Konka's annual report inquiry letter: unsalable consumer electronic products?

Zhongxin Jingwei, April 23 - On the 22nd, the Shenzhen Stock Exchange issued an annual report inquiry letter to Shenzhen Konka A (hereinafter referred to as Konka), requiring it to explain whether there are unsalable consumer electronics-related products.

Konka's impairment provisions for each year from 2019 to 2023 are 835 million yuan, 1.185 billion yuan, 1.75 billion yuan, 1.245 billion yuan and 1.017 billion yuan respectively. The impairment provision for 2023 includes a provision for inventory decline of RMB372 million, a provision for bad debts of other receivables of RMB254 million, a provision for bad debts of accounts receivable of RMB209 million, and an impairment provision of RMB107 million for long-term equity investments. Since 2019, the company has made large impairment provisions for the following assets: first, factoring business, which is overdue due to the difficulty of capital turnover of some enterprises, and accounts receivable impairment; Impairment of assets such as other receivables and accounts receivable from downstream customers.

In this regard, the Shenzhen Stock Exchange requires:

(1) Explain the specific situation of the company's factoring business, including but not limited to the amount of factoring business in each year, the main types of merchants, the level of interest rate charged, the balance that has not been recovered so far, the overdue amount and the repayment ability of the other party, the recovery measures taken and to be taken, etc., the time when the signs of impairment of factoring business assets occur, the amount of impairment provision in each year, the basis for provisioning, the impairment calculation process and reasonableness, and explain the background and feasibility analysis of the company's factoring business in combination with the cost of capital, business risks, etc. The decision-making process, the specific impact on the listed company, and whether the relevant decisions are prudent.

(2) The 2023 annual report (hereinafter referred to as the annual report) shows that Konka Huanjia has a sales contract dispute case with 38 companies, requiring the other party to return the advance payment and liquidated damages, involving the subject matter of the lawsuit of 890 million yuan. Please comprehensively sort out and explain the impairment of Konka Huanjia's related assets, including but not limited to asset class, impairment occurrence time, provision amount, basis for provision and impairment testing process, etc., combined with the difference between Konka Huanjia's business and the company's home appliance business, explain the company's investment in Konka Huanjia's background, decision-making procedures, post-investment management, the specific impact of Konka Huanjia's suspension of operation on the listed company, and whether the relevant decisions are prudent.

(3) At the end of 2023, the company's inventory book balance was 3.869 billion yuan, including the balance of inventory commodities of 2.637 billion yuan, the cumulative provision for inventory decline was 619 million yuan, and the book value was 3.25 billion yuan, a decrease of 26.3% from the end of the previous year. According to the annual report production and sales data, the inventory of the company's consumer electronics business in 2023 will be 810,000 units, an increase of 10.96% year-on-year. Please explain the orders in hand, the stocking cycle, the production cycle, the delivery agreement, the carry-over after the inventory period, explain the matching relationship and reasonableness of the changes in the inventory book balance and the total purchase amount, operating cost and inventory quantity during the reporting period, whether the relevant products are unsalable, and explain whether the provision for inventory decline is sufficient and reasonable, and whether the relevant accounting treatment is in accordance with the provisions of the accounting standards.

(4) At the end of 2023, the carrying value of the company's long-term equity investment was 5.566 billion yuan, including 58 investees, with a cumulative impairment provision of 420 million yuan, and the long-term equity investment of Yikang Technology Co., Ltd. and Shenzhen Kangyue Industrial Co., Ltd. this year made impairment provisions of 81.8065 million yuan and 24.9773 million yuan respectively. Please elaborate on whether the provision for impairment of long-term equity investment is sufficient, whether the company believes that other investee companies do not need to make provision for impairment, and whether the relevant accounting treatment complies with the provisions of accounting standards, taking into account the investee's business development, main financial data, comparison with the operating performance of comparable companies in the same industry, the main parameters of impairment testing and the basis for selection, etc.

At the end of 2023, Konka's book balance of other receivables was 3.063 billion yuan, and the cumulative provision for bad debts was 2.082 billion yuan, with a book value of 989 million yuan. According to the reply to the inquiry in the previous annual report, the main composition of other receivables at the end of 2022 includes Konka Huanjia's prepaid supplier deposit of 831 million yuan, energy-saving subsidy of 329 million yuan, large performance bond of 377 million yuan and advance payment, equity transfer payment, capital loan, etc.

In this regard, the Shenzhen Stock Exchange requires:

(1) Please explain in detail the specific reasons for the company's provision of 2.082 billion yuan of bad debts, the basis for the provision, the relevant accounting treatment and whether it complies with the provisions of the accounting standards for business enterprises in combination with the nature of the payment, the performance agreement, the collection measures, and the expected possibility of recovery. Ask the annual accountant to check and give a clear opinion.

(2) Please explain the internal control system related to the management of current receivables, evaluate its effectiveness, and compare industry practices, contract agreements, etc., analyze and explain the reasonableness of the company's other receivables with large amounts of bad debts, and whether the management is diligent and conscientious in the process of paying and recovering relevant payments, and take effective measures to safeguard the interests of the listed company.

Konka's account receivable book balance at the end of 2023 was 3.608 billion yuan, and the cumulative provision for bad debts was 1.882 billion yuan, with a book value of 1.727 billion yuan. According to the reply to the inquiry in the previous annual report, the company makes provision for bad debts based on the expected credit loss rate, and the expected credit loss ratio is determined as follows: the first step is to calculate the aging migration rate and average migration rate of accounts receivable in the last four years according to the historical aging data on the basis of the portfolio, the second step is to calculate the historical loss rate based on the average migration rate, and the third step is to calculate the expected credit loss rate based on the historical loss rate considering the forward-looking impact. In 2022, the expected credit loss ratios of accounts aged less than 1 year, 1 to 2 years, 2 to 3 years, 3 to 4 years, and more than 4 years are 2.01%, 10.13%, 25.58%, 66.76%, and 100%, respectively.

In this regard, the Shenzhen Stock Exchange requires:

(1) Please give an example of the specific calculation process of the migration rate, the expected credit loss rate of the company's accounts receivable in the past three years, combined with the calculation process, analyze and explain the changes in aging data, migration rate, average migration rate, historical loss rate, forward-looking adjustment and other factors, the basis and reasonableness of the company's adoption of the above calculation methods, whether it conforms to industry practices, and whether the relevant accounting treatment conforms to the provisions of the accounting standards for business enterprises.

(2) Please explain the level of bad debt provision for the company's accounts receivable compared with the industry situation, and further explain whether the company has relaxed the credit policy or sold to customers who do not have the ability to pay, and whether the relevant revenue recognition is true and accurate, combined with the amount of revenue recognition, the proportion of credit sales, the collection situation, and the accumulated provision for large amounts of bad debts.

Konka is mainly engaged in consumer electronics, memory chip trading and semiconductor business, and makes profits through the difference between product cost and selling price. From 2019 to 2023, the company's audited net profit attributable to shareholders of listed companies (hereinafter referred to as net profit) in each year will be 212 million yuan, 478 million yuan, 905 million yuan, -1.47 billion yuan (adjusted), and -2.164 billion yuan respectively, and the net profit for the whole year of 2023 will decrease by 47.15% year-on-year, of which the investment income for each year will be 1.183 billion yuan, 2.433 billion yuan, 4.217 billion yuan, 936 million yuan, 675 million yuan, and the government subsidies included in the current profit and loss were 1.205 billion yuan, 909 million yuan, 1.352 billion yuan, 916 million yuan and 265 million yuan respectively.

In this regard, the Shenzhen Stock Exchange requires:

(1) Please quantitatively analyze the main factors, impact and reasonableness of the net profit loss in combination with the main business development, product production and sales, cost composition and raw material prices, operating costs, period expenses and other factors, and whether the company's performance changes are consistent with the industry change trend and the performance changes of comparable companies.

(2) Please give a detailed description of the company's foreign investment, including but not limited to the main investment methods, sources of income, operation and management mode, whether the investment benefits are consistent with expectations, whether the relevant accounting treatment is in line with the provisions of accounting standards, combined with cash flow situation, debt situation, financing channels, capital costs and other factors, analyze and explain the reasons and reasonableness of the company's large investment income as a production and sales enterprise, whether it is in line with industry practice, and combined with the investment decision-making procedures, investment time, The actual rate of return, etc., further illustrates the necessity and reasonableness of the relevant investment.

(3) The company's deferred income is a government subsidy, and the book value at the end of 2023 is 425 million yuan, an increase of 26.96% from the end of the previous year. Please explain the amount, reason, specific arrival time, whether the effective conditions are attached, the time of revenue recognition, the basis and accounting process of the government subsidy included in the current profit and loss, and whether the relevant accounting treatment complies with the provisions of the accounting standards for business enterprises.

(4) Please explain whether the company's profitability depends on non-main business income, and the specific impact and countermeasures of the reduction of investment income and government subsidies on the company's current and future operating performance in light of the above situation.

Konka will achieve operating income of 17.849 billion yuan in 2023, a year-on-year decrease of 39.71%. According to the "industry situation" part, in recent years, China's color TV market has entered the era of stock, and the upgrading of the white electricity market has been accelerating, according to the statistics of Aowei cloud network, the retail volume of China's color TV market in 2023 will be 31.42 million units, a year-on-year decrease of 13.6%;The retail volume of refrigerators, washing machines, and air conditioners in the white appliance industry will be 38.31 million units, 40.05 million units, and 156.946 million units, respectively, a year-on-year increase of 1.5%, 3.4%, and 10.4%.

In this regard, the Shenzhen Stock Exchange requires:

(1) The company's consumer electronics business sales volume in 2023 will be 10.7 million units, an increase of 4.09% year-on-year, and the production volume will be 10.8 million units, an increase of 9.87% year-on-year. Please analyze and explain the specific reasons and reasonableness of the inconsistency between the company's production volume, sales volume and operating income change direction, whether the above changes are consistent with the industry development trend and the income changes of comparable companies, whether the optimization of the business structure has achieved the expected effect and follow-up improvement measures, combined with the company's current consumer electronics business segment product type, revenue proportion and changes, product positioning, sales price range and changes, orders in hand, main market capacity and market share, etc.

(2) According to the sales model, the company's distribution revenue was 12.284 billion yuan, direct sales revenue was 5.566 billion yuan, and the total sales expenses incurred this year were 1.145 billion yuan, of which the remuneration of sales personnel increased by 7.21%, the promotion fee increased by 8.53%, and the warranty fee increased by 3.03%. Please combine the company's sales model, the proportion of sales expenses in operating income, the cost of obtaining sales contracts, the number of sales personnel and changes in per capita wages, etc., and compare the sales expense rate in the same industry, analyze and explain the specific reasons for the inconsistency between the company's sales expenses and revenue, whether the promotional measures have achieved the expected results and follow-up improvement measures.

(3) Please explain the revenue recognition policy according to the subdivided products, including the time point of revenue recognition, the basis for recognition, the original documents and vouchers, and clearly explain whether the revenue recognition is true and accurate, and whether the relevant accounting treatment complies with the provisions of the accounting standards. Ask the annual accountant to check and give a clear opinion.

The gross profit margins of Konka color TV, memory chip trade and semiconductor business in 2023 will be -1.02% and -1.06% respectively, and the gross profit margin of white electricity business will be 10.97%, according to the cost composition data, the operating costs of color TV, memory chip trade and semiconductors and white electricity business will be 4.757 billion yuan, 3.433 billion yuan and 3.79 billion yuan respectively, a year-on-year decrease of 6.4%, a decrease of 66.94%, and an increase of 7.58%.

In this regard, the Shenzhen Stock Exchange requires:

(1) According to the reply to the inquiry in the previous annual report, the decline in the gross profit margin of the company's color TV business in 2022 is mainly affected by three factors: the decline in the average price of products, the high cost of production line upgrade and switchover, and the lack of effective matching between sales and production stocking. Please explain whether the above factors have improved this year, the measures have been taken and the effectiveness, the sustainability of the negative gross profit operation of the company's color TV business, and further analyze and explain the specific reasons and reasonableness of the difference in gross profit margin compared with the average gross profit margin level of the industry and the gross profit margin of comparable companies.

(2) The company carries out trading business around the memory chips involved in its main business, and the operating profit comes from the price difference between upstream procurement and downstream sales. Please add the specific time, decision-making process, product type, procurement channel, procurement pricing method and purchase price range, main suppliers and related relationships, sales pricing method and sales price range, revenue recognition policy, settlement method and payment collection situation of this type of business, and further explain the specific reasons and reasonableness of the negative gross profit margin of memory chip trade and semiconductors in combination with the above situation, compare the similar business situation in the industry, and explain whether the company's relevant business operation is in line with industry characteristics and general business logic.

(3) The gross profit margin of the company's white power business in 2023 increased by 0.63% year-on-year, which is slower than the growth rate in 2022. Please explain the operating cost accounting method, aggregation process, detailed composition and changes according to the type of subdivided products, and further explain the specific reasons and reasonableness of the cost increase, and whether it is consistent with the changes in the cost of similar businesses in the industry.

The book value of Konka's other current assets at the end of 2023 was 2.359 billion yuan, an increase of 12.92% from the end of the previous year, mainly due to the principal and interest of the entrusted loan of the associated enterprise of 1.744 billion yuan, of which the book balance of the company's related parties - Yantai Kangyue Investment Co., Ltd. (hereinafter referred to as Yantai Kangyue) and Chongqing Bluegreen Moma Real Estate Development Co., Ltd. (hereinafter referred to as Chongqing Moma) were 171 million yuan and 236 million yuan respectively. According to the temporary announcement, in November 2019 and September 2020, the company provided financial assistance of 129 million yuan and 188 million yuan for 3 years to Yantai Kangyue and Chongqing Moma respectively according to the proportion of shareholding, and the above financial assistance has expired.

In this regard, the Shenzhen Stock Exchange requires:

(1) Please comprehensively sort out the financial assistance provided by the company, explain the amount of review that is still effective so far, the actual amount, the time of occurrence, the counterparty and related relationships, the unrecovered balance, the maturity time, in addition to the above-mentioned overdue amounts, whether the company has other financial assistance that has not been recovered when due, and if so, please explain the specific situation.

(2) Please explain the payment of overdue financial assistance so far, analyze its performance ability and the possibility of expected recovery in combination with the other party's asset and capital situation, analyze and explain the adequacy of the provision for impairment of relevant assets, and whether the relevant accounting treatment complies with the provisions of the accounting standards for business enterprises. Ask the annual accountant to check and give a clear opinion.

(3) The company held a board meeting on December 4, 2023 and February 6, 2024 to pass relevant proposals, and intends to provide financial assistance of no more than 400 million yuan, 200 million yuan, and 226 million yuan to Chuzhou Kangxin Health Industry Development Co., Ltd., Sichuan Hongxinchen Real Estate Development Co., Ltd., and Yantai Kangyun Industry Development Co., Ltd. respectively according to the proportion of shareholdings. Please explain the specific reasons and necessity for the company to continue to implement the same kind of financial assistance after some of the financial assistance is overdue, and further explain whether the company's relevant decision-making is prudent, whether the management is diligent and conscientious, takes effective measures to safeguard the interests of the listed company, and the specific measures of the company to ensure the timely recovery of the funds in combination with the above-mentioned entity's operating conditions, asset and capital status, rate of return, decision-making process, relevant internal control system and effectiveness, etc.

At the end of 2023, the original value of Konka's fixed assets was 7.932 billion yuan, the cumulative depreciation was 2.574 billion yuan, the cumulative impairment provision was 140 million yuan, and the book value of fixed assets was 5.218 billion yuan, including the book value of temporarily idle fixed assets of 443 million yuan. The company has invested in Xi'an Konka Smart Home Appliance Headquarters Project, Xinfei Refrigeration Industrial Park, Chongqing Konka Semiconductor Optoelectronic Industrial Park and other projects through self-construction, with an investment amount of 827 million yuan this year, which comes from its own funds and bank financing.

In this regard, the Shenzhen Stock Exchange requires supplementary asset impairment testing process, main parameters and selection basis, combined with changes in market demand, the decline in the company's operating income, some assets idle, etc., to explain whether the provision for impairment of fixed assets is sufficient, and combined with the capacity utilization rate, income trend, asset idleness, etc., to explain whether the investment in various fixed assets has achieved the expected benefits, and the necessity and rationality of the company's financing of new projects. Ask the annual accountant to check and give a clear opinion.

Konka's asset-liability ratio at the end of 2023 was 83.51%, an increase of 5.77% from the end of the previous year, and the balance of 9 bonds issued accumulated to 7 billion yuan, of which 3 bonds with balances of 1 billion yuan, 500 million yuan, and 800 million yuan were due in January, May and July 2024 respectively, and financial expenses incurred this year were 562 million yuan, an increase of 7.58% year-on-year. In this regard, the Shenzhen Stock Exchange requires the company to explain the company's debt repayment plan, funding sources and financing arrangements for liabilities due within one year, explain whether there is uncertainty in the repayment of the above-mentioned bonds when due in combination with the restricted monetary funds, and analyze and explain whether the company's debt structure and scale are stable and controllable in combination with the asset-liability ratio, cash flow, important income and expenditure arrangements, financing channels, capital costs, etc., and quantitatively analyze the short-term and long-term debt repayment ability.

Due to the contract dispute, Konka filed an arbitration with the Shenzhen Court of International Arbitration in June 2023, demanding that Zhu Xinming, Leng Sumin, Gongqingcheng BRICS Investment Management Partnership (Limited Partnership) and Gongqingcheng Xinrui Investment Management Partnership (Limited Partnership) pay performance compensation as agreed, involving 939 million yuan in the subject matter of the lawsuit, and the case is under trial. The Shenzhen Stock Exchange requires a detailed explanation of the performance compensation commitment, whether the other party has the ability to perform compensation and the recoverability of the payment, the relevant accounting treatment and whether it complies with the provisions of the accounting standards for business enterprises, and whether the company and its management have taken effective measures to urge the other party to fulfill the agreement, ensure the recovery of the money, and safeguard the interests of the listed company.

In the secondary market, Konka closed down 0.34% at 2.92 yuan per share on the 22nd, down 29.98% during the year. (Sino-Singapore Jingwei APP)