Wanlian Securities Co., Ltd
About Zhejiang Huatong Meat Products Co.Ltd(002840)
Verification opinions on carrying out hedging business
Wanlian Securities Co., Ltd. (hereinafter referred to as “Wanlian securities” or “sponsor”) continuously supervises the sponsor as Zhejiang Huatong Meat Products Co.Ltd(002840) (hereinafter referred to as ” Zhejiang Huatong Meat Products Co.Ltd(002840) ” or “company”), In accordance with the requirements of relevant laws, regulations and normative documents such as the measures for the administration of securities issuance and listing recommendation business, the stock listing rules of Shenzhen Stock Exchange, the guidelines for self discipline supervision of listed companies of Shenzhen Stock Exchange No. 1 – standardized operation of listed companies on the main board, we have conducted prudent verification on Zhejiang Huatong Meat Products Co.Ltd(002840) carrying out hedging business. The verification results and opinions are as follows:
1、 Basic information of hedging business
(I) purpose of hedging business
The company is mainly engaged in livestock and poultry feed processing, livestock and poultry breeding, livestock and poultry slaughtering and deep processing of meat products. In order to avoid the potential risks caused by the price fluctuation of raw materials, the company plans to carry out hedging business, make full use of futures and option tools, reasonably avoid the adverse impact of the price fluctuation of raw materials on the operation, improve the operation level of the enterprise and ensure the healthy and sustainable operation of the enterprise.
(II) types of hedging business
The varieties of futures and options for the hedging business of the company are limited to the production and operation of relevant products or required raw materials, including Shenzhen Agricultural Products Group Co.Ltd(000061) futures and options such as soybean, soybean meal, soybean oil, palm oil, corn, starch, rapeseed meal, pigs, chicken and related OTC futures and options.
(III) proposed investment and business period
The company and its subsidiaries intend to use their own funds for hedging business. According to the actual needs of business, the total amount of funds invested by the company and its subsidiaries in hedging business (including margin, premium, etc., excluding physical delivery of futures subject matter) shall not exceed RMB 20 million. The investment period is 12 months from the date of deliberation and approval by the board of directors.
(IV) accounting policies and assessment principles
The accounting policies and accounting disclosure principles related to the hedging business of the company and its subsidiaries will be implemented in strict accordance with the relevant provisions of the accounting standards for business enterprises – recognition and measurement of financial instruments and the accounting standards for Business Enterprises No. 24 – hedge accounting issued by the Ministry of finance of the people’s Republic of China.
(V) feasibility analysis of hedging business
The purpose of the company’s hedging business is to avoid and prevent the operating risks brought to the company by the price fluctuation of raw materials required by the above company, and reduce the impact of its price fluctuation on the company. It does not carry out speculation and arbitrage transactions. The company has established a relatively perfect internal control and risk control system for hedging business, and has its own funds matching the funds required by the transactions to carry out hedging business. The company will implement risk prevention measures in strict accordance with the requirements of relevant provisions such as self regulatory guidelines for listed companies of Shenzhen Stock Exchange No. 1 – standardized operation of listed companies on the main board and internal control system for hedging business, Prudent operation. Therefore, it is feasible for the company to carry out hedging business, which is conducive to the production and operation of the company.
(VI) risk analysis of hedging business
The company and its subsidiaries do not carry out hedging business for the purpose of speculation, mainly to effectively avoid the impact of raw material price fluctuations on the company, but there will be certain risks at the same time:
1. Price fluctuation risk: when the futures market changes greatly, there may be price fluctuation risk and trading losses;
2. Capital risk: futures trading adopts margin and mark to market system, which may bring corresponding capital risk;
3. Internal control risk: hedging transactions are highly professional and complex, which may lead to risks caused by imperfect internal control system and improper operation;
4. Technical risk: technical risk may be caused by incomplete computer system;
5. Policy risk: the risk that major changes in laws, regulations and other policies of the hedging market may cause market fluctuations or inability to trade.
(VII) risk control measures
1. The company matches the hedging business with the company’s production and operation to hedge the risk of price fluctuation to the greatest extent.
2. The company strictly controls the capital scale of hedging, reasonably plans and uses the required funds, uses its own funds for hedging business, does not use the raised funds for hedging directly or indirectly, and strengthens the internal control of fund management, which shall not exceed the amount of funds approved by the board of directors of the company.
3. The company will focus on futures trading and reasonably select contract months to avoid market liquidity risk.
4. The company has formulated the internal control system for hedging business in accordance with the stock listing rules of Shenzhen Stock Exchange, the self regulatory guidelines for listed companies of Shenzhen Stock Exchange No. 1 – standardized operation of listed companies on the main board and other relevant provisions, and in combination with the actual situation of the company. The company will control all links in strict accordance with the internal control system for hedging business, At the same time, strengthen the professional ethics education and professional training of relevant personnel, and improve the comprehensive quality of relevant personnel.
5. The company will carry out accounting treatment in strict accordance with the relevant provisions of accounting standards for Business Enterprises No. 22 – recognition and measurement of financial instruments and accounting standards for Business Enterprises No. 24 – hedge accounting issued by the Ministry of finance of the people’s Republic of China.
6. The company will conduct hedging operations according to the needs of production and operation to reduce risks.
2、 Decision making procedures for performance
On March 22, 2022, the 18th meeting of the Fourth Board of directors of the company deliberated and adopted the proposal on carrying out hedging business, and all independent directors have expressed their independent opinions on the proposal.
3、 Verification opinions of the recommendation institution
After verification, the sponsor believes that under the premise of ensuring normal production and operation, the company’s hedging business is conducive to reducing the impact of price fluctuations, better avoiding the risks brought by raw material price fluctuations to the company’s operation and reducing the impact of price fluctuations on the company’s operating performance. The above matters of hedging business have been deliberated and approved by the board of directors of the company, and the independent directors have expressed their independent opinions with explicit consent, performed the necessary approval procedures, complied with the provisions of relevant laws, regulations and the articles of association, and the decision-making procedures are legal and effective. The recommendation institution has no objection to the company’s hedging business. (no text below)
(there is no text on this page, which is the signature page of the verification opinions of Wanlian Securities Co., Ltd. on Zhejiang Huatong Meat Products Co.Ltd(002840) carrying out hedging business) sponsor representative:
Ma Hui, LV Xiaonan
Wanlian Securities Co., Ltd
