Recently, the 17th China Development and Reform Commission of the China Securities Regulatory Commission held the 41st issue of the Audit Committee Working Conference in 2018, and Foxconn Industrial Internet Co., Ltd. (hereinafter referred to as "Foxconn Industrial") was approved.
On February 1 this year, Foxconn Industrial just submitted a prospectus for the prospectus. After only 36 days, their listing request has been approved, which is the new speed of the IP market in the A-share market.
However, the outside world has questioned the impact of Foxconn's impact on the A-share market. The reason is that the Securities Law stipulates that companies that have been in business for less than three years cannot enter the A-share market. In this regard, the prospectus also specifically mentioned in the "significant matters", Foxconn Industrial has applied for an exemption from the authorities.
This means that the biggest obstacle on the way to Foxconn's listing has been removed. At this point, they are moving towards the name of "the largest technology company in the A-share market."
Big Mac financial performanceTo become the largest technology company in the A-share market, it means that the market value of Foxconn after the listing will reach more than 340 billion yuan. At present, the most concerned about the outside world is whether Foxconn's business can support this ambitious blueprint.
According to the financial data of 2015, 2016 and 2017 provided in the prospectus, Foxconn's revenue showed a steady upward trend, with 272.8 billion yuan, 272.7 billion yuan and 354.5 billion yuan respectively; net profit was 14.35 billion. Yuan, 14.366 billion yuan and 15.86 billion yuan. It is worth noting that the company's net profit margin was 4.48% in 2017, which was the first time in three years to fall below 5%.
Now, the two technology companies with the highest A-share market value are Hikvision and 360. Their revenues in 2016 are 32 billion yuan and 9.9 billion yuan respectively, at least from the perspective of revenue, Foxconn Industrial The scale is much larger than the two companies. In terms of the entire A-share market, Foxconn's revenue in 2016 is also enough to rank in the top 15.
In addition, the prospectus also shows that in the parent company's income statement, the net profit in 2015 and 2016 is blank, which means that their profits in those two years are all from the combined profits. This also does not meet the company's general requirements for listing on the A-share market.
In parallel with revenue growth, Foxconn’s debt ratio is also high. In the past three years, Foxconn's total liabilities were 50.1 billion yuan, 58.2 billion yuan and 120.4 billion yuan respectively. Compared to 2016, their debt growth rate in 2017 reached 106.8%. According to the prospectus, this is due to the increase in the book value of accounts payable and other payables in current liabilities; specifically, the growth of business in 2017 also allowed Foxconn to increase the purchase amount of raw materials and equipment accordingly. The account has increased.
As mentioned in the prospectus, Foxconn's main business includes three aspects: communication network equipment, cloud service equipment and precision tools and industrial robots. From the perspective of business composition, communication network equipment is the most important business of Foxconn Industry. Since 2015, the revenue of this business has accounted for more than 50% of the company's total revenue.
The communication network equipment business includes Foxconn's business that has been known to the outside world for OEMs such as Apple. In 2017, Foxconn's new products designed for communication network equipment received a better market response, resulting in an increase in production. The revenue of the business increased by 45.28%.
In comparison, precision tools and industrial robots account for a relatively low income, which has been less than 1% for three years. This does not seem to reflect the nature of the "Industrial Internet" in its name. Therefore, the CSRC also stated in the feedback comments on the prospectus that Foxconn’s industry is required to supplement the disclosure of the company’s name including “Industrial Internetâ€, whether the titles are objective and accurate, and have sufficient basis.
In general, Foxconn has maintained a relatively steady development momentum over the past few years due to its relatively large revenue-generating communications network equipment. If this business can continue to rise, it will bring a lot of room for development for Foxconn industry. Zou Chaofu, an investment consultant of Changjiang Securities, predicted that the market value of Foxconn Industrial could even exceed 600 billion yuan.
Intricate relationshipsIf Foxconn can successfully land in the A-share market, this will further expand Foxconn's capital market in Greater China.
At present, Foxconn Group has two listed companies, namely Hon Hai Precision (TW.02317) listed on the Taiwan Stock Exchange and Fu Zhikang (HK.02038) listed on the Hong Kong Stock Exchange.
Among the two companies, Hon Hai Precision is the parent company of the Foxconn Group and the main body of the Foxconn Group. The listing of Foxconn Industrial is to separate the three businesses under Hon Hai Precision and inject a company called "Fujian Technology" under the Foxconn Group and seek listing separately in the A-share market.
According to the prospectus, Zhongjian is currently the largest shareholder of Foxconn Industry, with a direct shareholding ratio of 41.14% and an indirect shareholding ratio of approximately 28%. The backbone company is a wholly-owned subsidiary of Hon Hai Precision, which holds The former is 100% of the shares. Because there is no actual controller in Hon Hai Precision, there is no actual controller in the backbone company.
As for Foxconn Group's other listed company, Fu Zhikang, it is considered to have a horizontal competition with Foxconn.
According to public information, Fu Zhikang was listed on the Hong Kong Stock Exchange in 2005. Its main business is to provide a full range of manufacturing services for mobile phones and wireless communication devices, including design molds, product development, assembly and integration. As of December 31, 2017, Hon Hai Precision indirectly held a 62.78% stake in Fu Zhikang. A few days ago, they announced the financial data forecast for 2017, which mentioned that the company's revenue in 2017 will exceed 12 billion US dollars, an increase of 92%.
In response to the possible competition among the two companies, Foxconn's prospectus responded that Fuzhikang and Foxconn's mobile phone components are produced and sold to different brand customers, the former facing the mainland and the latter facing overseas customers.
In addition, there are also problems of horizontal competition, including two Brazilian companies under the Foxconn Group. They are engaged in the production and sales of set-top boxes and cable modules, as well as the production and sales of notebook computers, smart phones, servers and motherboards. Hon Hai Precision said that it will prompt Fu Zhikang to gradually eliminate the OEM services of overseas brands, and promised that the two Brazilian companies will not carry out other businesses similar or similar to Foxconn Industrial.
In addition to the above-mentioned existing problems, some hidden competition in the same industry may further affect the listing process of Foxconn Industrial.
At the end of 2017, India’s “Economic Times†reported that the Indian department of the Foxconn Group is looking for land and building a new mobile phone factory to produce smart phones for brands such as Nokia and Xiaomi in the Indian market. The planned production capacity will reach 30 million units per year. .
Once Foxconn decided to set up a new company in India to manage local mobile phone production and sales operations, it will inevitably lead to the same industry competition with Foxconn.
In the “Commitment Letter on Avoiding Horizontal Competition†issued by Foxconn Technology, this situation is a unified response: once the competition in the industry reappears, the business opportunity will be first provided to Foxconn Industry; Foxconn Industry will have priority Acquire or license the use of related assets and equity.
This means that in the future, Foxconn will take over the OEM business of overseas brands such as Apple Mobile in the Foxconn Group.
Giant in transformationThe long-term business relationship with Apple is undoubtedly the greatest value of Foxconn's market. But this does not mean that Foxconn can take this peace of mind.
As a commemorative version of the 10th anniversary of the iPhone, iPhone X has not been able to continue the good performance of similar products in the market. In November 2017, KGI analyst Guo Minghao once predicted that iPhone X will ship 80 million units throughout its life cycle; but in early 2018, he changed his optimism in a research report. In view, the overall shipment of iPhone X will be reduced to 62 million units. On February 1, Apple’s financial report also mentioned that the overall sales of the company’s products were less than expected.
The overall sluggishness of the smartphone industry has brought negative effects to Foxconn. In 2016, Hon Hai Precision’s financial report showed that its sales have shown signs of decline since the listing in 1991.
For the Foxconn Group, in the case that Apple’s products are not as attractive as before, how to quickly tear off the “Apple Foundry†label on their own, and increase the proportion of other businesses, maybe they will need to focus on them later. The problem.
Previously, Foxconn hoped to re-establish its image in the form of its own brand by acquiring famous brands such as Sharp and Nokia. Today, they are turning their attention to cutting-edge technologies such as artificial intelligence.
To this end, Guo Taiming himself has taken the lead in raising the banner of intelligence. At the January shareholder meeting, he said that "Hon Hai Precision will transform from hardware to software company."
Artificial intelligence is an area that Guo Taiming is optimistic about. Earlier in an interview with the media, he mentioned that the group will invest NT$10 billion (about 2.1 billion yuan) in the field of artificial intelligence in the next five years to recruit top talents and set up R&D centers.
In December 2017, Foxconn has already entered into an alliance with the artificial intelligence startup landing.ai established by former Baidu chief scientist Wu Enda. The latter will help Foxconn achieve the transformation of AI. Almost at the same time, they also voted for the C-round financing of the visual recognition company's contempt for technology.
After the completion of the listing process, although the main business is based on equipment manufacturing, Foxconn itself will also undertake some of the emerging technology research and development tasks of Foxconn. According to the prospectus, after the listing of Foxconn Industrial, the funds raised will be used to invest in eight projects including industrial Internet platform, cloud computing, and intelligent manufacturing industry upgrades, all of which are related to smart topics.
From the data of the prospectus, Foxconn's investment in scientific research expenditure can also be seen. Since 2015, Foxconn's R&D investment has been increasing its share of total revenue. In 2017, this ratio reached 2.24%. After that, based on the Group's increasing investment, it is expected that this number will continue to increase.
However, for Foxconn industry, neither the industrial Internet platform nor the intelligent manufacturing may bring them short-term visible benefits. In the “Unfavorable Factors†column of the prospectus, they also mentioned that the Industrial Internet is still in its infancy and there is no uniform standard. It is foreseeable that the successful development of the industrial Internet business will be an important factor in determining Foxconn's development of the ceiling in the A-share market.
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