China Fund News reporter Nan Shen
Although it has been more than a month since the release of the 2023 annual report, the Shenzhen Stock Exchange has found many doubts in the review process of the annual report, and the global rubber information technology leader Soft Control Co., Ltd. has not escaped a single inquiry.
In 2021, the company acquired the control of Hongye New Materials by increasing its capital and shares, but soon sold it back to the latter's original controlling shareholder the following year, and the price was the same, both of which were 145 million yuan. The Shenzhen Stock Exchange requires that the gross profit margin and capital flow of the business be combined to explain whether the capital increase of Hongye New Materials has commercial substance, and whether it actually constitutes the occupation of non-operating funds or the provision of external financial assistance.
The company's largest customer is its related party, accounting for 34.92% of its sales in 2023, and the regulatory requirements indicate the name of the largest customer and the company's affiliation. The company's accounts receivable and notes receivable increased significantly compared with the beginning of the period in the case of a year-on-year decline in operating income, and the reasons and reasonableness were also required to be explained.
The closing balance of the company's other receivables was 324 million yuan, and almost all of the bad debt provisions were made, and the Shenzhen Stock Exchange required to explain whether the funds essentially constituted the occupation of non-operating funds or the provision of financial assistance to external parties.
Is there an "idling trade" and "capital circulation"?
According to the 2023 annual report, Soft Holdings did not carry out chemical materials business during the reporting period. The chemical materials business is the company's new business in 2021, and Hongye New Materials, which was increased by the company by 145 million yuan and included in the scope of the merger, operates through leasing production lines, and recognizes revenue by the total amount method, with operating income of 1.571 billion yuan and 969 million yuan in 2021 and 2022 respectively, with gross profit margins of 0.07% and 1.8%, which are significantly lower than the company's comprehensive gross profit margin and negative net profit.
According to the company, the capital increase of Hongye New Materials is based on the development momentum and market prospects of the polyolefin new materials industry to enhance the company's sustainable profitability. But soon, in August 2022, the company transferred its equity in Hongye New Materials to Dongfang Hongye for 145 million yuan, and the equity transfer money was paid in two installments within one year after the equity delivery. Dongfang Hongye is the controlling shareholder of Hongye New Materials before the capital increase of soft control shares.
The Shenzhen Stock Exchange requires clarification of the reasons and necessity of the company's large capital increase in the case of low gross profit margin and operating losses of Hongye New Materials, whether it contradicts the company's so-called "enhancement of sustainable profitability", whether there are misleading statements in the relevant announcements, and further explains the reasons and reasonableness of its withdrawal after one and a half years of capital increase.
The supervision also requires the company to explain the actual time of capital contribution to Hongye New Materials and the final flow of funds after the capital increase; Combined with Hongye New Materials' leasing production line and low gross profit margin, it explains the authenticity of its chemical materials business, whether there are situations such as "idling trade" and "capital circulation", and whether the company's use of the total amount method to recognize revenue complies with the relevant provisions of accounting standards.
The company was also required to explain whether the transaction price for the transfer of the equity of Hongye New Materials was fair, whether it was conducive to protecting the interests of the listed company, whether the transfer money had been fully recovered, and the specific time of receipt of the payment.
Finally, the Shenzhen Stock Exchange requires verification and explanation of whether Dongfang Hongye and its actual controllers have any related relationships with more than 5% of the company's shareholders, actual controllers, directors, supervisors and senior management and other relationships that may lead to skewed interests; Combined with the answers to all the above questions, it is explained whether the company's capital increase to Hongye New Materials has commercial substance, and whether it actually constitutes the occupation of non-operating funds or the provision of financial assistance to external parties.
Revenues declined, but receivables increased significantly
According to the annual report, the company's sales to the top five customers accounted for 54.74% of the total annual sales during the reporting period, an increase of 13.09 percentage points over the previous period, of which the largest customer was a related party of the company, accounting for 34.92% of its sales, an increase of 7.16 percentage points from the previous period.
The Shenzhen Stock Exchange requires the name of the largest customer and its affiliation with the company; Explain the reasons and reasonableness of the company's high customer concentration and further increase in the reporting period; Compare the types of products, sales prices, credit policies, etc. sold by the company to the largest customer and other non-affiliated customers, and explain the necessity of the company's related sales to the largest customer and the fairness of the transaction price.
The annual report also shows that the book value of the company's notes receivable and accounts receivable at the end of the reporting period totaled 2.021 billion yuan, an increase of 61.68% over the beginning of the period, while the operating income in the reporting period decreased by 1.54% year-on-year. Among the accounts receivable for which provision for bad debts is made separately, the total book balance of companies A, B, C, and D is 121 million yuan, and the provision for bad debts has been fully accrued.
The regulator requires the company to explain the reasons and reasonableness of the significant increase in accounts receivable and notes receivable at the end of the reporting period compared with the beginning of the period in the case of a year-on-year decline in operating income, whether the company has relaxed credit policies, inflated income or recognized revenue in advance, and explained the payment collection after the period.
The company is also required to disclose the names of the aforesaid companies A, B, C, and D, whether they are related to the company and its controlling shareholders and actual controllers, the accounting period for which they realized their sales revenue and the reasons for the full provision for bad debts, and further explain the authenticity of their sales revenue, and whether the relevant revenue recognition complies with the relevant provisions of accounting standards.
The financial support for the subsidiary cannot be recovered
According to the annual report, the closing balance of "unit transactions" in other receivables of soft control shares was 324 million yuan, and almost all of the bad debt provisions were made.
The "unit transactions" are mainly for the financial support of the disposed subsidiaries before the balance sheet, and the company signs an arrears settlement agreement with the counterparty during the equity disposal, stipulating that the arrears will be used to repay the company's current payments first, and the repayment of the current payments will also be given priority when the land resources are disposed of or the income is generated by the use of land assets in the later stage.
The Shenzhen Stock Exchange requires the name of the object and the transaction background of the "unit transaction" in other receivables to be listed, and the necessity and reasonableness of providing financial support to it; Explain the measures taken by the company since 2022 to follow up on the realization of the debtor's assets and the recovery of "unit transactions", and whether the company's directors, supervisors and senior managers have been diligent and conscientious in safeguarding the company's interests and asserting the company's rights.
The Shenzhen Stock Exchange also requires the final flow of funds provided by the company and the subsequent irrecoverability of the funds, and whether the aforesaid financial support essentially constitutes the occupation of non-operating funds or the provision of external financial assistance.
In addition, the company announced on April 3, 2024 that it intends to provide no more than 1 billion yuan of financial assistance to Yikai New Materials, a subsidiary holding 64.52% of the shares. Among the minority shareholders of Yikai New Materials is a company controlled by Yuan Zhongxue, the actual controller of the company, and the company claims that the actual controller and other minority shareholders do not have the financial conditions to provide the same financial assistance in proportion to their shareholdings.
The Shenzhen Stock Exchange requires a specific explanation of the reasons and reasonableness of the fact that none of the minority shareholders of Yikai New Materials have the financial conditions to provide the same financial assistance, and how to control the recovery risk of large financial assistance to Yikai New Materials in combination with the fact that the company's financial support for the subsidiary in the early stage cannot be recovered.
Founded in 2000, SoftControl Co., Ltd. relies on Qingdao University of Science and Technology to develop. The main business and technical advantages of Soft Control Co., Ltd. are concentrated in the field of rubber machinery, and its business scale has long ranked among the top three in the world, which can provide overall solutions for intelligent manufacturing for rubber and tire enterprises. According to the 2023 annual report, the "rubber equipment system" will contribute about 4 billion yuan of revenue to the company, accounting for about 71%; New rubber materials contributed 1.587 billion yuan in revenue, accounting for about 28%.
On May 14, the share price of soft control shares dived, closing down more than 3.5% in the morning to 8.43 yuan per share, with the latest market value of about 8.5 billion yuan. As of the end of the first quarter of this year, the company had nearly 50,000 shareholders.
Editor: Captain
Review: Muyu