Shenda Shares' Credit Risk Violation Warned Of Poor Diversification, Main Business Or Continuous Loss For 4 Years

Shenda (600626. SH), an old listed company, is still fighting to get out of trouble.

In the first three quarters of this year, Shenda's operating revenue reached 8.242 billion yuan, a slight increase over the same period. The net profit attributable to shareholders of the listed company (hereinafter referred to as net profit) was 73 million yuan, turning losses into profits on a year-on-year basis. However, after excluding non recurring gains and losses, it lost 252 million yuan. If the company does not perform well in the fourth quarter, net profit will still be lost.

From 2018 to 2020, Shenda's main business has been in a state of loss. In addition, this year, the company's main business may suffer losses for four consecutive years.

Shenda adheres to industrial diversification, but its profitability is poor.

It is worth mentioning that Shenda shares and its descendants have illegal behaviors in operation. On November 29, the company disclosed that the company was warned by the regulatory authorities because of the illegal letter. Previously, its descendants were punished for environmental problems.

Punishment for violation of equity pledge disclosure

Shenda shares received a warning letter for information disclosure violations.

On the evening of November 29, Shenda shares announced that it had received the warning letter from Shanghai regulatory bureau, and the company was decided by Shanghai regulatory bureau of CSRC to issue warning letter.

According to the warning letter, on April 26, 2018, Shenda investment uklimited, a wholly-owned subsidiary of Shenda shares, signed an equity pledge agreement with effective conditions with Shanghai Branch of Export Import Bank of China, pledging 42% of the equity of auria Solutions Limited (hereinafter referred to as "auria company") to Exim Bank of China Shanghai Branch (hereinafter referred to as Exim Bank of China). As for the pledge of auria's equity, Shenda shares has not been disclosed in the annual report of 2019, the semi annual report of 2020 and the annual report of 2020. This behavior violates the relevant provisions of information disclosure.

For the above equity pledge and information disclosure issues, Shenda shares made an explanation.

Shenda shares disclosed that on September 8, 2017, the company signed a loan contract (PSL specific loan) with the Export Import Bank of China, stipulating that it would provide the company with a PSL specific loan of no more than 1.652 billion yuan, with a loan term of 5 years. The loan was used to purchase part of the transaction price for the acquisition of 70% of auria. On the same day, Shanghai textile Investment Management Co., Ltd. (hereinafter referred to as "Shanghai textile investment", controlled by Orient International (Group) Co., Ltd.) signed a guarantee contract with the Export Import Bank of China to provide joint liability guarantee for the debts under the loan contract signed between the company and the export Import Bank of China. In the same month, the Export Import Bank of China provided the company with 1.241 billion yuan (US $189.84 million) M & A loans to cover part of the transaction price of the above acquisition.

In order to meet the credit enhancement requirements of Exim Bank of China for Shenda shares, Shenda investment uklimited, a wholly-owned subsidiary of Shenda shares, signed an equity pledge agreement with Exim Bank of China with effective conditions upon deliberation and approval of the board of directors on April 26, 2018, pledging 42% of the equity of auria company held by it to Exim Bank of China for M & a loan guarantee.

Shenda said that the company has disclosed the above equity pledge in the semi annual report of 2018, the annual report of 2018, the semi annual report of 2019 and the semi annual report of 2021, but due to the staff transfer and omission of relevant posts, the company omitted to disclose the above information in the 2019 Annual Report, 2020 semi annual report and 2020 annual report. As of the announcement date, Shenda shares has returned all the above-mentioned M & A loans, totaling 1.241 billion yuan. Among them, the company will repay the principal of RMB 700 million in 2018, RMB 159.4 million in 2019, RMB 200 million in 2020, RMB 150 million in March this year, and RMB 316 million in September, respectively. The relevant process of revoking the equity pledge is still in process.

As for the above disclosure of equity pledge, market participants said that the information disclosure of Shenda shares is intermittent, which may mislead investors into thinking that they are frequently pledging and releasing the pledge, and then have a deviation in the judgment of the company.

In addition to the above letter envelope violations, Shenda's descendants also had violations and were punished.

In February 2019, Shenda announced that its holding subsidiary, Shanghai Shenda Kebao new materials Co., Ltd., was fined 350000 yuan by the Urban Management Bureau of Pudong New Area of Shanghai for over discharge of air pollutants. In December last year, Shanghai shenyangteng automobile textile interior decoration Co., Ltd., an indirect holding subsidiary of Shenda Co., Ltd., also received administrative punishment for environmental violations.

Turn losses by disposing assets frequently

The poor profitability of its main business is also the focus of Shenda shares.

Shenda Co., Ltd. is an old listed company, which landed in Shanghai Stock Exchange on January 7, 1993. Up to now, the company mainly focuses on import and export trade, R & D and manufacturing of industrial textiles. Its main business includes automobile interior decoration and acoustic components, new textile materials and import and export trade.

Taking the first half of this year as an example, the company's auto interior business income was 3.646 billion yuan, new material business income was 74 million yuan, and import and export trade business income was 1.747 billion yuan, accounting for 66.68%, 1.35% and 31.94% of the company's business income respectively.

According to the semi annual report, in the first half of the year, domestic and foreign enterprises related to the company's automobile interior decoration business were affected to varying degrees by chip shortage, raw material prices, labor costs and other factors, with a total loss of 106 million yuan, of which auria company, the core subsidiary previously acquired, had a total loss of 164 million yuan. Textile new materials business also suffered losses due to insufficient orders and high sea freight during the recovery period. In terms of import and export trade, the development of Shenda's import and export trade business has been restricted in recent years due to macroeconomic and trade fluctuations. The company is actively planning business integration and transformation.

Judging from this year's business performance, Shenda shares has great business pressure. In the first three quarters, the company realized operating revenue of 8.242 billion yuan, a year-on-year increase of 4.93%, net profit of 73 million yuan, a year-on-year increase of 161.40%, net profit after deducting non recurring profit and loss (hereinafter referred to as deduction of non net profit) - 252 million yuan, an increase of 24.30% compared with - 202 million yuan in the same period of last year.

In the first three quarters, the net profit was positive, mainly due to the company's disposal of 100% equity of Shanghai No.2 printing and dyeing factory Co., Ltd., and obtained investment income of 404 million yuan. Judging from the single quarter data of deducting non net profit, the company's loss is expanding quarter by quarter. If there is no significant reversal in the fourth quarter, the loss of main business in the whole year may be unavoidable.

Not only this year, since 2018, Shenda's main business continued to lose money.

According to the data, from 2018 to 2020, the company's operating revenue was 16.331 billion yuan, 14.697 billion yuan and 10.824 billion yuan respectively, with a year-on-year change of 46.78%, - 10.01%, - 26.35%. The corresponding net profit was 125 million yuan, 66 million yuan and - 809 million yuan, with a year-on-year decrease of 35.25%, 47.56% and 1331.76% respectively. The net profit after deduction was - 19 million yuan, - 412 million yuan and - 858 million yuan, respectively, with a year-on-year decrease of 122.95%, 2071.45% and 108.07%, and the loss continued to expand.

In order to turn a loss, Shenda shares frequently dispose of assets. From 2018 to 2020, the company's investment income is 314 million yuan, 817 million yuan and 374 million yuan respectively. The investment income mainly comes from the disposal of assets and the long-term equity investment income accounted by the equity method. Among them, the investment income formed by asset disposal is 109 million yuan, 688 million yuan and 277 million yuan respectively.

It can be seen that, including the first three quarters of this year, Shenda shares has been disposing of assets for four consecutive years, and realized the loss recovery by relying on the investment income formed from the disposal of assets. However, it is difficult to cover up the embarrassing situation that the company's main business continues to lose money.

Analysts say that at present, Shenda's industrial diversification is a failure. The company tries to suppress risks with the help of diversification. In fact, the company's main business is not very prominent and its competitiveness is not strong, leading to the company's operation in a dilemma.