Gold in the sewage: An environmental monitoring SME focused on water lists in Shanghai

Bescient Technologies 碧兴科技 makes “smart” environmental measurement equipment mostly used to monitor the quality of surface water, but also sewage and other wastewater. Its customers are mostly government organizations.

The company uses Internet of Things technology (i.e. connected sensors) to transmit data from water monitoring stations to cloud platforms. As a small secondary business, the company also produces data collection equipment and Big Data processing software for public security agencies, although public security data monitoring has consistently accounted for less than 5% of the company’s total revenue.

Yesterday, the Shanghai Stock Exchange approved the company’s IPO application, and it will soon list on the Science and Technology Innovation Board (STAR market).

Bescient aims to raise around 413 million yuan ($59.23 million) by issuing 25% of its total share capital in the IPO, with which it wants to build a new research and development center, and implement two new big data environmental analysis projects.

Bescient Technologies by the numbers

From 2019, Bescient’s business has been on a steady upward curve:

• 2019: Revenue of 360 million yuan ($51.63 million) and net profit of 33.39 million yuan ($4.78 million);
• 2020: Revenue of 408 million ($58.52 million) and net profit of 44.75 million yuan ($6.41 million);
• 2021: Revenue of 573 million ($82.18 million) and net profit of 72.73 million yuan ($10.43 million).

The company’s forecast for the first three quarters of 2022 is slightly down from previous years, with revenue of up to 325 million yuan ($46.61 million), a year-on-year decrease of 9.94%, and net profit of up to 33 million yuan ($4.73 million), a increase of 7.37%.

One area of concern for the company is that its gross profit margin has declined over successive years, from 43.76% in 2019 to 32.28% in 2021. According to Bescient, this decline was due to new government procurement processes which require suppliers to undertake additional components of projects, including construction, installation, and testing of equipment.

Violation and punishment

Before its IPO application was approved, Bescient was required to explain its close links with another company that’s listed on the Shenzhen Stock Exchange: Beijing Originwater Technology 北京碧水源科技.

Originwater, which produces water purifiers and provides waste water treatment solutions, holds 16.3% of Bescient’s shares. Originwater has consistently been among Bescient’s largest customers, and was its largest single customer in 2021. Hé Yuànpìng 何愿平, Bescient director and chairperson that holds 53.78% of Bescient’s shares, worked at Originwater from 2005 to 2018. In its public statements to the Shanghai Stock Exchange, Bescient explained that Originwater uses domestically produced environmental monitoring equipment, and its many transactions with Bescient were “reasonable and necessary.”

Nevertheless, reporting on Bescient over the last few days has revealed that Bescient does have a few skeletons in the closet:

• The company has been punished six times by the State Taxation Administration, mostly for failing to complete tax submissions with the prescribed time limits.
• The company and its subsidiaries have been fined five times by environmental protection departments. For example, in September 2021, a subsidiary was fined 52,400 yuan ($7,516) in Hefei for failing to install and use adequate pollution prevention and control facilities.
• In 2021, another subsidiary was fined three times in Zhangzhou, Fujian Province, for failing to maintain equipment as required.
• Bescient is also currently facing multiple pending lawsuits. As a plaintiff, the company has sued two companies regarding contract disputes, and as a defendant, it has been sued for late delivery of goods.

The takeaway

Despite the red flags that suggest Bescient has a less than stellar track record, it produces technology that is fully aligned with key government priorities: cleaning up the country’s water and building an ecosystem of “smart” technologies.