China Fund News reporter Nan Shen
On the morning of May 13, Longjin Pharmaceutical received an inquiry letter from the Shenzhen Stock Exchange for its annual report.
According to the company's 2023 annual report released on April 30, its operating income was less than 100 million yuan, a year-on-year decrease of nearly 30%, and the net profit after deducting non-profits recorded a loss of nearly 40 million yuan, which was the fifth consecutive year of loss. The Shenzhen Stock Exchange requires the company to explain whether there is any material uncertainty about its ability to continue as a going concern.
It is worth paying close attention to the fact that Longjin Pharmaceutical's sales expenses are unusually high in the case of low revenue, especially the marketing expenses account for 67% of the revenue. The regulatory requirement states "whether there is commercial bribery or facilitation of commercial bribery".
Due to the fact that the Shenzhen Stock Exchange's stock listing rules "the audited net profit of the most recent fiscal year is negative and the operating income is less than 100 million yuan", Longjin Pharmaceutical's shares have been put on delisting risk warning (i.e., *ST) on May 6, and the company's stock price has continued to fall to the limit. As of the close of trading on the morning of May 13, Longjin Pharmaceutical has fallen for the sixth consecutive trading day.
Are there any significant uncertainties about the ability to continue as a going concern?
Longjin Pharmaceutical's financial report shows that in 2023, the company will achieve operating income of 86.6225 million yuan, a year-on-year decrease of 29.56%; From 2019 to 2023, the company's net profit attributable to shareholders of listed companies after deducting non-recurring gains and losses (hereinafter referred to as "net profit after deducting non-recurring gains and losses") will be -39.886 million yuan, -2.5259 million yuan, -10.3045 million yuan, -57.344 million yuan, and -81.1048 million yuan respectively, which has been negative for five consecutive years.
The Shenzhen Stock Exchange requires the company to explain the main reasons for continuous losses, and the specific measures it has taken or intends to take to improve the profitability of the main business and improve the ability to continue operations, taking into account the development of the industry, the development of the company's main business, the core competitiveness of its main products or services, the changes in gross profit margin, and the asset structure and debt.
The SZSE also requires the company to explain whether there is any material uncertainty in its ability to continue as a going concern, and whether it has touched other risk warning situations stipulated in paragraph (7) of Article 9.8.1 of the Stock Listing Rules (2024 Revision) of the Shenzhen Stock Exchange.
According to this clause, if "the net profit before and after deducting non-recurring gains and losses in the last three fiscal years is negative, and the audit report of the most recent fiscal year shows that there is uncertainty about the company's ability to continue operations", the Shenzhen Stock Exchange will implement other risk warnings for its stock trading, that is, ST.
It should be noted that after the release of Longjin Pharmaceutical's annual report, the financial indicators have touched the provisions of Article 9.3.1, Paragraph 1 (1) of the above-mentioned rules, "the audited net profit in the most recent fiscal year is negative and the operating income is less than 100 million yuan, or the net profit in the most recent fiscal year after retrospective restatement is negative and the operating income is less than 100 million yuan", and the company's shares have been subject to delisting risk warning, that is, *ST.
In addition, the annual report shows that the company's 2023 financial statements were issued with a standard unqualified audit report. The Shenzhen Stock Exchange requires the company to explain the basis and reasonableness of preparing the annual report based on the going concern assumption under the current financial situation.
Marketing expenses accounted for 67.59% of the current revenue, is there commercial bribery?
Another major problem of Longjin Pharmaceutical is that the sales expenses, especially the marketing expenses, are abnormally high.
According to the 2023 financial report, the company incurred sales expenses of 64.73 million yuan, and as mentioned earlier, the company's revenue in 2023 is only 86.6225 million yuan, that is, the company's sales expenses accounted for 73.6% of the current revenue. The bulk of the sales expenses are "market expenses", which are 58.5438 million yuan, accounting for 67.59% of the company's current operating income.
The Shenzhen Stock Exchange requires the company to explain the specific content of the market fee, whether the market expense ratio matches the existing business, and whether there is commercial bribery or facilitation of commercial bribery. The regulation also requires the annual audit accountant to check and give a clear opinion.
A reporter from China Fund News noticed that in the past financial reports, the proportion of sales expenses of Longjin Pharmaceutical has been not low, and it is high in the entire pharmaceutical listed company and even the entire A-shares.
From 2019 to 2022, the company's operating income will be 275 million yuan, 254 million yuan, 703 million yuan and 123 million yuan respectively, while the sales expenses in the same period will be 182 million yuan, 158 million yuan, 165 million yuan and 80.33 million yuan, accounting for 66%, 62.2%, 23.5% and 65.3% respectively.
Does the impairment of the relevant business of the subsidiary just after the capital increase have commercial substance?
According to the "Announcement on the Acquisition of Holding Subsidiaries by Foreign Investment" disclosed by Longjin Pharmaceutical on June 30, 2023, Yunnan Longjin Brahma Biotechnology Co., Ltd., a wholly-owned subsidiary of the company, increased its capital by 30 million yuan to Shanghai Rouyishi Biotechnology Co., Ltd. (hereinafter referred to as "Rouyishi"), a shareholding company, by 30 million yuan in cash, and its shareholding ratio increased from 10% before the capital increase to 75.61%, which was included in the company's consolidated financial statements. Rouyi is mainly engaged in functional personal care and beauty products.
The Shenzhen Stock Exchange requires the company to provide additional information on the background and reasons for the investment in Rouyishi, the relevance to the company's core business, the main customers and the relationship with the company, the contracts in hand, etc., and explain whether the relevant business has formed a stable business model, whether it is sustainable and whether it has commercial substance.
According to the annual report, Longjin Pharmaceutical Co., Ltd. formed a goodwill of 10.0927 million yuan due to the acquisition of Rouyi in the current period, a profit and loss of -7.8534 million yuan in investment, and an impairment of 7.4498 million yuan for the goodwill formed by the acquisition of Rouyi.
The regulator requires the company to explain the impact of the investment on the company's production, operation and financial statements, the pricing basis and reasonableness of the transaction, the relevant accounting treatment, whether the recognition of goodwill complies with the relevant provisions of the accounting standards for business enterprises, and whether the impairment provision is sufficient and reasonable, and requires the annual audit accountant to verify and express a clear opinion.
Editor: Captain
Review: Chen Siyang