One article helps LED companies figure out the "understanding" of the New Third Board market

The following is a brief analysis of the "development status and trends of the New OTC Market" by Li Xinmin, executive general manager of Guosen Hongsheng Venture Capital Co., Ltd. from his professional perspective. For reference only.

In his speech, Li Xinmin successively introduced the current status of industry distribution, operating status, financing status, market transaction status, and stratification of NEEQ companies. The National Equities Exchange and Quotations (commonly known as the "New Third Board") is China's third national securities trading venue approved by the State Council. It is reported that the establishment and development of the New Third Board is the cornerstone of establishing my country's multi-level capital market and the main starting point for promoting the implementation of the "mass entrepreneurship and innovation" policy. It is officially positioned as a market for public transfer and issuance financing of shares of unlisted joint-stock companies. That is, it provides stock trading, issuance financing, mergers and acquisitions and reorganization and other related services to listed companies, and also provides information, technology and training services to market participants.

In fact, the New Third Board has many similarities and differences with the Shanghai and Shenzhen Stock Exchanges and regional equity markets. First, let’s look at the similarities between the New Third Board and the Shanghai and Shenzhen Stock Exchanges: (1) They are both components of the multi-level capital market; (2) They are both national securities trading markets and are subject to unified supervision by the China Securities Regulatory Commission. The differences include: (1) The service objects are different. The NEEQ serves unlisted joint stock companies and mainly provides capital market services for innovative, entrepreneurial and growing small, medium and micro enterprises. The services of the Shanghai and Shenzhen Stock Exchanges are listed companies, mainly providing capital market services to mature enterprises; (2) The trading methods are different. The New Third Board currently mainly adopts two transaction methods: agreement transfer and market-making transfer. The Shanghai and Shenzhen Stock Exchanges mainly use trading methods such as continuous bidding and block trading; (3) investor access conditions are different. The New Third Board implements a more stringent investor suitability management system.

Next, let’s look at the similarities between the New Third Board and the regional equity market: (1) both are components of the multi-level capital market; (2) both mainly provide services for innovative, entrepreneurial and growing small, medium and micro enterprises. The differences include: (1) Different status. The New Third Board is a national securities market approved by the State Council and regulated by the China Securities Regulatory Commission. The number of shareholders of a listed company can exceed 200. Regional equity markets are generally established and managed by provincial local governments and are subject to Guofa [2011] No. 38 and Guobanfa [2012] No. 37. The number of shareholders of a listed company cannot exceed 200; (2) The trading systems are different. The New Third Board has no obstacles in choosing a trading system and can adopt continuous and standardized transactions. General shares in the regional equity market cannot be traded in subdivisions ("non-standard"), and the trading frequency must strictly implement T+5 ("non-continuous").

At the same time, it can be seen that compared with the GEM and the main board (including small and medium-sized boards), the New OTC Market has the following two significant characteristics: first, the entry threshold is low, and there are no high requirements for the profitability, equity and other financial indicators of the companies to be listed; second, the degree of marketization is high. In terms of listing, a true registration system is implemented, which greatly shortens the time required for enterprise listing.

Li Xinmin also talked about the current status of the industry distribution of enterprises on the New Third Board. He pointed out that in terms of industry distribution scale, as of March 14, 2016, the industry distribution of enterprises listed on the New Third Board was widely concentrated in information technology, industry, materials, and consumer discretionary industries. Among them, information technology had the largest number of listed companies, with a total of 1, 743 companies, accounting for 28.81%; followed by industrial enterprises, with 1,705 companies listed, accounting for 28.18%. Information technology and industry accounted for more than half of the total number of companies, which is in line with the national development strategy of integrating informatization and informatization; the number of companies listed in other industries is relatively scattered. Judging from the industry distribution characteristics, the companies listed on the New Third Board are mostly concentrated in technology-intensive high-tech enterprises, which further shows that the New Third Board is positioned to serve innovation, entrepreneurship, and small, medium and micro enterprises.

Let’s look at the specific operating status of New OTC companies. According to official statistics from the National Equities Exchange and Quotations, as of April 30, 2016, a total of 6,883 listed companies among the 6,945 listed companies that should disclose their 2015 annual reports have completed their annual report disclosures on time, and the remaining 62 companies that have not disclosed their annual reports on time have been suspended from trading. Judging from the annual report disclosure:

(1) In 2015, listed companies achieved a total operating income of 1,129.79 billion yuan, a year-on-year increase of 15.71%; a total net profit of 87.930 billion yuan, a year-on-year increase of 40.06%. Shows that corporate profitability has increased.

(2) From the perspective of profitability, 5,711 companies achieved profitability, accounting for 82.97%, which was basically the same year-on-year; among them, 4,532 companies achieved net profit growth, accounting for 65.84%; 3,892 companies achieved both revenue and net profit growth, accounting for 56.55%; 1,817 companies doubled their net profits, accounting for 26.40%. It shows that most companies have achieved performance growth.

(3) In 2015, the average operating income of listed companies was 164 million yuan, a year-on-year increase of 17.33%; the average net profit was 12.9365 million yuan, a year-on-year increase of 41.75%; the average net profit margin was 7.87%, a year-on-year increase of 1.36 percentage points; the average total assets were 282 million yuan, and the average net assets were 125 million yuan, a year-on-year increase of 29.87% and 48.95% respectively. After excluding the financial industry, the average operating income increased by 16.04%, the average net profit increased by 34.61%, and the average net profit margin was 6.71%; the average total assets and average net assets increased by 22.38% and 43.88% respectively year-on-year. It shows that the overall quality of listed companies is constantly improving.

What is the current situation of corporate financing on the New Third Board? According to reports, the New Third Board, which has experienced rapid expansion, has continued to grow in size in 2015. One of the significant signs is that the New Third Board's financing capabilities have been significantly enhanced: data released by the stock transfer system show that in 2015, the New Third Board issued 2,565 shares throughout the year, and the total financing amount reached 1,216 .17 billion, not only far exceeding the total financing amount of the New OTC Market in 2014 (only 13.209 billion yuan), but also increasing by 8.2 times year-on-year (at the same time, the number of listed companies increased by 2.26 times); it also surpassed the Growth Enterprise Market (Sinolink Securities Research Report stated that in 2015, the scale of additional funds raised by the Growth Enterprise Market was 115.63 billion yuan).

In the first half of 2016, although there have been more than 1,500 private placements in the New Third Board market, the total amount of funds raised has reached 67.134 billion yuan. However, according to Oriental Fortune Choice data, looking at single-month data, the financing amount on the New OTC Market in November 2015 was as high as 24.473 billion yuan, while the financing amount in December shrank rapidly, only 11.558 billion yuan, a drop of more than 50%; since entering 2016, The single-month financing level of the New Third Board has still not returned to its previous "heyday" period. From January to April this year, the single-month financing amount of the New Third Board has always remained in the range of more than 10 billion yuan. Especially in the past May, the single-month financing amount was 8.769 billion yuan, which was less than 10 billion yuan.

This shows that NEEQ financing has gradually entered a "cold winter" (since the Chinese securities market experienced an unprecedented stock market crash in the second half of last year, along with the decline in valuations, the financing function of the entire capital market has also weakened). But compared with GEM financing, the financing results of the New OTC Market in the first half of this year are not too bad. According to statistics from Oriental Fortune Choice, a total of 80 GEM companies completed private placement financing in the first half of this year, with a cumulative financing amount of 90 billion yuan.

In addition, relevant statistics show that, after excluding the financing of financial companies, the financing amount of New OTC companies in the first half of 2016 was 69.8 billion yuan, compared with only 20.4 billion yuan in the same period last year. In other words, compared with the same period last year, more funds flowed to the real economy this year. So which industries are easier to raise money on the New Third Board? The answer is the information technology and cultural media industries.

According to statistics, after excluding the financial industry, in the first half of 2016, there were a total of 140 companies with financing amounts of more than 100 million on the New OTC Market, and the total amount raised was 38.925 billion. From an industry perspective, the information technology industry has raised 8.334 billion yuan, ranking first (in fact, this is also the case without excluding the financial industry); the cultural media industry has raised 8.18 billion yuan, ranking second; the industries ranked 3-5 are basic chemicals, medical biology and mechanical equipment.

Then he pointed out the current trading situation of the New Third Board market. The trading activity of the New Third Board market has always been criticized. As of the first half of 2016 (June 30), there were a total of 7,685 companies listed on the New OTC Market. Among them, 4,747 listed companies had "zero" transaction records, accounting for more than 60% (61.77%), and all were transferred by agreement. "under his command"; among the remaining 2,938 companies with transaction records, a total of 1,406 companies used agreement transfer, accounting for 47.86%; a total of 1,532 companies used market-making transfer, accounting for 52.14%. According to statistics from Oriental Fortune Choice, in the 120 trading days in the first half of 2016, there were only 56 stocks with continuous trading records on the New Third Board, accounting for 0.73%. Among them, 53 were market-making transfers and 3 were agreement transfers. A total of 168 stocks on the New Third Board had a trading volume of more than 100 million yuan in the first half of the year.

It is also worth noting the stratification of the New Third Board. According to relevant standards, on June 24, 2016, the National Equities Exchange and Quotations Corporation announced the final list, with 953 companies entering the IPO innovation layer. According to statistics, from the official implementation of tiered management of the stock transfer system on June 27 to the first week of implementation on July 1, the transaction volume of the shares of innovative tier companies was 1.69 billion yuan, accounting for approximately 49% of the total transaction volume of 3.455 billion yuan that week; during the first week of stratification, the trading activity of the New OTC Market increased significantly, with the average daily trading volume increasing by 48% month-on-month, and the average daily trading volume increasing by 28% month-on-month.

Finally, from the overall development trend of the New Third Board, we can first see that the New Third Board will undoubtedly be the capital market with the fastest development speed and the largest number of companies in China's multi-level capital market. As of June 30, 2016, the number of companies listed on the New Third Board has exceeded 7,500, reaching 7,685, an increase of 2,556 companies from 5,129 last year. The number of new homes in just six months has reached 70% of the growth rate in 2015. With other factors remaining unchanged, according to this trend, the number of entrepreneurs listed on the New Third Board by the end of 2016 is expected to hit the "10,000" mark.

Second, the total market value of the New OTC Market is expected to exceed the total market value of the GEM in 2017. At the end of 2014, the total market value of the New Third Board was 459.1 billion yuan; at the end of 2015, the total market value of the New Third Board reached 2.46 trillion yuan, a year-on-year increase of 5.35 times; in 2016, the total market value of the New Third Board is expected to exceed 5 trillion. In 2014, the total market value of the GEM was 2.49 trillion yuan; It is expected that if the GEM IPO still cannot expand and no longer changes, according to the current development trend, the total market value of the NEEQ is expected to exceed the total market value of the GEM in 2017.