Bozhon Precision Industry Technology Co. Ltd, a precision equipment and automatic production line producer located in Suzhou, 100 kilometers from downtown Shanghai, filed for an IPO at the Shanghai Stock Exchange’s (SSE) Star market on 30th October 2019.
Bozhon is a typical star company that is famous inside the industry – automatic production – but is a bit beyond normal consumers. Public-facing media has roughly labeled it as one of Apple’s Chinese providers, while, in both the manufacturing and investment industries, Bozhon is well-known as a leading automatic production solution provider.
A confident tech-star
Bozhon’s management team is very confident about the company’s daily operation and IPO process.
Bozhon has long been famous for not raising any venture funding. Its shareholders now only include the management team and LP funds for employees. People who are familiar with Bozhon describe the situation thus: “PE firms wait in line to have a chance to talk to Lv (Shaolin Lv, the founder of Bozhon), and he refuses most of the meets.”
The founder’s strong confidence comes from Bozhon’s outstanding performance in recent years.
Bozhon customizes automatic production lines for industrial customers. The selling of its automation devices (in number) increased 40%, annually compounded from 2016 to 2018. The top 3 largest customers of Bozhon in 2018 were Apple, NIO, and Foxconn.
The automation industry is highly technology-oriented. As a star company, Bozhon also highly focuses on technology research. According to its Prospectus, Bozhon had 1131 patents at the end of 2018. Its research expenses take around 10% of its sales revenue every year.
The upgrading of the Chinese manufacturing industry is the greatest push behind Bozhon’s recent success.
With the fast development of Chinese economy, the improving cost of labor makes Chinese labor-intensive industries less competitive compared with those in Southern-East Asia countries. Traditional manufacturing giants such as Foxconn are eager to replace most of their manpower with automatic production lines to improve productivity power and reduce costs. Tech giants from emerging industries are also prone to automated production -- automation is their lifeblood.
Chinese Industrial automation is inevitable. It is also the strongest support for Bozhon’s IPO.
Launching the Star Market
Past news shows that Bozhon has planned for an IPO since 2017. The sudden plunge of its net revenue in 2017, however, has hindered its plan. After its financial figures recovered to their normal levels in 2018, Bozhon successfully launched the SSE Star Market on October 30, 2019.
Based on its financial performance, Bozhon is eligible for being listed on all kinds of Chinese stock markets (Main-board Market, Growth Enterprise Market and SSE Star Market). It chose SSE Star Market for a potentially higher market value. As a brand-new stock market targeting Chinese Nasdaq, the Star Market can help companies with core technologies, like Bozhon, to seek more funding.
Bozhon plans to attract RMB 1.1 billion (USD 0.16 billion) by offering 40 million shares. Accordingly, Bozhon’s evaluation after the IPO will be approximately RMB 11 billion (USD 1.6 billion).
Bozhon describes in its prospectus the purpose of IPO financing as expanding existing production of automatic devices for the consumer electronic industry and starting new projects for the automobile industry and new energy industry automation.
The decision of entering the automobile and new energy industry is believed to be pragmatic, although quite sudden, given Bozhon’s long-term focus in the automation industry and negativity in hype.
A highly concentrated client base
Bozhon received concerns from institutional investors and analysts, as a formerly purely private company with little news before IPO.
Bozhon now has a high reliance on its main customers. For the past three years, the sales to Apple have taken around 50% of its total revenue. The top 5 customers generally take more than 80% of its sales revenue.
That is, Bozhon’s future growth will be strongly affected by big customers in the electronics industry, especially Apple. If Apple cannot hold a continuous increment of its product sales, the development of Bozhon will be strongly affected.
Bozhon has turned to Apple for a reason, of course. As a top consumer electronics producer, Apple releases new products frequently. The regular upgrading of its production line thus creates continuous sales for Bozhon. Also, only tech giants like Apple can have ample and stable budgets for its automation, which makes it the perfect customer.
Bozhon’s concentration in a single industry leads to more potential risks. Almost 90% of its products are applied in the consumer electronics industry. Although Future Market Insights (FMI) predicted a 15% compounded growth rate for the consumer electronic industry, all kinds of recession, such as the depression caused by the unanticipated coronavirus, can affect it and will then impact Bozhon strongly.
The cross-industry and high-tech characteristics of automatic production will benefit Bozhon in defending market volatility. As an industry requires comprehensive technology – i.e. mechanical engineering, electrical engineering, sensor system and information management – automatic production can be applied in a wide range of settings besides consumer electronics, including automotive, logistics, and photovoltaic. Bozhon is able to expand into the above markets with accumulated R&D and market experience and ample funding after IPO.