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Zhang Wei from Investor Network

Currently, the development of new energy vehicles in the country is progressing rapidly, driving the prosperity of related supporting industries.

Following the initial public offering (IPO) in April 2021, which raised a net amount of 0.375 billion yuan, auto electric machine manufacturer Ningbo Hengshuai Co., Ltd. (hereinafter referred to as "Hengshuai Co.," 300969.SZ) applied in July 2023 to issue convertible bonds, planning to refinance 0.328 billion yuan to expand production capacity.

According to the official website of the Shenzhen Stock Exchange, on December 26, 2024, Hengshuai Co.'s refinancing project has been submitted for registration and is currently awaiting registration results. However, some of the funded projects in this refinancing are part of the previous IPO projects, leading to doubts about Hengshuai Co. being accused of "raising funds."

Projects that have already made a profit exceeding 100 million are still seeking financing.

Unlike traditional RBOB gasoline vehicles, new energy vehicles focus on comfort and intelligence. Under this demand, electric seats, electric door handles, and other features have become standard configurations for domestic new energy vehicles. Moreover, these configurations depend on auto electric machines to function.

It is understood that auto electric machines are applied in the body, chassis, and engine of new energy vehicles, with each vehicle requiring dozens to hundreds of auto electric machines. Currently, the unit value of auto electric machines for ordinary models is about 400-600 yuan, while luxury models can reach 1200-1600 yuan.

Statistics show that in 2024, the annual sales of new energy vehicles in the country reached 13 million units. It can be seen that the market prospects for Auto Parts are broad. Hengshuai Co., Ltd. is a major supplier of Auto Parts, primarily producing Electric Machines.

The IPO prospectus shows that Hengshuai's products are divided into two main categories: Electric Machines and cleaning systems and cleaning pumps centered around Electric Machines. The 2024 mid-term report shows that Electric Machines account for approximately 44% of Hengshuai's main revenue, while the revenue share of cleaning systems is about 25%, and cleaning pumps about 22%.

In April 2021, when Hengshuai Co., Ltd. went public, it planned to raise 0.616 billion yuan for the capacity expansion of Electric Machines, cleaning systems, and other products, but the actual net amount raised in the IPO was 0.375 billion yuan.

In July 2023, Hengshuai Co., Ltd. applied to issue Convertible Bonds to unspecified recipients, planning to raise no more than 0.328 billion yuan for capacity expansion and the construction of a research and development center.

(Chart 1: Details of Hengshuai's Refinancing Use)

Notably, of the 0.616 billion yuan intended to be raised during Hengshuai's IPO, 0.181 billion yuan is allocated for 'the annual production of 19.54 million units of Auto Micro Electric Machines, the renovation and expansion projects of cooling system components, and the expansion of the research and development center.'

However, according to the 2024 mid-term report, 0.12 billion yuan has already been invested in this IPO project, with an investment progress of 99.81%. The 60.59 million yuan raised from this issuance of Convertible Bonds will be used for the subsequent construction of this project.

The 2023 annual report shows that this project has already achieved benefits of 79.51 million yuan for the current period, with an annual Net income of 70.42 million yuan after reaching production capacity. Hengshuai stated in the 2024 mid-term report, 'In the first half of this year, Net income of 45.21 million yuan was achieved, therefore it is expected that this year's Net income target can also be met.'

Here arises a question: why invest an additional 60.59 million yuan into a project that is nearly completed and has already generated a net income of over 100 million yuan? In response, the Shenzhen Stock Exchange also has concerns and requires Hengshuai Co., Ltd. to explain the reasons and rationality behind this refinancing part of the fundraising project being an IPO fundraising project.

Hengshuai Co., Ltd. only stated that this IPO project still has a funding gap that needs to be filled by continuing to raise funds through this issuance. In simple terms, the project originally planned to invest 0.181 billion yuan, but actually only invested 0.12 billion yuan of IPO funds, leaving a gap of 60.59 million yuan, which is planned to be filled through this refinancing.

After being questioned, another IPO project was cut.

In fact, Hengshuai Co., Ltd. has also cut another IPO project between the two rounds of inquiries.

The acceptance documents from July 2023 show that Hengshuai Co., Ltd. has four refinancing fundraising projects, namely: a new auto parts production base project in Thailand (Project 1), an annual production of 19.54 million automotive micro motors, redevelopment and expansion of the cleaning and cooling system parts, and R&D center expansion project (Project 2), the construction project of new energy vehicle micro motors and thermal management systems, and smart sensing cleaning system parts production base (Project 3), and the R&D center redevelopment project (Project 4), with a proposed fundraising of 0.43 billion yuan for all four projects.

Among these four projects, both Project 2 and Project 3 are IPO projects.

(Chart 2: Detailed list of Hengshuai Co., Ltd.'s earliest proposed refinancing projects)

According to the announcement, as of the end of the third quarter of 2024, the investment progress of Project 2 was 99.81%, and Project 3 was at 50.41%. In addition, the expected usable state of Project 3 has been postponed from April 11, 2023, to April 11, 2025.

This situation naturally attracted the attention of the Shenzhen Stock Exchange, which requested Hengshuai Co., Ltd. to explain the necessity and rationality of continuing to invest in the IPO fundraising projects. Hengshuai Co., Ltd. stated that the funds raised this time would clearly distinguish the investment components of the two rounds of fundraising, and the total amount of the two rounds of fundraising would not exceed the total investment amount of the fundraising projects, thus avoiding any duplicate investment.

For Project 3, Hengshuai Co., Ltd. plans to invest 0.472 billion yuan, with 0.44 billion yuan intended for the IPO fundraising, a commitment to invest 0.25 billion yuan after the IPO, an actual investment of 0.14 billion yuan, and a refinancing plan to invest 0.1 billion yuan. This means that, with 0.11 billion yuan of IPO funds still unused, Hengshuai Co., Ltd. plans to refinance 0.1 billion yuan to invest in this project.

Perhaps to increase the likelihood of refinancing approval, Hengshuai Co., Ltd. proactively cut Project 3. In August 2024, the Board of Directors of Hengshuai Co., Ltd. approved that Project 3 would no longer be included as a refinancing fundraising project, reducing the total fundraising amount from 0.43 billion yuan to 0.328 billion yuan.

Why are there still two IPO projects included in the refinancing project of Hengshuai Co., Ltd.? Some market analysts believe that according to the prospectus (draft), Hengshuai Co., Ltd.'s total investment reached 0.652 billion yuan, while the IPO net fundraising was 0.375 billion yuan, and this refinancing is 0.328 billion yuan. The sum of these two amounts is not much different from the originally planned total investment.

In fact, Hengshuai Co., Ltd. is not short of money. By the end of the third quarter of 2024, the company's cash and trading financial assets totaled more than 0.6 billion yuan, with more than 0.1 billion yuan of fundraising remaining unused, while the company's debt-to-asset ratio is only 17.5%, far below the average level of about 50% in the auto parts industry.

With sufficient cash and low debt, Hengshuai Co., Ltd. still seeks to finance 0.33 billion yuan for capacity expansion, which may be one of the important reasons for its fundraising, possibly due to "going overseas." In this refinancing, Hengshuai Co., Ltd. plans to invest 0.2 billion yuan in the "New Auto Parts Production Base Project in Thailand."

Previously, during an institutional research, Hengshuai Co., Ltd. stated that it considers Thailand a key site for overseas capacity planning, fully leveraging the advantages of the host country, deepening the layout in international markets, alleviating the impact of uncertainties on the company, and laying a solid foundation for the company's sustainable development. (Produced by Siwei Finance) ■