The journey of Takiing, a tire manufacturing company, seeking to go public has been anything but straightforwardInitially, in November 2022, Takiing submitted listing materials to the Qingdao Securities Regulatory Bureau, envisioning a leap into the A-share market with the help of China Merchants Securities as their counselThis was not the first attempt for Takiing, as a previous effort to list on the Hong Kong Stock Exchange was made in 2018 when the actual controller, Wang Chuan Zhu, along with associates, sought to establish a red-chip structureHowever, by the end of 2021, the company reevaluated its options and opted to move towards a domestic listing instead, which led them to the more recent efforts of 2022.
However, on January 4, 2024, Takiing shifted its focus once again, changing its intended listing from the Shenzhen Stock Exchange main board to the Beijing Stock ExchangeThe company stated that this decision was made after a strategic review, adjusting its plans based on developmental factorsSubsequently, Takiing was listed on the New Third Board on May 31, 2024, later making its way to the Innovation Tier on September 18, 2024.
The transitional stages faced by Takiing raise questions about whether the current push towards the Beijing Stock Exchange will yield positive outcomesInvestors and analysts are curious about the potential risks lurking in Takiing's business operations, particularly as the company has navigated these complexities.
Overseas Revenue Exceeds 70%
According to Takiing's prospectus, the company specializes in the design, research and development, sales, and service of tires for mining and constructionNotably, a significant portion of its revenue comes from overseas markets, accounting for over 70% of total incomeThis strong international presence spans over 100 countries across six continents, with about 80% of export sales connected to nations involved in the Belt and Road Initiative.
Interestingly, Takiing's business model is distinct from that of its industry peers
Advertisements
While many competitors engage in full production, Takiing operates primarily as an Original Equipment Manufacturer (OEM), focusing on design and management while relying on subcontractors for productionThis choice places an immense emphasis on Takiing's research and development capabilities and brand influence to stay competitive within the tire industry.
Over the reporting period from 2021 to 2023, Takiing has demonstrated robust financial growth, reporting revenues of 1.488 billion yuan, 1.803 billion yuan, and 2.031 billion yuan respectively, with net profits of 60 million yuan, 108 million yuan, and 138 million yuan for the same yearsIn the first half of 2024, revenues reached 1.087 billion yuan, representing a year-over-year increase of 11.85%, alongside a net profit surge of 11.13%.
Moreover, Takiing's gross profit margin has shown promising upward trends, increasing from 15.86% in 2021 to 20.47% in 2023, with a slight dip to 20.45% in the first half of 2024. Excitingly, this consistent growth prompted the National Small and Medium Enterprises Share Transfer System to raise questions regarding the sustainability of such margins and whether they aligned well with industry trends.
Despite these positive indicators, it is essential to note that Takiing's gross margin is fairly consistent with industry averagesCompanies like Triangle Tire, Sailun Tire, and Guizhou Tire have reported average gross margins in similar periods ranging from 15.59% to 22.12%, indicating that while Takiing is performing reasonably well, it is not setting itself apart strictly from its competitors in terms of profitability.
Risks Associated with the OEM Model
The reliance on the OEM model is relatively uncommon among domestic companies, largely leading to skepticism from regulatory bodiesParticularly concerned about whether this production model adheres to industry norms, the Small and Medium Enterprises Share Transfer System has expressed doubts.
Takiing's OEM strategy, while beneficial in some respects, brings about evident risks
Advertisements
Foremost among these challenges is the limited control Takiing has over the production processes compared to firms that manage the entire cycle themselvesThis necessitates establishing reliable supply chains and proficient supplier management to mitigate risksHowever, streamlining suppliers may inadvertently decrease the company's ability to withstand disruptions, thereby creating potential vulnerabilities.
A case in point is Takiing's long-standing partnership with Xingda Tire, a key manufacturer of engineering radial tires, which are among the company’s most profitable productsThe financial stakes with Xingda are significant, as it accounted for over 21% of Takiing's procurement as of 2021.
Yet, a downturn in Xingda's financial status, stemming from debt issues that began around 2018, poses serious implications for TakiingAs of the prospectus's signing date, Xingda Tire was undergoing a debt restructuring process, with its primary assets under court restrictionsDespite reassurances that this would not critically affect supply stability, the prospectus highlighted that instability at Xingda could indeed risk diminishing Takiing's performance in the short term.
Additionally, operating under the OEM model requires a steadfast commitment to innovation, something Takiing itself identifies as its core competitive edgeHowever, discrepancies are present; Takiing's expenditure on research and development (R&D) reveals a troubling trend.
R&D Spending Lagging Behind Industry Averages
From 2021 to the first half of 2023, Takiing's R&D expenses totaled 24.23 million yuan, 32.02 million yuan, 41.88 million yuan, and 24.98 million yuan respectivelyThese figures represent only 2.06% to 2.30% of revenues, notably lower than their industry counterparts, which ranged from 2.95% to 3.71% over the same timeframeMeanwhile, Takiing's selling expenses stood at almost double the industry average, raising concerns regarding its allocation of financial resources.
As Takiing embarks on another attempt to enter the Beijing Stock Exchange, its success remains uncertain
Advertisements
Advertisements
Advertisements