Failure to disclose the guarantee matters in a timely manner, Bishuiyuan was issued a warning letter by the Beijing Securities Regulatory Bureau, and the total amount of external guarantees exceeded 30 billion yuan

China Times (www.chinatimes.net.cn) reporter Xu Yunqian, trainee reporter Wang Yue reported in Beijing

A few days ago, Bishuiyuan (300070. SZ) released its third quarterly report for 2021. The report shows that from January to September 2021, the company achieved revenue of 6.277 billion yuan, an increase of 30.30% year-on-year; and achieved a net profit attributable to shareholders of listed companies of 159 million yuan, an increase of 55.96% over the same period of the previous year. Among them, in the third quarter of 2021, it contributed revenue of 1.434 billion yuan, down 8.26% year-on-year, and achieved a net profit of 46.5845 million yuan, an increase of 27.79% year-on-year.

It is understood that at present, the total amount of external guarantees of Bishuiyuan and its holding subsidiaries has reached 32.6 billion yuan. It is worth noting that on October 25, Bishuiyuan was issued a warning letter by the Beijing Securities Regulatory Bureau due to the failure to disclose the relevant guarantee matters in a timely manner.

The reporter of China Times repeatedly contacted the Ministry of Securities Affairs of Bishuiyuan and sent an interview letter to the company, but as of press time, the company has not responded positively.

Net profit increased by 55.96% year-on-year

According to the third quarter report of 2021 released by Bishuiyuan on October 22, the company achieved revenue of 6.277 billion yuan from January to September 2021, an increase of 30.30% year-on-year; the net profit attributable to shareholders of listed companies was 159 million yuan, an increase of 55.96% over the same period of the previous year. Among them, in the third quarter of 2021, it contributed revenue of 1.434 billion yuan, down 8.26% year-on-year, and achieved a net profit of 46.5845 million yuan, an increase of 27.79% year-on-year.

For the performance change, Bishuiyuan said that the company's revenue in the first three quarters increased by 30.30% year-on-year, mainly due to the increase in the revenue recognized with the progress of the increase in engineering projects from the beginning of the year to the end of the reporting period.

According to the reporter's understanding, Bishuiyuan specializes in environmental protection and water treatment business, and has a whole industrial chain in the field of water treatment. At present, the company is a high-tech environmental protection enterprise with a whole industrial chain in the fields of municipal sewage and industrial wastewater treatment, tap water treatment, desalination, civil water purification, wetland protection and reconstruction, and comprehensive river treatment. Bishuiyuan's main business is environmental protection and water treatment and municipal industry, accounting for 78.04% and 21.96% of its revenue, respectively.

Due to the increase in revenue and the increase in the price of some equipment procurement and engineering raw materials, the cumulative operating costs of Bishuiyuan from the beginning of the year to the reporting period increased by 1.231 billion yuan, an increase of 37.37% over the same period of the previous year, of which, due to the lack of social security relief during the epidemic this year and the increase in salaries caused by the increase in personnel, the management expenses increased by 1.324 billion yuan, an increase of 33.24%.

Although the operating cost has increased, the operating profit, total profit and net profit of Bishuiyuan have increased significantly this year. Due to the increase in operating gross profit, the decrease in financial expenses, the increase in asset disposal income and other factors, the operating profit of Bishuiyuan this year increased by 0.93 billion yuan over the same period of the previous year, an increase of 78.31% year-on-year, and the cumulative number of total profits in this year increased by 0.99 billion yuan over the same period of the previous year, an increase of 73.84% year-on-year. At the same time, income tax expense increases when total profits are incurred

The total amount of external guarantees is about 32.6 billion yuan

Previously, according to the company's exposed data, the total external guarantee of Bishuiyuan and its holding subsidiaries has reached 32.6 billion yuan, accounting for 157.26% of the company's audited net assets at the end of 2020, including about 26.969 billion yuan of external guarantees for the holding subsidiaries. Whether such a amount of external guarantee will erupt into potential risks is unknown.

On October 25, the website of the Beijing Securities Regulatory Bureau issued a decision on the administrative supervision measures of issuing a warning letter to Beijing Bishuiyuan Technology Co., Ltd. (hereinafter referred to as the "Warning Letter"). The warning letter shows that after investigation, the company's wholly-owned subsidiary Shantou Bishuiyuan Environmental Technology Co., Ltd. provided a guarantee for Beijing Deqingyuan Agricultural Technology Co., Ltd. and its subsidiary Weixian Deqingyuan in connection with the capital increase of Shantou Chaonan District Economic Construction Investment and Development Co., Ltd. to Weixian Deqingyuan Agricultural Technology Co., Ltd. Deqingyuan was a related party of the company at the time of signing the above-mentioned guarantee contract, but the company did not perform the relevant review procedures and did not disclose the guarantee matter in a timely manner.

It is worth noting that the net cash flow from operating activities of Bishuiyuan changed from 639 million yuan in the same period of the previous year to -2.15 billion yuan, down 436.4% year-on-year, while the net cash flow from operating activities in the same period of 2019 was 1.238 billion yuan.

In this regard, Bishuiyuan said that on the one hand, from the beginning of the year to the end of the reporting period, due to the overall macroeconomic situation, the collection pressure increased, and some payments lagged behind, and at the same time, in order to ensure the normal payment of downstream payments during the operation period of the project completion and settlement; on the other hand, according to document No. 14 of the Ministry of Finance, the cash flow of PPP projects accounted for by the financial asset model was adjusted from investment activities to operating activities.

Previously, in the semi-annual report of Bishuiyuan, it was mentioned that the company needed to face seasonal risks. As the company is engaged in the overall technical solution business of the environmental protection industry, most of the customers are local governments or their platform enterprises, most of the projects need to be completed by governments at all levels and public bidding, and then go through the preliminary design, engineering design, bidding, engineering services and other links, the project progress and project settlement are affected by government budgets and expenditures, such projects have significant seasonal characteristics.

Generally in the first half of the year, such projects mainly implement the project approval, project bidding, SPV company establishment, preliminary design, engineering design and demonstration stages, while most of the project construction is concentrated in the second half of the year, especially in the fourth quarter. At the same time, the collection of funds and revenue recognition of the project are seasonal. If the company does not better cope with this seasonal characteristic, especially the unevenness of cash flow, it will affect the company's normal operations and business, bringing seasonal risks.

In this regard, Bishuiyuan said that with the gradual increase in the number of projects operated by the company and the transformation of the project structure, seasonal risks will gradually weaken. At the same time, the company will also steadily promote the construction of the projects in hand, and the gradual increase in operational projects will bring stable cash flow to the company in the future and reduce the adverse impact of seasonal risks on the company's daily business development.