Split Rules Fall On The Ground, "Concept Stocks" Soar, And Those Who Reach The Standard Are Less Alert To The "Li Gui" Disturbance

Last Friday, after the CSRC officially released the Several Provisions on the Pilot Domestic Listing of Subsidiary Companies of Listed Companies (hereinafter referred to as the "Provisions"), the A-share market was quickly ignited.

On December 16, the concept of A-share split was very noisy. The Wind split concept index rose 2.32%, Donggang Shares and Shanghai Electric rose more than 6% in succession, and Liaoning Chengda, Dinglong Shares and Lianmei Holdings rose more than 3%.

On the same day, Shanghai Electric, Lianmei Holdings and others expressed their intention to split their subsidiaries for listing on the investor interaction platform, and Lianmei Holdings said frankly that "the subsidiary Zhaoxun Media is in line with the indicators of the split listing".

This is not an example. According to the incomplete statistics of 21st Century Economic Reporters, up to now, there are about 40 enterprises in the A-share market that have made it clear that they will promote the spin off and listing of subsidiaries (or some businesses).

"As listed companies become more diversified in their business strategies, the need to achieve business focus and balanced development through spin offs has become increasingly prominent. Allowing listed companies that meet certain conditions to spin off and list in China will help listed companies improve their business level and quality and promote high-quality economic development." Wang Jun, a strategic analyst with BOC International, commented.

However, in the specific combing process, the reporter found that many of the 40 listed companies with the intention of splitting did not meet the requirements of the Regulations that they had made profits for three consecutive years, and the parent company's cumulative profits for three years after the removal of the split subsidiaries were no less than 600 million yuan. The parent company has not received administrative punishment from the CSRC in the last three years, and has not been publicly condemned by the exchange in one year.

Beware of hype

According to the above Provisions, subsidiaries of listed companies that meet the corresponding conditions can be split listed in China. Among them, the threshold for net profit of the parent company in the last three years has been reduced from 1 billion yuan in the draft for comments to 600 million yuan, significantly expanding the scope of enterprises that meet the conditions for split listing.

Sun Jinju, Assistant President of Kaiyuan Securities and Director of the Institute, pointed out in an interview: "(After the opening of the profit threshold), we judge that the number of companies in this official draft has increased by more than 50% compared with that in the draft for comments after the conditions were relaxed."

However, the 21st Century Business Herald reporter noticed that although the profit conditions have been relaxed, there are many listed companies that do not meet the relevant rules among some enterprises that claim to promote the spin off and listing of subsidiaries.

So, Capital Airlines Energy Saving, which had made it clear on the interactive platform that it would promote its subsidiary, Capital Airlines Solar Thermal, to be listed on the science and technology innovation board, had a net profit of 748 million yuan in 2018, which did not meet the conditions for making profits for three consecutive years.

In April of this year, when receiving investor research, he said that "at present, the shareholding system reform work of the company's three holding subsidiaries, Sinor, Felt and Tianli, has been completed, and will further improve the corporate governance structure. If the conditions are met, the split listing and landing on the science and technology innovation board is the content of key planning". Although the company has made profits for three consecutive years, However, the accumulated net profit in 2016-2018 was only 136 million yuan, far below the minimum threshold of 600 million yuan.

The reporter also found that Jingu Shares and Lifan Shares, which had explicitly stated that they would spin off their subsidiaries to be listed in China, did not meet the requirement of making profits for three consecutive years and the total accumulated net profit exceeded 600 million. However, the listing of Hejing Technology, a subsidiary on the New Third Board, had just been terminated. Due to the huge loss in 2018, the listing of its subsidiary on the Science and Technology Innovation Board was expected to be delayed.

In addition, Lingnan Shares, which said directly on the interactive platform on the 15th that "it will actively prepare for the spin off and listing", met the requirements in terms of profit requirements, net profits and the proportion of registered capital, but because of flaws in corporate governance, the Hengrun Group under Lingnan Shares may not be eligible for A shares in the short term. The expected split of Zhaochi shares is in the same boat. In May this year, Zhaochi shares just received a regulatory letter from Shenzhen Stock Exchange because "the actual amount of repurchased shares did not reach the total planned amount disclosed in the repurchase plan".

In fact, during the interview, many analysts said frankly to the reporters that although the conditions for the split were relaxed, the actual threshold was not low.

According to the statistics of Shenwan Hongyuan Research Report, after preliminary screening according to the conditions of being listed for three years, having made profits in the last three years, having subsidiaries, having accumulated net profits of not less than 600 million yuan in the last three years, the listed company and its controlling shareholders and actual controllers have not been subject to administrative punishment by the CSRC in the last 36 months, and have not been publicly condemned by the stock exchange in the last 12 months, There are 253 eligible A-share listed companies, accounting for only 6.75% of the total number of A-share listed companies.

In Sun Jinju's opinion, there are fewer enterprises that actually meet the conditions for the spin off.

"Considering that the spin off subsidiary needs to be listed for three years, the spin off subsidiary needs to meet the listing requirements, the parent subsidiary business is relatively independent, and there is no significant adverse horizontal competition and other conditions, we expect that the number of companies that meet the spin off conditions will still be small, and it is expected to be about 150," said Sun Jinju.

The new third board is restless in advance

Although there are not many A-share "standard holders", on the other side of the capital market, the new third board market, which has gathered a large number of A-share listed companies' subsidiaries, has been agitated in advance, and the share prices of Liaoning Chengda Biological Holding Co., Ltd., Liaoning Chengda Biological Holding Co., Ltd., and Han's Laser Holding Co., Ltd., Yuanheng Optoelectronics, etc. have soared.

Zhu Haibin, head of scientific innovation research at the third board of Essence Securities, pointed out: "We have made statistics on the enterprises of A-share listed subsidiaries on the new third board, and it is estimated that more than 30 enterprises are in compliance with the relevant provisions of spin off listing."

Taking Chengda Biology as an example, the parent company Liaoning Chengda directly holds 60.74% of the shares of Chengda Biology, making profits for three consecutive years with a total net profit of 3.414 billion yuan. Chengda Biology is an important holding subsidiary of Liaoning Chengda Pharmaceutical, mainly engaged in the production of rabies vaccine. From 2016 to 2018, the net profits of Chengda Biology were 457 million yuan, 556 million yuan and 613 million yuan respectively, accounting for 47.63% of the total profits of the parent company, lower than the "red line" of 50% of the split.

Since the regulators released the expectation of domestic spin off listing, since August 2019 (as of December 16), the stock price of Chengda Biology has risen by 57.46%. Yuanheng Optoelectronics, which is in a similar situation, also soared 66.93% over the same period.

"(New Third Board) There are some companies that are good, and the valuation given by the market does not fully reflect the true value of the enterprise, because the market is not active, and the subsidiaries of listed companies cannot be listed in China before, and there is no exit channel, these enterprises can only be valued according to the equity of the primary market." Zhu Haibin said.

In Zhu Haibin's view, the implementation of split listing rules will help improve the valuation of qualified high-quality enterprises on the NEEQ, and promote employee incentive and incubation of new industries in the multi business listed company sector.

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