Guangzhou Langqi “black hole”: self exposed bad debts of 4.5 billion yuan

Recently, Guangzhou Langqi (002523. SZ) released the third quarter financial report, previously announced 572 million yuan of inventory bad debt is just the tip of the iceberg, after the company’s self-examination, the inventory involved in the actual accounting discrepancy not only includes Ruili warehouse and Huifeng warehouse previously disclosed, but also added 2 warehouses in Guangdong and Sichuan provinces, the number of involved warehouses increased to 6, and the amount of inventory inconsistent with the actual account increased to 8 6.7 billion yuan. Guangzhou Langqi announced that there were several cases of “radish seal”, and the third-party warehousing company was “contracted, but the goods were not put into storage”. It is worth noting that in the data disclosed by Guangzhou Langqi, there is a risk of large amount of bad debts when the accounts receivable are overdue. As of September 30, 2020, the book balance of accounts receivable of the company’s trade business is 3.066 billion yuan, and the overdue amount is 2.635 billion yuan. < / P > < p > after the incident, relevant personnel of Guangzhou Langqi have been investigated by the police. On November 4, Fu Yongguo, the former chairman of the board, was suspected of serious violations of discipline and law, and is currently under disciplinary review and supervision. Before that, Huang Jianbin, the former chief financial officer, had been taken away by the public security organs for investigation. All this was made public by Guangzhou Langqi after the board of directors was changed. < / P > < p > “Guangzhou Langqi revealed that the financial black holes occurred after the change of leadership. In other words, these financial black holes may have existed for a long time.” Xiangsong capital executive director Shen Meng said. < p > < p > Guangzhou Langqi released its first financial report after the “inventory is missing” event. In the financial report of the third quarter of 2020, Guangzhou Langqi disclosed that the amount of inventory inconsistent with the actual situation increased to 867 million yuan, and the amount of bad debts increased by 52%. In addition, two warehouses were added in Guangdong and Sichuan, and the number of warehouses involved increased to 6. < / P > < p > in terms of the volume of Guangzhou Langqi, the bad debt of RMB 867 million seems to be able to bear, but in fact, the bad debt risk of Guangzhou Langqi is far more than that. In the third quarter report, Guangzhou Langqi disclosed for the first time that of the 3.066 billion yuan of accounts receivable, 2.635 billion yuan is overdue, which means that there is a risk of bad debts of 2.635 billion yuan. < p > < p > previously, Guangzhou Langqi pointed out that the external business environment had changed due to the Xinguan epidemic. The company’s sales collection decreased, and the difficulty in collecting accounts receivable increased. The amount of accounts receivable was 3.6 billion yuan. But in fact, as early as before the epidemic, the accounts receivable of Langqi in Guangzhou had been high, and there was no sharp increase in accounts receivable due to the epidemic. < / P > < p > after reading the financial reports of Guangzhou Langqi in recent years, the reporter found that its accounts receivable have been maintained at more than 3 billion yuan. In 2019, the accounts receivable was 3.4 billion yuan, and the disclosed bad debts of accounts receivable were only 5.1 million yuan. There was no warning and indication that accounts receivable accounting for more than 40% of the total assets had a large amount of bad debt risk. However, in the third quarter report of 2020, Guangzhou Langqi suddenly disclosed that there was a bad debt risk of 2.635 billion yuan of long-term accounts receivable of 3 billion yuan. < / P > < p > in addition, according to Guangzhou Langqi, as of September 30, 2020, the book balance of prepayment for trade business of the company was 1.642 billion yuan, and the amount with an aging of more than 90 days was 961 million yuan, which also had the risk of bad debts. Similar to accounts receivable, the prepayment of Guangzhou Langqi in recent years has been maintained at about 900 million yuan, and there is no risk warning. In the latest third quarter financial data, its prepayment increased to 1.828 billion yuan, up 89.51% year-on-year. < / P > < p > based on the above inventory of 867 million yuan, overdue amount of 2.635 billion yuan in accounts receivable and 961 million yuan of prepayment aged over 90 days, Guangzhou Langqi disclosed that it had bad debts, totaling about 4.5 billion yuan. Combing the recent events of Guangzhou Langqi, compared with other enterprises exposed by the third party, its problems from inventory bad debts to receivables are self exposed and reported to the public relations organs. < / P > < p > it is worth noting that all these things happened after the change of Langqi’s board of directors. On July 30, with the change of the board of directors, Chen Jianbin resigned from the post of director and vice chairman, and Zhong Lianjun took over the post; Wang Zhigang, the former Secretary of the company, no longer held the post due to personal reasons, and Tan Xiaopeng, the former head of Securities Department of Guangzhou light industry group, took over the post; in addition, the former strategy committee and sole director Huang Qiang, the former convener of the audit committee and Wang Lijuan, the independent supervisor, also retired Liao Jianshi and others. On the same day, Guangzhou Audit Bureau set up the office of audit Commissioner for municipal enterprises in Guangzhou light industry group, the parent company of Guangzhou Langqi. According to Tianyan data, the parent company of Guangzhou Langqi is Guangzhou light industry group, and the actual controller is the state owned assets supervision and Administration Commission of Guangzhou Municipal People’s government. By the end of June 2020, Guangzhou light industry group held 31.04% shares in Guangzhou Langqi, which was the largest shareholder. < / P > < p > after the completion of the board of directors, the event of “no inventory” occurred subsequently, and RMB 2.6 billion of the receivables of RMB 3 billion was also classified as having bad debt risk. In Shen Meng’s opinion, all this is not accidental: “the conversion of receivables to expected bad debts is only accounting treatment for the problems left over in the past, and there will be changes in the book, but it will not affect the actual cash flow. Therefore, this operation is more a one-time disposal of historical burdens. As local state-owned enterprises, especially on the basis of the reform of state-owned enterprises, it is likely to give a new start to retaining these burdens The leadership of Ren brings risks, so it should be dealt with first after taking over. ” < / P > < p > “in fact, the new team quickly exposed many problems of the enterprise. In fact, it was equivalent to” mine clearance “for itself, cutting off the historical burden. It also showed that these problems may have existed for a long time, and they were not forced to expose themselves until the change of leadership.” Shen Meng said. On the evening of November 4, the supervision commission of Guangzhou Municipal Commission for Discipline Inspection announced that Fu Yongguo, deputy general manager of Guangzhou Light Industry and Trade Group Co., Ltd. and former chairman of Guangzhou Langqi, was suspected of serious violations of discipline and law, and was currently under disciplinary review and supervision and investigation. < / P > < p > at the same time, the impact of the incident is expanding. Due to the shortage of funds, some debts of Guangzhou Langqi are overdue. As of November 3, 28 bank accounts of Guangzhou Langqi have been frozen, involving a total of 80 million yuan. At present, the related trade business of Guangzhou Langqi has been suspended, and the net cash flow generated from its operating activities is -1.309 billion yuan. Wu Lijun, a lawyer from Shanghai Oriental Cambridge law firm, pointed out that Guangzhou Langqi may be suspected of false inventory, false trade, illegal guarantee, false credit, etc., which does not exclude the possibility that the CSRC will file a case against Guangzhou Langqi. < / P > < p > in December 2019, Guangzhou Langqi, as a “relocated household” of a shares, received land compensation of up to 2.6 billion yuan, but it did not become a stimulant for the development of enterprises. Since the “radish chapter” incident was exposed, the stock price of Langqi in Guangzhou has been falling all the way to 40% of that before the event. < / P > < p > at the same time, the performance of Guangzhou Langqi in the third quarter also reversed, expanding from the previously estimated loss of 600 million to 800 million yuan to 1 billion yuan, even though Guangzhou Langqi has obtained a huge amount of land compensation in the first three quarters. According to the semi annual report in 2020, Guangzhou Langqi has received land compensation of 863 million yuan paid by Guangzhou land development center. It received 430 million yuan in the third quarter. It is worth noting that before the official release of the performance, it did not issue an early warning announcement on the huge loss of performance, nor did it explain the reasons for the huge loss in the third quarter report. < / P > < p > in the first quarter of 2002, some investors asked on the investor exchange platform of Langqi why the company’s R & D costs remained high? Why has it not turned into a growth driven one? Guangzhou Langqi replied that its R & D share of revenue was similar to that of Shanghai Jiahua and other enterprises, which was not unreasonable. < p > < p > according to the financial report of Guangzhou Langqi, its R & D projects once reached 45. It is not difficult to find out from the financial report that since 2018, the R & D expenses of Guangzhou Langqi have been increasing rapidly, from 150 million yuan in 2017 to 390 million yuan in 2019. Meanwhile, since 2017, its R & D investment has been maintained at more than 300 million yuan. Based on the above figures, Guangzhou Langqi’s R & D expenditure in recent years has remained above 500 million yuan. < p > < p > data shows that the cumulative net profit of Guangzhou Langqi is 530 million yuan from 1993 to 2019. From the amount of loss, the company’s loss in advance in the first three quarters of this year has exceeded the total net profit of its listing for 28 years. From 2011 to 2019, the operating revenue of Guangzhou Langqi has increased by 6 times, from 2 046 billion yuan to 12.398 billion yuan. However, the net profit increased by less than three times, from 22.71 million yuan to 61.35 million yuan. Among them, 32 million yuan is the demolition compensation income in the 2019 fiscal year. To sum up, Guangzhou Langqi has actually been in a state of increasing income but not increasing profits for a long time. In this regard, investors have questioned the director of Guangzhou Langqi, but he did not give a positive reply. < / P > < p > “the growth of R & D expenses far exceeds the growth of net profit, indicating that the rate of return on R & D expenses is very low.” “On the other hand, if the net profit growth fails to catch up with the income growth, it means that the product profit rate is getting lower and lower, and the market competitiveness is poor, so we can only rely on price war, and the growth of the company is limited to paper.” < / P > < p > according to the financial report data over the years, the net cash flow generated by Guangzhou Langqi’s operating activities in 2019 is – 557 million yuan, which has been negative for three consecutive years since 2017. In this regard, Guangzhou Langqi explained that it was mainly caused by the increase of operating receivables and the decrease of operating accounts payable. However, with the large amount of bad debts of receivables and prepayments, it means that Guangzhou Langqi’s business situation is likely to further deteriorate due to the inability to return cash. < / P > < p > “in fact, compared with Shanghai Jiahua and other enterprises, Guangzhou Langqi has lagged far behind in the distribution of daily chemical products, with a few product categories. In recent years, it has also acquired enterprises such as Huatang food, which is equivalent to cross-border operation of other categories. At present, its business scope is limited to the hypermarket channels in several southern regions.” Yu Fei, a daily chemical expert, said: “as a cleaning type of daily chemical products, the characteristics of high shelf charges and low profits in the hypermarkets are very obvious. They are typical walking volume commodities. Comprehensive daily chemical enterprises seldom take this as a profit point, but Guangzhou Langqi is mainly based on this, and it is difficult to improve its own profits.” < / P > < p > Disclaimer: the purpose of this article reprinted by china.com finance and economics is to convey more information and does not represent the views and positions of the website. The content of this paper is for reference only and does not constitute investment advice. Investors operate accordingly and bear their own risks. < p > < p > Chinanet is a national key news website under the leadership of the Information Office of the State Council and managed by China foreign language publishing and Distribution Bureau. Through 11 versions in 10 languages, the website releases information 24 hours a day, which is an important window for China to carry out international communication and information exchange.