Yangtze River Business Daily reporter Shen Yourong
The well-known jeweler Liuliufu Jewelry Co., Ltd. (hereinafter referred to as "Liuliufu") has entered the IPO for the fourth time, this time through the Hong Kong stock IPO.
Started in April 2019 and ended in 2023, in more than four years, Liufu hit the A-share market three times, all of which ended in failure.
On June 27 this year, Liuliufu submitted a form to the Hong Kong Stock Exchange in order to list on the Hong Kong Stock Exchange, and the funds raised were used for network expansion and brand awareness.
What is highly questionable is that in the three months before the submission of the statement to the Hong Kong Stock Exchange, Liuliufu suddenly implemented two cash dividends, with a total of 645 million yuan in dividends.
As the actual controllers of 93.69% of the shares, Li Weizhu and Li Weipeng brothers will receive about 604 million yuan.
According to Frost & Sullivan, in terms of the number of stores in China, Liuliufu has maintained one of the top five brands in the Chinese jewelry market for seven consecutive years from 2017 to 2023. As of now, Liuliufu is also the only company among the top five brands that is not listed.
Relying on the franchisee model and the return on equity declining year by year, can Liuliufu's IPO go smoothly?
Saturday Fu Jewelry Co., Ltd. Photo by Yangtze River Business Daily reporter Wu Wei
Three A-shares failed to move to Hong Kong stocks
On the eve of the listing of the old gold Hong Kong stocks, Saturday Fu submitted the form to the Hong Kong Stock Exchange.
On June 27, the Hong Kong Stock Exchange disclosed the application materials of Liuliufu, with CICC and China Securities Construction Investment International as joint sponsors. This is the fourth time that Liuliufu has broken through the IPO.
Liuliufu's IPO road has not gone smoothly, and it has always wanted to land on the A-share market.
On April 30, 2019, Liuliufu submitted a listing application for the first time, planning to be listed on the main board of the Shenzhen Stock Exchange, with GF Securities as the sponsor and Guangdong Zhengzhong Zhujiang Certified Public Accountants (Special General Partnership) as the accounting firm, planning to raise 1.09 billion yuan.
The IPO was soon terminated. Because both the sponsor and the audit firm were involved in the "Kangmei case" that shocked the A-share market.
At the end of 2019, Liuliufu applied for IPO again, and the sponsor was changed to Minsheng Securities, planning to be listed on the main board of the Shenzhen Stock Exchange, and the planned amount of funds raised was still 1.09 billion yuan. In October 2020, the company's initial offering will be reviewed, but it was rejected by the China Securities Regulatory Commission, and its franchise model, litigation and other issues were inquired by the Issuance Examination Committee.
In June 2022, Liuliufu IPO for the third time, and the sponsor was changed to China Securities Construction Investment, planning to raise 1.4 billion yuan. After the implementation of the full registration system, its listing review was transferred from the CSRC to the Shenzhen Stock Exchange at the end of February 2023. According to the prospectus disclosed at the time, after the failure of the second IPO, the shareholding structure of Liuliufu changed. In November 2020, Huatuo Zhiyuan invested 20 million yuan to acquire 1,786,215 shares jointly transferred by shareholder Qiankun, obtaining 0.49% of its shares at a transfer price of 11.20 yuan per share. In October 2021, Daoyang Junrui acquired 2.793 million shares transferred by Mingyang Investment and obtained 0.76% of the shares of Liuliufu at a transfer price of 10.12 yuan per share.
In December 2021, Yongcheng No. 2, Jinyu Fuyuan, Jiaoqiao Heli, Xu Bo, Huatuo Zhiyuan, and Mingyang Investment (hereinafter collectively referred to as the "Investors") respectively signed supplementary agreements with Li Weizhu, stipulating the special rights and interests terms of equity repurchase. Among them, if Liuliufu fails to declare the IPO materials to the China Securities Regulatory Commission or the Shanghai and Shenzhen Stock Exchanges before June 30, 2022 and obtain formal acceptance, or if the company fails to be listed on the Shanghai or Shenzhen stock exchanges or is acquired by a listed company at a valuation agreed by the investor before June 30, 2024, the investor has the right to require Li Weizhu to repurchase all or part of the shares of the company held by the investor, and Li Weizhu shall repurchase it in cash. In order to cooperate with the IPO, the relevant agreement will be terminated during the IPO.
It is worth mentioning that in 2018, before Liuliufu first submitted its listing application, when introducing external capital, Li Weizhu and Li Weipeng, the actual controllers of the company, made a VAM agreement with relevant institutions on matters such as the company's IPO or backdoor listing.
Under the pressure of gambling with capital, Liuliufu continued its IPO. On November 8, 2023, after completing the first round of inquiries, Liuliufu's third IPO failed by withdrawing the listing application documents.
Transferred to the Hong Kong stock market, Li Weizhu and Li Weipeng brothers have fulfilled their repurchase obligations. According to the latest prospectus released by Liuliufu on the Hong Kong Stock Exchange, from November 2023 to January 2024, Li Weizhu, the actual controller of Liuliufu, signed an equity transfer agreement with the relevant shareholders at that time, and repurchased the vast majority of the shares held by the relevant shareholders at that time, with a total cost of about 164 million yuan.
The surprise dividend model repeats itself
The road to Liufu's IPO is not going well, and the market's doubts about its frequent dividends may also have an impact to a certain extent.
In the previous three IPOs, Liuliufu planned to use the raised funds to supplement liquidity many times.
In its first IPO in 2019, Liuliufu plans to raise 1.09 billion yuan, of which about 748 million yuan will be used to build a marketing network project, about 110 million yuan will be used for the construction of a R&D and quality control center project, 41.627 million yuan will be used for the construction of an informatization project, and 190 million yuan will be used to supplement working capital.
In the second A-share IPO, the company plans to raise the same amount and purpose as the first one.
In the third IPO, Liuliufu plans to raise 1.4 billion yuan, of which 682 million yuan will be invested in the marketing network expansion project, 109 million yuan will be used for the construction of the e-commerce platform upgrade project, 268 million yuan will be used for the construction of brand marketing and store comprehensive capacity improvement projects, and 341 million yuan will be used to supplement working capital. The company plans to invest a total of 1.4 billion yuan in these projects, including supplementary liquidity projects, all of which are solved by using the IPO fundraising.
The comparison found that in the third IPO fundraising project, the supplementary liquidity was planned to be used to raise funds increased by about 151 million yuan compared with the previous two times.
And the liquidity of Saturday Fu was originally sufficient.
From 2019 to 2022, the company's net profit attributable to shareholders of the parent company (hereinafter referred to as "net profit") was 403 million yuan, 386 million yuan, 429 million yuan and 583 million yuan respectively, showing a growth trend. During the same period, the company's net operating cash flow was 236 million yuan, 168 million yuan, 496 million yuan and 146 million yuan respectively, all of which were net inflows.
Net profit is on the rise, operating cash flow continues to be net inflow, why should Liufu use fundraising to supplement liquidity? At the end of 2019, the company's monetary funds were 314 million yuan, and interest-bearing liabilities were 20 million yuan. The comparison found that the company was well funded.
Frequent large-scale cash dividends may explain the need to use fundraising to supplement liquidity.
In 2017, Liuliufu distributed dividends of 57 million yuan to shareholders, and in 2018, on the eve of the first IPO and the introduction of external institutions, the company distributed dividends of about 174 million yuan. In 2020 and 2021, Liuliufu successively distributed dividends of 300 million yuan and 150 million yuan, totaling 450 million yuan.
In these four years, the company paid a total of 681 million yuan in cash dividends.
According to the latest disclosed prospectus, in 2023, the company will pay dividends of more than 300 million yuan.
What is highly questionable is that in March and May this year, Liuliufu successively declared dividends of about 348 million yuan and 297 million yuan, totaling 645 million yuan.
In other words, in the three months before the submission of the statement to the Hong Kong Stock Exchange, Liuliufu paid a surprise dividend of 645 million yuan. At present, Li Weizhu and Li Weipeng directly and indirectly hold 93.69% of the shares of Liuliufu, and the Li Weizhu brothers will share about 604 million yuan in this surprise dividend.
In addition to the previous dividends, the total cash dividends of Liuliufu reached 1.626 billion yuan. The two Li Weizhu brothers received at least 1.523 billion yuan.
Still relying on the franchisee model
Stepping on the shoulders of giants such as "Chow Tai Fook" and "Luk Fook Jewelry", Liufu has grown rapidly and achieved the superiority of latecomers.
According to public information, in 2000, Li Weizhu, who graduated from the marketing major, entered a bank to work. Two years later, Li Weizhu left his job and opened a jewelry setting factory in Shuibei, Shenzhen. In 2004, Li Weipeng and Chen Chuangjin invested in the establishment of Liuliufu Jewelry Co., Ltd. In April 2005, Chen Chuangjin transferred his shareholding to Li Weizhu, and Liuliufu became the company of the Li brothers.
Among the "Chow's" brand in the jewelry industry, Chow Tai Fook was founded in Hong Kong, China in 1929 with the founder named Chow Zhiyuan; Zhou Shengsheng was founded in 1934, and the founder is called Zhou Fangpu. In addition, Luk Fook Jewellery was founded in 1991 by Wong Wai Sheung, whose father ran jewellery stores in Hong Kong and Guangdong.
Li Weizhu's brothers are Chaoshan people, and they are on well-known brands such as "Chow Tai Fook", and Liuzhou Fu has risen rapidly. Unlike Chow Tai Fook's self-operated store-based model, the rapid rise of Chow Tai Fook relies on the franchise model.
According to the prospectus, Liuliufu terminal stores focus on the layout of third- and fourth-tier cities, and offline franchise is the main sales model. From 2021 to 2023, the total number of stores of the company will be 3,764, 4,052 and 4,383 respectively, of which the number of franchised stores will be 3,694, 3,974 and 4,288 respectively, accounting for 98.14%, 98.08% and 97.83% of the total number of stores.
Different from the conventional franchise model, Liuliufu adopts a combination of franchise model and authorized supplier model. Specifically, the company's franchisees can purchase goods from the company's authorized suppliers, and the authorized suppliers and franchisees can settle the payment by themselves, and the company only needs to charge the franchisee a brand usage fee. For Liuliufu, it is just an output brand, which is a typical asset-light operation model.
From 2021 to 2023, the revenue of the franchisee model will account for 59.90%, 52.90%, and 55.40% respectively. Although the proportion of franchisee revenue has decreased, it is still more than 50%.
Under the franchisee model, on the one hand, the scale of the Liuliufu market is expanding rapidly, but on the other hand, the control of Liuliufu over offline stores is weak.
According to the previous prospectus, according to the certification documents issued by the local competent market supervision and management department and the consumer association, the number of complaints against Liuliufu and its subsidiaries, branches and self-operated stores reached 451.
On the Black Cat complaint platform, there have been a total of 2,180 complaints against Liuliufu, involving false publicity, service attitude, product quality and other aspects.
It is worth mentioning that in recent years, the return on equity of Liufu has been declining. From 2021 to 2023, the company's return on equity will be 35.9%, 35.6%, and 31.7%. The company's return on equity (ROE) has declined even more significantly, with 71.20% in 2018 and 45.24%, 35.65%, and 31.65% from 2021 to 2023, respectively.
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