the automobile industry, Shenghuabo's performance was good. In the first three quarters of 2023, Shenghuabo's operating income reached 2.892 billion yuan, an increase of 32.52% year-on-year, and its net profit was 437 million yuan, an increase of 81.74% year-on-year. The company expects full-year operating income of 3.9 billion yuan to 4.4 billion yuan and net profit of 590 million yuan to 660 million yuan for the full year of 2023.
However, there are hidden worries behind the performance growth. From 2020 to 2022 and from January to June 2023, Shenghuabo's accounts receivable were 805 million yuan, 966 million yuan, 1.295 billion yuan and 1.554 billion yuan respectively, accounting for 52.67%, 53.99%, 55.44% and 60.42% of current assets respectively, and accounting for 41.77%, 38.52%, 40.56% and 88.87% of current operating income respectively, accounting for a relatively high proportion.
Shenghuabo said that although the main customers are vehicle manufacturers or large multinational parts suppliers with good financial strength and business reputation, the risk of bad debts is small, but if the market environment changes in the future, the downstream customers do not operate well, and the accounts receivable cannot be recovered on time or cannot be recovered, the company's capital efficiency and operating performance will be adversely affected.
Not only that, the company's R&D advantages are not outstanding. During the reporting period, Shenghuabo's R&D expenses amounted to 105.8805 million yuan, 120.8696 million yuan, 143.3658 million yuan and 71.7919 million yuan respectively, accounting for 5.49%, 4.82%, 4.49% and 4.11% of the operating income in the same period.
Although the company continues to increase R&D investment, the R&D expense ratio is declining year by year, and except for 2020, the rest of the years are lower than the industry average.
Analysis of R&D expense ratios of comparable companies in the same industry
The three brothers are 100% controlled and pay large dividends before listing
According to the prospectus, Shenghuabo's IPO plans to raise 902 million yuan, which is mainly used to invest in the construction of four projects, including "annual output of 4.5 million sets of wiper expansion project", "annual output of 15 million seat motor expansion project", "intelligent transformation project of key components of automobile wiper assembly" and "supplementary working capital".
It is worth noting that Shenghuabo plans to use 500 million yuan of the raised funds to supplement liquidity. The company's previous large-scale dividends have also questioned the rationality of this fundraising.
It is reported that Shenghuabo will pay a total cash dividend of about 305 million yuan in four times from 2019 to 2021. Among them, cash dividends of 120 million yuan were implemented in 2019, accounting for 68.57% of the net profit of the year, and cash dividends of 165 million yuan were implemented in 2020, accounting for 85.93% of the net profit of the year.
Since Shenghuabo is a typical family business, which is 100% controlled by 3 actual controllers, the above dividends fall into the pockets of the actual controllers.
From the literal meaning, it can be seen that "Shenghuabo" is taken from the names of the three brothers of the actual controller. According to the prospectus, the company's actual controllers Wang Shangsheng, Wang Shanghua and Wang Shaobo directly and indirectly controlled 100% of the company's shares before the issuance, and if calculated according to the public offering of 40.8 million new shares, Wang Shangsheng, Wang Shanghua and Wang Shaobo directly and indirectly controlled the company's equity ratio will still reach 89.97%, with a high shareholding ratio.
At present, Wang Shangsheng is the chairman of Shenghuabo Electric Appliances and the chairman and general manager of Shenghuabo Group, Wang Shanghua is the director of Shenghuabo Electric Appliances and Shenghuabo Group, and Wang Shaobo is the director of Shenghuabo Electric Appliances and the director of Shenghuabo Group.
In addition to the three brothers of the actual controller, the company's directors, supervisors, and high schools also have many "own people". The prospectus disclosed that the company's board of directors is composed of 9 directors, of which 4 directors, Wang Shangsheng, Wang Shanghua, Wang Shaobo and Wang Jiajia, are the actual controllers and their close relatives.
In addition, among the senior managers, the general manager, the two deputy general managers, and the secretary of the board of directors are all children and sons-in-law of the actual controller.
The position of the close relatives of the actual controller in key positions in the company
In the prospectus, Shenghuabo reminded of the risk of excessive concentration of actual control: if the actual controller of the company uses its controlling position in the company to improperly influence the decision-making of the company's development strategy, production and operation decisions, profit distribution, personnel arrangements and other major matters in the future, there is a risk that the interests of the company and other shareholders of the company may be damaged.
Related-party transactions are complex and non-standardized, and internal control is the focus of inquiry
After disclosure, it was found that Shenghuabo had a large number of related party transactions. Some suppliers have been established for a short time, are small in scale, and have low procurement prices, which have attracted the attention of regulators.
The SSE requires the company to explain the specific contents, methods and conclusions of the verification of suppliers with small scale, short establishment time, mismatched business scope or mainly relying on the company's business, as well as the integrity of related parties and the reasonableness and fairness of related party transactions.
According to the prospectus, during the reporting period, Shenghuabo purchased components from Shanghai Jihan Electronic Technology Co., Ltd. (hereinafter referred to as "Jihan Electronics") for an amount of 2.6007 million yuan, 11.0375 million yuan, 28.3883 million yuan and 14.9842 million yuan, accounting for 0.24%, 0.73%, 1.54% and 1.73% of the company's annual procurement amount.
It is worth noting that Jihan Electronics is one of the actual controllers, Wang Shangsheng's son Wang Te, holds 15.88% of the shares, and Wang Shangsheng has used dividends of 5.25 million yuan to increase the capital of Jihan Electronics.
Founded in 2017, the main business of Jihan Electronics is the R&D and production of intelligent wiper system controllers, cooling fan controllers, and CPD controllers for commercial vehicles. Since 2018, it has been a component supplier of Shenghuabo. The relationship between the two parties has been stable so far.
In addition, Titanium Media App noticed that the purchase price of Shenghuabo from Jihan Electronics was lower than the purchase price of non-related parties. During the reporting period, the difference in purchase price was 3.59%-12.16%.
Comparison of the purchase price from Techhan Electronic and the purchase price of non-related parties
As for the reason for the low purchase price, Shenghua said: "The main reason is that Jihan Electronics is a new supplier, in order to obtain the issuer's order quotation is lower; at the same time, the company purchases a large amount from Jihan Electronics, the scale effect is obvious, and the bargaining power is strong." ”
There are many more similar situations. For example, from 2020 to 2022, Shenghuabo purchased 70.9679 million yuan, 110 million yuan and 21.7034 million yuan of steel from Shanghai Qianshun Trading Co., Ltd. (hereinafter referred to as "Qianshun Trading"), accounting for 5.11%, 5.74% and 0.93% of the company's annual procurement amount, respectively.
It is reported that Qianshun Trade has become a raw material supplier of Shenghuabo since 2018, and Fang Yi, the actual controller of Qianshun Trading, is a former employee of Shanghai Shenghuabo, a subsidiary of the company, who left Shanghai Shenghuabo in May 2018 for personal development reasons and is engaged in steel trading business full-time.
In addition, during the reporting period, there were irregularities in internal control, including the lending of funds by related parties, the use of personal accounts to collect and make payments, and irregularities in decision-making on related party transactions.
The SSE requires the company to explain the causes, links and corresponding rectification measures of various internal control irregularities, and specify whether the actual controller's improper control can be effectively prevented, and whether there are still internal control irregularities or cannot be effectively implemented, taking into account the fact that the actual controller holds 100% of the shares and his close relatives hold key positions in the company. (This article was first published on the Titanium Media App, by Ma Qiong)