Red Star Capital Bureau reported on October 19 that recently, Zhejiang Paipeptide Biology Co., Ltd. (hereinafter referred to as "Paipeptide Biology") GEM IPO was suspended due to updated financial information. Paipeptide biological IPO application was accepted on June 28 this year, and received the first round of review inquiry letter on July 23. So far, it has not responded to the inquiry letter.

Peptide Bio is mainly engaged in the research and development, production, sales and related services of polypeptide products. Riding on the east wind of "polypeptide", peptide biology has also received great attention from the market. However, the Red Star Capital Bureau noticed that Paipeptide Bio's performance depended on the company's top five customers, and most of the top five customers were "family members". Among them, Huaxi Bio took a surprise stake the year before the IPO.

in this IPO, pai peptide biology plans to raise 1.245 billion yuan, and the sponsor is huatai united securities. However, the project has also been questioned.

Performance depends on the top five customers

Big customers are mostly "family members"

The prospectus shows that Peptide Bio is a leading manufacturer of polypeptide cosmetic raw materials in China, with signal peptides (anti-aging) and other polypeptide cosmetic raw materials with various functions. The company provides one-stop solutions for peptide cosmetics raw materials for well-known cosmetics enterprises such as Pereya (603605.SH), Huaxi Bio (688363.SH) and Marumei.

In addition to polypeptide cosmetic raw materials, Peptide Bio also provides pharmaceutical companies with polypeptide API/advanced pharmaceutical intermediate products and polypeptide API research and development and customized production services (CDMO/CMO), polypeptide pharmaceutical research services (CRO), etc. However, from the perspective of revenue ratio, the current pharmaceutical-grade polypeptide products contribute relatively little revenue to Peptide Bio, and the company still relies more on the polypeptide cosmetic raw material business, which has contributed more than 60% of the company's revenue in the past two years.

Financial data show that from 2020 to 2022 (reporting period), the company realized operating income of 86.1704 million yuan, 0.143 billion yuan and 0.215 billion yuan respectively, and realized net profit of 12.403 million yuan, 38.5204 million yuan and 71.6903 million yuan respectively. In terms of growth, the company's operating income increased by 50.17 percent in 2022, while net profit increased by 86.11 percent year-on-year.

The Red Star Capital Bureau noted that Peptide Bio is highly dependent on the top five customers. During the reporting period, the Company's sales to its top five customers were $48.3287 million, $78.6075 million and $0.128 billion, respectively, accounting for 56.09 percent, 55.00 percent and 59.59 percent of the Company's operating income, respectively.

The risk of a high concentration of customers is that the loss of major customers will have a significant adverse impact on the company's business. But Peptide Bio may not worry about this problem, because most of the top five customers are "family members".

in 2022, for example, the company's top five customers that year were Perlea, Huaxi Bio, Shanghai Jiuqian Chemical Co., Ltd. (hereinafter referred to as "Jiuqian Chemical"), China Resources Shuanghe and EMPOWER CLINIC SERVICES.

Among them, CR Shuanghe holds a 25.29 per cent stake in Peptide Bio and is the company's largest shareholder. This shareholding ratio is even higher than the actual controller of Peptide Biology, Xing Haiying (13.49 percent of the direct shareholding), but Xing Haiying directly and indirectly controls 32.77 percent of the voting rights of Peptide Biology through Hanyuan Investment, Fuyue Investment, Zhongxin Enterprises, Xinghan Investment, etc.

In May 2019, Jiuqian Chemical in the process of cooperation with Peptide Bio, optimistic about the company's industry track and product quality, the relevant personnel hope to invest in the company, the price of shares and equity transferor to negotiate pricing, to 15 yuan/share price of shares in Peptide Bio. At present, the immediate family members of Jiuqian Chemical shareholders hold a total of 1.34 of the company's shares through Hanyuan Investment.

It is worth mentioning that the relatives of Huaxi Bio and Pereya's former directors both made a surprise bid for shares a year before the Peptide Bio-Delivery Table.

Pai Peptide Biology and Huaxi Biology established a cooperative relationship in 2018. In 2020, Huaxi Biology became the largest customer of Pai Peptide Biology, contributing 18.4259 million yuan of sales revenue that year, accounting for 21.38 percent of the current revenue. With Pereya's entry, Huaxi Bio retreated to second place, but still had a performance contribution of about 16% in 2021 and 2022.

due to "optimistic about the company's development prospects", Huaxi Bio increased its capital and became a shareholder in the company in June 2022 at a price of 43.92 yuan per share. Currently, Huaxi Bio directly holds 1.64 per cent of the company. However, it should be pointed out that Huaxi Bio has a competitive relationship with Peptide Bio in terms of cosmetic raw materials and functional skin care products, and in the prospectus, Peptide Bio also lists Huaxi Bio as a comparable company in the same industry, and the complex relationship may become the focus of regulatory attention.

The time for the relatives of Pereya's former directors to buy shares is also June 2022. Perlea's cooperation with Peptide Bio began in 2019, 2021 and 2022, with Perlea, as the number one customer, contributing $33.1198 million and $63.5814 million in sales, increasing its share of current revenue from 23.17 percent to 29.62 percent. At present, Tang Zhijun, wife of Cao Liangguo, former director of Pereya, and his son Cao Zheng hold a total of 4.91 per cent of the company through Hainan Ruizheng. (Note: Cao Liangguo stepped down as director and deputy general manager of Perlea in September 2021.)

Fundraising Project Questioned

Capacity utilization is not high, still raising funds to expand production

in this IPO, the number of shares to be publicly issued by pai peptide biology will not exceed 13.903066 million shares, accounting for not less than 25% of the total number of shares issued by the company. The company plans to raise 1.245 billion yuan this time. The main projects to be raised are polypeptide industrial park construction project, drug peptide research and development project, cosmetic polypeptide research and development project and supplementary working capital.

among them, the polypeptide industrial park construction project plans to invest 0.802 billion yuan, accounting for about 65%. According to the prospectus, through the construction project of polypeptide industrial park, the company will build a production line of polypeptide raw materials, a production line of polypeptide raw materials for cosmetics, a solvent recovery workshop, a solvent tank farm, a power workshop, a warehouse, etc. to expand the company's production site, improve the process layout of the workshop, and enhance the company's product production capacity and CDMO business undertaking capacity.

But the Red Star Capital Bureau noted that the capacity utilization rate of Peptide Bio was not high during the reporting period. In 2020-2022, the company's polypeptide cosmetic raw material powder and API/advanced pharmaceutical intermediate powder capacity utilization rate of 42.67, 61.95, 72.59, respectively, are less than 75%. The capacity utilization rate of raw material of polypeptide cosmetics is less than 20% all year round.

Under the condition that the capacity utilization rate is not saturated, it is still necessary to raise funds to build multiple production lines, which may lead to the risk that the company's new capacity cannot be fully absorbed. After the completion of all the fund-raising projects, the company's fixed assets and intangible assets are expected to increase significantly, and considerable depreciation and amortization expenses will be added each year.

In addition, the Company plans to use the $0.2 billion investment to supplement its liquidity.

But Peptide Creatures don't seem to be short of money. In 2021 and 2022, the company's asset-liability ratio (parent company) is 11.35 and 12.79, with a light debt burden and strong solvency.

in 2021 and 2022, the investment income of peptide biology will be 3.5319 million yuan and 7.9767 million yuan respectively. The prospectus shows that the Company's investment income is all investment income earned during the period when trading financial assets are held. By the end of 2022, Pai Peptide Bio had $92.381 million in monetary funds on its books and trading financial assets had reached $0.462 billion.

the red star capital bureau will continue to pay attention to the IPO progress of the peptide biology.