Changhua Chemical enters A shares again

Latest News: Recently, Changhua Chemical Technology Co., Ltd. (hereinafter referred to as “Changhua Chemical”) updated the company’s prospectus for applying for an IPO on the Growth Enterprise Market. It is worth mentioning that this is not the first time that Changhua Chemical has applied for an IPO. In December 2017, the company planned to be listed on the Shanghai Stock Exchange. Later, because its operating performance could not meet the audit requirements, it voluntarily terminated the listing process in September 2018.

According to the data, Changhua Chemical was established in 2010 and is a typical family-owned industry. The actual controllers of Changhua Chemical, Gu Renfa, Zhang Xiufen, Gu Qian and Gu Lei, control 79.07% of the company’s voting rights in total. Among them, Gu Renfa and Zhang Xiufen are husband and wife, and Gu Qian and Gu Lei are their children.

Changhua Chemical is a professional large-scale production enterprise of polyether series products in China. Its main business is the research and development, production and sales of polyether products. Its cooperative customers include automobile OEMs or their supporting manufacturers, multinational chemical companies, and household brands, etc. .

The company’s products include polyether for flexible foam, polyether for CASE and special polyether, among which polyether for flexible foam is the company’s main product, mainly POP and PPG products for flexible foam. From 2019 to 2021, the sales revenue of Changhua Chemical’s polyether series products for flexible foam accounted for 96.56%, 95.39% and 94.84% respectively.


It should be pointed out that during the period from 2017 to 2021, the supply of my country’s polyether market has continuously exceeded the market demand, and some large-scale polyether manufacturers have implemented expansion plans, including Changhua Chemical. In 2018 and 2021, in order to improve production capacity and product quality, Changhua Chemical will continue to invest in the construction of “65,000-ton polyether production line” and “35,000-ton polyether production line”.

However, for Changhua Chemical’s successive expansion of production, the Shenzhen Stock Exchange requires it to explain in detail whether the company has excess capacity or duplicate construction risks in combination with factors such as the market supply and demand of core products and the expansion of major competitors.

In terms of performance, from 2017 to 2021, Changhua Chemical’s revenue was 1.282 billion yuan, 1.491 billion yuan, 1.514 billion yuan, 1.878 billion yuan and 3.028 billion yuan respectively, and the deducted non-net profit was 66.7715 million yuan, respectively.
9.0718 million yuan, 42.3222 million yuan, 70.8994 million yuan and 85.524 million yuan.

It can be seen that in recent years, the company’s revenue has shown an upward trend, but the net profit has not been stable, especially in 2018, which has experienced a sharp decline, which is also the main reason for Changhua Chemical to terminate the previous IPO. For the sharp drop in the amount of non-net profit deducted in 2018, the explanation given by Changhua Chemical was caused by the frequent and large fluctuations in the market price of raw materials.

Changhua Chemical is in the fine chemical industry. The company’s products use propylene oxide, styrene, acrylonitrile, and ethylene oxide as the main raw materials, and its prices are affected by factors such as macroeconomics and market supply and demand. During the reporting period, the proportion of the above-mentioned four major raw materials purchased by the company to the total purchases for the current period was 86.61%, 88.58% and 88.09% respectively. If the price of main raw materials fluctuates sharply in a relatively short period of time, and the adjustment of the price of the company’s main products is not timely or sufficient, it will also have a greater impact on the company’s performance.

my country’s polyether industry has a low concentration, most companies have low product added value, and product competition is still dominated by price competition, resulting in fierce competition in the low-end market in the domestic polyether industry. In fact, from the extremely low gross profit margin of Changhua Chemical, it can be seen that it is not easy for the company to make money. From 2019 to 2021, the company’s comprehensive gross profit margins are 9.08%, 10.05% and 7.62%, respectively.

At the same time, Changhua Chemical expects to achieve operating income of 2.285 billion yuan to 2.526 billion yuan in 2022, a year-on-year decrease of 16.58% to 24.52%; net profit is expected to be 83.4797 million yuan to 92.2671 million yuan, a year-on-year change of -4.86% to 5.16% .

Regarding the instability of Changhua Chemical’s performance, the Shenzhen Stock Exchange requires the company to explain whether its production and operation are stable, and whether there are major uncertainties in its ability to continue operations, taking into account fluctuations in raw materials, industry cycles, and market share.

Comparing the information disclosed in the two IPOs, Changhua Chemical has made adjustments in the use of raised funds, which has significantly increased the demand for debt repayment and working capital. According to the previous prospectus, the company raised 331 million yuan, of which 100 million yuan was used to repay bank loans and 231 million yuan was used to expand the 100,000-ton/year polyol project.

In this IPO, Changhua Chemical plans to raise about 301 million yuan, of which 120 million yuan will be used to repay bank loans and 71 million will be used to supplement working capital, accounting for about 63.54% of the total disclosed fundraising investment; the remaining 109 million yuan will be used for information system construction, R&D center projects, and marketing network construction.


So, why is Changhua Chemical so short of money? In this regard, the explanation given by Changhua Chemical is that during the reporting period, the company was in the period of business expansion and project expansion, the capital demand was large, and bank loans were used for financing, resulting in a high asset-liability ratio. From 2018 to 2021, the debt ratios of Changhua Chemical’s assets were 70.31%, 59.55%, 56.03% and 48.06%, respectively, higher than comparable companies in the same industry.

The asset-liability ratio remained high, mainly due to the high balance of bank loans. From 2019 to 2021, Changhua Chemical Bank’s loans accounted for 72.4%, 64.34% and 54.53% of total liabilities, respectively. During the same period, the company’s interest expenses amounted to 14.977 million yuan, 11.4201 million yuan and 9.8406 million yuan respectively.

On the one hand, Changhua Chemical is facing certain debt repayment pressure and wants to alleviate it by raising funds; but on the other hand, the company uses a large amount of cash to purchase wealth management products, and compared with the interest generated by borrowing, the income generated by wealth management is quite a few. During the reporting period, the cash used by Changhua Chemical for investment payment was 828 million yuan, 350 million yuan, and 300 million yuan, respectively, and the investment income from the purchase of wealth management products was 1,077,200 yuan, 1,370,100 yuan, and 282,500 yuan.