Ninebot's IPO passed the review for the first CDR on the Science and Technology Innovation Board, and the risk of related-party transactions with Xiaomi is high

After 13 months, the "first CDR" of the Science and Technology Innovation Board, Ninebot Co., Ltd. ("Ninebot Intelligence" for short), finally ushered in the important moment of going to the board meeting after its IPO application was accepted.

On June 12, the announcement of the 42nd review meeting of the Science and Technology Innovation Board Listing Committee in 2020 showed that Ninebot's IPO on the Science and Technology Innovation Board was successfully approved. After the registration with the China Securities Regulatory Commission takes effect, Ninebot will become the first red-chip company to issue depositary receipts (CDRs) on the Science and Technology Innovation Board and even on the A-share market.

In addition, the Science and Technology Innovation Board Listing Committee also put forward review opinions on Ninebot’s IPO, requiring Ninebot to provide four additional explanations: 1. Please ask the issuer to take further measures to eliminate the loopholes in investor protection in the red chip and VIE structures. Please ask the sponsor and the issuer’s lawyer to make clear verification opinions. 2. Please ask the issuer to take further measures to eliminate the misleading of the company name to investors and ensure that the company name and abbreviation can accurately reflect the essence of the business. Please ask the sponsor and the issuer’s lawyer to make clear verification opinions. 3. Please ask the issuer to supplement the disclosure of the current product’s market share and explain its market competitiveness in combination with the comparison of key indicators with companies in the same industry. Please ask the sponsor to make clear verification opinions. 4. Please ask the issuer to comprehensively sort out various contents in accordance with the provisions of the "Guidelines for the Content and Format of Information Disclosure by Companies Issuing Securities to the Public No. 41 - Prospectus of Science and Technology Innovation Board Companies", enhance pertinence, strengthen risk orientation, and delete redundant statements.

At the same time, the Listing Committee also raised a number of major inquiries, including the company's financial status, key indicators, the areas of investment projects, how the "Depository Agreement" can be actually implemented domestically, and whether there are loopholes in investor protection measures.

Raised 2.077 billion yuan to invest in smart electric vehicles and other projects

The prospectus disclosed that Ninebot is an innovative enterprise focusing on the field of intelligent short-distance transportation and service robots. The company's main business is the design, research and development, production, sales and service of various intelligent short-range mobile devices. After years of development, the company's products have formed a rich product line including intelligent electric balance vehicles, intelligent electric scooters, intelligent service robots, etc.

As a high-tech enterprise focusing on the field of intelligent short-distance transportation and service robots, Ninebot has more than 1,000 domestic and foreign patents or patents in the relevant fields. As of the end of December 2019, the sales areas of the company's core products such as smart electric balance bikes and smart electric scooters cover more than 100 countries and regions around the world. With continuous technological innovation, leading industrial design, stable and reliable quality, and good after-sales technical support services, the company has won the recognition and trust of customers and consumers, and has established cooperative relations with many well-known companies in the field of domestic and foreign travel, such as Voi, Lyft Scoote (r Lyft), Uber Scooter (Uber), Spin (Skinny) and Grin (Encosta).

According to the prospectus, from 2017 to 2019, the company's operating income was 1.381 billion yuan, 4.248 billion yuan, and 4.586 billion yuan, respectively; the net profit attributable to the parent company's owners was -627 million yuan, -1.799 billion yuan, and -459 million yuan, respectively.

At the same time, at the end of each period of the reporting period, the net assets corresponding to each depositary receipt of the company were -2.15 yuan, -5.47 yuan and 3.35 yuan respectively, mainly because the net assets of the company were -126,498.13 million yuan, -323,049.02 million yuan and 212,089.56 million yuan respectively.

This time, Ninebot plans to raise 2.077 billion yuan to be used as operating capital for the following projects:

It is worth noting that Ninebot’s main business revenue is concentrated in smart skateboards and smart balance scooters, while the revenue share of smart service robots was only 0.1% and 0.31% in 2017 and 2018 respectively. In 2019, the operating income of smart service robots was only 4.1216 million yuan, accounting for only 0.09%.

Looking at the fundraising and investment projects, out of the 2.077 billion yuan that the company plans to raise, 1 billion yuan will be used for smart electric vehicle projects and an annual production of 80,000 off-road recreational vehicles.

Xiaomi's related-party transactions are high risk

The prospectus disclosed that Ninebot's sales revenue of smart service robots accounted for a relatively low proportion, at 0.10%, 0.31% and 0.09% in each period of the reporting period. Although electric balance scooters are defined as robots by international and domestic standardization organizations, and the authoritative organization China Electronics Society has listed the company as an active enterprise in smart home service robots, the company's two main products, smart electric balance scooters and smart electric scooters, are still different from the public's perception of smart robot products that can operate independently and do not require human intervention. In addition, affected by the rapid growth of the company's sales revenue of smart electric scooters and other products during the reporting period, the sales amount of smart electric balance scooters and smart service robots that were confirmed as robots by international and domestic standardization organizations during the reporting period accounted for 74.59%, 29.45% and 21.80% respectively, showing a downward trend.

In addition, Xiaomi is one of the company's important customers. During the reporting period, the company's related sales with Xiaomi Group amounted to RMB 101,884.39 million, RMB 243,418.10 million and RMB 239,971.04 million, accounting for 73.76%, 57.31% and 52.33% of the current operating income, respectively. The amount and proportion of related sales are relatively high. If Xiaomi's purchase amount from the company decreases significantly in the future, the company's business and operating performance will be significantly adversely affected.

At the same time, Xiaomi Group is the only customer of the company's exclusive distribution channel for customized products, and the exclusive distribution channel for customized products is one of the company's important sales channels. During the reporting period, the company's sales revenue through the exclusive distribution channel for customized products was RMB 101,884.39 million, RMB 243,418.10 million and RMB 239,971.04 million, respectively, accounting for 73.76%, 57.31% and 52.12% of the current operating income, respectively. During the reporting period, the company's gross profit through the exclusive distribution channel for customized products was RMB 20,750.00 million, RMB 48,404.53 million and RMB 36,137.46 million, respectively, accounting for 63.27%, 39.49% and 28.74% of the company's gross profit for the period, respectively. If the amount of purchases from Xiaomi Group to the company decreases significantly in the future, the company's operating performance such as revenue and profit will be significantly adversely affected.

Xiaomi Group holds 10.91% of the issuer's equity through People Better, which it controls, corresponding to 5.08% of the voting rights. During the reporting period, Shunwei, an affiliate of People Better, held 10.91% of the issuer's equity, corresponding to 5.08% of the voting rights, but Shunwei and People Better do not constitute a concerted action relationship. Neither People Better nor Shunwei participates in the company's daily operations and management. The issuer's board of directors currently has 11 members, including 7 non-independent directors. Except for 1 director appointed by People Better, it does not appoint or recommend the issuer's management and financial personnel. As a listed company listed in Hong Kong, if the interests of the company and other shareholders may sometimes conflict with the interests of Xiaomi Group and its public shareholders or its affiliated companies, there is a risk that the parties related to Xiaomi Group may influence the company's operating decisions through the voting rights of the board of directors.

Therefore, Xiaomi Group may adversely affect the company through equity relations, supply chain management and cost control measures, sales cooperation, profit distribution, etc., and the company will therefore bear certain risks.

In addition, the performance forecast for the first half of this year shows that, combined with the current control of the new crown pneumonia epidemic and the company's actual operating conditions, Ninebot expects its operating income in the first half of 2020 to be approximately RMB 192,565.13 to RMB 235,357.38 million, a year-on-year change of -13.22% to 6.06%, and gross profit to be approximately RMB 53,788.66 to RMB 65,741.70 million, a year-on-year decrease of 0.84% ​​to 18.87%; the net profit attributable to the parent company's shareholders will be approximately RMB -63,778.86 million to RMB -8,628.88; the net profit attributable to the parent company's shareholders after deducting non-recurring gains and losses will be approximately RMB -6,618.73 to RMB -8,954.75 million, a year-on-year decrease of approximately 131.28% to 142.31%.