On May 16, the Shenzhen Stock Exchange issued an inquiry letter on the 2023 annual report of Shandong Chiway Industrial Development Co., Ltd. (hereinafter referred to as "Chiway shares" or "the company"). The letter of inquiry requires Chiway to clarify the reasons and reasonableness of the significant increase in net profit and net profit after deducting non-profits in the case of declining operating income; The reasons and reasonableness of the large difference between the change range of operating income and net cash flow from operating activities.
Screenshot of the inquiry letter of the Shenzhen Stock Exchange
According to the inquiry letter, in the process of reviewing the 2023 annual report (hereinafter referred to as the "annual report") of Chiway shares, the Shenzhen Stock Exchange paid attention to the following matters:
1. The annual report shows that during the reporting period, Zhongrui Co., Ltd. achieved operating income of 710.6953 million yuan, a year-on-year decrease of 15.45%, the net profit attributable to shareholders of listed companies (hereinafter referred to as "net profit") was -160.7035 million yuan, a year-on-year increase of 76.61%, and the 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 profits") was -167.4077 million yuan, a year-on-year increase of 76.18%. The net cash flow from operating activities was 34.3369 million yuan, a year-on-year increase of 23.88%.
Chiway shares:
(1) Explain the reasons and reasonableness of the significant increase in net profit and net profit after deducting non-profits in the case of a decline in operating income; The reasons and reasonableness of the large difference between the change in operating income and net cash flow from operating activities.
(2) Combined with the business development, revenue recognition and cost collection process of each quarter, explain the reasons and reasonableness of the large fluctuations in net profit and net profit after deducting non-profits in each quarter, the reasons and reasonableness of the mismatch in the trend of income, profit and cash flow changes in each quarter, and the reasons for the high proportion of operating income in the fourth quarter.
2. The annual report shows that the construction business of the garden project of the subsidiary Chongqing Huayu Garden Co., Ltd. (hereinafter referred to as "Huayu Garden") has been basically completed, and the accounts receivable of the garden business of Huayu Garden are mainly concentrated in Anshun and Zunyi areas of Guizhou. In December 2023, the company disclosed the "Announcement on the Signing of Debt Repayment Related Agreements by Subsidiaries", stating that Huayu Garden signed a debt repayment related agreement with the Shenxi Town Government, and converted the 26.37 million yuan owed by the Shenxi Town Government in the previous period into a loan to it; According to the annual report, Huayu Garden has recovered 3.2498 million yuan, but there are still 26.37 million yuan of loans owed to the company that are overdue.
Chiway shares:
(1) Describe the construction projects of Huayu Garden in Anshun and Zunyi areas of Guizhou Province in the form of a table, including but not limited to the name of the customer, the name of the project, the cooperation model, the project amount, the progress of construction and settlement, the payment collection arrangement agreed in the contract, and the progress of payment recovery as of the end of the reporting period.
(2) Explain in the form of a table the recognition of income and costs of the above items and the basis, the balance of accounts receivable at the end of the period and the provision for bad debts, and explain whether the provision for bad debts of accounts receivable is sufficient.
(3) Explain the specific reasons and purposes of converting the project money owed by the People's Government of Shenxi Town into a loan, whether it is conducive to the recovery of relevant debts, the reasons and reasonableness of the overdue loan at the end of the reporting period, and explain the reasonableness of Chiway to convert the project money into a loan in combination with the progress of repayment, and explain the safeguard measures that Chiway intends to take or has taken for the recovery of the loan.
The annual audit accountant is requested to verify and express a clear opinion on the above question (2).
3. The annual report shows that the cumulative amount of litigation disclosed at the end of the reporting period was 186.3151 million yuan, and the estimated amount of liabilities was 21.9066 million yuan.
Chiway is requested to explain the basis for the provision of the estimated liabilities in the litigation case, whether the relevant accounting treatment is in line with the provisions of the accounting standards for business enterprises, and whether the provision of the estimated liabilities is sufficient in combination with the pending litigation and the progress of the litigation.
Ask the annual accountant to check and give a clear opinion.
4. The annual report shows that during the reporting period, four subsidiaries, including Daye Jinpeng Cover Co., Ltd. and Daye Jinpeng Cap Co., Ltd., were subject to administrative penalties for environmental protection issues.
Chiway is requested to explain whether the temporary information disclosure obligation has been fulfilled for the above-mentioned administrative penalties, and whether there are administrative penalties that should be disclosed but not disclosed.
5. According to the annual report, the closing balance of the bank acceptance bill margin of Chiway Co., Ltd. was 30.0001 million yuan, and the closing balance of the pledge of fixed deposit receipts was 10.000 million yuan.
Chiway shares:
(1) Explain the reasons and reasonableness of the substantial increase in the closing balance of the bank acceptance bill, whether the scale of the bill matches the size of the margin, and explain the main objects of the bank acceptance bill and the corresponding purpose.
(2) Explain the reasons and background for the formation of the pledge of fixed deposit receipts, whether there is commercial substance, as well as the guaranteed party, the guarantee period, the guarantee amount, etc., whether there is any illegal guarantee, and whether the funds are occupied by related parties.
The annual audit accountant is requested to verify and express a clear opinion on the above question (2).
6. According to the annual report, the closing balance of accounts receivable of Chiway shares was 270,519.76 million yuan, of which, among the accounts receivable provided for bad debts according to the combination, the book balance of accounts receivable from external customers was 563.8383 million yuan, and the proportion of bad debt provision was 25.56%; The book balance of accounts receivable with provision for bad debts was RMB214,135.93 million, and the provision ratio for bad debts was 46.74%.
Chiway shares:
(1) Combined with the sales model, revenue recognition policy, settlement method, etc., explain the reasons and reasonableness of the increase in the closing balance of accounts receivable under the condition of the decline in the operating income of Chiway shares.
(2) Explain the reasons for the formation of accounts receivable from external customers who make provision for bad debts according to the portfolio, the name of the debtor, the content and amount of the transaction, as well as the aging and collection of the account, whether there is a risk that the payment cannot be recovered, the measures taken by Chiway shares, and whether the provision for bad debts is sufficient.
(3) Explain the basis and reasons for confirming that the accounts receivable of customer 12, customer 13 and customer 23 are "expected to be unable to fully recover" in the accounts receivable of customer 12, customer 13 and customer 23, the specific signs of impairment of the relevant funds and the reasons for their occurrence, and whether the corresponding proportion of bad debt provision is reasonable.
(4) Explain the specific situation of the top five accounts receivable customers, including but not limited to the name of the customer, the transaction amount, the transaction content, the aging of the accounts receivable, the collection at the end of the reporting period, etc., whether the relevant customers are related to the company, the controlling shareholder, the actual controller, and the directors, supervisors and senior executives, and whether the provision for bad debts is sufficient.
The annual audit accountant is requested to verify and express a clear opinion on the above issues.
7. According to the annual report, the total closing balance of other receivables was 67.6953 million yuan, of which the closing balance of current accounts and other receivables was 45.123 million yuan, and the closing balance of the margin was 21.4729 million yuan; The closing balance of other receivables aged more than 1 year was 60.5904 million yuan, and the closing balance of other receivables aged more than 3 years was 47.7233 million yuan.
Chiway shares:
(1) Explain the reason and time for the formation of receivables and other deposits, the content and amount of the transaction, the name of the debtor, whether there is any related relationship or other relationship that may cause interest tilt with Chiway shares, controlling shareholders, actual controllers, more than 5% shareholders and directors, supervisors and senior managers, and whether there is any capital occupation or financial assistance.
(2) Explain the reasons why other receivables aged more than 1 year have not been collected for a long time, the collection measures taken by Chiway shares, and whether the provision for relevant bad debts is sufficient.
The annual audit accountant is requested to verify and express a clear opinion on the above issues.
8. At the end of the reporting period, the closing balance of long-term receivables was 930.113 million yuan, and the projects were PPP projects and other projects, of which the closing balance of bad debt provision was 346.9071 million yuan, and the closing balance of long-term receivables of Xixiu District Government of Anshun City was 346.9071 million yuan, and the reason for the provision was "expected to be difficult to recover", and the proportion of bad debt provision was 40.00%. The closing balance of the provision for bad debts on a portfolio basis was 583.2059 million yuan, and the provision for bad debts was 1%.
Chiway shares:
(1) Explain the specific situation of the project involved in the long-term receivable, including but not limited to the project name, project location, customer name, project amount, account age, payment collection agreement, estimated completion time and payment collection.
(2) Combined with the impairment test process and basis, explain whether the provision for bad debts is sufficient and reasonable; The specific circumstances and reasons for the recognition of the long-term receivables of the Xixiu District Government of Anshun City as "expected recovery difficulties", and whether the provision ratio of bad debts of 40.00% is sufficient and reasonable under this circumstance.
The annual audit accountant is requested to verify and express a clear opinion on the above question (2).
9. The annual report shows that at the end of the reporting period, the book value of investment real estate at the end of the period was 39.7659 million yuan, an increase of 38.25% over the beginning of the period, measured by the cost method, and no provision for impairment was made. The book value of fixed assets at the end of the period was 471.0619 million yuan, the impairment provision at the end of the reporting period was 106.6259 million yuan, and the book value of temporarily idle fixed assets was 58.7615 million yuan.
Chiway shares:
(1) Explain the reasons for the substantial increase in the book value of investment real estate at the end of the period, the specific time and basis for the transfer of fixed assets to investment real estate, whether the transfer time is timely, and whether it complies with the provisions of the accounting standards for business enterprises.
(2) Combined with the current market situation, costs and expenses, impairment tests, etc., explain the basis and reasonableness of not making provision for impairment of investment real estate at the end of the reporting period.
(3) Explain the signs of impairment of fixed assets, the process of impairment testing, and the reasons why some fixed assets are idle, and whether the provision for impairment of fixed assets is sufficient.
(4) Explain the specific reasons why the property right certificate has not been completed for some fixed assets, as well as the progress and estimated completion time, and whether there is a risk that it cannot be completed.
Ask the annual audit accountant to check and give a clear opinion on the above questions (1), (2) and (3).
10. According to the annual report, the closing balance of other payables was 704.7876 million yuan, an increase of 13.47% over the beginning of the period, of which the closing balance of current loans was 668.2695 million yuan, an increase of 14.23% over the beginning of the period; The balance of the project and other items at the end of the period was 18.8384 million yuan, an increase of 7.62% over the beginning of the period.
Chiway is requested to explain the current loans, advance project funds and other specific circumstances, including but not limited to the cause, time, payment term, counterparty and related relationships.
Ask the annual accountant to check and give a clear opinion.
11. According to the annual report, Chiway Co., Ltd. formed goodwill of 296.2786 million yuan due to its investment in Huayu Garden, and no provision for goodwill impairment was made at the end of the reporting period. The net profit of Huayu Garden in 2022 and 2023 will be -870.7486 million yuan and -182.3623 million yuan respectively, and the operating income of the current period will decrease significantly.
Chiway shares please explain the process, important assumptions, key parameters (including but not limited to the forecast period, revenue growth rate, expense ratio, profit margin, discount rate, etc.) of the selection basis and reasonableness, and combined with the operating status of Huayu Garden, large accounts receivable unrecovered, etc., to explain whether the non-provision for goodwill impairment in the current period is reasonable.
Ask the annual accountant to check and give a clear opinion.
12. According to the annual report, during the reporting period, Chiway Co., Ltd. borrowed funds from related parties, with an amount of 10 million yuan from the related party Shanghai Ruize Equity Investment Management Co., Ltd., 20 million yuan from the related party Chiway Holding Group Co., Ltd., and 10 million yuan from the related party Shanghai Ruize Equity Investment Management Co., Ltd.
Chiway shares:
(1) Explain the reasons and necessity of the capital lending, the occurrence time, repayment period, and recovery of the relevant capital lending, whether the relevant matters have fulfilled the review procedures and information disclosure obligations in a timely manner, and whether there is any occupation of funds by related parties.
(2) Explain the basis for determining the interest rate of related parties' funds, whether there is a difference between it and the market interest rate, and whether it is fair.
The annual audit accountant is requested to verify and express a clear opinion on the above issues.
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Review: Sun Shijian