Just four days after the initial inquiry was issued, Dongguan Sisuo Technology Co., Ltd. (hereinafter referred to as "Sisuo Technology") "lightning" withdrew its IPO application. What is the real reason behind this?
On December 28th last year, the IPO application materials of Sisuo Technology were accepted, aiming to make a sprint for the Growth Enterprise Market (GEM). This is also one of the 8 companies that the GEM has accepted in total since the tightening of IPOs in the second half of last year. On January 22nd this year, Sisuo Technology received the first round of inquiries, and just four days later, Sisuo Technology and the sponsor, Minmetals Securities, applied to withdraw. From acceptance to withdrawal, it was only 29 days, setting a record!
In response, Yicai contacted the contact information of the department responsible for information disclosure and investor relations left by the company in the prospectus. A staff member said that they could not respond for the time being.
The prospectus shows that for this IPO, Sisuo Technology plans to raise 460 million yuan, of which 347 million yuan will be used for the Sisuo high-end connector manufacturing project, 52.565 million yuan will be used for the research and development center construction project, and 60 million yuan will be used to supplement working capital.
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However, there are several actual data points that contradict the original intention of the fundraising, such as whether it is really necessary to continue to increase production capacity when the utilization rate and inventory turnover rate continue to decline? Is it necessary to use 60 million yuan to supplement working capital when holding nearly 100 million yuan in cash?
Post-80s siblings actually control 97.01% of the shares.
The prospectus shows that Sisuo Technology mainly engages in the research and development, production, and sales of connectors and their components, with products mainly applied in the fields of automotive lighting, home appliances, power motors, energy storage batteries, and photovoltaics. According to the application field, the products of Sisuo Technology can be divided into automotive connectors, consumer electronics connectors, industrial control connectors, and new energy connectors. Among them, the sales income of automotive connectors accounts for more than 60% of the main business income.
In December 2008, Li Dafei and Zhao Wenhua established Sisuo Technology as shareholders. However, the two only contributed on behalf of Dong Kun, and the source of funds was provided by Dong Kun.
At that time, Dong Kun believed that it was not conducive to business development for him to visit customers as a shareholder in the early stage of the company's establishment. Therefore, he found his cousin Li Dafei and classmate Zhao Wenhua, and based on the mutual trust between relatives and friends, they held shares on his behalf. In 2013 and 2017, the above proxy holding relationships were dissolved, respectively.
As of the date of signing of the prospectus, there are only 8 shareholders of Sisuo Technology, who are either relatives and friends or subordinates of the company, with no external shareholders.In it, Dong Kun directly holds 64.38% of the shares, being the controlling shareholder, while Dong Fen directly holds 16.57%. Si Xiang Partnership, Si Xin Partnership, and Si Zhong Partnership are employee stock ownership platforms. Dong Kun and Dong Fen are siblings, and together they directly and indirectly control 97.01% of the company's shares. Dong Kun serves as the Chairman and General Manager, and Dong Fen is a director.
Looking at the performance, during the reporting period (from 2020 to June 2023, the same below), Sisuo Technology's operating income was 192 million yuan, 238 million yuan, 310 million yuan, and 155 million yuan, respectively, with net attributable profits of 44.2771 million yuan, 45.5328 million yuan, 75.8875 million yuan, and 32.818 million yuan, respectively.
The main business gross margin was 46.82%, 45.07%, 50.17%, and 50.02%, respectively, while the comprehensive gross margin was 44.83%, 43.55%, 47.47%, and 44.91%, respectively. Relatively speaking, the company's gross margin is higher than that of most comparable listed companies in the same industry and is on par with that of Weifeng Electronics, an A-share connector listed company.
Former Subsidiary Becomes the Second Largest Supplier
In February 2021, Sisuo Technology had acquired Dongguan Yuxi Precision Connector Co., Ltd. (hereinafter referred to as "Yuxi Precision"). The shareholders of Yuxi Precision used 100% of Yuxi Precision's equity to increase their capital in Sisuo Technology, obtaining 15% of Sisuo Technology's equity. Yuxi Precision is mainly engaged in the research and development, production, and sales of electronic connectors and is in the same industry as Sisuo Technology.
However, the prospectus shows that after this acquisition, Sisuo Technology found that the original intention of Yuxi Precision's former shareholders was merely to go public with Sisuo Limited, and they had no clear concept of control between the parent and subsidiary companies, always believing that Yuxi Precision should still be independently managed and operated by them. Therefore, Sisuo Limited has not been able to control Yuxi Precision.
To eliminate the adverse consequences as soon as possible, through mutual agreement, the original shareholders of Yuxi Precision withdrew from Sisuo Technology in the form of capital reduction in September of that year, restoring the status of both parties before Sisuo Technology's acquisition of Yuxi Precision.
However, after the withdrawal, the prospectus shows that: starting from 2021, Yuxi Precision has entered the top three suppliers' list, with a purchase amount of 7.7669 million yuan in the first half of 2023, accounting for 9.68% of the total purchase amount, making it the second-largest supplier.
Necessity of the Fundraising Project
The prospectus shows that for this IPO, Sisuo Technology plans to raise 460 million yuan, of which 347 million yuan will be used for the Sisuo high-end connector manufacturing project, 52.5658 million yuan for the research and development center construction project, and 60 million yuan for supplementary working capital.Regarding the contemplation of the high-end connector intelligent manufacturing project, Contemplation Technology states that it will enhance the company's existing production and manufacturing capabilities, expand the production base area, and add new production equipment, thereby increasing the connector product's order acceptance and service capabilities to adapt to the expansion of the company's current business scale.
However, it is worth noting that, given the current situation of the company, its production capacity has not yet reached saturation, and even the utilization rate of capacity in some segments is decreasing year by year. Is it really necessary to continue increasing production capacity?
Contemplation Technology's Wafer connectors, cable connectors, and other complete sets of products need to go through processes such as stamping, injection molding, and assembly. In the prospectus, Contemplation Technology did not disclose the utilization rate of the assembly process, only stating that some assembly machines are operating at full capacity, while others have a lower utilization rate.
The utilization rate of stamping equipment has been declining year by year, with rates of 112.78%, 120.83%, 80.21%, and 66.07% during the reporting period, with a significant drop in the first half of 2022 and 2023. In response, Contemplation Technology explained that this was due to the company increasing stamping equipment, expanding the number of employees in the stamping department, and increasing production shifts during these two reporting periods. Additionally, after the utilization rate of injection molding equipment reached 101.76% in 2022, it also declined to 92.88% in the first half of 2023.
Moreover, Contemplation Technology's inventory turnover rate is also continuously decreasing. During the reporting period, its inventory turnover rates were 6.19 times/year, 5.05 times/year, 4.39 times/year, and 4.14 times/year, showing a downward trend.
At the same time, in the raised funds, Contemplation Technology plans to use 60 million yuan to replenish working capital. Contemplation Technology states that as the company's business scale expands, the pressure of daily operational capital occupation increases, and replenishing working capital can effectively alleviate this situation. At the same time, replenishing working capital can reduce the asset-liability ratio, improve the company's current ratio and quick ratio, optimize the company's financial structure, and enhance the company's comprehensive competitiveness.
The prospectus shows that from 2020 to 2022, Contemplation Technology has consistently had transactional financial assets of about 20 to 30 million yuan for purchasing financial products or structured deposits. It was not until the end of June 2023, after the maturity and redemption of financial products, that no further purchases were made.
As of the end of June 2023, Contemplation Technology's monetary funds on the books have reached 96.55 million yuan, mainly in the form of bank deposits. While holding a large amount of cash, Contemplation Technology also conducted a cash dividend in 2022, with a dividend amount of 8.19 million yuan.
Furthermore, Contemplation Technology's asset-liability ratio has been maintained at around 20% for many years, which is already a very conservative ratio, with no room for further reduction. Even Contemplation Technology itself stated in the prospectus that the asset-liability ratio is maintained at a low level, and the debt-paying ability is good.
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