Article | Bullet Finance Zuo Xingyue
Editor | Hu Fangjie
May 24, Guangdong Confluent vacuum Science and Technology Co., Ltd. (hereinafter referred to as "Huicheng Vacuum") will start the subscription of new shares, and the company will be listed on the Shenzhen Stock Exchange GEM.
In this IPO, the underwriting sponsor of Huicheng Vacuum is Dongguan Securities. The company expects to raise 235 million yuan, mainly for R&D and production base projects, vacuum coating R&D center projects, and supplementary working capital projects.
The impact of converging into a vacuum capital market can be described as twists and turns. As early as December 2021, the GEM of Shenzhen Stock Exchange had accepted the listing application of Huicheng Vacuum. After two suspension reviews and multiple rounds of inquiries, Huicheng Vacuum finally welcomed the approval of its initial registration application, and released the letter of intent for IPO and listing on the GEM on May 16.
The number of new shares issued by the company this time is 25 million, accounting for 25% of the total share capital after the issue. The subscription date is May 24.
The listing announcement shows that the offering price is 12.20 yuan/share, and the corresponding P/E ratio is 16.31 times, which is lower than the industry's average static P/E ratio of 27.32 times in the latest month released by China Securities Index Co., Ltd. on May 21, 2024 (T-3).
Figure/Huicheng Vacuum Announcement It is worth mentioning that as one of Apple's suppliers, Huicheng Vacuum is still hard to get rid of its dependence on Apple's industrial chain. In addition, Huicheng Vacuum not only used to have share compensation caused by the VAM, but also has many lawsuits pending at present.
01 Four brothers and sisters joined hands, and the gambling agreement failed
Founded in 2006, Huicheng Vacuum is a vacuum application solution provider focusing on the R&D, production, sales and technical services of vacuum coating equipment.
On July 28, 2006, Li Qiuxia and Li Longfa jointly established Huicheng Co., Ltd., the predecessor of Huicheng Vacuum, with a registered capital of 300000 yuan, of which Li Qiuxia contributed 210000 yuan, accounting for 70% of the registered capital, and Li Longfa contributed 90000 yuan, accounting for 30% of the registered capital.
Figure/Huicheng Vacuum Prospectus It is worth mentioning that Huicheng Vacuum has "gene" of equity holding since its inception. The actual founders of the company are Luo Zhiming, Li Zhirong and Li Zhifang. Due to the need for convenience in conducting business externally, the three people unanimously decided that Li Qiuxia and Li Longfa should hold Huicheng Limited shares and register as shareholders of the company. It was not until August 2012 that the company released the proxy holding.
In July 2019, Huicheng Co., Ltd. was changed into a joint stock limited company. Before the overall change, the registered capital of Huicheng Co., Ltd. was 6782300 yuan. After the overall change, the registered capital of Huicheng Vacuum was 75 million yuan.
As of the date of signing the prospectus, the actual controllers of Huicheng Vacuum are Li Zhirong, Luo Zhiming, Li Zhifang and Li Qiuxia. Li Zhirong and Luo Zhiming directly hold 30.52% and 20.46% of the company's shares respectively, and Li Zhifang and Li Qiuxia directly and indirectly hold 13.63% and 7.51% of the company's shares. The four are siblings.
Figure/Huicheng Vacuum Prospectus In order to attract external investment, Huicheng Vacuum and the actual controller signed a gambling agreement with some shareholders before applying for listing, which included performance commitment and compensation, share repurchase, special rights of shareholders and other arrangements.
Among them, the company introduced investors Pengchen Chuangzhi, Zhu Xuesong, Tibet Jiadega, Xiahou Zaoyao and Shenzhen Ningmengrui in 2017, and the new shareholders subscribed for the new registered capital of 736400 yuan of Huicheng Co., Ltd. at the price of 50.52 yuan/registered capital, with a total investment of 37.2 million yuan.
The parties agreed that the net profits of Huicheng Vacuum in 2017 and 2018 should not be less than 37.5 million yuan and 41 million yuan respectively.
Figure/Reply to Huicheng Vacuum Inquiry Letter In 2018, the company introduced investors Nanshan Qiaoqiao, Pengchen Yuantuo, Xiahou Zaoyao and Shenzhen Ningmengrui, and agreed that the new shareholders would subscribe to the new registered capital of Huicheng Co., Ltd. of 645900 yuan at the price of 108.37 yuan/registered capital, with a total investment of 70 million yuan.
The parties agree that the net profit of the company from 2018 to 2020 shall not be less than 50 million yuan, 65 million yuan and 80 million yuan respectively.
Figure/Reply to Huicheng Vacuum Inquiry Letter In addition, Li Zhirong signed an equity transfer contract with Ma Wei. Li Zhirong transferred 0.75% of his equity in Huicheng Co., Ltd. to Ma Wei at a price of 5 million yuan. The transfer price was 108.37 yuan/registered capital. Similarly, the company's business performance objectives and performance compensation responsibilities from 2018 to 2020 have been agreed.
However, Huicheng Vacuum did not reach the agreed performance.
In 2017 and 2018, the company realized net profits of 21.739 million yuan and 23.2153 million yuan, which were 15.761 million yuan and 17.7847 million yuan different from the performance commitment net profits.
Figure/Reply to Huicheng Vacuum Inquiry Letter In addition, from 2018 to 2020, the net profits of the company plus share based payment expenses were 44.6876 million yuan, 27.6516 million yuan and 47.3629 million yuan, respectively, which were different from the net profits of performance commitments of 5.3124 million yuan, 37.3484 million yuan and 32.6371 million yuan.
Figure/Reply to Huicheng Vacuum Inquiry Letter Since the company did not realize the performance agreement in the VAM, Huicheng Vacuum needs to compensate investors according to the relevant agreement, with a total cash compensation amount of 50.881 million yuan.
In view of the large amount of cash compensation, the actual controller has a great pressure to raise funds in the short term. After the consultation of shareholders, the compensation amount determined in the above cash compensation plan was converted into the issuer's shares held by the actual controller for compensation. The total number of compensated shares for investors was 2543845 shares, and the proportion of compensated shares was 3.38%.
Figure/Reply to Huicheng Vacuum Inquiry Letter Huicheng Vacuum overestimated its profitability, not only failed to meet expectations in performance, but also further compensated for the shares, and the number of shares held by the actual controller further declined.
On August 17, 2021, Li Zhirong transferred his 1214400 shares held by him to Xia Hou Zaoyao, Zhu Xuesong, Tibet Jiadega, Pengchen Chuangzhi, Nanshan Bridge, Pengchen Yuantuo and Ma Wei respectively; Luo Zhiming transferred 814000 shares to Shenzhen Ningmengrui and Nanshan Bridge respectively, and Li Zhifang transferred 515500 shares to Nanshan Bridge.
Figure/Huicheng Vacuum Prospectus It can be seen that the failed VAM made Huicheng pay a lot of price.
02 Weak revenue growth, relying on Apple's industrial chain
The main products and services of Huicheng Vacuum are vacuum coating equipment and supporting process services, which are used in consumer electronics, other consumer goods, industrial products, scientific research institutes, etc.
In 2017, Huicheng Vacuum became a supplier of Foxconn, and in 2018, it developed into a supplier of Jabil Technology and Apple.
At present, the main customers of Huicheng Vacuum include Foxconn BYD , Apple, Jabil and other well-known enterprises at home and abroad will become another "fruit chain" listed company with the promotion of the listing process.
Although backed by Apple and other enterprises, the company's revenue growth has declined significantly in recent years.
From 2021 to the first quarter of 2024, the operating revenue of the company will be 534 million yuan, 571 million yuan, 522 million yuan and 71.7039 million yuan, with year-on-year growth rates of 36.13%, 6.86%, -8.53% and 1.22% respectively. From 2021 to 2023, the growth rate of operating revenue will decline year after year.
Figure/Wind (Unit: 10000 yuan) According to the prospectus, from 2020 to the first half of 2023 (hereinafter referred to as the "reporting period"), the top five customers of the company realized a total revenue of 196 million yuan, 350 million yuan, 345 million yuan and 106 million yuan, accounting for 49.95%, 65.56%, 60.48% and 42.34% of the current operating revenue, respectively, which is relatively high.
Figure/Huicheng Vacuum Prospectus "Bullet Finance" noted that among the top five customers that merged into a vacuum, Jabil and Foxconn belong to Apple's industrial chain companies.
During the reporting period, the total sales of Huicheng Vacuum to Apple's industrial chain manufacturers including Apple, Foxconn, Jabil and Mia were 99.687 million yuan, 287 million yuan, 203 million yuan and 35.7583 million yuan, respectively, accounting for 25.41%, 53.77%, 35.64% and 14.31% of the main business income.
Figure/Huicheng Vacuum Prospectus In the same period, the gross profits from Apple's industrial chain manufacturers accounted for 36.74%, 61.95%, 49.74% and 22.97% of the gross profits of the main business respectively.
Huicheng vacuum comes from the high sales revenue and gross profit of Apple's industrial chain manufacturers, which has a certain dependence on Apple's industrial chain companies.
Figure/Huicheng Vacuum Prospectus As one of the leading enterprises in the global consumer electronics industry at present, Apple brand smartphones and other products have a large shipment volume and a high market share, so it has a large demand for vacuum coating equipment.
However, as a link in the "fruit chain", merging into a vacuum also has certain risks. In the future, if the company is unable to maintain its advantages among the equipment manufacturers in the Apple industrial chain, and cannot continue to maintain the cooperation with the Apple industrial chain, the company's business performance will be greatly affected.
In addition, if the market competition is further intensified in the future and the market demand for Apple's products declines, it may affect the sales volume of Apple's series products, and further affect the market demand of upstream equipment suppliers such as Huicheng Vacuum, which will have a significant adverse impact on the company's business performance.
It is worth mentioning that on May 7, Counterpoint released a report showing that in the first quarter of 2024, the global smartphone market grew by 6% year on year, and the shipment volume reached 296.9 million units. Among them, Samsung replaced Apple as the manufacturer with the largest smartphone shipments in the world, with a market share of 20%. Due to a large backlog of inventory in the previous quarter, Apple's shipments fell 13% year on year.
Picture/Beijing News Whether Apple can always maintain its position as the world's "leading leader" is unknown. In the face of reduced shipments, whether Huicheng Vacuum can reduce the risk of dependence on the "fruit chain" still needs the company to improve its market competitiveness and continue to expand new customers in the future.
03 Patent dispute has not been settled
"Bullet Finance" noted that Huicheng's vacuum litigation was "entangled", and many of the lawsuits were still pending.
According to the prospectus, Huicheng Vacuum and Guangchi Technology (Shanghai) Co., Ltd. (hereinafter referred to as "Shanghai Guangchi") jointly set up a subsidiary Huichi Vacuum, which later caused disputes between the two parties due to business problems.
Shanghai Guangchi believed that Huicheng Vacuum, Luo Zhiming and Li Zhirong, the actual controllers of Huicheng Vacuum, violated the provisions of the joint venture contract, the acquisition agreement and the conditions for triggering the equity acquisition. In March 2022, Huicheng Vacuum, Luo Zhiming and Li Zhirong filed an arbitration with the China International Economic and Trade Arbitration Commission.
In April 2022, Huicheng Vacuum will make a one-time payment of 21.7736 million yuan to Shanghai Guangchi for the transfer of 49% equity of Huichi Vacuum held by Shanghai Guangchi.
On September 5, 2022, Huicheng Vacuum, Li Zhirong, Luo Zhiming and Shanghai Guangchi reached a settlement on the above arbitration case and signed the Settlement Agreement. Huicheng Vacuum transferred 21 million yuan to Shanghai Guangchi as settlement compensation for arbitration disputes.
Figure/Reply to Huicheng Vacuum Inquiry Letter However, the contradiction between Huicheng Vacuum and Shanghai Guangchi did not end there.
On June 30, 2023, Shanghai Guangchi again submitted application documents to the State Intellectual Property Office, requesting the State Intellectual Property Office to declare three utility model patents (ZL202022607247.3, ZL202022607248.8, ZL202022600965.8) owned by Huicheng Vacuum invalid on the grounds of lack of novelty and creativity.
As of the signing date of the Prospectus, the request for invalidation of the relevant patent right is in the process of examination.
Although Huicheng Vacuum said in the prospectus that if the above patents were declared invalid, it would not have a significant adverse impact on the company's production and operation, nor would it constitute a legal barrier to the IPO. However, if Shanghai Guangchi continues to sue Huicheng Vacuum in the future, the company will still face many problems.
In addition, as of the signing date of the Prospectus, Huicheng Vacuum still has two litigation disputes that have not been settled.
On August 3, 2023, Ganzhou Baoming filed a lawsuit with the People's Court of Ganzhou Economic and Technological Development Zone, claiming that Huicheng Vacuum's overdue delivery and the delivered coating equipment were damaged, but they had not been repaired to normal use, which led to the equipment's failure to produce normally so far, which made the purpose of the contract impossible to achieve, and requested the court to terminate the contract, The company was ordered to bear the liability for breach of contract and compensate for losses totaling about 2.01 million yuan, as well as return the payment of 5.95 million yuan.
As of the date of signing the prospectus, Ganzhou Baoming has filed an appeal and the case is under trial.
Another case is Fan Feng filed a lawsuit to Shanghai Jinshan District People's Court in October 2023, claiming that Huicheng Vacuum, Changzhou Lemeng Pressure Vessel Co., Ltd. and Taicang Spinning Hardware Co., Ltd. jointly constituted an infringement of their trade secrets.
As of the signing date of the prospectus, the dispute case has not yet been heard in court, but it has become a vacuum Bank of China The capital of 3 million yuan in the account of Dongguan Branch was frozen.
Whether Huicheng Vacuum can win the lawsuit in the future needs further observation. After listing, whether Huicheng Vacuum can take measures to reduce the relevant litigation risk, "Bullet Finance" will continue to pay attention.
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