The Science and Technology Innovation Board not only bears the heavy responsibility of being a “testing ground” for capital market reform, but should also become an incubator for innovative enterprises such as “Microsoft” and “Google” in China. This is the real meaning of the establishment of the Science and Technology Innovation Board. From this perspective, it is necessary to strictly review standards to improve the “entry point” of the Science and Technology Innovation Board to improve the quality of the Science and Technology Innovation Board companies and create conditions for the birth of “Microsoft” and “Google” in China.

The “face-changing” performance of IPOs used to be a dazzling sight in the A-share market. Due to lax scrutiny and inadequate controls, the market previously experienced large-scale “face-changing” phenomena of IPOs, while a small number of IPOs quickly “changed their faces.” Now, the phenomenon of “changing face” in the performance of IPOs is also beginning to appear on the Science and Technology Innovation Board. In particular, the Science and Technology Innovation Board Company was only listed on January 20 this year. The 2019 performance report released a month later showed a “change of face.”

In fact, listed companies that have “changed their faces” in their performance on the Science and Technology Innovation Board are not the only ones selected. According to statistics, up to now, with the exception of Xintuxingke due to the impact of the epidemic, the remaining 90 science and technology innovation board companies have disclosed their 2019 performance reports. Among them, 70 companies achieved an increase in net profit due to mother, while the remaining 20 companies experienced negative growth. Since the Science and Technology Innovation Board officially opened on July 22 last year, it actually also meant that the performance of these 20 science and technology innovation board companies “changed their faces” after listing.

The main reasons for the change in the performance of these 20 companies mainly include increased investment in R&D and increased market competition. Among many companies, Univer is quite representative. According to the performance report issued by the company, 2019 revenue increased 27.35% year over year; net profit attributable to the parent company decreased by 72.71% year on year, while net profit after deducting non-net profit decreased by 92.84% year on year. The net profit of 5.7075 million yuan in 2019 was almost only a fraction of the 2018 year of 797.261 million yuan. As a result, not only does Youke “change your face” quickly, but it also “changes your face” on a very large scale.

Of the 90 companies, 20 “changed their faces”. Compared with the Shanghai and Shenzhen Main Board, Small and Medium Board, and GEM, this ratio is actually not low. I personally think that the Science and Technology Innovation Board has experienced a large-scale “change in the face” of performance. Apart from R&D investment and increased competition, the other three reasons cannot be ignored.

First, the Science and Technology Innovation Board has more inclusive listing conditions. Unlike other sectors, the Science and Technology Innovation Board has set five sets of listing standards. The assessment indicators cover market value, revenue, net profit, R&D investment, cash flow, etc. As long as it meets one of these standards, even Zejing Pharmaceutical, which has lost performance, can successfully be listed on the Science and Technology Innovation Board. Since the Science and Technology Innovation Board made no special requirements for an increase in net profit, objectively, it also laid the groundwork for a “change in face” in performance.

Second, for companies listed on the Science and Technology Innovation Board, in order to achieve the goal of listing, it is impossible to rule out the possibility of packaging and whitewashing performance. For example, the market questioned the data of users who spent money before it went public, in order to create conditions for it to successfully pass the review and registration.

Third, controls are not strict. The main board of Shanghai and Shenzhen once had problems with poor control of IPO listings, which eventually led to the emergence of many companies that “changed their faces” in their performance. In fact, the review of new shares on the Science and Technology Innovation Board also raised the issue of poor control. For example, Hengan Jiaxin has previously passed review by the Shanghai Stock Exchange Listing Committee, but the registration application was not approved by the Securities Regulatory Commission, making it the first time that registration on the Science and Technology Innovation Board was rejected. Amidst this farce, the Shanghai Stock Exchange Listing Committee had the problem of poor scrutiny.

As a “testing ground” for China's capital market reform, the Science and Technology Innovation Board is positioned in high-tech industries and strategic emerging technology industries. The role this sector can play in advancing the development of China's high-tech industry and strategic emerging technology industries is clearly unquestionable. However, since the Science and Technology Innovation Board is part of the multi-level structure of the capital market, since listed companies finance through the capital market, there is a need to return their investors. Otherwise, the establishment of this sector will not have much meaning.

Therefore, for the Science and Technology Innovation Board, while focusing on the positioning of listed companies, the quality and growth of the Science and Technology Innovation Board companies are also worth focusing on. Even if the Science and Technology Innovation Board sets five sets of listing standards, it cannot break away from this original purpose. Based on this, it is also necessary for the Shanghai Stock Exchange Listing Committee to pay attention to this issue during the review and the Securities Regulatory Commission during registration. At the very least, those pseudo-high-tech enterprises, those that are not eligible to be listed on the Science and Technology Innovation Board, should be blocked from the door of the Science and Technology Innovation Board.

Moreover, the Science and Technology Innovation Board not only bears the heavy responsibility of being a “testing ground” for capital market reform, but should also become an incubator for innovative enterprises such as “Microsoft” and “Google” in China. This is the real meaning of the establishment of the Science and Technology Innovation Board. From this perspective, it is necessary to strictly review standards to improve the “entry point” of the Science and Technology Innovation Board to improve the quality of the Science and Technology Innovation Board companies and create conditions for the birth of “Microsoft” and “Google” in China.

(According to the author of this article: Independent financial writers have published hundreds of articles in the three major securities newspapers and other media)