Executive Summary
Jule Shares (菊乐股份), a prominent Sichuan-based dairy firm, is navigating a critical juncture in its prolonged initial public offering journey. After seven years and four failed attempts on the Shenzhen Stock Exchange, the company has pivoted to the Beijing Stock Exchange, but not without raising significant concerns among investors and regulators.
Key takeaways from this in-depth analysis include:
– Jule Shares’ Jule Shares IPO journey highlights persistent issues with related party transactions, where the company appears to engage in deals that favor关联方 over its own interests.
– The sudden leadership transition following the death of Chairman Tong Enwen (童恩文) has placed control in the hands of his 28-year-old daughter, Tong Zhu (童竹), with her spouse Gao Zhaohui (高朝晖) acting as CEO, raising governance questions.
– Multiple dealers with minimal employees and集中注销 patterns suggest potential revenue inflation, casting doubt on the sustainability of the company’s financial growth.
– Despite industry-wide challenges, Jule Shares reports逆势增长, but this may be masking underlying vulnerabilities in its business model and market positioning.
– Investors should closely monitor the Beijing Stock Exchange’s scrutiny of these issues, as they could impact the final outcome of the Jule Shares IPO.
A Tumultuous Path to Public Listing
Jule Shares (菊乐股份), known for its nostalgic brands like Suanle Milk (酸乐奶) and Chew Yogurt (嚼酸奶), has embarked on an eight-year quest to go public, a journey fraught with setbacks and recent tragedy. The company’s shift to the Beijing Stock Exchange (北京证券交易所) marks a strategic pivot after repeated rejections from the Shenzhen Stock Exchange (深圳证券交易所). This move comes amid a leadership vacuum caused by the sudden passing of its long-time chairman, Tong Enwen (童恩文), whose legacy now rests on the shoulders of his young heir.
The Jule Shares IPO saga underscores the complexities of China’s equity markets, where regulatory hurdles and corporate governance issues often determine success. With the company’s stock suspended pending further announcements, investors are keenly watching how the new management will address longstanding concerns.
From Shenzhen to Beijing: A Strategic Retreat
Jule Shares’ decision to target the Beijing Stock Exchange follows four unsuccessful IPO applications on the Shenzhen Stock Exchange over seven years. On October 9, the company announced its intention to proceed with a public offering on the Beijing exchange, continuing the suspension of its shares. This transition reflects broader trends in China’s capital markets, where smaller and regional firms are increasingly turning to the Beijing Stock Exchange for listing opportunities amid tighter scrutiny on main boards.
The Beijing Stock Exchange, established to support innovation and small-to-medium enterprises, offers a potentially more accessible pathway for Jule Shares. However, this does not eliminate the need for rigorous disclosure and compliance, especially given the company’s history of regulatory challenges. Investors should note that the Jule Shares IPO on this platform still requires approval from the China Securities Regulatory Commission (中国证监会), and any missteps could further delay or derail the process.
Leadership in Flux: Inheritance and New Guard
The untimely death of Chairman Tong Enwen (童恩文) at age 78 has precipitated a dramatic shift in corporate control. His daughter, Tong Zhu (童竹), aged 28, inherited 73.35% of the company’s shares, making her the majority shareholder and实际控制人. This rapid succession, formalized through a notarized will, places significant responsibility on a relatively inexperienced leader, raising questions about the future direction of Jule Shares.
Compounding this, Tong Zhu’s spouse, Gao Zhaohui (高朝晖), a U.S. citizen, has assumed the roles of董事长,总经理, and法定代表人 (代理). Despite his tenure since 2011, Gao holds no equity in the company, which could influence decision-making dynamics. This leadership structure may impact investor confidence, as governance stability is crucial for the success of the Jule Shares IPO. The Beijing Stock Exchange will likely scrutinize this transition to ensure it aligns with corporate governance standards.
Questionable Related Party Transactions Under the Microscope
At the heart of Jule Shares’ challenges are its related party transactions, which have drawn criticism for potentially favoring关联方 at the expense of shareholder value. These deals involve entities connected to the company’s leadership and major stakeholders, raising red flags about transparency and fair dealing. The Jule Shares IPO application must convincingly address these concerns to gain regulatory approval.
Analysts point to a pattern of transactions that suggest Jule Shares may be engaging in asset shuffling to benefit related parties. This includes deals where the company acquires underperforming assets while divesting more profitable ones, often with additional cash outlays. Such practices could undermine the integrity of the Jule Shares IPO and erode investor trust.
Deals with Momo Jixuan: Pricing Disparities and Concerns
Jule Shares’ transactions with成都么么集选科技有限公司 (Momo Jixuan), where Tong Zhu holds a 35.08% stake, exemplify the issues with related party dealings. Between 2019 and 2020, the company sold products to Momo Jixuan at higher average prices compared to third-party retailers like红旗连锁 (Hongqi Chain) and永辉超市 (Yonghui Superstores). Jule Shares attributes this to the stronger bargaining power of large chain supermarkets, but skeptics argue it could indicate overcharging to boost revenues artificially.
This pricing strategy risks distorting the company’s true market position. If the Jule Shares IPO proceeds without clarifying these discrepancies, it could lead to post-listing volatility. Investors should demand detailed explanations on how such transactions align with arm’s length principles, as mandated by the Beijing Stock Exchange’s listing rules.
Asset Swaps with Qianjin Group: Eliminating the Good, Keeping the Bad
Another critical area involves Jule Shares’ dealings with甘肃前进现代农业发展集团有限公司 (Qianjin Group), its largest supplier and a related party. In 2021, Jule Shares acquired a 55% stake in蜀汉牧业 (Shuhan Animal Husbandry) from Qianjin Group for RMB 6.02 million, plus an additional RMB 76.48 million in capital contributions. The following year, it swapped a 20% stake in its subsidiary德瑞牧业 (Derui Animal Husbandry) for a 20% stake in Shuhan Animal Husbandry, paying an extra RMB 1 million差价.
This series of transactions appears to follow a去优留劣 pattern, where Jule Shares parts with more profitable assets. In 2021, Derui Animal Husbandry reported a net profit of RMB 22.64 million, while Shuhan Animal Husbandry earned only RMB 2.63 million. Bai Wenxi (柏文喜), Deputy Chairman of the China Enterprise Capital Alliance, notes that such asset shuffling is evident and could signal efforts to mask underlying financial weaknesses. For the Jule Shares IPO to succeed, the company must demonstrate that these deals are in the best interest of all shareholders.
Dealer Network Anomalies and Revenue Sustainability
Jule Shares’ reliance on a dealer-centric sales model has come under scrutiny, particularly regarding the legitimacy of some distributors. With经销收入 accounting for over 70% of total revenue in recent years, any irregularities in this channel could have significant implications for the Jule Shares IPO. The company’s higher毛利率 in经销 channels compared to直销 channels contradicts industry norms, where direct sales typically yield better margins due to fewer intermediaries.
This anomaly suggests that Jule Shares’ revenue growth might not be entirely organic. Industry experts caution that if related party transactions are not conducted at arm’s length, they could inflate revenues or facilitate profit transfers. The Jule Shares IPO hinges on proving the authenticity and sustainability of its sales practices.
Shell Dealers and Mass Deregistration
Between 2021 and 2022, a group of five micro-entities, including黄岛区创新优选商行 (Huangdao Innovation Preferred Store) and黄岛区亚恒凯商行 (Huangdao Yahengkai Store), contributed over RMB 90 million in revenue. These dealers shared common traits: short operating histories, minimal employees (some with only one insured worker), and集中注销 in August 2023. Such characteristics are often associated with shell companies used to artificially boost sales figures.
The Beijing Stock Exchange has explicitly questioned Jule Shares about these dealers in its July 24 inquiry letter, highlighting concerns over their brief transaction periods and connections to former employees. Bai Wenxi (柏文喜) warns that these signs necessitate heightened vigilance, as they may indicate practices like revenue brushing or premature revenue recognition. For investors evaluating the Jule Shares IPO, understanding the robustness of the dealer network is crucial to assessing long-term viability.
Prepayment Risks and关联方 Suppliers
Jule Shares’ prepayment balances surged by 128.39% in 2024, far outpacing the 1.41% growth in operating costs. When major suppliers are also关联方, as in the case of Qianjin Group, this raises alarms about potential fund diversion or asset inflation. Prepayments to related parties could be used to channel资金 without corresponding value, distorting the company’s financial health.
The secondary market analyst cited in the original report emphasizes that such practices require careful examination. If the Jule Shares IPO is to gain traction, the company must provide transparent disclosures on its预付账款 policies and ensure they comply with regulatory standards. The Beijing Stock Exchange’s focus on this issue in its inquiries signals that it is a key area of concern for the listing approval.
Financial Performance and Industry Headwinds
Despite a challenging backdrop for China’s dairy sector, Jule Shares has reported逆势增长, with a 5.1% revenue increase and 18.4% net profit growth in 2024. This contrasts sharply with peers like均瑶健康 (Junyao Health),伊利股份 (Yili), and蒙牛乳业 (Mengniu), which faced declining performances. However, this outlier status warrants skepticism, as it may be buoyed by the very transactions under scrutiny.
The Jule Shares IPO must contextualize this performance within industry realities. China’s dairy market is grappling with oversupply, as noted by the China乳制品工业协会 (China Dairy Industry Association), with national milk production falling 2.8% in 2024. Song Kungang (宋昆冈), former chairman of the association, attributes this to a mismatch between raw milk output and consumer demand, leading to economic losses across the sector.
Capacity Utilization and Expansion Ambitions
Jule Shares’ capacity utilization has fluctuated between 78.44% and 85.29% from 2022 to 2024, failing to reach the 90% threshold often seen as efficient. Despite this, the company’s IPO募资 plan includes a RMB 2.78 billion investment in the温江乳品生产基地改扩建项目 (Wenjiang Dairy Production Base Expansion). Projections suggest this could generate annual revenue of RMB 935 million with a 5.8-year payback period, but current utilization rates cast doubt on its necessity.
Bai Wenxi (柏文喜) points out that Jule Shares derives nearly 76% of its revenue from Sichuan province, limiting growth potential. With national giants like Yili and Mengniu expanding into regional markets, Jule Shares faces intensified competition. The company’s heavy reliance on Suanle Milk (酸乐奶), which accounts for about 60% of sales, further exacerbates vulnerability to market shifts. The Jule Shares IPO’s success may depend on demonstrating a viable strategy for geographic and product diversification.
Market Share and Competitive Pressures
Jule Shares holds a modest 0.31% market share in China’s dairy industry as of 2022, according to the China Dairy Industry Association. In a sector dominated by behemoths, this marginal position makes it susceptible to competitive pressures. The company’s expansion plans, if realized, could lead to further declines in capacity utilization unless matched by demand growth.
Investors following the Jule Shares IPO should consider whether the company can carve out a sustainable niche. Its regional strength in Sichuan provides a base, but breaking into new markets requires significant investment and execution capability. The reduced募资 scale—from RMB 13.63 billion in 2023 to RMB 5.52 billion in the current plan—suggests a more conservative approach, but it must be backed by sound operational strategies.
Regulatory Scrutiny and Investor Implications
The Beijing Stock Exchange’s rigorous inquiry into Jule Shares’ practices underscores the heightened regulatory environment for IPOs. With a focus on preventing unfit companies from listing, the exchange’s scrutiny of related party transactions and dealer anomalies could be a make-or-break factor for the Jule Shares IPO. Investors must weigh these regulatory risks when considering involvement.
Bai Wenxi (柏文喜) cautions that any dependency on关联方 for业绩表现 could unravel under market stress, leading to growth deceleration. The Jule Shares IPO represents not just a fundraising opportunity but a test of corporate governance and transparency. Those tracking China’s equity markets should monitor the exchange’s decisions closely, as they will set precedents for similar cases.
Call to Action for Stakeholders
As Jule Shares navigates this critical phase, investors and analysts should conduct thorough due diligence on its financial disclosures and governance structures. Engaging with the company’s management for clarifications on related party deals and dealer networks is essential. Additionally, staying informed on Beijing Stock Exchange announcements can provide timely insights into the IPO’s progress.
The Jule Shares IPO journey serves as a reminder of the complexities in China’s capital markets. By prioritizing transparency and addressing the highlighted concerns, Jule Shares can enhance its prospects. For now, a cautious approach is advised, with a focus on long-term sustainability over short-term gains.