Buke Co., Ltd. IPO "Double Oddities": Unjustified Capacity Concealment and Bizarre Related-Party Transactions

“Electric Eel Express” / by Yin Qutong

On October 14, the CSRC issued an announcement approving the registration for Shanghai Bokke Automation Co., Ltd. (hereinafter referred to as “Bokke Co., Ltd.”) to make its first public offering of shares on the STAR Market. However, after investigations by “Electric Eel Express,” Bokke Co., Ltd.’s IPO showed “two peculiarities”: first, it inexplicably concealed production capacity; second, it had bizarre related-party transactions.

In response to the relevant questions, “Electric Eel Express” sent a letter to Bokke Co., Ltd. seeking verification, but so far it has received no reply. What exactly did Bokke Co., Ltd. conceal?

Major products concealed 20% of capacity

According to the prospectus, for this IPO, Bokke Co., Ltd. plans to issue no more than 21 million shares, accounting for 25% of total share capital after the offering. It plans to raise RMB 271 million, which will be used for the production center technical renovation project, the intelligent manufacturing marketing services center construction project, the automation technology research and development comprehensive laboratory project, and replenishing working capital. Among them, the “production center upgrade and renovation project” will be implemented by the subsidiary Shenzhen Bokke.

As it is understood, Bokke Co., Ltd.’s main products include human-machine interfaces, servo systems, low-voltage frequency inverters, and programmable logic controllers (PLCs). In 2019, the reference production capacity for the above products was 250k units, 120k units, 24k units, and 22k units, respectively. The prospectus states that the basis for calculating reference capacity mainly relies on output that can be produced by direct production personnel within standard working hours according to standard operating times for each type of product.

However, according to the environmental impact report form (prepared in December 2019) for the “production center upgrade and renovation project,” it shows that before the implementation of this project, the design production capacity of Shenzhen Bokke’s low-voltage frequency inverters had already reached 30k units. That means the total production capacity of low-voltage frequency inverters of Bokke Co., Ltd. and its subsidiaries was at least 30k units, while the reference capacity disclosed in the prospectus was only 80% of that. If capacity is calculated at 30k units, then the low-voltage frequency inverter’s 2019 capacity utilization rate would drop to 83.50%.

Meanwhile, after the “production center upgrade and renovation project” is completed, the production capacities of human-machine interfaces, low-voltage frequency inverters, and programmable logic controllers (PLCs) will increase by 223.3k units, 17.6k units, and 95.9k units respectively, which are 89.32%, 73.33%, and 435.91% of the existing capacity disclosed in the prospectus. In particular, how the新增 capacity of programmable logic controllers will be absorbed needs especially close attention.

Related-party transactions for seven consecutive years

Based on observations by “Electric Eel Express,” in December 2014, Bokke Co., Ltd.’s former shareholders Huang Hualin, Ma Xuetong, and Zhu Hongfeng each signed a share transfer agreement with Chi Jiawu, transferring their respective holdings of 941.1k shares, 510.2k shares, and 299.5k shares to Chi Jiawu and exiting as shareholders of Bokke Co., Ltd. At that time, the Shenzhen Stock Exchange’s Examination Committee for the ChiNext Board considered that Bokke Co., Ltd. failed to sufficiently explain and disclose the reasonableness of continuous procurement or sales activities during the reporting period with the companies where the former shareholders and former employees were located, as well as the fairness of the transaction prices.

In its response letter, Bokke Co., Ltd. stated in reality that Ma Xuetong was a shareholder when Bokke Co., Ltd.’s predecessor, Bokke Co., Ltd. (Bokke Limited), was established in 2008. Huang Hualin and Zhu Hongfeng were indirect controlling shareholders of Bokke Co., Ltd., who were shareholders of Shenzhen Step-In entered in 2006. In 2011, Bokke Limited began planning the shareholding reform and listing matters. To optimize Bokke Limited’s equity structure, provide incentives for employees, and supplement the funds needed for the company’s development, the domestic natural-person shareholder who indirectly held shares also participated in subscribing for the additional capital contributions, allowing them to directly hold the company’s shares. Therefore, in 2011, Huang Hualin and Zhu Hongfeng became direct shareholders of Bokke Co., Ltd.

In 2010, Ma Xuetong, Huang Hualin, and Zhu Hongfeng successively left Bokke Limited and Shenzhen Bokke and began starting their own businesses. Based on interviews confirming Ma Xuetong, Zhu Hongfeng, and Huang Hualin, in December 2014, the three parties transferred all shares of the company that they directly held to Chi Jiawu. Ma Xuetong and Zhu Hongfeng planned to establish Shanghai Fan Yi Information Technology Co., Ltd. (hereinafter referred to as “Shanghai Fan Yi”) in March 2010, and the shareholder spouses of Ma Xuetong and Zhu Hongfeng were the equity holders; Huang Hualin increased capital and invested in Shanghai Fan Yi in July 2010 (and exited in October 2010). In 2011, Huang Hualin established Shenzhen Shengtaiqi Technology Co., Ltd. (hereinafter referred to as “Shengtaiqi”).

It is worth mentioning that over the past seven years, Bokke Co., Ltd. has consistently had related-party transactions with Shanghai Fan Yi.

From 2013 to 2019, the amounts Bokke Co., Ltd. sold to Shanghai Fan Yi were RMB 347.3k, RMB 623.5k, RMB 444.2k, RMB 75.7k, RMB 204.5k, RMB 47.3k, and RMB 20.1k, respectively; the amounts Bokke Co., Ltd. purchased from Shanghai Fan Yi were RMB 328k, RMB 499.9k, RMB 934k, RMB 180.2k, RMB 682k, RMB 934k, and RMB 367.8k, respectively, accounting for 0.47%, 0.59%, 1.24%, 0.18%, 0.40%, 0.50%, and 0.19% of the total procurement amounts of the period, respectively.

From 2017 to 2019, the amounts Bokke Co., Ltd. sold to Shengtaiqi were RMB 471k, RMB 167.1k, and RMB 22.5k in total, respectively, accounting for 0.15%, 0.05%, and 0.01% of the total sales amounts of the period, respectively.

“Electric Eel Express”

(Editor: Ji Liya HN003)

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