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

“Electric Eel News” / By Yin Qiutong

On October 14, the CSRC issued an announcement approving Shanghai Busko Automation Co., Ltd. (hereinafter referred to as “Busko Shares”) to register its first public offering of stocks on the STAR Market. However, based on the investigation by “Electric Eel News,” Busko Shares’ IPO features “two oddities”: first, it inexplicably concealed production capacity; second, it has bizarre related-party transactions.

In response to the relevant questions, “Electric Eel News” sent a letter to Busko Shares seeking clarification, but to date it has not received a reply. What exactly did Busko Shares conceal?

Main products conceal 20% of production capacity

According to the prospectus disclosure, for this IPO, Busko Shares plans to issue no more than 21 million shares, accounting for 25% of the 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 construction of the intelligent manufacturing marketing service center, the comprehensive experimental project for automation technology R&D, and replenishment of working capital. Among them, the “Production Center Upgrade and Renovation Project” will be implemented by the subsidiary Shenzhen Busko.

It is understood that Busko Shares’ main products include human-machine interfaces, servo systems, low-voltage frequency converters, and programmable logic controllers (PLC). In 2019, the reference production capacity for the above products was 250,000 units, 120,000 units, 24,000 units, and 22,000 units, respectively. The prospectus states that the calculation basis for reference production capacity is mainly the output that can be produced by direct production personnel within standard working hours, according to the standard production times for various product types.

However, according to the environmental impact report table for the “Production Center Upgrade and Renovation Project” (prepared in December 2019), before the implementation of this project, Shenzhen Busko’s design production capacity for low-voltage frequency converters had already reached 30,000 units—meaning that the total production capacity of low-voltage frequency converters for Busko Shares and its subsidiaries is at least 30,000 units. The reference production capacity disclosed in the prospectus is only 80% of that figure. If calculated based on 30,000 units of capacity, then the production capacity utilization rate for low-voltage frequency converters in 2019 would fall to 83.50%.

Meanwhile, after the “Production Center Upgrade and Renovation Project” is completed, the production capacities of the human-machine interface, low-voltage frequency converters, and programmable logic controllers (PLC) will increase by 223,300 units, 17,600 units, and 95,900 units respectively, which are 89.32%, 73.33%, and 435.91% of the existing production capacity disclosed in the prospectus. In particular, how the newly added production capacity of programmable logic controllers will be absorbed warrants special attention.

Continuous seven-year related-party transactions

Based on “Electric Eel News”’ observations, in December 2014, Busko Shares’ former shareholders Huang Hualin, Ma Xuetong, and Zhu Hongfeng each signed share transfer agreements with Chi Jiawu, transferring their respective holdings of 0.9411 million shares, 0.5102 million shares, and 0.2995 million shares to Chi Jiawu and exiting as shareholders of Busko Shares. At that time, the GEM IPO review committee believed that Busko Shares failed to sufficiently explain and disclose the rationale for the procurement or sales transactions—continuously conducted during the reporting period—with companies where the former shareholders and former employees were located, as well as the fairness of the transaction prices.

In its written response letter, Busko Shares stated that Ma Xuetong was a shareholder when Busko Shares’ predecessor, Busko Co., Ltd., was established in 2008. Huang Hualin and Zhu Hongfeng are indirect controlling shareholders of Busko Shares—shareholders of Shenzhen Step Forward, who entered in 2006. In 2011, Busko Co., Ltd. began planning the equity restructuring and the listing. In order to optimize the equity structure of Busko Co., Ltd., provide incentives to employees, and obtain the funding needed for the company’s development, the domestic natural person shareholders in which the company indirectly held shares also participated in subscribing for the increased capital, allowing them to directly hold shares of the company. Therefore, Huang Hualin and Zhu Hongfeng became direct shareholders of Busko Shares in 2011.

In 2010, Ma Xuetong, Huang Hualin, and Zhu Hongfeng successively left Busko Co., Ltd. and Shenzhen Busko and started their own businesses. Based on interviews confirming Ma Xuetong, Zhu Hongfeng, and Huang Hualin, in December 2014, the three parties transferred all the company shares they directly held to Chi Jiawu. Ma Xuetong and Zhu Hongfeng planned to establish Shanghai Fanyi Information Technology Co., Ltd. (hereinafter referred to as “Shanghai Fanyi”) in March 2010, with the shareholders being the spouses of Ma Xuetong and Zhu Hongfeng. In July 2010, Huang Hualin increased capital and took a stake in Shanghai Fanyi (then withdrew 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, Busko Shares has always had related-party transactions with Shanghai Fanyi.

From 2013 to 2019, Busko Shares sold to Shanghai Fanyi amounts of RMB 347,300, RMB 623,500, RMB 444,200, RMB 75,700, RMB 204,500, RMB 47,300, and RMB 20,100, respectively. It purchased from Shanghai Fanyi amounts of RMB 328,000, RMB 499,900, RMB 934,000, RMB 180,200, RMB 682,000, RMB 934,000, and RMB 367,800, respectively, accounting for 0.47%, 0.59%, 1.24%, 0.18%, 0.40%, 0.50%, and 0.19% of the total purchases for the respective period.

From 2017 to 2019, Busko Shares’ total sales to Shengtaiqi were RMB 471,000, RMB 167,100, and RMB 22,500 respectively, accounting for 0.15%, 0.05%, and 0.01% of the total sales for the respective period.

“Electric Eel News”

(Editor: Ji Liya HN003)