The second IPO of Beijing Stock Exchange was withdrawn after passing. The subsidiary of Yonyou Network Technology (600588.SH) failed to list after splitting. The number of approved cancellations this year is 54, which is six times that of last year's total.

Since the normalization of IPO reviews in May, performance issues have become one of the key concerns for companies going public, with nearly 90% of companies facing related questions during their listing hearings. Last week, two IPOs that were terminated due to withdrawal both had negative net profits for themselves or their controlling shareholders, attracting regulatory scrutiny. Last week, the two withdrawn IPOs were both from the Beijing Stock Exchange, namely Shengru Technology and Yonyou Financial, with Shengru Technology sponsored by GF SEC and Yonyou Financial sponsored by Huatai United Securities. Both voluntarily withdrew, but the difference is that Shengru Technology applied to withdraw its listing from the Beijing Stock Exchange on August 22, with the approval date of the document being October 28, with a month gap between the application and the announcement. Yonyou Financial, on the other hand, withdrew alongside the sponsoring institution, making it the second IPO to be withdrawn after passing the review by the Beijing Stock Exchange this year, following Juhetech. It is worth noting that the number of IPOs that have passed and then terminated their review has increased significantly this year. As of November 24, 54 companies that have passed the review this year have chosen to withdraw, six times the number of companies that withdrew during the entire previous year. In terms of sectors, the majority come from the growth enterprise market. Will the negative net profits of the controlling shareholders affect the stable operation of the issuer? Yonyou Financial is actually a listed subsidiary of Yonyou Network Technology, a domestic software and cloud service provider, whose main business is to provide industry-specific smart products and technology services to various segments of the financial industry clients, as well as customized operation and maintenance services. Before the Beijing Stock Exchange announced the withdrawal of the company's listing, the parent company Yonyou Network Technology had already announced on October 15 its intention to withdraw the listing application of its subsidiary Yonyou Financial based on a comprehensive consideration of strategic development and changes in the capital market environment. Looking back at the long listing process, the issuer started its listing plan before the establishment of the Beijing Stock Exchange. On April 23, 2021, the issuer filed for guidance for listing on the innovation layer, was accepted on September 7 of the same year, and passed the review on August 29, 2023. However, the three-year listing journey came to an end with the withdrawal. Why did they choose to withdraw after passing the review? In the review opinions and hearing inquiries, questions were repeatedly raised about the negative performance of the issuer's controlling shareholder Yonyou Network Technology. According to the review opinions, Yonyou Network Technology achieved a revenue of 3.37 billion yuan in the first half of 2023, a year-on-year decrease of 4.7%, with a net loss of 885 million yuan, an increase of 598 million yuan from the previous year. In response to this performance, the company attributed it to factors such as increased personnel size, high R&D investment, business organization changes in the first half of the year, and seasonal revenue fluctuations. The negative performance of the controlling shareholder raises concerns about its impact on the issuer's continued stable operation. According to the final submission of the registration draft, the issuer's performance has been growing year by year from 2020 to 2022. In addition, as it operates independently, separate from the controlling shareholder and its affiliates, the issuer believes that the controlling shareholder's performance has no significant impact on its continued stable operation. It is worth noting that the issues between the issuer and the controlling shareholder go beyond this. In the responses to the previous three rounds of inquiries, questions were raised about whether there was unfavorable competition among subsidiaries as the issuer and its subsidiaries are both engaged in software and information technology services, and there were overlaps in competition for customers with some individual affiliated enterprises during the reporting period. Faced with the situation during the reporting period, the controlling shareholder provided relevant explanations and promised to take measures to separate new and old businesses. This may highlight the fact that the controlling shareholder's regulations on restricting the expansion of subsidiary businesses are not stable and effective enough. In the announcement on October 15, Yonyou Financial revealed that if the company chooses to restart its listing plan in the capital market in the future, it will promptly disclose relevant progress. The net profit of the issuer in the first three quarters was negative, suspected to be due to cross-period income. The other IPO from the Beijing Stock Exchange that was terminated was Shengru Technology, which had previously submitted a withdrawal application to the Beijing Stock Exchange on August 28. According to the prospectus, the issuer is a high-tech enterprise that provides information construction services to oil and gas field enterprises, government agencies, and small and medium-sized manufacturing enterprises, with business involving smart oil fields, smart cities, and industrial Internet, among others. Similar to the other IPO from the Beijing Stock Exchange mentioned above, the performance of Shengru Technology also drew regulatory attention. According to the responses to the third round of inquiries, the issuer's net profits were negative in the first three quarters, and the prospectus also disclosed a net profit of -2.8294 million yuan for the first quarter of 2023. Why did the situation of negative net profits occur? The company explained in the prospectus that there were more projects being implemented and more projects in the pre-acceptance stage in the first quarter of 2023. The negative profit in the first quarter was due to the seasonal characteristics of the industry, as most project acceptances are concentrated at the end of the year, and the revenue confirmation and profit levels in the first quarter are relatively low. As a result, the negative net profits in the first three quarters of 2023 led to project acceptances being concentrated at the end of the year, and revenue being concentrated at the end of the year. The revenue contribution in the fourth quarter was 79.10%, 77.45%, and 79.14%, with December revenue accounting for 57.84%, 57.04%, and 61.45%, respectively. In addition, the company recognizes revenue in stages, with work starting before contracts are signed. The company claims that the stage-by-stage acceptance of business complies with regulations and industry practices, and the acceptance/signature time matches the revenue recognition time, with no cross-period income in the fourth quarter. Regulatory inquiries into whether the issuer has cross-period income and the high revenue contribution in the fourth quarter were mentioned in each round of inquiries. This illustrates the high importance that regulators place on the accuracy and transparency of the issuer's financial reports. This article is reprinted from Caixin, GMTEight editor: Chen Wenfang.