IPO Observation: 78-year-old Chairman Leads Company to Go Public, Risks Lurking Behind: Bad Debt Loss of Approximately -400 Million Yuan, Gross Profit Margin Downward Trend

Recently, Jiangxi Shengfule Optoelectronics Technology Co., Ltd. (hereinafter referred to as "Shengfule") submitted its IPO application to the North Securities Exchange and received approval. It's worth noting that Shengfule is controlled by 78-year-old Chairman Chen Zhengyuan and his son Chen Huibo. Behind this move, there are concerns about Shengfule, such as the increasing bad debt loss of approximately -400 million yuan in the past three years.

Unstable Performance

Sales and Net Profit Both Down by Half Year-on-Year

In August last year, Shengfule listed on the New Third Board and then submitted its IPO application to the North Securities Exchange in December. According to the prospectus, Shengfule is controlled by 78-year-old Chairman Chen Zhengyuan and his son Chen Huibo. The prospectus shows that Chen Zhengyuan and Chen Huibo directly or indirectly control the company's shares for 33.91%. Additionally, Chen Zhengyuan, Chen Huibo, and the company's largest shareholder, Zhejiang Jun Tai, signed a "Consensus Action Agreement" after which Chen Zhengyuan and Chen Huibo can actually control the company's shareholders' rights for 62.93%.

From an operational perspective, under the leadership of 78-year-old Chairman Chen Zhengyuan, Shengfule's performance has been unstable. As a company mainly engaged in the development, production, and sales of high-refractive-index glass beads, optical membranes, and other products, Shengfule's revenue for 2020, 2021, 2022, and 2023 (January to June) was RMB 2.28 billion, RMB 2.77 billion, RMB 2.56 billion, and RMB 1.26 billion, respectively. Its net profit attributable to shareholders for the same period was RMB 0.38 billion, RMB 0.49 billion, RMB 0.37 billion, and RMB 0.18 billion, respectively.

As seen from the performance report, Shengfule's revenue and net profit both decreased in 2022, with a year-on-year decrease of 7.58% and 24.49%, respectively. The gross profit margin for the same period was 28.09%, 36.43%, and 24.81%, respectively.

Specifically, from the product perspective, in 2022, the revenue from high-refractive-index glass beads was RMB 1.46 billion, down by 9.39% year-on-year. The revenue from optical membranes was RMB 0.60 billion, up by 0.50%. The revenue from PC light diffusers was RMB 0.41 billion, down by 16.40%. From the gross profit margin perspective, the three major products had a gross profit margin of 28.09%, 36.43%, and 24.81%, respectively, with a year-on-year decrease of 6.58%, an increase of 1.22%, and a decrease of 0.85%, respectively.

Shengfule stated that during the reporting period, the company's performance was affected by certain domestic factors, leading to difficulties in logistics and transportation, resulting in a decline in downstream demand. As a result, the company's accounts receivable at the end of each period decreased by 8.80% year-on-year.

It is worth noting that Shengfule's accounts receivable at the end of each period was RMB 21,457.64 million, down by 8.80% year-on-year. From a structural perspective, high-refractive-index glass beads accounted for 14,583.23 million, PC light diffusers accounted for 4,084.57 million, and other products accounted for the remaining portion.

Shengfule also mentioned that the company's accounts receivable at the end of each period was RMB 6,436.15 million, 6,470.85 million, 8,707.81 million, and 9,366.09 million, respectively, accounting for 29.38%, 25.61%, 31.51%, and 34.72% of the company's total current assets, respectively.

Bad Debt Loss of Approximately -400 Million Yuan

Behind Shengfule's performance, there are concerns about the company's bad debt loss. According to the prospectus, during the reporting period, Shengfule's bad debt loss was approximately -400 million yuan.

Shengfule stated that although the company has a majority of long-term cooperative clients and most of its accounts receivable are within one year, the company still faces the risk of potential credit losses due to changes in macroeconomic conditions or fluctuations in downstream demand.