Laopu gold is not old

Recently, laopu gold Co., Ltd. (hereinafter referred to as “laopu gold”) updated its prospectus. Although laopu gold has the word “old” in its name, the company was actually established in December 2016, and its production was realized through outsourcing in 2018 and before. With the word “old shop” in the name of the company and the “ancient method” technology mentioned many times, it is easy for investors to mistake the company for an old shop. < / P > < p > What’s more surprising is that under the background of industry depression and even a number of A-share listed companies’ operating difficulties and on the verge of delisting, the “young” company’s revenue and profit have increased rapidly in the past two years. But behind the rapid growth, the inventory of laopu gold increased rapidly, and the amount of inventory and production and sales, inventory and other data are difficult to check. In addition, the company’s net cash flow from operating activities deviates seriously from net profit for a long time, and the company’s performance gold content needs to be improved. < p > < p > according to the prospectus, laopu gold’s main business is the R & D, design, production, processing and sales of Handmade Gold wares in ancient China, which is the same or similar business model as that of A-share gold and jewelry companies. However, it is worth mentioning that the performance of laopu gold is quite different from that of its peers. < / P > < p > among the 11 A-share gold and jewelry companies (excluding St Gangtai and St Jintai, the same below), the profit growth of laopu gold in 2018 and 2019 was the highest, and the 157% profit growth in 2019 was the highest (Note: Jinyi culture turned losses in 2019, so the profit growth exceeded 100%). < / P > < p > and the performance of A-share Jewelry Companies in the same industry is relatively poor. In 2018, there were 5 companies with negative growth in revenue, 7 companies with negative growth in net profit and 3 companies with loss; in 2019, there were 6 companies with negative growth in revenue, 5 companies with negative growth in net profit, 3 companies with loss, and 2 companies with ST loss, namely Dongfang Jinyu and Jinzhou Cihang. < p > < p > under the background of more and more companies with low overall performance and business failure in the same industry, the performance of laopu gold is better than that of its peers (it may be the reason why the company has just been established and the base is small). However, the cash flow of laopu gold is not optimistic. < / P > < p > from 2017 to 2019, the net cash flow generated by the company’s operating activities was – 62 million yuan, – 61 million yuan and – 43 million yuan respectively, which was negative for three consecutive years, seriously deviated from the net profit of the same period. In the first three quarters of 2020, although the company’s net cash flow from operating activities turned positive, it was still less than the net profit of the same period. Laopu gold said that the above differences were mainly due to the rapid expansion of the company during the reporting period, the increased demand for distribution volume and the large amount of working capital occupied by inventory. < / P > < p > the China Institute of Certified Public Accountants has issued “audit technical tips No.1 – financial fraud risks”, which indicates 54 kinds of financial fraud risks. “Compared with other companies in the same industry, the profitability is too high or the growth rate is too fast”, “the net cash flow generated by operating activities is negative year after year, or although the book profit and profits continue to grow, but the operating activities do not bring positive net cash flow”, all of these may exist the risk of financial fraud. Laopu gold has the above risks. < / P > < p > the inventory status of laopu gold is also worthy of attention. In the first three quarters of 2017-2019 and 2020, the book value of laopu’s gold inventory was RMB 335 million, RMB 456 million, RMB 606 million and RMB 584 million respectively, accounting for 82.38%, 71.99%, 75.73% and 72.85% of the total assets at the end of each period. < / P > < p > according to the company, the large inventory scale is mainly determined by the industry characteristics and business model of the company. As a matter of fact, only Dongfang Jinyu, a real financial counterfeiter, has the same ratio of inventory to total assets as laopu gold, which is more than 70%. < / P > < p > in the inventory details of laopu gold, the proportion of inventory goods is the highest. In the first three quarters of 2017-2019 and 2020, the amount of laopu gold inventory was 226 million yuan, 319 million yuan, 507 million yuan and 413 million yuan, respectively, accounting for 67.39%, 69.99%, 83.60% and 70.73% of the original value of current inventory. < / P > < p > according to the prospectus, the unit production costs of laopu gold’s outsourcing products in 2017-2019 are 246.13 yuan / g, 260.42 yuan / g and 294.56 yuan / g respectively, and the unit production costs of self production in 2018 and 2019 are 254.71 yuan / g and 292.27 yuan / g respectively. Generally speaking, there is not much difference between the unit cost of outsourcing and self production. The following calculation is based on the unit cost of outsourcing. < / P > < p > in 2019, the amount of laopu gold’s inventory increased by 188 million yuan, divided by 294.56 yuan / g of unit production cost in that year, theoretically, the amount of inventory in that year increased by 638kg, which is quite different from 813kg actually increased in that year. Even if the new stock of laopu gold in 2019 is the carved gold ware with the lowest unit cost (268.22 yuan / g), the maximum new stock of that year is about 700kg, which is still more than 100kg different from 813kg. < / P > < p > in addition, the company’s unit material (gold) cost is rising steadily in 2019, and the unit labor and manufacturing costs are also growing. According to the unit price of carved gold ware (251.94 yuan / g), which has the lowest unit cost at the end of 2018, the maximum additional inventory goods in 2019 is 746kg, which is still far from 813kg. < / P > < p > according to the prospectus, laopu gold only accrued RMB 640700 of inventory depreciation loss in 2019, which can be ignored. So, what are the reasons for the difficulty in matching the quantity and amount of goods in stock? A reasonable explanation is that the inventory with higher unit cost is digested quickly, while the inventory with lower unit cost increases more. However, this is subject to the further disclosure of more detailed data of laopu gold. In addition, the inventory amount of laopu gold in 2017 is also worth considering. In 2017, the company’s newly increased inventory of 324.52kg multiplied by the unit cost of 246.13 yuan / G can get the newly increased inventory amount of about 79 million yuan that year. In other words, the company’s inventory amount at the end of 2016 was about 146 million yuan. But it’s incredible that the company was established in December 2016, with a total amount of 146 million yuan of goods in stock in less than a month. < / P > < p > according to the prospectus, Beijing Gongmei Group Co., Ltd. (hereinafter referred to as “Gongmei group”) is the largest supplier of laopu gold. In 2017, 2018, 2019 and the first three quarters of 2020, the purchase amount of laopu gold from Gongmei group was 394 million yuan, 549 million yuan, 728 million yuan and 312 million yuan respectively, accounting for 81.67%, 86.61%, 89.16% and 87.34% of the total purchase amount of the current period %。 The main commodity purchased is gold. < / P > < p > it is worth noting that A-share gold and jewelry companies basically purchase gold raw materials from Shanghai gold exchange, while laopu gold has to “make a detour” through Gongmei group. According to the prospectus, Gongmei group’s gold is basically from the Shanghai gold exchange. Moreover, the price of laopu gold purchased from Gongmei group is slightly higher than that of Shanghai gold exchange. < / P > < p > What’s more interesting is that Wangfujing Gongmei building, a big customer of laopu gold, is also a member of Gongmei group. On July 2, sina finance’s report “laopu gold IPO: business model changes, the largest supplier and customer are close” questioned whether the transaction between laopu gold and Gongmei group is commercially reasonable and in line with industry practice. < p > < p > in its updated prospectus, laopu gold said that the company and Gongmei group carried out business cooperation based on normal business cooperation relationship, and there was no interest transmission. However, laopu gold still did not explain why it did not purchase gold directly from Shanghai Gold Exchange and why it sold gold to Wangfujing Gongmei building. < p > < p > according to the audit technical tips No.1 – financial fraud risk issued by China Association for injection and marketing, major transactions that do not conform to normal business operation procedures are financial fraud risk signals. Does 80% of the purchase amount of nalaopu gold come from Gongmei group, and the transaction that does not directly purchase from Shanghai Gold Exchange also belong to “major transaction that does not conform to normal commercial operation procedures”? < / P > < p > it should be noted that the financial fraud risk signals mentioned in this paper only represent the possibility of financial fraud, rather than the possibility of financial fraud. Investors should carefully screen in combination with the public information of various channels. < / P > < p > Disclaimer: the purpose of this article reprinted by CNFC is to convey more information, and it does not represent the opinions and positions of CNFC. The content of this article is for reference only, and does not constitute an investment proposal. Investors operate on this basis at their own risk. < p > < p > Chinanet is a state key news website under the leadership of the Information Office of the State Council and the management of China foreign language publishing and Distribution Bureau. Through 11 versions in 10 languages, the website publishes information 24 hours a day. It is an important window for China to carry out international communication and information exchange.