On June 30, 2023, Zhejiang Xinxing Tools Co., Ltd. (hereinafter referred to as Xinxing Tools) issued a prospectus (draft declaration, hereinafter referred to as the prospectus). According to the prospectus, Xinxing Tools intends to raise 0.56 billion yuan for the "Precision CNC Tool Fixture Digital Factory Construction Project" and will be listed on the main board.

"Daily economic news" reporter noted that in 2020 before the share reform, Xinxing tool cash dividend as high as 0.173 billion yuan, while the company's net profit and net cash flow from operating activities were only 0.134 billion yuan and 0.133 billion yuan respectively.

data source: reporter collates visual Chinese map yang Jing map

Xinxing tools disclosed in the prospectus the defects in capital contribution and equity changes since the establishment of the company, while the sponsor and lawyers believe that the defects in the evolution of the issuer's equity have been standardized and rectified, the registered capital has been enriched by means of monetary supplementary payment, the rights and interests of the issuer and all existing shareholders have not been infringed, there are no disputes or potential disputes, and will not have a significant adverse impact on the issuer, the issuer or related shareholders have not been subject to administrative penalties for defective matters and will not constitute a legal obstacle to the offering.

consolidated gross margin higher than peers

According to the official website of Xinxing Tools, the company was established in 1994 and is a high-tech enterprise focusing on hole processing technology. The company is equipped with international leading R & D and testing equipment, and has a production line for mass specialized production of CNC tools. It has become a high-performance CNC tool manufacturer integrating R & D, production and sales.

According to the prospectus (declaration draft), from 2020 to 2022, Xinxing Tool's revenue will be 0.315 billion yuan, 0.385 billion yuan and 0.391 billion yuan respectively, and the net profit attributable to the parent company will be 0.134 billion yuan, 0.171 billion yuan and 0.172 billion yuan respectively.

The "Daily Economic News" reporter found that the company's higher gross profit margin supported Xinxing Tools's rapid growth. From 2020 to 2022, Xinxing Tool's consolidated gross margin was 59.09, 58.78 and 58.06 percent, respectively, a slight decline each year, but still more than 10 percentage points higher than the peer average. According to disclosure, in 2022, the comprehensive gross profit margins of Hengfeng Tools (SZ300488, stock price 26.31 yuan, market value 4.359 billion yuan), Huarui Precision (SH688059, stock price 91.75 yuan, market value 5.653 billion yuan), Ou Keyi (SH688308, stock price 34.18 yuan, market value 5.421 billion yuan) and Wald (SH688028, stock price 21.53 yuan, market value 3.303 billion yuan) will be 47.87, 48.85, 36.75 and 46.23 respectively, with an average of 44.93.

In this regard, Xinxing Tools said that the company's gross margin is higher than the average gross margin of comparable companies in the same industry, mainly because comparable companies in the same industry are in different segments of the cutting tool industry, in the product structure, product materials, downstream applications There are differences.

For example, in 2022, Xinxing Tool's carbide cutting tools will have a gross profit margin of 64.38 percent, while Sinovel Precision and Ou Keyi will have gross profit margins of 48.85 percent and 20.23 percent, respectively. In response, Xinxing Tools said that from the perspective of product types, Sinovel Precision and Ou Keyi's hard alloy products are mainly hard alloy blades, while the company's products are hard alloy tools. The company's tool products consist of tool bars and blades, I .e. Sinovel Precision and Ou Keyi's products are upstream of the company's hard alloy tool products.

xinxing tools said that the company produces the cutter bar of hard alloy cutting tools through turning and milling, heat treatment and circular grinding, and then welds the cutter bar with the purchased hard alloy blade blank through silver welding wire by brazing process, then further processes the cutting tools through circular grinding, universal tool grinding and other processes, and finally coats the cutting tools according to the customized requirements of customers. The Company's products are further processed and formed on the basis of listed companies in the same industry, so the overall gross margin level is higher than that of listed companies in the same industry.

Company wants to improve R & D capability

The gross margin far exceeds that of its peers, which also brings rich cash flow to Xinxing Tools. The prospectus (application draft) shows that from 2020 to 2022, the net cash flow generated by Xinxing Tool's operating activities reached 0.133 billion yuan, 0.206 billion yuan and 0.162 billion yuan respectively.

Xinxing tools said that the net cash flow from operating activities in 2020 and 2022 is relatively close to the current net profit; the net cash flow from operating activities in 2021 is greater than the current net profit, mainly because the increase in current inventory is less than In 2020, at the same time, due to the recovery of the market in the current period, the overall repayment situation is relatively good, and the company's current operating receivables have declined.

As of the end of 2022, Xinxing Tool's monetary capital was $0.275 billion, and the Company had no bank borrowings, with total liabilities of $72.8434 million, of which $57.2141 million in current liabilities and $15.6293 million in non-current liabilities, and an asset-liability ratio of only 7.83.

"Daily economic news" reporter noted that from 2020 to 2022, the net cash flow generated by Xinxing tool financing activities was -0.107 billion yuan, -0.165 billion yuan and -27.664 million yuan respectively. Among them, cash outflows from financing activities mainly consisted of cash dividends and cash paid for debt repayment. The prospectus (declaration draft) disclosed that from 2020 to 2022, Xinxing Tool's cash dividends were 0.173 billion yuan, 0.15 billion yuan and 40 million yuan respectively, totaling 0.363 billion yuan.

it is reported that Xinxing tools intends to raise 0.56 billion yuan in this IPO (initial public offering) for the "digital factory construction project of precision numerical control tool fixture", including new factory buildings, warehouses, research and development center buildings and auxiliary buildings, so as to improve the company's numerical control tool production capacity and research and development capability. after the project is completed and put into operation, the company will add 6.6 million pieces/year of precision numerical control tool series products.

Xinxing tools said in the economic benefit analysis of the project that the total investment of the above-mentioned project is 0.56 billion yuan, the annual sales revenue of the project is 0.51 billion yuan, the total profit is 0.129 billion yuan, the after-tax internal rate of return is 16.96, and the investment return period is 7.96 years (including the construction period).

had capital contribution and equity defects

According to the prospectus (draft declaration), as of the date of the signing of the prospectus, the Zhu Dongwei family can actually control the voting rights of Xinxing Tool shares of 100, Zhu Dongwei, Zhu Hongmei, Yao Hongfei, Zhu Hulin, Yu Qijuan as the issuer's common actual controller. In the early stages, the company had too many capital contribution defects and equity change defects.

First, in 1994, when Xinxing Metal (Xinxing Tool's pre-share reform enterprise) was established, Zhu Hulin and Xu Xiaonan contributed with fixed funds (in kind) and working capital. Among them, the fixed capital (in kind) contributed 83800 yuan, which could not be verified for a long time. Working capital (currency) contributed 234200 yuan, but lacked the corresponding contribution certificate.

second, in December 1996, Zhu Hulin invested a total of 189400 yuan in Xinxing metal in kind and other forms. He did not fulfill the evaluation procedures and could not verify the capital contribution and asset value at that time due to the long history.

Third, in August 2009, Zhu Hulin contributed 8.99 million yuan with intellectual property rights (patent rights) and Zhu Dongwei contributed 2.75 million yuan with intellectual property rights (patent rights). As Zhu Hulin and Zhu Dongwei have been working in the issuer until the above-mentioned patent was authorized, and the above-mentioned patent is related to the issuer's business, the above-mentioned patent has the possibility of job invention.

in terms of defects in equity changes, when Xinxing metal was established in June 1994, Zhu Hulin's contribution was 297200 yuan and Xu Xiaonan's contribution was 20800 yuan. Before the establishment of Xinxing Limited in April 1997, Zhu Hulin's original capital contribution was adjusted to 291000 yuan and Xu Xiaonan's original capital contribution was adjusted to 27000 yuan. The reason for the change was the company's registration error. Among them, Xu Xiaonan was held by Zhu Hulin.

in this regard, xinxing tools explained that Xu xiaonan is a housewife and has no relevant experience in employment and investment. based on her relationship with Zhu hulin's sister-in-law, she only borrows her identity to Zhu hulin's registered company and holds shares. she fully trusts each other, so she has not signed the holding agreement or terminated the holding agreement.

The sponsor and lawyers believe that the defects in the evolution of the issuer's equity have been standardized and rectified, the registered capital has been enriched through currency payment, and the rights and interests of the issuer and all existing shareholders have not been infringed, and there are no disputes or potential disputes. It will not cause significant adverse effects on the issuer. The issuer or relevant shareholders have not been subject to administrative penalties due to the defects and will not constitute a legal obstacle to this issuance.

On September 26, 2023, a reporter from the "Daily Economic News" called Xinxing Tools and sent an interview email to try to understand the above questions. On the morning of September 27, the reporter called Xinxing tool again, but as of the time of publication, there was no reply.

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