Meiji’s reply to Shenzhen Stock Exchange’s concern letter

Meiji (002621. SZ) issued an announcement in response to the concern letter issued by Shenzhen Stock Exchange on February 2.
In the 2020 annual performance forecast released on January 29, Meiji pointed out that the company needs to make provision for goodwill impairment from 440 million yuan to 530 million yuan. Among them, the impairment of Kaide education is 230 million to 250 million yuan, and that of Tianjin meijiemu is 210 million to 280 million yuan.

Meiji's reply to Shenzhen Stock Exchange's concern letter
In this regard, Shenzhen Stock Exchange asked Meiji to add relevant information such as the specific basis for the company not to make provision for goodwill impairment of the above assets in the first half of 2020.
The company’s reply pointed out that although affected by the epidemic, as of the disclosure date of the 2020 semi annual report, the turnover of most stores of Meiji has returned to about 90% of the normal operation of all stores in 2019, and 20 new stores have been opened in the same period.
The company believes that the recovery of sales volume and the number of new stores in the first half of 2020 reflect the better development of Tianjin MjM. At the same time, the company believes that Tianjin MjM still has a high growth expectation. Therefore, the company did not make provision for impairment of goodwill formed by the acquisition of Tianjin meijiemu.
On the other hand, the company employs Beijing zhongtonghua Assets Appraisal Co., Ltd. to evaluate the relevant assets of Tianjin meijiemu as of June 30, 2020. The appraisal result of the company’s goodwill asset group is 3.14 billion yuan, and the book value is 3.036 billion yuan. After the appraisal by the asset appraisal institution, there is no goodwill impairment.
For Beijing Kaide, the announcement points out that it is mainly engaged in SAT, act, SSAT and TOEFL Training business. Its customers are mainly students preparing to study abroad, and its destination country is mainly the United States. From July 2020 to the disclosure date of the semi annual report, the number of new cases in the United States showed a downward trend. Therefore, the company believes that Beijing Kaide is still expected to achieve high performance in the third quarter. Therefore, in the first half of 2020, the company did not make provision for goodwill impairment of Beijing Kaide.
By the end of 2020, there will be import and aggregation epidemic in many places. The company expects that the operation of Tianjin meijiemu will be uncertain in the medium and short term, and there will be signs of impairment. From the fourth quarter of 2020, due to the increasingly severe overseas epidemic situation, the company judged that the goodwill formed by the acquisition of Beijing Kaide appeared signs of impairment due to external force majeure.
Therefore, at the end of 2020, Meiji made provision for impairment of goodwill formed by the acquisition of Tianjin meijiemu and Beijing Kaide.

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