In the inquiry letter on the second round of examination of the application documents for the initial public offering of Guangdong Hongming intelligent Co., Ltd. and its listing on the gem
Special notes on financial accounting issues
Zhitong Certified Public Accountants (special general partnership)
Zhitong Certified Public Accountants (special general partnership), 5th floor, set square, No. 22, Jianguomenwai street, Chaoyang District, Beijing, China, 100004
Tel. + 861085665588
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www.grantthornton. cn.
Guangdong Hongming intelligent Co., Ltd
Application documents for IPO and listing on GEM
Special instructions on financial and accounting issues in the second round of audit inquiry letter
Zhi Tong Zhi Zi (2022) No. 332a001830 Shenzhen Stock Exchange:
We have received your inquiry letter on the second round of examination of the application documents for the initial public offering and listing on the gem of Guangdong Hongming intelligent Co., Ltd. (hereinafter referred to as the examination inquiry letter). For the financial and accounting issues raised in the feedback, Zhitong Certified Public Accountants (special general partnership) (hereinafter referred to as “reporting accountant” or “we”) has verified the relevant materials of Guangdong Hongming intelligent Co., Ltd. (hereinafter referred to as “issuer”, “Hongming shares” or “company”), and now makes special explanations as follows:
2. Enterprises controlled by actual controllers
The application materials and the reply to the previous audit query show that:
Among the enterprises directly or indirectly controlled by the controlling shareholder, actual controller and close family members of the issuer, Hongming times, Yihe packaging and Dongguan chenri had overlapping customers or suppliers with the issuer during the reporting period. Among them, from 2018 to 2020, Yihe packaging and the issuer had 34, 43 and 38 overlapping customers respectively, and Yihe packaging has been cancelled.
Please the issuer:
(1) Explain the actual reasons for the cancellation of Yihe packaging, the reasons and rationality for the existence of many overlapping customers with the issuer, whether the above customers are important customers of the issuer, the way the issuer and Yihe packaging obtain the above overlapping customers, the fairness of the transaction price with the overlapping customers, and whether the issuer and Yihe packaging have interest transfer behavior;
(2) Combined with the capital flow of the issuer’s related parties and Hongming times, Yihe packaging and Dongguan chenri, it further explains whether all enterprises directly or indirectly controlled by the issuer’s controlling shareholders, actual controllers and their close family members share costs or transfer benefits for the issuer.
The sponsor, the reporting accountant and the lawyer of the issuer are requested to express clear opinions.
[reply]
1、 Explain the actual reasons for the cancellation of Yihe packaging, the reasons and rationality for the existence of many overlapping customers with the issuer, whether the above customers are important customers of the issuer, the way the issuer and Yihe packaging obtain the above overlapping customers, the fairness of the transaction price with the overlapping customers, and whether the issuer and Yihe packaging have interest transfer behavior;
[description]
(I) actual reasons for cancellation of Yihe packaging
Yihe packaging’s main business is the trade of packaging consumables such as glue. It is in the same packaging industry with the issuer, and its actual controller Cai Chang is a relative of the actual controller of the issuer.
After the issuer’s actual controllers Jin Jian and CAI Tiehui founded the issuer, some of their relatives, inspired by the issuer’s actual controller’s founding of the issuer, began to start businesses in auxiliary and supporting industries related to the issuer’s packaging machinery and equipment production, such as consumables trade, transportation, packaging supporting equipment production, or downstream carton processing industry. Cai Chang is one of them.
When Cai Chang served as Deputy General Manager (December 2016 to October 2020) and manager of technical service department at the issuer, his responsibilities were: according to the needs of customers, arrange after-sales service technicians, review system documents, and be responsible for the overall affairs of the company’s after-sales service. Therefore, he can obtain the information of the issuer’s customers and understand the needs of these customers for packaging consumables such as glue through contacting these customers, So as to expand the market of Yihe packaging and earn part-time income after work.
In the due diligence, the intermediary found that Yihe packaging and the issuer have more overlapping customers. Although Yihe packaging and the issuer are not enterprises under the same control, the business scale of Yihe packaging has always been very small, and there is neither the same or similar situation with the issuer’s main business nor competitive relationship, considering the employment and kinship relationship between CAI Chang and the issuer and its actual controller, In order to avoid potential conflict of interest and transfer of interests between the issuer and Yihe packaging, before the previous IPO application of the science and innovation board, the intermediary put forward the normative requirements for canceling Yihe packaging. After repeated communication and explanation between the issuer’s actual controller and Cai Chang, Cai Chang agreed to cancel Yihe packaging.
(II) reasons and reasonableness of more overlapping customers between Yihe packaging and the issuer
After the issuer’s actual controllers Jin Jian and CAI Tiehui founded the issuer, some of their relatives, inspired by the issuer’s actual controller, began to start businesses in auxiliary and supporting industries related to the issuer’s packaging machinery and equipment production, such as consumables trade, transportation, packaging supporting equipment production, or downstream carton processing industry.
When Cai Chang was the deputy general manager and manager of the technical service department of the issuer, he could obtain the information of the issuer’s customers, and through contacting these customers, he could understand the needs of these customers for packaging consumables such as glue, so as to develop the market of Yihe packaging. Therefore, there are many overlapping customers between Yihe packaging and the issuer. The issuer’s customer information was obtained and used by Cai Chang during his tenure at the issuer. The issuer did not actively provide or recommend customers to Cai Chang, and Yihe packaging obtained customers independently, and the issuer did not provide assistance.
To sum up, the reason why Yihe packaging and the issuer have more overlapping customers is reasonable.
(III) whether the above customers are important customers of the issuer
After comparing the list of customers of the issuer and Yihe packaging during the reporting period year by year, among the overlapping customers of Yihe packaging and the issuer, Hanshin merchandise and Guangzhou Kaiyi paper packaging Co., Ltd. are important customers of the issuer during the reporting period (referring to the top ten customers in each year of the reporting period).
(IV) ways for the issuer and Yihe packaging to obtain the above overlapping customers
1. The issuer obtains the above customers mainly through salesman development, exhibition, online publicity, introduction of others, etc.
2. When Cai Chang was the deputy general manager and manager of the technical service department of the issuer, he could obtain the information of the issuer’s customers, and through contacting these customers, he could understand the needs of these customers for packaging consumables such as glue, so as to expand the market of Yihe packaging.
3. The issuer’s customer information was obtained by Cai Chang during his tenure at the issuer. The non issuer offered or recommended customers to Cai Chang. The issuer did not provide convenience for Yihe packaging to obtain customers by means of bundling sales. Both the issuer and Yihe packaging conduct price negotiation, contract and order signing and collection with customers independently, and there is no situation of sharing sales channels and mixed sales.
To sum up, the issuer and Yihe packaging obtain the above overlapping customers independently of each other.
(V) fairness of transaction price with overlapping customers
Yihe packaging was cancelled in October 2020. The transaction amount, main transaction contents and unit price of Yihe packaging and its main overlapping customers (referring to the top five overlapping customers with Yihe packaging among the overlapping customers of Yihe packaging and the issuer in each year of the reporting period) are as follows:
Average order of trading jinzhanyi package
Name and amount of sequential coincidence customers (main transaction price of 10000 coincidence customers (yuan / open market report number yuan) sales revenue of households (kg) price (yuan / kg)
Year 2020
1 Guangzhou Kaiyi paper packaging Co., Ltd. 15.93 14.49% jelly 6.98 5.50-8.50
2 Shenzhen Jielang paper products packaging Co., Ltd. 14.31 13.02% jelly 6.96 5.50-8.50
3 Shenzhen zhengdasheng printing and packaging Co., Ltd. 7.79 7.09% jelly 6.58 5.50-8.50
4 Shenzhen gelite Printing Co., Ltd. 6.92 6.30% jelly 6.64 5.50-8.50
5 Guangzhou huaxuzhan paper packaging Co., Ltd. 6.34 5.77% jelly 6.64 5.50-8.50
2019
1 Guangzhou Yujie color printing and packaging Co., Ltd. 34.21 14.26% kraft paper 10.62 9.50-10.00
2 hanshinmerchain 32.31 13.46% jelly 7.48 5.50-8.50
3 Pujiang Hecheng Crafts Co., Ltd. 27.38 11.41% jelly 6.28 5.50-8.50
Average order of trading jinzhanyi package
Name and amount of sequential coincidence customers (main transaction price of 10000 coincidence customers (yuan / open market report number yuan) sales revenue of households (kg) price (yuan / kg)
4 Shenzhen Jielang paper products packaging Co., Ltd. 20.82 8.67% jelly 6.96 5.50-8.50
5 Guangzhou qiancai Paper Printing Co., Ltd. 15.87 6.61% jelly 6.46 5.50-8.50
The transaction amount, main transaction contents and unit price of the issuer and its main overlapping customers (referring to the top five overlapping customers with the issuer among the overlapping customers of Yihe packaging and the issuer in each year of the reporting period) are as follows:
The issuer’s sales account for the average unit price in the main transactions of the customers whose issuance and profit cooperation order coincide (the average unit price of the products of yuan / category coincides with the issuer’s name of package delivery number, package, yuan / set) unit price (yuan / set, transaction amount, customer sales amount (yuan / set) (10000 yuan) sales revenue (10000 yuan) Proportion of
Year 2020
Guangzhou Kaiyi hm-zd6418e
1 paper packaging automatic intelligent 5399273959375655 274.16 24.55% 15.93 Co., Ltd. box making machine
