Introduction: The Canadian tycoon couple bravely entered the A-shares, which increased the difficulty of tax and capital verification. Xiaofang Pharmaceutical has successfully passed the meeting and its registration has been effective for more than half a year, but it has not been officially listed so far. Xiaofang Pharmaceutical's asset-liability ratio is less than 20%, there is no bank loan, and there is no need to raise funds. There were low-level errors in the prospectus, the company's actual controller was older, and the secretary of the board of directors was the daughter-in-law, even if there were two senior insurance agents from Guosen Securities, it still exposed the loopholes in the internal audit and internal control mechanism of Xiaofang Pharmaceutical.
The foreign identity of the actual controller increases the difficulty of capital flow and tax verification
Xiaofang Pharmaceutical, which is mainly engaged in kessel and calamine lotion, has a relatively mature market and plans to be listed on the main board of the Shanghai Stock Exchange. It passed in July 2023, and the registration application was submitted on September 1, 2023, and it came into effect on December 19 of the same year. Xiaofang Pharmaceutical's R&D investment intensity is not large, but its sales expenses are several times higher than its R&D expenses, relying on traditional marketing models. Especially in the context of pharmaceutical anti-corruption, Xiaofang Pharmaceutical plans to spend most of the IPO proceeds on marketing system construction and brand promotion, rather than new product development, highlighting its emphasis on marketing. However, this measure does not bring direct economic benefits, but may increase the risk of commercial bribery.
According to public information, Xiaofang Pharmaceutical's R&D expenses in 2021-2022 decreased from 14.19 million yuan to 13.58 million yuan, accounting for 3.5% of total revenue from 3.5% to 3%. The company invests more funds in the construction of sales channels. According to the financial report, Xiaofang Pharmaceutical's sales expenses in 2021 and 2022 will be 61.63 million yuan and 41 million yuan respectively, which is more than three times the R&D expenses.
It should be noted that Xiaofang Pharmaceutical submitted its prospectus in July 2022. Soon after, the regulatory departments launched a large-scale pharmaceutical anti-corruption work, and listed companies in the fields of pharmaceutical sales and circulation and traditional Chinese medicine were the top priorities. According to Xiaofang Pharmaceutical's prospectus (registered version), the company plans to invest 113 million yuan in the IPO of the "marketing system construction and brand promotion project", which is 190% of the fundraising investment of the "new product development project". According to the prospectus, "the construction of the marketing system and the brand promotion project do not directly produce economic effects, and only the new project of the external drug production base has good economic benefits".
According to the prospectus, the "marketing system construction and brand promotion project" is mainly used in four aspects: marketing system construction, marketing data center construction, brand promotion, and marketing personnel salary. However, the amount invested in the construction of the marketing data center is only 3.6 million yuan, accounting for only 3.17% of the total investment of 113 million yuan. In other words, the construction of the company's marketing system is still the traditional marketing system of pharmaceutical enterprises, and it needs to be further moved closer to the guidance advocated by the regulator to improve R&D and digital capabilities and reduce the risk of commercial bribery.
Moreover, the actual controllers of Xiaofang Pharmaceutical, Fang Zhiguang, Lu Aiping and their son Fang Jiachen are all Canadians, which makes the company face stricter tax and capital reviews during the listing process. In addition, the company's asset-liability ratio is low, there is no bank borrowing, and the rationality of the fundraising demand is questioned. Although Xiaofang Pharmaceutical is in line with the blue-chip positioning of the main board, its fundraising amount has been reduced to 832 million yuan, which is far from the original plan, and the company's revenue in the first half of 2023 is only 260 million yuan, which is lower than the revenue threshold after the adjustment of the IPO policy last year. These factors make Xiaofang Pharmaceutical's listing prospects full of uncertainty.
The positioning of the main board blue chips is too pocket-sized, and the fundraising is reasonable or insufficient
Xiaofang Pharmaceutical plans to land on the main board of the Shanghai Stock Exchange, and the registered version of the prospectus discloses that it intends to raise 832 million yuan, which is nearly 40% lower than the amount of funds to be raised in the early declaration draft of 1.343 billion yuan year-on-year. According to the registered version of the prospectus, as a leading company in the field of subdivided pharmaceuticals such as Kaiserlu, it is in line with the positioning of the main board as a "large-cap blue chip". Xiaofang Pharmaceutical's total revenue in 2021 and 2022 will be 400 million yuan and 456 million yuan respectively, and 260 million yuan in the first half of 2023. However, since the fourth quarter of 2023, the China Securities Regulatory Commission and the stock exchange have substantially raised the IPO threshold. Although Xiaofang Pharmaceutical passed the meeting last year and was registered to take effect, it has not yet been listed.
iFinD shows that from July last year to the present, there have been 32 new listed companies on the Shanghai and Shenzhen Stock Exchanges, of which the smallest total revenue in 2022 is Xiaxia Precision (001306. SZ), with a revenue of 517 million yuan in 2022, followed by Zhongchen Technology (603275.SH), with a total revenue of 536 million yuan in 2022, which is 61 million yuan and 80 million yuan higher than Xiaofang Pharmaceutical, respectively. In the first half of 2023, the revenue of the two companies will be 259 million yuan and 306 million yuan respectively, and the total revenue of Xiaofang Pharmaceutical in the first half of 2023 will be 260 million yuan. If Xiaofang Pharmaceutical can land on the main board of the Shanghai Stock Exchange, it may refresh the "new low" revenue threshold of the main board after the adjustment of the IPO policy last year. Therefore, from the perspective of plate positioning, Xiaofang Pharmaceutical's current listing is facing higher uncertainty.
The rationality of Xiaofang Pharmaceutical's fundraising is also not convincing enough. Usually, in order to make up for the funding gap required for rapid development, IPO companies will implement multiple rounds of financing, introduce external shareholders, increase capital and shares, and improve the equity structure before listing. According to the prospectus, Yunjia Co., Ltd., the predecessor of Xiaofang Pharmaceutical, was established in 1993 and has received little equity financing in recent years. Until February 2021, Jiaxing Biyu (Limited Partnership) and Jiaxing Youjia (Limited Partnership) were absorbed as new shareholders, each with a monetary capital of 1.7 million yuan. Jiaxing Biyu and Jiaxing Youjia are both limited partnership funds controlled by Fang Zhiguang and Lu Aiping, the actual controllers; In September 2021, Laobaimin Pharmaceutical Group, Wang Qiong, Ruan Hongxian, etc. respectively transferred 2% of the shares of Yunjia Co., Ltd. held by Hong Kong Yunjia for 32 million yuan, and Guosen Capital, a subsidiary of Guosen Securities, acquired 2% of the shares of Yunjia Co., Ltd. held by Hong Kong Yunjia for 40 million yuan.
From the perspective of pre-IPO equity financing, Xiaofang Pharmaceutical's capital needs are not very urgent. According to the prospectus, the company's asset-liability ratio continued to decline during the reporting period, and as of the end of 2022, the company's asset-liability ratio was only 19.63%. The prospectus also shows that "the company does not have interest-bearing liabilities related to financing activities such as bank loans, so the company's solvency is stable and the financial risk is small". In other words, Xiaofang Pharmaceutical has more room for expansion through bank loans and other liabilities.
There were low-level errors in the prospectus, and the elderly chairman and daughter-in-law of the board of directors tortured the risk control compliance process
What is even more worrying is that the low-level errors in Xiaofang Pharmaceutical's prospectus have exposed loopholes in the company's internal review process, and also reflect the negligence of the sponsor Guosen Securities in compliance review. The advanced age of Chairman Fang Zhiguang and his daughter-in-law Luo Xiaoxu's three important positions have further raised questions about the effectiveness of the company's internal supervision mechanism. Although Guosen Securities dispatched senior insurance agents Chen Zhenyu and Zhang Qunwei, it failed to prevent the low-level mistakes in the prospectus, exposing the negligence of the professional team in the implementation of the project.
The prospectus (registered version) shows that there are low-level errors in the 113 million yuan "marketing system construction and brand promotion project", and the project plans to invest 63.6 million yuan in the construction of the marketing system, 60 million yuan in the salary of marketing personnel, 50 million yuan in brand promotion, and 3.6 million yuan in the construction of marketing data center, accounting for 55.99%, 52.82%, 44.01%, and 3.17% respectively, and the total is 176.6 million yuan and 155.99%, far exceeding 113 million yuan. 100% cap.
What is it that makes a low-level mistake something oversight? Careful analysis shows that among the four specific projects, the construction of marketing data center (3.6 million yuan), the salary of marketing personnel (60 million yuan), and brand promotion (50 million yuan) are exactly 113 million yuan. Moreover, the prospectus "construction schedule of fund-raising and investment projects" only listed these three projects, and did not include "marketing system construction". This shows that it is likely that the prospectus writer accidentally miswrote "marketing system construction".
In short, in the core content of the fundraising project, when using the method of addition and subtraction, which is understood by elementary school students, the prospectus made a low-level mistake. It reflects that there are loopholes in the compliance review and process of Xiaofang Pharmaceutical's relevant personnel, the sponsor Guosen Securities Insurance Agency and other project team members.
Some members of Xiaofang's board of directors and management team are older. Fang Zhiguang, chairman and general manager, was born in 1957, and at the age of 67, whether he has enough time and energy to meet the high standards required for the steady operation of listed companies may be questioned. Luo Xiaoxu, the secretary of the board of directors, deputy general manager and the person in charge of finance of the company, was born in 1989, but it remains to be seen whether she can meet the time and energy requirements required for the three key positions.
More importantly, Luo Xiaoxu is the daughter-in-law of the chairman and general manager Fang Zhiguang and the spouse of the director Fang Jiachen.
According to the prospectus, Guosen Securities' project insurance agents are Chen Zhenyu and Zhang Qunwei. According to the official website of the Securities Association of China, Chen Zhenyu joined Guosen Securities in 2010 and is one of the company's most experienced insurance agents. Zhang Qunwei joined Guosen Securities in 2004 and is the oldest group of insurance agents with A-share qualifications, but the two made low-level mistakes, which should not be.
There are differences in the number of social security contributors, and the high growth rate of some fist products may be difficult to sustain
The discrepancy in the disclosure of the number of social security contributors of Xiaofang Pharmaceutical has also attracted attention, and the number of insured people shown in the prospectus far exceeds the data of the enterprise credit information publicity system. The company explained that the failure of some employees to pay social security does not affect the listing, but the reasons behind this discrepancy still need to be investigated in depth. In addition, zinc oxide ointment, one of the company's flagship products, although sales have grown rapidly in recent years, with the continuous decline in the number of newborns in mainland China, its market prospects and the sustainability of revenue growth are in doubt.
According to the national enterprise credit information publicity system, the number of insured people in the basic pension insurance for urban employees disclosed in Xiaofang Pharmaceutical's 2022 annual report is 223, which is quite different from the prospectus and annual report. According to the prospectus, as of the end of 2022, Xiaofang Pharmaceutical has more than 500 employees and 471 people who have paid social security, which is more than twice the number disclosed in the enterprise credit information publicity system. The prospectus explained that during the reporting period, some employees of Xiaofang Pharmaceutical did not pay social security and provident fund, but it did not constitute a substantial obstacle to the listing. So what exactly is it that causes such a big difference? It may be necessary to make a more detailed explanation.
According to the prospectus, the company's main products include caesare, glycerin enema, calamine lotion, zinc oxide ointment, etc., and the compound growth rate of zinc oxide ointment from 2020 to 2022 is as high as 50.68%. Zinc oxide ointment is mainly used for the treatment of dermatitis, eczema, prickly heat and mild small skin ulcers, and is often used as an infant medicine. According to the prospectus, zinc oxide ointment has a good effect on the treatment of neonatal diaper dermatitis, with a market share of 74.93% in 2022, "With the continuous improvement of consumers' awareness of product functions, the market size of zinc oxide ointment has increased significantly, and the company's sales revenue and sales price have increased steadily." ”
However, in recent years, the fertility rate in mainland China has continued to decline, and the number of babies born has been decreasing year by year. According to data from the Bureau of Statistics, from 2021 to 2022, the number of births in mainland China fell from 10.62 million to 9.56 million, and fell further to 9.02 million last year, a new low in decades. Zinc oxide ointment, one of Xiaofang Pharmaceutical's flagship products, has seen rapid revenue growth in the past few years, much faster than the growth rate of newborns, which is not easy. With the rapid decrease in newborns in recent years, the market prospect of zinc oxide ointment has shrinking pressure, and there are great doubts about whether its revenue growth can be sustained.
Xiaofang Pharmaceutical's path to listing is full of uncertainties, such as the mismatch between its blue-chip positioning and its actual scale, the weakness of its internal control mechanism, the low-level errors in its prospectus, and the uncertainty of its product market prospects, all of which cast a shadow on the company's future development.
Financial Appraisal Agency