Termination of IPO, IKEA

Although many home furnishing brands are rushing to IPO this year, not every company's road to listing is smooth.

On July 26, the China Securities Regulatory Commission terminated the review of Zhejiang Botai Furniture's initial public offering application, which meant that the furniture company's first road to A listing ended in failure.

Botai Furniture was established in 2003. The company is headquartered in Anji County, Huzhou City, Zhejiang Province. The company's main business is the research and development, production and sales of office chairs, sofas and leisure chairs and other furniture products. The sales direction of the products include Europe, America, etc. country and region.

Interestingly, as a well-known “Bamboo Township” in China, Anji has many upholstered furniture companies focusing on sofas, chairs and other furniture products, including the listed Henglin and Yongyi shares, as well as those who participated in the company due to an explosion not long ago. Zhongyuan Home Furnishing, which is "market value management", all made their fortunes here.

PATEO Furniture submitted a prospectus to the Shanghai Stock Exchange at the end of June 2020. This is also the year in which home furnishing companies are the most affected under the impact of the epidemic. PATEO Furniture also mentioned in the prospectus that the epidemic has caused the company's operating performance to decline in the first half of 2020, and at that time estimated the adverse impact on the full-year performance.

At that time, the company planned to publicly issue 25 million shares to raise 610 million yuan, which will be used to put into production production bases, R&D centers and information system upgrades, as well as supplement working capital. Obviously, the interruption of the road to listing is a blow to the source of funds raised for the construction of PATEO's production line and R&D center.

According to the prospectus of PATEO Furniture, the company's revenue from 2017 to 2019 was 484 million yuan, 756 million yuan and 829 million yuan respectively, with a compound annual growth rate of 30.85%, but the scale of the company is not dominant in the industry. .

Taking PATEO Furniture's target "companies" as an example, Yongyi's revenue in 2019 has reached 2.45 billion yuan, and by 2020, its revenue has reached 3.434 billion yuan, and Henglin's revenue in 2020 will be 4.74 billion yuan. Even the smallest Zhongyuan Home Furnishings can achieve a revenue of 1.16 billion yuan in 2020.

Another problem is that Botai furniture is not well known in the industry. This is also related to the fact that the company mostly cooperates with brand owners in OEM and ODM models.

Most of the so-called OEM (original equipment manufacturer) and ODM (original design manufacturers) enter the market through OEM production, mainly through OEM sales. This makes PATEO furniture lack of brand premium, retail capacity, and highly dependent on major brand customers.

The prospectus also presents this risk. During the period, the company's top five customers, HNI, STEINHOFF, AmalfiHome Furniture LLC, IKEA (IKEA), Li & Fung and other groups accounted for 60% of the company's total revenue, with a significantly higher concentration. .

And since most of the major customers of PATEO furniture are foreign-funded enterprises, the company's products are also mainly exported. During the period, the company's office chairs and sofas were mainly sold to the North American and European markets. From 2017 to 2019, the company's export revenue accounted for 84.26%, 85.29% and 91.53% of the company's main business revenue respectively, and it was highly dependent on overseas markets. The relatively slow recovery ability of this part of the overseas market after the epidemic, as well as the contraction of the overall home furnishing market, also had a significant impact on "OEM" companies.

High reliance on brand owners makes PATEO furniture weak in premium capacity and is greatly affected by cost fluctuations. The prospectus shows that during the period, the company's main business gross profit margins were 20.74%, 18.77% and 24.81%, respectively, and the gross profit rate was not high. The factors that caused the gross profit rate to fluctuate include the increase in raw material costs, exchange rate changes and other factors.

Most importantly, since it is mainly a "OEM" factory for large-scale home furnishing industries and enterprises, PATEO furniture lacks high premium links including design, etc., and mainly focuses on production, so it is difficult to increase gross profit. interest rate.

It is worth noting that the debt ratio of Botai Furniture is significantly higher than that of its peers. The prospectus shows that the company's asset-liability ratios were 55.77%, 57.52%, and 50.94% during the period, significantly higher than the average levels of 39.48%, 29.14%, and 35.19% of the benchmarking peers. At the time, the company attributed its high debt to the lack of large-scale equity financing.

On the other hand, the company's accounts receivable has also risen year by year, from 77 million yuan in 2017 to 171 million yuan in 2019, and the upward trend has not eased. This makes the outside world question the capital operation ability of PATEO furniture.

Interestingly, just a few days before PATEO Furniture terminated its IPO, the China Securities Regulatory Commission’s report on the investigation procedures initiated by the “Zhongyuan Home Furnishing” and other stock price cases showed that the suspects controlled dozens of securities accounts through manipulating gangs, through continuous trading, For the illegal methods, including "Zhongyuan Home Furnishing", "Litong Electronics" and other stocks, the transaction amount exceeds 3 billion yuan, which has been suspected of constituting a market manipulation crime, and has been transferred to the official organ for criminal responsibility.

Although Zhongyuan Home Furnishings later responded that the China Securities Regulatory Commission’s announcement and other stock price manipulation cases were not directly related to and did not participate in it, it still could not stop the sharp drop in the company’s stock price on July 26 and 27.

When it was reported by a big V in May this year, some people in the securities industry said that Zhongyuan Home Furnishings only had a total share capital of 80 million and a total market value of 1.3 billion. Due to the small market size and no large institutional investors "anchoring" , is one of the important factors that can be targeted by manipulators and hyped.

As for PATEO furniture, which is also a small-scale and small-scale fundraising, it is also full of uncertainty whether it will be affected by the investigation of the "compatriots" listed companies by the China Securities Regulatory Commission.

Regarding the main factors for the company's termination of the IPO, as of press time, Botai Furniture has not responded to Jiemian News. With a large number of home furnishing companies hitting the market this year, it is still unknown whether PATEO furniture will have a second impact after the company makes adjustments.