As the world's largest electronics consumer products foundry, Foxconn Industrial Internet Co., Ltd.'s initial application has undoubtedly attracted the attention of the market.
On February 9, the CSRC released Foxconn's IPO pre-disclosure material which indicated that it intends to apply for listing on the Shanghai Stock Exchange and the sponsor institution as a CICC.
As Foxconn does not meet the initial threshold of the "main body of the establishment of full three years," so its listing is also carried out through the quick channel of trial and error. 21st Century Capital Institute believes that the Foxconn IPO probability will be regulators With support from BATJ and other IT giants listed overseas, Foxconn IPO has played a positive stimulus role in fostering emerging A-share industries in the A-share market.
However, Foxconn currently also objectively has technical problems without actual controllers, related party transactions, overlapping of upstream and downstream levels, and whether these factors can be audited by the issuance examination committee.
In addition, the high revenue generated by the foundry model, low gross margin is also the focus of the market, but we believe that with the expansion of Foxconn body and the speed of capital operation in the future, does not rule out the hot factory brand mode nowadays It is also possible to create a turning point for Foxconn.
IPO to get started
For Foxconn, which was established on March 6, 2015, the current filing of an IPO is undoubtedly a 'runaway'.
The Measures for the Administration of Initial Public Offering and Listing stipulates that the issuer shall have a continuous operation time of more than 3 years after the establishment of a joint stock limited company, unless approved by the State Council. '
Foxconn formal submission prospectus on February 1, which also means that at this time from the establishment of three years only 34 days, but Foxconn still chose to declare in advance.
Foxconn is also affirmative in the major issues of the prospectus: 'As of the date of issue of this prospectus, the company continued to operate for less than three years, the Company has applied for exemption from the right to the above situation.'
In fact, special declaration in the A-share market has also occurred, but most of them belong to China State Construction, China Power Construction and other large central enterprises, and Foxconn is the first private enterprises to declare a special IPO.
"Although it was a run-up, there was still a lot of preparatory work and regulatory communication for listing filings." In late February, an investment banker close to Foxconn said.
21st Century Capital Research believes that Foxconn this rush to promote the IPO reasons, or with the policy level of potential support is not unrelated.
On the one hand, Foxconn, the world's leading electronic consumer goods foundry, whose prospectus shows that it provides professional design and manufacturing services for communications network equipment, cloud service equipment, precision tools and industrial robots, is closely linked with emerging industries. Internet companies such as BATJ rushed After the listing of overseas markets, A-share market needs such representative companies settled.
On the other hand, as a foundry, Foxconn is an integral part of the real economy, in line with the general direction of the country to take advantage of reality and provide a large number of nearly 270,000 jobs, it is also vulnerable to policy-level support.
In fact, regulators have released in the past to support emerging technologies represented by Foxconn, industrial enterprises listed on the financing of the signal.On the evening of January 31, the Commission in the 2018 securities and futures regulatory work notice clearly pointed out that 'to absorb the international capital markets Mature and effective systems and methods, the reform of the issuance and listing system, efforts to increase the system's inclusiveness and adaptability, and increase the new technology and new industries new mode of support for the new model.
At the same time, official media such as Xinhua News Agency also stated that "the Internet, smart manufacturing and other fields will be specially listed in the market," and "the BATJ dream in China's capital market is not complete."
In our view, Foxconn IPO to some extent is also launching this policy signal to the market that the A-share market will further accept the emerging technology, the landing of emerging industries; if Foxconn IPO, the same type of business in the Domestic preparations for the formation of a significant incentive effect.
There are still multiple review difficulties
Although Foxconn's IPO belongs to a special filing under the background of policy support, many of its problems that may exist in the review of the meeting still can not be ignored. In fact, it submitted up to 69 regulators on the eve of the pre-disclosure Opinion, involving information disclosure, normative and many other aspects.
For example, although Foxconn is well known as the founder of Taiwan Terry Gou, there is currently no actual controller.
According to the prospectus, Foxconn's majority shareholder is Zhongjian Enterprise Co., Ltd. (hereinafter referred to as Zhongjian), which is wholly-owned by Taiwan-listed Hon Hai Precision (2317.TW) No actual controller business, Foxconn has become a real business without control.
This is quite different from the situation of most of the domestic IPO-based companies. In addition to the return of A shares to the listing market, the domestic IPO companies are often controlled by natural persons and are controlled by SASAC. Without the control of the fresh See whether the factors that will constitute an audit barrier, subject to regulatory decisions.
At the same time, there are still Foxconn customers, suppliers part of the same situation.Proposal shows that Foxconn top five suppliers Dell, HPE, Huawei is both its main customer, also appeared in the main supplier list.
On February 26, Baotai, a unit of Huatai Securities, pointed out that the overlap of customers and suppliers could easily confuse the financial clarity. 'For example, if a company wants to go public, it can set up a company that does not have a statutory relationship, but the actual control becomes Suppliers and customers to achieve performance mediation. '
The above investment bank close to Foxconn also said in late February that Foxconn is using a more processing model because its Foxconn customers sell their raw materials to Foxconn and repurchase it after processing, which is also common in foundries .
'Because brand manufacturers in the supply chain management is more powerful, so often also become the provider of raw materials,' the aforementioned investment bank frankly, 'and Foxconn is not the same as his customers, suppliers are large manufacturers, such related parties Credibility is more real and verifiable, and this does not constitute a material obstacle on the basis of good information disclosure.
In addition, Foxconn and the controlling shareholder of the backbone of the company there is also potential peer competition.Although the pre-IPO Hon Hai precision into similar operations Foxconn, but its controlling stake in Hong Kong-listed Tomita Hong (2038.HK) there are cell phones Foundry business, in addition there are two companies registered in Brazil also exist in electronic products manufacturing business.
In response, Hon Hai Precision, the backbone of the company has also made a commitment to avoid competition with the industry, and said other companies will not involve Foxconn's existing business, but also will enable rich Chi Kang gradually give up the original cell phone OEM business.
High revenue under the low margin
As the international foundry industry leader, 100 billion revenue Foxconn compared with the current most A-share listed companies can be absolutely heavyweight player.
Prospectus shows Foxconn revenue up to Rmb272.7bn, Rmb27.271bn and Rmb354.544bn, respectively, from 2015 to 2017. Comparing 2016 figures with the same period of previous fiscal year, Foxconn's revenue will rank among the 3,492 A-share comparable targets No. 14, second only to the central enterprises China Unicom (600050.SH).
This is clearly related to Foxconn's share of the global consumer electronics manufacturing market.
According to the IDC database, the global market for server and storage equipment manufacturing reached about US $ 35.3 billion in 2016, with Foxconn accounting for 40% of the market. The output value of the global networking equipment manufacturing market was about US $ 27.9 billion and Foxconn accounted for more than 30% ; Global telecommunications equipment manufacturing market output value of about 12.2 billion US dollars, accounting for more than 20% of Foxconn.
However, the market share advantage has not been able to hide its as a foundry's 'low margin' short board.
21st Century Capital Institute found through the prospectus that 2107 Foxconn consolidated gross margin was only 10.14%, compared with a slight decline in 2016.
Specific to the product category, its communications network equipment and cloud services equipment, gross profit margin was 15.88% and 4.64%; and its gross profit margin as high as 47.61% of precision tools and industrial robots, its revenue was only 65.1 billion yuan; difficult to The formation of its overall gross profit margin, which is also contributed to its net profit margin of only 4.48%.
Therefore, even with hundreds of billions of revenue, their net profit and operating net cash flow are mostly hovering below 20 billion yuan.
Prospectus shows Foxconn's net profit from 2015 to 2017 were 14.35 billion yuan, 14.366 billion yuan and 15.868 billion yuan respectively, while operating net cash flow was 8.579 billion yuan, 20.9 billion yuan and 8.5 billion yuan respectively.
In the same way, the Foxconn net profit of 14 in revenue rankings, with a net cash flow of just 27 and 42, respectively, were also compared horizontally with the 2016 figures.
Foundry model break the machine?
Although the gross profit margin is limited, Foxconn will be able to further enlarge its corresponding transformation opportunities with the help of its head market position and the current e-commerce environment if the listing is completed.
In the opinion of 21st Century Capital Institute, C2F (Customer to Factory) mode and C2M (Factory-brand mode), which emphasize direct contact between factories and consumers, are likely to provide a reference path for Foxconn's transformation. That is, foundries rely on the foundry capacity over the years to create or develop its own brand directly to consumers products.
In the field of consumer electronics, brands that often have direct access to end-customer channels have high gross profit margins. However, the factory brand model bypasses the traditional brands, distributors and other sectors and obviously can greatly improve the hairiness of manufactured goods Interest rates, and thus achieve the transformation.
However, this model also has many difficulties for Foxconn to be solved.
On the one hand, C2M and C2F modes have made breakthroughs in apparel, shoes and hats, furniture articles and other fields through the mobile Internet at present. However, electronic consumer products are different from daily necessities, and their hardware and software access thresholds are still high. However, The C2M and C2F models in this area are obviously more difficult to copy than other industries.
On the other hand, subject to the supply chain status, Foxconn foundry business processing mode, raw materials are mostly supplied by the brand business, while the high cost of independent improvement of the upstream supply system is also obvious.
Therefore, we observe Foxconn how to transition an important event to be referred to, that is, Foxconn parent company Hon Hai Precision Sharp Japan's acquisition.
Sharp's $ 3.5 billion acquisition of Sharp in 2016 was seen as an opportunity for Foxconn to accelerate the transition to branding, while Sharp itself fell into a loss trap, with Sharp loss before the acquisition in the fourth quarter of 2015 Reaching 247 billion yen.After Hon Hai precision control, Sharp has achieved profit for five consecutive quarters, of which 2017 fourth quarter profit reached 190 million US dollars.
Sharp integration of the value of the securitization is also gradually increased after the integration of profitability.On December 7 last year, Sharp returned to the main board of the Tokyo Stock Exchange market, to repair its market credibility and financing to play a catalytic role.
In our view, the Sharp acquisition also proves indirectly that in the process of C2C transition, the top-performing foundries will use upstream and downstream integration of capital markets will become an extremely important path, and Foxconn is now sprint IPO if completed It can also be reorganized and acquired the well-known brand names of electronic products both at home and abroad so as to realize the transformation from the foundry model and the improvement of the product gross profit margin.