On the eve of the Hong Kong Stock Exchange IPO of Hong Kong Electric Appliances, 2 former employee shareholders mysteriously "withdraw shares"

Recently, the small home appliance OEM factory Hubei Xiangjiang Electric Co., Ltd. (referred to as "Xiangjiang Electric") submitted an IPO application to the Hong Kong Stock Exchange.

During the reporting period, Xiangjiang Electric's performance has been considerable, with revenues of 1.484 billion yuan, 1.1 billion yuan, and 1.192 billion yuan for 2021 to 2023, and net profits of 72 million yuan, 80 million yuan, and 121 million yuan respectively.

Before submitting the application to the Hong Kong Stock Exchange this time, Xiangjiang Electric made an attempt on the Shenzhen Stock Exchange main board in 2022, but eventually withdrew the application materials.

Previously, Xiangjiang Electric had faced market scrutiny for changing IPO advisory agencies twice.

In the IPO prospectus submitted to the Hong Kong Stock Exchange this time, Xiangjiang Electric directly pointed out that two advisory agencies had significant personnel turnover and failed to meet the agreed listing timetable.

According to a comparison by TradeWind01, these two advisory agencies are Dongxing Securities and Soochow Securities (601377.SH).

A major mystery looming over Xiangjiang Electric's IPO is that two former employees chose to "withdraw shares" two months before the IPO was launched.

However, in previous domestic IPOs, both of them, considering the possibility of an IPO, remained firm in holding Xiangjiang Electric's shares even after leaving their positions.

Whether there are hidden motives behind this remains to be further observed.

Targeting the Two Securities Firms

Xiangjiang Electric's listing process has been quite rocky, with its listing target being the A-share market, but it has never materialized.

As early as 2017, Xiangjiang Electric signed an IPO advisory agreement with Dongxing Securities and submitted an application to the CSRC, but it did not submit an IPO application to the CSRC until 2020.

In January of the following year, Xiangjiang Electric changed its advisory agency to Soochow Securities, but the cooperation ended in less than three months.

Subsequently, Xiangjiang Electric hired Guojin Securities as its advisory agency and successfully submitted an application for a main board listing to the CSRC in June 2022, which was accepted. During this period, it underwent on-site inspections and comprehensive registration system reforms, and the review was transferred from the CSRC to the Shenzhen Stock Exchange.

Nevertheless, Xiangjiang Electric still withdrew its application materials in May this year, marking the end of its nearly 7-year journey to an A-share IPO.

Regarding the issue of changing advisory agencies twice during the IPO process, Xiangjiang Electric also explained the causes and consequences in the IPO prospectus submitted to the Hong Kong Stock Exchange.

According to Xiangjiang Electric's explanation, in 2017, they hired Company A as the advisory agency, but due to high personnel turnover, the cooperation ended; in January 2021, they switched to Company B, but the latter failed to adhere to the agreed listing timetable, leading to the termination of the cooperation.

Based on the timeline, Companies A and B are Dongxing Securities and Soochow Securities respectively.

In the context of tightened IPO regulations, it is indeed not easy for small home appliance OEM factories to pursue an IPO.

Xiangjiang Electric is not the only example of failure.

Another small home appliance OEM factory, Ningbo Boling Electric Co., Ltd. (referred to as "Boling Electric"), after passing the ChiNext Listing Committee review in November 2022, had no further progress and eventually voluntarily withdrew its application materials in February this year.

Unlike Xiangjiang Electric, Boling Electric is now aiming for the Beijing Stock Exchange In July this year, Boling Electric, under the guidance of Guotou Securities, submitted listing guidance materials to the Beijing Stock Exchange.

Regarding the decision to switch to the Hong Kong Stock Exchange, Hongjiang Electric explained that it was to "enhance international reputation".

Indeed, overseas markets are important for Hongjiang Electric.

Hongjiang Electric mainly manufactures kitchen small appliances for international renowned companies such as Walmart and Philips, with products sold in North America, Europe, and other regions.

The North American market is growing steadily. From 2021 to 2023, the market generated revenues of 1.078 billion yuan, 781 million yuan, and 994 million yuan respectively, accounting for 70-80% of the total.

However, due to geopolitical factors, Hongjiang Electric's revenue in the European market experienced a sharp decline, reaching only 112 million yuan in 2023, a year-on-year decrease of 50.93%.

Due to the lower profit margins of European customers, coupled with the "filling" of North American growth and some increase in product prices, Hongjiang Electric's profit in 2023 did not decline. The net profit for the period was 121 million yuan, a year-on-year increase of 51.33%.

In terms of product categories, in 2023, Hongjiang Electric's gross profit margin for electrical appliances reached 20.9%, an increase of 4.3 percentage points from 2022.

This drove an overall increase in net profit margin, reaching 10.15% in 2023, an increase of 2.88 percentage points year-on-year.

With this IPO, Hongjiang Electric plans to expand its presence in overseas markets by establishing a factory in Thailand to strengthen its global layout.

This move is expected to reduce potential geopolitical risks.

Thailand has indeed become an important production base for many domestic home appliance factories to go global.

For example, Midea's air conditioning factory in Chonburi, Thailand, is its largest smart factory overseas; in September this year, Haier was approved to build an air conditioning factory in the United States with an investment of 2.6 billion yuan.

Former Employees Unexpectedly "Sell Back" Shares

The equity ownership of Hongjiang Electric is relatively concentrated.

Currently, Pan Yun and his controlled Qichun Huayu Technology Management Center (Limited Partnership) (referred to as "Qichun Huayu"), and the employee shareholding platform Qichun Hengxing Technology Management Center (Limited Partnership) (referred to as "Qichun Hengxing") collectively hold 100% of the shares of Hongjiang Electric.

In fact, Pan Yun had previously introduced external shareholders to Hongjiang Electric.

In 2017 and 2018, Shenzhen Huiyin Hefu No. 10 Investment Partnership Enterprise (Limited Partnership) (referred to as "Huiyin Hefu"), Shenzhen Huiyin Ruihe No. 6 Investment Partnership Enterprise (Limited Partnership) (referred to as "Huiyin Ruihe"), and Shenzhen Huiyin Jiafu Preferred No. 1 Entrepreneurship Investment Partnership Enterprise (Limited Partnership) (referred to as "Huiyin Jiafu") successively increased their capital in Hongjiang Electric, with shareholding ratios of 2.04%, 0.61%, and 2.22% respectively.

At that time, Hongjiang Electric, Pan Yun, Huiyin Hefu, Huiyin Ruihe, and Huiyin Jiafu agreed that if Hongjiang Electric failed to list before 2020, they would repurchase the shares held by these three investment institutions.

Subsequently, due to the failure of the bet, Hongjiang Electric spent a total of 75 million yuan to repurchase shares from these three investment institutions.

In addition, employees holding shares in Qichun Hengxing also chose to "sell back" their shares, but the timing was quite peculiar.

During the IPO process of Hongjiang Electric on the Shenzhen Stock Exchange in 2023, two shareholders of Qichun Hengxing, Wang Yang and Guan Jing, resigned successively. Their positions were respectively Sales Manager of Department Three and Deputy General Manager of Sales Center As Hongjiang Electric did not have an agreement with its holding employees prohibiting them from leaving, Wang Yang and Guan Jing, considering the possibility of going public, still held shares in Qichun Hengxing after leaving Hongjiang Electric.

However, strangely, two months before the launch of the Hong Kong Stock Exchange IPO, Wang Yang and Guan Jing chose to divest their shares from Qichun Hengxing.

Tianyancha data shows that on August 4th this year, Wang Yang and Guan Jing had already divested their shares from Qichun Hengxing, with corresponding contributions of 800,000 yuan and 400,000 yuan.

This means that Wang Yang and Guan Jing may have missed out on the capital feast after the successful IPO of Hongjiang Electric.

Although the prospects of Hongjiang Electric's IPO success are uncertain, whether Wang Yang and Guan Jing, who chose to divest at this moment, are aware of Hongjiang Electric's subsequent plan to list on the Hong Kong Stock Exchange, and whether there are other hidden reasons behind this, still requires further observation.