Image credit: Visual China

On December 4, Blue Whale News reported (by journalist Wang Jianwen) that after a year and nine months, Qifeng New Material (002521.SZ) has finally completed its private placement.

On the evening of December 3, Qifeng New Material disclosed its issuance report, announcing that the company issued 65.3752 million shares to its actual controller Li Xuefeng at a price of 4.20 yuan per share, raising a total of 0.275 billion yuan, which will be used to construct a special paper project with an annual output of 0.2 million tons.

In participating in the private placement of Qifeng New Material, Li Xuefeng not only contributed his own funds of 50 million yuan but also pledged 12.03% of the company's shares for financing. Li Xuefeng has gained substantial unrealized profits through this private placement. On December 4, the closing price of Qifeng New Material was 10.73 yuan per share, significantly higher than Li Xuefeng's placement price of 4.20 yuan per share. Based on the current stock price, Li Xuefeng's unrealized gains from this private placement have exceeded 0.4 billion yuan.

However, for Qifeng New Material, the prospects of this fundraising for expansion remain to be seen. This year, the industry's newly added production capacity has been concentrated in production, leading to a sharp decline in prices for products such as decorative base paper, which has also affected the company's performance.

The actual controller Li Xuefeng fully subscribed to the private placement, with unrealized gains exceeding 0.4 billion yuan as the stock price rises.

Since March 2023, Qifeng New Material has been planning to carry out the private placement.

According to the latest announcement from qifeng new material, the company issued 65.3752 million shares at a price of 4.20 yuan per share to its actual controller Li Xuefeng, raising a total of 0.275 billion yuan, which will be used for the annual production of 0.2 million tons of specialty paper project (Phase I).

Before this private placement, Li Xuefeng and his concerted actions Li Andong, Li Anzhong, Li Runsheng, and Li Runze together held 27.41% of the shares in qifeng new material. After the completion of the private placement, the shareholding ratio of Li Xuefeng and his concerted actions will increase to 35.88%. Among them, Li Xuefeng's shareholding ratio will increase from 16.31% to 26.08%.

In order to raise the funds required for this private placement, Li Xuefeng not only contributed his own funds but also pledged a portion of his shares. The announcement shows that among the funds Li Xuefeng used for the subscription, about 50 million yuan came from his own funds, while the remaining funds were mainly obtained through pledges.

Before this private placement, the shares held by Li Xuefeng and his concerted actions were not pledged. On November 29, Li Xuefeng pledged 8.09% of the company's shares, and his grandson Li Runsheng also pledged 3.94% of the company's shares, totaling a pledge ratio of 12.03%. Based on the company's closing price of 10.64 yuan per share on that day, the value of the pledged shares is approximately 0.633 billion yuan.

However, shares cannot be pledged for cash at par value. According to a previous report by brokerage china, the average pledge rate of brokerages is about 35%. If calculated at this rate, Li Xuefeng and Li Runsheng pledged their shares to sinolink and gtja brokerage, they could obtain about 0.222 billion yuan of funds.

Li Xuefeng needs to contribute 0.275 billion yuan for this private placement, and after deducting his own funds of 50 million yuan, he needs to supplement approximately 0.225 billion yuan through pledges, which is close to the above-mentioned fund amount.

In addition, although most of the funds participating in this private placement need to be obtained by pledging stocks, due to the current stock price of qifeng new material being much higher than the private placement price, Li Xuefeng can reap substantial unrealized gains after the private placement is finalized.

The pricing benchmark date for this private placement issuance price is March 7, 2023, and the private placement price is set at 80% of the average closing price over the 20 trading days prior to the benchmark date. After excluding the impact of dividends and other factors, the final issuance price is set at 4.20 yuan.

At that time, qifeng new material was in a rising market. After hitting a historical low of 4.58 yuan per share in April 2022, the company's stock price began to gradually recover. By 2023, due to improving performance and news about private placements to raise funds for expansion, the company's stock price continued to rise, reaching a cumulative increase of 63.76% within the year.

By January 2024, qifeng new material released an earnings forecast, becoming the "earnings growth king" in A-shares with an increase of over 25 times. The company's stock price also further rose, reaching an eight-year high of 15.80 yuan per share by May 2024, and its market cap once approached 8 billion yuan. However, the company's stock price began to correct afterwards, and by the close on December 4, the stock price was 10.73 yuan per share, with a total market cap of approximately 5.3 billion yuan.

Although qifeng new material's stock price has retreated from its peak, it is still much higher than the private placement price. Based on a price of 10.73 yuan per share, Li Xuefeng has made an unrealized profit of approximately 0.427 billion yuan from the shares obtained through this private placement.

However, at present, Li Xuefeng cannot convert the unrealized profit into actual earnings. According to qifeng new material's announcement, the shares subscribed by Li Xuefeng cannot be transferred within 36 months.

Since its listing, there have been continuous setbacks with the two private placements.

Founded in 1976, qifeng new material was listed on the Shenzhen Stock Exchange in 2010. After its listing, qifeng new material attempted two private placements; the first one failed to succeed, and the second faced several challenges during its promotion.

In September 2016, qifeng new material launched its first private placement after being listed. The announcement stated that the company planned to raise 0.5 billion yuan to establish projects for the annual production of 0.05 million tons of solid color decorative base paper and 0.03 million tons of non-woven (fabric) wallpaper base paper. Qifeng new material stated that it aimed to improve the company's profitability and optimize its product structure through this private placement.

The targets of this private placement were Li Xuefeng's concerted actors, Li Andong and Li Runsheng, who would each subscribe to 50% of the newly issued shares. Part of the funds for their subscription to the company's stock also came from Li Xuefeng's loans. If this private placement smoothly materializes, Li Xuefeng and his concerted actors' shareholding ratio will increase from 22.42% to 30.16%.

However, in early 2017, the securities regulatory commission adjusted the refinancing rules, leading to a significant cooling of the private placement market. In addition, in June of that year, Li Runsheng illegally sold 1,000 shares of the company's stock, violating regulatory policies. The company ultimately decided to terminate this private placement.

By March 2023, qifeng new material resumed its private placement.

At the beginning of this private placement, qifeng new material originally planned to issue stocks to Li Xuefeng and the listed company cnnc hua yuan titanium dioxide (002145.SZ), with both parties planning to subscribe to between 44.4444 million and 62.4036 million shares of the company. If the private placement proceeds smoothly, cnnc hua yuan titanium dioxide will become a shareholder holding more than 5% of qifeng new material.

cnnc hua yuan titanium dioxide is the strategic investor that qifeng new material introduced. The company stated that titanium dioxide is the main filler for decorative paper, accounting for about 40% of the cost. To improve the application level of titanium dioxide, the company plans to conduct in-depth cooperation with cnnc hua yuan titanium dioxide in the fields of research and development and application of titanium dioxide.

However, afterwards, the Shenzhen Stock Exchange conducted multiple inquiries into the necessity and rationality of cnnc hua yuan titanium dioxide's participation in this private placement. In December 2023, qifeng new material ultimately announced that cnnc hua yuan titanium dioxide would no longer participate in this private placement.

"Pre-increase king" sees performance decline this year, fundraising for expansion prospects uncertain.

qifeng new material mainly engages in special paper-related businesses, with main products including decorative base paper, latex paper, and sanitary materials. Due to fluctuations in the real estate industry's performance and changes in market demand, the company's performance has been quite volatile in recent years.

From 2021 to 2023, qifeng new material's revenue was 3.702 billion yuan, 3.119 billion yuan, and 3.661 billion yuan respectively; the net income attributable to shareholders was 0.165 billion yuan, 0.008 billion yuan, and 0.237 billion yuan respectively. Among them, the company's performance rose significantly in 2023, becoming the "pre-increase king" of A-shares at that time with a profit increase ratio exceeding 25 times.

However, in 2024, qifeng new material's performance declined again. In the first three quarters, the company's revenue was 2.551 billion yuan, a year-on-year decrease of 5.97%; the net income attributable to the parent company was 0.106 billion yuan, a year-on-year decrease of 32.38%. In the third quarter, the net income attributable to the parent company was -2.6051 million yuan, turning from positive to negative year-on-year.

Qifeng new material stated that the decline in profit levels in the first three quarters of 2024 was mainly due to a decrease in product prices year-on-year, which led to a reduction in unit gross margin.

According to the announcement from qifeng new material, the average selling price of the company's main products in the first three quarters of 2024 was 9669.23 yuan/ton, compared to 10154.15 yuan/ton during the same period in 2023. This change resulted in a decrease in the company's gross profit from main business of 79.3328 million yuan. The decline in product prices was mainly due to the concentrated expansion of production capacity by the three leading companies in the paper industry this year: qifeng new material, hangzhou huawang new material technology, and xiawang paper industry, resulting in an increase in new production capacity of more than 0.2 million tons this year.

In this context, it will be difficult for qifeng new material to significantly boost its performance through fundraising for expansion. The company indicated that if effective business expansion and healthy development cannot be achieved in future operations, the decrease in capacity utilization due to insufficient orders will increase the unit cost of company products, which will adversely affect the company's gross margin, operational performance, and other indicators.

In addition, the total budget for this expansion plan of qifeng new material is approximately 0.756 billion yuan. In addition to the 0.275 billion yuan raised from the fixed increase, the remaining 0.482 billion yuan needs to be supplemented by the company itself.

According to qifeng new material's financial report, as of the end of September 2024, the company's cash balance and trading financial assets balance totaled 0.759 billion yuan. During the same period, the company's short-term loan balance was 0.592 billion yuan. Although overall liquidity is sufficient, it is difficult to cover expansion expenses with self-owned funds, so the company applied for 0.3 billion yuan in bank credit to implement this fundraising investment project.

Qifeng new material also stated that if the company experiences a decline in profitability, it may lead banks to reduce credit limits, which may in turn affect the implementation progress of the fundraising investment project.