according to the statistics of the reporter of China Securities Journal, with the disclosure of the annual reports of Listed Companies in 2021, more than 40 annual report inquiry letters have been issued. Among them, since April, the regulatory authorities have issued nearly 20 annual report inquiry letters. Among them, ST company has become the focus of supervision
“the annual report is the most important part of the periodic report of listed companies.” A senior market person said that the post audit of the regulatory authorities on the periodic reports of listed companies reflects the consistent attitude of “strengthening enterprise risk control”. “Through inquiry, on the one hand, it can ‘demine’ the majority of small and medium-sized investors, on the other hand, it can urge relevant enterprises to actively rectify the problems involved and improve their business ability.”
focus on key financial data
The relevant operating data disclosed by some companies in their annual reports seem excellent, but in fact they can’t stand careful scrutiny.
Shanxi Zhendong Pharmaceutical Co.Ltd(300158) whose net profit increased by more than 8 times year-on-year in 2021 was questioned by Shenzhen Stock Exchange about the rationality of its performance. The annual report shows that the company’s operating revenue increased by 9.41 billion yuan in 20207, a year-on-year increase of 5.0%; The net profit was 2.617 billion yuan, a year-on-year increase of 898.92%. However, the net profit growth did not come from the core main business. After deducting non recurring profits and losses, the net profit was 134 million yuan, a year-on-year decrease of 25.93%.
For this huge contrast, the Shenzhen stock exchange requires the company to explain the reasons and rationality of the growth of operating revenue rather than the decline of net profit in 2021 in combination with the development of the industry, the competition pattern, the changes of upstream procurement costs, downstream terminal demand and the changes of sales volume, selling price and gross profit margin of main products.
An investment banker told reporters that the regulatory authorities pay special attention to whether the key financial data are true and reasonable in the review of the financial aspects of the annual report. If there are problems in this aspect, it will not only affect the image of the enterprise, but also affect the judgment of investors, but also bury hidden dangers for the future business sustainability of the enterprise.
Due to increasing income without increasing profit, Walvax Biotechnology Co.Ltd(300142) aroused great concern of the regulatory authorities. According to the annual report, the company achieved an operating revenue of 3.463 billion yuan in 2021, a year-on-year increase of 17.82%, but the net profit was 428 million yuan, a year-on-year decrease of 57.36%. From the perspective of various products, except that the income of 13 valent pneumococcal polysaccharide conjugate vaccine increased by 65.59%, the income of 23 valent pneumococcal polysaccharide vaccine and other products decreased to varying degrees. In this regard, the Shenzhen stock exchange requires the company to explain in detail the reasons and rationality for the increase of operating revenue and the sharp decline of net profit in 2021.
st company is concerned
For ST company, the regulatory authorities will pay more attention to whether there are mistakes in the company’s internal control and whether they are prepared to adjust income through related party transactions, so as to turn losses into profits.
Chalkis Health Industry Co.Ltd(000972) annual report shows that the revenue in 2021 is 174 million yuan, with a year-on-year increase of 659.61%. Among them, the revenue in the fourth quarter was 167 million yuan, accounting for 95.78% of the annual revenue. After deducting the revenue unrelated to the main business, the company’s revenue in 2021 was 166 million yuan.
In this regard, the Shenzhen stock exchange requires the company to explain the reason and rationality that the operating revenue is mainly concentrated in the fourth quarter of 2021, whether there is surprise transaction at the end of the year, whether there is cross period revenue recognition, and whether the relevant revenue recognition complies with the relevant provisions of the accounting standards for business enterprises.
Moreover, Chalkis Health Industry Co.Ltd(000972) in the annual report, many problems were found out by the regulatory authorities: whether it has the ability of continuous operation, the rationality of zero salesperson model, whether the provision of estimated liabilities for pending litigation is sufficient, etc.
Shandong Yabo Technology Co.Ltd(002323) with a huge loss of nearly 1 billion yuan in 2021 and relying on restructuring to eliminate delisting risk is also plagued by problems in performance authenticity, internal control and governance. From the inquiry letter of the annual report, the regulatory authorities comprehensively reviewed the company from the aspects of the specific calculation process of debt restructuring income, whether it has the ability of sustainable operation, whether the equity auction of subsidiaries is in compliance, and the estimated liabilities are not accrued in a number of lawsuits, which shows that they pay great attention to such high-risk enterprises.
“torture” capital operation
“Expanding the capital edition of listed companies is an effective way to promote performance growth, but too fast expansion can easily lead to performance stall and even be backfired.” The aforementioned investment bankers said that the unsatisfactory performance of the investment and M & A targets of listed companies will lead to the “torture” of the regulatory authorities, and the problems of goodwill, impairment provision of intangible assets and subsequent impairment risk are the common problems concerned in the annual report.
In 2018, Hainan Ruize New Building Material Co.Ltd(002596) purchased 100% equity of Guangdong lvrun by issuing shares. The performance commitment period of Guangdong lvrun is from 2017 to 2020. The four annual completion rates during the performance commitment period are 103.89%, 101.12%, 92.44% and 108.08% respectively, and the overall completion rate is 101.59%. However, according to the Hainan Ruize New Building Material Co.Ltd(002596) annual report, Guangdong lvrun achieved a net profit of 676376 million yuan in 2021, a year-on-year decrease of 67.34%, and the company made a provision for goodwill impairment of 650 million yuan.
After the performance commitment period, the rapid “face change” of performance has attracted great attention of the regulatory authorities. Shenzhen stock exchange requires the company to explain in detail the reasons and rationality of the sharp decline in performance after the performance commitment period of Guangdong lvrun, and whether there is any false increase in profits and cross period adjustment of profits in the early stage.
Combing more than 40 inquiry letters, it can be found that whether listed companies use goodwill impairment to adjust profits is a key concern of the regulatory authorities. They will ask whether relevant companies have improper operations such as earnings management and cross period adjustment.
