The quality of sponsorship of Minsheng Securities, the "dark horse" of investment banks, is worrisome

Produced by Huabo Business Review

Under the strict supervision of the whole chain of IPOs, the "dark horse" Minsheng Securities sponsorship projects of investment banks have failed. On June 25, the Beijing Stock Exchange terminated the listing applications of Hangzhou Jiahe Electric Co., Ltd. and Zhejiang Tianyan Weizhen Network Technology Co., Ltd., both of which were sponsored by Minsheng Securities; On the same day, the Shenzhen Stock Exchange terminated the initial public offering of shares of Ningbo Warburg Pincus Intelligent Control Technology Co., Ltd. and its application for listing on the GEM, and the sponsor was also Minsheng Securities.

The announcement of the termination of three IPO projects in one day can be said to be a big blow to Minsheng Securities. Prior to this, since the beginning of this year, Minsheng Securities has withdrawn 6 IPO projects, namely Huali Biotechnology, Jirui Technology, Hete Energy, Kai'an New Materials, Zhuoli Shares and Minda Shares.

In this regard, industry insiders believe that since the beginning of this year, the regulatory authorities have strengthened the supervision of the whole chain of issuance and listing, adhered to the principle of "declaration is responsible", strictly controlled the entrance of IPOs, controlled the quality of listed companies from the source, and strictly checked and seriously dealt with the enterprises and related intermediaries who "broke through with illness".

In the field of investment bank IPOs, Minsheng Securities is a big "dark horse". In 2023, the IPO of the whole market will slow down significantly, with 236 companies listed in the two cities, a year-on-year decrease of three percent, and the funds raised will be 315.555 billion yuan, a year-on-year decrease of four percent. In this case, Minsheng Securities will complete 20 IPOs in 2023, an increase of 5 over 2022, ranking 4th in the industry, with an annual underwriting volume of more than 20 billion yuan, a year-on-year increase of 58.6%, ranking 6th; The commission income of underwriting and sponsorship was 1.599 billion yuan, a year-on-year increase of 63%.

However, while Minsheng Securities' investment banking business has become one of the top camps, the quality rating of its investment banking business has not been improved at the same time. According to the results of the 2023 investment banking business quality evaluation of securities companies released by the Securities Association of China, 12 securities firms have obtained Class A ratings, 67 have obtained Class B ratings, and 19 have obtained Class C ratings.

In July 2023, the Shanghai and Shenzhen Stock Exchanges issued the Implementation Measures for the Evaluation of the Practice Quality of Quality-Oriented Sponsor Institutions of Listed Companies (for Trial Implementation), which includes the profitability and other performance of enterprises, investor returns, market valuation, cash dividend ratio, and annualized rate of return within five years of listing into the scope of investment bank assessment.

It means that within five years of listing, the company's performance has changed, the stock price has plummeted, the dividends are too small, and the information disclosure has violated the rules, which will seriously affect the evaluation results of the investment banking practice quality.

Judging from the performance of listed companies sponsored by Minsheng Securities, although most of the companies have achieved over-raising, many companies have "changed face" in performance and broken stock prices after listing.

For example, Hongyuan Pharmaceutical, which was listed on March 20, 2023, originally planned to raise 818 million yuan, but actually raised 2.363 billion yuan, over-raised 1.545 billion yuan, and Minsheng Securities received 139 million yuan of underwriting and sponsorship commission income. However, Hongyuan Pharmaceutical broke on the day of listing, and its stock price fell 16.1%. At the same time, the company's performance has also changed significantly, the company's profitability is very strong before listing, with operating income of 1.578 billion yuan and 2.064 billion yuan in 2021 and 2022, and net profit of 494 million yuan and 435 million yuan respectively, while in 2023, the company will achieve revenue of 2.055 billion yuan, down 0.43% year-on-year, and net profit will decline to 87.1686 million yuan, down 79.95% year-on-year. In the first quarter of 2024, Hongyuan Pharmaceutical's performance declined widely, with revenue falling 15.45% year-on-year to 426 million yuan, and net profit falling 51.81% year-on-year to 31.1991 million yuan.

The situation of Kejingyuan is also roughly the same, the company will be listed on August 11, 2023, and the actual fundraising is 771 million yuan, and Minsheng Securities will receive 114 million yuan of underwriting and sponsorship commission income. From 2021 to 2022 before listing, Kejingyuan's operating income was 480 million yuan and 439 million yuan respectively, and its net profit was 91.9805 million yuan and 86.333 million yuan respectively. However, the company's performance fell sharply in the year of listing, with revenue falling by 31.30% year-on-year to 302 million yuan, net profit falling by 77.53% year-on-year to 19.4025 million yuan, and a direct loss in the first quarter of 2024, with a net profit loss of 19.7428 million yuan, a year-on-year decrease of 513.75%, and an operating income of 30.7647 million yuan, a year-on-year decrease of 24.62%.

According to Sina Finance statistics, in 2023, the net profit attributable to the parent of the 11 IPO projects sponsored by Minsheng Securities will decline year-on-year, accounting for 55%. In 2022, Minsheng Securities underwrote a total of 16 IPO projects (excluding joint underwriting) for listing, and 12 companies experienced a decline in revenue or net profit deducted from non-attributable to their parent companies in the year of listing, accounting for 75%.

It can be seen that the quality of Minsheng Securities' sponsorship is indeed worrisome. Although with the advantage of the number of sponsors, the investment banking business of Minsheng Securities has achieved a breakthrough. However, due to the poor quality of the sponsored projects and the high risk, this may lay a "landmine" for the company's future development.

In fact, under the high pressure of supervision, the IPO project of Minsheng Securities Investment Bank has been frequently terminated and punished by regulators.

In 2023, although 20 IPO sponsorship projects of Minsheng Securities have been successfully listed, the number of terminations has also reached 22, with a sponsorship success rate of only 52.38%, and the number of terminated projects in the first half of 2024 has reached 9.

At the same time, Minsheng Securities has been subject to regulatory penalties for sponsoring projects for violations. For example, in January 2023, due to violations in the IPO project of Shenzhen Suijing Optoelectronics Co., Ltd., Minsheng Securities, as well as Baodai Yan Zhi and Wang Hu, were taken by the Shenzhen Stock Exchange with written warnings of self-regulatory measures.

In July of the same year, Minsheng Securities and the two insurance agents were punished by the regulator for failing to perform their relevant duties diligently and diligently in the process of sponsoring the initial public offering and listing of Fujian Fortec Optoelectronics Co., Ltd., and did not find that the issuer had a number of undisclosed capital occupations, incomplete disclosure of illegal guarantee information, many other internal control problems, and inaccurate information disclosure of R&D personnel.