Stepoc Share IPO "Double Oddities": Groundless Production Capacity Concealment and Bizarre Related-Party Transactions

Eel Express News / Yin Qiutong

On October 14, the China Securities Regulatory Commission announced its approval of Shanghai Buke Automation Co., Ltd. (hereinafter referred to as Buke Co.) for its initial public offering (IPO) registration on the STAR Market. However, investigations by Eel Express News have uncovered two “mysteries” in Buke Co.'s IPO: first, unreasonably concealing capacity; second, bizarre related-party transactions.

In response to these questions, Eel Express News sent a verification letter to Buke Co., but has yet to receive a reply. What exactly has Buke Co. been hiding?

Main products conceal 20% of capacity

According to the prospectus, in this IPO, Buke Co. plans to issue no more than 21 million shares, accounting for 25% of the total shares after issuance. The funds raised will amount to 271 million yuan and will be used for the technological transformation of the production center, the construction of an intelligent manufacturing marketing service center, comprehensive automation technology R&D experiments, and working capital supplementation. The “Production Center Upgrade and Transformation Project” will be implemented by its subsidiary, Shenzhen Buke.

It is understood that Buke Co.'s main products include human-machine interfaces, servo systems, low-voltage inverters, and programmable logic controllers (PLCs). In 2019, the reference capacities for these products were 250,000 units, 120,000 units, 24,000 units, and 22,000 units respectively. The prospectus states that the calculation basis for reference capacity mainly relies on the output that can be produced by direct production personnel working standard hours according to the standard operation times for each product.

However, according to the Environmental Impact Report Form for the “Production Center Upgrade and Transformation Project” (prepared in December 2019), before the project was implemented, Shenzhen Buke’s design capacity for low-voltage inverters had already reached 30,000 units. This means that the total capacity of Buke Co. and its subsidiaries for low-voltage inverters was at least 30,000 units, but the reference capacity disclosed in the prospectus was only 80% of that. If calculated based on a capacity of 30,000 units, the capacity utilization rate for low-voltage inverters in 2019 would drop to 83.50%.

Furthermore, after the completion of the “Production Center Upgrade and Transformation Project,” the capacities for human-machine interfaces, low-voltage inverters, and PLCs are expected to increase by 222,300 units, 17,600 units, and 95,900 units respectively, representing 89.32%, 73.33%, and 435.91% of the current disclosed capacities. Particular attention is needed on how the additional PLC capacity will be absorbed.

Seven consecutive years of related-party transactions

According to observations by Eel Express News, in December 2014, former shareholders Huang Hualin, Ma Xuetong, and Zhu Hongfeng transferred their respective holdings of 941,100 shares, 510,200 shares, and 299,500 shares to Chi Jiawu and exited Buke Co. At that time, the ChiNext review committee believed that Buke Co. had not adequately explained or disclosed the reasonableness of ongoing procurement or sales transactions with former shareholders and employees’ companies during the reporting period, nor the fairness of transaction prices.

Buke Co.'s reply clarified that Ma Xuetong was a shareholder of Buke Co.'s predecessor, Buke Limited, established in 2008. Huang Hualin and Zhu Hongfeng were indirect controlling shareholders of Buke Co., having invested in Shenzhen Buke in 2006. In 2011, Buke Limited began planning for a share reform and listing. To optimize the equity structure, incentivize employees, and raise funds for development, the company’s indirect domestic individual shareholders participated in additional capital contributions, allowing them to directly hold shares in the company. As a result, Huang Hualin and Zhu Hongfeng became direct shareholders of Buke Co. in 2011.

In 2010, Ma Xuetong, Huang Hualin, and Zhu Hongfeng resigned from Buke Limited and Shenzhen Buke to start their own businesses. Interviews with Ma Xuetong, Zhu Hongfeng, and Huang Hualin confirm that in December 2014, these three transferred all their direct holdings in the company to Chi Jiawu. Ma Xuetong and Zhu Hongfeng had planned to establish Shanghai Fanyi Information Technology Co., Ltd. (hereinafter “Shanghai Fanyi”) in March 2010, with their spouses as shareholders; Huang Hualin increased capital in Shanghai Fanyi in July 2010 (and exited in October 2010). In 2011, Huang Hualin established Shenzhen Shengtaiqi Technology Co., Ltd. (hereinafter “Shengtaiqi”).

It is noteworthy that over the past seven years, Buke Co. has maintained related-party transactions with Shanghai Fanyi.

From 2013 to 2019, Buke Co. sold to Shanghai Fanyi amounts of 347,300 yuan, 623,500 yuan, 444,200 yuan, 75,700 yuan, 204,500 yuan, 47,300 yuan, and 20,100 yuan respectively; purchases from Shanghai Fanyi amounted to 328,000 yuan, 499,900 yuan, 934,000 yuan, 180,200 yuan, 682,000 yuan, 934,000 yuan, and 367,800 yuan, accounting for 0.47%, 0.59%, 1.24%, 0.18%, 0.40%, 0.50%, and 0.19% of the total procurement during those periods.

Between 2017 and 2019, Buke Co. sold to Shengtaiqi a total of 471,000 yuan, 167,100 yuan, and 22,500 yuan, respectively, representing 0.15%, 0.05%, and 0.01% of total sales during those years.

Eel Express News

(Editors: Ji Liya HN003)

Report