Annual report inquiries closely focus on doubtful points, performance quality, etc. are focused on
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Since late March, many listed companies in the A-share market have received annual report inquiry letters, more than half of which are ST companies. Judging from the content of the inquiry, performance quality, asset impairment, etc. have received major attention from the exchange. Industry experts pointed out that the annual report inquiry letter is an important tool for exchange market supervision, which is conducive to improving the quality of information disclosure by listed companies and has positive significance in protecting the interests of investors and maintaining market stability.
Digging deeper into the authenticity of business performance
Regulatory information disclosed on the exchange website shows that as of press time, *ST Rongtai, *ST Xigang, *ST Lianshi, Renzhi Shares, Tianji Shares, Shentianma A, Huayang Transmission, *ST Jinyi and *ST Xin Nine listed companies, including Lianhe, have received annual report inquiry letters. The exchange’s inquiry covers operating performance, restructuring income, asset impairment, related transactions, commercial disputes and many other aspects. Among them, the operating performance of listed companies is still the focus.
For example, Renzhi Co., Ltd., whose photovoltaic business revenue increased significantly last year, was asked whether customer details and related income were true and accurate. The annual report shows that Renzhi Shares will achieve operating income of 208 million yuan in 2023, a year-on-year increase of 23.56%. The operating income deduction amount will be 521,300 yuan, and the net profit in 2023 will be -35 million yuan. In the annual report inquiry letter, the exchange required the company to report a list of the top ten customers and new customers in 2023, and explain whether the relevant income is true and accurate, whether there is any inter-temporal recognition of income, and whether it is incidental and temporary. The operating income that should be deducted and has no commercial substance and the basis for judgment.
The financial report shows that Renzhi will add photovoltaic EPC engineering business in 2022. This segment will achieve operating income of 18 million yuan in 2023, a year-on-year increase of 1540.83%. The exchange asked the company to explain the specific business model of photovoltaic engineering projects in the annual report inquiry letter. , combined with the photovoltaic engineering business implementation entities, qualifications, production and operation conditions, etc., explain whether the relevant entities have the ability to perform the contract, the reasons for the rapid and substantial growth of photovoltaic business income and its commercial rationality, whether the photovoltaic business has formed a stable business model, relevant transactions and main business Business relevance, whether it has commercial substance, and whether it is business income that should be deducted.
For another example, the Shenzhen Stock Exchange noted during the annual report review process that *ST Xinlian’s main business in 2023 was real estate business and cultural tourism comprehensive business, with gross profit margins of 17.97% and -8.60% respectively, down 18.68% and 18.68% respectively from the same period last year. An increase of 50.71%. In 2023, the company achieved operating income of 3.875 billion yuan, a year-on-year decrease of 26.23%, and a net profit attributable to shareholders of listed companies of 352 million yuan, a year-on-year increase of 110.30%. It achieved net profits attributable to shareholders of listed companies excluding non-recurring gains and losses. -2.992 billion yuan, a year-on-year increase of 2.71%. The net cash flow generated from operating activities was 573 million yuan, a year-on-year decrease of 13.94%. The Shenzhen Stock Exchange requires *ST Xinlian to explain why its operating income has declined for two consecutive years and its net profit after non-deductions has been negative for four consecutive years based on the company’s industry conditions, main business development, asset structure, solvency, etc. during the reporting period. Reasons, whether there are significant differences with industry trends and comparable companies in the same industry, and explain the reasons and rationality for the substantial changes in gross profit margins of real estate business and cultural tourism comprehensive business during the reporting period, etc.
Asking whether the conditions for “taking off the hat” are met
Recently, *ST Lianshi and *ST Jinyi both submitted applications for canceling delisting risk warnings and other risk warnings while disclosing their annual reports. In the annual report inquiry letter, the exchange asked whether the two companies’ sustainable operating capabilities and whether they meet ” Focused inquiries were made on the conditions of “reaching for the stars and taking off the hat”.
On the evening of March 19, *ST Lianshi issued the “Announcement on Application for Cancellation of Delisting Risk Warnings and Other Risk Warnings on the Company’s Stock Trading.” The annual report inquiry letter pointed out that from 2019 to 2023, *ST Stone Refining has suffered losses for five consecutive years. As of the end of 2023, the company’s uncompensated losses reached one-third of the total paid-in share capital. During the reporting period, *ST Stone Refining’s main business mainly came from its subsidiaries Gardner and Chengdu Hangyu. Gardner achieved operating income of 1,444.0198 million yuan and net profit attributable to shareholders of the listed company -85.0856 million yuan. Chengdu Hangyu achieved operating income of 75.898 million yuan. yuan, realizing a net profit attributable to shareholders of the listed company of 4.3339 million yuan.
The Shenzhen Stock Exchange requires *ST Lianshi to explain whether the basis for judging that major uncertainties that have caused major doubts about its ability to continue operating has been eliminated based on the operating conditions of the past five years and the performance of Gardner and Chengdu Hangyu in recent years; self-examination and explanation of the company one by one Whether any of the circumstances (1) to (4) of paragraph 1 of Article 9.3.11 of the Shenzhen Stock Exchange’s “Stock Listing Rules (revised in August 2023)” and any of the circumstances of Article 9.8.1 do not exist? Meet the conditions for applying to cancel delisting risk warnings and other risk warnings for stock transactions.
*ST Jinyi’s ability to continue operating has also attracted the attention of the Shenzhen Stock Exchange. The annual report shows that the company’s operating income has declined for four consecutive years. In 2023, it achieved operating income of 1.506 billion yuan, a year-on-year decrease of 17.39%; in 2023, it achieved non-net profit of -693 million yuan. In its annual report inquiry letter, the Shenzhen Stock Exchange required it to analyze and explain the company’s operating income for four consecutive years based on the company’s business development, industry competition, changes in factors such as gross profit margin and period expenses during the reporting period, and by classification of sales models. The specific reasons for the decline and non-net profit deduction for four consecutive years are significantly different from industry trends and comparable companies in the same industry. If so, explain the reasons and rationality of the differences. At the same time, combined with the progress of the company’s introduction of strategic investors and the substantive measures the company has taken to improve its main business in the period, it explains the implementation and effectiveness of the company’s management’s response measures to improve continued operations so far.
In response to *ST Jinyi’s application to cancel the delisting risk warning and other risk warnings on March 27, the Shenzhen Stock Exchange required it to self-examine item by item whether the company met the conditions for applying to cancel the delisting risk warning and other risk warnings for stock trading.
Pay close attention to asset impairment
Judging from annual report inquiries in recent years, asset impairment has always been one of the key issues that exchanges pay attention to. The reporter noticed that the companies that have received annual report inquiry letters basically involve asset impairment issues.
The annual report shows that the original book value of *ST Xigang’s fixed assets at the end of the period was 14.764 billion yuan, of which the original book value at the end of the period for machinery and equipment and buildings were 7.932 billion yuan and 6.334 billion yuan respectively. In 2023, the company only accrued impairment of RMB 50 million and RMB 83 million for machinery and equipment and buildings respectively. The Shanghai Stock Exchange requires the company to supplementally disclose the specific process of calculating the recoverable amount of various fixed assets, including the net realizable value of relevant assets, the selection of key parameters and the calculation process of the present value of expected future cash flows, etc., combined with the company’s steel business operating income and The gross profit margin continues to decline, explaining the basis for impairment provision, carefully assessing the impact of impairment of related assets on net assets, and fully warning of risks.
Many annual report inquiry letters involve the issue of goodwill impairment, which is a common concern among investors.
*ST Rongtai’s annual report shows that the company made a goodwill impairment provision of RMB 21 million for Senhua Yiteng in 2023, but the company did not make any goodwill impairment provision for Senhua Yiteng in 2022. The company expects Senhua Yiteng’s sales revenue growth rates to be 15%, 15%, 10%, 5%, and 5% respectively from 2024 to 2028. In the early stage, during the goodwill impairment test in 2022, the company estimated that Senhua Yiteng’s sales revenue growth rates from 2023 to 2027 were 18.25%, 18.73%, 15%, 10%, and 5% respectively. The company’s 2023 Internet The growth rate of comprehensive service operating income was 14.62%. The Shanghai Stock Exchange requires *ST Rongtai to supplementally disclose the basis and rationality of the company’s performance forecast for Senhua Yiteng, the specific time when signs of impairment of goodwill appear, and whether the data related to this goodwill impairment are consistent with the data of impairment tests in previous years. There is a big difference, whether the company’s goodwill impairment in 2023 is sufficient, and whether there is insufficient provision for goodwill impairment in the previous period.
The annual report of Tianji Shares shows that the company’s goodwill balance at the end of the reporting period was 1.774 billion yuan, accounting for 38.04% of the net assets. Among them, the acquisition of Jiangsu Xintai Materials Technology Co., Ltd. (referred to as “Xintai Materials”) generated goodwill of 2.319 billion yuan, with a cumulative total of 2.319 billion yuan. The amount of goodwill impairment provision amounted to 874 million yuan. The Shenzhen Stock Exchange requires the company to demonstrate and analyze the reasonableness of not accruing goodwill impairment provisions from 2019 to 2023 based on the operating environment, historical performance, changes in gross profit margin, orders on hand, existing production capacity and utilization rate of Xintai Materials. nature, and whether the accounting treatment for goodwill impairment complies with the provisions of the Accounting Standards for Business Enterprises.
In addition, the Shenzhen Stock Exchange noted that as of the end of 2022, *ST Lianshi had made a cumulative provision for goodwill impairment of 1.839 billion yuan for Gardner and Consett, and the company’s annual report showed that no provision for goodwill impairment was required in 2023. In this regard, the Shenzhen Stock Exchange required the company to explain whether the impairment of goodwill in the previous period was sufficient.
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