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Introduction: Will the improvement of growth and innovation capabilities ensure that Yihong shares will have a smooth secondary listing? Especially since it has decided to change its listing destination to the Beijing Stock Exchange, which has a lower listing threshold and a more "inclusive" review. The answer is obviously still uncertain.

This article was exclusively published by Koukou Finance (ID: koukouipo)

Author: Zhou Jiawei@Beijing

Editor: Zhai Rui@Beijing

Two years after its listing was rejected by the Shenzhen Stock Exchange for failing to meet the GEM's "Three Creations and Four Innovations" positioning requirements, Tianjin Yihong Intelligent Packaging Technology Co., Ltd. (hereinafter referred to as "Yihong Co., Ltd.") recently quietly completed its listing and formal trading on the New Third Board.

Like most companies that chose to "commit themselves" to the New Third Board after suffering setbacks in their A-share IPOs, Yihong Co., Ltd.'s move is clearly aimed at the Beijing Stock Exchange, which uses listing on the New Third Board as a prerequisite for listing.

Yihong Co., Ltd. was listed on the Innovation Layer of the New Third Board on June 21, 2024 and became a public company.

More than four months before that, while applying for the review of listing on the New Third Board, Yihong Co., Ltd. quietly launched the listing guidance work with a clear aim at the Beijing Stock Exchange.

According to the public listing guidance information disclosed by the Tianjin Securities Regulatory Bureau, Yihong Co., Ltd. and Shenwan Hongyuan signed a relevant agreement on February 2, 2024 to publicly issue shares to unspecified qualified investors and provide listing guidance on the Beijing Stock Exchange, and obtained the guidance filing from the Tianjin Securities Regulatory Bureau 4 days later.

In fact, this is not the first time that Yihong Co., Ltd. has restarted its listing plan after its previous IPO was rejected.

On August 2, 2022, at the 47th review meeting of 2022 held by the Shenzhen Stock Exchange's ChiNext Listing Committee, the IPO applications of three companies were reviewed in turn. Yihong Co., Ltd. was the first to appear for regulatory review.

Unfortunately, Yihong Co., Ltd. did not have a "good start" at the review meeting that day. It was collectively considered by the GEM listing committee members to "not meet the issuance conditions, listing conditions or information disclosure requirements", which made it the only company that failed to obtain approval from the regulators that day to go public.

Seeing that the other two companies that were tried in the same place in the past - Jin Yang New Materials and Haofan Bio - have already been listed on the ChiNext, Yihong Co., Ltd. is naturally unwilling to give in.

Therefore, on November 21, 2022, after abandoning the sponsor of the previous IPO, Guotai Junan Securities, it quickly signed the first listing guidance work agreement with Shenwan Hongyuan. At this time, it had been only more than three months since Yihong Co., Ltd.’s previous IPO was rejected by the Shenzhen Stock Exchange and announced to be terminated.

Shenwan Hongyuan also attached great importance to the deployment of Yihong Co., Ltd.'s re-listing, and therefore sent Zhou Zhongjun, a senior sponsor representative with more than ten years of experience in the industry, to serve as the leader of Yihong Co., Ltd.'s listing guidance working group.

According to Kekou Finance, Yihong Co., Ltd. originally planned to apply for an IPO on the Growth Enterprise Market when it resumed listing. However, with the changes in the policy and regulatory environment since the second half of 2023 and combined with its own fundamentals, it decided to switch to the Beijing Stock Exchange in early 2024.

This led to the scene in February 2024, when Yihong Co., Ltd. re-signed a coaching agreement with Shenwan Hongyuan and applied to the Tianjin Securities Regulatory Bureau for listing registration on the Beijing Stock Exchange.

"One of the reasons why Yihong Co., Ltd.'s IPO was rejected by the Shenzhen Stock Exchange in 2022 was that its growth and innovation characteristics were insufficient at the time. This also became the key to its failure to prove to the regulators that it met the GEM's 'three creations and four innovations' positioning." A person from an intermediary institution close to Yihong Co., Ltd. told Kekou Finance.

When it first tried to go public on the GEM, its gross profit margin fell sharply during the IPO reporting period. In 2019, the gross profit margin of its main business exceeded 20%. After 2020, the gross profit margin fell sharply to 15.4%. In the first half of 2021, Yihong Co., Ltd.'s profitability almost set the lowest value for companies planning to be listed on the GEM under the registration system-only 12.11%.

In terms of the number of patents, an important indicator of innovation, although Yihong Co., Ltd. claims that it already has 109 patents in 2022, all of them are utility model and design patents, and there is not a single invention patent.

It was precisely because of factors such as Yihong Co., Ltd.'s "gross profit margin was lower than the average of comparable companies in the same industry and continued to decline" and "all patents at the end of the reporting period were utility models and designs" that the Shenzhen Stock Exchange concluded that it did not meet the requirements for the GEM positioning of a growing innovative and entrepreneurial company.

Therefore, in the past two years, Yihong Co., Ltd., which is determined to redeem itself from the past, has worked hard to address its shortcomings in related issues. With the improvement of the business environment and the passage of time, Yihong Co., Ltd. has indeed made significant improvements in profitability and indicators that can demonstrate the company's innovative and creative capabilities.

According to the latest financial data of Yihong Co., Ltd. obtained by Koukou Finance, although its operating income has remained basically stable without significant growth in the past three years, and even in the most recent year, its revenue has declined year-on-year, its profitability has increased significantly.

From 2021 to 2023, Yihong Co., Ltd. recorded revenue of 1.306 billion, 1.34 billion and 1.209 billion, respectively. The corresponding net profit attributable to the parent increased from the initial 61 million to 95.8589 million in 2022. By 2023, its net profit finally exceeded 100 million and reached 105 million.

Behind the increase in profits is the fact that Yihong Co., Ltd.'s gross profit margin has reversed the downward trend during the reporting period of its first IPO and has continued to recover. After rising from 13.76% in 2021 and 17.51% in 2022, Yihong Co., Ltd.'s gross profit margin finally returned to above 20% in mid-2023.

After gradually showing more obvious performance growth attributes, Yihong Co., Ltd. has finally achieved a breakthrough from 0 in invention patents in the past year.

According to Koukou Finance, as of June 2023, Yihong Co., Ltd. has obtained 143 patents, including 5 invention patents.

Can the improvement of growth and innovation capabilities ensure that Yihong shares will have a smooth secondary listing? Especially since it has decided to change its listing destination to the Beijing Stock Exchange, which has a lower listing threshold and a more "inclusive" review.

The answer is obviously still uncertain.

"Yihong Co., Ltd.'s significant dependence on Mengniu Group has not yet been effectively resolved." The person from the intermediary institution close to Yihong Co., Ltd. admitted to Kekou Finance.

When Yihong Co., Ltd. first attempted to be listed on the Growth Enterprise Market, its dependence on Mengniu Group was also a focus of regulatory doubts and attention.

At that time, both Yihong Co., Ltd.'s weak profitability compared with its peers and its continuously declining gross profit margin were closely related to its heavy dependence on Mengniu Group and the resulting lack of bargaining power.

Although Yihong Co., Ltd. vowed that it would actively expand new customers based on the existing customer market.

However, according to KOKU Finance, two years have passed and Yihong Co., Ltd. has achieved little success in developing new customers, and its heavy reliance on Mengniu Group has not shown any significant improvement.

"In the regulatory review of companies to be listed, there will not be a 'one-size-fits-all' denial of significant reliance on important customers. Two aspects will be considered mainly. One is whether the relevant situation is industry inertia and has commercial rationality. The other is whether there is a risk of unstable factors that affect the company's operating conditions." The person from the above-mentioned intermediary agency told Kekou Finance that the current problem of Yihong Co., Ltd. lies precisely in the fact that its comparable peers do not have the same "custom" of significant reliance on major customers as it does. In addition, even though Yihong Co., Ltd.'s gross profit margin has indeed rebounded significantly since 2022, a new round of performance pressure storm triggered by Mengniu Group is on the way.

1) Mengniu addiction is a stubborn disease that is difficult to cure

Yihong Co., Ltd. itself also admits that it is a company that is heavily dependent on Mengniu Group.

Even at the Shenzhen Stock Exchange's Growth Enterprise Market Listing Committee review meeting that year, regulators openly defined Yihong Co., Ltd. as "a satellite factory of the Mengniu Group," saying that its "major subsidiaries are all located near the Mengniu Group's production bases."

As an enterprise mainly engaged in the research and development, design, production and sales of color packaging boxes, watermark packaging boxes and other products, Yihong Co., Ltd. conducts research and development, design and production of paper printing packaging products according to customers' personalized requirements, and finally makes profits through the sales of paper printing packaging.

In early August 2022, on the eve of Yihong Co., Ltd.'s first IPO review, Koukou Finance made a not optimistic prediction about its prospects for listing that year (see Koukou Finance's related report on August 2, 2022, "The family of the "A-share reduction king" appears in Yihong Co., Ltd. IPO: It is heavily dependent on Mengniu and challenges the "three creations and four innovations" standards with the lowest gross profit margin on the Growth Enterprise Market under the registration system").

At that time, an insider close to the regulatory authorities revealed to Kekou Finance that the biggest problem with Yihong Co., Ltd.'s GEM IPO was its heavy dependence on Mengniu Group and the growth and sustainability of its performance.

"In addition, as a printing and packaging company, with extremely low gross profit margins, it also claims to be in line with the GEM's 'three creations and four new' positioning of 'innovation, creation, and creativity'. Is this convincing?" The above-mentioned person familiar with the regulatory authorities told Kekou Finance before Yihong Co., Ltd.'s initial IPO was rejected by the Shenzhen Stock Exchange.

Now that it has moved to the Beijing Stock Exchange, Yihong Co., Ltd.'s unilateral "significant dependence" on Mengniu Group is also an obstacle that is difficult to avoid on its road to listing.

Public information shows that during the reporting period when Yihong Co., Ltd. first applied for an IPO, namely from 2019 to 2021, its sales revenue from Mengniu Group was RMB 641.5443 million, RMB 681.7263 million and RMB 863.5092 million, respectively, accounting for 68.51%, 65.99% and 66.11% of the company's operating income in the current period.

More than two years have passed. According to the latest operating data of Yihong Co., Ltd. obtained by the above-mentioned KOKU Finance, its heavy dependence on Mengniu Group still remains at the level of previous years.

In 2022 and the first half of 2023, Yihong Co., Ltd.'s sales revenue from Mengniu Group was RMB 848.5648 million and RMB 386.9787 million, respectively, accounting for 63.31% and 65.88% of the company's operating income in the current period.

As mentioned above, Yihong Co., Ltd.'s heavy reliance on Mengniu Group is an "industry" outlier. Among comparable peer companies in the printing and packaging industry, it is relatively rare to have such a heavy reliance on a single customer.

Previously, Yihong Co., Ltd. had identified eight comparable companies in the same industry in its prospectus for its application for listing on the Growth Enterprise Market. However, among these eight comparable companies, not only is there no company whose largest customer accounts for more than 50% of sales revenue, there is not even one company whose largest customer accounts for more than 20%.

The most comparable peer company to Yihong Co., Ltd. is Zhongrong Co., Ltd., which was once tried on the Growth Enterprise Market at the same time and has now been successfully listed.

According to Zhongrong Co., Ltd.'s 2023 annual report, sales to its largest customer during the reporting period accounted for 19.94%.

Among the comparable peers recognized by Yihong Co., Ltd., those with a relatively high proportion of sales to the largest customer include Xianggang Technology, Yutong Technology, Longlide, Global Printing, and Jihong Co., Ltd.

However, among these five comparable companies, except for Xianggang Technology, whose sales to its largest customer accounted for 19.98% at the time of its IPO in 2018, the latest financial data of the other companies showed that their sales to their largest customer accounted for between 18% and 11% of their current revenue.

As for comparable packaging and printing companies in the same industry such as Hexing Packaging and Dashengda, the concentration of major customers is even lower, and the combined sales of the top five customers account for less than 30% of total revenue.

It goes without saying that Yihong Co., Ltd.'s reliance on Mengniu Group as a major customer is not an industry practice.

If a major customer of a company seeking to go public relies on non-industry practices, then it is necessary to consider whether this is commercially reasonable.

Is Yihong Holdings commercially reasonable for Mengniu Group?

"The issuer currently has limited capital strength and will focus its limited production capacity on the downstream dairy industry. The domestic liquid milk industry is highly concentrated, which in turn leads to a high customer concentration for the issuer." Earlier, Yihong Co., Ltd. explained in the relevant materials of its previous IPO application why its reliance on major customers violated industry characteristics.

The above explanation of Yihong Co., Ltd. does seem to make sense.

But behind its so-called commercial rationality, Yihong Co., Ltd. itself may find it difficult to deny that it is obviously in the weaker position in the "cooperation" - Mengniu Group has too many suppliers to choose from. If Mengniu Group decides to reduce or even terminate its purchases from Yihong Co., Ltd., Yihong Co., Ltd. may face a cliff-like decline in performance.

Yihong Co., Ltd. has also admitted that if other packaging category suppliers of Mengniu Group make a big move into the external packaging field and the company fails to continue to maintain the technology and service advantages of its products, the company may face the risk of a decline in market share against Mengniu Group due to intensified competition from other suppliers.

This obviously unequal "dependent" relationship between Yihong Co., Ltd. and Mengniu Group, under the premise that the fate of its own business development depends on the decision of Mengniu Group, naturally also leads to the lack of bargaining power for Yihong Co., Ltd.

Yihong Co., Ltd. has publicly stated that the main factors affecting the fluctuations in the company's product gross profit margin include product sales prices, raw material prices and other factors.

"The cooperation between the company and Mengniu Group has a certain price adjustment mechanism. The trends of major price adjustments and market fluctuations in major raw material prices are basically consistent. However, if raw material prices rise sharply in a short period of time and the purchase price is not adjusted in time, it will have a certain impact on the company's operating performance," Yihong Co., Ltd. pointed out in its prospectus when it applied for an IPO on the Growth Enterprise Market.

In August 2022, Yihong Co., Ltd.’s first attempt at an IPO on the ChiNext was rejected. One of the reasons given by the Shenzhen Stock Exchange included “weak bargaining power with major customers.” This so-called “major customer” was obviously Mengniu Group.

It is worth pointing out that since 2022, Yihong Co., Ltd.'s gross profit margin has finally shown signs of improvement, but recently, a risk that may trigger changes in Yihong Co., Ltd.'s operations is approaching it.

According to Kekou Finance, in mid-March 2024, Mengniu Group re-tendered its paper packaging material suppliers. Starting from the second quarter of 2024, Mengniu Group will implement the new bidding prices for suppliers including Yihong Co., Ltd., and the latest sales price will be lower than before.

The "price-cutting" mode that Mengniu Group has once again started will inevitably increase the pressure on Yihong Co., Ltd.'s operating performance, which is affected by Mengniu Group. This is when its revenue has already shown negative growth in 2023. This may also become a risk that Yihong Co., Ltd. will have to face on its road to listing on the Beijing Stock Exchange.

2) Exhaust gas is discharged directly without being treated! Involved in the administrative punishment storm for environmental violations

When Yihong Co., Ltd. applied for an IPO on the Growth Enterprise Market in 2022, it mentioned more than once that the paper printing and packaging industry in which it is located will produce solid waste, waste gas, wastewater and other pollutants during the production process. With my country's increasing attention to environmental governance and increasing governance requirements, national and local environmental protection laws and regulations are also constantly being updated and becoming more stringent. At the same time, the company's major customers' requirements for the standardization of suppliers' production and operations are also constantly increasing, which will cause the company's environmental protection costs and expenditures to continue to increase.

"If the company suffers losses in the future due to environmental pollution accidents caused by failure of environmental protection facilities, leakage of pollutants, etc., or is subject to administrative penalties by environmental protection authorities, it will lead to the risk of adverse effects on the company's production and operation," Yihong Co., Ltd. pointed out in the listing application materials submitted to the Shenzhen Stock Exchange at that time.

However, Yihong Co., Ltd. immediately added that it had "not been subject to administrative penalties by the environmental protection administrative department during the reporting period" from 2019 to 2022.

Not having been punished by the environmental protection administrative department does not necessarily mean that there are no environmental violations. It only means that no environmental violations have been found by the regulatory authorities in the past period of time.

According to Kekou Finance, in early 2023, during a heavy pollution emergency inspection initiated by the Tianjin Port Free Trade Zone Urban Environmental Management Bureau (hereinafter referred to as "Tianjin Port Free Trade Zone Urban Environmental Management Bureau") on relevant companies, Yihong Co., Ltd., which claimed that its "environmental protection facilities actually operate well, and relevant pollutant emissions can be effectively treated and meet the requirements of laws and regulations or national and industry standards", was caught in the vortex of environmental pollution.

According to the Administrative Penalty Decision No. 1 of 2023 issued by the Tianjin Environmental Protection Administration, on March 7, 2023, relevant units conducted a heavy pollution emergency inspection on Yihong Co., Ltd. and found that at 12:00 on March 5, 2023, Tianjin launched a Level II orange emergency response to heavy pollution weather. According to the relevant provisions of the emergency plan, Yihong Co., Ltd. should implement emergency measures such as suspension of production of all air-related processes. However, an on-site review of the production ledger showed that from 20:00 on March 5, 2023 to 8:00 on March 7, Yihong Co., Ltd.'s printing press produced a total of 871,970 sheets of various products, which was inconsistent with Yihong Co., Ltd.'s emergency response requirements for heavy pollution weather. The relevant behavior of Yihong Co., Ltd. belongs to the failure to take emergency measures such as suspension of production in accordance with regulations during the emergency response to heavy pollution weather.

In response to this, the Tianjin Environmental Protection Administration decided to impose administrative penalties on Yihong Co., Ltd. and imposed a fine of 100,000 yuan.

During the same batch of heavy pollution emergency inspections, the Tianjin Environmental Protection Administration also discovered even more serious environmental violations by Yihong Co., Ltd.

According to Yihong Co., Ltd.'s environmental protection treatment process, organic waste gas will be generated in the processes of compounding, laminating, printing, silk-screen printing, etc. These waste gases need to be collected through pipelines and entered into the zeolite rotor + RTO treatment facility for treatment before being discharged through a 28-meter-high exhaust chimney.

However, after the Tianjin Environmental Protection Administration reviewed the production records and waste gas treatment facility operation records on site, it was found that when the printing machine of Yihong Co., Ltd. was in production and operation, the supporting zeolite wheel + RTO treatment facilities were not turned on simultaneously, and the waste gas was directly discharged without treatment.

The Tianjin Baoding Environmental Protection Administration believes that the relevant actions of Yihong Co., Ltd. constitute "emission of air pollutants by evading supervision by abnormally operating air pollution control facilities". According to relevant regulations, the Tianjin Baoding Environmental Protection Administration once again issued an administrative penalty decision to Yihong Co., Ltd. and imposed a fine of RMB 400,000.

"If a company seeking to go public is subject to administrative penalties by the regulatory authorities during the listing guidance period or the application period, especially if a large fine is imposed, the department that imposed the penalty will be required to provide identification materials that show that the company does not commit major violations of laws and regulations and obtain approval from the exchange or relevant securities regulatory bureau. In addition, it will also be required to provide proof that relevant rectifications have been completed and that internal controls are effective." A senior sponsor representative of a large brokerage firm in Shanghai revealed to Kekou Finance.

It is still unknown what impact the two environmental violations encountered by Yihong will have on its listing on the Beijing Stock Exchange. However, it is certain that if Yihong continues to encounter similar administrative penalties in the future, its road to listing will inevitably be more bumpy.

Finally, it is worth mentioning that two years after its failed IPO on the ChiNext, Yihong Co., Ltd. switched from the ChiNext to the Beijing Stock Exchange to restart its listing process. Although it may face a decline in valuation and liquidity, it still won recognition from external shareholders and investors.

Unlike the shareholder buyback turmoil faced by some companies that failed in IPOs in Shanghai and Shenzhen and had to choose the Beijing Stock Exchange, at least so far, Yihong Co., Ltd., which has completed its listing on the Innovation Layer of the New Third Board and started listing guidance on the Beijing Stock Exchange, has maintained its equity structure since the end of 2020, including the mysterious shareholder who suddenly acquired shares on the eve of Yihong Co., Ltd.'s listing on the Growth Enterprise Market that year.

Back to the end of November 2020, just over half a year after Yihong Co., Ltd. officially submitted its previous GEM IPO application, a mysterious external natural person shareholder, Yang Yin, appeared on the shareholder list of Yihong Co., Ltd. in an increase in capital and expansion of shares originally intended for the company's internal employees.

As a result, Yang Yin became the only external natural person shareholder in Yihong Co., Ltd. who did not hold an office in the company. Through this capital increase, Yang Yin also became the natural person with the largest shareholding in Yihong Co., Ltd. except for sisters Qiu Yumin and Qiu Yuhui, holding 2.63% of Yihong Co., Ltd.'s shares before the IPO.

What exactly was Yang Yin's identity? How could she have made a surprise investment and acquired relevant shares by using the employee's internal shareholding rate on the eve of Yihong Co., Ltd.'s IPO on the GEM?

According to relevant information disclosed by Yihong Shares, Yang Yin was born in January 1981, is of Chinese nationality, has no permanent residency abroad, and has a master's degree. The reason for the investment is that "I am optimistic about the industry and the development prospects of the issuer, and it is a personal investment choice." Yihong Shares also stated that "natural person shareholder Yang Yin is a friend of the issuer's chairman Qiu Yumin."

In fact, Yang Yin’s identity is not as simple as described above.

At that time, Kk Finance confirmed from multiple channels that Yang Yin actually came from the family of Zheng Zhongnan, a Chaoshan businessman who made investors "terrified" because he "emptied and cashed out" Nanyang shares 35 times in 11 years in the capital market.

Zheng Zhongnan, founder and actual controller of Nanyang Holdings.

In 2008, Nanyang Shares, known as the leader in wire and cable in South China, was listed on the Shenzhen Stock Exchange.

In 2012, when the lock-up period for Zheng Zhongnan's family's shares expired, they began to reduce their holdings, especially after 2017, when the reduction became more frequent.

As Zheng Zhongnan's family reduced their holdings, Nanyang Shares' net profit began to decline continuously starting from 2012.

A rough estimate by the media at that time showed that from 2008 when Nanyang Shares was listed to 2019, Zheng Zhongnan, his wife Zheng Qiaojiao, and his daughter-in-law and son-in-law had implemented a total of 35 share reduction changes, cashing out a total of more than 1 billion yuan.

After a series of capital operations such as equity transfer and cashing out, Nanyang Shares has now been renamed Tianrongxin, and Zheng Zhongnan's family has also successfully withdrawn.

Yang Yin is the wife of Zheng Canbiao, the second son of Zheng Zhongnan.

If Yihong Co., Ltd.'s listing on the Beijing Stock Exchange can finally be realized, this will also be the second time that a member of Zheng Zhongnan's family will appear in the A-share capital market.

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