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Recently, Huarong Chemical Co., Ltd. (hereinafter referred to a

Recently, Huarong Chemical Co., Ltd. (hereinafter referred to a

/

Recently, Huarong Chemical Co., Ltd. (hereinafter referred to as "Huarong chemical") announced the reply to the second round of audit inquiry letter, breaking through the gem into a critical moment.

Founded in 2000, Huarong chemical is an enterprise committed to the green recycling and comprehensive utilization of high-quality potassium hydroxide. The company's products are relatively single, and its main products are high-quality potassium hydroxide. The price fluctuation of raw materials has a great impact on the company's performance.

The reporter of Changjiang business daily noted that Huarong chemical, which has not implemented dividends for many years, paid cash dividends twice from 2018 to 2019, with a dividend of 380 million yuan and 100 million yuan respectively, and a cumulative dividend of 480 million yuan. During 2017-2019, the total net profit of Huarong chemical was only 180 million yuan. By the end of 2017, Huarong chemical had an undistributed profit of RMB 338 million, and by the end of 2019, there was only RMB 14.4169 million left.

Liu Yonghao, the leader of new hope, controls 95.50% of the shares of Huarong chemical in total and is the actual controller of the company. Based on this calculation, Liu Yonghao will get 458 million yuan in two dividends.

The main product potassium hydroxide contributes more than 90% of the gross profit

Changjiang Business Daily reporter noted that Huarong chemical's profits are too dependent on the main product potassium hydroxide.

According to the prospectus, from 2018 to 2020 (hereinafter referred to as the reporting period), the sales revenue of Huarong chemical potassium hydroxide products was 597.083 million yuan, 639.2754 million yuan and 600.5192 million yuan respectively, accounting for 109.13%, 100.25% and 94.38% of the gross profit respectively. Potassium hydroxide is the company's main source of profit.

In addition, the sales revenue of Huarong chemical chlorine products was 365.5388 million yuan, 386.1733 million yuan and 336.4647 million yuan respectively, and the gross profit margin was - 4.85%, - 0.38% and 2.95% respectively, basically in the state of profit and loss balance or slight loss.

The prospectus shows that the main raw material of Huarong chemical products is potassium chloride. During the reporting period, the cost of potassium chloride accounted for about 35% of the main business cost of Huarong chemical. The price fluctuation of potassium chloride has a great impact on the operating performance of the company.

Huarong chemical said that under the condition that the product price and other conditions remain unchanged, if the market price rise of potassium chloride causes the cost of potassium chloride to increase by 5%, the comprehensive gross profit margin of Huarong chemical in each period will fall to 17.17%, 21.72% and 20.06%, i.e. a corresponding decrease of 1-2 percentage points.

The reporter of Changjiang business daily noted that according to the data provided by Jin Lianchuang, the average price of the mainstream comprehensive quotation of domestic potassium chloride reached 4250 yuan / ton at the end of July and early August 2021, and the lowest quotation in the same period was 3850 yuan / ton. Based on the average price of 2315 yuan / ton, it was also 18.9% higher than the average price of 1946 yuan / ton in 2020.

Dai Li, an analyst at jinlianchuang chemical fertilizer, believes that the international demand for potash fertilizer is strong, but the domestic available supply is in short supply. Under the influence of supply and demand and raw materials in the short-term potassium chloride market, the potassium chloride market is dominated by high-level consolidation.

Huarong chemical said in the prospectus that benefiting from the growth of downstream demand for potassium hydroxide, the overall production capacity of the industry maintained a growth trend, including the new production capacity of existing enterprises such as youlide, and some small and medium-sized caustic soda production enterprises switched to potassium hydroxide to increase production capacity supply. The market competition has intensified.

Huarong chemical expects to realize the net profit attributable to the shareholders of the parent company of RMB 72.61-80.2 million after deducting non recurring profits and losses from January to September 2021, with a year-on-year change of - 4.78% to 5.18%.

Dividend of 480 million before IPO and multi-year profit

It is worth mentioning that during the reporting period, Huarong chemical also carried out two cash dividends to divide almost all the accumulated profits over the years, and the amount divided is close to the amount to be raised this time.

Huarong chemical, which has not implemented cash dividends from 2011 to 2017, conducted two cash dividends from 2018 to 2019, with a dividend of RMB 380 million and RMB 100 million respectively and a cumulative dividend of RMB 480 million.

During 2017-2019, the total net profit of Huarong chemical was only 180 million yuan. By the end of 2017, Huarong chemical had an undistributed profit of 338 million yuan, and by the end of 2019, there was only 14.4169 million yuan. It is worth mentioning that the total amount of these two dividends has reached 96% of the proposed fund-raising amount.

As of the signing date of this prospectus, Liu Yonghao, the head of new hope, held 51.22% and 48.78% of the shares of new hope chemical, the controlling shareholder of Huarong chemical, through the new hope investment group and new hope group controlled by him. Therefore, Liu Yonghao indirectly controls 95.50% of the shares of Huarong chemical and is the actual controller of the company. Liu Yonghao will get 458 million yuan for the two dividends.

The total amount of funds to be raised by Huarong chemical in this IPO shall not exceed 500 million yuan. After deducting the issuance expenses, it is proposed to be used for risk reduction, transformation and transformation project (phase I), disinfection and sanitary products capacity expansion and technical transformation project, smart supply chain and smart factory platform project and supplementary working capital.

After this issuance, Liu Yonghao's indirect holding of the company's shares is expected to be no less than 71.63%, and he is still the actual controller of Huarong chemical.

Changjiang Business Daily reporter also noted that during the reporting period, Huarong chemical's R & D expenses were 8.335 million yuan, 15.7382 million yuan and 8.9746 million yuan respectively, accounting for 0.86%, 1.52% and 0.95% of revenue respectively, lower than the average level of 1.74%, 2.17% and 2.32% of comparable listed companies in the same industry.

For the sharp increase in R & D expenses in 2019, the company explained that the main reason was that the R & D project of integrated application of reagent hydrochloric acid refining technology entered the pilot stage, with large investment during the period, and the R & D expenses decreased in 2020, mainly due to the R & D of calcium carbide slag phosphorus removal technology The R & D project of waste alkali liquor recycling technology and the R & D project of integrated application of reagent hydrochloric acid refining technology are coming to an end and completed. Other R & D projects are still in the early stage of R & D and less investment.

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