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(Original title: Zongmu Technology: Claiming to be "two concepts", the production capacity is in doubt, and the private equity shareholder's related parties assist in applying for the project)

"Jin Zhengyan" Southern Capital Center Luo Jiu/Author Nanjiang Yingwei/Risk Control

As the global automotive industry transforms towards the new four modernizations, high-end brands emerging from new car-making forces are closing in on the traditional luxury car market.Zongmu Technology(Shanghai) Co., Ltd. (hereinafter referred to as "Zongmu Technology") is mainly engaged in intelligent driving systems and is highly sought after by capital. Behind the "entry" of capital, Zongmu Technology may have "special rights". During 2019-2022, Zongmu Technology signed gambling agreements with at least more than 30 investors. When impacting the Hong Kong Stock Exchange, Zongmu Technology claimed that the relevant gambling clauses had been lifted and there was no adverse impact on it.

It is worth noting that from 2017 to 2021, Zongmu Technology successively introduced state-owned assets from Xiamen, Huzhou and Dongyang, and obtained a total investment of hundreds of millions of yuan. It then established subsidiaries in the three places to build production bases. According to a number of public information disclosures, the planned production capacity of the above three production bases is "over one million sets" each year, which is far higher than the design capacity of each product disclosed in the prospectus of Zongmu Technology. However, Zongmu Technology said that behind the "two concepts", its production capacity data is in doubt. On the other hand, in 2015, Ye Sen, who was originally a public official in Pudong District, resigned and went into venture capital in the same year, renting real estate in Pudong District to build an entrepreneurial incubation base. Zongmu Technology then "settled" in the base, and the funds of the investment management company established by Ye Sen successively invested in Zongmu Technology, and another company founded by Ye Sen assisted Zongmu Technology in applying for government projects.

1. The capacity disclosed in the application documents is far less than that disclosed in the environmental impact assessment, and the capacity claimed to be "two concepts" is questionable

In recent years, Zongmu Technology has introduced state-owned assets from Xiamen, Huzhou, Dongyang and other places, and then established subsidiaries to build production bases in various places. However, the product capacity disclosed in the application documents submitted by Zongmu Technology to the Hong Kong Stock Exchange is far less than the capacity disclosed in public information. However, Zongmu Technology stated that production scale and actual capacity are two different concepts, and behind this, its capacity data is questionable.

1.1 From 2017 to 2021, Zongmu Technology has successively introduced state-owned assets from Xiamen, Huzhou and Dongyang, and obtained a total investment of hundreds of millions of yuan

In March 2017, Xiamen Defeng Jiarun Equity Investment Fund Partnership (Limited Partnership) (hereinafter referred to as "Defeng Jiarun") subscribed 151,900 shares of Zongmu Technology for RMB 69,999,700. In November of the same year, Defeng Jiarun acquired 821,000 shares of Zongmu Technology held by the Zongmu Technology employee stock ownership platform for RMB 11,494,000. From May to September 2018, Defeng Jiarun subscribed 2,173,900 shares of Zongmu Technology for RMB 50 million. After the subscription was completed in 2018, Defeng Jiarun held 9.14% of Zongmu Technology.

Public information shows that Defeng Jiarun is a fund jointly established by Xiamen Deyi Equity Investment Management Co., Ltd. (hereinafter referred to as "Deyi Capital") and Xiamen Jimei District Industrial Guidance Fund. Data from the Market Supervision Administration shows that Xiamen Jimei Industrial Investment Group Co., Ltd. (hereinafter referred to as "Jimei Industrial Investment") is one of the partners of Defeng Jiarun, and Jimei Industrial Investment is a wholly-owned subsidiary of the Xiamen Jimei District Finance Bureau.

In September 2020, Zhejiang Huzhou Huantaihu Group Co., Ltd. (hereinafter referred to as "Zhejiang Huantaihu") subscribed 1.5406 million shares of Zongmu Technology for RMB 50 million, and its shareholding ratio after the subscription was 2.29%. Then in January 2022, according to the previous agreement between Zhejiang Huantaihu and all parties, Huzhou Jinkun Equity Investment Partnership (Limited Partnership) (hereinafter referred to as "Jinkun Investment") subscribed 1.5406 million shares of Zongmu Technology for RMB 50 million, and its shareholding ratio after the subscription was completed was 1.6%.

It should be pointed out that Zhejiang Huan Taihu is an indirect wholly-owned subsidiary of Huzhou State-owned Assets Supervision and Administration Commission, and Jinkun Investment’s partners are all wholly-owned subsidiaries of Zhejiang Huan Taihu.

In December 2021, Dongyang Guanding Equity Investment Partnership (Limited Partnership) (hereinafter referred to as "Dongyang Guanding") subscribed 3.9781 million new shares of Zongmu Technology for RMB 372 million, and at the same time acquired 2.2629 million shares held by Zongmu Technology's employee stock ownership platform for RMB 128 million. After the above capital increase and equity completion, Dongyang Guanding's shareholding ratio in Zongmu Technology will be 6.89%.

Among them, Dongyang Guanding is held by China Fortune Securities Co., Ltd., a wholly-owned subsidiary, and Dongyang State-owned Assets Investment Co., Ltd., a holding subsidiary of Dongyang State-owned Assets Supervision and Administration Commission, with shares of 0.98% and 99.02% respectively.

As of the practicable date of March 20, 2024, Defeng Jiarun, Zhejiang Huantaihu, Jinkun Investment, and Dongyang Guanding held 0.94%, 1.6%, 1.6%, and 6.48% of the shares of Zongmu Technology, respectively.

In short, local state-owned assets in Xiamen, Huzhou and Dongyang have all invested in Zongmu Technology.

1.2 Build production bases in the above three locations successively, and publicly plan production capacity in each location or produce "more than one million sets" annually

In February 2017, December 2019, and January 2022, Zongmu Technology established subsidiaries in Xiamen, Huzhou, and Dongyang. By the end of 2023, Zongmu Technology had established two production bases in Xiamen, Fujian and Huzhou, Zhejiang. Zongmu Technology is building a third factory in Dongyang, Zhejiang, and is expected to start production in 2024.

According to the information released by "Huzhou Release" certified by the Huzhou Municipal Government Information Office on July 13, 2020, the Huzhou mass production factory and R&D base project of Zongmu Technology with a total investment of 500 million yuan was signed in Huzhou a few days ago.

In addition, information released by the Huzhou Municipal Government on July 17, 2020 shows that Zongmu Technology's Huzhou subsidiary is an important sensor product R&D and manufacturing base of Zongmu Technology. The first generation of millimeter-wave radar production line of Zongmu Technology, which has just been put into production, has an annual production capacity of about 500,000 units per line. According to the plan, Zongmu Huzhou subsidiary will have an annual production capacity of 1 million vehicle accessories in the next two to three years.

In addition, according to information released by the Dongyang Municipal Government on June 2, 2023, the Zongmu Technology Dongyang Intelligent Driving System Production Base is one of Dongyang's major attraction projects, with a total investment of 2 billion yuan. The project is divided into two phases, with a total investment of 600 million yuan in the first phase. After completion and production, it will be able to produce about 1.5 million sets of supporting cameras, radars and other products, corresponding to about 1 million sets of complete vehicles. The project is expected to complete the completion acceptance of civil engineering on June 30, 2023, and start trial production at the end of the year.

In addition, public information shows that Zongmu Technology was invested by Defeng Jiarun, a subsidiary of the company, and introduced to Jimei. Zongmu Technology successfully built a sensor R&D and production base in Jimei District, and invested 200 million yuan in Xiashi.

According to the "Environmental Impact Statement of the Automotive Millimeter-Wave Radar Production Project of Zongmu Technology (Xiamen) Co., Ltd." (hereinafter referred to as the "Millimeter-Wave Radar Project Environmental Impact Assessment") published by the Xiamen Municipal Ecology and Environment Bureau on October 18, 2023, as of the preparation date of the environmental impact assessment on October 17, 2023, the current production scale of Xiamen Zongmu, a wholly-owned subsidiary of Zongmu Technology, is 5 million automotive cameras, 60,000 sets of electronic control unit mainboards, and 2.5 million automotive ultrasonic radars per year.

It should be pointed out that ZongMu Technology's intelligent driving system consists of an intelligent driving control unit, namely a domain controller, and different types of sensors (cameras, ultrasonic radars, millimeter-wave radars).

That is, since 2017, Zongmu Technology has successively built production bases in Xiamen, Huzhou and Dongyang, and the planned production capacity in each place is "over one million sets" per year. As of October 2023, Zongmu Technology has built a camera production capacity of 5 million units per year, an ultrasonic radar production capacity of 2.5 million units per year, and a millimeter wave radar production capacity of 500,000 units per year.

1.3 The production capacity disclosed in the prospectus is calculated based on the actual production period and is far less than the capacity disclosed in public information. The company claims that this is "two concepts"

According to the prospectus submitted by Zongmu Technology to the Hong Kong Stock Exchange with the last practicable date of March 20, 2024 (hereinafter referred to as the "HKEx prospectus with the practicable date of March 20, 2024"), Zongmu Technology disclosed the production capacity and output by product categories, including domain controllers, cameras, radars, ultrasonic radars, etc. Among them, the "radar" disclosed here may refer to millimeter-wave radars.

As of the end of 2023, the designed production capacity of ZongMu Technology's cameras, radars (referring to millimeter-wave radars), and ultrasonic radars were 1.74 million units/year, 109,200 units/year, and 670,000 units/year. The actual output in the year was 1.5793 million units, 44,900 units, and 252,600 units, respectively, and the capacity utilization rates were 90.8%, 41.1%, and 37.7%, respectively.

Among them, the designed capacity is calculated based on the capacity during the actual production period of the year, and the utilization rate is calculated by dividing the actual output by the designed capacity of the year.

By comparison, it is not difficult to find that the production capacity of each product disclosed in the prospectus submitted by Zongmu Technology to the Hong Kong Stock Exchange by the end of 2023 is far less than the production capacity data disclosed in public information. Behind the contradiction of production capacity disclosure, the authenticity and accuracy of the production capacity data disclosed in the application documents of Zongmu Technology may be "questioned".

Zongmu Technology said that the company currently has two production bases in operation, mainly the Xiamen factory and the Huzhou factory. The Dongyang production base is still under construction and has not yet been put into production. Production scale and actual production capacity are two different concepts. The company has truthfully disclosed the actual production capacity of the two production bases.

In short, the design capacity of each product disclosed in the prospectus of Zongmu Technology is far less than the corresponding capacity data disclosed in public information. Faced with this "contradiction", Zongmu Technology said that the "two concepts" are different.

2. Two private equity firms managed by Chuangtu Investment Management successively invested in the company, and another company controlled by its actual controller assisted Zongmu Technology in applying for the project

People come here for profit. In 2013, Zongmu Technology was registered and established in Pudong District, Shanghai. In 2015, Ye Sen, a former public official in Pudong District, resigned and went into venture capital in the same year, renting a property in Pudong District to build an entrepreneurial incubation base. Zongmu Technology then "moved in" to the base, and the funds of the investment management company established by Ye Sen successively invested in Zongmu Technology, and another company founded by Ye Sen assisted Zongmu Technology in applying for government projects.

2.1 From 2019 to 2022, private equity funds managed by Chuangtu Investment Management successively invested in Zongmu Technology

According to the Science and Technology Innovation Board prospectus signed by Zongmu Technology on September 27, 2022 (hereinafter referred to as the "Science and Technology Innovation Board prospectus signed on September 27, 2022"), in May 2019, Hangzhou Chuangtu Venture Capital Partnership (Limited Partnership) (hereinafter referred to as "Hangzhou Chuangtu") subscribed for 702,400 shares of Zongmu Technology for RMB 20 million, and the corresponding valuation of Zongmu Technology was RMB 1.698 billion.

In March 2022, Shanghai Xinzhihuo Venture Capital Management Center (Limited Partnership) (hereinafter referred to as "Shanghai Xinzhihuo") subscribed 320,650 shares of Zongmu Technology for RMB 30 million.

As of the signing date of September 27, 2022, Hangzhou Chuangtu and Shanghai Xinzhiru held 0.73% and 0.33% of Zongmu Technology's shares, respectively.

It should be pointed out that Hangzhou Chuangtu and Shanghai Xinzhiru are both private equity funds, and the executive partner and fund manager is Shanghai Chuangtu Investment Management Co., Ltd. (hereinafter referred to as "Chuangtu Investment").

2.2 Ye Sen, the actual controller of Chuangtu Investment, was a public official in Pudong District and started to invest in venture capital the year he left his job

According to public information from the Securities Investment Fund Association, the fund manager Chuangtu Investment was established on March 7, 2016. As of the query date of August 7, 2024, Shanghai Chuangtu Technology Entrepreneurship Service Co., Ltd. (hereinafter referred to as "Shanghai Chuangtu") invested 65% in Chuangtu Investment. Ye Sen is the actual controller of Chuangtu Investment and serves as chairman and general manager.

According to the data from the Market Supervision Administration, Shanghai Chuangtu was registered and established on October 19, 2015. From May 11, 2016 to the query date of August 7, 2024, Ye Sen and Ye Ping held 90% and 10% of the shares respectively. Ye Sen is the executive director of Chuangtu Technology.

According to the Asset Management Association of China and public information, Ye Sen was a public official from January 2004 to August 2015.

From the above, we can see that Ye Sen is the actual controller of Shanghai Chuangtu and its subsidiary Chuangtu Investment. He was once a public official in Pudong District.

2.3 Yesen leases a property in Pudong District to build an entrepreneurial incubation base, and Zongmu Technology moves into the base and leases its property

According to the public transfer memorandum signed on December 14, 2016, Zongmu Technology, as the lessee, leased the property located at Building 3, Tengfei Technology Building, No. 111 Xiangke Road, Shanghai, from Shanghai Chuangtu, with a lease area of ​​1,509 square meters and a lease term from January 1, 2017 to September 19, 2019.

According to the Science and Technology Innovation Board prospectus signed on September 27, 2022, Zongmu Technology, as the lessee, leases the properties of Building 2 and Building 3 of Tengfei Technology Building, No. 111 Xiangke Road, Shanghai, from Shanghai Chuangtu and Shanghai Chuangtu Jungle Entrepreneurship Incubator Management Co., Ltd. (hereinafter referred to as "Chuangtu Incubator"), with a total leased area of ​​4,450.95 square meters and a lease term ending on September 30, 2022.

According to data from the Market Supervision Administration, the Chuangtu incubator was established in 2016, and as of the query date of August 7, 2024, Shanghai Chuangtu held a 72% stake.

That is, since 2017, Zongmu Technology, as the lessee, has leased properties to Shanghai Chuangtu and its holding subsidiary Chuangtu Incubator for office use.

It should be pointed out that according to the Science and Technology Innovation Board prospectus signed on September 27, 2022, the property owner that Zongmu Technology leased to Shanghai Chuangtu and Chuangtu Incubator is Shanghai Shenglang Real Estate Co., Ltd. (hereinafter referred to as "Shenglang Real Estate"). At the same time, Zongmu Technology also leased its property located at Building 2, Tengfei Technology Building, No. 111 Xiangke Road, Shanghai, to Shenglang Real Estate as the lessee, with a lease area of ​​593.79 square meters.

Public information shows that Ascendas Technology Building is a property under Singapore's CapitaLand Group and is owned or managed by CapitaLand Investments.

Tengfei Technology Building is located on Xiangke Road, Pudong New District, Shanghai, and consists of Buildings 1, 2, and 3. Building 3 is fully operated and managed by the Chuangtu Incubator, which is committed to building the "Chuangtu Jungle" intelligent manufacturing entrepreneurship base.

In 2020, the "Chuangtu Jungle Intelligent Manufacturing Park" was recognized as an entrepreneurial incubation base in Pudong New Area.

2.4 Zongmu Technology received a total of more than 50 million yuan in government subsidies in three years. The company indirectly controlled by Ye Sen once assisted Zongmu Technology in applying for projects

According to public information released by "Zhangjiang Release" certified by the Shanghai Zhangjiang Science City Science and Technology Innovation Service Center in August 2021, the welfare policy of the Creator Incubator has provided fertile soil for the rapid development of Zongmu Technology. In addition, the Creator Incubator not only helps Zongmu Technology advance its financing, but also helps it connect with the local management committee when it plans to build a factory in Huzhou, and coordinates and determines a series of preferential policies such as land, taxation, R&D, and equipment.

According to the "Reply to the Inquiry Letter on the Review of the Application Documents for the Initial Public Offering and Listing of Zongmu Technology on the Science and Technology Innovation Board" issued on March 28, 2023, during the reporting period, the intermediary service fees in Zongmu Technology's management expenses totaled 50.5579 million yuan. Among them, the intermediary service fees paid by Zongmu Technology to Chuangtu Incubator were 1.5223 million yuan (excluding tax) for assisting in the application of projects and financing financial advisory fees.

In January 2020, Chuangtu Incubator received 300,000 yuan in financing financial advisory service fees from Zongmu Technology at a rate of 1.5% for helping to introduce investor Shanghai Zhangjiang Torch Venture Capital Co., Ltd. Zongmu Technology did not disclose the government projects that Chuangtu Incubator assisted in applying for.

According to the Science and Technology Innovation Board prospectus signed on September 27, 2022, the total amount of government subsidies received by Zongmu Technology from 2019 to 2021 and from January to March 2022 was 51.6683 million yuan.

2.5 Within three years of leaving their post, leaders of government agencies shall not engage in profit-making activities directly related to the business of their original position.

According to the Civil Servants Law, which was reviewed and approved in 2005 and revised for the second time in 2018, when a civil servant resigns from public office or retires, civil servants who were formerly leadership members or leadership positions at or above the county or department level shall not take up positions in enterprises or other profit-making organizations directly related to their original work within three years of leaving their posts, and shall not engage in profit-making activities directly related to their original work.

According to the "Opinions on Regulating the Employment Behavior of Civil Servants after Resigning from Public Office" issued on May 26, 2017, civil servants who were formerly members of the leadership team of agencies at all levels, as well as other civil servants holding county-level and above positions, shall not accept employment from enterprises, intermediary agencies or other profit-making organizations within the jurisdiction and business scope of their original positions within three years after resigning from public office, and individuals shall not engage in profit-making activities directly related to the business under the jurisdiction of their original positions.

Zongmu Technology stated that the shareholders' investment was a normal investment behavior based on their optimism about the company's future development, and there was no situation of any interest transfer.

In summary, Ye Sen was a public official in Pudong District, Shanghai. He left his job in 2015 and went into venture capital. He then rented a property in Pudong District to build an entrepreneurial incubation base, and Zongmu Technology moved into the base and rented its property. Zongmu Technology is a company established in Pudong District, Shanghai. From 2019 to 2022, private equity funds managed by Chuangtu Investment Management, which was controlled by Ye Sen, successively invested in Zongmu Technology. Chuangtu Incubator, another company founded by Ye Sen, assisted Zongmu Technology in applying for government projects.