After three attempts to enter the GEM, Allianz Ruishi's IPO passed the review

At the beginning of 2021, Zhuhai Allianz Sharp Vision Technology Co., Ltd. (hereinafter referred to as "Allianz Sharp Vision") had a good start.

On January 6, the results of the first review meeting of the GEM Listing Committee in 2021 showed that Allianz Vision's initial public offering met the issuance conditions, listing conditions and information disclosure requirements.

At the same time, the GEM Listing Committee further raised key questions, including the adverse changes in major suppliers and customers during the reporting period.

Due to factors such as the decline in raw material prices and changes in product structure, the issuer needs to explain the reasons and rationality for its lower gross profit margin than comparable companies in the same industry; the industry in which it operates is undergoing rapid technological updates, and in the past there have been cases of losing important customers due to untimely technological updates, and the proportion of R&D expenses during the reporting period was lower than that of comparable companies in the same industry. The issuer needs to explain its core competitiveness and the specific measures taken to address product innovation risks.

Looking back at Allianz Vision's journey into the capital market, it has been full of twists and turns.

It is understood that Allianz Vision's first attempt to list on the GEM was in 2012, but due to the impact of fluctuations in the upstream and downstream industries that year, its performance declined in 2011 and no longer met the GEM's initial public offering conditions, so it had no choice but to terminate the review.

On November 13, 2015, Allianz Ruishi shares were publicly transferred on the National Equities Exchange and Quotations and officially listed on the New Third Board. Subsequently, it submitted its GEM listing application materials to the China Securities Regulatory Commission again in June 2017; in September 2018, its IPO application was rejected by the China Securities Regulatory Commission due to its low gross profit margin.

In June 2019, Allianz Ruishi chose to change its brokerage firm and continue its efforts to enter the GEM. On June 24, 2020, its application for an initial public offering and listing on the GEM was accepted.

Tianyancha data shows that Allianz Ruishi was established on August 6, 2007, and its main business is the research and development, production and sales of security video surveillance product hardware and software. At present, its products are mainly front-end cameras and back-end hard disk recorders, and its key technologies mainly include image processing technology, audio and video encoding and decoding technology, storage technology, intelligent analysis technology, etc.

It is understood that Allianz Ruishi mainly operates in the ODM model, with a high export rate of products, mainly in North America, Europe and Asia. When it is aimed at the consumer market such as families, communities, enterprises, shops, vehicles and other users, it is mainly sold in the form of packages; when it is aimed at the engineering market such as government agencies, public security, finance, electricity, education, public utilities, large commercial complexes and other users, it is mainly sold in the form of single products.

However, judging from the reasons why its previous IPO was rejected, its gross profit margin is lower than that of other companies in the same industry, and this curse has not been completely eliminated in 2020.

The prospectus shows that in 2017, 2018 and 2019, the gross profit margin of Allianz Vision's main business was 20.41%, 19.69% and 26.21% respectively.

In this regard, Allianz Sharp explained that the decrease in gross profit margin in 2018 was mainly due to the large sales scale of cost-effective products for the consumer market, while the significant increase in gross profit margin in 2019 was mainly due to the decline in raw material prices and the weakening demand for low-profit products.

Jiwei.com learned that compared with well-known companies in the industry such as Hikvision, Dahua Technology, and Infinova, its gross profit margin is much lower than those of the above companies. Although it is not directly comparable, it is still of reference significance. Compared with Tongwei Technology, which has the same business model and the same target market, Allianz Ruishi's gross profit margin in 2017, 2018 and 2019 was still lower than its overall gross profit margin level.

Allianz Sharp also gave a detailed explanation in its prospectus. The difference in gross profit margin between Allianz Sharp and Tongwei Shares is mainly due to the different application areas of their products. Tongwei Shares mainly targets the engineering market in overseas markets, while Allianz Sharp mainly targets the consumer market.

In addition to the different product application areas, there are two other reasons for Allianz Ruishi's low gross profit margin. On the one hand, it is still in the stage of establishing and promoting its own brand, has not yet established a good brand advantage, and its product pricing is not high; on the other hand, Allianz Ruishi adopts the ODM business model, and its products are directly sold to brand owners, who then develop the terminal market and ultimately sell the products to end customers. Equipment manufacturers do not need to bear the various expenses of transportation, warehousing, marketing, sales support, after-sales service, etc. in the process of products reaching the end consumers. Although it can save a lot of sales expenses, the gross profit margin is limited.

It is undeniable that Allianz Ruishi's gross profit margin is at the low end of the industry. In recent years, it has also been actively exploring the engineering market. If the future development goes smoothly, it will also have a positive impact on its gross profit margin improvement.

However, affected by this year's epidemic, raw materials such as resistors, capacitors, memory particles, and sensors have all risen to varying degrees, which may directly increase their raw material procurement costs. Whether their gross profit margin can continue to increase driven by changes in product sales structure remains to be verified.

It is worth mentioning that judging from the supplementary financial data submitted by it, Allianz Vision's performance showed a downward trend in the first half of 2020.

The prospectus shows that in the first half of 2020, Allianz Sharp achieved operating income of 370 million yuan and net profit of 34.3117 million yuan, which showed a significant downward trend compared with 2019. However, since the security market has obvious seasonal characteristics, the third and fourth quarters are the stage for companies to sprint sales. Whether Allianz Sharp can achieve steady growth in 2020 still needs to wait for further disclosure.