Introduction: This wave of GEM listing materials drawdown, which began in 2022, hit a climax after June this year. In just 4 months, 72 companies that intend to list on GEM have been swept by this wave. Most of the withdrawal materials have unstable performance, and most of the non-net profits are around 50 million to 60 million, and it is rare for them to have a net profit of over 100 million yuan. This is true. Yongxing Dongrun can be regarded as one of the most profitable IPO "escapers" since the opening of the GEM registration system .
This article was exclusively original and first released by Koukou Finance (ID: koukouipo)
Author: Chen Yuchuan@Beijing
Editor: Zhai Rui@Beijing
Following Skyworth Electric Co., Ltd. (hereinafter referred to as "Skyworth Electric") ended its GEM IPO plan by withdrawing the application on September 30, another company with a net profit of over 100 million also announced its GEM listing journey in the same way.
On October 14, 2022, the official website of the Shenzhen Stock Exchange officially issued an announcement announcing the decision to terminate the review of the listing of Yongxing Dongrun Clothing Co., Ltd. (hereinafter referred to as "Yongxing Dongrun") on the GEM.
"On October 13, 2022, your company submitted to our firm the application for withdrawing the application documents for the initial public offering and listing on the GEM" and stated in the above-mentioned termination decision issued by the Shenzhen Stock Exchange that due to the fact that Yongxing Dongrun voluntarily withdraws the IPO application, according to the relevant provisions of Article 67 of the "Shenzhen Stock Exchange GEM Stock Issuance and Listing Review Rules", it was decided to terminate the review of Yongxing Dongrun IPO.
This is already the second GEM listed company, including Skyworth Electric, with a net profit of over 100 million yuan, chose to take the initiative to "escape orders".
Compared with Skyworth Electric's latest issue, the net profit of 123 million yuan in 2021, Yongxing Dongrun's profitability is better. Whether it is its non-recurring net profit recorded in mid-2021, which has exceeded 225 million yuan and the gross profit margin of 50.88% in the same year, it makes Yongxing Dongrun's fundamentals stand out as high as other companies in the GEM's IPO team at the same time, and it also makes the reason behind its sudden announcement of voluntary termination of the IPO this time introduces speculation.
According to statistics from Koukou Finance, since 2022, the GEM IPO withdrawal has been raging and there is still a trend of continuing to this day.
In the past nine months, 112 companies have voluntarily withdrawn their orders by actively withdrawing their materials before being reviewed by the GEM Listing Committee. This data is close to half of the number of companies that have voluntarily withdrawn their IPO materials since the GEM registration system has been officially implemented in June 2010.
This wave of GEM listing materials drawdown, which began in 2022, hit a climax after June this year. In just 4 months, 72 companies that intend to list on GEM have been swept by this wave.
"Most of the withdrawal materials have unstable performance, and the vast majority of non-net profits are around 50 million to 60 million, and it is rare for them to reach a net profit of over 100 million." , a senior sponsor representative from a Shanghai-listed investment banking business, told KouKoucai News. This is true for
. Yongxing Dongrun can be regarded as one of the most profitable IPO "escape orders" since the opening of the GEM registration system.
Similarly, with the support of high profits and high profitability, Yongxing Dongrun's IPO fundraising plan is also quite expensive.
According to public information, as a mid-to-high-end children's clothing operation company that divides its own industry into "wholesale industry", Yongxing Dongrun originally wanted to issue no more than 70.1 million shares through this IPO to raise 1.879 billion yuan of funds to invest in three major projects such as "channel and brand expansion", "informatization", and "comprehensive center construction" and supplement working capital.The financing amount of
also exceeded the 1.848 billion issuance financing plan of another project to be listed on the GEM that was also voluntarily terminated in June 2022, making Yongxing Dongrun the largest financing scale among the "escape orders" in the past year.
"In the investment banking circle, the simplest important criterion for measuring the quality of a project is to look at its revenue and net profit after deducting non-operating items. For companies that intend to IPO on the GEM, if their net profit after deducting non-operating items can continuously record a scale of over 100 million, then it will be considered that the probability of successful listing will be quite high." The above-mentioned senior sponsor representative said that in the past GEM IPO review, it is rare for projects that have rejected non-operating items to reach over 100 million yuan and have been rejected, unless the company has major loopholes in its governance structure, or it is difficult to meet the positioning of the GEM sector.
So, for Yongxing Dongrun, whose non-net profit has exceeded 200 million yuan and whose gross profit margin is as high as more than 50%, it will eventually have to face the result of the failure of the GEM IPO?
"Strong profitability and high profits, although it can increase the probability of IPO success, judging from the recent trend of listing review of GEM, the regulatory authorities are stepping closer to clarify and strengthen the characterization of the "three innovations and four innovations" of the GEM, and require ensuring that companies that meet the board-oriented listing." Recently, an insider close to the regulatory authorities revealed to Koukoucai News that whether it meets the attribute "requirements" of the GEM attributes will be a key factor in the formation of a "one-vote veto" of the result of the GEM IPO. Including the previous Skyworth Electric Appliances IPO, the end of Yongxing Dongrun's listing may be related to its incompatibility with the GEM's board-oriented positioning requirements for "growth innovative and entrepreneurial enterprises".
As Yongxing Dongrun's IPO failed by withdrawing materials, it also made GF Securities , which served as the sponsor for its listing, had to face the continuous failure of two projects sponsored by it and wanted to list on the GEM in the past half month.
According to data released by the Shenzhen Stock Exchange, from September 2022 to the present, a total of 15 companies planning to withdraw their applications have become "desergeants" by actively withdrawing their applications.
On September 28, 2022, on the eve of the trial of the upcoming meeting of the GEM Listing Committee, Chengdu Dexin Digital Technology Co., Ltd. (hereinafter referred to as "Dexin Technology") temporarily announced the withdrawal of its IPO application. GF Securities was the one who protected the Dexin Technology IPO.
1) The GEM intends to IPO enterprises with "zero" R&D expenses
may be to highlight its sexual fit with the GEM.
As a mid-to-high-end children's clothing company, Yongxing Dongrun described its main business in this way: "Yongxing Dongrun is a mid-to-high-end children's clothing group integrating product research and development design, supply chain intelligent management, multi-brand operation and digital new retail. It is also an innovator and leader of the Chinese children's clothing collection store model. As a key link and important bridge connecting Chinese consumers with globally renowned brands, the company has become an important partner for globally renowned brands to enter the Chinese children's clothing market."
But in contrast, its business model is actually an original brand that does not have its own, but organizes designers to design, produce and sell themselves in China after obtaining authorization from other brands.
Yongxing Dongrun admitted in the IPO application materials that "the company mainly cooperates with globally renowned brands. After obtaining the brand authorization, it operates brand products in China. The company does not own the trademark ownership of the authorized brands."
More notable is that after obtaining the authorization of some well-known foreign brands, although Yongxing Dongrun designed the clothing itself, he did not produce it himself, but adopted OEM.
"The company mainly purchases finished products from outside, including two forms: OEM procurement and direct procurement." Yongxing Dongrun said, "In the process of conducting business, the company mainly adopts a business strategy focusing on R&D design and channel sales."
According to Yongxing Dongrun, its main indicator of "as a mid-to-high-end children's clothing group integrating product R&D design, supply chain intelligent management, multi-brand operation and digital new retail, the company's business development and business philosophy have obvious innovation, creation and creative characteristics" is reflected in its "R&D design" and "supply chain resources and rich sales channels to continue."
attaches importance to design and creativity. It is the core feature of the company's service to consumers. It is one of the important basis for Yongxing Dongrun to explain to the regulatory authorities that its business is in line with the "three innovations and four new" GEM's positioning.
Yongxing Dongrun said that since its establishment, the company has always adhered to product design innovation, and creative ability is one of the important ways for the company to get close to consumers. Products with novel styles, reliable supply, unique style and localization are more likely to gain the favor of consumers.
In addition, Yongxing Dongrun said that it also "integrated the omni-channel sales system with digital technology" and innovatively adopted the children's clothing collection store model to gather many well-known global brands. In the Rookie multi-brand collection store, the combination of different brands and categories of products systematically presents personalized, diversified and globalized products for consumers, providing multi-level, multi-scenario and diversified comprehensive choices.
"Most clothing companies' core competitiveness is design ability. Adhering to product design innovation is the hardware condition for clothing companies to make a basic living. This does not reflect the innovation of Yongxing Dongrun. Secondly, its so-called omni-channel sales system is also a common practice in the clothing industry. Whether it is the so-called brand collection store or the access to e-commerce platforms, these are common practices in the industry at present." The above-mentioned senior sponsor representative believes that under the current strict definition of the "three innovations and four innovations" attributes of the GEM, these "evidences" of Yongxing Dongrun are obviously more weak.
"The company has advanced management experience and continues to invest in information construction and software development" is an example of Yongxing Dongrun's emphasis on its own "deep integration of new technologies".
But in fact, Yongxing Dongrun’s so-called information construction and software development are mainly based on purchasing mature third-party software.
"It is not that a company engaged in traditional industry production, and can become a high-growth innovative startup company that conforms to the characteristics of 'three innovations and four new' by opening an e-commerce platform and using a third-party development software system in management." The representative of the above-mentioned senior sponsor admitted frankly.
and the language "subjective" description of itself that is not confident in conformity with the "three creations and four innovations", a series of objective data and various details have become a strong proof of its difficulty in conforming with the qualitative performance of the GEM.
In the long run, both the regulatory authorities and the industry’s analysis of the “innovation, creation, and creativity” capabilities of GEM enterprises, R&D expenses and their proportion of main business income have always been an important indicator.
At the end of August this year, in the rumors of the GEM review of the new "red line" in the industry, there was a content about "the compound growth rate of R&D investment during the reporting period shall not be less than 15%, or the total amount shall not be less than 50 million yuan."
does not care about the authenticity of the above review red line, but it also indirectly reflects the importance of the indicators under R&D expenses in determining whether the company meets the attributes of the GEM.
"R&D investment is the guarantee of technological innovation. Without sufficient R&D expense investment, it will be questionable to prove how advanced your technology is and have a considerable position in the industry." The representative of the above-mentioned senior sponsor admitted.
In contrast, Yongxing Dongrun, public data shows that within the three years of its IPO reporting period, that is, from 2019 to 2021, it only had R&D design expenses, which were RMB 36.0278 million, RMB 31.6725 million and RMB 40.9726 million, respectively, accounting for 2.24%, 1.86% and 2.03% of its revenue, respectively, and the proportion has decreased year by year, while R&D expenses are all 0.
Since officially submitting the listing application to the GEM on December 29, 2021, and withdrawing the application to end the IPO on October 14, 2022, in the past ten months, Yongxing Dongrun IPO has experienced two rounds of inquiries from the Shenzhen Stock Exchange, and doubts about whether Yongxing Dongrun meets the GEM's positioning have been mentioned continuously.
"Since the establishment of the company, the company has always adhered to product design innovation. Creative ability is one of the important ways for the company to get close to consumers. The number and revenue contribution of independently designed products have been continuously improved, which is a concrete reflection of the company's creative characteristics of R&D and design." Yongxing Dongrun emphasized in his reply letter to relevant inquiries from the Shenzhen Stock Exchange.
In order to prove its own "three innovations and four innovations", the "design innovation" repeatedly emphasized by Yongxing Dongrun may not pay attention to its own reality as it is so-called.
This can be seen from the list of employees who were encouraged by Yongxing Dongrun during this IPO.
"According to our common sense of the clothing industry and the description of Yongxing Dongrun's IPO application materials, it can also be seen that the R&D and design capabilities of clothing companies are the basis of the core competitiveness of the company. Designers should be the most core technical personnel of clothing companies and a strong manifestation of core competitiveness. According to this logic, when the company conducts equity incentives, in order to retain this core competitive advantage, the proportion of designers should account for a considerable proportion." The above-mentioned senior sponsor representative believes.
However, Yongxing Dongrun's actual operation did not show that it should pay attention to R&D and designers as described.
According to Yongxing Dongrun's IPO application materials, Yongshun Jiarong (Xiamen) Investment Partnership (Limited Partnership) (hereinafter referred to as "Yongshun Jiarong") is its employee shareholding platform.
Yongxing Dongrun said that on January 27, 2021, the board of directors made a resolution to review and pass the "Pre-listing Equity Incentive Management Measures" and agreed to establish Yongshun Jiarong as an employee equity incentive platform. The next day, Yongxing Dongrun held a board meeting and agreed that the company's new registered capital of US$270,439 will be used to implement the employee stock ownership plan. Yongshunjia, as an employee stock ownership platform, subscribed the new registered capital this time, and employees participating in the employee stock ownership plan indirectly subscribed the new registered capital this time by subscribing Yongshun Jiarong's partnership share.
Through the above capital increase, Yongshun Jiarong currently holds 4.62 million shares of Yongxing Dongrun, making it its third largest shareholder.
Industrial and commercial information shows that a total of 44 employees of Yongxing Dongrun have obtained equity incentives through Yongshun Jiarong.
However, according to the comparison of the list of employees who received equity incentives, it was found that among the 44 employees who were valued by Yongxing Dongrun as "equity incentives", except for the regional managers and financial-related persons, most of them are sales business personnel, and only one person related to R&D and design was included in the equity incentive list.
As early as 2020, there was also a company that had a similar business to Yongxing Dongrun that made an IPO listing. The company is a company that mainly deals in jewelry, and also uses R&D and design capabilities as its core competitive advantage, and also uses OEM production. In the end, the company was rejected by the Issuance and Review Committee when it was attended.
According to KouKou Finance News, one of the doubts that has hindered the listing of the company is that a company that claims to be design as its key core competitiveness. When it comes to equity incentives, most of them are channel sales employees, while designers are ignored, which has triggered regulatory authorities to question its rationality and the authenticity of the core technology reflected in this way.
2) The definition of "three innovations and four innovations" on the GEM is becoming stricter
Whether it is the successive listing of Skyworth Electric Appliances with a profit of over 100 million yuan and Yongxing Dongrun, or the slightest signals revealed during the review process of the recent GEM Listing Committee meeting, all signs indicate that the definition review of "three innovations and four innovations" in the GEM IPO review is becoming stricter.
According to KouKou Finance News, in mid-August 2022, the Shenzhen Stock Exchange organized 17 sponsors to hold a work symposium. The meeting introduced the recent progress of related work on how to further adhere to the positioning of the GEM, improve the quality of information disclosure of prospectus, optimize the review of the issuance and listing of the GEM, and ensure the quality of the listed company's entrance. It also had in-depth exchanges with the sponsors and fully listened to opinions and suggestions. It was also at this meeting that the relevant person in charge of the Shenzhen Stock Exchange clearly stated that in the next step, we will study and improve the judgment standards of the "three creations" (innovation, creation, and creativity) of the GEM "four new" (new technologies, new industries, new business forms, and new models) and continue to effectively promote the acceptance and review of all work.
Shortly after the symposium, at the end of August 2022, the Shenzhen Stock Exchange once again interviewed eight "problem" sponsors that were identified as "incomplete performance of their duties" in the issuance and listing of the GEM.
The Shenzhen Stock Exchange stated that the problems that the institution interviewed in the investment banking business of this group of institutions reflected "three inadequate": In addition to "inadequate preparation for issuance and listing" and inadequate diligence and responsibility, the Shenzhen Stock Exchange emphasized that some investment banking institutions have insufficient understanding of the positioning of the GEM: some sponsors do not have a deep understanding of the GEM's main services for innovative growth enterprises, and a few declared companies do not meet the requirements of the GEM's "three innovations" and "four new" requirements, and actively withdraw or rejected during the review.
In recent months, IPO projects that were directly rejected by the GEM Listing Committee meeting have also emerged continuously.
public data shows that as of October 15, 2022, since the launch of the GEM registration system, a total of 25 companies that intend to list on the GEM in more than two years have voted against the application of "not meeting the issuance conditions, listing conditions or information disclosure requirements" by the GEM listing members.
Among them, in August and September 2022 alone, the number of companies rejected by the GEM listed members reached 7.
Among them, in September 2022, the highest single-month veto was rejected by four companies that planned to IPO was rejected.
According to statistics from KouKou Finance News, the regulatory authorities gave different reasons for these 25 companies that failed to pass the GEM registration system under the GEM registration system. However, among the 18 companies that were rejected before July 2022, it is rare that they were rejected because they did not meet the GEM positioning of "three creations and four innovations". Only the Asian Fishing Port IPO project, which was rejected by the Listing Committee on February 18, 2022, was clearly defined as "failing to fully explain its 'three creations and four innovations' characteristics and whether it meets the GEM positioning requirements of growth-oriented innovative and entrepreneurial enterprises."
However, after the time entered August 2022, 7 IPO projects planned to be proposed on the GEM that failed to successfully pass the listing committee meeting were actually judged as "the issuer failed to fully explain its operating performance is growth-oriented, failed to fully explain its "three innovations and four innovations" characteristics, and whether it meets the GEM positioning requirements of growth-oriented innovative entrepreneurial enterprises."
In other words, in the past two months, nearly half of the companies that have been denied the IPO of the GEM failed to go public because they did not meet the positioning requirements of the GEM.
"At present, the regulatory authorities are indeed considering further refining the specific indicators of the GEM's 'three innovations and four innovations'. It is not ruled out that standards will be issued similar to the Science and Technology Innovation Board attribute judgment rules." As early as mid-September 2022, the above-mentioned insider close to the regulatory authorities revealed to KouKoucai News.
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