BAIC New Energy Approved for Backdoor Listing Still Faces Multiple Problems

Recently, SST Qianfeng issued an announcement stating that the company's major asset replacement, as well as the issuance of shares to purchase assets and raise supporting funds have been approved by the China Securities Regulatory Commission, which means that BAIC New Energy's "backdoor" listing has been approved by the regulatory authorities and is only awaiting the subsequent asset delivery.

As for when BAIC New Energy will complete its listing, Xu Heyi, chairman of BAIC Group, once told the media: "If it is fast, it will be completed in June, and if it is slow, it will be completed in July." Lian Qingfeng, deputy secretary of the Beijing New Energy Vehicle Party Committee, also stated at the China New Energy Vehicle International Cooperation Conference that BAIC New Energy will officially enter the capital market in the third quarter of this year.

Industry insiders said that after BAIC New Energy successfully goes public through a backdoor listing, it will become the "first new energy vehicle stock" on the A-share market.

Backdoor listing

BAIC New Energy's "shell-taking journey" began last year. In December 2017, SST Qianfeng issued an announcement stating that the Beijing State-owned Assets Supervision and Administration Commission agreed to transfer the 100% equity of Sichuan Xintai Ke held by Beijing Capital Asset Management Co., Ltd. to BAIC Group free of charge.

Sichuan Xintai is the controlling shareholder of SST Qianfeng, holding 41.13% of the total share capital. BAIC Group, which owns 100% of the shares of Sichuan Xintai, naturally becomes the controlling shareholder of SST Qianfeng.

It is worth mentioning that as of October 31, 2017, the valuation of 100% equity of BAIC New Energy was 28.85 billion yuan, but the audited book net assets were only 16.46 billion yuan. The assessed value-added was 12.39 billion yuan, with an appreciation rate of approximately 75%.

After listing through a backdoor listing, the market value of BAIC New Energy's A shares will become the sixth largest auto stock by market value after SAIC Group, BYD, GAC Group, Great Wall Motors and Changan Automobile.

Each with his own agenda

According to the announcement, BAIC New Energy suffered a net loss of 184 million yuan in 2015, and only achieved profitability in 2016, with a net profit of 110 million yuan, and a net profit of 39.244 million yuan in the first 10 months of 2017. According to relevant regulations, the A-share listing conditions include three consecutive years of profitability. Therefore, if BAIC New Energy follows the normal IPO process, it must ensure profitability in 2018 and will have the right to apply for listing in 2019.

In order to speed up the listing process, BAIC New Energy chose to "go through a backdoor listing".

SST Qianfeng was called Qianfeng Shares before it was delisted. Qianfeng Shares went public in August 1997 and transformed into the real estate industry in 2007, but its performance has been poor due to its lack of competitiveness. Qianfeng Shares is also one of the two "stock reform nail households" in the A-share market, and is one of the only two listed companies in the A-share market that have not yet completed the equity split reform.

Industry insiders said that SST Qianfeng's main business was almost completely suspended. It had suffered losses for two consecutive years in 2015 and 2016. In 2017, it relied on selling houses to cash out to keep its "shell" resources. BAIC New Energy, which wants to go public, has become a "lifeline" for SST Qianfeng. On the other hand, SST Qianfeng has little debt, with an asset-liability ratio of less than 40%. It is also state-controlled, making it an ideal "shell" for BAIC New Energy.

How long can the EC series models last?

In 2017, BAIC New Energy sold 103,199 vehicles, making it the first pure electric vehicle company in China to produce and sell more than 100,000 vehicles a year. Currently, BAIC New Energy has been the national pure electric vehicle sales champion for five consecutive years.

However, from the sales structure of vehicle models, the EC series sold 77,660 vehicles, accounting for nearly 80% of the total sales. The EC series is a low-end model of BAIC New Energy. The announcement shows that from January to October 2017, the average selling price of the EC series was 84,800 yuan, and the average subsidy amount was 43,700 yuan.

Jia Xinguang, an automotive analyst, told the International Financial News: "It is very dangerous for a single product to account for 80% of sales. This is what happened with Brilliance Auto, where a single SUV accounted for 80% of sales. Once the market changes, it is too late to adjust."

Therefore, industry insiders believe that as consumers' understanding of pure electric vehicle products continues to deepen and market demand gradually upgrades, a single product structure will find it difficult to adapt to market development, and there are certain risks in the development of new energy in Beijing.

Obviously, BAIC New Energy has realized this problem. In the announcement, BAIC New Energy claimed that it plans to launch modified and brand-new A0-class, A-class sedans and SUV products in 2018, and make improvements in sales structure, gradually reduce the proportion of A00-class models (i.e. EC series models), strive to increase the sales proportion of mid-to-high-priced products, and promote the upward development of corporate brand level and profit scale.

In addition, due to the sharp decline in new energy subsidies, BAIC New Energy's gross profit from sales from January to October 2017 fell from 630 million yuan in the previous period to 340 million yuan, a drop of 46%; the gross profit margin fell from 14.7% in the previous period to 9.99%. With the accelerated decline in new energy subsidies, many new energy vehicle companies, including BAIC New Energy, will face the risk of a cliff-like decline in profits.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.