Sanxie Electric's IPO Eve "Sudden Dividend," Controlling Shareholder Receives 12 Million, Plus an Additional 12 Million in Capital Injection!

Source: IPO Daily Report

Recently, Changzhou Sanxie Motor Co., Ltd. (hereinafter “Sanxie Motor”)’s IPO on the Beijing Stock Exchange has entered the second round of inquiries.

Sanxie Motor’s path to going public has not been smooth sailing.

At the end of 2023, Sanxie Motor’s IPO on the Beijing Stock Exchange was accepted, with its sponsor being Northeast Securities Co., Ltd. On January 29, Sanxie Motor received the Beijing Stock Exchange’s audit inquiry letter. On February 27, the company did not respond in a timely manner, but instead stated, “to apply for an extension of 20 business days, and submit the reply to the audit inquiry letter to the Beijing Stock Exchange by March 29.” On March 28, Sanxie Motor issued an announcement updating that its application for suspension of the audit due to expiration of the validity period of its financial report, and did not reply to the inquiry letter. It was not until June 24 that the circumstances for suspending the audit were eliminated, and the company resumed the audit for its public offering of shares and listing.

For this IPO, Sanxie Motor plans to publicly issue 18 million shares and raise RMB 159 million, which will be used for the expansion project of Sanxie green energy-saving intelligent control motors, the construction project of its R&D center, and supplementing working capital.

IPO Daily Report found that, on the eve of the IPO, Sanxie Motor “rushed into dividends.” The spouses controlling shareholders took home more than RMB 12 million; however, the company planned to raise RMB 17.8k to replenish working capital, casting doubt on the rationale for the dividends. In addition, the relationship between the company and its major customers and suppliers is “full of twists and turns,” and the cooperation relationship is “based on family ties.”

Source: Zhang Li

“Rushed” Dividends on the Eve of the IPO

According to the prospectus, Sanxie Motor is a “husband-and-wife shop.”

As of the date of signing of this prospectus, Sanxie Motor’s controlling shareholder is Sheng Yi, who directly holds 62.97% of the company’s shares; Zhu Shuqing directly holds 19.49% of the company’s shares.

It is understood that Sheng Yi and Zhu Shuqing are a married couple. Therefore, the two together control 82.46% of Sanxie Motor’s shares, making them the joint de facto controllers of Sanxie Motor.

It is worth noting that, on the eve of the IPO, Sanxie Motor had carried out a rushed dividend distribution, and most of the dividend money went into the couple’s “pockets.”

In terms of timing, this dividend distribution is “curious.”

Public information from the Beijing Stock Exchange shows that on December 29, 2023, Sanxie Motor applied to the Beijing Stock Exchange for the IPO; however, information in the prospectus shows that on November 15, 2023, the company convened an extraordinary general meeting of shareholders to deliberate and approve the proposal for the 2023 semi-annual equity distribution, with the time difference being just a little over one month.

Meanwhile, according to information in the prospectus, during the reporting period Sanxie Motor did not distribute any other dividends.

In addition, in terms of dividend amount, Sanxie Motor, based on the company’s existing total share capital of 38.4850 million shares, will capitalize to all shareholders 3.8 shares for every 10 shares held. Of this, for every 10 shares, 3.8 shares will be capitalized from the capital reserve fund formed by share issuance premium; and for every 10 shares, RMB 3.9 in cash will be distributed, for a total cash dividend of RMB 15.0092 million. Before the dividend, the company’s total share capital was 38.4850 million shares; after the dividend, the total share capital increased to 53.1093 million shares.

Based on this calculation, Sheng Yi and Zhu Shuqing will receive dividend payments of RMB 12.3766 million.

At the same time, among Sanxie Motor’s funds raised, the company plans to use RMB 19.8k for supplementing working capital.

First, dividends of more than RMB 12 million; then, raising RMB 12 million for working capital—this set of moves is indeed “a coincidence.”

The CSRC has previously issued multiple policies to further clarify dividend requirements for listed companies.

In December 2023, the CSRC issued the “Regulatory Guidance No. 3 for Listed Companies—Cash Dividends of Listed Companies,” further clarifying and encouraging cash dividend distributions to promote improvement in dividend levels. In April 2024, the “Several Opinions of the State Council on Strengthening Regulation to Prevent Risks and Promoting High-Quality Development of the Capital Market” pointed out that “strengthening regulation of cash dividends by listed companies,” “increasing incentives for high-quality dividend-paying companies,” “taking multiple measures to promote higher dividend yields,” and “enhancing the stability, continuity, and predictability of dividends, promoting multiple dividend distributions within a year, pre-dividends, and dividends before the Spring Festival.”

Sustained and stable dividends help enhance investor returns, promote the establishment of a long-term value investing mindset, and facilitate the stable and healthy development of the market. But “how to distribute dividends,” how to “distribute dividends reasonably,” and whether there is “excessive dividend distribution” are also issues that listed companies need to pay attention to.

The “twisty” relationship

The prospectus shows that Sanxie Motor was established in 2002 and is a company that develops, manufactures, and sells control motors. Its main products include stepper motors, servo motors, and brushless motors, as well as related supporting products.

From financial data, from 2020 to 2023 (January to June, hereinafter the “reporting period”), Sanxie Motor’s operating revenue was RMB 196 million, RMB 282 million, RMB 287 million, and RMB 162 million, respectively; profits were RMB 22.0665 million, RMB 25.6304 million, RMB 27.0442 million, and RMB 22.2757 million, respectively; and gross margin was 26.95%, 19.92%, 22.31%, and 28.84%, respectively.

IPO Daily Report found that the relationship between Sanxie Motor and its customers and suppliers is “full of twists and turns.”

In terms of gross margin, the company’s gross margin in 2023 increased significantly. In 2022 and 2023, Sanxie Motor’s consolidated gross margin was 22.31% and 28.47%, respectively, while the comparable companies’ average consolidated gross margin was 25.60% and 25.83%, respectively.

It is understood that Sanxie Motor’s main trading distributors are Nanjing Noite Electrical Equipment Co., Ltd., Hangzhou Aidong Electrical Equipment Co., Ltd., and Changzhou Xiangbo Intelligent Technology Co., Ltd. The proportion of sales revenue that the stepper motor sales to each trading distributor represents of that distributor’s revenue is 96.22%, 91.06%, and 85.22%, respectively. However, Sanxie Motor’s gross margin on sales of stepper motors to trading distributors is lower than that of manufacturers, while its gross margin on sales of brushless motors is the opposite.

In terms of procurement and sales amounts, during the reporting period, the company’s procurement amounts from Chuzhou Hamps were RMB 17.8 thousand, RMB 19.8 thousand, and RMB 11.64 million, respectively, and the procurement amount in 2023 increased substantially. The downstream customers of the company’s top five customers, Hamps and Hefei Bolin, are Nanjing Noite, which is the issuer’s main trading distributor customer. The products that Sanxie Motor sells to Nanjing Noite are customized products. During the reporting period, the company’s sales to Nanjing Noite were RMB 16.3488 million, RMB 16.9724 million, and RMB 10.0963 million, respectively, and in 2023 its sales amount decreased substantially.

In addition, the Beijing Stock Exchange found that the company’s first largest customer, Leise Intelligent, indirectly held 9.79% of Sanxie Motor’s shares through Wen Zheng Jingming in September 2022. During the reporting period, the company mainly sold stepper motors and brushless motors to Leise Intelligent, with amounts of RMB 3.2387 million, RMB 12.8583 million, RMB 43.1176 million, and RMB 22.8560 million, respectively, accounting for 1.65%, 4.56%, 15.02%, and 14.08% of the company’s operating revenue, respectively. After the investment, the transaction amounts increased significantly.

At the same time, Sanxie Motor’s main customers such as Hamps also serve as suppliers. The company mainly purchases motor components or motor prototypes for R&D from them. Meanwhile, the general manager of Nuite, Sanxie Motor’s main customer, Ye Haicheng, was formerly the head of the company’s Nanjing branch, and he had also invested together with Sanxie Motor’s actual controller Sheng Yi in Roiteke.

It is worth noting that the actual controller of Hamps is Wang Hongbo. Wang Hongbo became an investor in Shenzhen Sanxie in 2021 and became the general manager of Shenzhen Sanxie, and in 2023 Wang Hongbo exited.

In addition, Changzhou Xiangbo Intelligent (formerly known as Changzhou Sanxie Information Technology Co., Ltd.), among the top ten customers, was established in December 2020. At the time of its establishment, it already had transactions with the company, and in 2021 it entered the company’s top ten customers. According to Tianyancha, Changzhou Xiangbo Intelligent mainly engages in the manufacturing industry of computers, communications, and other electronic equipment, and the number of insured employees for the current company is 0.

Furthermore, Sanxie Motor also has cases of non-standard financial internal controls.

During the reporting period, Sanxie Motor had non-compliant practices in bills, including bill offsetting without proper justification, bill circulation without real transaction background, bill borrowing, related-party bill discounting, endorsing and transferring before customers affixed their seals, incorrect bill transfer operations, and other improper use of bills.

Sheng Yueyao, a related party of Sanxie Motor, had the situation of using a personal account to collect supplier sponsorship fees, totaling RMB 197k.

During the reporting period, among the company’s selling expense, there were cases where invoices were issued to the company through Zhuji Rongyi Computer Sock Repair Department (main operator: former employee Zhang Rongyi), and in the form of invoice reimbursement, payments were made for employee compensation, employee rent, customer sponsorship fees, and other expenses without proper invoices.