Article source | Times Business School
Author | Huang Youqian
Editor | Chen Xinxin
The market share of a company planning to IPO is only about 0.62, but it claims that it is the leader in the country, but in fact there are many competitors whose market share is significantly greater than that of this company. Is this statement misleading investors?
Zhejiang Tongli Transmission Technology Co., Ltd. (hereinafter referred to as "Tongli Technology") stated in its prospectus that it has formed strong market competitiveness and is the leading general reducer company in China. The Shenzhen Stock Exchange questioned the advancement of its core technology, market share and ranking in its inquiry letter.
On February 23, Kone Technology responded to the second round of inquiry letters from the Shenzhen Stock Exchange and updated its prospectus. In this round of inquiries, the Shenzhen Stock Exchange mainly questioned the company's core technology, capital flow verification, customers, distribution, suppliers, gross profit margin and other 11 aspects.
Kone Technology was established in November 2008. It is mainly engaged in the research and development, production, sales and service of reducers. Its products include general reducers, industrial gearboxes, accessories, etc. The company plans to raise 345 million yuan in this IPO. The sponsor is Essence Securities, and the sponsor representatives are Zhai Pingping and Gan Qiangke.
Overview
Public information shows that during the reporting period, Xinling Electric, the largest supplier of Tongli Technology, was ordered by the Municipal Supervision Bureau, Natural Resources and Planning Bureau, Health Bureau, The Environmental Protection Bureau and other departments have imposed penalties. The penalties include producing substandard products, illegally occupying land to build factories, building factories and putting them into production without permission, etc. The circumstances are relatively serious. In addition, major suppliers such as Changzhou Nanfang Electric Co., Ltd. (hereinafter referred to as "Southern Electric") and Fujian Shenghua Casting Co., Ltd. have also been punished by the Environmental Protection Bureau for violations. For suppliers that are frequently punished, KONE Technology has still cooperated with them stably for many years. Are there any problems with its supplier system? Has the quality of its own products been affected?
In the prospectus, KONE Technology claims to have strong market competitiveness and is the leading domestic general reducer company. However, in comparison, the company's market share in 2020 is only about 0.62, which is a certain gap between it and its peers. At the same time, Tongli Technology is at the middle to lower level in the industry in terms of invention patents and R&D investment, making it difficult to reflect its "strong market competitiveness."
1. The largest supplier is frequently fined
Reducers are general-purpose equipment and one of the important basic components of various industrial transmission systems. They can be widely used in various sectors of the national economy. fields, such as metallurgy, chemical industry, environmental protection, energy, engineering machinery and other industries. The main raw materials required for the production of reducers include motors, castings, steel, bearings, etc. Therefore, the upstream industries of the reducer industry include electrical machinery and equipment manufacturing, metal smelting and rolling processing industry, and general equipment manufacturing.
According to the prospectus, from 2018 to the first half of 2021 (hereinafter referred to as the "reporting period"), Tongli Technology's main business costs are divided into four categories: direct materials, direct labor, manufacturing expenses and transportation expenses. . Among them, the cost of direct materials such as motors, castings, steel, etc. accounted for more than 70%, which were 75.66, 76.08, 74.94, and 79.15 respectively.
It can be seen from the composition of Tongli Technology’s main raw material suppliers that during the reporting period, Xinling Electric has been the company’s largest supplier. Tongli Technology mainly purchases motors from Xinling Electric, with purchase amounts of 12.8583 million yuan, 12.1031 million yuan, 16.9696 million yuan, and 11.9333 million yuan respectively, accounting for 8.37, 8.31, 9, and 8.87 of the total procurement of production materials in each period.
However, Times Business School discovered through Sky Eye Investigation that the company Xinling Electric is “stained with bad records.”
Such a supplier can continue to be the chief supplier of KONE Technology. Is there any "mystery" behind it?
According to Huangshi Jianfenshuzi [2019] No. 102, Xinling Electric was banned from Taizhou Huangyan City for producing and selling products that did not meet national standards and industry standards to protect human health and personal and property safety. The District Market Supervision and Administration Bureau ordered the company to stop producing unqualified three-phase asynchronous motors, confiscated two unqualified three-phase asynchronous motors, and imposed a fine of RMB 2,240.
In 2021, Xinling Electric was ordered by the Huangyan Branch of the Taizhou Municipal Natural Resources and Planning Bureau to return the illegally occupied 1,027 square meters of land to the Jing'an Village collective for occupying farmland to build a factory without approval. Remove all newly built buildings (structures) on illegally occupied land and impose a fine of 82,200 yuan.
On August 11, 2020, the Health Bureau of Taizhou Huangyan Bureau issued a warning administrative penalty to Xinling Electric because the intensity or concentration of occupational hazard factors in the company’s workplace exceeded the national occupational health standards. Violated relevant regulations.
Public information shows that Xinling Electric has been subject to administrative penalties by the Taizhou Huangyan District Environmental Protection Bureau for different reasons many times. For example, on October 19, 2017, the Huangyan Branch of the Taizhou Environmental Protection Bureau ordered the company to stop production and fined it RMB 58,000 because it was suspected that the construction project was completed and put into production of motors and iron castings without the approval of the environmental protection department.
On July 6, 2020, Xinling Electric was engaged in the manufacture of motors and iron castings. The entrance and exit of the motor housing dipping room were not sealed, and the production that produced volatile organic waste gas was not carried out in a closed space. The Taizhou Municipal Environmental Protection Bureau Huangyan Branch fined him 28,000 yuan.
On November 11, 2020, Xinling Electric was fined RMB 100,000 by the Taizhou Municipal Environmental Protection Bureau Huangyan Branch for allegedly failing to store hazardous waste in accordance with national environmental protection standards.
In addition to being punished by multiple departments, Xinling Electric has also been involved in multiple contract dispute lawsuits, been forced to execute, and was included in the list of dishonest executors.
In addition to the number of fines recorded by the largest supplier, Southern Electric is the fifth largest supplier of Tongli Technology in 2019 and 2020, and the third largest supplier in the first half of 2021. The company has In 2020, he was fined 60,000 yuan for violating the volatile organic waste gas management system.
As a related party of Tongli Technology, Fujian Shenghua Casting Co., Ltd. was the third largest supplier of Tongli Technology in 2018. It was also punished once by the Environmental Protection Bureau in 2017 and 2018. . The reasons for the punishment are failure to build storage facilities and places to store industrial solid waste in safe categories; environmental protection facilities that need to be built are put into production without acceptance inspection, and industrial solid waste is piled in the open.
Major suppliers have been fined many times, but this has not affected the cooperative relationship with KONE Technology at all. Has KONE Technology established a sound supplier screening and management mechanism? How did the above-mentioned suppliers pass the selection process and establish cooperation with KONE Technology? Are there other interest arrangements between the two parties? Do the unqualified products produced by Xinling Electric flow into Tongli Technology related products?
It is worth mentioning that during the second round of inquiries, the Shenzhen Stock Exchange stated that Tongli Technology’s outsourced suppliers were relatively scattered and there were many individual industrial and commercial households, and it required Tongli Technology to explain the failure of heat treatment and rough machining. Reasons and rationality for centralized procurement, and explain the fairness of outsourced processing procurement at purchase prices from different suppliers for the same process; in addition to the related parties disclosed in the prospectus, whether raw materials and outsourced processing suppliers are related to the issuer relation.
2. “Leading” in the industry but with less than 1 market share
In addition to doubts about cooperation with suppliers, Tongli Technology’s core technology and GEM positioning have also been repeatedly criticized by the Shenzhen Stock Exchange Ask.
According to the prospectus, Tongli Technology currently has four core technologies: reducer transmission structure design and development technology, reducer component modular design and development technology, reducer lean production technology, and reducer customized design and development technology. , covering key areas of research and development and production of reducer products. Through the application of core technologies, the company has formed strong market competitiveness in R&D, production, sales and services, and is the leading general reducer enterprise in China.
So, what is the market share of KONE Technology, a leading domestic company?
Data show that in 2020, Kone Technology’s reducer (transmission equipment) sales were 340 million yuan, with a market share of approximately 0.62. The sales of similar products of Guomao Co., Ltd. (603915.SH) and Ningbo Dongli (002164.SZ) were 2.158 billion yuan and 1.069 billion yuan respectively, with market share ratios of 3.92 and 1.94 respectively. It can be seen that the market share of Guomao Co., Ltd. and Ningbo Dongli Technology is not high, but in comparison, the sales and market share of Tongli Technology are far lower than those of comparable listed companies in the same industry, and it is difficult to reflect the market competitiveness.
Is it because the market in this industry is relatively fragmented, leading to the low market share of the above-mentioned companies? Or does Kone Technology deliberately avoid comparable companies with higher market shares to create the "illusion" that the gap with its peers is small?
The Shenzhen Stock Exchange raised questions in the first round of inquiries, requiring Tongli Technology to explain the basis, scope and rationality of the selection of comparable companies in the same industry; the background of Guomao Co., Ltd. and Ningbo Dongli’s low market share ; In addition to the above-mentioned competitors, the issuer's other related products of comparable companies in the same industry are not included in the analysis of comparable companies in the same industry, etc.
KONE Technology explained that at present, the high-end market of reducers in my country is mainly occupied by foreign brands such as SEW, FLENDER, and BOSCH, while many scattered domestic brands are mainly distributed in the mid-to-low-end market. Foreign brands are not listed on domestic A-shares. Except for Guomao Co., Ltd. and Ningbo Dongli, there are no listed companies in the domestic A-share market whose main business is highly similar to the issuer. The main business or products of other A-share listed companies are Mainly focus on a specific field, or mainly serve certain specific downstream industries.
In 2019, Tongli Technology’s market share was 0.26, and the market shares of Ningbo Dongli and Guomao were 0.75 and 1.62 respectively. According to calculations, from 2019 to 2020, Tongli Technology's market share increased by approximately 0.36 percentage points, and the market shares of Ningbo Dongli and Guomao increased by 1.19 percentage points and 2.3 percentage points respectively, both of which were higher than Tongli Technology.
In fact, market share can reflect the competitiveness of an enterprise to a certain extent. In particular, the reducer industry has high technical requirements, and the market share can better reveal the technical strength of the company. Judging from the current market share of Tongli Technology, there is still a certain gap between the company and its peers.
In terms of R&D expenses, during the reporting period, Tongli Technology’s R&D expenses were 10.1598 million yuan, 10.6498 million yuan, 11.7094 million yuan, and 7.4592 million yuan respectively, while the industry averages were 60.9551 million yuan and 55.4509 million yuan respectively. yuan, 65.4965 million yuan, 44.7126 million yuan, approximately 5-6 times that of Tongli Technology.
In terms of R&D expense rates, during the reporting period, Kone Technology’s R&D expense rates were 3.59, 3.47, 3.41, and 3.42 respectively, and the industry averages were 3.45, 3.92, 3.92, and 3.76 respectively. It can be seen that Kone Technology's R&D expenses in 2018 were higher than the industry average, but later the company's R&D expense rate continued to decline slightly, falling below the industry average.
From the perspective of invention patents, as of June 30, 2021, the number of invention patents of Kone Technology was 8, of which 1 was obtained by transfer. Peers Guomao Co., Ltd. and Ningbo Dongli have 14 and 11 invention patents respectively, all of which were originally obtained.
Guomao Co., Ltd. was established in 2013, five years later than Tongli Technology. However, as of June 30, 2021, the company's number of patents has been twice that of Tongli Technology.
Perhaps Tongli Technology’s specific description of its industry-leading performance was too vague. The Shenzhen Stock Exchange repeatedly questioned the company’s business, market share and technology in the first round of inquiries and the second round of inquiry letters. Is there sufficient basis for requiring Tongli Technology to explain that its core technology is industry advanced compared with the same industry? Is there a risk that core technologies or products will become obsolete? Explain whether the market share and market ranking of the issuer's products are accurate? Combining the above issues, the issuer's technological innovation, core technology and its advanced nature, etc., explain whether the issuer meets the requirements for GEM positioning?
Reference materials
"Prospectus of Tongli Technology's Initial Public Offering of Stocks and Listing on GEM" (Application Draft). Shenzhen Stock Exchange
"About Tongli Technology's Initial Public Offering" Reply to the Inquiry Letter on Review of Application Documents for Public Issuance of Stocks and Listing on GEM" (First and Second Round Inquiries). Shenzhen Stock Exchange