Introduction: Hong Kong film and television superstar Andy Lau has become the spokesperson of Montien Home Furnishing Products with an annual remuneration of more than 10 million yuan since 2015. However, with the acceleration of the pace of Montien Home's IPO, this expensive star spokesperson fee may also be fogged up with Montien Home's demand for "beautification" of performance in financial statements.
This article was first published exclusively by Koukounews
Author: Chen Yuchuan @ Beijing
Editor: Zhai Rui @ Beijing
While Evergrande Real Estate is experiencing an unprecedented major impact due to a huge capital crisis, another company that has publicly claimed to have had many years of engineering customer cooperation with it is also ushering in a critical time window since its inception.
On October 28, 2021, at the upcoming 116th IPO review meeting of the 18th Issuance and Review Committee of the China Securities Regulatory Commission, the proposed IPO applications of the two companies were tried as agreed, and the first enterprise to enter the door of the NDRC on the same day was Montien Home Furnishing Group Co., Ltd. (hereinafter referred to as "Montien Home").
Mengtian Home is the company that "emphasized" the relationship with Evergrande Real Estate in the IPO filing materials earlier.
As early as the beginning of June 2020, when the IPO application of Montien Home was officially submitted to the CSRC and accepted, it revealed its close cooperation with Evergrande Real Estate, which had not yet erupted into a debt crisis, in the public prospectus filing.
According to public information, Mengtian Home is mainly engaged in the design, research and development, production and sales of customized wooden furniture such as wooden doors, wall panels, cabinets, etc. This IPO, which plans to be listed on the main board of the Shanghai Stock Exchange, issued no more than 55.36 million shares to raise 980 million funds to invest in the "annual output of 370,000 sets of flat doors, 90,000 sets of personalized customized cabinet technical transformation", "intelligent warehousing center construction", "brand channel construction" and "information construction" four major projects and supplementary working capital.
As a furniture manufacturing enterprise, the rise and fall of montien home development is obviously closely related to the development trend of China's real estate industry, the past with Evergrande real estate and other real estate leaders for many years of cooperation, naturally will become a chip for montien home capital operation and even attract investors' attention, but with the prominence of evergrande real estate crisis, how to implement the specific cooperation between montien home Evergrande real estate, what kind of impact will it have on it, It may become a major uncertainty factor to be seen in the future development of Montien Home and its capital operation such as this IPO.
However, during its IPO reporting period, the soaring performance was regarded by the outside world as the biggest "confidence" of Montien Home's impact on the IPO.
According to the IPO prospectus (filing draft) of Montien Home, during the reporting period from 2017 to 2019, although its main revenue continued to decline, and the deduction of non-net profit in 2017 and 2018 was not satisfactory to exceed 80 million, in 2019, under the premise that there was almost no growth in revenue, its deduction of non-net profit rose by 121.4% year-on-year, rising to a level of more than 176 million in one fell swoop.
The abnormal fluctuations in performance have naturally aroused questions from many parties, including from the regulatory level.
What is the rationality of Montien Home, which has been below the industry average for its comprehensive gross profit margin, in the sudden outbreak in 2019? Is it sustainable?
For the "change" in 2019 performance, Montien Home said that the increase in operating gross profit was mainly due to "the company's continuous enrichment of the simple luxury wooden door product series" and "the decline in expenses during the period".
The products with higher gross profit margins of the former led to an increase in gross profit margins, while the expenses during the period, mainly the reduction of advertising expenses, saved tens of millions of costs.
When it comes to the advertising of Montien Home, its spokesperson fee has always been an important component, and Hong Kong film and television superstar Andy Lau has become its product spokesperson since 2015 with an annual remuneration of more than 10 million yuan.
However, with the acceleration of the pace of Montien Home's IPO, this expensive star spokesperson fee may also be fogged up by Montien Home's demand for "beautification" of performance in financial statements.
1) The "abnormal" fundamentals of Evergrande's many-year partners
For the specific cooperation model with Evergrande Real Estate, Montien Home furnishing has been mentioned in the prospectus with the sentence "has established a cooperative relationship with engineering customers for many years".
As the first real estate enterprise mentioned by Montien Home in the IPO filing materials, the specific cooperation projects between it and Evergrande Real Estate and whether there are agreements and exchanges have to attract attention with the sudden "thunder" of Evergrande Real Estate in this autumn.
"Annual output of 370,000 sets of flat doors, 90,000 sets of personalized customized cabinet technical transformation project", is the first major project of Montien Home's IPO fundraising, and nearly half of the funds will be invested here.
In the relevant materials submitted by Montien Home to the CSRC, when demonstrating the feasibility of the implementation of the above-mentioned technical transformation projects, it frankly said that "the company has established many years of cooperative relations with well-known domestic real estate developers such as Evergrande Real Estate and Country Garden; after preliminary negotiations, the company has signed a preliminary flat door business cooperation agreement with some well-known real estate developers".
"The company intends to use the raised funds to build an annual output of 370,000 sets of flat door projects, this type of products mainly focus on the fine decoration market, in the face of real estate developers and engineering companies", Mengtian Home continued, "residential fine decoration is the trend of the times, engineering channels have become an important driving force for the growth of the custom home furnishing industry, and real estate companies to build strategic cooperative relations, the development of engineering business has become a key factor in catalyzing custom home furnishing enterprises to seize market share."
Then, with the recent outbreak of the "crisis" of Evergrande Real Estate, the object of "many years of engineering customer cooperation" regarded by Montien Home as the first is facing its own difficult situation, and the strategic adjustment and contraction of Evergrande Real Estate in the business has become almost inevitable.
Under this circumstance, what kind of impact Montien Home will suffer, although it is difficult to judge only based on the information disclosed by it, but the uncertainty is a fact.
"Regulators have paid more attention to the proposed IPO companies involving Evergrande's real estate-related businesses in the early stage." An intermediary person close to the regulator revealed to The Treasury News that as early as August this year, when the signs of the Evergrande real estate crisis loomed, the regulator issued a letter to a proposed IPO company that was in the upstream of Evergrande Real Estate and had cooperated with it for many years to inquire about the relevant cooperation matters between it and Evergrande Real Estate and the provision of accounts receivable.
"As a partner of Evergrande Real Estate for many years, according to its not detailed disclosure, Evergrande Real Estate may also play an important role in the development of its fundraising projects, so it is worth asking whether Montien Home IPO should further explain the details of its cooperation with Evergrande Real Estate to investors or regulators and predict its impact." The above-mentioned intermediary person believes.
Although there is a layer of haze cast by the Evergrande crisis on the development of Montien Home, it has to be admitted that to a certain extent, the performance of Montien Home in the reporting period of this IPO is eye-catching, especially in 2019, there was a year-on-year doubling of non-net profit growth, which undoubtedly laid a solid foundation for the smooth customs clearance of its IPO, but also, in the case of continuous decline in operating income, comparable enterprise gross profit margins have not fluctuated significantly under the current situation of industry prosperity, Montien Home in 2019 "Thriving" has to make people suspicious.
According to the financial data of Montien Home, between 2017 and 2019, its operating income was 1.48 billion, 1.344 billion and 1.348 billion, respectively, of which the main business income was 1.473 billion, respectively. 1.315 billion and 1.313 billion, all declined for three consecutive years, but their corresponding net profit after deduction of non-deductions increased against the trend compared with revenue, from 68.8996 million in 2017 to 79.6989 million in 2018, and then in 2019, it soared to 176 million in one step, an increase of more than 120% year-on-year.
On the one hand, the decline in the main revenue, on the other hand, the sharp increase in net profit after deducting non-deductions, obviously, the comprehensive gross profit margin of Montien Home has exploded in 2019.
Montien Home explained that "the increase in operating gross profit is mainly due to the company's continuous enrichment of the simple and luxurious wooden door product series, expanding the cabinet and wall panels, making the gross profit margin of the main products higher, and with the increase in its sales proportion, driving the continuous improvement of business gross profit."
However, the strange thing is that between 2017 and 2019, among the comparable listed companies in the same industry, none of the companies' gross profit margins have experienced abnormal fluctuations like Dream home, and several listed companies in the same industry have not only not seen significant fluctuations in gross profit margins in the three years, but also showed a slight slowdown and narrowing trend.
According to public data, the average comprehensive gross profit margin of listed companies belonging to the same industry between 2017 and 2019 was 35.89%, 36.61% and 35.98%, respectively, while the comprehensive gross profit margin of Montien Home was significantly lower than the average in 2017 with 27.88%, and gradually increased to 32.75% in 2018 with the general growth of the industry, so far, its comprehensive gross profit margin is still far behind the industry average, however, surprisingly, in 2019, At a time when the gross profit margin of the entire industry was contracting year-on-year, its comprehensive gross profit margin suddenly increased to 38.25%, that is, in just over two years, the comprehensive gross profit margin of Montien Home increased by more than 10 percentage points against the industry.
Further study of the specific contribution distribution of Montien Home's gross profit margin during the reporting period, it is not difficult to find that the cause of this is the "abnormality" of the gross profit margin of the dealer channel.
According to the financial news, the sales model of Montien Home is divided into three types, in addition to the dealer model, there are also home improvement company models and bulk engineering models.
During the IPO reporting period of Montien Home from 2017 to 2019, whether it was the home improvement company model or the bulk engineering model, the gross profit margin of Montien home product sales basically did not fluctuate significantly, of which, in the past three years, the gross profit margin of home improvement company channels was 21.43%, 24.66% and 25.53%, respectively, and the bulk engineering business was a one-time transaction directly facing the terminal, and the gross profit margin had been higher, 44.28%, 44.84% and 44.36% respectively.
The above data can be seen that in 2019, whether it is the sales model of home improvement companies or the business model of bulk engineering, its gross profit margin is relatively stable and there is no explosive growth.
However, in terms of dealer channels, between 2017 and 2019, its gross profit margin increased from 27.53% to 31.85%, and finally reached 37.07% in 2019.
As mentioned above, the performance changes of Montien Home during the reporting period, especially in 2019, naturally aroused the doubts and concerns of regulators.
In the inquiry letter issued by the CSRC on the IPO of Montien Home, not only because of the continuous decline in its main revenue during the reporting period, it was required to "supplement the listing of the sales volume and average unit price of each major product during the reporting period, compare and analyze the difference between the price and change trend of each major product and similar products in the market, explain whether there are major differences, and analyze the reasons and rationality"; Whether it is consistent with the situation of comparable companies in the same industry", it is also directly pointed out that the gross profit margin of The main business and main products of Montien Home during the reporting period showed an upward trend, and the increase was large, and it is necessary to "combine the market competition, the company's business strategy, product pricing adjustment, process transformation and other factors, itemize the rationality of the unit product price and unit product cost fluctuations of the subdivided products such as door leaf, and quantitatively analyze the reasons and rationality of the continuous increase in the gross profit margin and comprehensive gross profit margin of each product." Explain whether the gross profit margin increase is sustainable", and "combine the product technical level, product pricing, cost composition, product market positioning, brand competitiveness, etc., to further analyze in detail the reasons why the gross profit margin is inconsistent with the trend of similar products of comparable companies"; "Supplement the disclosure of the reasons for the large difference in gross profit margin under different sales models, and explain the reasons and rationality of the gross profit margin growth under the distribution model during the reporting period is much greater than that of other models".
However, assuming that in 2019, Montien Home did achieve a sharp increase in gross profit margin by adjusting products, but whether its profitability to a high level can be sustained, the relevant financial data in 2020 has laid a big question mark for this.
The financial data from Montien Home also shows that in the first half of 2020, the comprehensive gross profit margin of Montien Home has dropped from 38.25% in 2019 to 34.84%, lower than the year-on-year industry average of 35.17%.
2) The mystery of Andy Lau's sky-high endorsement fee "discount"
In fact, the substantial increase in gross profit margin is not enough to support the sharp increase in the performance of Montien Home in the most recent year before the IPO was filed.
The decline in expenses during the period, especially the sharp adjustment of advertising expenses in 2019, has reduced the cost of Montien Home by at least nearly 33 million.
According to the public financial data of Montien Home, among them, in terms of celebrity spokesperson fees alone, at least more than 13 million expenses were reduced for montien home in 2018 and 2019.
The product spokesperson of Montien Home is the well-known Hong Kong superstar Andy Lau. With the declaration of the IPO of Montien Home, the huge business endorsement fee of the Legendary Chinese actor was also exposed.
The endorsement cooperation between Montien Home and Andy Lau began in 2015, and In the first two years, Andy Lau's endorsement fee Montien Home was not announced, but in the initial version of the prospectus submitted by Montien Home to the CSRC, and Andy Lau's annual endorsement fee between 2017 and 2019 was disclosed.
According to the IPO prospectus originally released by Montien Home, in 2017, Andy Lau's endorsement fee was 17.1777 million yuan, but in 2018, Andy Lau's annual endorsement fee was significantly reduced to 10.529 million yuan, and in 2019, Andy Lau's endorsement fee was 11.8439 million yuan.
Casually, this is not the detailed price of the first celebrity endorsement fee announced due to the IPO of the company.
Ganyuan Food, which went public in August 2020, announced the endorsement price of Huang Xiaoming, a first-line star in the mainland, as the spokesperson for its products, at 12 million yuan in two years during its IPO process.
Back to Andy Lau, who spoke for Montien Home, why is there such a big gap between his endorsement fees in 2018 and 2019 and 2017? Is "Liu Tianwang" willing to drop his value directly? What is more coincidental is that the large endorsement discount just started in 2018 after the official launch of the Montien Home IPO.
Montien Home explained that "in 2018, the company's advertising and publicity expenses decreased by 9.1238 million yuan compared with 2017, mainly due to Andy Lau's continued cooperation with the company and giving the company a certain discount.".
However, with the emergence of an endorsement contract signed by Montien Home and Andy Lau Economics Company in 2019, the doubts behind the huge cost reduction in montien home in the late reporting period have been reborn.
In the financial statements disclosed by Montien Home, Andy Lau's endorsement fee in 2019 was written in black and white of 11.8439 million yuan, which was a 40% discount with the annual endorsement fee of up to 17.1777 million yuan in 2017, and this alone saved nearly 7 million yuan for Montien Home in the financial statements.
However, in the above-mentioned image endorsement contract signed by Montien Home and Andy Lau Economic Company Hengtai Huanyu Co., Ltd. in 2019, the endorsement fee agreed by the two parties was 18 million yuan.
And in the declaration materials submitted to the CSRC, the unpublished contract text notes that more than 18 million yuan of endorsement fees have been paid.
"Andy Lau's current cost of commercial endorsement a year is indeed around 18 million -20 million, which is its normal price, years of cooperation, may give a certain friendship price, if it has reached 17 million in 2017, the next few years to renew the contract without price increases or give a slight discount, is already a relatively large concession, if it is required to give a 60% discount endorsement discount, this is a bit out of line with industry logic." A senior agent who has been working in the film and television industry for many years told Knock financial news.
Then whether the endorsement fee of 18 million yuan has the so-called "yin and yang contract" in the film and television circle before, it is still difficult to determine.
"It is possible that the company pays the endorsement fee to the star through the multi-party entity in the form of a split-share fee, so that only part of the endorsement fee is presented in the accounts of one of the company's entities." The senior economist said.
Obviously, what is the reason why the actual endorsement contract agreement and the actual payment of the endorsement fee are inconsistent with the disclosure of the prospectus of Montien Home? Does Montien Home have a situation of in vitro payment of endorsement fees in order to make low costs? I am afraid that It is also necessary for Montien Home to make further explanations for this.
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