Research on the performance of listed companies

During the period of intensive disclosure of the performance forecast or annual report of listed companies, investors are most afraid to step on the “performance mine”, and the regulatory authorities also focus on such companies with “erratic” performance.

Scanning 72 letters to probe into the cause and effect of "face changing" in the performance of listed companies

Statistics show that after 2386 listed companies released their 2020 performance forecasts, as of February 3, the Shanghai and Shenzhen stock exchanges had issued concern letters or inquiry letters to 72 of them.


According to the reporter’s analysis one by one, 43 listed companies, including gawaita and aigrass, are suspected of financial “big bath” due to the large amount of goodwill impairment in advance. In addition, the “sudden change” of year-end performance and the re employment of audit institutions before the release of performance notice have also become the focus of supervision.


What is the sudden change of year end performance?


Summing up the cases of performance forecast related to stock taking, we can find that some companies seem to have normal operating performance in the first three quarters, but the overall performance of the final year suddenly changes, which makes investors unprepared.


For example, edification environment announced on January 23 that the net profit loss in 2020 is expected to be 1.25 billion yuan to 1.57 billion yuan, and the net profit loss after deduction is expected to be 1.37 billion yuan to 1.69 billion yuan. The main reason is that the company’s operating revenue and gross profit rate are lower than those in 2019. Meanwhile, it plans to withdraw the impairment and loss of some projects under construction and the expected credit impairment loss of accounts receivable.


In contrast, the net profit of the first three quarters of 2020 is about 228 million yuan, and the net profit after deducting non profit is about 162 million yuan, which shows that the company’s performance changes greatly.


Under the above background, Shenzhen stock exchange requires the enlightenment environment to explain the specific amount and basis of the impairment of construction in progress and accounts receivable in combination with the relevant work progress of 2020 annual report, and whether the impairment of construction in progress and accounts receivable in the first three quarters and previous years of 2020 is sufficient, and whether there is a situation that the accrual has not been made.


In many performance forecasts, there are many cases like edification environment. In addition, some companies can predict the future performance in addition to a substantial loss in 2020.


According to the announcement issued by Longzhou Co., Ltd. on January 30, the company expects to have a net profit loss of 670 million yuan to 940 million yuan in 2020, mainly because the company’s asphalt supply chain, new energy bus and other businesses are affected by the epidemic, resulting in a sharp decline in business scale. The company plans to make a provision for goodwill impairment of 420 million yuan to 580 million yuan for its subsidiaries engaged in related businesses. At the same time, Longzhou also expects to achieve a net profit of 8 million yuan to 12 million yuan in the first quarter of 2021.


On January 30, 2021, the company expects to make a substantial loss in 2020. However, the first quarter of 2021 is expected to make a profit in the first quarter of 2021, which is less than one month after the operation. Therefore, Shenzhen stock exchange requires Longzhou to explain the specific basis and rationality of the performance forecast.


It is worth noting that in the context of the “mutation” of the performance of listed companies, the regulatory authorities also pay attention to whether there are related “tricky”. For example, Igor, who is expected to significantly revise the performance in 2020, is required by the Shenzhen Stock Exchange to timely report the list of insiders whose transactions are not completed on schedule and whose performance has been revised in accordance with the relevant provisions of the guidelines for the standardized operation of listed companies (revised in 2020), and to self check whether the company’s directors, supervisors and relevant insiders have sold the company’s shares before the disclosure of the performance revision announcement Tickets.


Performance adjustment or financial “big bath”?


On the whole, for dozens of listed companies that are expected to withdraw large amount of goodwill impairment reserves, the regulatory focus is whether they have the behavior of “big bath” through goodwill impairment.


For example, on the evening of January 18, Gao Weida announced that its net profit loss in 2020 is expected to be about 532 million yuan to 688 million yuan, mainly due to the acquisition of Shanghai Ruimin Internet Technology Co., Ltd. (hereinafter referred to as “Shanghai Ruimin”), Hainan nut creative Entertainment Information Technology Co., Ltd. (hereinafter referred to as “nut technology”), Shenzhen Fast Reading Technology Co., Ltd. (hereinafter referred to as “fast reading technology”) and Kashi shanghexin The provision for impairment of goodwill formed by the company is about 645 million yuan to 794 million yuan.


Strangely, in the first half of 2020, the performance of Shanghai Ruimin, nut technology, fast reading technology and Shanghe technology all declined to varying degrees. However, in reply to the inquiry letter of 2020 semi annual report, Gao Weida said that the goodwill impairment signs of relevant asset groups were not clear, so no provision for goodwill impairment was made.


“Is there a situation in which profits can be adjusted through centralized provision for impairment of large amount of goodwill?” Shenzhen stock exchange requires Gao Weida to give a supplementary explanation. The company believes that in the first half of 2020, the specific basis for the unclear indication of goodwill impairment of relevant asset groups, the time point and specific performance of the indication of goodwill impairment, whether the relevant risk prompt mentioned in the provision for goodwill impairment is timely and sufficient, and whether it complies with the provisions of the accounting standards for business enterprises.


After summing up the relevant 43 concern letters (or inquiry letters), it is found that whether listed companies use goodwill impairment to adjust their performance is the primary concern of the regulatory authorities. The specific details include whether there are earnings management, intertemporal recognition, improper accounting adjustment and so on.


On February 1, Edgars predicted the performance loss in 2020, which was due to the provision for goodwill impairment and other factors. For this reason, Shenzhen stock exchange directly asked the company, “is there a situation of” big bath “of performance through the provision for impairment of accounts receivable and goodwill?”


Why does “on the spot” employ audit institutions?


It is also one of the concerns of the regulatory authorities that listed companies suddenly employ audit institutions on the eve of the release of performance forecast.


For example, Hengtai Aipu announced on January 29 that its net profit loss in 2020 is expected to be 900 million yuan to 1.28 billion yuan, mainly due to the company’s provision for impairment of goodwill, long-term equity investment, oil and gas assets, as well as provision for bad debts and other assets.


On January 25, the interim general meeting of shareholders of Hengtai Aipu deliberated and passed a motion to appoint Lixin Zhonglian accounting firm (special general partnership) as the audit institution in 2020, mainly because the entrustment contract between the company and the original audit institution Zhongxi accounting firm (special general partnership) (hereinafter referred to as Zhongxi accounting firm) expired.


It is worth mentioning that Zhongxi firm has issued a qualified opinion on Hengtai Aipu’s financial and accounting report for 2019 due to its failure to obtain sufficient and appropriate audit evidence for the long-term equity investment, goodwill and impairment of long-term receivables of Hengtai Aipu.


Based on this, Shenzhen stock exchange requires Hengtai Aipu to explain whether the above circumstances leading to the qualified opinion are eliminated, and the specific reasons and the measures taken; at the same time, it requires the company to explain the reasons for not re employing Zhongxi office as the auditing body in 2020, and whether there are major disputes between the company and Zhongxi office on the elimination of the impact of the qualified opinion in 2019.


The reporter noted that since December 2020, a number of listed companies have re employed audit institutions on the eve of issuing the annual report and performance forecast for 2020. Among them, * ST Jinzhou, Oceanwide holdings, new Hualian and other companies are expected to make a substantial loss in 2020 after they decide to employ audit institutions.


Xinhualian announced on January 29 that it expects the company to lose 1.1 billion yuan to 1.3 billion yuan in 2020, mainly due to the impact of the epidemic situation, the company’s real estate sales, scenic spots, hotels, shopping malls and other income have decreased significantly, and the provision for impairment and other factors.


On December 2, 2020, the interim shareholders’ meeting of new Hualian decided to appoint zhongxingcai Guanghua accounting firm (special general partnership) as the financial reporting and internal control audit institution in 2020 according to the actual needs of business development and audit work.


Prior to that, the original audit institution issued a reservation with emphasis on the financial and accounting report of new Hualian in 2019, mainly because the company did not make provision for impairment of goodwill formed by the acquisition of New Silk Road cultural tourism. In this regard, Shenzhen stock exchange requires new Hualian to explain the asset types corresponding to the provision for asset impairment in 2020, the basis and rationality of the provision for asset impairment, and whether the provision for asset impairment in previous years is sufficient.

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