Investor Protection Series of Special Articles (2)

The registration-based system is a new track for listed companies!

Aier Eye Hospital Group, Wu Shijun

"Listen for the soundless thunder.

May 15th is the second 'National Investor Protection Day'. In this special period, it seems to add a different charm to the increasingly strengthened investor protection in China's capital market. The new Securities Law was implemented on March 1st, establishing a securities registration system for securities issuance in China's capital market. Perhaps due to the epidemic, the market's rapid promotion and deep impact of the registration system generally lacked sufficient preparation and in-depth consideration. Recently, the registration system reform of the ChiNext board has been announced, and it will promote incremental and stock reforms synchronously. Such a large scale is to accumulate experience for the implementation of registration system reform throughout the market. And the registration system ultimately focuses on protecting investors. Whoever protects the rights and interests of investors, investors will trust them, funds will flow to them, and the survival of the fittest in the capital market will be further intensified.

Reform is not without a trace. The new Securities Law clearly establishes the registration system, fundamentally changing the rules of the capital market game, strengthening market supervision, focusing on protecting the rights and interests of investors, and greatly increasing the cost of illegal activities. It has taken a qualitative step in marketization and legalization. Currently, there are less than 4,000 listed companies, and it is entirely possible for there to be tens of thousands of them in the future. It can be foreseen that the registration system is the new normal, and the listing or delisting of companies will become more common; the registration system is the weighing machine, which will more accurately measure the quality of listed companies; the registration system is the developer, and the information disclosure of listed companies must be more comprehensive and transparent.

Therefore, the registration system is a new race track for listed companies' competition. Listed companies and investors have a relationship like fish and water. If water is protected, fish will be protected. How to stay ahead and swim like a fish? This is a major issue faced by all listed companies.

Ⅰ.understand the new rules and establish new concepts.

The registration system centers on information disclosure, requiring listed companies to disclose information truthfully, accurately, and completely. The regulatory authorities do not make substantive judgments on the quality and price of securities. Under the registration system, the conditions for securities issuance have undergone a qualitative change, from the "sustained profitability" emphasized by the approval system to "sustained operation capability." This is a profound change in thinking because operational capabilities are more inclusive and diverse than profitability.

The new rules for listed companies' refinancing released on February 4, 2020, also followed the spirit of the registration system, canceling the requirement for two consecutive years of profitability and reducing the minimum pricing to 80%. The comprehensive and gradual implementation of the registration system is both proactive and prudent, reflecting the consistent thinking of gradual reform.

In fact, as long as an enterprise has sustained operational capability, it will inevitably have sustained profitability in the end. This is a relationship between process and outcome. However, many new economic models often require financing before achieving profitability, and the registration system solves this problem. Therefore, the issuer is required to fully disclose information, not to mislead the market even through "beautification."

To ensure that information disclosure is implemented, the Securities Law has established a corresponding punishment system, not only increasing the fines for fraudulent issuance, market manipulation, and insider trading by five to ten times but also introducing a special chapter and perfecting the civil litigation system, protecting the interests of investors and introducing China's characteristic collective litigation system, allowing investors to claim compensation together. Therefore, listed companies need to establish a new concept of compliance and information disclosure, put the protection of investors' rights and interests.

Ⅱ. Strong capabilities and standardized operations are essential

The significant progress made by the registration system is a market-based selection process that identifies listed companies' ability to protect investors, guides funds to flow towards high-quality enterprises, and promotes the development and transformation of the real economy. The Science and Technology Innovation Board, Growth Enterprise Board, New Third Board Selective Layer, Main Board, and Small and Medium-sized Enterprise Board will all be opened successively, and the number of listed companies will continue to increase. Only companies with good performance and standardized transparency will find it easier to list. The era when listing status meant unique opportunities has gone forever. The balance of the capital market is gradually shifting from listed companies to investors, and the group of listed companies must adjust their mindset and adapt to the trend by adopting new thinking and actions.

On the one hand, companies must adhere to their original aspirations and walk the right path to ensure compliant operations and returns for investors. Rolling up sleeves and working hard does not mean being reckless or impulsive. Listed companies must be respectful and "fear" not engaging in crooked and sinister activities, while "respect" refers to fully respecting investors from the bottom of their hearts and creating generous returns for them. For example, Aier Eye Hospital has been rated as "A" for information disclosure by the Shenzhen Stock Exchange for multiple consecutive years, and its cumulative cash dividends have exceeded twice the funds raised through IPO. The company's market value has reached 20 times that of its initial listing. On the other hand, companies must actively develop a harmonious shareholder culture and advocate for voting by hand. For instance, Aier Eye Hospital's annual shareholder meeting is like a carnival for investors, who come from all over the world to offer advice and suggestions for the company's development.

Furthermore, companies must adapt to new situations and develop new advantages. In addition to strengthening their main business, listed companies must pay more attention to investor relations (IR) and turn it into a competitive advantage to continuously gain the trust and support of more investors, increase the company's market value and shareholder value, and help implement the company's strategic plans. For example, in 2017, a large number of listed companies' private placements failed due to lack of subscriptions. Despite this situation, Aier Eye Hospital successfully issued new shares and introduced strategic shareholders such as Hillhouse Capital, which promoted the company's strategic development during a critical financing period. Respecting investors is a win-win situation for investors and companies and should be a rational choice for listed companies. Failure to do so will result in marginalization.

III. Adapting to the new normal, seeking new breakthroughs

Under the new registration system, listed companies must seek breakthroughs with wholehearted, whole-staff, and whole-process efforts to protect investors.

1. Practice long-termism and share weal and woe with investors

   
   

Listed companies should treat investors with sincerity and keep their original aspirations like Forrest Gump. Regardless of how the market changes, they should always stand with investors. In the more than ten years since its listing, Aier Eye Hospital Group has experienced several irrational and violent fluctuations. The company's controlling shareholders and chairman promptly increased their holdings with practical actions to demonstrate confidence to the market. During the outbreak of COVID-19 this year, the company seized both fighting against the epidemic and communication with investors, closely communicating with them through conference calls, online Q&A sessions, open letters, and other means, and deeply and objectively analyzing industry development trends and the company's business situation to effectively ease investors' anxieties. As the company's market value gradually recovered and reached a historical high recently, it effectively safeguarded investors' interests.

To promote rational investment, Aier Eye Hospital Group established and implemented the "National Hospital Investor Reception Day System" in 2019, allowing investors to go deep into the front line to learn about the development situation from hospital management. To promote long-term investment, the company's founder gave 100 shares to individual shareholders who had held 600 shares for six consecutive years last year (more than 300 qualified). To promote value investment, the company launched Chinese-English bilingual interpretation for periodic reports and major events to facilitate domestic and foreign investors' first-time understanding of important information.

The road ahead is long and winding, but one's mounts gather strength as one goes. Aier Eye Hospital Group has maintained a compound annual growth rate of more than 30% in the more than ten years since its listing, with transparent and standardized operations, winning the favor of the capital market. The company's investor team has gradually gathered many well-known public and private equity funds, world-class investment institutions, long-term individual investors, as well as the Central Huijin "national team."

  2. Make good use of the listing status to accelerate the development of the main business

After a company goes public, it is the real marathon long-distance running, and it is necessary to be good at using the capital market to strengthen the main business, rather than treating IPO fundraising as a one-off deal. Therefore, it is necessary to have a clear strategy and focus on what the company should do in the long run, as well as standardized governance to accumulate good market reputation. At the same time, we should be good at learning from other companies' successful experiences, paying attention to studying and using various financing methods such as public offering, targeted offering, rights issue, convertible bonds, and mergers and acquisitions and reorganizations around the main business. Companies should choose the best plan according to the actual situation and the opinions of intermediary agencies.

In large-scale mergers and acquisitions at home and abroad, the company's "eight-nation coalition," consisting of the securities department, investment department, business department, finance department, quality control department, human resources department, management department, and equipment department, considers future integration work during due diligence, empowering and integrating the merger and acquisition targets, significantly increasing the success rate of mergers and acquisitions, and realizing the organic combination of internal development and external expansion.

Using equity incentives, listed companies have natural advantages, and making full use of them is beneficial for talent pooling and overtaking in the curve. Aier Eye Hospital Group has successively implemented three equity incentives, with targets reaching 3,000 times, allowing core talents to share the fruits of the company's growth. Later, the company.

  3. Establish a united front and expand the "circle of friends"

One of the three magic weapons that our party used to achieve success in revolution and construction was the establishment of a united front. Similarly, for listed companies to continue to develop, in addition to serving customers well, they also need to be good at integrating various resources and expanding the "circle of friends" of various lines. For example, various investors are a key "united front target". Over the years, a large number of investors or their family members have become hospital customers, and have a deeper understanding of industry trends, company technology, and services. Over time, a trustful and long-lasting positive interaction has been formed between the listed company and investors.

The smooth development of a listed company is highly dependent on the support of various parties, including government departments, regulatory agencies, suppliers, listed company associations, various media outlets, investor protection centers, hospital employees, and partners. Listed companies must strive to be "model citizens" to gain more support from all parties. The performance of Aier comes from its own efforts and is also benefited from the help of various sectors. Therefore, since Aier Eye Hospital went public, it has simultaneously disclosed the "Social Responsibility Report" for 11 consecutive years when disclosing annual reports, reporting the company's contribution to society.

  4. Keep pace with the times, innovate, and make the company image more "three-dimensional"

Regardless of the industry, companies must adapt to the changes of the times. As a public company, listed companies must establish a close and harmonious relationship with mainstream media, and convey the company's characteristics, innovative points, and highlights from multiple perspectives to attract more investors. At the same time, listed companies should learn to use new media to enhance brand penetration, including platforms such as Douyin, WeChat public accounts, and self-media. Every moment and every place can be a potential source of inspiration. For example, we created a 10-second video for Valentine's Day:

"Dad asked his daughter, 'Why hasn't your boyfriend bought a house after dating for five or six years?'" The daughter confidently replied, "He bought Aier Eye Hospital stock!"

Through this vivid scenario, the audience naturally associates the company's good and continuous growth over the years, resulting in a high click-through rate. Listed companies are organic entities, and regular reports are far from enough. The company culture is what determines long-term development, and new media can vividly display it. For example, during the spring epidemic this year, more than 2,400 medical staff from Aier Eye Hospital volunteered to go to the front line of epidemic prevention in various places. This was not accidental because the company's two founders wrote a blood oath 35 years ago, requesting to bravely fight the enemy on the front line of Lao Mountain in Yunnan! We published "The Shocking Secret Revealed by Aier Eye Hospital's Undercover Old Employee for 16 Years about the Chairman and President" on self-media, revealing that this "reverse" spirit comes from the cultural gene of the company. Investors have responded with deep impressions.

In short, the registration system is accelerating its phased implementation, and the concept of investor protection is increasingly taking root. Integrity is the pass of honest people, and progress is the guidepost for those who move forward. We look forward to the group of listed companies sprinting fast and steadily on the new track, making high-quality development the main theme of China's healthy economic growth!

Release date: November 10, 2020