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Recently, Dongguan Securities’ IPO review was resumed, and the 9-year road to listing finally saw the light of day.

This was originally a good thing for Jinlong Co., Ltd., the major shareholder of Dongguan Securities. However, Jinlong Co., Ltd. had long been planning to sell all of its shares in Dongguan Securities. Not only that, Jinlong Co., Ltd. also decided to sell all of its shares in Zhongshan Securities.

Yang Zhimao, the actual controller of Jinlong Shares, is known as the "big boss" of Dongguan finance and a "capital master" who is good at manipulating people with his sleeves. He started out by opening schools and doing real estate development in his early years. He once became the richest man in Dongguan by relying on two major securities companies, Dongguan Securities and Zhongshan Securities.

What made Yang Zhimao reluctantly give up his brokerage business?

1. The low-key "Dongguan financial tycoon"

I have seen IPOs run for a long time, but it is rare to see a run lasting nine years. This experience actually happened to Dongguan Securities.

Dongguan Securities submitted its prospectus to the China Securities Regulatory Commission in 2015, but has since been suspended due to various issues. The trouble mainly stems from its major shareholder, Jinlong Shares.

Yang Zhimao, the boss of Jinlong Holdings, is a mysterious figure in Dongguan. The New Century Elite School he founded in 1994 provides full-time education for primary, middle and high schools. It is a "first-class school in Dongguan" and a well-known private "noble school" in the local area.

In addition to running schools, Yang Zhimao is also involved in real estate. The Jinlong Bayside property next to the New Century Elite School is one of the properties developed by him.

▲ (Screenshot of the surrounding facilities of Jinlong Jinlong Bayside on Lianjia.com)

Living by Jinlong Bay and attending New Century Elite School has become a standard for wealthy families in the area. They all know that the owner of the school and the house is the same person, but they know very little about Yang Zhimao's personal information.

Later, many things proved that Yang Zhimao, who was so low-key, was a master of capital integration. He first founded New Century Science and Education Development Co., Ltd. (hereinafter referred to as New Century Science and Education) as a platform for capital operations, and then bought the Qingyuan Water Supply Company in Guangdong Province. He then borrowed 100 million yuan to buy the shell of a listed company selling textiles, and combined the original school assets with various businesses to form a listed company, Jinlong Shares.

From the annual report, we can learn that Jinlong's initial business scope was real estate development, production and supply of tap water, production and sales of denim and chemical fiber filaments, etc. However, its subsequent transformation into a securities company stock is another story.

Jinlong Co., Ltd. entered the securities industry in 2007. Due to the strict prohibition of mixed business operation (mixed business operation is relative to separate business operation, which means that the three financial industries such as banking, securities and insurance can break through their traditional business scope and enter the other two industries), Dongguan Bank transferred 40% of the shares of Dongguan Securities held by its subsidiaries to social capital. At that time, Dongguan Securities had a market share of 60% in Dongguan and was a key state-owned holding enterprise in Dongguan. Yang Zhimao naturally would not miss this opportunity. Through his Jinlong Co., Ltd. and New Century Science and Education, he took over a total of 44.6% of the shares of Dongguan Securities and became the largest shareholder of Dongguan Securities.

What the outside world does not know is that in the process of competing with state-owned assets for the equity of Dongguan Securities, according to the announcement of Jinlong Shares, Yang Zhimao bribed state officials with 64.11 million yuan in order to get favors. Later, Yang Zhimao was sentenced to two years in prison and three years of probation. It was not until 2017 that the truth came out and Dongguan Securities, which had been queuing for IPO, had to suspend it. This suspension lasted for several years. At the end of March 2024, Dongguan Securities finally passed the meeting again, but due to the need to update the financial report, the IPO was suspended again.

Lin Hao (pseudonym), a capital market researcher, told Shijie that Dongguan Securities has been unable to go public for so many years, and anyone with a discerning eye can see that it was due to Jinlong Shares. "The negative impact of Yang Zhimao's bribery is only one aspect, and the state-owned capital also has a game with Yang Zhimao."

Since his investment in Dongguan Securities made him unhappy, Yang Zhimao seized the opportunity and acquired 66.0517% of the shares of another securities company, Zhongshan Securities. He then gradually invested in four major financial industries, namely securities, banks, futures, and funds, and held shares in nine financial institutions. In the "28 Major Private Financial Families" of New Fortune in 2017, the "Jinlong Group" was once ranked sixth.

The financial business, mainly based on two major securities companies, brought Yang Zhimao huge returns.

After acquiring Dongguan Securities in 2007, Jinlong Co., Ltd.'s net profit soared by 837.05% in 2009; after acquiring Zhongshan Securities in 2013, Jinlong Co., Ltd.'s net profit soared by 624% in 2014 and 136% in 2015.

As of the end of 2023, Zhongshan Securities has established 23 branches and 35 securities business departments, and Dongguan Securities has established 32 branches and 70 securities business departments. The company's introduction claims that it mainly relies on Zhongshan Securities and Dongguan Securities to carry out securities business, and Jinlong shares have completely become a "shadow stock" of securities companies.

In terms of stock price performance, since its listing in 1997, Jinlong shares have only been in the single digit for many years. After the acquisition of Dongguan Securities in 2007, it began to rise, reaching a high of 53.67 yuan in mid-2015. Yang Zhimao's wealth also increased dramatically. In 2015, he became the richest man in Dongguan with a net worth of US$1.4 billion, and ranked 237th on the Forbes Chinese Rich List. In October 2021, Yang Zhimao and his wife were listed on the "2021 Hurun Rich List" with a wealth of 10.5 billion yuan.

The wealth of Yang Zhimao and his wife could have continued to rise, but in 2023, Yang Zhimao chose to liquidate his two main businesses, Dongguan Securities and Zhongshan Securities, and Dongguan Securities was preparing for its IPO. This move was somewhat puzzling to the outside world.

2. The inside story of the planned liquidation

Yang Zhimao first signaled the sale of Dongguan Securities in November 2023, when Jinlong Holdings issued an announcement stating that it intended to transfer 300 million shares of Dongguan Securities (accounting for 20% of the total share capital of Dongguan Securities). One month later, the number of shares to be transferred increased to 600 million shares, which was all of its 40% stake in Dongguan Securities.

As mentioned earlier, Yang Zhimao was not a true winner when he acquired shares in Dongguan Securities. Although the Jinlong Group held 44.6% of the shares, the Dongguan State-owned Assets Supervision and Administration Commission held 55.4% of Dongguan Securities through three companies, namely Dongguan Financial Holding Group, Dongguan Jinxin Development and Dongguan Holdings, and was still the actual controller of Dongguan Securities. The senior management of Dongguan Securities also expressed to the media the strong attitude that "Dongguan will not hand over the controlling rights of Dongguan Securities to anyone else."

▲ (Current equity structure of Dongguan Securities)

Therefore, many people, including Lin Hao, speculated that Yang Zhimao's letting go of Dongguan Securities at this time was a compromise with state-owned assets. "As long as Jinlong shares are there, Dongguan Securities' listing will have more variables."

Unexpectedly, in June 2024, Jinlong Co., Ltd. issued another "Announcement on the Pre-listing Transfer of Zhongshan Securities Equity", stating that it would transfer all 1.206 billion shares of Zhongshan Securities held by it (accounting for 67.78% of Zhongshan Securities' total share capital).

Holding two major securities brokerage licenses, Jinlong shares cleared out its positions in one day. Jinlong shares had its own difficulties - securities brokers had passed the most profitable era and began to go downhill.

According to public data, at its peak in 2015, Dongguan Securities achieved operating income of 3.766 billion yuan and net profit of 1.453 billion yuan; in 2023, these two figures decreased to 2.155 billion yuan and 635 million yuan respectively.

Zhongshan Securities was even worse, with revenue and net profit of 2.771 billion yuan and 786 million yuan respectively in 2015; in 2023, it dropped to 490 million and 91 million yuan.

Zhongshan Securities also stepped on the thunder of Oceanwide Bonds. Simply put, Zhongshan Securities purchased bonds issued by Oceanwide Holdings in 2018, but as of the maturity date in 2021, the entire "Oceanwide System" collapsed, resulting in the loss of principal and interest of the relevant bonds. Zhongshan Securities later sued Oceanwide Holdings. It is reported that the case involved a total principal of 220 million yuan.

In addition, in August 2020, Zhongshan Securities was punished by the Shenzhen Securities Regulatory Bureau for a number of internal control issues. In February 2024, it was ordered to correct problems in its private equity asset management business.

Jinlong Co., Ltd. also clearly stated in its 2023 annual report that one of its development plans for 2024 is to strengthen the control over its holding subsidiary Zhongshan Securities, improve the operational efficiency of Zhongshan Securities' board of directors, supervise Zhongshan Securities' internal control and risk management work, and promote the sustainable and healthy development of Zhongshan Securities.

In short, the brokerage business has turned from a revenue booster to a drag on Jinlong Co., Ltd. According to Shijie's query on Oriental Fortune Choice, at the end of 2015, Jinlong Co., Ltd.'s market value was still at a medium level among more than 30 listed brokerages, at 26 billion. By 2023, it ranked last among more than 50 listed brokerages, with its market value shrinking to 6.9 billion.

At the regulatory level, Jinlong shares also face compliance requirements. The Securities Company Equity Management Regulations issued in July 2019 require that a controlling shareholder of a securities company holding more than 50% of the shares must have total assets of no less than RMB 50 billion and net assets of no less than RMB 20 billion; the core business must be prominent and the main business must have been profitable for the past five years.

As of the end of 2023, Jinlong's total assets were 19.897 billion yuan and its net assets were 2.47 billion yuan, which was far from the regulatory requirements. The asset-liability ratio reached a high value of 77.17% during the same period.

In order to repay the company's loans, reduce liabilities, and replenish working capital, Jinlong Co., Ltd. has repeatedly proposed a private placement plan, including issuing no more than 264 million shares to the actual controller Yang Zhimao in June 2023, raising no more than 2.75 billion yuan. But all failed. In the end, it had to divest the two major brokerage businesses.

As of now, only 300 million shares of Dongguan Securities have buyers willing to buy them. The remaining half of the 300 million shares and 1.206 billion shares of Zhongshan Securities are still waiting for a price.

3. Cross-border entry into the computing power track

The operating conditions of Jinlong Co., Ltd. are also a microcosm of the reshuffle of the entire securities industry.

In the past one or two years, the volatile downward trend in the capital market has put pressure on securities companies' brokerage and investment banking businesses, directly affecting their performance.

According to data provided by Zhongyuan Securities, the securities industry achieved a total operating income of 405.902 billion yuan in 2023, an increase of 2.77% year-on-year; and a total net profit of 137.833 billion yuan, a year-on-year decrease of 3.14%.

Zhongyuan Securities pointed out that looking ahead to 2024, it is difficult for the retail brokerage business to have a significant recovery, and the prosperity of the industry's brokerage business will still decline to a certain extent throughout the year; at the same time, a significant decline in the investment banking business throughout the year is inevitable.

Against this background, the market has seen a wave of mergers and acquisitions among securities firms. For example, the three major securities industry mergers and acquisitions events of "Huachuang + Pacific", "Guolian + Minsheng" and "Ping An + Founder" have all attracted great attention from the industry.

Behind Jinlong Stock's selling-selling-selling model, there are also new intentions. In the announcement of the transfer of Zhongshan Securities, it mentioned that the transfer aims to "increase the scale of capital recovery in order to accelerate the transformation of the company's business." This transformation refers to the transition from the securities track to the computing power track, and the span is beyond the expectations of many investors. After all, in their view, Jinlong Stock did not have any computing power foundation before.

From the currently known information, Jinlong Co., Ltd. plans to establish a project company with Guangzhou Saifu Jianxin Small and Medium Enterprises Industrial Investment Fund Partnership (Limited Partnership) and Beijing Jiuzhang Yunji Technology Co., Ltd. to cooperate in the construction and operation of the intelligent computing center in Guangdong. The total investment scale of the intelligent computing center will not exceed 1 billion yuan, and it is planned to be implemented in three phases. The investment scale of the first phase project is about 103 million yuan, the investment scale of the second phase project is not more than 350 million yuan, and the investment scale of the third phase project is not more than 500 million yuan.

Jinlong shares revealed that the target completion time for the first phase of the project is the end of July 2024; it will enter the external sales stage in August. According to the calculation table of the first phase of the investment project, during the five-year operation period, the project company expects sales revenue of about 31.24 million yuan in the first year and a net profit of about 3.15 million yuan; from the second to the fifth year, the average annual sales revenue is about 35.15 million yuan, and the average annual net profit is about 5.59 million yuan; the internal rate of return (IRR) is about 7.59%.

"Shijie" noted that the cooperation model among the three parties is that Jiuzhang Yunji or its designated related entities are responsible for the operation and maintenance of the intelligent computing center, market development and computing power customer marketing. Jinlong's stock price is just that it and Saifu Jianxin should assist Jiuzhang Yunji in jointly developing markets and customers.

In terms of sales revenue sharing, the project company is also composed of three parties, with Jiuzhang Yunji sharing the revenue in a 3:7 ratio. In other words, Jiuzhang Yunji is the main player in the computing power project, and Jinlong shares only assists in market development, but is not the core party of the project. This has given rise to market concerns about the limited profit prospects of its computing power business.

Previously, there have been precedents for listed companies to cross-border computing power. The most typical example is the "MSG King" Lotus Health, which spent nearly 700 million yuan to purchase computing power servers at the end of 2023. As soon as the news came out, it attracted regulatory attention.

The Shanghai Stock Exchange's inquiry letter stated that Lotus Health's main business is the research and development, production and sales of food and condiments. The computing servers and supporting equipment involved in this purchase contract are new businesses that are not synergistic with the company's main business, and the company has no relevant business experience in the early stage. The Shanghai Stock Exchange requires Lotus Health to disclose the actual investment amount in the new business, the feasibility study of the project construction, etc., and explain whether the decision on this purchase is prudent and whether it is conducive to protecting the interests of listed companies and investors.

This time, Jinlong Co., Ltd. seems to be facing the same core shortcomings as Lotus Health: lack of funds and experience.

More than one investor asked Jinlong Shares on the interactive platform, "What is the progress of the company's intelligent computing center? What stage has the intelligent computing center reached? Are the GPUs in place? When will the debugging begin? These questions cannot be fully answered by the company's decision to sell Dongguan Securities and Zhongshan Securities alone."

Author | Chen Chang

Editor | Han Zhongqiang

Operations | Liu Shan