Last year, Changde New Material Technology Co., Ltd. (hereinafter referred to as "Changde Technology"), which is expected to see a net profit decline of more than 45% year-on-year, with raw material procurement concentration close to 80% and shareholders subscribing to additional capital at low prices, has had its IPO review status updated to suspended due to the financial information recorded in the IPO application documents being out of date and requiring supplementary submission.

The latest financial data of Changde Technology still dates back to the first half of 2023. Over the past year, Changde Technology has suspended its review process three times for updating financial information. In March last year, due to the expiration of financial information, the Shenzhen Stock Exchange suspended its listing review. In September of the same year, the company and its sponsor proactively applied for a suspension of the review due to the update of financial information.

Changde Technology's listing guidance was completed in June 2022, and the IPO application documents received regulatory feedback in July of the same year. After being accepted again in February 2023, the Shenzhen Stock Exchange issued two rounds of inquiries in March and September last year, and the company has currently responded to both rounds of inquiries.

In 2023, Changde Technology faced the situation of increasing revenue without increasing profits, with net profits expected to decline by more than 40% year-on-year. In addition, the company also has high raw material procurement concentration, multiple suppliers and customers overlapping, and shareholders subscribing to additional capital at low prices.

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Last year, the net profit declined by more than 40% year-on-year.

The disclosure shows that Changde Technology's IPO is planned to raise 1.169 billion yuan, which will be used for the company's annual production of 650,000 tons of chemical new material integration project (Phase I), Yueyang Changde New Material Co., Ltd.'s 120,000 tons/year caprolactam resource comprehensive utilization, 40,000 tons/year fatty amine, 20,000 tons/year environmentally friendly organic solvent, 105,000 tons/year acetate project, Yueyang Changde New Material Co., Ltd.'s annual production of 80,000 tons of fatty amine project, and several other projects including supplementing working capital.

Affected by the decline in product prices and the relocation of suppliers, Changde Technology's performance changed in 2023, with net profits expected to decline by 42.39% to 45.65% year-on-year.

According to the latest prospectus, Changde Technology, established in 2017, is a supplier of fine chemical products and green chemical services with core businesses in resource comprehensive utilization and chemical new material manufacturing. Its main business includes two major segments: comprehensive utilization of caprolactam by-products and processing and manufacturing of cyclopropane derivatives, with main products including organic synthetic intermediates, solvents and additives, polyether series products, and polyether amine series.

During the reporting period (referring to the period from 2020 to the first half of 2023, the same below), Changde Technology's operating income was 537 million yuan, 847 million yuan, 969 million yuan, and 455 million yuan, with net profits of 30.5843 million yuan, 105 million yuan, 184 million yuan, and 34.827 million yuan, respectively.

In 2023, the company is expected to achieve operating income of 1.06 billion yuan to 1.1 billion yuan, an increase of 9.41% to 13.54% year-on-year; net profit of 100 million yuan to 106 million yuan, non-IFRS net profit of 96 million yuan to 102 million yuan, with a year-on-year decline of 47.03% to 43.72%.In the first half of 2023, the company's net profit has plummeted by 73.83% year-on-year, attracting regulatory attention. In the second round of inquiries, the Shenzhen Stock Exchange (SZSE) asked Changde Technology to explain the reasons for the significant decline in performance since 2023 and whether there is a risk of continuous decline in operating performance.

In response, Changde Technology stated in its inquiry reply that the main reason for the decline in performance in the first half of 2023 was the decrease in the sales price of polyether amine products, leading to a significant drop in both business income and gross margin of the processing and manufacturing of propylene oxide derivatives; the secondary reason was the relocation of upstream suppliers, which led to a reduction in raw material supply and a decrease in the production and sales volume of the comprehensive utilization of by-product oil. Additionally, the fluctuation in the company's operating performance is in line with the industry characteristics and consistent with the overall trend of the industry, with the decline being less than the average level of comparable companies in the same industry.

Changde Technology stated that during the reporting period, if the prosperity of the customer's industry and its upstream and downstream industries decreases, it may affect the company's raw material procurement quantity and procurement price, thereby leading to an increase in the company's product costs, as well as the demand for the company's products by customers, resulting in a decline in the company's product sales price or sales volume, and the company's performance will be adversely affected.

Furthermore, the company's products such as epoxy cyclohexane and n-pentanol enjoy a 50% value-added tax (VAT) rebate policy, and the company and some of its subsidiaries are high-tech enterprises, enjoying a 15% preferential corporate income tax rate. During the reporting period, the company enjoyed tax incentive amounts of 6.5176 million yuan, 19.2755 million yuan, 28.6679 million yuan, and 9.5731 million yuan, accounting for 17.01%, 16.65%, 14.82%, and 25.38% of the net profit for the respective periods.

Should the relevant tax incentive policies be canceled, the strength of the incentives be reduced, or the company's high-tech enterprise qualification experience significant adverse changes, it would have an adverse impact on the company's operating performance.

There is also a high degree of overlap between suppliers and customers.

Changde Technology also has a high concentration of supplier procurement, and many customers overlap with suppliers.

The prospectus shows that during the reporting period, the company procured caprolactam by-product oil, toluene, propylene oxide, and hydrogen from Sinopec Group and its joint ventures, with procurement amounts accounting for 72.91%, 79.53%, 79.05%, and 79.83% respectively, indicating a high degree of concentration and significant dependence. In addition, the company's top five suppliers' procurement concentration is also significantly higher than the industry average.

Moreover, Sinopec and its joint ventures, such as Baling Hengyi, Yantai Kaisheng, Yangzhou Jubang, Fujian Yongrong, Fuqing Lianbang Chemical, and Guangdong Weiyi Chemical, are both customers and suppliers of the company. During the reporting period, the procurement and sales amounts of the aforementioned overlapping customers and suppliers exceeded 1 million yuan, with procurement ratios of 75.55%, 80.33%, 82.56%, and 80.66%, and sales ratios of 12.32%, 7.51%, 4.16%, and 5.30% respectively.

In this regard, the SZSE has asked Changde Technology to explain the commercial rationality of the high procurement ratio from Sinopec Group and its subsidiaries during the reporting period, the stability of cooperation with Sinopec's suppliers, the impact of high procurement concentration on the stability of the issuer's production and operation, and whether the overlap between customers and suppliers is in line with industry characteristics, and whether the transaction prices are fair.Changde Technology stated that the high concentration of procurement is directly related to the company's adoption of the industry-standard business model of "supply separation and supporting construction," industry characteristics, and the locational advantages of its production bases. The overlap of customers and suppliers is mainly due to reasons such as industrial structure and company positioning, and it is in line with industry practices for comparable companies in the same industry to have overlapping customers and suppliers.

In terms of transaction prices, although the company's customers overlap with its suppliers, they belong to independent purchasing and sales transactions, and there are no special pricing terms or mechanisms. The company purchases caprolactam by-products, hydrogen, and sells cyclohexanol at different prices from different suppliers, mainly due to differences in cooperation models and production processes. Some of the company's temporary procurement and production of products are incidental operations and small in scale, with procurement prices fluctuating with market prices.

During the reporting period, the company purchased caprolactam by-products at higher prices from suppliers such as Tianchen Yaolong, Fujian Yongrong, Changjiang Jiangyu, and Zhejiang Juhua. Changde Technology explained that this was mainly due to different cooperation models, pricing benchmarks, and differences in the composition and quality of the product by-products.

The "upward flipping" of subsidiary shareholder equity, with a significantly low increase in capital price

The predecessor of Changde Technology, Changde Limited, was established in September 2017. At the beginning of its establishment, the company did not have substantive business operations, and its main assets, business, and personnel were inherited from Changde Chemical. Changde Chemical was established in February 1993 and has gone through five stages: Sino-foreign joint venture operation, domestic state-owned holding, state-owned enterprise restructuring, state-owned share withdrawal, and deregistration, with a relatively complex historical evolution.

In December 2001, when Changde Chemical was restructured, the actual shareholders included employee shares, which were held on behalf of them by Jiang Weihe, Liu Qinwen, Yang Yuesheng, and Zheng Hongcui. From 2002 to 2018, Changde Chemical had a complex situation of equity holding on behalf of others, with the actual number of shareholders reaching more than 50, exceeding the legal limit for the number of shareholders in a limited liability company.

In response to this, Changde Technology mentioned in its reply to the first round of inquiries from the Shenzhen Stock Exchange that, after verification, Changde Chemical has resolved the equity holding on behalf of others. After the legal relationship of equity holding on behalf of others was resolved, the actual shareholders of Changde Chemical are consistent with the shareholders registered with the industrial and commercial authorities, and the number of shareholders does not exceed 50, and the rectification has been completed.

Before the IPO application of Changde Technology, there were several rounds of capital increases. Among them, Dismanteng and Kangkai Environmental Protection carried out capital increases through the form of equity upward flipping. In May 2021, Dismanteng increased its capital in Changde Technology with 30% of the equity it held in Hunan Changdi; in June 2021, Kangkai Environmental Protection increased its capital in Changde Technology with 35% of the equity it held in Yueyang New Materials.

According to public information, Hunan Changdi was jointly established by Changde Chemical and Dismanteng in 2016. Hunan Changdi does not directly engage in production activities and is responsible for providing technology to Changde Technology. Yueyang New Materials was funded and established by Changde Technology and Yantai Kaisheng in 2017. In December 2017, Yantai Kaisheng transferred all of its equity in Yueyang New Materials to the related party Kangkai Environmental Protection. At the beginning of the establishment of Yueyang New Materials, Yantai Kaisheng provided relevant technical guidance, and after the equity transfer, it continued to fulfill the technical guidance obligations.

However, compared with the capital increase prices of other shareholders of Changde Technology at the same period, the capital increase prices of Dismanteng and Kangkai Environmental Protection mentioned above are significantly low.The prospectus indicates that the subscription price for Desman Vine and Kangkai Environmental Protection's capital increase in Changde Technology was both 2.376 yuan per share; in March and May 2021, the employee stock ownership platform, Zhide Xin, carried out two capital increases at a price of 2.5 yuan per share; the subscription prices of Desman Vine and Kangkai Environmental Protection were significantly lower than that of Zhide Xin and did not constitute share-based payment, while Zhide Xin's capital increase constituted share-based payment, with the equity fair value being 4.19 yuan per share.

Subsequently, in October 2021, the company initiated a capital increase with external investors. After negotiations with investors such as Jinshi Investment, based on the company's expected net profit of 100 million yuan for 2021, using the market-standard PE multiple of 12 times, the overall valuation of the company before the capital increase was approximately 1.2 billion yuan, and the subscription price was determined to be 10.677 yuan per share.

In response to this, the Shenzhen Stock Exchange raised questions about the rationality of the above-mentioned differences in subscription prices in two rounds of inquiries. In the second round of inquiries, Changde Technology was asked to explain the rationality of the lower subscription prices for Desman Vine and Kangkai Environmental Protection, the rationality of not constituting share-based payment, and whether it harmed the interests of other shareholders of the issuer.

Changde Technology replied that the reason for the lower subscription prices of Desman Vine and Kangkai Environmental Protection compared to the employee stock plan and third-party shareholders was mainly due to the different transaction backgrounds and methods of each capital increase, differences in valuation logic, and non-comparable transaction prices; there were also differences in the evaluation methods, pricing benchmarks, decision-making points, and the company's operating performance and future expectations at the time, making the lower subscription prices of Desman Vine and Kangkai Environmental Protection rational.