Written | Planet
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Recently, Sichuan Jule Foods Co., Ltd. (hereinafter referred to as "Jule Shares") updated its application review status for listing on the main board of the Shenzhen Stock Exchange, and responded to the first round of review inquiry letters issued by the Shenzhen Stock Exchange on March 29, 2023.
According to the previous prospectus, Jule’s main business is the R&D, production and sales of milk-containing beverages and dairy products. At present, the company's main products include milk beverages, fermented milk, pasteurized milk and sterilized milk, etc., which can meet the consumption needs of different groups and scenarios for milk beverages and dairy products.
This IPO is Jule's "fourth battle" in seeking to go public. While submitting prospectuses but repeatedly hitting the wall, its existing problems have gradually surfaced and become the focus of attention of the exchange.
1. The former branch cashier was questioned about embezzling funds
Among the two major internal control deficiencies inquired by the Shenzhen Stock Exchange, the case of illegal embezzlement of funds by the cashier of the former branch of Jule Co., Ltd. is the most eye-catching.
From December 2014 to March 2019, Li, a cashier of the former branch of Jule Co., Ltd., took advantage of his position to embezzle 95.7789 million yuan of funds by stealing blank checks/electronic business settlement documents, forging bank receipts, and account statements.
In this regard, the Shenzhen Stock Exchange requires Jule to explain whether there are other undisclosed internal control irregularities or situations that cannot be effectively implemented, and the internal management system related to fund management after rectification and its implementation, the approval process for fund payment, and internal audit supervision arrangements.
In fact, the misappropriation of funds is not only the crux of Jule shares, but also a "blocker" that affects its sprint listing. The company had submitted a form in December 2017, intending to list on the Shenzhen Stock Exchange SME board, but due to problems such as lack of materials, it withdrew the materials in March 2018.
In July 2019, Jule Co., Ltd. submitted its listing application for the second time, but not only failed to go public, but also received a "ticket" from the China Securities Regulatory Commission for issues such as undisclosed misappropriation of funds by cashiers, false disclosure of currency funds, major defects in the internal control system, and inaccurate rebates.
As the saying goes, "the person who needs to tie the bell to untie the bell", Jule shares disclosed the cause of the incident and the corresponding rectification measures taken by the company in its reply to the inquiry letter from the Shenzhen Stock Exchange.
According to reports, the misappropriation of funds by the cashier was caused by Li deliberately misappropriating the company's funds, deliberately evading the internal control system and inspection, auditing, and the nature of the account's payment account, which made Jule shares not pay enough attention to this account.
After the incident, Jule Co., Ltd. adopted a series of measures such as the implementation of the bill inventory system, real-time monitoring of capital income and expenditure, unified handling of capital payments by the cashier at the headquarters, and centralized management of funds, and formulated an approval process of "business first, then finance, and subordinates before superiors" to strengthen the internal control of monetary funds.
Regarding whether there are other undisclosed internal control irregularities, Jule shares stated that the company’s small amount of financial internal control irregularities have been fully disclosed and effective rectification has been carried out, and there are no other undisclosed internal control irregularities or situations that cannot be effectively implemented.
2. Frequent food safety incidents
"Food safety" is an unavoidable issue for Jule, which is in the food industry, and it is also one of the focuses of the Shenzhen Stock Exchange's inquiry.
The inquiry letter shows that Jule Dairy Wenjiang Dairy Factory was warned, ordered to make corrections within a time limit and fined 35,000 yuan for failing to take reliable safety measures for storing and using dangerous goods. In addition, the Meishan Branch of Jule Co., Ltd. also had the problem of not setting up obvious safety warning signs in the milk tanks and sewage pumping pits in limited space.
In this regard, Jule shares stated that the above two administrative penalties and fines are relatively small, and the competent authority has issued a confirmation document that these administrative penalties are not major administrative penalties, which will not have a major impact on its production and operation, nor will it constitute a substantial obstacle to its current issuance and listing.
However, Beiduo Finance noticed that the food safety problems of Jule Co., Ltd. do not stop there.
According to the sampling information announcement issued by the Shanxi Provincial Market Supervision and Administration Bureau in October 2021, the Huifeng Youmu chewing yogurt (yellow peach + oatmeal) product produced by Huifeng Dairy Daqing Branch, a subsidiary of Jule Co., Ltd., was found to seriously exceed the standard for coliform bacteria.
According to Beido Finance, the total number of coliform bacteria in food exceeds the standard, indicating that the hygienic status of its products does not meet the basic hygiene requirements. It will not only destroy the nutritional content of food, accelerate food spoilage, but also may cause symptoms such as extraintestinal infection and acute diarrhea after eating.
The excessive coliform bacteria may be caused by the contamination of processing raw materials and packaging materials of the product, or the pollution of the product by personnel, tools and other production equipment and the environment during the production process, or the incomplete sterilization of products with sterilization processes.
Jule shares also pointed out in the previously submitted prospectus that due to the long production chain and many management links in the dairy beverage and dairy products industry, and the fact that some products are processed by outsourced manufacturers, if the company or outsourced manufacturers fail to comply with safety controls in any link, it may lead to substandard product quality.
3. High income contribution from a single region
Overall, the performance of Jule shares has maintained a growth trend.
In 2020, 2021, and 2022 (the "reporting period"), Jule's operating income will be 994 million yuan, 1.421 billion yuan, and 1.472 billion yuan, respectively, with a compound annual growth rate of 21.68%; net profit will be 132 million yuan, 168 million yuan, and 182 million yuan, respectively, with a compound annual growth rate of 17.42%, all showing a steady growth trend.
During the reporting period, the gross profit margins of Jule's milk beverages were 42.96%, 43.05% and 41.62%, respectively, and the gross profit margins of dairy products were 20.21%, 22.22% and 23.93%. That said, the company's gross profit on dairy drinks is nearly double that of dairy products.
Beiduo Finance found that the Shenzhen Stock Exchange questioned Jule on the issue that the gross profit margin of milk-containing beverages is higher than that of dairy products, and asked the latter to explain the reasons and rationality of this situation based on factors such as pricing methods, competing product prices, competitive trends, and market supply and demand.
Jule said in its reply that according to national standards, the protein content of milk beverages is required to be higher than 1g/100g, and the protein content of dairy products is required to be higher than 2.3g/100g. That is to say, under the premise that there is not much difference in selling price, dairy products need to use more raw milk, and the unit cost is higher than that of milk-containing beverages, so the gross profit margin is relatively low.
It is also a common law in the industry that the gross profit margin of dairy beverages is higher than that of dairy products. Among the comparable companies in the same industry disclosed by Jule, the average gross profit margins of Liziyuan and JuneYao Health, which are mainly engaged in dairy beverages, are 41.88%, 38.25%, and 34.06%, respectively, which are much higher than the average gross profit rates of other companies mainly engaged in dairy products, which are 28.82%, 25.46%, and 24.43%.
It should be pointed out that Jule shares have the problem of excessive regional concentration of income sources. Among them, Sichuan Province is the birthplace and main production base of the Jule brand. In 2019, the company's revenue from Sichuan Province accounted for more than 98%.
In October 2020, Jule acquired Huifeng Dairy in Heilongjiang, which truly broke its own "confined in Sichuan" dilemma. In 2020, 2021, and 2022, the company's revenue from Sichuan Province will account for 91.53%, 74.22%, and 76.55% of its total revenue, respectively, and its dependence on a single province has declined.
However, regarding whether there are limitations to the income growth pointed out by the Shenzhen Stock Exchange in the inquiry letter, Jule shares optimistically expressed that thanks to the support of national policies, the growth of the milk beverage market, the improvement of the competitiveness of low-temperature products and the layout of cross-regional markets, it still has a large market space and has no limitations.