In order to solve the high price of subsidiaries’ equity caused by horizontal competition, the actual controller holds shares and acts as an executive in horizontal competitors. In addition to the disclosure of Purui ophthalmology prospectus, how many mysteries remain to be solved.
Recently, Chengdu Purui ophthalmology officially submitted the registration draft of the prospectus. Following the formal submission of the registration draft by Huaxia ophthalmology on August 27, 2021 and Liaoning he ophthalmology on November 12, the three ophthalmology companies to be listed successfully met in the registration process. It is only a piece of approval from the CSRC before they are successfully listed.
In the second half of 2020, the tide of A-share listing of ophthalmic companies has reached the most critical step. Who will win the first place. On September 9, Huaxia ophthalmology took the lead in receiving the inquiry from the CSRC. On November 24, Liaoning he ophthalmology has also received the inquiry at the registration stage, but so far, no company has made a smooth trip.
When Huaxia ophthalmology was inquired, the 21st Century Business Herald reporter published an in-depth investigation on the “behind the wave of listing of private ophthalmic hospitals: difficult to solve the dependence of performance M & A, and the color geometry under the capital frenzy”, which revealed many hidden dangers and chaos of private ophthalmic hospitals. With all the three ophthalmic companies disclosing the registration draft, a number of business problems existing in the industry companies have been corroborated. This reporter takes the latest registration draft submitted by Purui ophthalmology as a case to further analyze the typical business problems faced by the industry companies.
crazy “chain” expansion
First, the performance continues to be highly dependent on “chain” expansion.
In terms of main business layout, the three ophthalmic hospitals to be listed are highly similar. Purui ophthalmology was established in 2006. Its main services include refractive, cataract, medical optometry and comprehensive eye diseases.
According to the registration draft of Purui ophthalmology, during the reporting period from 2018 to the first half of 2021, the company achieved revenue of 1.016 billion yuan, 1.193 billion yuan, 1.362 billion yuan and 847 million yuan respectively, and net profit of 31.3253 million yuan, 49.0548 million yuan, 109 million yuan and 65.3361 million yuan respectively.
In terms of financial data, the company’s revenue and profit increased rapidly year by year during the reporting period, but the shareholders of Purui ophthalmology have never received a return on their investment for many years, and the company has never paid a dividend before and after the listing reporting period.
According to a survey by the 21st Century Business Herald reporter, before submitting the prospectus, Purui ophthalmology was in a loss for a long time, and the company’s net profit in 2017 was -13.4068 million yuan. The company didn’t realize profit until the beginning of the reporting period, but the undistributed profit on the book is still negative for many years. From 2017 to 2019, the undistributed profits of Purui ophthalmology were -120 million yuan, – 88.4641 million yuan and -44.7452 million yuan respectively.
According to the resolution of the extraordinary general meeting of shareholders held by Purui ophthalmology in July 2020, the accumulated undistributed profits or accumulated unrecovered losses before the completion of the company’s issuance and listing shall be jointly borne by the new and old shareholders after the issuance and listing. This means that investors of Purui ophthalmology will directly bear the loss responsibility of the company.
During the critical period of listing in 2020, the book undistributed profit of Purui ophthalmology suddenly became positive, and the undistributed profit in that year was 59.2642 million yuan. In the first half of this year, undistributed profits rose to 125 million yuan. Purui ophthalmology said that as of the end of 2020, the company had no outstanding losses.
In this regard, industry analysts said that Purui ophthalmology has “extraordinary means” to balance financial statements, beautify financial data and attract investors. However, it is doubtful whether the company can ensure no loss of profits after listing, and pay dividends to investors.
Purui ophthalmology believes that the ophthalmic medical process is relatively simple, easier to realize standardization, less dependence on experts, and chain operation is an effective development model. The company firmly believes in the chain, centralization and differentiation trend of the private ophthalmic industry, implements the rapid and large-scale expansion strategy, wantonly opens new hospitals and acquires ophthalmic resources throughout the country.
(picture: a company under Purui ophthalmology, the picture is from the prospectus)
As of the signing date of the prospectus, Purui ophthalmology has opened 37 Tier-1 subsidiaries, including 30 medical institutions, including 19 hospitals that have opened, 2 outpatient departments and 9 hospitals that have not opened (Meishan Purui, Leshan Purui, Fuzhou Purui, Hefei Ophthalmology, Honggutan Purui, Purui Jiashi, Guangzhou Purui, Purui Shangshi and Nanning Purui).
In order to quickly seize the ophthalmic medical market, the company wantonly acquired negative assets and loss resources and acquired ophthalmic hospital resources at a high premium during the reporting period. In the first half of 2021, only 12 of the above 19 ophthalmic hospitals were profitable, 7 were at a loss, and 9 were not open.
In 2014, Purui ophthalmology purchased Beijing Huade for 53 million yuan, Shandong Liangkang for 12 million yuan in 2016 and Tianjin Purui for 19 million yuan in 2019. The net assets of Shandong Liangkang and Tianjin Purui were negative when they were consolidated. By 2020, the above three hospitals are still operating at a loss.
In the prospectus, Purui ophthalmology had to recognize the goodwill of RMB 41.27 million, RMB 14.36 million and RMB 18.26 million respectively for the above assets. The company continued to withdraw large amount of goodwill reduction during the reporting period.
In March 2021, Purui ophthalmology purchased 100% equity of Chuangfa enterprise for 170 million yuan and indirectly obtained 45% equity of Dongguan Guangming ophthalmology hospital. Compared with the book value of net assets of 78.03 million yuan when Guangming ophthalmology was acquired, the acquisition premium of Purui ophthalmology was as high as 484.13%.
According to the company’s plan, Purui ophthalmology will further expand the Chinese market in the next three years, and plans to increase the number of provincial capital hospitals to 25.
Under the crazy expansion strategy, Purui ophthalmology said that in the future, the company will continue to open new hospitals in existing regions or other cities for business expansion. If the company’s internal control system, management level, human resources and marketing ability can not adapt to the rapid expansion of the company’s scale, and the benefits of the newly opened hospital are less than expected, it may have a significant adverse impact on the company’s profitability and even cause a decline in performance.
illegal hidden danger
In fact, the rapid expansion not only brought potential performance hazards, but also punished Purui ophthalmology and its ophthalmic hospitals for continuous violations and medical accidents due to imperfect internal control during the reporting period.
According to the disclosure of its prospectus, there are currently two identified medical accidents in Purui ophthalmology, including one identified by Zhengzhou Medical Association that Zhengzhou Purui bears the main responsibility, and one identified by Jiangxi Jiancheng judicial identification center that the subsidiary of the company has fault in diagnosis and treatment. At present, the relevant medical accidents of Zhengzhou Purui have not been closed, and the company is facing the risks of being complained, economic compensation, administrative punishment, criminal responsibility or legal proceedings and compensation.
In the last century, the reporter found that more than 3.99 million eye diseases had been reported by the company, but the company was not responsible for more than 3.99 million medical disputes, of which 3.99 million had been reported by the reporter in the last century. Up to now, the case is still in the mediation phase before mediation failed to wait for the court to inform.
In addition to the above-mentioned medical accidents, according to the preliminary statistics of the 21st Century Business Herald reporter, there are still 44 violations of laws and regulations in Purui ophthalmology, including 26 cases of practice norms of medical institutions, 12 cases of medical advertising, 2 cases of fire protection in practice places, 3 cases of Taxation and 1 case of environmental protection.
(the picture says: Purui ophthalmology Beijing Huade hospital has been fined many times, and the picture is from the prospectus)
During the reporting period, Purui ophthalmology was faced with four administrative penalties of practice norms of medical institutions, with a single penalty of more than 10000 yuan. In 2019, Zhengzhou Purui used expired medical devices, and Beijing Huade and Shandong Liangkang were punished respectively for failing to fill in medical records as required. In January 2020, the company’s Lujiang clinic purchased drugs from unqualified suppliers and was punished for rectification.
More seriously, Puri pharmaceutical has been punished for many violations suspected of defrauding national medical insurance funds during the reporting period. In 2018, Urumqi Purui changed the medical insurance reimbursement in violation of regulations and was refused to pay the medical insurance reimbursement. In 2019, Chongqing Puri induced the insured to be hospitalized in the name of preferential activities, Xi’an Puri and Puri ophthalmology increased fees, and Hefei Puri was punished by the local medical insurance for unreasonable treatment and unreasonable medication. In 2020, Shenyang Purui was punished for including out of scope expenses into medical insurance payment. In 2021, Tianjin Purui was punished by the medical insurance regulatory department for three times for defrauding the social security insurance fund and altering the medical records of insured personnel.
According to the statistics of the 21st Century Business Herald reporter, many illegal and illegal problems, such as carrying out medical activities without approval, using non-health technicians to engage in medical technical activities, publishing illegal advertisements, exaggerating publicity, producing and selling unqualified products, and defrauding medical insurance funds by illegal means, have always run through the reporting period of Purui ophthalmology.
In this regard, Purui ophthalmology believes that the company has rectified the above problems, various systems have been implemented, and good rectification results have been achieved. At the same time, there are legal and compliance certificates issued by the local health commission, health supervision institute, health and family planning supervision and Law Enforcement Bureau, municipal supervision Bureau and other competent authorities where the company and its subsidiaries are located. The above problems do not belong to major violations of laws and regulations, Therefore, it does not affect the listing and issuance of the company.
What puzzled investors was that Purui ophthalmology claimed that it had rectified a number of violations, but the relevant problems continued during the reporting period and even after the submission of the prospectus. With the continuous promotion of the rapid expansion strategy, whether the internal control and violations of Purui ophthalmology can be standardized is still questioned.
difficult to solve the suspicion of interest transfer?
For the operation and violations of Purui ophthalmology, the regulators continued to ask. In the three rounds of inquiries of Shenzhen Stock Exchange and the registration stage of CSRC, Purui ophthalmology focused on the above issues. On July 9, 2020, Purui ophthalmology passed the meeting as scheduled. At present, the company is waiting for the registration and release of the CSRC. However, the 21st Century Business Herald reporter found that the company still has hidden problems to be solved.
According to the listing plan, Purui ophthalmology plans to raise 286 million yuan, including 74.2045 million yuan for the new Changchun Purui, 30.4133 million yuan for the reconstruction of Harbin Purui, 102 million yuan for information management construction and 80 million yuan for replenishing working capital.
It is worth noting that Harbin Purui is its own asset acquired by Purui ophthalmology from Xu Xuyang, the actual controller, at a price of RMB 42.5 million in April 2019, and the change of interests is intriguing.
Harbin Purui was jointly invested and established by Shanghai Lingrui and Purui investment in February 2013. At that time, the registered capital was 2 million yuan, of which Shanghai Lingrui accounted for 90% and Purui investment accounted for 10%.
Shanghai Lingrui is the 100% holding company of Xu Xuyang, the actual controller of Purui ophthalmology and his father, and Purui investment is the wholly-owned holding company of Xu Xuyang. Harbin Purui was actually a company controlled by Xu Xuyang when it was established.
In December 2013, Shanghai Lingrui and Purui investment transferred all capital contributions of Harbin Purui to Chengdu Purui (predecessor of Purui ophthalmology). However, in the month of taking over, Chengdu Puri transferred its capital contribution of RMB 1.7 million (85% equity) held by Harbin Puri to Beijing xinpukang at the transfer price of RMB 1.7 million, and Chengdu Puri retained 15% of the capital contribution.
In June 2017, Harbin Purui increased its capital, Beijing xinpukang increased its capital by 40.8 million yuan to Harbin Purui by means of debt to equity swap, and Chengdu Purui increased its capital by 7.2 million yuan to Harbin Purui, with the shareholding ratio of both parties unchanged.
In March 2019, Beijing xinpukang transferred 85% of its capital contribution of Harbin Purui, totaling RMB 42.5 million, to Chengdu Purui.
In this regard, Purui ophthalmology said that this move is to solve the horizontal competition and realize the business merger under the same control of Harbin Purui.
Purui ophthalmology explained that Beijing xinpukang had actually held 85% of the equity of Harbin Purui on behalf of Shanghai Lingrui. The equity transfer, capital increase and daily operating funds of Harbin Purui were actually paid by Shanghai Lingrui in accordance with the holding agreement. Harbin Purui was an enterprise under the control of Xu Xuyang since its establishment.
In 2013, the company made equity adjustment, took Chengdu Puri as the parent company and began to prepare equity financing. Considering that there may be losses in the initial stage of Harbin Puri, which will affect the issuer’s financial performance and have an adverse impact on equity financing, and the management at that time had differences on the layout of the Northeast market, it was decided to be held by Beijing xinpukang.
After a round trip, Harbin Purui returned to Chengdu Purui again. The difference is that after several changes, Purui ophthalmology finally bought back its previous subsidiary from the actual controller at a high price.
An analyst of a head securities firm in Beijing, consulted by the 21st Century Business Herald reporter, said that the relevant explanation of Purui ophthalmology is too far fetched and there are many doubts, which is difficult to justify. Whether it is suspected of embezzling and transferring assets in the name of holding on behalf of others or evading and laundering money through being a loss making subsidiary needs in-depth investigation and certification.
According to the investigation of the 21st Century Business Herald reporter, Shanghai Lingrui and Beijing xinpukang were registered almost at the same time. They were established in January and February 2004 respectively. Their business is the agent sales of medical devices. After its establishment, Beijing xinpukang has no other foreign investment except Harbin Purui. In April 2019, one month after the transfer of Harbin Purui equity, Beijing xinpukang was urgently cancelled.
Purui ophthalmology said that from the establishment to the cancellation of Beijing xinpukang, the actual controller of the issuer did not hold equity, held any position, participated in its operation and management, and did not have substantial control over Beijing xinpukang.
It is understood that among the subsidiaries of Purui ophthalmology, Harbin Purui is the only company with a holding agreement. Why the actual controller of Purui ophthalmology handed over Harbin Purui to an unrelated third party for holding and operation, what role Beijing New Purui plays in it, and why the actual controller of Purui ophthalmology is eager to get rid of the relationship, the hidden problems are really worth pondering.
(picture: equity structure of Beijing xinpukang at the time of cancellation, the picture is from the prospectus)
The 21st Century Business Herald reporter noted that most of the operating ophthalmic hospitals under Purui ophthalmology have a market cultivation period of 3 to 5 years. Most of the new hospitals can achieve profits after 3 to 5 years of establishment, but Harbin Purui is an exception. It has been at a loss since its establishment in 2013. As of 2018, the net assets of halbin Purui were -17.4516 million yuan and the revenue was only 24.4852 million yuan, The net profit loss was 5.284 million yuan. It is such a loss asset, but Purui ophthalmology took the offer from the actual controller at a high price of 42.5 million yuan.
In 2019, when the acquisition of Purui ophthalmology was completed, Harbin Purui immediately reversed its performance, with a revenue of 38.3628 million yuan and a profit of 1.6908 million yuan. In 2020, Harbin Purui had a revenue of 61.0276 million yuan and a net profit of 11.7541 million yuan, becoming the main profitable Hospital of Purui ophthalmology.
Surprisingly, there are still 7 operating hospitals in Purui ophthalmology at a loss and 9 non operating hospitals waiting to be put into operation. However, this fund-raising is going to use 30.4133 million yuan to rebuild Harbin Purui, which has just turned around its losses and profits. The investment logic is really elusive to investors.
In addition, the prospectus shows that Xu Xuyang, the actual controller of Purui ophthalmology, also holds the equity of deshijia, the company’s competitor, and held management positions such as director, vice chairman and general manager in deshijia and its subsidiaries during the reporting period.
Up to now, Xu Xuyang still holds 4.92% equity of deshijia through Hong Kong Lingrui, and holds 30% equity of Shanghai deshijia, 10% equity of Chongqing deshijia, 30% equity of Guangzhou deshijia, 30% equity of Beijing deshijia and 28.67% equity of Shenzhen deshijia through Shanghai Lingrui. In 2020, Xu Xuyang resigned from the above-mentioned company before Purui ophthalmology submitted the prospectus.
Purui ophthalmology said that as of the signing date of the prospectus, Xu Xuyang had not held any executive positions in deshijia, and Xu Xuyang only held a minority stake in deshijia, did not participate in the actual operation of deshijia, and did not control the relevant companies of deshijia.
In order to solve the high price of subsidiaries’ equity caused by horizontal competition, the actual controller holds shares and acts as an executive in horizontal competitors. In addition to the disclosure of Purui ophthalmology prospectus, how many mysteries remain to be solved.
(21st Century Business Herald)
