Author | Zuo Xingyue
Source | Bullet Finance
On July 12, Juncheng Herui Environmental Technology Group Co., Ltd. (hereinafter referred to as "Juncheng Herui"), an overall solution provider serving the environmental protection field of agriculture, rural areas and farmers, updated its prospectus and applied for listing on the Shenzhen Stock Exchange's GEM. The sponsor is China International Financial Securities.
Juncheng and Ruirui plan to issue 120 million shares in this IPO, accounting for 25% of the total equity after the issue. It is estimated to raise funds of 553 million yuan, mainly for the capacity improvement project of Juncheng and Ruinan R&D Center, the experimental line project of North R&D Center, and the supplementary working capital of engineering business.
It is worth noting that Juncheng and Rui, as related parties, have produced a large number of related transactions with Wen's shares, and the company's operational independence is insufficient.
In addition, poor performance, declining gross profit margin, work safety accidents and other problems may become obstacles to Juncheng and Rui's IPO.
1
Performance declines,
The gross profit rate has declined year by year
Juncheng Herui focuses on the fields of pollution control in agriculture and animal husbandry, recycling of biomass resources and rural ecological environment management, and provides "solid, liquid and gas" pollutant treatment and resource-based development and utilization programs for large-scale breeding enterprises, large energy enterprises, county governments and other customers.
The main business types of Juncheng and Rui can be divided into environmental protection engineering, environmental protection equipment R&D and manufacturing, environmental protection project operation and organic fertilizer production and sales.
Figure/Prospectus of Juncheng Herui
Among them, environmental protection engineering includes two major directions: back-end harmless treatment and recycling resource utilization. The R&D and manufacturing of environmental protection equipment products mainly involve assembled tank environmental protection equipment and special environmental protection treatment equipment.
In recent years, the business of agriculture, rural areas and environmental protection is not easy to do.
According to the prospectus, from 2020 to 2022 (hereinafter referred to as the "reporting period"), the operating revenues of Juncheng and Rui were 1.031 billion yuan, 1.105 billion yuan and 958 million yuan respectively, with year-on-year growth of 124.86%, 7.12% and -13.29%; The net profits attributable to the parent company in the same period were -94.4947 million yuan, 98.8372 million yuan and 79.4194 million yuan, with year-on-year growth of -31.70%, 204.60% and -19.65%.
During the reporting period, Juncheng and Rui's performance fluctuated greatly. In 2020, the company's profits even suffered losses.
Figure/wind
Juncheng Shares said in the prospectus that the business income and net profit attributable to the parent company in 2022 had declined, mainly because some projects were delayed due to the limited production and operation activities in some regions, and the customer's investment and expansion plans were slowed down due to the downward pressure on the macro-economy.
At the same time, the profitability of Juncheng and Rui is also declining.
During the reporting period, the gross profit rates of Juncheng and Rui's main businesses were 28.58%, 26.39% and 25.32% respectively, showing a downward trend year by year.
Not only did the gross profit rate decline, but Juncheng and Rui's profitability was also significantly lower than that of their peers.
During the reporting period, the average gross profit margin of comparable listed companies in the same industry of Juncheng and Rui was 31.32%, 30.87% and 28.91%, which was much higher than that of Juncheng and Rui.
Figure/Prospectus of Juncheng Herui
From the perspective of different products and services of Juncheng and Rui, the gross profit margin of the company's environmental protection projects during the reporting period was 25.95%, 25.11% and 23.89%, respectively, a decrease of 2.06 percentage points during the reporting period.
The gross profit rate of environmental protection equipment was 31.73%, 28.23% and 26.17% respectively, down 5.56 percentage points during the reporting period.
The gross profit rate of environmental protection operation projects and organic fertilizer production and sales also declined by 10.46 percentage points and 6.79 percentage points respectively during the reporting period.
Figure/Prospectus of Juncheng Herui
It can be seen that the gross profit rate of each business segment of the company has shown a straight downward trend.
In the inquiry letter, the CSRC also inquired about the gross profit rate of Juncheng and Rui, and asked Juncheng and Rui to explain whether there is a risk that the gross profit rate will continue to decline in the future and the countermeasures in combination with the company's future business development direction planning.
Juncheng and Rui replied in the inquiry letter that the company's main application scenario livestock breeding wastewater treatment project focuses on pig breeding, but has new growth points such as urban sewage treatment. The risk of continuous decline in gross profit rate caused by the company's future business development strategy is controllable.
However, in terms of actual implementation, whether Juncheng and Rui can recover this decline is still unknown.
2
Deep binding of Winchester shares,
Frequent related transactions
The development of Juncheng and Rui is closely related to the company's related party Wen's shares.
According to the prospectus, Juncheng Herui was founded in 2014 with 35 million yuan invested by Guangdong Juncheng Investment Holding Co., Ltd. (hereinafter referred to as "Juncheng Holding"), accounting for 100% of the registered capital.
Juncheng Holding was founded by Wen Pengcheng, the actual controller of Wen's shares. Enterprise investigation shows that Wen Pengcheng is the largest shareholder of Juncheng, holding 3.4683% of shares. At the same time, the major shareholders of Wen Junsheng, Wen Zhifen and Wen Xiaoqiong also hold many shares in Juncheng Holdings.
Figure/enterprise check
In other words, Juncheng and Rui have carried the "gene" of Wen's shares since their birth.
As of the signing date of the prospectus, Juncheng Holding directly holds 52.8698% of the shares of Juncheng and Rui, and indirectly holds 5.8506% of the shares of the company through Xinxing Junrui, and is the controlling shareholder of the company.
Seven members of the Wen family (Wen Pengcheng, Wen Junsheng, Wen Zhifen, Wen Xiaoqiong, Liang Huanzhen, Wu Cuizhen, Chen Jianxing) indirectly control Juncheng Herui through Juncheng Holdings, and indirectly control Juncheng Herui through Juncheng Holdings and Xinxing Herui, as the actual controller of the company.
Figure/Prospectus of Juncheng Herui
Wen's share is a leading company in animal husbandry. As a related party of Juncheng and Rui, there are a lot of related transactions with the company.
According to the prospectus, Juncheng and Rui focused on serving Wen's shares at an early stage, and then gradually expanded their service customers to well-known animal husbandry industry chain enterprises such as New Hope and COFCO Meat. The scope of wastewater treatment also expanded from pig breeding and poultry breeding to cattle breeding, food processing and other fields.
During the reporting period, the Company's revenue from sales of Wen's shares and other related parties was 406 million yuan, 321 million yuan and 228 million yuan respectively, accounting for 39.44%, 29.14% and 23.83% of the operating revenue.
Figure/Prospectus of Juncheng Herui
Except for Wen's shares, the sales revenue of other related parties accounted for only about 5% of the transaction volume of Juncheng and Rui's related parties, which contributed little.
This means that nearly 30% of Juncheng's and Rui's income comes from Wen's shares, and the company's operational independence needs to be discussed.
In addition, the related transactions with Wen's shares also brought a large number of "credit" and bad debts.
During the reporting period, the balance of accounts receivable due to sales of Juncheng, Rui and Wen's shares was 97.2376 million yuan, 56.5759 million yuan and 51.8805 million yuan respectively, and the amount of bad debt reserves was 6.0382 million yuan, 4.0893 million yuan and 3.0870 million yuan respectively.
Figure/Prospectus of Juncheng Herui
In response to the company's heavy reliance on Wen's shares, Juncheng and Rui said in the inquiry letter that with the improvement of the company's business capability and the improvement of market popularity, the company's customers gradually diversified, and the impact of related transactions on the company's business situation gradually decreased, and the company's business decisions were independent, and the pricing of related transactions was fair, which did not affect the company's business independence.
However, "Interface News · Bullet Finance" noted that just before the IPO declaration, Wen's shares further strengthened their penetration into Juncheng and Rui.
The prospectus shows that due to the adjustment of the internal overall management structure of Wen's shares, in April 2022, Wen's Industrial Investment and Wen's Investment, two wholly-owned subsidiaries of Wen's shares, signed an agreement, and Wen's Industrial Investment transferred its 31045563 shares of Juncheng and Rui to Wen's Investment. The shareholding ratio of Wen's Investment reached 8.6238%, becoming the second largest shareholder of Juncheng and Rui.
It is worth noting that the time of investment of Wen's investment was within 12 months of the initial declaration of Juncheng and Rui's IPO, so there is a possibility of "sudden investment" of Wen's investment.
Juncheng and Rui, which are deeply bound to Wen's shares, are worried about their financial independence and operational independence. Large amount related party transactions are likely to become obstacles to Juncheng and Rui's IPO.
3
Financial irregularities frequently occur,
Death of employees due to safety accidents
As a company to be listed, compliance ability is essential, but Juncheng and Rui have many financial irregularities.
The prospectus shows that in 2020, the company will pay purchase money to chicken manure suppliers through personal cards, involving 1.211 million yuan.
In addition, because Juncheng and Rui's early managers had a weak awareness of internal control norms, they used the personal bank account of an employee of the Finance Department to pay salaries, collect refunds from suppliers or service providers, pay some employees' bonuses and some non invoiced fees. Among them, in 2020, the company will use personal cards to pay employees a bonus of 990700 yuan in 2018.
Although the amount is small, according to Article 48 of the Law of the People's Republic of China on Commercial Banks, "no unit or individual may open an account to deposit the funds of the unit in the name of an individual". Obviously, Juncheng and Rui's personal bank card collection violated this provision.
Generally speaking, personal card transactions reflect the confusion of enterprise fund management, imperfect collection and payment process and financial system, and imperfect internal control of enterprises. Therefore, Juncheng and Rui still need to work hard on the internal management of the company.
Not only that, Juncheng and Rui also exposed major problems in safety production.
On June 9, 2020, when Yikangsheng Service, a subsidiary of Juncheng and Rui, was working on the membrane covering of the fermentation tank, one employee died and one employee was injured due to the collapse of the long side wall of the fermentation tank, and was fined 300000 yuan by Xian'an District Emergency Management Bureau of Xianning City.
On September 7, 2021, the subsidiary Beijing Yingherui was fined 1000 yuan by Beijing Pinggu District Commission of Housing and Urban Rural Development due to the fact that the gas detection was not carried out strictly in the principle of "first detection, then operation" during the construction of the slurry tank in the limited space.
Figure/Prospectus of Juncheng Herui
Repeated punishment for violation of safety production shows that Juncheng and Rui have defects in management. If the company does not make thorough rectification, potential safety accidents will still exist.
Whether it is performance improvement or management improvement, Juncheng and Rui have a long way to go.
*The picture in the article comes from: Juncheng and Rui official website.
(Statement: This article only represents the author's view, not Sina.com's position.)
