“Science and Technology Innovation Board Daily”, May 14 (Reporter Huang Xiumei) The official website of the Shanghai Stock Exchange recently revealed that Zhengzhou Hengda Intelligent Control Technology Co., Ltd. (hereinafter: Hengda Intelligent Control) and its sponsor have withdrawn the listing application. According to relevant regulations, the Shanghai Stock Exchange decided to terminate its Science and Technology Innovation Board issuance and listing review.

The IPO application for Hengda Intelligent Control Science and Technology Innovation Board was accepted by the Shanghai Stock Exchange on September 25, 2023. After the Shanghai Stock Exchange updated the status of the first round of review inquiries on October 26, 2023, Hengda Intelligent Control did not respond. After a lapse of 7 months, the company and its sponsor voluntarily withdrew the application documents, and the Hengda Intelligent Control Science and Technology Innovation Board sprint was officially terminated.

The “Science and Technology Innovation Board Daily” reporter discovered that since Hengda Intelligent Control plans to seek listing and publicly disclose relevant information, issues such as frequent related transactions with controlling shareholders and their subsidiaries, and “clearance” dividends of up to 1.4 billion yuan over three years have been widely questioned by the market.

It was originally intended to raise funds for projects such as coal mine intelligence

According to the prospectus, Hengda Intelligent Control was founded in 1999, specializing in R&D, production and sales of intelligent coal mining control system technology and products. The controlling shareholder Zheng Meiji holds 85.02% of Hengda Intelligent Control's shares. Zheng Coal Machinery has no actual controller, so Hengda Intelligent Control also has no actual controller.

Hengda Intelligent Control originally planned to publicly issue no more than 63.5294 million shares, and plans to raise 2.5 billion yuan. Among them, 750 million yuan was spent on the coal mine intelligent product intelligent manufacturing demonstration base construction project, 630 million yuan for the coal mine intelligent product R&D experimental center construction project, 870 million yuan for intelligent liquid supply system R&D and industrialization projects, and 250 million yuan to supplement working capital.

Zheng Meiji, its controlling shareholder, announced on the evening of April 26, 2024, that based on the current market environment and other factors, in order to coordinate the business development and capital operation plans of its subsidiary Hengda Intelligent Control, after full communication and careful verification with all parties concerned, Zheng Meiji decided to terminate the spin-off of Hengda Intelligent Control's listing on the Shanghai Stock Exchange Science and Technology Innovation Board and withdraw the relevant listing application documents.

Zheng Coal Machinery previously decided to split Hengda Intelligent Control and said during the IPO on the Science and Technology Innovation Board that through this spin-off and listing, the company's coal machine division (other than Hengda Intelligent Control and its subsidiaries) will further focus on equipment manufacturing, aim for complete, international and high-end development, further enhance the technology and quality of comprehensive coal mining equipment, and improve the high reliability, stability and ease of use of the product.

Or fall into a related transaction crisis

Although Zheng Meiji has stated that the spin-off and listing will not cause the company to lose control of Hengda Intelligent Control, will not have a substantial impact on the continued operation of the company's other business segments, and will not damage the company's independent listing status and continued profitability, the operating independence of Hengda Intelligent Control, which is planning to be spun off and listed, has been widely questioned by the market.

According to Hengda Intelligent Control's prospectus, in 2020-2022 and the first quarter of 2023, the company's largest customer has always been the controlling shareholder Zheng Meiji, accounting for more than 30% of total revenue.

According to data, during the above reporting period, the company's revenue was 1,454 billion yuan, 1,850 million yuan, 2,428 billion yuan, and 610 million yuan respectively, and realized net profit to mother of 420 million yuan, 523 million yuan, 733 million yuan, and 209 million yuan respectively. During the same period, sales revenue from the controlling shareholder Zheng Meiji accounted for 32.69%, 32.23%, 33.60%, and 27.46%, respectively.

The “Science and Technology Innovation Board Daily” reporter noticed that Zheng Coal Machinery is a hydraulic support mainframe manufacturer and is a supplier of comprehensive coal mining equipment. Since terminal coal companies are generally large state-owned enterprises or groups, some enterprises use the method of purchasing comprehensive coal mining equipment and control systems as a whole based on various factors such as procurement efficiency and overall product support.

Hengda Intelligent Control also stated in the prospectus that the company sells related products to Zheng Coal Machine, which is in line with the development characteristics of the industry and is reasonable; the transaction price between the company and Zheng Coal Machine is determined through negotiations between the two parties based on factors such as market prices and product costs, and the pricing of related transactions is fair.

It is worth noting that the two companies in which Zheng Meiji is a shareholder are also customers and suppliers of Hengda Intelligent Control. In 2020-2022 and the first quarter of 2023, Hengda Intelligent Control's sales amount to Zheng Coal Machinery and other subsidiaries was 475 million yuan, 596 million yuan, 816 million yuan, and 167 million yuan respectively, accounting for 32.69%, 32.23%, 33.60%, and 27.46% of Hengda Intelligent Control's revenue for each period, respectively.

Furthermore, the absolute amount and proportion of accounts receivable and inventory of Hengda Intelligent Control are high. At the end of each period of 2020-2022 and the first quarter of 2023, the book value of Hengda Intelligent Control's accounts receivable rose rapidly to 418 million yuan, 568 million yuan, 722 million yuan, and 1,017 million yuan respectively. During the same period, the book value of Hengda Intelligent Control's accounts receivable accounted for 29%, 31%, 30%, and 42% of revenue, respectively, and also increased rapidly.

“Clearance” dividends raise questions from the market

The “Science and Technology Innovation Board Daily” reporter noticed that in addition to too many related transactions with controlling shareholders and their subsidiaries, what caused market questions during Hengda Intelligent Control's bid to go public was its dividend of up to 1.4 billion yuan. This move was also regarded by the market as a “clearance dividend” before listing.

According to the prospectus, in 2020-2022, Hengda Intelligent Control has paid cash dividends to Zheng Meiji and others for three consecutive years. The amounts were 350 million yuan, 300 million yuan, and 750 million yuan respectively, with a cumulative dividend of 1.4 billion yuan over the three years, accounting for 83.5% of the company's cumulative net profit of 1,676 billion yuan during the same period.

Among them, Hengda Intelligent Control's 2022 dividend was 750 million yuan, accounting for 102.74% of its net profit for the year, exceeding the company's net profit of nearly 20 million yuan. As the controlling shareholder, Zheng Meiji was the main beneficiary.

It is worth noting that the new “National Nine Rules” clearly state that situations such as surprise “clearance” dividends before listing are included in the negative list of issuance and listing. Just a few days after Zheng Coal Machinery announced the termination of the spin-off of Hengda Intelligent Control and the withdrawal of the listing application documents, on April 30, 2024, the Shanghai and Shenzhen Exchange officially issued 9 supporting business rules, rules, and guidelines, including the “Stock Issuance and Listing Review Rules”. The standards for “clearance” dividends were also clarified for the first time:

The cumulative dividend amount for the three years of the reporting period accounted for more than 80% of the net profit for the same period; or the cumulative dividend amount for the three years of the reporting period accounted for more than 50% of the net profit for the same period, and the cumulative dividend amount exceeded 300 million yuan. At the same time, the total proportion of supplementary working capital and repayment of bank loans in raised capital was higher than 20%.

Hengda Intelligent Control's cumulative dividend of 1.4 billion over three years accounted for 83.5% of net profit attributable to mother during the same period, and has reached the standard line of “clearance” dividends stipulated by the exchange.

An industry insider on futures investment in the energy and mining industry told the “Science and Technology Innovation Board Daily” reporter, “Intelligent coal mining is one of the industries that the country has focused on supporting development in recent years. Intelligent coal mining is an important part of intelligent coal mines. Zheng Coal Machine's split and listing under Hengda Intelligent Control also hopes to comply with national-level coal mine intelligence related policies and continuously optimize the industrial structure.”

“However, the company's dividends have raised quite a few questions, and the rationality of the spin-off listing has also received increasing attention and even questioning from the market.” The industry insider mentioned above said.