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jinghua optical is still waiting in line for listing.

on september 4, guangzhou jinghua precision optics co., ltd. (hereinafter referred to as "jinghua optics") disclosed the third round of review inquiry letter from the beijing stock exchange. on december 28 last year, jinghua optics' ipo application was accepted, and the underwriting sponsor was haitong securities.

less than a month after listing on the new third board, jinghua optics applied for listing on the beijing stock exchange, becoming one of the companies that was accepted by the beijing stock exchange for secondary listing the fastest.

however, jinghua optics still faces many problems while accelerating its entry into the beijing stock exchange. for example, the company has received three rounds of inquiries regarding its overseas revenue, and the authenticity of its revenue has been questioned. in addition, the company's core products rely on outsourcing, and its own production and processing capabilities are still questioned.

1

core products rely on outsourcing, and the r&d expense rate is lower than that of peers

jinghua optics is mainly engaged in the research and development, design, production, manufacturing and sales of precision optoelectronic instruments, automotive intelligent sensing systems and precision optical components.

it is reported that well-known companies such as gac group, amazon, and walmart are all customers of jinghua optics.

despite having many well-known customers, jinghua optics' performance has remained under pressure in recent years.

from 2021 to the first half of 2024, jinghua optics' operating income was rmb 1.221 billion, rmb 1.195 billion, rmb 1.116 billion and rmb 450 million, respectively, with year-on-year growth of 21.81%, -2.17%, -6.59% and -1.36%.

during the same period, the company's net profit attributable to shareholders of the parent company was rmb 63.366 million, rmb 91.561 million, rmb 64.157 million and rmb 12.637 million, respectively, with year-on-year growth of -54.10%, 44.50%, -29.93% and -29.93%, respectively.

figure/ wind (unit: 10,000 yuan)

it can be seen that in recent years, jinghua optics' operating income and net profit attributable to shareholders have shown an overall downward trend.

the decline in performance is closely related to the fierce competition in the automotive industry. public information shows that jinghua optics' main businesses include precision optoelectronic instruments, automotive intelligent sensing systems and precision optical components.

jinghua optics stated in its 2024 semi-annual report that due to the transmission of fierce competition in the automotive industry to the supply chain, the company's automotive intelligent sensing system business revenue and profits declined, dragging down overall performance.

in addition, jinghua optics' core products mainly rely on outsourced production and purchasing of finished products, which is often criticized by the outside world.

the prospectus shows that precision optoelectronic instruments are jinghua optics' core products, accounting for more than 60% of its main business revenue.

figure/ jinghua optical ipo prospectus

according to the production method, precision optoelectronic instruments can be divided into three categories: self-production, outsourcing and purchased finished products. jinghua optics' reply to the inquiry letter shows that from 2021 to 2023, the proportion of outsourcing is as high as 57.09%, 67.69% and 57.41%, the proportion of purchased finished products is 34.44%, 22.23% and 27.11%, and the proportion of self-production is less than 20%.

figure/ jinghua optics’ response to the first round of inquiry letters

first, jinghua optics relies so much on external suppliers for its core products that it remains to be seen whether the company has sufficient independent production capacity. second, since third-party suppliers are responsible for processing, product quality cannot be directly controlled, so jinghua optics also has to bear the product quality risks brought by external processing.

in fact, jinghua optics' investment in research and development is not high.

the prospectus shows that from 2020 to the first half of 2023 (hereinafter referred to as the "reporting period"), the company's r&d expenses were rmb 26.8927 million, rmb 31.2896 million, rmb 38.3978 million and rmb 13.0857 million, respectively, accounting for 2.68%, 2.56%, 3.21% and 2.87% of the current operating income, respectively.

during the same period, the average r&d expense rates of peer companies were 7.21%, 7.49%, 8.56% and 9.21% respectively.

figure/ jinghua optical ipo prospectus

it can be seen that there is a big gap between jinghua optics' r&d investment and that of its peers, and its r&d expense rate is much lower than that of its peers. not only that, among the several peers disclosed in the prospectus, jinghua optics has the lowest r&d expense rate.

it is worth noting that among jinghua optics’ “not much” r&d expenses, a considerable amount of money is used for outsourced r&d.

the prospectus shows that during the reporting period, the company's outsourced r&d expenses accounted for 7.93%, 7.00%, 10.03% and 15.28% of the current r&d expenses. since 2022, the proportion of jinghua optics entrusting external r&d has increased significantly.

regarding outsourced r&d, jinghua optics explained in its prospectus that the company selected some non-core product or non-core technology r&d matters and entrusted them to r&d suppliers.

from the perspective of r&d achievements, jinghua optics has a total of 19 domestic invention patents, of which only 2 were obtained after 2021. it can be seen that jinghua optics' r&d achievements in recent years are not rich.

2

eager to impact the beijing stock exchange, several gambling agreements were signed

jinghua optics was founded in 1997, was listed on the new third board for the first time in march 2015, and was delisted on january 22, 2021.

on november 30, 2023, jinghua optics was listed on the new third board again. only one month later, the company began to apply for an ipo on the beijing stock exchange.

as of the date of signing of the prospectus, the actual controller of the company is he jian, who directly holds 55.22% of the shares and controls 1.70% of the company's voting rights through jingtou investment, and controls a total of 56.92% of the voting rights of jinghua optics.

"entrepreneurship frontline" noticed that in addition to preparing to enter the capital market, jinghua optics had previously introduced a lot of external capital and signed a number of gambling agreements.

as early as july 2009, jinghua optics introduced kechuang investment and haihui investment. the new shareholders signed an agreement with original natural person shareholders such as he jian, stipulating special rights clauses such as performance compensation, share repurchase and anti-dilution.

in may 2011, new shareholders haihui wealth and zhishan venture capital signed another gambling agreement with hejian and jinghua optics, and agreed on special rights clauses such as performance compensation, equity repurchase, and priority acceptance/transfer.

on november 18, 2014, the eve of its listing on the new third board, the above-mentioned gambling agreement was terminated.

by submitting its application to the beijing stock exchange, the company still attracted a lot of external capital on the eve of its ipo filing.

from november 2020 to march 2021, he jian signed relevant agreements with liu ruichun and others, mentioning that if jinghua optics fails to submit an ipo application before december 31, 2023, the equity repurchase clause will be triggered.

in may 2022, jinghua optics increased its capital again. kuang zhenpeng, li fusheng and other entities subscribed for 3.87 million shares at a price of 13 yuan per share. the total capital increase was 50.31 million yuan. they also signed a gambling agreement requiring jinghua optics to submit an application for listing before december 31, 2024.

at present, the above-mentioned gambling agreements have been terminated.

"entrepreneurship frontline" noticed that jinghua optics' capital increase, signing of a bet agreement, and eager application for listing on the beijing stock exchange may be related to the company's insufficient funds.

the prospectus shows that as of the end of the first half of 2024, jinghua optics had a short-term loan balance of 72 million yuan and cash and cash equivalents of 136 million yuan, leaving not much room for capital turnover.

more importantly, from 2021 to the first half of 2024, jinghua optical's net operating cash flow was -54.4499 million yuan, 136 million yuan, 93.7250 million yuan and -30.2486 million yuan, respectively. among them, 2021 and the first half of 2024 were both in a state of net outflow.

figure/ wind (unit: 10,000 yuan)

at this time, if you want to quickly relieve the financial pressure, going public is undoubtedly a fast way. this gives us a glimpse into why jinghua optics quickly launched an attack on the beijing stock exchange shortly after listing on the new third board.

3

i have faked orders on tmall and have been repeatedly questioned about overseas transactions.

in fact, jinghua optics' main battlefield is overseas.

public data shows that jinghua optics' overseas business covers many countries and regions around the world, and its products are mainly sold to europe and the united states. among them, the company's core product, precision optoelectronic instruments, is mainly sold overseas.

during the reporting period, the company's overseas main business income accounted for 77.37%, 75.79%, 66.53% and 61.43% of the main business income of the current period respectively. overseas regions contribute more than 60% of the main business income each year.

however, the reply rate of overseas sales is much lower than that of domestic sales.

taking precision optoelectronic instruments as an example, from 2021 to 2023, the company's sales revenue confirmation ratios were 86.70%, 94.97% and 83.78% respectively; while the overseas sales revenue confirmation ratios were only 43.87%, 42.70% and 52.69%.

figure/ jinghua optics' response to the inquiry letter

in response to the low proportion of replies from overseas customers, the beijing stock exchange also raised inquiries, requiring jinghua optics to explain the reasons and rationality for the low proportion of replies from overseas customers, the alternative procedures and effectiveness for customers who did not reply, and the specific verification circumstances and conclusions of the authenticity of the revenue of overseas offline retailers and end users.

jinghua optics stated that the confirmation letters for the company's overseas sales revenue were relatively low, and the main reasons for not replying were the following: first, overseas customers did not provide confirmation letters based on cultural habits, legal and internal control requirements, etc.; second, jinghua optics' major overseas customers were large in scale, and the company's transaction amounts with them had little or no impact on them; third, the company had a large number of retailers and end customers, small transaction amounts, and a high degree of randomness.

in addition, jinghua optics' method of recognizing overseas revenue is also relatively "random".

the reply to the inquiry letter shows that the company's overseas sales are divided into online and offline parts. among them, online customers mainly include amazon, bresser.de, shopify, etc., and revenue is recognized when the goods are delivered, expected to be delivered, or the platform has settled.

offline customers include aldi, walmart, costco, and kamera express. revenue is recognized when the goods are delivered or expected to be delivered.

figure/ jinghua optics' response to the inquiry letter

that is to say, once the customer receives the express delivery of the goods order, jinghua optics has already confirmed the revenue. but in fact, overseas customers also have the "privilege" of a 30-day no-reason return period.

in the three rounds of inquiries, the regulatory authorities inquired about the company's overseas sales. in the first round of inquiries, the regulatory authorities asked jinghua optics to verify the authenticity of its overseas sales and whether the verification was sufficient and effective; the second round of inquiries required the company to further explain its control over its overseas subsidiaries.

in the latest disclosed third round of inquiries, regulators asked jinghua optics to further explain the situation of its overseas subsidiaries and the authenticity of its overseas inventory.

in addition, in terms of domestic revenue, from 2020 to 2021, in order to optimize product search rankings, jinghua optics also carried out fake order operations on the tmall platform.

if these problems cannot be explained clearly, they may become a major obstacle for jinghua optics on its road to listing.