Jiusheng Electric Chong IPO

With the continuous deepening of the national “One Belt One Road” policy, the urbanization rate has steadily increased, and the scale of the wire and cable industry has gradually expanded. A few days ago, Jiusheng Electric Co., Ltd. (hereinafter referred to as Jiusheng Electric) GEM listing prospectus was accepted by the Shenzhen Stock Exchange.

Jiusheng Electric Chong IPO

In this IPO, Jiusheng Electric intends to issue no more than 40.412 million shares and raise funds of 468 million yuan, of which 268 million yuan will be used for the annual production of 12,000km of inorganic insulated cables and the annual production of 600km oil well heating cable projects, and the remaining 200 million yuan will be used to supplement Working capital.

Researchers of “Investment Times” consulted the company’s prospectus and noticed that Jiusheng Electric’s products are mainly used in infrastructure construction, real estate, power, transportation and other industries. Product demand is affected by factors such as macroeconomics, national industrial policies, and cyclical changes in downstream industries. Larger.

From 2017 to 2019 and the first half of 2020 (hereinafter referred to as the reporting period), the company’s operating income and net profit have shown a declining year-on-year growth rate, which is mainly due to the decline in sales and revenue of products mineral insulated cables and plastic insulated cables. At the same time, its debt repayment indicators are weaker than comparable companies in the same period, and liquidity is also subject to certain risks. It is worth noting that the relationship between the company and supplier Jiuli Electric has also triggered many inquiries from the Shenzhen Stock Exchange.

Sales and revenue of major products declined

According to the prospectus, Jiusheng Electric was established in May 2004, and its main business is the research and development, production and sales of fire-resistant special cables and power cables. The company’s registered capital is 121 million yuan. Huzhou Dike Industrial Investment Co., Ltd. holds 57.7% of Jiusheng Electric’s shares and is the company’s controlling shareholder. The actual controller of the company is Zhang Jianhua, who controls 67.56% of Jiusheng Electric through direct and indirect methods.

During the reporting period, Jiusheng Electric’s operating income was 1.012 billion yuan, 1.231 billion yuan, 1.256 billion yuan, and 519 million yuan. The year-on-year growth rates in 2018 and 2019 were 21.64% and 2.03%, respectively, and the growth rate dropped by nearly 20 percentage points; Net profits were 19.37115 million yuan, 63.784 million yuan, 82.5132 million yuan, and 34,618,100 yuan respectively. In 2018, the year-on-year growth rate was 229.27%, while the growth rate in 2019 fell to 29.36%, and the profit growth rate declined significantly.

“Investment Times” researcher checked the company’s prospectus and found that Jiusheng Electric’s products are mainly divided into mineral insulated cables, inorganic mineral insulated metal sheathed cables, plastic insulated cables, and power cables. During the reporting period, the sales revenue of mineral insulated cables and plastic insulated cables accounted for 76.73%, 68.49%, 56.59% and 56.96% of the total revenue of the main business, respectively. They are the company’s main sales products, but starting from 2019 , Both have seen a decline in sales and revenue.

In 2019, the company’s mineral insulated cable sales were 6337.44KM, a decrease of 1041.99KM compared with 2018, and sales fell by 14.12%. Sales revenue also decreased from 459 million yuan in 2018 to 394 million yuan, and revenue fell by 14.1%; sales of plastic insulated cables were 6219.49KM, a decrease of 1201.43KM compared with 2018, sales fell 19.32%, sales revenue also decreased from 364 million yuan in 2018 to 302 million yuan, and revenue fell 16.93%.

In response to the decline in sales of major products and sales revenue, Jiusheng Electric explained in the prospectus that it was mainly due to the high utilization rate of mineral insulated cables in 2018. The company abandoned relatively low-priced customers such as China Resources Land, making minerals in 2019 The sales of insulated cables fell more.

The production equipment involved in the production process of plastic insulated cables such as wire drawing and stranding is common to inorganic mineral insulated metal sheathed cables. In 2019, the company adjusted its product structure and reduced the sales proportion of plastic insulated cables. The equipment was transformed and used to produce inorganic mineral insulated metal sheathed cables, which correspondingly increased the business scale of inorganic mineral insulated metal sheathed cables. Therefore, the revenue of plastic insulated cables fell more in 2019.

Product structure of Jiusheng Electric’s main business income

 

Data source: company prospectus

Accounts receivable turnover rate is not as good as peers

“Investment Times” researcher noted that at the end of the reporting period, Jiusheng Electric’s accounts receivable were 607 million yuan, 716 million yuan, 768 million yuan, and 788 million yuan, accounting for 72.10% and 72.13 of the current assets at the end of each period, respectively. %, 67.74%, 65.08%, accounting for a relatively high proportion.

Or affected by this, the company’s accounts receivable turnover rate has been declining year by year since 2018. The prospectus data shows that during the reporting period, the company’s accounts receivable turnover rate were 1.67 times/year, 1.69 times/year, 1.54 times/year, and 0.61 times/year, while the average value of this indicator for comparable companies in the same period was 3.02. Times/year, 3.53 times/year, 3.59 times/year and 1.44 times/year. In response to this, Jiusheng Electric said that it was mainly because some of the company’s customers were construction and installation units or real estate customers. Due to the economic slowdown and the payment characteristics of the industry, the payment cycle was relatively long.

Since the company’s wire and cable industry is a capital-intensive industry, a large amount of capital support is required for production and operation turnover and R&D. Generally, the collection period of upstream suppliers is significantly shorter than that of downstream customers, which is further increased. Increase the demand for funds of industry enterprises. During the reporting period, Jiusheng Electric’s current ratios were 1.08, 1.14, 1.23, and 1.24, quick ratios were 0.98, 1.06, 1.10, and 1.09, and asset-liability ratios (parent company) were 67.15%, 65.50%, 62.54%, and 63.72, respectively. %, the debt repayment indicators are weaker than the average level of comparable companies in the same industry.

In response to the CSRC’s inquiry, Jiusheng Electric also stated that the company’s financing channels are relatively single, the financial strength and financing capabilities are relatively weaker than comparable companies in the same industry, the debt financing scale is relatively high, and there is a risk of tight liquidity.

On the one hand, tight liquidity will make the company’s financial expenses relatively high, affecting profitability, on the other hand, it will aggravate the company’s debt repayment risk. If the company has a liquidity crisis such as its inability to repay bank loans, inability to pay suppliers or employee salaries, it will have a significant adverse impact on its ability to continue operations.

Jiusheng Electric’s main debt repayment indicators

 

Data source: company prospectus

Supplier Relations Inquiry

It is worth noting that during the reporting period, Huzhou Jiuli Electric Material Technology Development Co., Ltd. (hereinafter referred to as Jiuli Electric) was the top five suppliers of Jiusheng Electric, and the main purchased products were copper materials. From 2017 to 2019, the purchase amount of Jiuli Electric increased year by year to 178 million yuan, 258 million yuan, and 384 million yuan, accounting for 19.96%, 25.29%, and 36.77% of the current purchases.

According to data, Jiusheng Electric’s director Shen Weimin, director Zhou Moon, and director and deputy general manager Zhang Shuirong’s spouse Shen Xiangmei hold 1.32%, 0.45% and 1.29% of Jiuli Group’s shares, respectively. Zhou Moon and Zhang Shuirong once served in Jiuli Group. In addition, in 2018, the company issued 5 funds totaling 20 million yuan to Jiuli Electric. Directors Gan Meilin, Zhou Moon, Shen Weimin and Jiuli Group and its related parties have fund exchanges, mainly due to fund borrowing and loan payment. And equity transfer payments.

In this regard, the Shenzhen Stock Exchange asked Jiusheng Electric to explain its relationship with its supplier Jiuli Electric and whether there is an arrangement for costs and benefits in both inquiries.

Jiusheng Electric replied that the capital exchanges between director Gan Meilin and Jiuli Group and its controlled companies and key personnel were mainly due to the fact that Xideng Gaoke was originally a company controlled by Ganmeilin and was acquired by Jiuli Group in early 2019. Before 2019, the exchanges between Ganmeilin and Xiandeng Hi-Tech belonged to the normal capital exchanges between it and the enterprises actually controlled by it.

The capital exchanges between director Zhou Yueliang and Zhou Zhijiang were mainly formed by transferring part of Jiuli Group’s equity through Zhejiang Equity Exchange Center due to Zhou Moon’s personal financial needs; the funds between director Shen Weimin and Jiuli Group The transactions are mainly Shen Weimin’s personal fund borrowing, and the funds are mainly used for securities investment in the secondary market. According to the loan certificate provided by it, the aforementioned loan period is 2 months, the loan interest is 1% per month, and all the equity of Jiusheng Electric, Jiuli Group and all other personal assets held by Shen Weimin are used as guarantee. The loan has been paid off as agreed. , The above guarantee responsibility has been released.

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