PCB News - Eaton Electronics: 3 major defects are obvious, IPO prospects are unpredictable

Eaton Electronics: 3 major defects are obvious, IPO prospects are unpredictable

Recently, Guangdong Eton Electronic Technology Co., Ltd. (hereinafter referred to as "Eton Electronics") publicly disclosed the prospectus (application draft) to the public in preparation for the IPO.
The IPO research office of "Tiantian Securities" learned that Eaton Electronics has been focusing on the manufacturing and sales of high-precision, high-density double-layer and multilayer printed circuit boards(PCB). This company ranks in the forefront of the domestic multi-layer board output and income. However, the shortcomings of this company are also very prominent, such as the concentration of equity, the lack of measures to deal with rising costs, and the flaws in equity incentives, which will cast a shadow on the road to listing.
Defect 1: The family absolutely controls
To some extent, Eaton Electronics is the company of the three Li brothers.
The prospectus data shows that Eaton Investment holds 98% of Eaton Electronics' shares and is in an absolute controlling position. Eaton Investment is a wholly-owned subsidiary of Gaoshu Co., Ltd. The three brothers Li Yongqiang, Li Yongsheng and Li Mingjun indirectly hold 98% of the company's shares through Gaoshu Co., Ltd. The three brothers, Li Yongqiang, Li Yongsheng and Li Mingjun, act in concert and jointly control the company and are the actual controllers of the company.
For this situation, the prospectus also admitted: After this issuance, Li Yongqiang, Li Yongsheng and Li Mingjun will collectively control 75.34% of the company’s shares and still absolutely control the company. If the actual controller uses its controlling position to exercise voting rights and other methods to control the company's personnel appointment and removal, business decision-making, etc., it may harm the interests of the company and the company's small and medium shareholders.
Some brokerage analysts pointed out that the China Securities Regulatory Commission pays more attention to family-owned companies with absolute holdings. However, for companies such as Eaton Electronics, where family members have absolute holdings, they are often taboo by the regulatory authorities.
Defect 2: Weakness in coping with rising costs

What is worrying is that it is difficult to judge whether Eaton Electronics can maintain its growth in the face of rising raw material and labor costs.
Prospectus data shows that in 2009, 2010, and 2011, Eaton’s operating income was 1,926,169,300, 2,63,339,100, and 2,863,050,100, respectively, representing a year-on-year increase of 36.93% and 8.52%. In the face of such a situation, according to common sense, most people would think that profits will also rise and increase the level of gross profit margin. But what is the reality? The data shows that gross profit has indeed increased. From 2009 to 2011, they were 547,803,300, 570,876,400, and 624,816,900, respectively, representing a year-on-year increase of 4.21% and 9.45%. However, the gross profit margin has fluctuated. From 2009 to 2011, they were 28.43%, 21.64% and 21.82%, respectively, and the decline was very obvious.
The prospectus explained that in 2010, the company's sales gross profit margin and net profit decreased compared with the previous year, mainly due to the fluctuation of raw material market prices, the company's price increase, and the increase in labor costs. At present, the company’s response to rising costs is to increase prices. For example, in 2011, the company’s operating performance has stabilized. The main reason is that the company has successively increased its product sales prices to major customers, offsetting part of the increase in raw material costs and labor costs on the company’s performance. Influence.
The problem is that in 2012, raw material prices and labor costs are still rising. According to public reports, Foxconn's labor costs have increased by 30% this year. Taking these two factors into account, Eaton Electronics may not escape negative growth. .
Defect 3: Lack of equity incentive measures
Edun Electronics has many shortcomings in equity incentives.
It is understood that the three brothers Li Yongqiang, Li Yongsheng and Li Mingjun hold 98% of Eaton Electronics through indirect shareholding. Zhongke Longsheng and Zhongke Hongyi hold 1.6% and 0.4% of the shares respectively.
Do Zhongke Longsheng and Zhongke Hongyi hold shares for company insiders? No. According to the prospectus, Zhongke Longsheng was established on March 13, 2007. Its registered address is 5107A, Zhuoyue Times Square, the intersection of Yitian Road and Fuhua Road, Futian District, Shenzhen. The legal representative is Ruan Weiqiang and the registered capital is 100 million. Yuan, the business scope includes direct investment in high-tech industries and other technological innovation industries, entrusted management and operation of venture capital, investment consulting business and industrial investment. Another institution, Zhongke Hongyi, is also a venture capital institution established on March 20, 2007, with a registered capital of 50 million yuan.
The current shareholding structure of Eaton Electronics is 98% owned by the Lee family, and two venture capital institutions hold the other 2%. The purpose of introducing these two venture capitals is to a large extent transformed into a Sino-foreign joint venture, which is considered for the convenience of listing in China. As for the company’s senior management’s shareholding, the prospectus confessed: Except for the three directors Li Yongqiang, Li Yongsheng and Li Mingjun, who indirectly hold the issuer’s shares through Eaton Investments, the company’s other directors, supervisors, senior management and core technical personnel and their close relatives There is no direct or indirect holding of company shares in the past three years.
In this situation, some market analysts pointed out that giving executives a certain amount of equity can strengthen their confidence in the prospects of PCB companies while also stabilizing the company’s personnel structure, which is beneficial to the development of the company. It is not known whether the two executives chose to leave in the early stage of the company's listing.