Gem risk tips
After this stock issue, it is planned to be listed on the gem, which has high investment risk. GEM companies have the characteristics of large investment in innovation, uncertainty about the success of the integration of new and old industries, still in the growth stage, high operation risk, unstable performance and high delisting risk. Investors are facing greater market risks. Investors should fully understand the investment risks of the gem and the risk factors disclosed by the company, and make investment decisions prudently
Huarong Chemical Co., Ltd
（HUARONG CHEMICAL CO., LTD.）
(No. 166, Linyang Road, Jiuchi Town, Pengzhou, Chengdu, Sichuan)
Letter of intent for initial public offering and listing on GEM
Sponsor (lead underwriter)
(401, building B7, Qianhai Shenzhen Hong Kong fund Town, 128 guiwan fifth road, Nanshan street, Qianhai Shenzhen Hong Kong cooperation zone, Shenzhen)
Statement
Any decision or opinion made by the CSRC and the exchange on this issuance does not indicate that they guarantee the authenticity, accuracy and completeness of the registration application documents and the information disclosed, nor do they indicate that they make substantive judgment or guarantee on the profitability, investment value of the issuer or the income of investors. Any statement to the contrary is a false statement.
According to the provisions of the securities law, the issuer shall be responsible for the changes in the operation and income of the issuer after the shares are issued according to law; Investors independently judge the investment value of the issuer, make investment decisions independently, and bear the investment risks caused by the changes in the operation and income of the issuer or the changes in the stock price after the shares are issued according to law. The issuer and all directors, supervisors and senior managers promise that the prospectus and other information disclosure materials are free from false records, misleading statements or major omissions, and bear corresponding legal liabilities.
The controlling shareholder and actual controller of the issuer promise that there are no false records, misleading statements or major omissions in this prospectus, and bear corresponding legal liabilities.
The person in charge of the company, the person in charge of accounting and the person in charge of the accounting institution shall ensure that the financial and accounting materials in the prospectus are true and complete.
The issuer and all directors, supervisors, senior managers, controlling shareholders, actual controllers, sponsors and underwriting securities companies promise to compensate investors for losses in securities issuance and trading due to false records, misleading statements or major omissions in the issuer's prospectus and other information disclosure materials.
The sponsor and the securities service institution promise to compensate the investors for the losses caused to the investors due to the false records, misleading statements or major omissions in the documents prepared and issued for the issuer's public offering.
Issue overview
Type of shares issued: RMB ordinary shares (A shares)
The number of shares in this public offering is 120 million, accounting for 25.00% of the total share capital after issuance. This issuance is all new share issuance and does not involve the public offering of shares by shareholders
The par value of each share is RMB 1.00
The issue price per share is RMB []
Expected issue date: March 10, 2022
The stock exchange to be listed and the gem of Shenzhen Stock Exchange
The total share capital after issuance is 480 million shares
Sponsor (lead underwriter) Huatai United Securities Co., Ltd
Signing date of the prospectus: March 2, 2022
Tips on major issues
The company specially reminds investors that before making investment decisions, they must carefully read the text of this prospectus and pay special attention to the following important matters. 1、 Special risk tips
The company reminds investors to carefully read "section IV Risk Factors" of this prospectus, and pay special attention to the following matters: (I) the risk that the transformation and upgrading does not meet the expectations
In 2018, the company established and implemented the innovative development strategy of "potassium extension and chlorine transformation", continued to extend and expand to the downstream of fine chemicals around modern industries such as new fertilizers, high-end daily chemicals, food and medicine, new energy and electronic information, and shut down the production line of polyvinyl chloride resin in November 2020 to optimize the product structure and improve the added value of chlorine products, Enhance the ability of green cycle and sustainable development.
With the continuous promotion of the innovative development strategy of "potassium extension and chlorine transformation", the proportion of production and sales of high value-added new products such as wet electronic chemicals, high-end daily chemicals and food additives will gradually increase, but there are still risks that the mass production is slower than expected and the customer development cycle is too long. (II) risk of concentration of profit contribution sources and continuous loss of chlorine products
During the reporting period, the sales revenue of the issuer's potassium hydroxide products was 597083 million yuan, 6392754 million yuan, Kweichow Moutai Co.Ltd(600519) 2 million yuan and 2901682 million yuan respectively, accounting for 109.13%, 100.25%, 94.38% and 127.74% of the gross profit respectively, that is, the gross profit of the company is mainly contributed by potassium hydroxide, which is the main source of profit of the company. The sales revenue of chlorine products was 3655388 million yuan, 3861733 million yuan, 3364647 million yuan and 241044 million yuan respectively, and the gross profit margin was - 4.85%, - 0.38%, 2.95% and - 101.68% respectively. From 2018 to 2020, it was basically in the state of profit and loss balance or slight loss. After the shutdown of PVC, the loss expanded in the first half of 2021 and the gross profit margin decreased significantly. Among them, the sales revenue of PVC resin from 2018 to 2020 was 353036100 yuan, 363070600 yuan and 293745800 yuan respectively, accounting for 96.58%, 94.02% and 87.30% of the revenue of chlorine products respectively, and the gross profit margin was - 0.49%, 4.01% and 5.42% respectively. Therefore, the fluctuation of gross profit margin of PVC products is the main factor affecting the fluctuation of gross profit margin of chlorine products from 2018 to 2020. After PVC production was stopped at the end of 2020, the company's chlorine products were mainly hydrochloric acid and sodium hypochlorite. Due to the significant increase in the sales volume of ordinary hydrochloric acid with low price, but the large volume of high-grade hydrochloric acid has not yet been added, combined with the rise in the price of raw material potassium chloride and the allocation of fixed costs such as the depreciation of relevant public equipment after the shutdown of PVC, the loss amount of hydrochloric acid products increased in the first half of 2021, resulting in an increase in the overall loss range of chlorine products.
In order to optimize the product structure and improve the ability of green circulation and sustainable development, the company closed the PVC resin production line in November 2020, mainly through the process routes of hydrochloric acid, sodium hypochlorite and other chlorine products to absorb the by-product chlorine. To sum up, if the profit level of potassium hydroxide decreases significantly, and the profits of other chlorine products after PVC shutdown do not meet the expectations, resulting in continuous losses, it will have an adverse impact on the operating performance of the company. (III) risk of supplier dependence and price fluctuation of raw materials
The main raw material of the company's products is potassium chloride, which is the main component of the cost of the company's potassium compounds and chlorinated compounds. From 2018 to 2020, the cost of potassium chloride accounted for about 35% of the issuer's main business cost. After PVC production was stopped at the end of 2020, the cost of potassium chloride accounted for more than 50% of the issuer's main business cost from January to June 2021.
Potassium chloride is a product with scarce resources. China's reserves are not high and its distribution is uneven. Domestic potassium chloride is mainly produced in Northwest China and mainly comes from Qinghai Salt Lake. The domestic rate of the industry is about 50%. At present, China's only state-owned trading enterprises such as Zhongnong group and Sinochem Group have been approved to import potassium chloride business and sell it through their distribution channels. They are the main suppliers. Subject to its scarcity of resources and China's highly centralized supply pattern, the company's final source of potassium chloride is limited and its procurement is relatively concentrated. During the reporting period, the amount of domestic potassium chloride purchased by the issuer from Qinghai Salt Lake accounted for 38.34%, 29.06%, 44.57% and 62.14% respectively; These domestic potassium chloride are mainly purchased through Shanghai shenzhihe, and the purchase amount accounts for more than 90% of the raw materials in this category. There is a certain degree of supplier dependence risk on Qinghai Salt Lake, a domestic potassium chloride manufacturer, and Shanghai shenzhihe, a supplier. In addition, under the condition that the product price and other conditions remain unchanged, if the market price rise of potassium chloride leads to the increase of potassium chloride cost by 5%, the comprehensive gross profit margin of the company in each period will fall to 17.17%, 21.72%, 20.06% and 25.94%, that is, the corresponding decrease of 1-2 percentage points. The company's operating performance is subject to the risk of significant fluctuations in the price of potassium chloride.
(IV) risk of intensified market competition
During the reporting period, the issuer's potassium hydroxide income was mainly basic products. In recent years, benefiting from the growth of downstream demand for potassium hydroxide, the overall production capacity of the industry has maintained a growth trend, including the new production capacity of Uni-Trend Technology (China) Co.Ltd(688628) and other existing enterprises, and some small and medium-sized caustic soda production enterprises switch to potassium hydroxide to increase production capacity supply. The market competition has intensified and mainly concentrated on the basic product market. In the basic product market, the issuer has certain disadvantages in production capacity and output compared with the main competitors in the industry, and the expansion of market share and market influence are limited to a certain extent; In the high-grade product market, it may face the risk of slowing down the market growth and expanding less than expected.
Therefore, if the market competition intensifies further or other factors lead to the decline of market demand in the future, there is a risk of decline in the company's product price and market share, which will have an adverse impact on the company's operating performance. (V) risk of decline in operating performance
According to the review report of 2021 issued by Sichuan Huaxin (Group) Certified Public Accountants (special general partnership), the company's operating revenue in 2021 decreased by 31.89% year-on-year, the net profit attributable to the shareholders of the parent company decreased by 1.37% year-on-year, and the net profit attributable to the shareholders of the parent company decreased by 13.86% year-on-year after deducting non recurring profits and losses. As the company stopped producing PVC in November 2020, the product and revenue structure in 2021 changed. Excluding the impact of the closure of PVC business, the company's operating revenue in 2021 decreased by 4.61% year-on-year, and the net profit attributable to the shareholders of the parent company increased by 8.03% year-on-year after deducting non recurring profits and losses. The main reasons for the decline of the company's performance in 2021 compared with the same period last year are as follows: (1) after the company shut down PVC in November 2020, it will no longer operate PVC business, while PVC products will realize about 290 million yuan of revenue and 16 million yuan of gross profit in 2020; (2) Affected by the rising demand for lithium iron phosphate and the reduction of yellow phosphorus production by double control of energy consumption in Yunnan, the price of yellow phosphorus in China has jumped since the third quarter of 2021. The production enterprises of potassium dihydrogen phosphate with yellow phosphorus as the main raw material are generally under operated, the demand for liquid potassium is weakened, and the sales scale of liquid potassium products of the company has declined; (3) After the production of PVC was stopped, the production and sales of ordinary hydrochloric acid with low price increased significantly, the high-grade hydrochloric acid was still in the process of gradual mass production, and the loss scale of hydrochloric acid increased.
If the downstream demand fails to be repaired quickly in the future and the structural adjustment of chlorine products fails to meet expectations, there is still a risk of further decline in the company's operating performance.
(VI) safety production risk
In November 2020, the company shut down the PVC resin production line and no longer produced intermediate products acetylene, vinyl chloride and terminal products PVC resin, eliminating the two key regulated hazardous chemicals of acetylene and vinyl chloride, the two key regulated hazardous chemical processes of VCM synthesis and PVC polymerization, and three major hazard sources such as calcium carbide storage yard, acetylene gas holder and vinyl chloride storage tank, It greatly reduces the safety production risk of the company.
The company has the risk of safety accidents caused by improper operation of personnel, failure of machinery and equipment or other natural factors of force majeure. (VII) environmental protection risk
The main pollutants involved in the company's production process are waste gas, waste water, general solid waste, hazardous waste, etc., and the discharge during the reporting period is in compliance, See "(V) main environmental pollutants, main treatment facilities and treatment capacity involved in the company's production and operation" of "I. main business, main products or services of the issuer" in "section VI business and technology" of this prospectus for the treatment facilities and emissions during the reporting period. The company has the risk that the pollutant discharge cannot meet the relevant standards due to the failure of environmental protection facilities, accidents, negligence, man-made damage or other natural factors of force majeure. (VIII) transportation risks of hazardous chemicals
The issuer's main products potassium hydroxide, chlorine products hydrochloric acid, sodium hypochlorite and liquid chlorine are hazardous chemicals. The company entrusts the logistics company with the qualification of road transportation of dangerous goods to undertake the dangerous chemicals whose delivery place agreed in the sales contract is the customer's location or its agreed delivery place. In case of leakage and explosion of hazardous chemicals during transportation due to force majeure, the sales performance of the company will be affected, and then the daily production and operation of the company will be affected.
(IX) risk of macroeconomic cycle fluctuation
During the reporting period, the issuer's main products are potassium hydroxide, polyvinyl chloride resin, sodium hypochlorite, hydrochloric acid and liquid chlorine, which are mainly used in chemical industry, dye, food, medicine, agriculture and other industries. They are in a basic position in the national economy and are greatly affected by the fluctuation of macroeconomic cycle.
If the macro economy stagnates or even declines, or the prosperity of the customer's industry or its downstream industry decreases or there is serious overcapacity, it may affect the demand of such customers for the company's products, lead to the decline of the company's product sales price or sales quantity, and the company's performance may be adversely affected. (x) risk control by actual controller
As of the signing date of this offering intention, Mr. Liu Yonghao, the actual controller of the company, holds 95.50% of the shares of the company through New Hope Liuhe Co.Ltd(000876) chemical industry controlled by him. After this offering, Mr. Liu Yonghao's indirect holding of the shares of the company is expected to be no less than 71.63%, and he is still the actual controller of the company. During the reporting period, there were related party transactions such as inter-bank lending and advance of funds between the company and the enterprises controlled by the controlling shareholder and the actual controller.
Due to the high shareholding ratio of the actual controller of the company, the actual controller of the company can exercise the voting right at the general meeting of shareholders
