Lisa Zhu
Recent IPO Dynamics Signal Strategic Adjustments
China’s capital markets exhibit accelerating restructuring patterns where firms reroute listing strategies amid regulatory hurdles. Notable developments include Akuan Food – supplier of viral consumer brand Mala Ji – abandoning its Shenzhen main board IPO after profit contractions, instead targeting the New Third Board (NEEQ). Simultaneously, textile machinery specialist Baoyuan Equipment faces sharp questions from Beijing Stock Exchange regulators regarding dividend payments exceeding cumulative profits. Such turbulence reflects intensifying competitive pressures and regulatory audits targeting unsustainable financial maneuvers. Investors now monitor how companies recalibrate growth trajectories within China’s restructured IPO journey.
Key Trends Reshaping Listings
– Rebound after failure: 78% of firms postponing IPOs pursue alternative exchanges within 24 months
Baoyuan Equipment Draws Scrutiny Over Dividend Policies
Baoyuan Equipment’s IPO journey has endured three failed attempts since 2016 across multiple exchanges before its current Beijing application – creating unique pressure for capital acquisition. What sparked regulator concern were dividends totaling over 150 million yuan ($20.6m) distributed through 2020-2022 despite net profits of just 134 million yuan during that timeframe.
The Dividend Controversy
Between December 2020 and December 2022, shareholders received:
– 130 million yuan distribution (2019 accumulated earnings)
– 21.96 million yuan payout (2022 interim profits)
Such distributions represent ‘clean-out dividends’ particularly advantageous to controlling shareholders holding majority stakes.
The Beijing Stock Exchange’s third round of inquiries explicitly questioned why Baoyuan Equipment simultaneously pays aggressive dividends while seeking 30 million yuan ($4.1m) IPO funding specifically for “working capital supplementation”. Regarding abnormal 35.09% gross margin (10 percentage points above peers), executives attribute discrepancies to:
– Proprietary product differentiation
– Major export clients paying premium prices
Evidence highlights clients like Thailand’s Tanks Textile (60.08% margin) and Jiangmen Ruijia Textile (51.05%) generating disproportionately elevated returns versus domestic business lines.
Akuan Food Shifts Focus After Main Board Withdrawal
After postponing its Shenzhen main board offering last December, Chengdu-based Akuan Food officially submitted NEEQ listing documents – refocusing growth plans away from conventional exchanges. The noodle producer supplying celebrities Zhang Lan’s (张兰) Mala Ji brand saw plummeting profitability despite revenue growth:
2021-2023 Financials:
| Year | Revenue (¥ bn) | Net Profit (¥ mn) | YoY Profit Change |
|——|—————-|——————-|——————-|
| 2021 | 12.14 | 59.0 | -22.7% |
| 2022 | 12.46 | 68.8 | +16.7% |
| 2023 | 13.03 | 50.0 | -24.9% |
Sliding earnings stem partly from increased Original Equipment Manufacturing (OEM) partnerships supplying:
– Sanxiang松鼠
– Bailuowei百草味
– Dongfang Zhenxuan东方甄选
Lower-margin OEM work now comprises nearly 40% of business versus proprietary brands such as premium “Spicy Oil Noodles” facing market saturation. This transition contributed to Akuan’s gross margin declining below rivals like Tingyi康师傅 and Uni-President统一.
Chairman Chen Zhaohui (陈朝晖) targets ambitious 30% revenue growth to ¥2.4 billion ($330m) during 2024 – despite weakened consumer spending evident throughout the sector.
Post-Approval Withdrawals Raise Governance Concerns
Multiple Chinese firms advanced through IPO approvals only to unexpectedly withdraw applications near registration phases.
Huaping Intelligent Control’s Board Dominance
Ningbo-based valve manufacturer Huaping Intelligent Control exited market preparation despite passing Shenzhen exchange reviews in April 2023. As founder Lyu Jieping (吕杰平) controlled:
– 90.98% equity ownership
– 100% board voting rights
The leadership team included daughter Lyu Mengmeng (吕梦梦) and daughter-in-law Bao Min (鲍敏) filling three director seats. Most held Australian residency statuses. Critics suggest such concentrated control potentially triggered compliance hesitations despite formal approvals granted.
Abrupt IPO Cancellations Across Sectors
Beyond headline cases, regulatory records indicate terminated offerings including:
Technology Firms
– Shenzhen-based YJ Technology (越疆科技) submitted Hong Kong paperwork specializing in collaborative robotics
– Yu Weng Information abandoned STAR Market plans after Shanghai exchange termination
– Hua Zhuojing Ko’s semiconductor equipment application stalled
Industrial Applicants
– Automative components provider Ditong Holding withdrew Shanghai listing
– Xinjiang Water Environmental Protection terminated Shenzhen initiative
Full IPO journey withdrawals averaged 29 days faster during 2023 versus 2021—suggesting regulators accelerated screenings.
Strategic Implications For Future Listings
Two common factors persistently undermine listing success: profitability declines amidst market saturation and unrealistic capital maneuvers intended primarily to enrich controlling holders.
Sovereign Guidance Emerging
CSRC officials increasingly signal prioritizing “high-quality firms” emphasizing:
– Sustainable organic growth above artificial expansions
– Competitive margins verified against peer benchmarks
– Capital distributions justified via operating cash flows
The evolving IPO journey clearly favors firms demonstrating resilience against macroeconomic pressures.
Corporate Next Steps In China’s Capital Landscape
Strategic adaptation proves essential amid tightening IPO compliance frameworks:
1) Management Reevaluation:
– Owners must objectively assess financial sustainability against public market metrics
2) Oversight Rebalancing:
– Tighten board governance eliminating nepotistic dominance
3) Model Adjustment:
– Exit commoditized OEM work where possible
– Promote proprietary premiumization
Analysts suggest transparent dividend policies and horizontal benchmarking now constitute baseline requisites. Investors should reevaluate firms demonstrating sudden IPO redirections through updated due diligence. Contact exchange disciplinary committees regarding disputable financial distributions before deploying capital.
