After distributing 800 million yuan in dividends, Huadong IPO was terminated

The company made a profit of more than 400 million yuan a year , but distributed only 800 million yuan in dividends. In addition, multiple risks were exposed, which ultimately led to the failure of Huadong's IPO.

Weibang Sports IPO terminated

Currently, Weibang Sports Technology Group Co., Ltd. (hereinafter referred to as "Weibang Sports") and its sponsor have withdrawn their application for issuance and listing , and the Shanghai Stock Exchange has terminated its issuance and listing review.

As early as May 2023 , Weibang Sports ' IPO on the Shanghai Main Board was accepted. The company originally planned to raise 992 million yuan for new expansion projects, technical transformation and upgrading projects, R&D center construction projects, and marketing system and brand promotion construction projects. In June 2023, Weibang Sports received the first round of review and inquiry, and the company finally withdrew from the listing until now.

Weibang Sports is located in Jinhua, Zhejiang Province. It is a well-known above-ground swimming pool manufacturer . It mainly engages in the research and development, design, production and sales of outdoor sports products such as core accessories of above-ground swimming pools, outdoor sports products and core accessories of inflatable sports products. Some of the company's products have monopolized 50% of the global market share.

The company's main customers include Mingda Industrial, a supplier of Intex, a leading brand of Amazon's swimming pool products, and Ningbo TAG Heuer and Aosen E-Commerce, two well-known cross-border e-commerce sellers in East China.

During the application period, Weibang Sports submitted two versions of the prospectus. Overall, it faces problems such as fluctuating performance and continued decline in revenue in 2020-2023 and the first half of 2024. For the proposed listed company, this will inevitably cause concerns from the outside world about the company's performance change after listing.

From 2020 to 2023, Weibang Sports' operating income was RMB 1.657 billion, RMB 3.188 billion, RMB 2.300 billion and RMB 1.438 billion, respectively. Among them, revenue in 2021 increased significantly, with a growth rate of 92.34% . In the following two years , performance began to change, with revenue falling by 27.86% and 37.46%, respectively. In the first half of 2024, the company's revenue was RMB 912 million , which has not yet returned to the level of 2021.

As for the reason why performance began to decline sharply after 2022, Weibang Sports stated that in 2022 and 2023, due to the changes in the economic situation in Europe and the United States caused by the Russia-Ukraine conflict, severe inflation, rising energy prices and other factors led to a decline in consumers' willingness and ability to consume. Therefore, the company's operating income decreased year-on-year due to the decline in sales.

The company 's net profit also fluctuates. From 2020 to 2023, it was 285 million yuan, 446 million yuan, 362 million yuan and 215 million yuan respectively , showing a clear fluctuation and downward trend. The net profit in 2023 fell by 40.6% compared with 2022. In the first half of 2024, the company's net profit was 158 million yuan .

In the first half of 2024, with the recovery of downstream market demand, Weibang Sports' performance rebounded, with main business revenue increasing by 16.04% year-on-year.

However, Weibang Sports admitted that the company's operating performance is affected by external factors such as the macro-economy, industrial policies, technological development, industry competition landscape, and the development status of upstream and downstream industries, as well as internal factors of the company. Any adverse factors may lead to a slowdown or even a decline in performance growth. If one or more of the above factors undergo significant adverse changes, the company's operating profit is at risk of a year-on-year decline of more than 50%.

800 million in dividends and then "asking for money" from shareholders

While the company's performance was unstable and profitability was a cause of concern , it also paid dividends generously, with the one-time dividend far exceeding the profit of the year. In 2021 , Weibang Sports' profit was only 446 million yuan, and the one-time dividend amounted to 800 million yuan.

Weibang Sports is a typical family business. The company's actual controller Chen Xiaobo directly or indirectly controls 91.50% of the company's shares. Therefore, 730 million yuan of the 800 million yuan in dividends were divided up by the actual controller Chen Xiaobo and his family .

The shareholding and employment status of relatives may affect the independence of corporate governance and bring the risk of insufficient protection of the rights and interests of small and medium shareholders.

After the dividend, the company's debt soared by 400 million, and the debt-to-asset ratio reached 68.92% . Weibang Sports made a bold move, raising 992 million yuan through IPO to "recover blood". After dividing the money among themselves, they asked shareholders for money again. Isn't this just cutting leeks nakedly ?

This behavior of "distributing dividends first and replenishing cash flow later" has aroused market doubts about its motives for listing. In the first round of inquiries, the Shanghai Stock Exchange questioned the reasons and rationality of Weibang Sports using raised funds to replenish cash flow after distributing large dividends before listing.

Weibang Sports explained that it was reasonable for the company to make large dividends before its listing, as they were mainly used by shareholders to pay for the company's capital increase and to repay the funds occupied by previous shareholders from Weibang Sports. Therefore, most of the dividends eventually flowed back into the company for daily operations.

After the regulators questioned the large dividends , Weibang Sports adjusted its fundraising needs and cancelled the "supplementary working capital" project in the fundraising investment projects. At the same time , it cancelled the fundraising for the "Phase II of the above-ground swimming pool and core accessories production and construction project". As a result, Weibang Sports adjusted its planned fundraising amount from 1.6 billion yuan to 992 million yuan.

Despite adjustments to fundraising, it was difficult to reverse the termination of its IPO.

Multiple risks cause concern

The large dividend may be the trigger for Weibang Sports’ IPO dream to be shattered, but the company also has other problems.

Excessive customer concentration is a significant problem facing Weibang Sports, with more than 70% of the company's revenue coming from its largest customer.

From 2020 to 2023 , the revenue share of the company's top five customers exceeded 97%, among which the revenue share of the largest customer, Rongwei International, was 78%, 79%, 69% and 75% respectively, and the company was highly dependent on it. Although the company believes that this is due to the special industry distribution and does not constitute a significant adverse impact, the regulatory authorities still focused on this issue during the review process and examined its impact on the stability and sustainability of the company's business.

In addition, the company also has the problem of large-scale fund borrowing , which is one of the key points of IPO review . The company has borrowed a large amount of funds from the actual controller Chen Xiaobo and his brother Chen Xiaowei for family members to buy houses, household consumption and investment expenses. From 2020 to 2022, the total amount of borrowing reached 177 million yuan, of which the actual controller's funds occupied amounted to 77.7726 million yuan.

Founded in 1995, Weibang Sports has developed for 30 years and is the world's largest manufacturer of core accessories for stand-mounted above-ground swimming pools. In 2021, its market share in the global stand-mounted above-ground swimming pool core accessories reached 50.20%. The company is deeply involved in the entire process of product research and development, design and manufacturing of above-ground swimming pool business.

The company has good supply chain management capabilities and efficient and flexible production scheduling capabilities, and has always attached great importance to product technology research and development and production process improvements. It has the support of many well-known Amazon brand customers and has also carried out a global supply chain layout. The company originally had great development opportunities, but there were too many cancers in the enterprise, and the large dividends were high-profile and eye-catching.

The termination of Weibang Sports' IPO is an important result of the strict review of the regulatory system, which puts an end to the capital game of "first share the money and then ask for money". It is still unknown whether the company will restart the IPO in the future , but if it cannot clearly explain the current problems, it will still be difficult to escape the eyes of the regulatory authorities.

Weibang Sports

IPO