Southwest Securities Co.Ltd(600369)
About Jinyuan Ep Co.Ltd(000546)
Verification opinions on carrying out option hedging business
Southwest Securities Co.Ltd(600369) (hereinafter referred to as ” Southwest Securities Co.Ltd(600369) “) as a continuous supervision and recommendation institution for the non-public offering of A-Shares by Jinyuan Ep Co.Ltd(000546) (hereinafter referred to as ” Jinyuan Ep Co.Ltd(000546) ” company), In accordance with the measures for the administration of securities issuance and listing recommendation business, the stock listing rules of Shenzhen Stock Exchange, the guidelines for information disclosure of listed companies of Shenzhen Stock Exchange No. 6 – recommendation business, and the guidelines for self discipline supervision of listed companies of Shenzhen Stock Exchange No. 1 – standardized operation of listed companies on the main board, and other relevant provisions, The Jinyuan Ep Co.Ltd(000546) plan to carry out option hedging in 2022 has been carefully verified. The verification conditions and verification opinions are as follows:
1、 Purpose of carrying out option hedging business
Copper, gold, silver, palladium, platinum, tin, nickel, lead, zinc and other metal products are the main inventory products and main raw materials of the company’s subsidiaries Jiangxi xinjinye Industrial Co., Ltd. and Jiangxi Huiying Environmental Protection Technology Co., Ltd., and their prices fluctuate greatly, which has a great impact on the company’s production and operation. In order to reduce the adverse impact of commodity inventory and raw material price fluctuation on the company’s production and operation, the company plans to carry out option hedging business in 2022 to effectively avoid the risk of sharp price fluctuation.
2、 Development of option hedging business
The company’s option hedging business is limited to the futures contracts listed and traded in domestic futures exchanges such as copper, gold, silver, palladium, platinum, tin, nickel, lead and zinc related to the raw materials required for the company’s production and operation.
According to the commodity inventory and raw material demand of the company’s actual production and operation, and adhering to the principle of prudence, it is expected that the margin required for option hedging in 2022 will not exceed RMB 50 million. The funds within the above limit can be used on a rolling basis. The funds for option hedging business come from the company’s own funds accumulated in the process of production and operation.
The board of directors of the company authorizes the futures working group of the company to organize the implementation of option hedging business in accordance with the relevant provisions of Jinyuan Ep Co.Ltd(000546) hedging business management system.
3、 Hedging feasibility analysis
The company carries out the option hedging business of related metals for the purpose of avoiding the risk caused by the price fluctuation of commodity inventory and raw materials in production and operation, and does not carry out speculation and arbitrage transactions. In the actual operation process, as the company’s main commodity inventory and raw materials, the price of related metals fluctuates greatly due to the influence of supply and demand. In order to avoid the impact of price fluctuation on the company’s production and operation, the company plans to hedge in the futures market according to the principle of the same spot variety, close month, opposite direction and equal quantity, so as to lock in the cost of raw materials, Ensure the stability and sustainability of the company’s business performance.
The company has established a relatively perfect internal control and risk control system for commodity hedging business and has its own funds matching the transaction guarantee of the proposed hedging business. The company will strictly comply with the requirements of the guidelines for self discipline supervision of listed companies of Shenzhen Stock Exchange No. 1 – standardized operation of listed companies on the main board and the company’s hedging business management system, Implement risk prevention measures and operate prudently.
Therefore, it is feasible for the company to carry out option hedging business such as copper, gold, silver, palladium, platinum, tin, nickel, lead and zinc, which is beneficial to the production and operation of the company.
4、 Risk analysis
The company carries out relevant metal option hedging business on the principle of hedging and not for the purpose of arbitrage and speculation. It is mainly used to avoid various risks caused by the price fluctuation of raw materials, but there may also be the following main risks: 1. Market risk
Price fluctuation risk: due to certain systematic risks in the financial derivatives market, once the price forecast deviates during hedging, the effect of hedging business may be affected. 2. Capital risk
Futures option trading adopts the margin and mark to market system. If the market changes sharply, it may cause enterprise capital liquidity risk, and even be forced to close the position because it is too late to supplement the margin, resulting in actual losses. 3. Credit risk
In case of large-scale fluctuation of transaction price unfavorable to the counterparty, the counterparty may violate the relevant provisions of the contract, cancel the contract and cause losses to the company. 4. Technical and operational risks
Due to the abnormal operation of the trading system caused by uncontrollable or indispensable system, network and communication failure, the trading order may be delayed, interrupted or data error, which may cause losses to the company.
5、 Risk control measures taken by the company
1. Market risk countermeasures
Control measures: the company strictly implements the established hedging business management system and forms a reasonable judgment on the price trend through perfect internal control decision-making procedures; The company matches the hedging business with the company’s production and operation, and strictly controls the hedging position; The company’s transaction team operates in strict accordance with the approved hedging scheme, which is reviewed and supervised by the internal control department to ensure that the transaction risk is effectively controlled. 2. Capital risk countermeasures
Control measures: the company will reasonably allocate funds for hedging business, strictly control the capital scale of hedging, and reasonably plan and use margin. 3. Credit risk countermeasures
Control measures: the company will establish a customer’s credit management system, review the credit of the counterparty according to the relevant provisions and procedures of the company’s contract management measures before the transaction, and determine that the counterparty is capable of performing relevant contracts. 4. Operational and technical risk countermeasures
Control measures: the company will set up qualified trading, communication and information service facilities and systems to ensure the normal operation of the trading system and the normal development of trading work.
6、 Review procedures for carrying out option hedging business
The 11th meeting of the 10th board of directors of the company deliberated and approved Jinyuan Ep Co.Ltd(000546) proposal on subsidiaries’ carrying out option hedging business, the 9th meeting of the 10th board of supervisors deliberated and approved Jinyuan Ep Co.Ltd(000546) proposal on subsidiaries’ carrying out option hedging business, and the independent directors of the company have expressed their explicit consent. This proposal is within the decision-making authority of the board of directors of the company and does not need to be submitted to the general meeting of shareholders for deliberation.
7、 Verification process and opinions of the recommendation institution
After verification, the sponsor believes that the company’s option hedging business meets the actual business needs of the company and can reduce the impact of raw material price fluctuation on the company’s normal production and operation to a certain extent; The company has formulated the hedging business management system according to relevant regulations and actual conditions. The relevant business management system is relatively complete and has corresponding risk control measures; The company’s option hedging business has been deliberated and approved at the 11th meeting of the 10th board of directors and the 9th meeting of the 10th board of supervisors, and the independent directors have expressed their explicit consent, It complies with the provisions of relevant laws and regulations such as 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.
To sum up: the recommendation institution has no objection to Jinyuan Ep Co.Ltd(000546) carrying out option hedging business. (no text below)
(there is no text on this page, which is the signature page of Southwest Securities Co.Ltd(600369) verification opinions on Jinyuan Ep Co.Ltd(000546) carrying out option hedging business)
Signature of sponsor representative:
Jiang maozhuo, Chen Xianwen
Southwest Securities Co.Ltd(600369) January 21, 2022
