Sockets bull bull sprint IPO dealer to borrow money to buy goods from the real controller.

Sockets bull bull sprint IPO dealer to borrow money to buy goods from the real controller.

Liu Songhui

Since its inception in 1995, Bull Group Co., Ltd. (hereinafter referred to as the "Bull Group") has entered thousands of households in the production of switching sockets with the "Bull" brand logo. When many companies in the same industry started to expand with capital operation, the Bulls group kept fighting.

Recently, Bulls Group disclosed its prospectus on the SFC website. The company intends to issue no more than 60 million shares on the Stock Exchange. The shares issued accounted for no less than 10% of Bulls Group's total equity after the issue, and the proposed fund-raising was 4.887 billion yuan.

According to the prospectus, Bull Group plans to raise 4.887 billion yuan through the IPO, mainly to expand production capacity.

The prospectus also showed that the Bulls Group had an inventory of 390 million yuan, 460 million yuan, 960 million yuan and 850 million yuan from 2015 to 2017 and from January to March 2018, respectively. Gross margin also declined during the same period. In spite of the increasing annual stock price, revenue grew by 34.91% over the same period in 2017, but net profit fell by 8.67%. Moreover, Pan Xiaofei, wife of Nguyen Liping, one of Bull Group's real controllers, has been borrowing tens of millions of dollars from the company's dealers over the years, and his brother-in-law Pan Minfeng has also been involved in the family industry, where his company is a big customer of Bull Group.

In response, Bull Group officials told China Business Daily that the reasons for the decline in gross margin include the overall rise in raw material procurement prices, low gross margin LED lighting and digital accessories sales of new products such as the rise in the proportion of converter products in 2017, the upgrade of new national standards lead to production costs. Up, and the company does not raise the price in proportion to strategically reduce the gross profit margin of mature products and so on. As for the problem of inventory increase, it shows that in recent years the company's business scale has expanded rapidly and the product category has been enriched. In order to ensure timely supply to downstream customers, all kinds of products need to maintain a certain amount of inventory, in line with the company's own business development needs.

Surge in inventories

Public information shows that Bull Group's main business is the development, production and sales of civil electrical products with converters and wall switch sockets as the core. The products mainly include converters, wall switch sockets, LED lighting, digital accessories and so on, which are widely used in households and offices.

From 2015 to 2017 and January to March 2018, Bulls Group achieved operating income of 4.459 billion yuan, 5.366 billion yuan, 7.24 billion yuan and 2.049 billion yuan, with net profit of 1 billion yuan, 1.407 billion yuan, 1.285 billion yuan and 321 million yuan. In the past 3 years, the bull group's revenue grew by more than 60%, while its net profit increased by less than 30%.

For 2017, net profit fell by 8.6%, Bulls said, mainly due to the decline in gross margins. If the future macroeconomic environment, market demand, competitive environment and other adverse changes, the company's business growth, product sales or production costs have adverse effects, may still lead to a decline in operating performance.

According to the prospectus, the gross margins of Bull Group's main business during the reporting period were 41.63%, 45.21%, 37.79% and 34.98% respectively, showing a trend of increase first and then decrease, especially since 2017.

But in addition to the downside of the gross margin, Red Bull Group's rising inventory can not be ignored. During the reporting period, the inventory amounts were 390 million yuan, 460 million yuan, 960 million yuan and 850 million yuan respectively. Inventories in 2017 increased by 109% compared with 2016, while the first quarter of 2018 was nearly two times that of 2016.

Home appliances industry observer Hong Shibin pointed out that the increase in inventory undoubtedly brought greater pressure on enterprises, excessive inventory backlog will occupy funds, and depreciated products in the future do not adapt to the market may need to be discounted. The funds occupied will consume the net profit when dealing with, and the product backlog will continue to be like an explosive bag, with the risk of engulfing the company's net profit and cash flow.

Bull Group production of raw materials mainly include copper, plastics, components, hardware, packaging materials, electronic parts, etc., therefore, raw material procurement prices and copper, plastic and other commodity prices have a certain relevance. According to the Bull Group's prospectus, the proportion of direct materials in the company's main business costs in recent years was 86.99%, 85.78%, 85.07% and 83.33% respectively. The purchase price of raw materials has a great impact on the main business cost of the company.

In response, Bull Group said in a letter to reporters that the company has been focusing on product quality and cost control of raw material volatility risk response.

The "business classics" of the Ruan family

From the Bull Group's prospectus, we can find that its proposed fund is nearly 5 billion yuan, mainly invested in the construction project of 410 million sets of wall switch socket production base, 400 million sets of converter automation upgrading project, LED lamp production base construction project, research and development center and headquarters base construction project, information construction project Terminal construction and brand promotion projects. According to the current level of operation, the sum raised is equivalent to the total net profit of the bull group in 4 years.

According to equity relations data, the 23 year old business has a strong family atmosphere. According to the prospectus, the actual controllers of Bull Group are Ruan Liping and Ruan Xueping. Before the issue, the two controllers directly and indirectly controlled 96.961% of the voting rights of the company, forming a common control over the company. After the issuance, the proportion of voting rights controlled by the two persons directly and indirectly decreased to 87.265%, which is still the actual controller of the company.

Most of the Bulls are owned by members of the Ruan family, with 33.33% of the other three sisters in Ninghui, in addition to the actual controllers Ruan Liping and Ruan Xueping.

Dealer sales are the core selling mode of bull group. Data show that during the reporting period, the sales revenue accounted for more than 80% of the total income of the bull. In fact, from 2015 to 2017, Pan Xiaofei, wife of Nguyen Liping, one of Bull Group's actual controllers, has been lending tens of millions of dollars to Bull Group dealers. In 2017 alone, new dealers borrowed as much as $95 million to buy from Bulls.

Reporters for the company's actual control shareholding concentration and other issues call the Bull Group, the relevant person in charge did not specify what specific measures, only that the company has now established a relatively sound corporate governance structure.

Data show that in 2014, the bull group with switch socket and converter as the old headquarters officially entered the LED lighting industry, but the performance of gross margin is low. It said that the company entered LED lighting and digital accessories and other new areas, although in the improvement of product echelon, but still consider that the major customer channels and existing channels of low coincidence, market development experience is insufficient.

Hong Shibin believes that the traditional production of socket enterprises, Maori space is constantly compressed. As a result of industrial upgrading, many enterprises launched "intelligent switch", some switch and socket enterprises and intelligent hardware companies together, these new generation of products to the Bulls and other traditional switch enterprises caused tremendous challenges and impact.

On the eve of IPO, investment agencies rushed into the Bureau.

It is worth mentioning that before the IPO, the Bulls group did not accept external institutional financing. In December 2017, the well-known investment institution Gao Ning Capital bought shares of Ruan Liping and Ruan Xueping, totaling 800 million yuan, into the Bull Group. Zhejiang's two investment institutions in Ningbo, Bo Wei investment and Ning Hui investment, also entered the same time.

The prospectus showed that in December of the same year, the bull group completed the shareholding system reform. At this point, it is only two months from the sponsor broker to conduct counselling on the market. Gao Rong Daoying, a shareholder of Zhuhai Gao Rong Daoying Investment Partnership (Limited Partnership), was set up in August 2017, and received a total of 2.235% of the Bull Group's capital contribution. According to the 10% share offered by Bulls Group and the 4.886 billion yuan raised, Gao Ning Capital's transfer of Bulls Group shares will be nearly 300 million yuan.

An unnamed person in the securities industry in Nanjing said that the reason why companies have to pull their investment institutions into the company even two months before the listing is either to raise valuation margins or to have certain resources in converters, sockets and LED lights with high capital, which can be mutually beneficial in terms of resources. And after entering the company to increase certain cash flow, reduce asset liability ratio. The disadvantage is that strategic investors generally require to enter the company's board of directors after stationing, which limits the decision-making power of the Bull Group.

Reporters learned from the prospectus, in addition to the main business, small loans and other investment is also one of the Bull Group's sidelines. During the reporting period, Bulls Group received 45 million yuan, 100,000 yuan, 45 million yuan and 100,000 yuan respectively in cash for the recovery of investment in Zhejiang Cixi Golden Mango Small Loan Co., Ltd. (hereinafter referred to as "Golden Mango Small Loan"). During the same period, the cash received from the investment income was 3639.93 million yuan, 69.8663 million yuan, 10.773 million yuan and 26.6045 million yuan, mainly for the financial investment income.

In 2012, the Bulls Group invested 90 million yuan to invest in gold and mango small loans, holding 30%. Over the next four years, Golden Mango Loan reduced its capital several times, and its registered capital dropped from 300 million yuan to 80 million yuan. Bull Group's capital contribution also dropped to 24 million yuan. The prospectus shows that Ruan Liping, one of the real controllers of the Bulls group, is the chairman of the Golden Mango small loan company.

Tian Eye Inspection showed that as of October 2018, Jin Mango Petty Loan involved 244 legal proceedings, 172 of which were financial loan contract disputes, 36 petty loan contract disputes, most of which involved more than a million dollars. Until August 2017 before the IPO, Bull Group will hold 30% of the Golden Mango Small Loan equity, according to the amount of 24 million yuan, all transferred to its controlling shareholder Ningbo Liangji Industrial Co., Ltd., from the loan dispute in the mire.

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