On April 19, Rongta Hezhong (Xiamen) Technology Group Co., Ltd. (hereinafter referred to as "Rongta Hezhong") submitted a prospectus to the Hong Kong Stock Exchange for the first time, intending to be listed on the main board of the Hong Kong Stock Exchange.
As early as June 2021, Rongta Hezhong hired Guojin Securities as a counseling institution for A-share listing. However, in consideration of the capital market environment and after discussion with Sinolink Securities, Rongta Hezhong voluntarily withdrew its A-share listing application.
Founded in 2010, Rongta Hezhong is a provider of Automatic Identification Data Collection (AIDC) devices and solutions, engaged in the design, development, manufacturing and marketing of specialized printers, scales, POS terminals and PDAs.
Rongta Hezhong has a wide sales network, covering domestic and foreign markets, and its products are sold to more than 30 provinces, municipalities and autonomous regions in China, as well as more than 140 countries, including Europe, the Americas and Asia (excluding China) and other markets. The company offers more than 100 standard models of products and is widely used in a wide range of industries, including but not limited to retail, education, food and beverage, logistics, warehousing, manufacturing, hospitality, medical and environmental industries.
Printing equipment is the main product of Rongta Hezhong, the product revenue accounted for more than 70% of the total revenue in the past few years, followed by weighing instruments, the proportion of revenue is about 10%, POS terminals and PDA and other products revenue scale is small.
In the past three years, Rongta Hezhong's operating performance has not been stable, with revenue from the domestic market declining for two consecutive years, while revenue from the European and American markets has fluctuated.
According to the prospectus, from fiscal year 2021 to fiscal year 2023, Rongta Hezhong's revenue was 380 million yuan (RMB, the same below), 393 million yuan and 349 million yuan respectively, and the profit for the year was 29.276 million yuan, 37.447 million yuan and 27.603 million yuan respectively. For fiscal year 2023, the decline in revenue was mainly due to the fact that a large customer typically orders printing equipment every four to five years, and a decrease in sales from some existing customers.
In fact, in the context of sluggish global economic growth, Rongta Hezhong's downstream customers are more cautious in procurement, which is a major factor in the fluctuation of Rongta Hezhong's operating performance. We can see the problem in the company's operating data.
As shown in the figure above, from fiscal year 2021 to fiscal year 2023, the sales volume of Rongta Hezhong's printing equipment, scales, POS terminals and PDAs showed an overall downward trend, of which the sales volume of printing equipment, the main revenue force, in fiscal year 2023 was 1.241 million pieces, a significant decrease of 23.9% year-on-year.
Although Rongta Hezhong raised the price of its products to offset the impact of the decline in sales, due to the severe decline in sales, it was ultimately difficult to drive the growth of profitability.
The decline in the capacity utilization rate of Rongta Hezhong's major products can also explain the weak demand in the downstream market, with the utilization rate of printing equipment only 43.5% in FY2023 and 88.8% in FY2021. In addition, the usage rate of scales, POS terminals and PDAs has also declined to varying degrees.
Rongta Hezhong said in the prospectus that the company faces many risks and uncertainties related to overseas sales, including the global economic slowdown in overseas markets, which affects the overall consumer confidence, fluctuations in foreign currency exchange rates, especially the renminbi against the US dollar, and trade barriers, such as tariffs, taxes, trade bans, import controls and other restrictions.
Rongta Hezhong's revenue scale is not high, and its valuation level is also low. After receiving a round of financing from Xiamen Rongxin in October 2022, Rongta Hezhong's valuation is only 676 million yuan to 718 million yuan.
In the past, Rongta Hezhong has received multiple rounds of financing, but the investor camp is not strong. In 2021, the company received 6 million yuan in financing from the e-commerce SaaS company Guangyun Technology (688365.SH), and the other investors were mainly related parties of the controlling shareholder of Rongta Hezhong and other unknown third parties.
It is worth mentioning that Rongta Hezhong is a family business, and the equity is firmly controlled by the two Xu Kaiming brothers.
Rongta Hezhong was founded by two brothers, Xu Kaiming and Xu Kaihe, the former is an executive director, chairman of the board of directors, president and general manager of the company, 42 years old, and the latter is an executive director and senior vice president of the company, 41 years old.
The two brothers are the controlling shareholders of Rongta Hezhong, and through Xiamen Rongxin and other companies and direct shareholdings, the two brothers currently directly and indirectly hold 93.05% of the company's shares, and the company's equity is highly concentrated.
Although Rongta Hezhong's profits are not high and unstable, the two brothers have not forgotten to continue to pay dividends to themselves in the past three years.
According to the prospectus of Rongta Hezhong, in fiscal year 2021, fiscal year 2022 and fiscal year 2023, the company has paid dividends of 1.2 million yuan, 5 million yuan and 35 million yuan to shareholders, increasing year after year, of which the amount of dividends paid in 2023 also exceeds the scale of net profit in the same period. According to the shareholding ratio, in the past three years, the two brothers Xu Kaiming have paid dividends of more than 38 million yuan.
Behind the high dividend rate, Rongta Hezhong does not have enough cash on hand. At the end of March this year, the company's cash and cash equivalents were 29.196 million yuan, total current assets were 190 million yuan, and total current liabilities were 144 million yuan.
If it can be successfully listed in Hong Kong this time, Rongta Hezhong is expected to usher in a "blood transfusion". For the purpose of the proceeds from this listing, Rongta Hezhong intends to use it for R&D activities to expand its product portfolio and improve R&D capabilities, enhance production efficiency and efficiency, expand its sales network and international territory, and use it for working capital and general corporate purposes.
Author: Far away
