While a number of the Shanghai Stock Exchange Star board IPO candidates are looming on the horizon, the famously strict market regulator has shown its teeth: the bourse reportedly said no to Titan Technology (泰坦科技, A19017:SH) on September 26.
According to the exchange’s statement, the core business model of Titan is not innovative enough for this listing. At the same time, some questions regarding the firm’s technology arsenal were raised.
The SSE found that over 93% of the technology services provider’s operating income in 2016-2018, which was nearly CNY 2 billion (USD 280.21 million), came from sales of scientific research reagents, scientific research instruments and consumables. More than half of this revenue was gained by direct reselling of other companies’ products.
In short, the Listing Committee argues that although positioning itself as a "professional technology integration service provider," Titan is virtually a reseller.
Another pain point is the lack of competitive advantages. To be more precise, the bourse found none. According to the Committee, the issuer's business model isn't different from that of other Internet companies and logistics enterprises in terms of network design, platform development and warehousing.
A low R&D expense fortifies arguments against the firm’s sci-tech marketplace listing. Titan spent 4.62%, 4.35% and 3.24% to facilitate technological innovation in 2016, 2017 and 2018 respectively. By comparison, Chengdu-based DNA-encoded chemical library HitGen (先导药物, A19384:SH) – another applicant that represents the ‘scientific research and experimental development’ industry – invested more than 56% of its revenue in R&D over the last three years.
Designed to take homegrown tech to the next level, China’s ‘Star Market’ has way more diverse listing standards compared to other venues in Shanghai and Shenzhen. The brand new ‘registration-based’ system makes the IPO process smoother. However, it turned out to be a double-edged sword. If past experience is anything to go by, the regulator has left the room, but still watches from behind a one-way mirror.