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Introduction: "It may be a wise move for Dakoway to terminate the IPO at this time." The above-mentioned insider close to the regulatory authorities said frankly, "Whether from the perspective of public opinion or the basic conditions of the company itself, Dakoway's chances of waiting in the GEM to exchange 'time' for 'space' are slim. It is better to withdraw the application and wait for a new IPO filing reporting period to choose a listing path that is more suitable for itself, such as the Beijing Stock Exchange or the H-share market, which have similar successful precedents."

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

Author: Chen Yuchuan@Beijing

Editor: Zhai Rui@Beijing

After the Shenzhen Stock Exchange officially announced the termination of the IPO registration of Hangzhou Weice Biotech Co., Ltd. (hereinafter referred to as "Weice Biotech") on the evening of June 9, 2024 (see the relevant report of Kekou Finance for details, "The fourth IPO company to terminate its registration in 2024 is released. Behind the failure of Weice Biotech's listing: its performance has turned into a "death warrant". In less than half a year, 12 GEM companies that have passed the review have terminated their listing!"), recently, according to Kekou Finance's exclusive information, another company that has already passed the exchange's review and advanced to the registration process is about to face the end of a failed listing.

Similar to WeCare Biopharma, which failed before the last step to the listing gate, this time the company that encountered the same regretful ending was also a "nail house" that had waited for more than 20 months in the GEM registration process.

"Dakoway's IPO has been basically confirmed to be terminated by the regulators, and it will be officially announced soon." A few days ago, an insider close to the regulators revealed this to Kekou Finance.

Dakowei's full name is Shenzhen Dakowei Biotechnology Co., Ltd., a professional provider focusing on life science research services and pathology diagnosis. It was established in 1999.

As early as September 29, 2021, under the sponsorship of Zhongtian Guofu, Dakowei officially submitted its GEM IPO application materials to the Shenzhen Stock Exchange and was accepted.

After two rounds of preliminary inquiries and implementation of opinions by the Shenzhen Stock Exchange, Dakowei obtained the review result of "complying with the issuance conditions, listing conditions and information disclosure requirements" at the 44th Listing Committee Meeting of 2022 held by the Shenzhen Stock Exchange Listing Committee on July 25, 2022.

Coincidentally, Weice Biopharma’s IPO also successfully passed the review of the GEM Listing Committee at the same Listing Committee meeting.

On October 14, 2022, Dakoway was the first to obtain the qualification to submit IPO registration to the China Securities Regulatory Commission compared with Weice Biotech. However, since then, except for the first round of inquiries issued by the China Securities Regulatory Commission on October 26 of the same year regarding its registration stage, Dakoway's IPO process has fallen into a visible "stagnation".

In sharp contrast to the listing experiences of Dakowei and Weice Bio, a pair of brothers in distress, at the same GEM Listing Committee review meeting on July 25, 2022, a third company also received the approval of the same group of listing committee members. This company, Shenzhen Zhishang Technology Co., Ltd., also submitted its registration application to the China Securities Regulatory Commission in mid-October 2022, and was approved for registration and effectiveness as early as May 2023. It was officially listed on the GEM on July 7, 2023.

There is another similarity behind the ultimate obstruction of Dakoway and Weice Biopharma's listing, that is, their main business involved nucleic acid testing of related specific viruses during the IPO reporting period, which may be the key to the ill-fated IPOs of both companies.

According to the listing application materials submitted by Dakowei to the Shenzhen Stock Exchange, in the field of life science research services, it is mainly engaged in the agency sales of scientific research reagents and instruments, as well as the independent research and development, production and sales of some scientific research agents; in the field of pathology diagnosis, it is mainly engaged in the research and development, production and sales of pathology diagnosis equipment and reagents.

In 2020, facing the impact of the outbreak of a specific public health incident, Dakowei claimed that it "relying on its profound technical accumulation in the field of scientific research reagents" had independently developed virus preservation reagent products for the collection and storage of nucleic acid testing samples.

During the same period of time, Weice Biopharma also quickly launched testing kits for specific viruses in response to relevant public health events, which boosted the rapid development of its immune platform business.

In the more than two years that followed, although Dakowei's virus preservation reagent products did not bring it a surge in revenue and profits like Weice Bio, it also provided significant support to its performance growth.

Winning or losing does not matter.

Like the vast majority of companies involved in the epidemic, the specific public health incident that broke out four years ago once became an opportunity for it to go public.

But as this particular public health event came to an end at the end of 2022, the tide receded and the naked swimmers were revealed.

Amid the changes in the industry and policies, companies such as WeCare Biopharma and Dakoway have had to face the end result of a disastrous IPO.

The failure of Dako's IPO will make it the first listed company to be terminated in the registration process in the second half of 2024. In the first half of 2024, the IPO applications of four companies have failed in the final stage of the listing review.

It should be pointed out that among the five IPO companies whose registration has been terminated in mid-2024, including Dakowei, there are as many as three whose main businesses involve the above-mentioned specific public health events. In addition to Weice Bio, whose registration was terminated by the Shenzhen Stock Exchange more than a month ago, the first IPO company whose registration was suspended in the registration process in 2024, Feipeng Biotechnology Co., Ltd. (hereinafter referred to as "Feipeng Biotechnology"), also failed to go public due to the market fluctuations and policy supervision risks brought about by the nucleic acid testing business involving the epidemic (see the relevant report of Kekou Finance for details, "Exclusive | The first IPO registration failure company in 2024 is about to be released! Why did Feipeng Bio, whose net profit once reached 1 billion yuan, still fail to go public two years after passing the review?").

Dakowei is also the last company involved in epidemic nucleic acid testing that has passed the A-share IPO review.

"The termination of Dako's IPO is to some extent unexpected but also reasonable." On July 29, 2024, after learning that Dako's IPO was suspended, a senior sponsor representative of a large brokerage firm in Shanghai told Kekou Finance.

The so-called unexpected thing is that although some of Dako's businesses involve content related to the "epidemic" that the regulators have clearly treated with caution, this part accounts for a relatively small proportion of Dako's main business. In the past few years, it has fluctuated between 5% and 9%. Even after excluding the relevant business income, the impact on its overall financial data is relatively small, which is completely different from Weice Bio and Feipeng Bio.

"However, there has been no result in the nearly two years since the registration was submitted. Coupled with some internal changes in its fundamentals since 2023, and the regulatory trend that the regulators did not allow any epidemic-related companies to pass review or go public at the end of 2022, it is reasonable that Dako was eventually blocked from the door of the GEM." The above-mentioned senior sponsor representative admitted frankly.

1) All IPOs of companies involved in the epidemic have failed

Although Dako's nucleic acid testing business related to the epidemic does not account for a large proportion, in the eyes of most market participants, it is regarded as one of the representatives of companies related to the epidemic that are planning to go public.

This may have to start with a market rumor in November 2022.

In mid-November 2022, shortly after Dako submitted its registration application to the China Securities Regulatory Commission after passing the Shenzhen Stock Exchange's IPO review, a message frequently appeared on domestic social networks and short video platforms stating that a certain company's business was very single, "only selling one product, nucleic acid sampling tubes. 21.4586 million tubes were sold in the first half of the year, each selling for 1.95 yuan, and there were 240 million yuan in accounts receivable on the books."

The "certain company" in this rumor refers directly to Dakota.

Behind the above rumors was the climax of a wave of "epidemic" nucleic acid testing companies rushing to go public in the A-share market at that time. On October 25, 2022, Kangwei Century, an "epidemic" company engaged in the research and development and production of biological reagents, was successfully listed on the Science and Technology Innovation Board. The IPO applications of Weice Bio, Dakoway, Zhishan Bio, Ruibo Ao, and Feipeng Bio were also approved or submitted for registration. But on the other hand, at the same time, with the changes in the epidemic prevention policies for the above-mentioned specific public health events, the entire "epidemic" market is facing major changes.

As a result, for a time, there was constant controversy over the IPO of nucleic acid testing companies involved in the epidemic.

On November 21, 2022, the Shanghai and Shenzhen Stock Exchanges simultaneously stated that they pay close attention to the listing applications of companies involved in nucleic acid testing and insist on strict review, especially the companies' scientific and technological attributes and sustainable operating capabilities.

In the Shenzhen Stock Exchange's public statement in the form of answering reporters' questions, it explicitly named Dakowei and used this as an excuse to say that it "focused on the relevance of its nucleic acid testing-related business to its main business, and the sustainability of related revenue," and will "prudently advance the issuance and listing of related companies." It also "welcomes more comments and suggestions from all parties in the market."

Dako is regarded by the Shenzhen Stock Exchange as a typical "nucleic acid testing" company, but it is also misunderstood by rumors as "only selling one product, nucleic acid sampling tubes." Dako feels deeply wronged.

As mentioned above, compared with companies such as Feipeng Bio, Weice Bio, and Zhishan Bio, Dako's share of epidemic-related business was almost the smallest among all similar companies rushing for IPO at that time.

Public data shows that between 2020 and 2022, Dakowei's operating income from virus preservation reagents was RMB 52.6 million, RMB 48.2788 million and RMB 78.098 million, respectively, accounting for 8.71%, 5.78% and 7.53% of the current period's revenue, respectively.

Of course, the above revenue share also directly refutes Dako’s claim that it “only sells one product, nucleic acid sampling tubes”.

After being regarded by regulators and market participants as a typical regulatory example of an epidemic-related company, Dakowei also responded through the media that it is "not a nucleic acid concept company."

On November 25, 2022, He Junfeng, who was then the deputy general manager of Dako, said in an interview with the media, "In terms of revenue, the growth rate of traditional business is over 30%, while the revenue of nucleic acid-related business accounts for less than 8%. Even if the nucleic acid-related business is cancelled, the growth rate of traditional business is sufficient to support the growth of total revenue." "In terms of profit, the current gross profit margin of nucleic acid-related business is already very low. This part of the profit does not contribute much to the overall profit, and the impact can be ignored."

When answering the reasons for the sudden surge in the company's performance around 2020 and whether this performance is sustainable, He Junfeng said that Dakota had maintained good growth before. From 2017 to 2018, the company's revenue growth was more than 30%. It was not a sudden outbreak, but a natural growth process.

Perhaps it is precisely because the nucleic acid testing-related business accounts for a relatively small proportion that Dakowei became the last of a group of controversial epidemic-related companies to be suspended from listing in 2022.

According to statistics from Kekou Finance, in mid-2022, a total of 6 IPO companies involved in nucleic acid testing business successfully passed the exchange's review before the tightening of supervision, namely Kangwei Century, Weice Bio, Dakowei, Zhishan Bio, Ruibo Ao, and Feipeng Bio.

Among them, except for Kangwei Century's IPO, which was successfully listed on October 25, 2022 when the outside world was controversial about the listing of companies involved in related businesses, the other five companies all encountered obstacles to varying degrees and failed to go public.

Feipeng Bio and Weice Bio announced the withdrawal of their listing applications in February and early June 2024, respectively, long after submitting their registration applications.

After their listing applications were approved, Zhishan Bio and Ruibo Ao were unable to enter the registration process for a long time, so they terminated their IPOs in June and December 2023 respectively.

Now, Dakowei, the only remaining company, has to face the reality of its listing termination.

"Kangwei Century luckily escaped the disaster and completed its listing, but the sudden change in its performance after its listing further deepened the regulators' cautious attitude towards similar epidemic-related companies." The above-mentioned person familiar with the regulators told Kekou Finance.

After going public on October 25, 2022, Kangwei Century's performance in that year was quite remarkable: in mid-2022, its revenue achieved a year-on-year growth of 54.11%, and its net profit attributable to the parent company reached 159 million, a year-on-year increase of 26.55%. But in the following 2023, Kangwei Century's fundamentals quickly "changed" and its "true face" was officially revealed. According to Kangwei Century's 2023 annual report, during the period, it only recorded revenue of 171 million, a year-on-year decline of 67.15%, and the corresponding net profit attributable to the parent company directly plunged to a loss of 84.4095 million.

On the other hand, from some of the financial data released by Dakowei in 2023, it can be seen that without the support of nucleic acid testing business, it did not show the drastic performance fluctuations like Rukangwei Century. However, the situation that He Junfeng said in a previous interview that "the growth rate of traditional business is above 30%" and "even if the nucleic acid-related business is cancelled, the growth rate of traditional business is sufficient to support the growth of total revenue" did not occur - Dakowei seems to have fallen into a bottleneck in performance growth in recent years.

In 2021 and 2022, Dakowei's revenue was 837 million and 1.038 billion respectively, maintaining a good growth, but it fell into a vicious circle of increasing revenue but not increasing profits. In these two years, Dakowei's corresponding non-net profit was 98.0239 million and 95.9858 million respectively. That is to say, in these two years, Dakowei's revenue increased by nearly 24% year-on-year, but its non-net profit fell by 2%.

As we enter the first half of 2023, Dako's situation of increasing revenue but not profits has not improved.

Dako's previously updated 2023 interim report data showed that its revenue in January-June 2023 was 523 million yuan, a year-on-year increase of 10.25%, while its non-net profit was only 38.0469 million yuan, a year-on-year decline of 13.67%.

According to Dakota's forecast, its year-on-year revenue growth in the first three quarters of 2023 will be significantly reduced, and its non-GAAP net profit will continue to decline year-on-year.

2) Zhongtian Guofu’s IPO sponsorship business in Shanghai and Shenzhen is about to return to zero

Perhaps as early as early July 2024, there were signs that Dakota's IPO would be terminated.

June 31, 2024 is the deadline for the resumption of review of companies planning to go public after the update of financial data was "suspended". In the three months before this, hundreds of companies planning to go public fell into the "suspended" state of review because the financial information in the application materials had expired and needed to be supplemented.

According to relevant rules of the regulatory authorities, IPO companies whose review is "suspended" due to updating financial data need to "submit additional valid documents or eliminate the relevant circumstances that voluntarily requested suspension of review" within three months.

On March 31, 2024, Dako "suspended" the review because the financial information recorded in the IPO registration application documents had expired and needed to be supplemented and submitted.

But when the three-month period expired, when most companies planning IPOs resumed their reviews, Dako's IPO was still in a "suspended" state.

Until the end of July 2024, in the IPO review status published on the Shenzhen Stock Exchange website, Dakowe still remained in the "suspended" state and had not yet updated the latest financial data.

According to the IPO review information released by the Shenzhen Stock Exchange, there are still 7 companies whose IPO applications are in a "suspended" status.

According to Kekou Finance, among these seven companies, two have recently completed the update of financial data and resumed the audit, but the website information has not yet been updated. Among the other five companies, four had to continue to "suspend" because the intermediary accounting firms they hired had their securities business qualifications suspended. Only Dako has failed to complete the update of financial data even though the prescribed time limit has expired.

"It may be a wise move for Dako to terminate the IPO at this time." The above-mentioned insider close to the regulatory authorities said frankly, "Whether from the perspective of public opinion or the basic conditions of the company itself, Dako has little chance of waiting in the GEM to exchange 'time' for 'space'. It is better to withdraw the application and wait for a new IPO filing reporting period to choose a listing path that is more suitable for itself, such as the Beijing Stock Exchange or the H-share market, which have similar successful precedents."

It is worth mentioning that as Dako’s IPO is about to fail in the registration stage, Zhongtian Guofu’s IPO sponsorship projects in Shanghai and Shenzhen A-shares will all be reduced to zero.

In other words, Dakowei is the last IPO project under review sponsored by Zhongtian Guofu in the Shanghai and Shenzhen stock markets.

Looking back a few years ago, Zhongtian Guofu once emerged as a dark horse in the industry with its investment banking business. Its current situation is regrettable.

Zhongtian Guofu Securities was established in 2004. Its predecessor was Haiji Securities. It was jointly funded by Shanghai Securities and Daiwa Securities. It has established 20 branches with Beijing, Shenzhen, Shanghai and Guiyang as the core. In August 2017, Zhongtian Financial acquired 94.92% of the equity held by Guiyang Financial Holdings in accordance with the law; thus, Zhongtian Financial became the controlling shareholder of Zhongtian Guofu. In addition, Shanghai Securities holds the remaining 5.08%.

In September 2016, Yu Weijia, a veteran in the securities industry and former president of Southwest Securities, jumped to become the chairman of Zhongtian Guofu Securities, and attracted a group of old subordinates from China Merchants Securities and Southwest Securities to follow him.

After taking office at Zhongtian Guofu Securities, Yu Weijia led the company to embark on a strategic transformation. Subsequently, the company's structure and business scale continued to improve and develop. This included a major adjustment to the headquarters' organizational structure in 2017, introducing committee systems such as the investment decision-making committee, investment banking executive management committee, and IT planning committee.

By 2019, Zhongtian Guofu's comprehensive strength had greatly improved, with annual operating income of 772 million yuan, a nearly four-fold increase year-on-year, and net profit of 157 million yuan, also doubling year-on-year; the classification rating was upgraded from BBB to A. At this time, with the implementation of the registration system reform, Zhongtian Guofu's investment banking business emerged as a dark horse.

At the beginning of 2019, in the first two batches of IPO applications on the Science and Technology Innovation Board, Zhongtian Guofu had three Science and Technology Innovation Board IPO projects successfully accepted by the Shanghai Stock Exchange. For a small securities company, this is a remarkable achievement to have such a "share" of the Science and Technology Innovation Board IPO market share that is firmly divided among the "Three Zhongs and One Hua" (CICC, CITIC, CITIC Construction Investment, and Huatai Securities).

Then in mid-2020, Zhongtian Guofu applied for as many as 10 IPO underwriting projects to the ChiNext at one go.

For a while, the investment bank's "dominance" and "wolf culture" became the most vivid impression of Zhongtian Guofu in the industry.

An insider close to Zhongtian Guofu once revealed, "By 2020, at least half of Zhongtian Guofu's investment banking team will be Yu Weijia's old subordinates brought over from China Merchants Securities and Southwest Securities, and they are all backbone employees of the company."

The good times did not last long. Zhongtian Guofu Investment, which was still at a critical moment of "overtaking on the curve" in investment banking business, suddenly announced the departure of its "leader" Yu Weijia, followed by a wave of resignations from Zhongtian Guofu's management.

After experiencing turmoil, Zhongtian Guofu's investment banking business not only became quiet again, but the sequelae of its previous barbaric development were also gradually exposed.

As a result, since 2022, the IPO projects sponsored by Zhongtian Guofu have never been able to obtain registration and effectiveness approval from the regulatory authorities.

The only IPO project that has been "refused to register" under the GEM registration system so far also came from the sponsorship of Zhongtian Guofu.

What is perhaps more worrying than the absence of its current IPO projects under review is the serious shortage of subsequent reserve projects of Zhongtian Guofu.

According to the public information on public issuance guidance, currently, there are only three projects that have been registered and started the guidance procedures for which Zhongtian Guofu is the guidance institution. One of them started the guidance work as early as 2019, and it has been more than 4 years, but it still has not completed the guidance.

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