Securities code: Shenzhen Laibao High-Tech Co.Ltd(002106) securities abbreviation: Shenzhen Laibao High-Tech Co.Ltd(002106) Announcement No.: 2022015 Shenzhen Laibao High-Tech Co.Ltd(002106)
Reply to the notice of Shenzhen Stock Exchange
The company and the board of directors guarantee that the information disclosed is true, accurate and complete without false records, misleading statements or major omissions.
Shenzhen Laibao High-Tech Co.Ltd(002106) (hereinafter referred to as “the company”) the board of directors received the letter of concern on Shenzhen Laibao High-Tech Co.Ltd(002106) from the management department of listed companies of Shenzhen Stock Exchange on March 31, 2022 (company department concern letter [2022] No. 191). After consulting the audit institution – Tianjian Certified Public Accountants (special general partnership) and independent director Jiang Daxing’s reply to the relevant questions in the letter, The board of directors of the company has made a reply in accordance with the relevant requirements of Shenzhen Stock Exchange. The reply to this letter of concern is hereby announced as follows:
1、 Jiang Daxing is requested to explain in detail the specific contents of the letter of concern sent to the audit institution, including but not limited to accounting subjects, accounting treatment and audit issues, and explain the reasons for paying special attention to the above issues.
[reply]
On January 24, 2022, I sent the special attention letter on audit matters of Shenzhen Laibao High-Tech Co.Ltd(002106) annual accounting report (hereinafter referred to as “special attention letter”) to the audit institution of Shenzhen Laibao High-Tech Co.Ltd(002106) which involves seven issues: operating income, accounts receivable, inventory, monetary capital, construction in progress, asset impairment and other matters. The specific contents and reasons for the relevant questions I raised are described in detail as follows (among them, the reasons for questions 1 and 2 are closely related, so they are combined for explanation):
(I) reply to question 1, question 2 and the reasons for the question in the special attention letter
Question 1: please pay special attention to the accuracy, authenticity and rationality of the company’s operating revenue recognition. Since a large number of transactions of the company are international trade, the on-site investigation has certain limitations. Please take a variety of investigation methods (including but not limited to correspondence, telephone investigation, assistance of overseas branches of accounting firms (if any), investigation of transaction contracts and business vouchers, bank flow investigation, matching of cash flow and operating income, etc.) to verify the authenticity and accuracy of the company’s overseas sales revenue, In particular, whether the existing financial records on income have a real transaction basis and meet the requirements of accounting standards. At the same time, please also pay special attention to whether the company’s transaction arrangements are in line with commercial rationality and whether there are obviously abnormal arrangements, so as to accurately judge whether the company’s overseas transactions are true and whether the presentation of transaction revenue is appropriate.
Question 2: please pay special attention to the authenticity of the company’s accounts receivable. For accounts receivable with large amount, please conduct independent accounting and audit investigation when checking the written vouchers, instead of relying solely on the company’s judgment on the customer’s letter. Please independently conduct telephone investigation, the overseas branch of the accounting firm (if any) to assist in the investigation, the investigation of transaction contracts and business vouchers, the investigation of bank flow Comprehensively check the authenticity of the company’s accounts receivable in various ways, such as whether the cash flow matches the operating income. Please conduct a special audit and investigation on the authenticity of the transaction contract relied on by large accounts receivable to ensure that the company does not have fictitious transaction contracts and thus fictitious accounts receivable.
Reason for asking:
Overseas sales have always been an important part of Shenzhen Laibao High-Tech Co.Ltd(002106) business and source of revenue. Since the outbreak of the epidemic, I have been continuously concerned about the impact of the epidemic on Shenzhen Laibao High-Tech Co.Ltd(002106) overseas sales revenue. In 2019 and 2020, the sales revenue of Shenzhen Laibao High-Tech Co.Ltd(002106) , especially the overseas sales revenue, continued to rise. During the review of relevant annual reports, I kept asking Shenzhen Laibao High-Tech Co.Ltd(002106) the reasons for the continuous rise of its sales revenue and overseas sales revenue under the influence of the epidemic. At that time, Shenzhen Laibao High-Tech Co.Ltd(002106) ‘s explanation was that the epidemic had led to an increase in home office work, and product upgrading had stimulated the demand of consumers at home and abroad to buy relevant products.
During the review of the 2021 annual report, I noticed that the overseas epidemic situation was different, that is, the company office was resumed one after another, and the situation of home office was reduced. However, in this case, the sales revenue of Shenzhen Laibao High-Tech Co.Ltd(002106) continues to rise. At the same time, considering the particularity of overseas sales and geographical restrictions, there may be verification difficulties or restrictions on the actual operation of overseas customers, the actual circulation of goods, the actual acceptance of goods by customers and subsequent sales. The past administrative punishment cases of the CSRC have also reflected that other listed companies have used overseas sales to carry out financial fraud. At the same time, since I served as Shenzhen Laibao High-Tech Co.Ltd(002106) independent director, the accounts receivable of Shenzhen Laibao High-Tech Co.Ltd(002106) have also increased significantly in the past five years, from nearly 1 billion to 2 billion. In particular, the Shenzhen Laibao High-Tech Co.Ltd(002106) accounts receivable was about 1 billion in 2017 and remained between 1.2 billion and 1.3 billion in 2018 and 2019. However, in 2020 and 2021, it quickly climbed to 2 billion. Shenzhen Laibao High-Tech Co.Ltd(002106) implemented the management incentive fund system in 2020, and the income of the management is linked to the performance. Since 2020, the accounts receivable of Shenzhen Laibao High-Tech Co.Ltd(002106) have also increased significantly.
Therefore, in combination with the development of different epidemic situations and the continuous rise of Shenzhen Laibao High-Tech Co.Ltd(002106) sales revenue, its overseas sales revenue needs to be paid more attention. In addition, with the doubling growth of Shenzhen Laibao High-Tech Co.Ltd(002106) accounts receivable, I raise concerns about the audit of Shenzhen Laibao High-Tech Co.Ltd(002106) operating revenue and accounts receivable. It is hoped that the audit institutions can pay attention to the verification of relevant financial information in the audit process.
The core of the above two questions is that I hope the audit institution can pay attention to the verification of the authenticity of Shenzhen Laibao High-Tech Co.Ltd(002106) sales revenue, especially overseas sales revenue. It is suggested that in addition to the letter, it should adopt telephone, overseas institution assistance investigation, bank flow investigation and other methods to obtain more sufficient external audit evidence. At the same time, it is hoped that the audit institution will pay attention to the verification of Shenzhen Laibao High-Tech Co.Ltd(002106) large accounts receivable and fully ensure the authenticity and accuracy of operating income and accounts receivable information.
(II) reply to question 3 and reasons in the letter of special concern
Question 3: please pay special attention to the authenticity of the inventory of the company. For the authenticity of the inventory, please conduct on-site unpacking inspection on the inventory in different storage places during the specific inventory counting, and please inform the inspection rate of the inventory counting. Be sure to ensure the accuracy of the company’s inventory count.
Reason for asking:
I am concerned that the inventory of Shenzhen Laibao High-Tech Co.Ltd(002106) was 396 million in 2017, 530550 million in 2018 and 2019, 650 million in 2020 and 831 million in 2021.
Considering the rapid upgrading of electronic products, the company generally produces according to orders. If the sales market is good, the general inventory will not be too much. Considering the objective situation of the rapid increase of Shenzhen Laibao High-Tech Co.Ltd(002106) main business income from 2017, especially from 2020, I have expressed concern about the actual situation and reasons for the sharp increase of inventory amount. In addition, in law enforcement practice, there are also some listed companies whose product packages are not the actual inventory in the warehouse. Due to the failure of the intermediary to fully open the box for inventory, the listed companies’ falsification of financial data has not been found.
Based on this, I remind the audit institution to pay special attention to the authenticity of the inventory count, conduct on-site unpacking inspection on the inventory in different storage places, and hope it will inform the inspection rate of the inventory count.
(III) reply to question 4 and reasons in the letter of special concern
Question 4: please pay special attention to the authenticity of the company’s monetary funds, effectively implement the bank letter procedure, and control the whole process of letter issuance and recovery. In this regard, I agree with the key points of the audit. Please focus on the transfer of important accounts of monetary funds and capital restrictions after the period; Pay attention to the rationality of huge monetary fund balance, whether the deposit scale matches the interest income, and whether there is a phenomenon of “high deposit and loan”; Pay attention to whether there is undisclosed occupation of funds by related parties – especially the capital transactions between the company and Chongqing Laibao; Pay attention to whether the company has illegal guarantee; Whether the transaction amount does not match the specific transaction amount of the bill; Pay attention to the commercial essence of large advance payment and the authenticity of large overseas funds.
Reason for asking:
Based on the objective situation of the rapid rise of Shenzhen Laibao High-Tech Co.Ltd(002106) main business income in recent years and the attention to income, accounts receivable and other issues in question 1 and question 2, I understand that in addition to the audit procedures for income and accounts receivable, I can also conduct comprehensive analysis and verification of financial information from the perspective of monetary funds. Through cash verification, it can also confirm the true situation of cash flow of listed companies. In the practice of punishment by the CSRC, there are also many cases of illegal clues or behaviors of listed companies, such as “double high deposit and loan”, undisclosed fund occupation, undisclosed illegal guarantee, undisclosed fund restriction and so on.
Based on this, the special attention letter I sent to the audit institution lists the problems related to monetary funds, and suggests that the audit institution pay attention to the verification of the authenticity of monetary funds, such as paying attention to the control of bank letters, paying attention to whether there is capital restriction, whether there is the phenomenon of “double high deposit and loan”, whether there is illegal guarantee and so on.
(IV) reply to question 5 and reasons in the letter of special concern
Question 5: please pay special attention to the operation of the company’s projects under construction. In particular, the progress of the company’s transformation and upgrading of Nanshan plant area (due to the special attention of the minority shareholders of Nanshan project, the objection rate reached 83%. Therefore, please pay special attention to the relevant information of the project, including but not limited to whether the partners of the project are implemented, whether there are violations in the valuation of early cooperative assets (including but not limited to land and delivery houses), whether there are obvious business risks to be disclosed, etc.). Please pay special attention to Chongqing Laibao phase II construction (including the implementation of the budget, whether there are financial and construction violations), and Chengdu Laibao’s new investment of 250 million yuan in the construction of medium-sized liquid crystal display module (tft-lcm) project (especially whether the construction decision-making procedure of the project is compliant and whether there are violations). Please obtain the details of the company’s projects under construction, and pay special attention to whether the company’s projects under construction are inconsistent with the company’s overall production and operation plan or budget; Whether there are abnormal shutdown or long-term unfinished projects; Whether there is fraud through fictitious construction in progress projects or falsely increasing the cost of construction in progress; Whether the construction in progress shows signs of impairment; If it is determined that there are signs of impairment and an impairment test is required, the rationality and accuracy of the provision for impairment shall be.
Reason for asking:
Nanshan project is a project submitted by Shenzhen Laibao High-Tech Co.Ltd(002106) in 2021 to the board of directors for deliberation. I raised objections twice during the deliberation of the project.
For the first time, Shenzhen Laibao High-Tech Co.Ltd(002106) and another partner proposed to cooperate. When the relevant proposal was submitted to the board of directors for deliberation, I raised questions about whether the credit of the proposed partner passed the customs and whether the enterprise scale matched the project scale before the meeting of the board of directors by checking the enterprise credit information and other investigation channels Shenzhen Laibao High-Tech Co.Ltd(002106) the proposal was withdrawn at that time.
The second is the cooperation between Shenzhen Laibao High-Tech Co.Ltd(002106) and Zhengda Investment Group on Nanshan project. When deliberating the proposals involved in this cooperation, I found that only the land consultation report and the real estate value consultation report exist, not the appraisal report. In the practice of punishment, the CSRC has also made it clear that the real estate value consultation report cannot be equal to the asset appraisal report. The most fundamental factor for Shenzhen Laibao High-Tech Co.Ltd(002106) and Zhengda investment group to cooperate and obtain income is the fair evaluation and determination of the value of relevant land and real estate. For such an important factor, I think we should not use the consultation report as the basis for determining the value, but use the asset appraisal report. In addition, I think there are some problems in the project, such as the land value premium income of land use right transfer is not fully considered, the final implementation subject’s performance ability is difficult to judge, the controllability of cooperation risk and income is uncertain, and the fairness of cooperation return clause is uncertain. For this reason, I vote against the motion. Subsequently, the project was also submitted to the general meeting of shareholders for resolution. Among the minority shareholders attending the meeting, 838361% voted against the proposal.
I think Nanshan project is still the focus of my audit in 2021. Therefore, I suggest that the audit institution pay special attention to the operation of Nanshan project and the basis of early valuation. At the same time, considering that Chongqing Laibao phase II project and Chengdu Laibao project are also important projects under construction in Shenzhen Laibao High-Tech Co.Ltd(002106) 2021, it is recommended that the audit institution pay attention to them at the same time.
Considering the complexity and triviality of the construction in progress, I particularly recommend that the audit institution obtain the project details of the construction in progress, so as to fully understand the specific situation of the construction in progress and effectively implement the audit procedures. At the same time, I explained several important dimensions of the proposed audit institutions’ attention to the details of projects under construction.
(V) question 6 and reasons in the letter of special concern
Question 6: please pay special attention to whether the company’s asset impairment test is accurate and reasonable. Please indicate whether the company’s previous asset impairment method is compliant and reasonable. In particular, please pay special attention to whether the company considers the annual operating status and future profitability, and whether it considers the specific external and internal information of relevant assets, so as to determine the rationality and accuracy of the provision for impairment; Pay attention to the accounting treatment and disclosure of asset impairment of the company’s long-term unfinished projects under construction. In this regard, please pay special attention to whether there is any violation of decision-making procedures in the impairment arrangement of Chongqing Shenhua project, whether there is any illegal information disclosure made by the listed company before, and whether there is the responsibility for decision-making mistakes
Reason for asking:
The focus on asset impairment is due to the previous Chongqing Shenhua project. The decision of the project was made in Shenzhen Laibao High-Tech Co.Ltd(002106) 2016. At that time, the technical evaluation was considered as a feasible project, but the relevant information was not updated in recent five years. Until January 2022, Shenzhen Laibao High-Tech Co.Ltd(002106) submitted to the board of directors for deliberation, and the provision for asset impairment shall be made for this project. Based on the consideration of clarifying the risks of the project to the market as soon as possible, I voted in favour of the proposal. However, a letter of concern was sent to Shenzhen Laibao High-Tech Co.Ltd(002106) before voting.
For the specific reason why Chongqing Shenhua project will not be continued, Shenzhen Laibao High-Tech Co.Ltd(002106) explains that the photovoltaic module market is dominated by crystalline silicon products, while the main product of Chongqing Shenhua project is copper indium gallium selenium thin film photovoltaic cell module products, which are not competitive compared with crystalline silicon Cecep Solar Energy Co.Ltd(000591) photovoltaic cell modules. If the Chongqing Shenhua project continues, it will not only fail to make profits, but also lead to the inversion of income and cost, resulting in large losses
