Source: Phoenix Finance "IPO Observation"

Golden eyes, silver teeth, copper bones.

There has always been a common saying in the medical service industry to describe the profitability of the three industries of eye and teeth. Among them, oral medical care has rigid demands such as caries repair and dental implants and orthodontic whitening needs, and has been regarded as a high-quality track with great investment value in the past. Shandong Huge Dental Materials Co., Ltd. (hereinafter referred to as "Huge Dental"), which plans to be listed in Hong Kong recently, is a member of this track.

Since 2017, Huge Dental has begun to try to sprint into the capital market, and has successively joined hands with China Merchants Securities, Haitong Securities, Zhongyuan Securities and Guojin Securities to promote the listing process, but it has failed one by one. Among them, during the "World War II" GEM, Huge Dental once entered the inquiry stage, but after responding to the Shenzhen Stock Exchange's inquiry, it voluntarily withdrew its application for listing. Until this year, Huge chose to "abandon A and convert to H" and hired CICC and DBS (DBS) as joint sponsors.

However, with the influence of specific factors such as centralized procurement and the dispersed market structure, the investment value of the oral medical industry has been re-examined by the market. In the past two years, the stock prices of listed companies such as Tongce Medical, Ruier Group, and Times Angel have fallen to low levels, and even the investment and financing behavior in the primary market has been greatly reduced. Against this background, Huge Dental Dental is also affected, with slowing down performance growth and suppliers’ "skepticism", can this listed "nail user" achieve his wish?

1. Performance slows down and "clearance" dividends

One piece costs 2-3 cents and costs 9 cents, but it is sold for 70 yuan when it reaches the terminal. This is one of the main business of Shanghai Ge Dental Dental, which is what people often call "desses" and "denses".

The huge difference between cost and terminal selling price makes the oral medical industry extremely profitable. In the past few years, the gross profit margin of oral technician products belonging to Huge Oral Synthetic Resin Teeth has reached 63%, which seems to be a good business. However, under the influence of centralized procurement in recent years, the price of dental implants has dropped sharply, and the low-price effect of synthetic resin teeth, which is regarded as a "affordable substitute" for dental implants, is no longer as prominent as before, and the market has been affected. In the first three quarters of 2024, the business of Huge Oral only increased by 0.56%.

Another main business of Huge Oral, elastomeric impression materials used for teeth and oral morphological replication (for subsequent repair and correction treatment), slowed down with the slowdown in the growth rate of the oral medical industry, and only increased by 14.71% in the first three quarters of 2024.

At the same time, in the oral medical industry, the orthodontic business, which is equally important with transplantation, has not developed well in Shanghai Ge Dental. As a non-necessary medical consumption, the orthodontic business has begun to flourish since 2014. Until the old foreign companies Yinshimei, the first-generation angel of the domestic industry and Zhengya have fought in multiple ways, which put Huge Oral in a huge competitive pressure. In recent years, the revenue scale is almost not much different from that in 2021, and even fell by 3% in the first three quarters of 2024.

These three businesses account for more than 60% of the revenue of Huge Ge Dental, which greatly affected its performance.

In 2022-2023 and the first three quarters of 2024, Huge Oral's operating income was RMB 280 million, RMB 358 million and RMB 304 million, respectively, with year-on-year growth of 37.98% and 6.58% in 2023 and the first three quarters of 2024 respectively; net profit in the same period was RMB 64 million, RMB 88 million and RMB 78 million, respectively, with year-on-year growth of 27.69% and 13.66% respectively in 2023 and the first three quarters of 2024 respectively.

In order to expand the market, consumables and equipment companies in the same industry, such as Huge Dental, are generally traveling overseas to make money in the international market. Huge Dental is no exception, with subsidiaries in the United States, Singapore and Indonesia. However, from the perspective of development history, Huge Dental's development overseas has not been smooth. After overseas revenue reached 106 million yuan in 2019, it experienced a sharp decline in two years. It did not improve until 2022. Although it has increased in the past two years, it has not yet reached the income level in 2019.

In fact, whether it is the setback of the orthodontic business or the unsuccessful overseas market, it is related to the insufficient "ammunition" of Shanghai Ge Dental.

Generally speaking, due to the high industry entry threshold, strong technical barriers, and product standardization, Huge Ge Dental is more likely to participate in market competition and open up global markets, forming a scale effect. However, as an upstream consumables company for oral medical care, Huge Oral is not high-end enough compared to upstream equipment companies, and the market competition is fierce. At the same time, the industry has a high demand for R&D and marketing. Whether it is R&D and developing new categories or opening up new markets, sufficient capital investment is required.

However, Huge Oral has always had relatively weak financial strength. At the end of 2021, Huge Oral's cash and cash equivalents were 158 million yuan. At the end of the first three quarters of 2024, Huge Oral's cash and cash equivalents were 116 million yuan.

Not to mention that at the beginning of the year, Huge Dental decided to pay a dividend of 161 million yuan on the eve of submitting its application for Hong Kong stock listing, exceeding the amount of cash and cash equivalents at the end of the first three quarters of 2024. It can be said to be a "clearance-style" dividend, which has triggered the market's doubts about whether it can operate normally in the future and whether it will enter the capital market to "make money".

2. The number of insured persons of the fifth largest supplier is 2

When applying for listing on the GEM, Huge Oral applied for exemption from disclosure of specific information of these three companies because three suppliers were key raw material suppliers of their main products. This IPO in Hong Kong stocks, Huge Dental continued and expanded this "tradition", and none of the top five suppliers and three of the top five customers have disclosed it. However, Phoenix Finance's "IPO Observation Side" discovered some "tricks" by comparing its previous prospectus and inquiry response letters.

From 2022 to 2023, the fifth largest supplier of Huge Oral is Company G. The company is headquartered in Dongguan City, Guangdong Province. In 2018, it cooperated with Huge Oral to provide silicone rubber raw materials for Huge Oral. Comparing the previous inquiry response letter information of Huge Ge Dental, and having met the three conditions of supplying silicone rubber in Dongguan, and cooperating with Huge Ge Dental in 2018, there is only one company - Dongguan Keyang Silicone Technology Co., Ltd. (hereinafter referred to as "Keyang Silicone"). The company was established in 2018 and immediately became a supplier of Huge Oral.

In the early GEM inquiry, the Shenzhen Stock Exchange asked Huge Dental to explain "the number, purchase amount and proportion of new suppliers of the issuer during the reporting period, whether there is a situation where it becomes the issuer's supplier in the year of its establishment or the following year." When responding to the inquiry letter, 2018 was included in the reporting period, but did not list the situation where Keyang silicone became a supplier as soon as it was established and became the top ten suppliers the following year. This is the first unreasonable thing about suppliers for Huge Dental.

However, this is early information after all, and it is possible to omit some information, but the unreasonableness of Silicone as a Shanghai pigeon oral supplier is not limited to this.

The second unreasonable thing is that industrial and commercial information shows that the number of people insured in Keyang Silicone in 2023 is 2, and this company with insurance scale has provided 4.525 million yuan of silicone rubber raw materials to Huge Dental. If this company pays social security due diligence to every employee, then Koyang Silicone will generate sales of more than 4 million in the number of two people, and the human-efficiency ratio has caught up with Alibaba, which is hard to see in manufacturing companies.

The third unreasonable thing is that the actual controller of Keyang Silicone is named Liu Jinhua, and there was a shadow shareholder named Liu Jinlan in Huge Dental. During the New Third Board listing, Huge Oral issued a targeted additional 7.6 million shares. Among the 2.38 million shares subscribed by former director Li Jun, about 74% of the shares were held for others, involving 57 "shadow shareholders". Liu Jinlan is one of them, and is a friend of Song Xin, the actual controller of Huge Oral.

Whether there is a special relationship between Liu Jinhua and Liu Jinlan will become an important basis for judging whether the transaction between Huge Ge Dental and Keyang silicone is reasonable, such as whether there is a real transaction between the two and whether there are special interest arrangements. In response, Phoenix Finance's "IPO Observation Side" has sent a letter to Hu Ge Dental to verify, and no reply has been received as of press time.